In our series on the debates surrounding Oregon’s Public Employees Retirement System (PERS) and its potential reforms, we have looked at the issue from several different perspectives: first we examined the major problems plaguing the system, then we explored how the brokenness of the system has adversely affected schools and working teacher, and finally we discussed the arguments put forth (mainly by unions and retired or nearly retired teachers) for why the state of Oregon should not cut into the pensions of teachers and other public employees in order to put money back into schools. In this final segment, we will examine some of the proposed reforms to PERS and discuss some of the reforms that the governor has already undertaken.
According to a report by The Oregonian, there are two major PERS reforms under consideration. First is the idea of lowering the interest rate that is used to calculate member annuities under the Money Match system. The second proposal involves lowering the annual cost-of-living adjustments that retirees are entitled to when collecting their pensions.
Proposed Reforms to PERS
One proposal to lower the pension costs associated with PERS involves lowering the interest rate used by the Money Match system to calculate member annuities. Currently, the state of Oregon calculates annuities based on an 8% interest rate, which is almost double the rate used to calculate annuities in the private sector (4.5%). This idea has not yet been formalized into any proposals, but some reform-minded individuals would like to see the interest rate lowered in an effort to save some money from pension costs.
Another idea, which has been formalized in the form of Senate Bill 822 and was recently passed by the Oregon Legislature is the idea to reduce the annual cost-of-living adjustment (COLA) payable to benefit recipients as of August 1, 2013 and beyond. According to the new plan, which Governor John Fitzhaber signed at the beginning of May, the new COLA cap will be lowered from 2% to 1.5% (though individuals whose annual benefits exceed $40,000 have even lower interest rates). In addition, bill 822 also eliminates the tax remedy benefit for non-residents of Oregon who do not pay Oregon state income taxes. Despite being passed, the plan faces resistance both from public workers who feel that the state has broken its contract with them, and from Republicans who claim that it will not raise enough revenue to help the state in any real way.
It remains to be seen if any legal challenges are brought against the new cost-of-living adjustment laws and (since there likely will be such a challenge) how courts will rule on that, or on any serious proposals to lower the interest rate for calculating member annuities under Money Match. It is clear, however, that teachers and other public employees, such as retired teacher Claire Morgan, will continue to push for the legislature to consider raising revenue through other sources. As Morgan notes, the same state legislators who designed PERS allowed Oregon businesses to shoulder less than their fair share of the tax burden that could contribute to quality education in Oregon’s schools. Even more frustrating to Morgan is that these businesses are the ones who complain about how the state is being negatively impacted by the lack of a trained workforce.
In the meantime, if you are a public employee with questions about how the recent changes to PERS will affect your rights, please contact one of our attorneys to help guide you.