PERS bills rear their heads
A weird (have I said that before?) and eventful session has meant the Public Employees Retirement System hasn’t gotten as much attention as it usually does.
I was surprised by the PERS bills this session. At the end of 2019, Senate Bill 1049 made so many changes to PERS that I was not expecting much more than technical fixes this year. Oregon’s public pension system is one of the most complex in the country. Any changes have unforeseen ripple impacts that take time to sort out.
SB 1049 was expected to reduce employers’ PERS liability by more than 5 percentage points, but schools haven’t seen it. There have been some reductions but not at the level forecasted.
Now as the session rushes into its final days and the PERS board is considering action to raise rates, three bills could chip away at the cost-containment efforts in 2019.
We stopped some bills that would have impacted employers’ costs, but the additional challenges this session working in the virtual world helped three slip by. House Bill 2906 has been signed by the governor, but HB 2875 and HB 3396 are still in committee.
HB 2906 was drafted to “clarify” the Individual Account Program redirect occurs when an IAP member’s salary does not exceed $3,333 per month. In the original legislation it was $2,500 per month. This change is expected to raise rates fractionally, but it adds up.
HB 2875 does several things concerning PERS membership, including change the hours requirement. An employee who is seeking to reach 600 hours over a five-year period and didn’t work due to COVID-19 in 2020 is extended another year. PERS will look at those members at the end of 2021 and see which employees this impacts and restore their membership in PERS, awarding them service credit. According to PERS, that could be as many at 4,600 members. This is a small number of employees and a legitimate response to an unusual year, but it still can impact employers’ costs.
Finally, HB 3396 would give the PERS board authority to waive certain requirements in an emergency that goes on for 6 months. This forward-looking bill sets up ways to deal with future emergencies. This authority is worrisome, though, because it is not clearly spelled out but it could have huge impacts.
Meanwhile, this summer the PERS board is looking at reducing the assumed rate of return from 7.2%, which could really jolt employer rates.
The PERS system is funded by investment returns, employees’ 6% contribution and employer contributions. The employees’ contribution and the assumed rate of investment return are set in statute, leaving the employer rate to fluctuate to meet the system’s needs.
If the rate of return is lowered, employer rates will likely need to go up to maintain employees’ guaranteed benefits. Milliman, the state’s actuaries, estimate that lowering the rate to 7% would increase employers’ costs by about 1 percentage point. Milliman has suggested the rate should be lowered even more.
The PERS Board will meet July 23 to consider proposals, and any changes would take effect in 2023.
This is a needed adjustment to continue to address the system’s costs, but it hits employers hard while also decreasing benefits for some retirees.
PERS is a challenging agency to follow because of the complexity of the system, but we will continue to talk with the PERS board and engage with more rulemaking this year.
- Lori Sattenspiel
Legislative Services director