By Don McIntosh
In the State Capitol it’s once again open season on Oregon’s Public Employee Retirement System (PERS). This time around, public employee unions are facing a kind of “good-cop, bad-cop” scenario. The “good cops” are Gov. Kate Brown and Democratic House and Senate leaders Tina Kotek and Peter Courtney, who propose to cut public employee compensation and divert those resources to fund employer obligations to the pension system. The “bad cops” are former governor Ted Kulongoski and former union leader Tim Nesbitt, who along with former Republican state senator Chris Telfer have filed five prospective ballot measures on PERS that would cause much greater harm to public employees. What all of them have in common is a conviction that Oregon must reduce its public employee retirement benefits.
But a coalition of public employee unions plans to fight the cuts in the Capitol and in the courts if need be.
The Kotek-Courtney proposal
House Speaker Tina Kotek and Senate President Peter Courtney presented their proposal on May 10: to divert part of the salaries of all current public employees starting July 1, 2021, and use those funds to build up the assets that the PERS system will later need to pay benefits. The diversion would be 2.5 percent of salary for public employees who entered the PERS system before 2004 (known as Tier 1 and Tier 2 members), and 0.75 percent for those hired 2004 and after. Public employees currently contribute 6 percent of their salary toward an Individual Account Program (IAP), a 401(k)-style “defined contribution” retirement savings plan. The Kotek-Courtney diversion would come out of the employee contribution to that IAP, thus reducing the retirement benefits they’d receive from the IAP program. The proposal would allow workers to restore their retirement savings contribution to 6 percent by taking the difference out of their wages. The IAP diversion would end if the PERS system’s “funded status” reaches 90 percent again. The Kotek-Courtney proposal is contained in Senate Bill 1049-1. The proposal has several other elements. It would:
- Pay down the unfunded liability over 22 years (instead of the current 20 years)
- Cut in half in the interest rate used to calculate annual benefits under the PERS “Money Match” formula.
- Limit the final salary used in benefits calculations to $195,000, indexed for inflation. [That would reduce benefits for the highest-earning 0.8 percent of workers in Tier 1 and 0.3 percent for Tier 2.]
- Temporarily eliminate restrictions on retirees returning to work from 2020 to 2024, and require employers to pay full pension contributions on those returned employees.
Governor Brown’s proposal
The Kotek-Courtney proposal came after a proposal by Gov. Kate Brown failed to find the support of two-thirds of the Legislature. Brown had proposed to increase PERS assets by adding $500 million from next year’s “kicker” income tax rebates and taking $1.4 billion out of a large reserve fund held by the State Accident Insurance Fund (SAIF).