Oregon Gov. Kate Brown released a plan to improve the funding for the Oregon Public Employees Retirement System (PERS), in part, by keeping most of the tax refunds of the wealthiest Oregonians.
Faced with a state retirement system that currently has a funded level of 80%, with rates projected to increase until 2035, Brown said funds for her plan would come from retaining part of the income tax kicker rebate, which she said disproportionately benefits wealthy Oregonians. She said she would give everyone the first $100 of their rebate and retain the rest.
She also suggested transferring excess surplus dollars from the state-owned insurance company or another similar transaction.
“Both of these options are framed as being extremely difficult politically,” said Brown. “But in reality, the choice is very clear: do you, state legislature, want to smartly pay down PERS debt to help our schools? Or do you want send out almost a billion dollars in tax refunds and insurance rebates?”
“Today, we are at the height of our economic growth. We know another recession is coming at some point,” Brown told the state legislature’s Committee on Capital Construction. “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.”
Brown said that of the estimated $16.7 billion in unfunded liability, 72% is due to employees who have already retired or are no longer working for a PERS employer, 22% is due to currently employed tier 1 and 2 employees who were hired before 2003, and 6% is due to currently employed Oregon Public Service Retirement Plan (OPSRP) members, or tier 3 employees who were hired after 2003.
Another part of the proposals in Brown’s plan is to create a School PERS offset account to pay for the increase above the 2019-2021 PERS rates for schools until PERS is fully funded, or for 14 years, whichever comes first. Brown said the cost will be about $400 million every two years, and that the account must be seeded with $800 million, and will require $1.6 billion over the following 14 years.
Brown also suggested beginning PERS stability contribution pension accounts for employees to secure the defined benefit portion of system. 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 would not see a reduction in their current take-home pay as a result of the contributions.
The proposed plan also stipulates that after PERS stability contributions end, if the funded level drops below 90%, employees will pay a temporary stability contribution of 3%—after a $20,000 exemption—until PERS’ funded status recovers.