PERS rate increase hits cities and school districts across the state

The impact of new pension contribution rates adopted in September by PERS, the Public Employee Retirement System, are sure to be felt throughout Oregon, but the Lake Oswego School District may not be as hard hit.

PERS is Oregon’s statewide pension system for all public service workers, funded by periodic contributions from approximately 900 employers including state agencies, the university system, local governments and the largest employer group, school districts.

There are three types of PERS plans: tier one, for members who began working for a PERS-participating employer prior to 1996; tier two, for members who began working on or after Jan. 1, 1996, and before Aug. 29, 2003; and the Oregon Public Service Retirement Plan (OPSRP), for members who started working for a PERS-participating employer after Aug. 28, 2003. All three types of members have to have worked six full months in a qualifying position requiring at least 600 hours per calendar year.

After conducting demographic studies of all current employees and retirees that are eligible for PERS benefits, said LOSD Director of Finance Stuart Ketzler, “Actuaries will determine, based on a number of assumptions, what the pension contributions need to be from each employer for a particular period of time to help make sure that the pension plan has enough assets to meet its obligations as they come due.”

In order to deliver the pension benefits promised to participating employees, preliminary school district employer contribution rates for the two-year period beginning July 1, 2013 will jump 7.21 percent, from 19.48 to 26.69 percent for tiers one and two and 6.72 percent, from 17.97 to 24.69 percent for OPSRP.

But contribution rates for LOSD, the largest employer in Lake Oswego, will increase 6.18 percent, from 8.86 to 15.04 percent for tiers one and two and 5.69 percent, from 7.35 to 13.04 percent for OPSRP.

Likewise, the Riverdale School District will experience a 7.71 percent increase, from 8.45 to 16.16 percent for tiers one and two and a 7.22 percent increase, from 6.94 to 14.16 percent for OPSRP.

In 2003, the state of Oregon issued $2,084 million in pension obligation bonds to fund a side account, when an employer makes a lump-sum payment to prepay part or all of its pension unfunded actuarial liability (UAL), which provides rate relief to the employer until the associated UAL is paid off.

“Lake Oswego School District and a number of other school districts ... borrowed money back in the early mid-2000s, taking advantage of those arbitrage opportunities to help lower their overall PERS contribution costs,” Ketzler said. “That lowers our contributions that we have to make directly to PERS each month because PERS takes into account the fact that we already have this big investment sitting in their custody and they’re giving us a rate credit for that for each biennial period that lowers our contribution rate from what it otherwise would be.

“The district’s contribution ... is set to go up to higher rates next biennium,” he added, “but for regular districts that don’t have side accounts, they’re going up even more.”

Ketzler expects the district’s annual PERS contribution to increase from $4.5 million for fiscal year 2012-13 to $6.3 million for 2013-14 and to $6.5 million for 2014-15.

He has predicted that even without taking increased PERS rates into account, LOSD will be operating in a deficit by the end of the 2014-15 fiscal year.

Though the school board has promised to figure out a solution to this projected downturn, “There are only so many sources ... to make our budget balance,” Ketzler said. “One of those is you can try to increase revenues, but that’s severely constrained under state law. The other opportunity we have is to reduce expenses. We’ll be evaluating both of those strategies.”

Ketzler said reform at the state level in the coming months could ease the financial burden on school districts, which would help LOSD avoid absorbing funds necessary to continue to offer the type of programming it has been praised for.

“But that’s very early and speculative on my part to make any forecast on what the governor’s going to recommend or what the Legislature’s going to do,” he added. “We have a while to go before we have a real good sense as to what’s going on.”

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