Knute’s Proposed Reforms to the Public Employee Retirement System (PERS)
The reform of Oregon’s public employees retirement system (PERS) is one of the most pressing financial issues facing the state. It impacts every level of government. The costs have been increasing yearly. The increased costs lead to fewer teachers in our classrooms, fewer police in our neighborhoods, and reduce services across all sectors of government.
As Secretary of State, Knute Buehler will use his position to introduce and advocate for needed reforms of the PERS system.
1. Eliminate tax refund for out of state residents
There are an estimated 14,000 to 16,000 PERS retirees living in other states who are not subject to Oregon income taxes. They receive an additional benefit from the state of Oregon equal to the amount of their Oregon tax liability. We should eliminate the additional benefit for out of state retirees. The benefit to Oregonians from the $72 million per biennium savings is equivalent to 450 more teachers in our classrooms each year.
2. Eliminate the practice of ‘double dipping’
We must also limit the practice of “double dipping” whereby an employee retires, collects PERS, and then returns to work on contract. A retired employee should be limited to a 2 year maximum contract in their previous job. While a former employee likely has expertise that is hard to replace in the short term, 2 years provides for sufficient time to find and train a replacement.
3. Cap the Cost of Living Adjustments (COLA) to first $24,000 of benefits
Currently, all COLAs are directly tied to the increase in the consumer price index (CPI) and capped at 2 percent for some recipients. Others are allowed to bank the ‘in excess’ amount for years when CPI is not above 2 percent. This allows them to almost always get a 2 percent COLA even across years with a low CPI. Knute supports the proposal from Rep. Jason Conger to cap the COLA adjustment to the first $24,000.00, which is the average PERS benefit. This would save an estimated $576 million per biennium, the equivalent of 3,600 teachers.
4. Reduce the Guaranteed Rate of Return to 6 percent
The Guaranteed Rate of Return (GRR) is currently set at 8 percent for Tier 1 PERS employees, while actual return has only been 4.43 percent over the last 5 years. We need to decouple the GRR from the Assumed Earnings Rate (AER). Decoupling, before decreasing the GRR, allows the GRR to be lowered without triggering a short-term increase in the amount local governments would need to pay due to a decreased AER.
5. Redirect Tier 1 and 2 employee contributions away from the IAP and into the PERS fund
Redirecting the mandatory 6 percent pickup for Tier 1 and 2 employees from the Individual Account Program back into the PERS general fund would reduce the Unfunded Actuarial Liability of the PERS program. This will help return the program to being fully funded and lower the burden of PERS liabilities passed on to future generations.
6. Remove the conflict of interest for state elected officials
The fox can’t guard the hen house. Legislators who are not also employed by a PERS contributing employer should not be allowed in the system. This allows police officers, fire fighters, and teachers elected to the Legislature to continue working and participating in PERS while also ensuring that, to the greatest extent possible, those who are making policy decisions about the program do not have a vested interest in the outcome of those decisions. All conflicts of interest need to be placed on the official legislative record prior to votes on PERS reforms.
In addition, all future legal cases related to PERS should be handled by judges without a conflict of interest.
Finally, as a statewide elected official, Knute pledges to not become a member of the PERS program.
Dear Knute: I totally agree with all of the above ideas/recommendations.
Will you be returning to Klamath Falls before the election?
Bless you, Sir, and I Pray for your Victory. We need you to be our Secty of State.
PERS Retiree – former OHSU employee
Klamath Falls
Your number 1 PERS proposal–do away with state income tax offset to out-of-state PERS retirees–what do you think of HB2456 passed by the 2011 legislature and made effective August 2011? This issue seems like beating a dead horse in light of HB2456.
2011′s House Bill 2456 only applied to future retirees and not thousands of current PERS retirees who have moved out of Oregon. Those current PERS retirees who are not paying Oregon taxes should not continue to receive a 9-10% benefit intended to offset the cost of Oregon income taxation on Tier 1 PERS benefits. If the law created by HB 2456 were amended to apply to all PERS retirees, approximately $72 million dollars would be saved and available for education, etc.
Knute, I thought it was going very well in your ‘stance’ statement above, until the last paragraph. OK. Let me get this straight. You said: “Legislators who are NOT also employed by a PERS contributing employer should not be allowed in the system” Are you referring to being allowed into the PERS system, or into the political system here in Oregon? Are you indicating that legislators who were never employed through a PERS-contributing employer somehow get to draw from PERS later? Is our State Government a contributing employer into PERS? Thank you in advance for clearing up the confusion I was beached on…
Dear Knute:
As an unaffiliated voter, I am pleased to hear of your support for providing voters like me a meaningful voice in the primary elections. I will not be supporting Kate Brown in this election specifically because of her opposition to open primaries and the “top two” primary system.
As a pension lawyer with long and extensive experience with PERS, I also share your concerns regarding the sustainability of that system. Many of your points above are well-taken. However, the proposal to redirect member contributions from the IAP back into PERS is not. I realize that this is counterintuitive, and that in many pension plans, using member contributions to fund benefits would help reduce employer contributions. Unfortunately, that is not the case with PERS.
PERS provides for a “money match” benefit, which is payable unless the member would receive a higher benefit under the basic benefit formula (which is based on the member’s salary and length of service). Under the money match formula, employers are required to match the amount in a PERS member’s account. The PERS reforms of 2003 (which I worked on) moved the member contribution out of the PERS member account and into the IAP. This change was specifically designed to reduce employer liability under the money match benefit formula, and so far, it appears to be working.
My understanding is that a large proportion of PERS members are still retiring with the money match benefit. Redirecting member contributions to the PERS account would increase that benefit and require a corresponding increase in employer matching contributions. Moreover, because of the Oregon Supreme Court’s restrictions on PERS changes, there is essentially no chance of eliminating the money match form of benefit for current PERS members. (Please note that there is no such benefit under the OPSRP, which was adopted in 2003 to replace PERS for new employees.)
Because of the risk of unintentionally increasing employer liabilities, this particular issue is one that you may want to revisit. I would strongly encourage you to consult with pension actuaries and/or attorneys who are familiar with the (admittedly byzantine) PERS benefit system.
Thank you, in any event, for providing this opportunity for comments. Good luck with your campaign.
Victoria Macpherson
Dear Knute;
First what I like is the change, you’re not a lawyer. But, on the other hand you’re a medic like Kitzhaber. And, that makes me uneasy.
You’re ideas a far reaching, and there is some light at the end of the tunnel, I can see it.
I am concerned about the excise tax levy on small businesses in Oregon. It is a dagger in the back of the people who are staring out in the business word, don’t make enough money to pay income tax, but our communized Oregon > leadersheep <is stubbing small biz guys with this absurd excise tax. I am telling about the people who do 1120S/20S and 1065/65 forms.
To those people a couple of hundred of dollars means buy something to eat and not pay the cheat excise tax. Please let me know your view on it. I am ex-Republican, kind a as you’re.
I’m keeping you on my mind with the pen ready for you!
Your comments about the GRR and AER are misleading. Sure the last five years have had a low return but that includes the Great Recession. If a more sensible longer term view is taken then the results are very different. In fact, the professional actuaries for PERS did such a study last year and the PERS Board used that data to leave the rate at 8%.
Lowering the COLA would violate an Oregon Supremer Court ruling (Strunk). Let’s not waste more taxpayer money on losing court battles.