Lawmakers near PERS reform: The House and Senate may act today on slashing the pension fund

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Lawmakers near PERS reform:
The House and Senate may act today on slashing the pension fund

By Steve Law, Statesman Journal, May 8, 2003

With two quick votes today in the Legislature, tens of thousands of public employees could see their future pensions slashed, saving Oregon taxpayers $6.6 billion in benefits costs.

The Oregon Senate is expected to approve House Bill 2003, which phases out the most lucrative features of the Public Employees Retirement System. A concurring House vote is expected today or Friday, sending the landmark PERS reform to Gov. Ted Kulongoski’s desk for his signature.“I really came to the conclusion that the system was in crisis,” said Sen. Tony Corcoran, D-Cottage Grove, a labor organizer who moved the bill to the Senate floor Wednesday after rushing it through his Senate General Government Committee.

If the bill is upheld by the courts, it could reduce benefits for 160,000 public employees and 20,000 recent and future retirees. It would save state and local governments $338 million per year in benefits payments.

HB 2003 effectively will phase out the Money Match plan that, in combination with the sizzling ’90s stock market, enabled 30-year public employees to earn pensions close to or better than their top salary.Instead, most midcareer and younger workers will retire under a formula based on salary and years worked. That will deliver pensions closer to 60 percent of final salary after 30 years on the job.

Older workers might fare better, but many also will take a significant hit in their expected retirement income.

People retiring between April 1, 2000, and April 1, 2004, will lose 2 percent cost-of-living adjustments for two or more years.

State worker and Turner resident Rosalie Pedroza said the bill “all-out guts” her expected pension.

“You not only are asking us to accept no pay increase now,” she told Corcoran’s committee, “but are asking us to sacrifice the benefits we were promised in the future. That is wrong.”

Pedroza said her initial state wages were so low 16 years ago that she qualified for food stamps.

“Rather than apply for them, I took a second job, which I worked for 3½ years, until my son was killed in a car accident and I no longer had the mental strength to keep doing that,” she said.

Corcoran noted that Pedroza and other workers still can retire on 75 percent of their salaries after 30 years, once Social Security kicks in to supplement PERS.

“The system was not designed for the type of benefits that it’s been yielding lately,” he said.

PERS faces a long-term shortfall of $16 billion. HB 2003 and other pending or recently passed reforms will cut that by more than $9 billion. But the cumulative savings to government will take a huge dent out of many Salem-area residents’ pocketbooks.

The bill could even affect the Salem-area economy by taking away a major chunk of the community’s buying power.

Many workers are numbed by the swift movement of HB 2003 and the eager support of Kulongoski, a Democrat and longtime friend of organized labor.

Yet many labor leaders expect the bill to be significantly weakened or tossed out by the Oregon Supreme Court.

The bill was structured to retain the longtime “employee contribution” totaling 6 percent of worker salaries. But it diverts that money into a separate 401(k) plan so governments no longer will have to match the money when workers retire.

The bill restructures the 8 percent annual earnings guarantee on regular accounts for workers hired before 1996. But it dilutes the guarantee by restating it as an average 8 percent return over a worker’s career. Coming on the heels of a five-year period in the late-1990s, when returns averaged more than 17 percent, the 8 percent guarantee is significantly diminished.

Many workers will wind up retiring under the formula. In those cases, the worker’s individual pension account is largely irrelevant because it is not used to set a worker’s pension.