Questions and, more importantly, answers about PERS reform
Senate Bill 1049 made far-reaching changes to the Public Employees Retirement System, and we have answers to some of your most pressing questions.
What is SB 1049, what does it do, and why does it matter to me and my school district?
SB 1049 changes the way PERS benefits accrue. The bill aims to reduce the payroll costs for public employers, including school districts. Payroll costs have skyrocketed in recent years because of the soaring unfunded actuarial liability, or UAL.
What is the UAL?
The UAL is a calculation that is generated after the end of every calendar year. The most current fund assessment is from Dec. 31, 2017. As of that time, PERS was 73% funded, not including side accounts. The remaining 27% represents the UAL, which at the time was $22.3 billion. More current estimates put it around $27 billion.
That seems like a lot of money. Is it a lot of money?
In technical terms, yes. It is why public employers have had to pay more into the system and the state has struggled to make a dent in the debt. The recession 10 years ago dropped the PERS Fund’s value dramatically, and fully funding PERS has been a challenge since.
What are the highlights of SB 1049’s provisions to contain public employer costs?
- Re-amortization: The bill changes the amount of time over which some of the UAL is calculated, from the current 20-year valuation to a 22-year valuation. This raises the debt totals but lowers school district payments, which are expressed as a percentage of payroll, by spreading them over a longer period.
- IAP redirect: The bill redirects a portion of future Individual Account Program payments to a new fund, the Employee Pension Stability Account, which will pay down the UAL. The IAP is 6% of an employee’s salary. PERS Tier 1 and 2 employees will have 2.5% of the total 6% redirected; Oregon Public Service Retirement Plan employees will have 0.75% redirected. Employees who make less than $2,500/month are exempt from these redirects.
- Salary cap: The bill places a $195,000 maximum amount, or “cap,” on an employee’s final average salary calculation, adjusted for inflation.
- Work back/1039 hours removal: The bill eliminates the existing cap on hours that a PERS retiree can work. This applies only to calendar years 2020-24.
Altogether, these changes should reduce costs to school districts by more than 5 percentage points for 2021-23.
Wait, that sounds like the total UAL amount will go up, not down?
The extension of the amortization period from 20 to 22 years probably means that the total amount of the UAL will go up. OSBA did not testify in support of this portion of the bill, but this is the trade-off to keep current costs down.
What does “probably” mean in terms of the total UAL balance?
We have to say that the UAL will “probably” go up because these are all projections, and some of the projections go out decades. Nobody knows how well the PERS Fund, specifically the markets where the fund has been invested, will perform. The PERS experts’ models contain hundreds of possible outcomes.
Generally, this is true. Although there may be some outliers, unions and other pro-labor organizations have said the bill goes too far against the benefits and rights of employees. Pro-business groups have said the bill is a half measure that does not do enough to control costs or address the UAL.
Please note: OSBA has issued guidance regarding union demands to bargain over SB 1049.
What does this mean for the bill’s future?
A lawsuit to challenge the bill seems likely. SB 1049 contains language that requires any court challenge to go directly to the Oregon Supreme Court. A challenge must be filed no later than Aug. 12.
Also, there are two ballot initiatives filed with the secretary of state by the high-profile PERS Solutions for Public Services group. Chief petitioners are former Gov. Ted Kulongoski and former Rep. Chris Telfer.
- IP 22 would, among other things, create an optional 401(k)-style retirement program for new public employees.
- IP 23 would, among other things, require the Legislature to study a required 401(k) for all new public employees.
Proponents of the petitions are in the process of submitting and verifying signatures, as required by the ballot referral process.
I want to know more about PERS. Where should I go?
Please contact your OSBA legislative staff! We have experience with PERS and may be able to answer questions quickly. Also, Oregon PERS is a public agency. Abundant information is available on the agency website.
- Richard Donovan
Legislative Services specialist