Hopes for PERS reform tempered by experience

More thoughts to ponder as the PERS reform conversation continues; this from an outgoing PERS Board member: http://www.oregonlive.com/politics/index.ssf/2012/10/james_dalton_outgoing_head_of.html#incart_flyout_business

Mark, the real problem is that the education community and the public sector at large has vehemently protested every opportunity to reform PERS for the last three decades. Now reform of PERS will be at the expense of newly hired employees to pay for the excessive compensation of Tier I employees. When public sector employees are making deals/contracts with public sector employees there can be poor/unsustainable decisions. PERS represents the worst of this. PERS was a very good program that was abused by vested individuals.

There are 28,901 PERS recipients receiving over $40,000 in PERS benefits. Over half (14,549) of these recipients are receiving more than 100 percent of their final salary. The real kicker is that 2/3 of these recipients were employed less than 30 years. These are significant data that can't/shouldn't be ignored.

There would not be any layoffs/shortened work schedules in Oregon if it weren't for this grossly mismanaged position. PERS was originally designed to provide 50-60 percent of final salary. Through lobbying pressure and decision making by vested PERS board members and legislature, PERS was reformed into something not originally intended.

Key sentence in the above mentioned link,

Dalton left with a final message:

"I suspect, in your hearts, many of you know the system is not sustainable, and you know that it's not fair to place all the reform burden on new and future employees," he said. "Active (employees) and retirees need to be part of that solution."

If you study a history of the "unfunded liabilities" of the PERS system, it points directly to decisions made by the PERS board in the mid to late 90's that fully credited all the stock market gains realized through the 90's to the employee accounts directly. This is what created the situation where employees could retire and actually receive more than 100% of the final salary in monthly benefits for the rest of their lives. For many, many years the system self-funded and ran very well with excellent returns on their investments. With the unfunded liabilities that were created in 1998, the system was turned upside down and hasn't ever recovered. I find it interesting that some of the legislators that have been the most vocal about the PERS system and its woes were the same ones who were in office in the late 90's. Guess who supposedly oversees the PERS Board - the Legislature.

This is one of the best summaries about the bad judgments of PERS mismanagement. Note that it was written in 2002, but very timely. PERS was set up to be unsustainable and strongly encouraged by the educational community.

"In 1975, the Legislature voted to guarantee that public employees' retirement accounts would grow every year, no matter what. The decision came after accounts took a beating from Wall Street investments. Today, most retirement accounts are guaranteed to grow annually by at least 8 percent."

"In 1981, the Legislature decided to add another retirement formula, one based solely on years of service and a worker's final salary. Lawmakers set a clear goal with the new formula: Public employees with at least 30 years of service (25 years in the case of police and firefighters) should receive a pension equal to about 50 percent to 60 percent of their final salary."

http://oregonstate.edu/senate/agen/reports/PERS0210.html

First, one cannot accurately predict the returns on investments. To believe differently is a fool's paradise. And guaranteed growth? Wouldn't you think that someone had the sense to ask how this might become a problem? Solution -- make the legislature part of the program, so any change affects them as well.

Then the public employee unions support only those who are willing to keep the status quo, so the choice is clear -- hold a legislative office, or banter for reform from without.

And when any potential reform ends up in court, the judge, also a PERS member, will generally exclude any decision that affects his/her retirement in a negative way. Slam dunk!

So the perfect storm has arrived, and instead of reasonable solutions, the citizens of this state only get an earful of whining and threats of strikes and lawsuits to keep benefits on the rise. Soon, if things don't change, those recipients will run out of other people's money. Maybe they turn on each other at that time and solve two problems at once!

My father is a retired PERS recipient. In all the years he worked, he never took a sick day. He was assigned a brutal schedule of rotating shifts, and the state illegally denied the workers lunch breaks, until it was finally taken to court over it. His salary qualified our family for food stamps. Rather than taking food stamps, he spent his off-work time raising meat and vegetables to feed his kids. How he found any spare time in all of that I do not know – but he spent 9 years volunteering for the local fire department.
There are a number of people who should try living his “entitled” life.

Nicole,
Your father did an admiral job for your family, but what does that have to do with the excesses of PERS (Tier I)?

Nicole.

Just curious if father is the "Montesano" who is receiving 145 percent of his final salary?

http://gov.oregonlive.com/pers/search/Montesano/

I apologize, "admirable".

Felt the sting Kona,ouch. But good work.

No "sting" intended. It is just a typical example why PERS has, and always has been unsustainable. It has been human nature for recipients to desire the maximum that anyone would give them. In Oregon we have had public employees bargaining with public employees and giving more than was realistically plausible. It is now becoming very detrimental for public sector budgets and newly hired employees.

The real problem that doesn't get enough attention is a retirement that is based on "final salary". It is ludicrous to think that is a sustainable situation.

What we really need is a comprehensive PERS reform that respects both workers and taxpayers. Something like this:
http://thomasbcox.netboots.net/pers-reform

Very good suggestions and summaries.

Two key problems from the report:

1) "Ultimately any PERS reform must involve the cooperation, whether eager or reluctant, of all parties – taxpayers, the Legislature, the employers, the workers and the union leadership."

The taxpayers are the only party without a vested interest in the extravagance of PERS. The "the workers and the union leadership" have carefully boiler plated PERS for the last three decades.

2) It will be difficult to ask Tier II (1995) and OPSRP (2003) employees to sacrifice their retirement for the continued benefit of Tier I retirees.