Editorial: Stop deny and delay approach to PERS
Published 11:56 pm Wednesday, July 19, 2017
- State Sen. Tim Knopp, R-Bend, shows tables related to PERS costs at a March 31 town hall in Redmond. (Geoff Folsom / Spokesman file photo)
Oregon needs to face reality when the state board that runs the state’s public pension system meets later this month.
The state has been masking the severity of the shortfall of the Public Employees Retirement System. Under the current assumptions about the future, the state faces a shortfall of some $22 billion between what it expects to owe in benefits and what it will have to pay them.
But those calculations are based on an assumed annual rate of return for PERS investments of 7.5 percent. And the state has not been making that return.
The investments have earned 6.2 percent in the last 10 years. It was 2.1 percent last year.
Four recent consultant estimates don’t expect the state to make 7.5 percent in the future, either. The estimates ranged from 6.7 percent to 7.4 percent, according to the state actuary.
The assumed rate of return has vital implications. About 75 percent of the money to fund PERS comes from investment income. If investment income isn’t covering the system’s needs, taxpayers, school boards, city governments, state government — any public agency on PERS has to contribute more into the system.
How much more?
The average employer contribution rate is 21 percent of salary for 2017-2019. With an assumed rate of 7 percent, it would go to 27 percent for 2019-2021. That would cost the state about $725 million more. It would not stop there. The contribution rate would go to 34 percent for 2021-2023, according to the state actuary. That means more and more money spent on retirement benefits and less money spent on services.
The PERS board should adopt an assumed rate of return that is not born of myth. And then state leaders should confront that reality with the PERS reforms suggested by state Sen. Tim Knopp, R-Bend, and others.