You don’t have to be an accountant to know Oregon’s Public Employees Retirement System is in trouble. School teachers, police officers and other government employees deserve good retirement plans. But it has to be a plan the state can afford.
Oregon’s PERS moved from no liability in 2007 to $17 billion in unfunded liability in 2017. Then it got worse. The actuary for the Oregon Public Employees Retirement System estimated it had grown to $26 billion at the beginning of this year. A new report from the Oregon Secretary of State’s Office on PERS will not put your mind at ease.
There is some good news. Long-term projections show the system will meet its funding objectives. The bad news could be getting between here and there.
The major problem for PERS has been that its investments have not been performing as well as expected. That has an unfortunate ripple effect throughout the state. It means less money goes into the classroom, to fix roads and for all the many other things government entities do, because it must instead be diverted to fund PERS. For instance, Bend-La Pine Schools had to dedicate about 18% of payroll to PERS for some employees for the previous two-year rate period. It’s now at 23% for that same group of employees. That is expected to grow.
The new report zeros in on the investment assumptions that the PERS board has been making. The board makes the assumption that it will earn 7.2%. That may well be too high. And, in turn, that would lead to even higher contributions into PERS.
It was not a subject of the report, but what was refreshing about the 2019 Legislature is that it did pass some PERS reforms aimed at lowering future liability. For instance, it required cost sharing by public employees. Public employees would have a small percentage of their salaries diverted into paying down PERS debt. That is something that has long been a goal of people looking to reform PERS.
The Legislature also did some fiddling with the numbers. If the PERS shortfall was the equivalent of a car loan, the Legislature stretched out the payments. It’s like the Legislature turned to Oregon’s children and said: You pay PERS off.
Oregon public employee unions filed a lawsuit in August to overturn the cost sharing part of the reforms. We don’t know what the courts will say about that case. Oregonians may well be left with a rising unfunded liability exacerbated by inflated assumptions about investments and more of the costs being passed on to the next generation. That’s not a win for anybody.