City Club PERS report ventures into dangerous land

Proposals to ease budget burden come with a warning

Messing with public employee pensions can be a kiss of death for an Oregon politician.

But that didn't stop a Portland City Club study committee from recommending an aggressive slate of reforms to erase the Oregon Public Employees Retirement System's $7 billion shortfall by whacking pension benefits.

The City Club panel's 49-page report, 'Oregon PERS: Burdened by the Past, Poised for the Future,' was released Thursday, May 19, after a yearlong study. The full City Club will discuss the report, and possibly approve it, on June 3.

The panel didn't take a position on the main PERS controversy percolating around the state - a collective bargaining proposal to halt or reduce government payments of the 'employee contribution' to PERS, which equal 6 percent of workers' salaries.

Nor did the committee go so far as to suggest ditching PERS and starting anew with a 401(k)-style system, popular in the private sector. Those make retirement income subject to the whims of the stock market.

However, the committee concluded that PERS pensions are still too generous, despite major reforms enacted in 1995 and 2003. The committee notes that Oregon public employees who retired in 2009 after 30 years in PERS scored pensions equal to 77 percent of their final salary while working, on average.

Once Social Security kicks in, they'll earn more in retirement than they earned while working. And 6.2 percent of those 30-year veterans are collecting more from PERS than they earned in their final salary, not even counting Social Security.

The committee warns that its recommendations would provoke lawsuits from public employee unions, though it predicts its proposals will stand up in court.

The panel's main recommendations are:

• For public employees who joined PERS before fall 2003: redirect annual payments now going to their Individual Account Program (IAP) - a 401(k)-style plan that gets the equivalent of 6 percent of their salaries each year - and use the cash to reduce the PERS deficit. That would save Oregon state and local governments a combined $312 million a year, while reducing worker pensions.

• For workers who joined PERS after fall 2003: reduce the guaranteed portion of their pensions so it equals 30 percent of their final salary after 30 years, instead of 45 percent. Cut pensions for police and firefighters, who earn higher amounts, by the same percentage. Workers would get additional benefits from their IAP accounts, estimated to equal 15 percent to 20 percent of their final salary, plus whatever Social Security yields.

• Raise the retirement age by two years for workers hired since fall 2003.

• For all future retirees: Reduce the Money Match benefit, one of two methods used to set worker pensions. The Money Match calculation would be based on worker accounts growing by 6 percent a year, instead of 8 percent. That could save state and local governments $1.7 billion long-term. Many workers would get reduced pensions.

• For all PERS members as they approach retirement age: Shift the investment portfolios in their IAPs to reduce the risk that the accounts plummet in value right when workers need the money. That means more bonds and less stocks. It also makes it more likely workers will have less money in those accounts.

• For about 15,000 retirees who settled in Washington or other places that don't charge state income taxes: Cut their benefits by about 9 percent. The Legislature added about 9 percent to their pensions when it started taxing PERS benefits, so they wouldn't lose money. But it's a windfall for those who don't pay Oregon income taxes on their pensions. This would save the system $72 million a year, or $450 million overall.