Oregon lawmakers have made a serious stab at reforming the state’s Public Employees Retirement System for the first time since 2015. It remains to be seen if the measures included in Senate Bill 1049 will pass muster with the state Supreme Court. If not, it will be another blow to efforts to rein in the retirement fund, which currently has an unfunded liability of about $27 billion. It also will make future reform much more difficult.
Nine public employees filed suit against the state Friday, Aug. 9, arguing the reform unfairly cuts their retirement benefits. That, they contend, is illegal. The case goes directly to the Oregon Supreme Court.
With the changes, current public employees will see between 0.75% and 2.5% of their contributions to their individual, 401(k)-like accounts, shift to the PERS retirement fund. That change exempts workers making less than $30,000 per year from the shift and restores the requirement that public employees put some of their own money into their defined-benefit accounts.
In addition, the reforms cap the salaries on which benefits will be paid at $195,000, though that number will rise with inflation. Currently a relative handful of retired public employees draw benefits ranging from roughly $260,000 per year to more than $900,000 per year.
Employee unions argue that the changes, which will, on average, reduce overall retirement benefits by about 1% to 2%, are an illegal breach of contract and an unconstitutional taking of benefits, according to the lawsuit.
If the changes are overturned, the state and public employers at all levels are in a fix. While SB 1049 includes other changes that will ease the burden agencies face in reducing the unfunded liability, the reforms themselves aim directly at the way Oregonians pay public employees and fund such things as schools. Unless they can make changes to the former, they cannot always afford to do what’s best with the latter. All that money comes from a single pot, of course, and what goes to one side cannot be spent on the other.