Bend and other cities across the state will get a break on their payments to the public employee pension fund when new contribution rates take effect Monday. Bend officials expected to pay $7.2 million toward retirement benefits in the upcoming budget year, but instead the city will send $5.9 million to the Public Employees Retirement System, according to the Finance Department.

The savings come from a bill that state lawmakers passed earlier this year, but City Manager Eric King says he is reluctant to spend the money, because some of the savings are only temporary.

The law contains some real cost savings, such as changes to tax benefits for retirees who live out-of-state, King said, “but there are some concerns about rates spiking up after the two-year period.”

The city pays a percentage of its payroll to the retirement system known as PERS, and the estimated $1.3 million savings in the upcoming budget year is equal to 3.68 percent of the city’s payroll, city spokesman Justin Finestone wrote in a recent email.

Under the new rates, the city must pay the pension system 19 percent of payroll for employees hired before Aug. 29, 2003. For employees hired on or after that date, the city pays 15.8 percent of payroll for police and firefighters and 13.1 percent of payroll for all other employees.

PERS recalculated the employer rates based on the passage of Senate Bill 822, Chief Financial Officer Sonia Andrews wrote in an email this week.

“We have not determined how the savings will be used or placed in reserves yet,” Andrews wrote.

The new law calls for a combination of temporary and permanent changes to the pension system, and King said he is not comfortable at this point spending the savings on any long-term costs, such as hiring employees.

The bill means public employers can delay the payment of $350 million in rate increases in the upcoming two-year budget. In part, supporters of the bill hope that will buy time for the stock market to help rebuild the pension fund, which as of December 2012 faced a $14 billion unfunded liability.

“I can tell you my recommendation is going to be to really not spend that savings with the concern that PERS rates could spike up, because a lot of what was included in that senate bill was just a deferring of payments into PERS,” King said. “That just leaves me a little concerned.”

King said that while some people hope the stock market recovery will solve the pension fund shortfall, “to me, it’s a bigger demographic issue with PERS, where you’ve got folks retiring and not enough folks coming in to pay for that … Senate Bill 822 didn’t really address some of the long-term, systemic problems.”

Mayor Jim Clinton agreed, and said the city should not rush to spend the savings.

“This is sort of a short-term mitigation rather than a long-term solution to the PERS funding statewide,” Clinton said. “(The city) should be really careful about setting aside the resources needed so when the bill goes back up, as it was projected to go up when the budget was done, money is available.

Clinton said state lawmakers made more progress on pension reform than some people expected, and he is hopeful they can achieve more in the 2014 legislative session.