OSBA, business and government groups seek information to guide PERS reforms
Friday, August 10, 2018
OSBA has joined business and government employer groups in asking the Public Employees Retirement System to analyze various reform proposals designed to lower costs.
Strong asset returns in 2017 lowered PERS’ unfunded actuarial liability to $22.3 billion but school districts’ PERS payments are still expected to increase $375 million for 2019-21, according to the latest report by Milliman Inc., the board’s actuary. School districts would send $1.3 billion to PERS, more than double the amount in 2015-17.
In a July letter to the PERS board, OSBA, the Oregon Business Council, the Association of Oregon Counties and the League of Oregon Cities asked the board to look at the causes of the system’s unfunded actuarial liability and to examine the factors driving up costs. The letter also asked for analysis of the effect of five proposals on employer rates and the unfunded liability.
PERS will look at the analysis’s cost and meet with the requestors to determine how to move forward, according to a memo submitted at the Aug. 3 board meeting by PERS Director Kevin Olineck.
“We will take time to evaluate how we can responsibly analyze proposals before the 2019 legislative session,” said Marjorie Taylor, PERS senior policy director. “We need to solicit other ideas from other stakeholders, such as legislators.”
OSBA Executive Director Jim Green, one of the letter’s signees, said the group wants to gather information before the session to weigh PERS cost-control options.
“We need to reform the system because it’s eating up our budgets for educating kids in Oregon,” Green said.
Soaring contribution rates affect the ability of schools and government agencies to maintain staffing and services, the letter states.
The latest report to the PERS board estimates average school district payroll rates for 2019-21 will be 28.93 percent, excluding side-account offsets. The official employer-contribution rates for 2019-21 are scheduled to be adopted at the Oct. 5 meeting.
Because of the 20-year amortization of the debt, a child born today will be affected by PERS decisions until well after high school, said Scott Winkels, League of Oregon Cities intergovernmental relations associate and one of the letter’s signees.
“This is about protecting services to the public,” he said.
The letter states a concern not only for the system’s impact on public budgets and taxpayers’ wallets but also for the inequity among public workers’ retirement benefits.
Tim Nesbitt, an Oregon Business Council consultant and a former president of the Oregon AFL-CIO, said the issue of benefit equalization has become more compelling as today’s workers help foot the bills for the previous generation’s retirement benefits.
“The system overshot and produced excessive returns, and we have to deal with that,” he said.
Oregon has three classes of public employee retirement benefits.
Tier 1 covers members hired before Jan. 1, 1996, and offers the highest level of benefits. Tier 2 covers employees hired between Jan. 1, 1996, and Aug. 28, 2003. Tier 2 raised the retirement age and removed the guaranteed rate of return on regular accounts.
The Oregon Public Service Retirement Plan was created for employees hired after Aug. 28, 2003. It raised the retirement age to 65, removed the regular accounts, and dropped other benefits such as including lump-sum vacation payouts in covered salary.
According to the latest Milliman report, the base PERS rate paid by employers for OPSRP members is about 5.4 percentage points lower than the rate for Tier 1 and 2.
In 2015, the Moro v. Oregon decision struck down PERS reform legislation. The Oregon Supreme Court ruled that the Legislature could not change benefits already earned but could adjust benefits going forward.
“We have much more clarity from the court from the Moro decision about prospective decisions,” Nesbitt said.
Changes to the accrual of benefits and cost sharing for active members are permissible, according to the letter. The employer groups want the board to analyze the effect on rates and the fund’s liability if specific changes are made:
Capping the salary for benefit calculations for Tier 1 active members.
Establishing an employee contribution of 6 percent for Tier 1 and 2, and 3 percent for OPSRP members.
Transitioning Tier 1 and 2 active members to OPSRP.
Adjusting the cost-of-living increases for Tier 1 and 2 who retire under the Money Match formula.
Starting an early retirement program for Tier 1 and 2 members.
Lawyers vetted the options under the parameters of the Moro decision, group members said.
The group is also seeking information about long-term effects on the unfunded liability related to higher-than-predicted salary inflation and the possibility of a rush of early retirements.
“We need to see some rate relief,” Winkels said. “We need to know going into session if this is going to save us money.”