Gov. Kate Brown unveils plan to stabilize PERS

SALEM, Ore. – Oregon Governor Kate Brown said she sees a Public Employee Retirement System crisis on the horizon, and she has a plan to try to stop it.

According to the governor, over 900 public employers put money into the PERS system. Right now, that system is not fully funded. It lies at about 80% of where it should be.

Because of the underfunding, the rates public employers put into the system are increasing. This includes money paid by Oregon’s public education system. Brown said an ever-increasing burden is having effects on teachers and schools statewide.

Governor Brown said before the last recession, the PERS system was overfunded by 10%. By the end of the recession, it slipped by 30%. She doesn’t want to see that happen again.

“Today, we are at the height of our economic growth. We know another recession is coming at some point,” she said. “The systems are ill-prepared for the next inevitable economic downturn, which will put both public sector budgets—and the retirement security of our valued employees—in serious jeopardy.”

To adequately fund PERS and reduce the burden on educators, Governor Brown proposed a number of steps.

First, she suggested a minimum investment of $800 million to create a new School PERS Offset Account to cover educators’ increasing PERS costs. Brown offered several ways to fund the initiative, including a one-time withholding of the income tax kicker after returning $100 to each Oregon family. This could raise up to $500 million.

Her plan also includes what she calls “modest” dedicated employee contributions to secure members’ retirement funds. Brown said the contributions will come from employees’ Individual Account Program for retirement and will not reduce take-home pay. When PERS is fully funded, or after a term of 14 years, the contributions will end.

Brown stated the options for funding her proposals could be seen as very difficult, politically speaking. “But in reality,” she said, “the choice is very clear: do you, state legislature, want to smartly pay down PERS debt to help our schools? Or do you want to send out almost a billion dollars in tax refunds and insurance rebates? It is the height of fiscal mismanagement to on one hand say something must be done about the PERS unfunded liability, and on the other hand, do nothing to stop the state from sending out over a billion dollars in tax breaks to wealthy Oregonians and businesses over the next 12 months.”

Governor Brown plans to talk about her plan with educators, legislators and others in the future. “I am open to changes,” she said, “but I am not open to inaction.”

Governor Brown summed up the specifics of her plans as follows:

  • Creation of a School PERS Offset Account to pay for the increase above 2019 – 2021 PERS rates for schools until PERS is fully funded or for 14 years, whichever comes first.
  • Beginning PERS stability contribution pension accounts for employees to secure the defined benefit portion of PERS. The contribution will equal 3% of payroll for Tier 1 and Tier 2 members and 1.5% of payroll for OPSRP members, after the first $20,000 of annual salary. With the exemption, the average contribution would be 2.1% for Tier 1 and 2 and 1% for OPSRP. Members will not see a reduction in their current take-home pay as a result of these contributions.
  • After PERS stability contributions end, if PERS drops below 90% funded in the future, employees will pay a temporary stability contribution of 3% (after $20,000 exemption), until PERS funded status recovers.

Proposals for funder were summed up as follows:

  • A one-Time retention of the income tax kicker, after returning the first $100 to each Oregon family, which would raise $400 million to 500 million.
  • Using excess surplus from SAIF — Oregon’s not-for-profit, public workers’ compensation insurance company — above the Board’s target levels, which would bring in $486 million; or an alternative that includes SAIF covering workers’ compensation costs for school districts and a smaller one-time transfer
  • Repatriation funds already dedicated under 2018 Senate Bill 1566 (and Senate Bill 1529) for a total of $83.3 million
  • Windfall revenue from variable sources, including direct, above-trend revenues from capital gains and estate taxes to the account

More information about her plan can be found here: https://drive.google.com/file/d/12m-9PouaaLyRPdb9UJnsUm2yu3KHXjzb/view

A statement opposing Gov. Brown’s plan from Keep Oregon’s Promise Coalition is available HERE.

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