PERS Solution #1 – Reinstate employee contributions to support the PERS pension plan
Almost all public employee retirement plans in the U.S. require employees to share in the cost of financing their pensions. But not Oregon PERS.
As the above table shows, Oregon is 50th of the 50 states when it comes to employee support for their pension plans. (The only reason that Oregon shows even a tiny bit of employee contributions above is because judges in Oregon contribute 6% to their PERS pensions.)
In most public pension plans, employees contribute an average of 6% of pay to help pay for their pensions.
But Oregon ended this requirement in 2003, when the legislature shifted employee contributions of 6% of pay from the pension plan to a supplemental retirement savings plan. As a result, the full cost of the pension plan was shifted to public jurisdictions and their taxpayers.
Redirecting the 6% employee contributions to support the pension plan will cut in half the coming cost increases that will otherwise fall to taxpayers.
What the legislature did in 2003 was a cost shift from employees to employers. It seemed like a good idea then, since this shift ended the infusion of funds into the expensive Money Match accounts for pre-2003 employees (money match is a benefit option that was intended to protect a small number of employees in the 1970’s but ended up producing large additions to the basic pension benefit beginning in the 1990’s). But, while saving money in one way (by reducing the growth of the Money Match benefit), it raised costs for employers in another (by forcing them to take on the full cost of the pension benefit and adding a second benefit program to the basic pension plan).
There’s a better way forward now. In 2015, the Oregon Supreme Court ruled that changes to the pension plan can be made on a going forward basis. That includes changes to the Money Match program. So the same correction to the growth of Money Match accounts can be accomplished now without shifting costs to public employers and their taxpayers. Simply reinstate the 6% employee contribution to the pension plan, but apply those contributions to help pay for the basic pension benefit, not to inflate the Money Match benefit.
Reinstating the 6% employee contribution to the pension plan won’t affect employee paychecks by even one dime. The 6% that they or their employers are paying now to the separate retirement savings plan (See Solution #5) can be redirected to cover their 6% contribution to the pension plan. This would be done prospectively, for future contributions, so that all funds accumulated in the retirement savings plan would be maintained and protected.
Doing so will not reduce pension payouts, nor will it reduce any employee’s pay. But it will achieve more savings for public jurisdictions than any other single reform to the system – freeing up funds for increased staffing, expansion of needed services and meeting the rising costs of maintaining competitive salaries and other benefits.
PERS Solution #1 and the 2019 Legislature
There are three bills in the 2019 Legislature which incorporate the proposal to reinstate an employee contribution to the PERS pension plan. Each of these bills includes the idea of redirecting the 6% employee contribution to the retirement savings plan to cover the 6% employee contribution to the pension plan. They are:
(click the above links to view the legislation overview on Oregon Legislative Information System (OLIS))