Public employee unions would be wise to immediately accept relatively minor pension reforms to forestall harsher measures later.
At a town hall meeting last week, state Rep. Bruce Hanna, R-Winchester, said the Oregon Public Employees Retirement System has become an unsustainable drain on taxpayers.
The numbers support his position.
The state projects unfunded pension liabilities of $16 billion over the next 20 years. The shortfall has roots in the stock market nosedive of 2008. PERS, like individuals with private retirement accounts, lost wealth.
But unlike workers with 401k accounts, public employees are promised benefits. If investments fall short, taxpayers are on the hook.
Taxpayers are still digging out of the hole. Pension contributions by school districts, state agencies and local governments are scheduled to rise by 45 percent on July 1. The increased contributions will total $900 million over two years. That’s money that could be spent on education, public safety and other public services.
Gov. John Kitzhaber has proposed two measures to shift some of the burden from taxpayers to PERS beneficiaries.
The first would eliminate payments to out-of-state retirees to offset state income taxes. This would reduce benefits by about 6 percent to 18,000 retirees, saving $55 million over two years and reducing the unfunded liability by $380 million, according to a PERS board analysis.
More significant, Kitzhaber has proposed applying cost-of-living adjustments to only the first $24,000 of a retiree’s pension.
Most retirees would not be immediately affected. Some 54 percent of PERS pensioners receive less than $24,000. Some retirees would feel the bite. A worker with a $48,000 pension would lose $128,799 in benefits over 20 years.
For the state, the savings would be significant — $810 million in the first two years. In the long run, the move would take a $4.3 billion chunk out of the state’s $16 billion problem.
Hanna endorsed the thrust of the governor’s proposals, though he supports exempting the first $36,000 from cost-of-living adjustments.
Many other cost-saving ideas are circulating. Lawmakers should remove ways to artificially inflate pensions, such as counting unused sick pay as salary.
The worst thing public employee unions and sympathetic lawmakers could do is hide the problem. Sen. Alan Bates, D-Medford, has introduced a bill to keep pensions for individuals secret. This would overturn a decision by former Attorney General John Kroger to release the information. This is how the public learned that former University of Oregon football coach and athletic director Mike Bellotti has a state pension of $41,342 a month.
Such revelations contributed to political support for PERS reform. But it’s nothing compared to the anger that will be raised if secrecy cloaks a system that demands taxpayers pay more to get less.
The secrecy and drain in resources would stoke the sort of anti-public union feelings seen in other states, such as Wisconsin.
If that happens, public employees could lose their defined pensions and have to nervously open quarterly 401k statements, like most private-sector workers.