Death and PERS Reform

The only two certainties in Oregon life are death and PERS “reform”.  This year’s legislative session is no exception, with two Senate bills still in play, and due for a work session on April 17th.  Although at this point these particular bills seem to be headed for failure, State employees shouldn’t be complacent – as the legislative session winds down to a close over the next couple of months, lots of horse-trading will take place to get a budget adopted, and throwing pensioners under the bus is always a good way to attract Republican support for whatever deal you want to cut.

As always, the rationale for cutting PERS benefits is that the “unfunded liability” is the thing breaking the state budget, and directly causing large class sizes, crumbling highways, etc.  This justification ignores many other circumstances – such as Oregon’s remarkably low tax collections (especially from businesses), the greater increased costs from expanding the Oregon Health Plan and the vocational education initiative voted in last year, and that all of the PERS unfunded liability can basically be traced to the poor performance of the PERS fund in the stock market due to the Great Recession.  (Before 2008 the PERS unfunded liability was negligible, and PERS remains one of the best-funded state pension systems in the country, despite what you read in the Oregonian.)

The preliminary good news is that the legislature’s hands are tied by a string of Oregon Supreme Court decisions, most notably Moro v. Oregon, which established that benefits that had already accrued to state employees are part of their employment contract, and cannot be retroactively reduced by legislation.  So even if the legislature passes a bill to reduce PERS benefits (and that legislation survives another court challenge), it will only affect benefits accruing after the effective date of the legislation.  The corollary of this is that any changes to PERS will have a much bigger impact on younger state employees, and less effect upon those nearing retirement.  

The bad news is that if any of these bills do pass, there will first be a period of uncertainty and anxiety, as those nearing retirement have to gamble on whether to retire immediately to preserve their benefits, or to stay in their jobs, hoping that the Supreme Court will render a decision in a few years to uphold their benefits.  The Oregon Education Association has estimated that if this year’s PERS legislation passes, 30% of all teachers statewide would immediately resign, causing complete havoc in the school systems.  

Two PERS bills remain in play, SB 559 and SB 560.  SB 559 changes the length of time used to compute Final Average Salary, from 3 years to 5 years, for those covered by the Full Formula option.  The intent is obviously to arrive at a lower average and reduce costs to PERS.  

SB 560 is more complicated and tricky, having been subjected to the classic legislative maneuver of “gut and stuff”, whereby many of its original provisions were removed, and replaced by new ones.  It is a throw-it-against-the-wall-and-see-what-sticks bill, including every attack that can be imagined, and hoping that some of them will survive the inevitable court challenge.  There is something bad here for everyone, no matter your tier of employment – Tier 1, Tier 2, ORP, OPRSP, IAP, etc.  To summarize:

If you would retire under the Money Match option (which is likely for all enrolled in the ORP), it reduces the pension annuity rate from 7.5% to 3.5%, which would likely halve your PERS retirement income.  This provision has been declared an “emergency” provision, and so would take effect immediately upon passage of the bill – you would not even have time to contemplate whether to retire quickly.  

If you would retire under the Full Formula option, it cuts the accrual factor (the rate at which you accumulate benefits) from 1.67% per year of service to 1.0% per year of service.  It also puts a cap on the maximum Final Average Salary that can be used to compute your pension, at $100,000.  (This will probably be known as the “Bellotti Cap”.)  This provision will have the greatest effect on younger employees, as the cap is not inflation-adjusted.  

If you participate in the IAP, it would redirect the 6% employee pickup into the general PERS fund, away from your own account.  This is effectively a 6% pay cut.  

If you are a relatively new employee at the UO, you should be aware that this bill would change the vesting period for PERS membership from 5 years to 10.  So if you move on to another university, you are SOL.  

Although not stated in the bill, I wonder how these provisions would affect those enrolled in the ORP.  Since their intent is to reduce the amount of money the State spends on PERS, and since the State contribution to an individual ORP account is based upon how much the State would have to contribute to PERS to finance your retirement if you were still an “active” PERS member, these provisions could likely be used to justify decreasing the State contribution to your individual account.  (Although they may not have figured this out yet – please don’t tell them.)  

The bill says nothing about “inactive” PERS members, and so is an improvement on the full-out assault against them mounted in 2013 (intended as part of a “grand bargain” to get Republicans to vote for the budget).  However, Senator Betsy Johnson continues her particular vendetta against this group, imagining them all to have pursued lucrative careers as hedge fund managers, after they spent five years as schoolteachers in Oregon.  

So now that we’ve gotten your attention, what’s the good news?

The PERS Coalition, is on top of this, meeting with legislators, the Governor, mapping strategies, etc.  Our unions at work!  Their website includes useful factsheets.  

The Democrats are not supporting these bills, so at this point it seems more likely they won’t pass.  The Senate Workforce Committee, which must vote these bills out for them to arrive on the Senate floor, has three Democrats and two Republicans.  However, all Salem watchers emphasize that in the last months of the session, everything is on the table as people try to make deals to finalize a budget, so we shouldn’t be complacent.  A simple risk analysis would include the lower-than-normal likelihood that these bills will pass, but higher-than-normal-consequences if they do.  

Many of these provisions would probably be found to be unconstitutional.  But they’re not exactly the same approaches as have been found unconstitutional before, so it would create uncertainty and provoke new lawsuits, which put us in limbo for years.  

What can we do?  First, stay informed.  The best source of news about PERS bills is a blog maintained by a concerned retired state employee.  He has been providing this service for years, and we are all in his debt.  

All members should contact their state reps and make sure they know we’re paying attention to this, and that there is a very important issue to all of us.  This can be done easily through this link.  

Finally, work sessions have just been scheduled on the bills at the Senate Workforce Committee. There is a public hearing scheduled for:

Wednesday, April 12, 3:00 pm, Hearing Room A.

The actual work session will be:

Monday, April 17, 3:00 pm, Hearing Room A

Although public testimony will not be taken at the work session, your presence will help to show to show the concern of state employees with preserving their retirement.  If your teaching schedule allows, please try to attend one of the sessions.

I’ve noticed that there is a paradox in our concerns about retirement.  The closer I get to retirement age, the more attention I pay to these issues, as they have suddenly begun to seem real.  However, it is well-known that we older faculty frankly should have fewer worries about retirement – we began working at the UO when pensions plans were more substantial, and those benefits have been accruing to us over the years.  It is the younger faculty, who are already burdened by less-generous pension plans, who will be most affected by these proposed bills, making a tenuous retirement even worse.  We have all heard the advice that people need to start saving for their retirements at a young age, but that advice should be modified for State employees:  people need to get involved in lobbying to preserve their pensions at a young age, or else those pensions might disappear when they’re not looking.