PERS Deal Blends Elements of 401(k), Standard Pension
SALEM Summary: State lawmakers compromise on a plan for new hires that would be the last part of an overhaul of the public retirement system.
After months of touchy negotiations, lawmakers announced a compromise Thursday that would create a less expensive public employee pension plan for new hires.
It’s considered one of the most critical elements to reforming Oregon’s Public Employees Retirement System, which had been roughly $17 billion short of meeting its financial commitments for the next 25 years.
The plan — which combines features of a 401(k)-style investment account and a traditional pension based on years of service and final salary — has the support of employers, most public employee unions and Gov. Ted Kulongoski.
Lawmakers adopted changes earlier this session to reduce benefits for current employees. HB2020 is the final piece of the puzzle.
“It is the last element on PERS reform. And it is critical to the political and financial viability of the system,” said Margaret Hallock, Kulongoski’s policy adviser.
The compromise was presented by Sen. Tony Corcoran, D-Cottage Grove, chairman of the General Government Committee. His plan would replace a bill adopted by the House in May. House Bill 2020 featured a 401(k)-style pension only, an approach Kulongoski said was unacceptable.
House Majority Leader Tim Knopp, R-Bend, leader of the pension reform effort in the House, had not seen the Senate plan and wasn’t ready to comment on it, a spokeswoman said Thursday afternoon.
Corcoran said he hoped to sell his plan to House members in the next two days. He said he expects his committee to approve the bill Monday and move it on for a full Senate vote.
“This is our opportunity to get it right,” said Rep. Greg Macpherson, D-Lake Oswego, a pension attorney who played a key role in crafting the deal.
If approved, the plan would resolve one of the stickier political problems facing the Legislature.
In the wake of a tumbling stock market, the public pension system developed a huge shortfall in its ability to meet long-term retirement obligations. Meanwhile, some employees began retiring with incomes higher than their working salaries, and costs to taxpayers climbed rapidly.
Under the plan, retirees would receive a pension benefit aimed at 45 percent of their working salary. In addition, employees would be required to contribute 6 percent of their salary to a 401(k)-type investment account. Employers could agree to make this contribution for their workers, as most do now.
The plan is estimated to cost employers about 8.6 percent of payroll, compared with 12.47 percent under the current system.
Corcoran said the plan accomplishes two goals: It lowers the cost of the system and requires employees to share more of the risk.
BethAnne Darby, a lobbyist with the Oregon Education Association, said public employee unions have realized that workers must share some of the risk and costs. She said the Oregon State Employees Association, which represents the nonteacher school work force, continued to call for plan that did not include the investment option.
Jim Green, a lobbyist for the Oregon School Boards Association, said employers think the compromise represents an “adequate replacement plan.”
Green said a key to the compromise was language dealing with overtime. Unions wanted overtime to be counted in the calculation of final average salary, particularly for police officers and firefighters, while employers balked. The bill now says overtime will count, but not more than the average amount for the employee’s job classification.
Green said another important issue was “benefit creep,” the gradual increase in benefits that can pile up over time. The bill provides for the creation of an advisory committee to analyze any proposed benefit changes.
Kulongoski, a Democrat who has made pension reform a big part of his legislative agenda, is pleased with the package, Hallock said.
“It is a solid, sustainable and reasonable pension system,” she said.
Although Corcoran tried to limit the testimony to invited guests, all supporters of the compromise, he did allow Russ Walker of the Citizens for a Sound Economy to express his opposition to the cost of the plan.
“We think you have once again violated the trust that taxpayers place in you as legislators,” Walker said.
But Mike Salsgiver with the Portland Business Alliance, a group that has been critical of PERS, said his group supported the plan as a politically workable improvement.
“We don’t have to sacrifice the achievable on the altar of the perfect,” Salsgiver said