Pension reform plan advances, kicker rebate not targeted
SALEM, Ore. (AP) — A plan to rein in the growing costs of Oregon’s public pension system was sent to the Senate floor Tuesday after passing two key committees.
But Democratic leaders face a stiffer battle before the full chamber, where some members of their own party are recoiling at the idea of dipping into employee benefits to help pay down the state’s unfunded liability.
“The folks who are being asked to take on the role of solving this issue for the state are the very employees who have worked so hard to keep to try to keep the state afloat over the past few years,” said Sen. Lew Frederick, a Democrat from Portland who intends to vote no. “It is an issue of fairness in my view.”
Teachers, firefighters and social workers are just some of the employees covered by Oregon’s Public Employee Retirement System, or PERS, which has racked up over $25 billion in debt over the years.
Lawmakers have zeroed in on pension reform following the passage of a $1 billion school tax package, but they’ve struggled to come up with a plan that’s politically palatable to both parties. House Speaker Tina Kotek confirmed that there aren’t plans to redirect the kicker__a tax rebate unique to Oregon__to pay down pension debt, an idea that drew some support from the governor and other Democrats.
“The votes aren’t there,” she said, but added that she hasn’t yet given up on her plan to use half the kicker funds to pay for infrastructure upgrades to a heavily trafficked bridge in Portland.
To shield employers from impending rate hikes in 2021, Kotek and other leaders are suggesting paying down the debt by siphoning money from employees’ secondary pension accounts. Employees currently pay currently pay 6% of their salary into a defined contribution plan, 401(k)-type account that’s separate from PERS.
For employees hired before 2003, 2.5% of those future contributions would be redirected to PERS. Employees hired after that year, which is when the state switched to a less generous benefits package, will have .75% of their contributions mitigated.
The plan will ultimately cut 7 to 12.5% of retirement benefits from this secondary pension account, which unions and public employees say is a nonstarter.
“The cut to my Individual Account Program would be significant to me and my family,” Matt Brozovich, a Salem firefighter, told a legislative panel last week. “It’s time for lawmakers to stop playing political games with our retirements.”
Lawmakers also plan to use some of the expected revenue from the burgeoning sports betting market to incentivize employers to pay more money into PERS.
States have been scrambling to implement legalized sports betting markets after the U.S. Supreme Court gave its approval last year. Oregon lottery officials wants the state’s legalized sports betting market ready to go in time for football season this fall.
That future revenue, which is expected to be smaller than in other states, would be used to match voluntary pension contributions from employers.
Oregon currently incentivizes employers to pay down their debt by offering to match 25% of large, lump-sum contributions. But that program has yet to get off the ground, because the state has yet to put money into that incentive fund.
Under this proposal, revenue from sports betting will sustain the program, according to Kotek.
“We want to encourage local employers buy down their part of the debt,” she said. “Because if they buy down some of their side account debt, their contribution rates go down in the future.”
Republicans have shoved pension reform into the political spotlight and walked out of the capitol in protest this month to protest what they said was lack of action on the Democrats’ part to tame runaway pension costs.
But in the face of a proposed pension fix, they’ve largely remained silent. Sen. Fred Girod, a Republican from Stayton who worked on the negotiations, said it was a “really good first step.”
Some Democrats indicated they were willing to bite the political bullet. Rep. Paul Holvey, from Eugene, said lawmakers have to take action now if they want to counteract expected pension rate increases __ which he says will most assuredly eat into budgets and lead to reduced staff and services.
“It would be easy to vote no, but that would do nothing to fix the escalating cost,” he said, adding that this solution is better than “continuing Oregon in a downward spiral by voting no with no viable solution to this problem.”