2008 was a losing year for stock market investors. Among the big losers was Oregon’s Public Employees Retirement System. PERS lost $17 billion, and at the end of last year was almost 30 percent underfunded.
It’s a big turnaround from two years ago, when Oregon had more money than it needed (pdf) to cover all its public pension obligations and was a star among troubled pensions systems around the country.
Like any investment system, the money available to pay PERS benefits is the combination of investment earnings and how much money is put in the system. To stay solvent, when one goes down, the other has to go up.
Last year’s big losses mean taxpayer bills for PERS will climb. Public agencies like police departments, school districts and city halls expect to spend more putting money in the system. How much more depends on how much PERS earns this year, and whether the board overseeing PERS changes the rules.
According to a preliminary report (pdf) by PERS actuary, Mercer, a 26 percent rate of return in 2009 would limit employer contributions to a three percent increase. If returns aren’t that good, the increased contribution could double. The losses in 2008 were so big Mercer estimates that by 2014 public agencies could be spending more than one-fifth of their payroll to fund retirement, even if annual returns reach 10.5 percent and employer contributions increase by the maximum six percent. Check out this FAQ from PERS (pdf) that lays a lot of this out.
The stock market is climbing again and PERS investments are recovering. One of the major public employee unions notes Oregon PERS is still well funded compared to other places, and says the sky is not falling.
Employer contribution rates are set every other year, so any increase determined at the end of this year wouldn’t actually start until July 2011. The immediate question is whether PERS will change the rules. The board is expected to take that up at its meeting later this month, and decide in early January. Other questions PERS major losses bring up include whether the system should or can be changed further after the 2003 overhaul, if these contribution hikes will lead any agencies into bankruptcy, and how public employee retirement programs compare to private companies or non-profits in the current economy.
Do you receive PERS benefits, or will you when you retire? Do you set the budget for a public agency? Were you involved in PERS reform in 2003? If you’re employed in the private sector, what’s the status of your pension these days?
- Paul Cleary: Executive director of the Oregon Public Employees Retirement System
- Eric King: Bend city manager
- Greg Hartman: Attorney for the Oregon PERS Coalition, a group of public employee unions
- Phil Keisling: Former Secretary of State and executive vice president for business development with CorSource Technology Group