Today’s blog post was written by NPPC Communications Director Andrew Collier.
In last year’s gubernatorial election in Oregon, Kate Brown defeated State Representative Knute Buehler. We’ve written about how anti-pension Buehler is before: he expressed interest in switching all newly hired public employees to a defined contribution system. Public employees rallied around Gov. Kate Brown because she was pro-public pension, believes in workers rights, and is an ardent supporter of public education. What they didn’t know was that Brown would eventually turn her back on public employees and their pensions.
On April 12th, Governor Brown rolled out a plan to “shore up PERS funding,” which is currently 80 percent funded – one of the best funded systems in the nation.
PERS currently follows the “three-legged stool” model of retirement: Social Security, an employer-provided defined benefit pension, and a defined contribution plan – similar to a 401(k) – funded by employee contributions. Oregon adopted this model following major legislation passed in 2003. As a result, pension benefits were reduced for Tier One and Tier Two employees and a third tier of benefits – the Oregon Public Service Retirement Plan — was created. The 2003 legislation fundamentally changed the design of the plan to reduce costs for taxpayers while continuing to provide retirement security for public employees. Today, more than half of the public workforce earns this reduced benefit.
The defined contribution plan created in 2003, the Individual Account Program, requires employees to contribute 6 percent of their pay into the plan. Brown’s new plan will shift 3 percent of Tier One and Tier Two and 1.5 percent of Tier Three employees contributions meant for their Individual Account toward paying down the unfunded liability of PERS. This diversion results in a weakened retirement, especially for low-wage workers. The plan is essentially a tax on current public employees and it has serious fairness and legal issues.
Legally, the governor may run afoul of the state constitution with this plan. According to the 2016 Legislative Counsel analysis, it is unconstitutional to require current employees to pay for PERS’s unfunded liability. Even if a bill was drafted to find a loophole around the state constitution, the governor’s proposal would create a new system that has never been challenged in court.
Additionally, public employees in Oregon are facing the threat of two ill-conceived ballot measures that will create a defined contribution plan for new employees and require PERS members to contribute a third of their pension costs going forward.
Advice for the governor: let the 2003 reforms work. PERS funding has improved in the last few years. Pundits telling you that the system is in dire need of changes are wrong – as a matter of fact, PERS is one of the best funded pension systems in the nation.