Opening disclaimer.
One of my aunts is a PERS retiree and I am a current member of PERS, though I am in the “third tier” and will not be receiving the same benefits as my predecessors. As an employee of an educational nonprofit required to pay into PERS, I also know how much my company pays for PERS each month.
If you live in Oregon and are a regular reader of the Oregonian, you know that PERS is a topic of conversation. The Oregonian’s editorial board seems to have
made PERS reform a main topic of editorials and the governor has built his
proposed budget assuming that the reforms he has proposed will be passed and
will hold up to court challenges.
If you don’t live in Oregon or pay attention to the news, PERS is the Public Employee’s Retirement System. The whole PERS system is fairly complex and I
don’t have a complete handle on how things came about* but essentially, state
workers traded off higher pay in the 70s and 80s for what pretty much everyone
refers to as a very generous pension. Things were fine until the economy started to tank in the late 90s/early 2000s. When that happened, the gap between what PERS was taking in and what PERS was currently and would be paying out in the future became quite worrisome. So the legislature passed some reforms. As part of those reforms, there are now three tiers of PERS employees. General wisdom is that Tier I employees (pre-1996 hires) have it really great, Tier II have it great and Tier III (my people) have a different plan, though at least one financial advisor has told me is still a good plan.
The governor has two plans to reform PERS. The first is to eliminate the extra pay that PERS retirees living outside the state get to pay their Oregon taxes. People living in other states do not pay Oregon taxes, of course, so I’m all for this plan.
The second plan I think needs a lot more discussion. Currently, cost-of-living (COLA) increases of two percent per year are automatic for everyone. The governor wants to make COLA increases automatic for the first $24,000 of benefits, but benefits above $24,000 would not receive a COLA. According to the
governor and the PERS actuary, this plan “would reduce required employer
contributions to the pension system by $810 million every two years.”**
As someone who enters the amounts my company pays to PERS, I see how troubling the employer contributions are. Aside from paying into PERS for the
employees—these amounts are based on the salary of each employee—we must also pay an additional amount so the system remains solvent. This contribution is already best termed as “hefty”, in fact it is nearly equal to the 6% the employees put into PERS and the 6% the company puts into PERS. This amount (it’s called the UAL) is slated it increase by 50% in July unless another solution is found.
Because I see how much my employer pays every month and how the increasing UAL amount affects our budget, the potential $810 million savings sounds like a very good thing. But I also feel conflicted, because to me, it feels like changing the
way the COLA is figured and only applying it to part of a pension is going back
on a promise that was made to state employees.
Most workers in the United States today do not have pensions. They have mostly been replaced by a 401k system. 401k’s are systems that are much cheaper for companies to run and, as a memorable Time Magazine article outlined a few years ago*** the 401k system does not really work for retiring employees unless the stock market is booming when they retire. Also, even if there is a pension, some companies go out of business, some raid the employee pension fund, and others do all sorts of shoddy things to their employees’ future retirement benefits. I believe the move away from a pension system to a defined contribution system is a win for companies and a very large loss for the average worker.
PERS benefits are generous yes. Not every PERS retiree is making bank like that damn U of O football coach**** and most are living on reasonable, if generous, pensions. But often when people talk about generous pensions they grumble that “most people” don’t have that and so people with more benefits have to sacrifice. However, this attitude discounts the tradeoffs that employees made year after year, taking smaller salaries in trade for a generous pension. Changing the
terms of the pension after a person has retired seems dishonest to me, and the
argument that PERS retirees have it good and others don’t so they should have
to pay seems to be petty and small.
I think the debate that is happening now is “PERS is in trouble, PERS retirees have it good, therefore PERS retirees should have it less good” But I think the question that we should be asking is, “is it okay to change the terms of a retirement contract after someone has worked for years under that contract?” If the answer is no, then we need to find some other way to pay for PERS.
One PERS retiree recently wrote a letter to the editor***** pointing out that no one has ever done a survey asking PERS retirees what they think is fair. I liked her point. If PERS retirees are fine with COLA being capped with the first $24,000, then great. Maybe they have other ideas too.
PERS is a complex issue and deserves a broader debate than what is happening right now. It’s more complex then “they have it good, they need to pay” and it’s tougher than “I paid my dues and I deserve every penny” and it’s very hard to come up with answer to this revenue problem. But I think with more conversation, we can.
*One summer I planned to fully research and understand PERS so I could write a simple guide for people. I never did this, but wish I had.
**”Oregonian Department of Justice offers possible legal arguments to reform Oregon’s Public Employee Retirement System.” Ted Sickinger February 6, 2013
*** I don’t have a citation and I’m not going to look one up because I write these essays for free. But there was an article. It struck fear in my heart.
*****Again, cursory searching has not turned up said letter.
