A quick overview of the problem, how we got here and what happens if nothing changes.
What is the problem?
The PERS fund lost nearly half its value in 2008. Employer contributions are currently the only way to make up for market losses. As a result, in July 2013 school district contributions will rise from about 19% of payroll to about 27% of payroll.
How did we get here?
Market Losses - The 2008 economic recession caused the PERS fund to lose nearly half its value. Earnings on the PERS fund since 2008 have not been high enough to meet the PERS fund obligations.
Smaller staffs - Layoffs and retirements have reduced the dollars from contributions.
What are the obstacles to change? (how do we solve the problem)
Contract Law - Generally, the PERS benefit is part of the school district's contract with its employees. Therefore, contract law severely limits the changes that can be made to those benefits without the consent of the employees.
Current retiree benefits - PERS members who have already retired make up 66% of the PERS fund obligations. Benefit amounts for these members cannot be significantly changed.
What happens if we do nothing?
Employer contribution rates will continue to rise. In order to balance their budgets, districts will need to cut programs and staff. The reduction in staff reduces the actual dollars contributed to PERS which increases the need to rates even further.
Top 6 things everyone should know
66% of the current PERS obligation is for payment to already retired PERS Employees.
Employee contribution rates are set at 6% in statute and don’t change, leaving investment returns and employer rates to fund the PERS system.
Employer rates change every two years.
Reforms of 2003 have helped stabilize the increase(s) in the PERS rates.
Tier one has a guaranteed 8% return on their accounts.
All other PERS accounts are credited with the return the fund makes. (no guarantees)