SALEM — Controlling rising public employer contribution rates to fund the Public Employees Retirement System (PERS) has long been a focus of the Oregon Legislature and Governor Kate Brown.
Thanks to a new PERS funding effort launched in 2019, over 100 public employers in Oregon — including school districts, cities, counties, and other government entities — received matching funds to make critical “down payments” to help fund their employees’ future retirement benefits.
UAL Task Force Leads to Legislative Action
Here’s the challenge: currently, there is a gap between the funds PERS will eventually need to pay for public employees’ pensions (including the retirement benefits of both current and future retirees), and the money that will be available to pay for those pensions. This shortfall is called the “unfunded actuarial liability,” or UAL.
While 74% of PERS pension benefit payments since 1970 have been paid for by long-term investment returns, the state’s over 900 PERS-participating employers also help fund those pension benefits by making contributions over time.
This UAL funding issue was significantly impacted by the economic downturn of 2008. To proactively address it, Governor Brown established the PERS UAL Task Force in 2017 to identify ways to reduce the UAL. As a result of this work, the Legislature approved Senate Bill (SB) 1566 in 2018 and SB 1049 in 2019 to establish several employer programs that require, and encourage, public employers to proactively manage their PERS employer contribution rates.
One of these programs, the Employer Incentive Fund (EIF), incentivizes PERS employers to make a lump-sum payment to pre-pay what they currently owe, reducing their overall payments by avoiding additional interest. The state offers a 25% match on qualifying payments. This lump-sum payment and match is placed in what’s called a “side account,” and effectively reduces employers’ contribution rates over an average of 18 years. A win-win for both the employee and employer.
An initial $500 million to lower future PERS payments
In 2019, the Legislature also made a $100 million investment from the General Fund to the EIF for matching purposes. The goal is that together, as long as employers are making pre-pay investments, the PERS system will have $500 million in funding to make a dent in the UAL.
Beginning in September 2019, employer applications for the $100 million in matching funds were approved on a first-come, first-served basis. The first 90 days of the yearlong application window were reserved for employers the Legislature deemed in need of more assistance, including a number of school districts.
By the time the application process opened to all employers in early December, so many employers were interested in participating in the program that the remaining matching funds were exhausted before an hour had passed.
PERS approved 117 applications from a broad spectrum of public employers and has established a waitlist with an additional 40 expectant employers, if additional funds become available. Thanks to these first applications, over $500 million in new funding has been dedicated to bolstering the PERS system — all while directly helping public employers reduce their long-term costs.
Lower PERS payments impact each public employer
While participation and employer engagement in the program are impressive on a systemwide level by increasing funding to PERS to help reduce the system’s UAL, EIF matching funds also make an important difference to individual employers.
Coming up with the funds necessary for a side account can be a difficult decision for PERS employers, as they often have tight budgets with minimal room for extra expenses. For example, Dunes City, when deciding whether or not to participate in the EIF, shared with PERS staff that in recent years the city has had to go as far as hosting a “Haunted House” just to pay for getting their water tested.
Fortunately, Dunes City was able to secure enough money to participate in the first round of the EIF. As a result, they were able to make a substantial investment in reducing their PERS contribution rates over the long term: the city’s monthly PERS payment will be reduced from nearly $1,000 to slightly more than $400.
For a city with just over $32,000 in payroll costs, lower rates as a result of the EIF will make a significant, positive impact in their budget.
Learn more about PERS’ Employer Rate Relief Programs.