One after another, teachers, firefighters and other public employees went to Salem last week to register a simple complaint with legislative proposals to reduce their pension benefits:
It’s not fair.
All things being equal, they’re right. Cutting workers’ future benefits to help employers cover skyrocketing costs for previous employees’ overly generous packages isn’t fair. Current workers largely aren’t responsible for the $22 billion unfunded liability weighing down the Public Employees Retirement System. The vast majority won’t see anything close to the obscene payments that some OHSU doctors, football coaches and university professors are enjoying due to years of reckless policy and legislative indifference to the system’s financial impacts.
But when it comes to the enormity of Oregon’s pension crisis – and the narrow legal path for addressing it – the fairness of reductions is almost beside the point. The uncomfortable truth is that the burden of feeding the PERS liability and its pressure on budgets will mean inequities for Oregonians all around: K-12 students losing school days and programs; low-income Oregonians paying taxes to fund someone else’s six-figure retirement; and college students staring down possible double-digit tuition increases. Today’s public employees are just part of the unlucky club stuck paying for the self-serving decisions of PERS board members and policymakers in the past.
And that’s what legislators must remember as employees ratchet up their opposition to reform proposals, such as those offered by Sen. Tim Knopp, R-Bend, which would use a five-year average in calculating an employee’s “final salary” for pension purposes and would redirect contributions now going to employees’ supplemental retirement accounts back into the pension fund. Cries of “it’s not fair” aren’t a good enough reason to leave PERS alone. For one thing, failing to take action will still result in widespread unfairness anyway to public employees and taxpayers alike. Reduced budgets translate not only into fewer services for taxpayers but also fewer public employees to provide them.
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Second, legislators have the opportunity to shape reforms that can park the burden more squarely on those receiving more generous benefits. While the majority of workers fall under the more reasonable “Oregon Public Service Retirement Plan” adopted in 2003, there are still many current employees whose benefits are calculated under the richer plans that predated those changes. Changing some of the terms for those “Tier 1” and “Tier 2” employees to more closely track those in OPSRP would provide savings and help preserve some fairness in the system, argues Tim Nesbitt, a public policy consultant who has worked on PERS reform for the Oregon Business Council. Similarly, legislators can tailor Knopp’s reforms to kick in only for higher-earning employees, helping protect those on the low end of the salary scale, Nesbitt notes.
Third, even the post-2003 retirement packages for public employees are generous enough to allow some changes. As The Oregonian/OregonLive’s Ted Sickinger reported, Oregon’s retirement system includes both a defined benefit plan – in which the system aims for a benefit equal to 45 percent of the employee’s final salary – and a defined contribution plan, similar to a 401(k). A majority of Oregon’s public employers makes a 6 percent contribution on behalf of their workers to these 401(k) type accounts. Public employers also pay into Social Security for workers, unlike in many other states. At the same time, the number of employees in local government has rebounded to pre-recession levels, while state employment has surged to its highest level since at least 1990, according to Oregon Employment Department data. A sharper look at pension benefits is prudent regardless of the emergency that the state is now in.
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And finally, cutbacks in PERS would intensify pressure on the business community, which also must be part of a solution to Oregon’s fiscal woes. That process has already started with Sen. Mark Hass, D-Beaverton, who has been working with business groups and is leading efforts to boost corporate tax revenue and stabilize Oregon’s volatile personal income-tax based system.
Public employees, businesses and legislators should recognize it’s in their best interest to seize the opportunity to make fundamental changes now. If leaders fail to map out a strategy that both relieves the state’s projected $1.8 billion budget deficit and eases future pension contributions, Oregonians now and ahead will be punished in the ultimate unfairness. Then, the cries of “it’s not fair” will be coming from unhappy voters turning their dissatisfaction into populist policy at the ballot box.
– The Oregonian/OregonLive Editorial Board
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