1) What went wrong with PERS?
Oregon’s Public Employee Retirement System (PERS) offers a standard retirement benefit for career public employees that was designed to deliver a pension of roughly 50% of salary after a career of 30 years or so. With Social Security on top, the goal for the system was to guarantee a combined retirement income of about 75%-85% of pre-retirement salary.
If this were the outcome of the benefit formulas in place, PERS would look like a standard retirement plan for public employees and the system would be much healthier today.
But that’s not what happened.
2) PERS has accumulated massive unfunded liability
As has been the case in many pension plans in the public sector, the costs of PERS benefits have been underestimated over the years while the earnings expectations for the fund’s investments were often overstated. This creates underfunding.
3) Defined benefits pensions are not tied to market performance and consume more tax dollars when benefit payouts exceed the system’s goals or investments fail to yield hoped-for returns.
That is exactly what has happened – first; because arcane benefits like Money Match produced pensions far in exceeds of the system’s goals, then because of investment losses in 2008 and lower returns on investments since then.Further, a legislated change in 2003 which ended employee contributions to the pension plan, left public budgets to assume in full the ever-rising costs of the system.
4) PERS retirees have received a greater benefit than originally intended in the design of the system.
For the past two decades, most career employees retired with PERS benefits that have far exceeded that 50% target, averaging 78% of final salary between 1995 and 2017. Average benefit for a 30-year employee reached 100% of salary in 2000 (130% with Social Security). That is far more than other public systems provide and far more than the system was originally designed to deliver.
5) Continued use of defined benefits pension poses long-term risk to budgets.
Because most retirees are in Tiers I and II, that is where most of the long-term liability for the pension lies.
But that’s not the whole story.
Employees hired since 2003 have a less generous pension plan (OPSRP). But, all PERS-covered employees now have a separate 401k-style retirement account in addition to the pension plan. This so-called hybrid plan will again deliver benefits for career employees that exceed the system’s targets.