County, union approve new contract BY GREG BOLT The Register-Guard Published: Friday, Dec 21, 2012 12:52PM Lane County’s parole and probation officers have approved a new union contract that will give them modest wage increases over the next three years. … Continue reading
Gov. John Kitzhaber’s proposal to slow the growth of pensions distributed by the Public Employees Retirement System, announced Nov. 30, has already riled unions and concerned public workers, but the numbers show reforms would have little impact on low-income pensioners over a decade.
Retirees with larger pensions, however, could stand to lose thousands of dollars over time. For example, the average retiree with 30 years of service could stand to lose more than $4,000 per year.
Kitzhaber’s proposal is to limit the annual cost of living adjustment for retirees, which is currently set at 2 percent. The model creates compounded pension growth every year.
The proposal is to apply the 2 percent annual increase to the first $24,000 of a person’s income. After that, the increase would be a flat $480 per year, which is 2 percent of $24,000.
The change would save about $810 million over the 2013-15 biennium and allow employer contribution rates to come down about 4.4 percentage points, according to projections made by Milliman, the actuarial firm for PERS.
Kitzhaber is counting on those savings to balance the budget, along with another $55 million from ending a state income tax reimbursement for out-of-state retirees.
“If we don’t do it, it’s going to be a very different budget picture,” he said.
But the change would have real impacts on retirees over time. It’s designed to protect lower-income retirees, but the average retiree with at least 30 years of public service would lose thousands of dollars over a decade.
These reforms would apply to every retiree in the system, including state workers, teachers, local government employees and elected officials, and would apply to every income level. It would almost halt the growth of the largest pensions in the system, and leave the smallest ones mostly unchanged.
The average retiree under PERS made $25,920 in the years between 1990 and 2011, according to PERS data. That retirement would be worth $31,596 annually in 10 years under the current model of 2 percent growth every year. It would be worth $30,720 in 10 years under Kitzhaber’s plan.
That’s a difference of $876, or about $73 per month, or 3 percent of income.
The picture is much different for longer-term workers. The average 30-year retiree between 1990 and 2011 received a pension worth about $41,616, according to PERS data.
In a decade, that would be worth $50,730 annually under the current model. Under Kitzhaber’s plan, it would be worth $46,416.
That’s a difference of $4,314, or about $359.50 per month, which is 9 percent of income.
Kitzhaber said Thursday at a Statesman Journal editorial board meeting that he’s open to modifying the proposal. Earlier calculations by Milliman adjusted the COLA cutoff upward for inflation, essentially creating a model where the COLA was applied to a percentage of income rather than a fixed amount. That model would save less money, but Kitzhaber said it wasn’t off the table.
Other possibilities include creating a trigger in the budget or the PERS fund that would allow the COLA to be reinstated as it is, he said.
“I’m actually really open to how we do it,” he said.
Even so, it’s a controversial proposal. The Service Employees Union Local 503, American Federation of State, County and Municipal Employees and the Oregon Education Association have all told Kitzhaber they won’t support the reforms, and in a Dec. 2 meeting, SEIU officials told the governor they wanted him to push tax reforms to save money instead, Kitzhaber said.
He plans to push forward with PERS, but insists the reforms should be kept in perspective.
“Still have one of the best funded retirement programs in the country,” he said. “It’s important that it’s not framed as beating up on state workers.”
Board members of Oregon’s Public Employee Retirement System got a preview Friday of some of the pension reform concepts fast becoming the centerpiece of the Legislature’s upcoming budget debate.
PERS staff and the system’s actuary, Milliman Inc., provided an overview of an analysis detailing the economic impact of about 20 reform measures.
PERS deputy director Steve Rodeman said the list wasn’t comprehensive and that staff wasn’t endorsing specific ideas, only providing information in its advisory capacity to the board and the Legislature.
“We can’t tell you how the Supreme Court will rule on these things, or even their prospects in the Legislature,” Rodeman said. “We do think it’s important that everyone is fully informed in this debate.”
The concepts range from the nuclear option of eliminating the retirement system’s controversial money match formula to ending the use of accrued sick leave and vacation time in benefit calculations. Each of the 20 concepts plays out differently in terms of its impact on various classes of employees, potential savings for employers and reductions in the system’s $16 billion unfunded liability.
There is no silver bullet. Nor is there anyway to significantly reduce pension costs without reducing employee benefits, Rodeman said.
Without changes, employer contribution rates are likely to stay high for years, even assuming strong investment returns, according to the actuary.
Required employer contributions to the system will increase 45 percent in July, carving $900 million out of the budgets of schools, municipalities and government agencies around the state in the following two years. Contributions increased by $1.1 billion in July 2011, and are likely to increase again in 2015.
Gov. John Kitzhaber already has built savings from two of the reforms into his recommended budget, released Friday. He wants to limit the application of annual inflation adjustments to the first $24,000 in retirees’ benefits.
The cost of living adjustments, based on the inflation index for the Portland-Salem metro area, typically provides a 2 percent bump in benefits annually for retirees. Limiting it to the first $24,000 in benefits could save employers $810 million every two years.
Kitzhaber also wants to eliminate an extra tax benefit for retirees who live out of state and don’t pay Oregon income taxes. That could save another $55 million per biennium.
Most of the reforms being discussed would require action by the Legislature to change the laws governing the system. John Thomas, the designated board chair, stressed Friday that the board’s role is to set rates to preserve the system’s funded status, not determine benefit levels.
“We’re going to deal with the math,” said Thomas, a retirement planning consultant who was appointed to the board this year. “If it’s untenable, that will have to be dealt with, but we’re not here advocating for anything.”
Yet the board may not be able to avoid political crossfire. It sets key economic assumptions for the system, which impact benefit levels, costs and the health of the fund.
This spring, the board will revisit its assumed-earnings rate on pension fund investments, currently set at 8 percent. Given the uncertain state of the stock market and low returns from bonds, it is widely expected to lower that assumption, potentially to 7.5 percent.
In a system the size of PERS, that small reduction would require employers to contribute a lot more — $552 million per biennium — to continue digging out of the system’s deficit. It would also lower benefits for members retiring under the system’s money match formula.
That rate change could wipe away savings from other reforms enacted by the Legislature. So if it happens, the board would likely face pressure to extend the payback period for the system’s deficit from 20 years to 25 or 30 years.
An extended amortization schedule, like a longer home mortgage, would reduce employers’ annual costs in the short run. But it would push off the repayment and raise rates in later years. It’s a risky strategy that actually increases the system deficit in the short run. But Kitzhaber and State Treasurer Ted Wheeler have each expressed some support for the concept if the board lowers the assumed-earnings rate.
Nancy Brewer, finance director for the City of Corvallis, told the board Friday that she didn’t want to see that happen. “All it does is kick the can down the road, and we are already well down that road. That’s not good financial management.”
Rhoni Wiswall, an investment professional recently appointed to the board, asked whether any of the reform proposals being discussed came from members. The answer was no.
Bill Robertson, an employee of the Department of Oregon Environmental Quality with 29 years service, provided a few reasons. He said the legal limits of reform have already been tested by 2003 changes that significantly reduced his and other employees’ retirement benefits.
“Why would I volunteer to give up anything more,” he said. “If I’m going to donate money to some cause, I’ll choose to do so.”
Turnover on the five-member PERS board has been almost complete since the beginning of the year. That includes the three slots reserved for independent members, who have no financial stake in the system.
Kitzhaber recently nominated Michael Jordan, the state’s chief operating officer, to take the board position reserved for a state manager. Pat West, a former firefighter who represents public employees and retirees on the board, is the only remaining board member with a lengthy tenure. PERS Board reviews potential pension changes | OregonLive.com.
Three months after a third-party arbitrator ended what seemed like an never-ending dispute between TriMet and Amalgamated Transit Union 757, the two sides can’t even agree on how to start discussing the next contract.
TriMet’s recently settled three-year contract with workers ended Friday. So, the union and Oregon’s largest transit agency were scheduled to start bargaining on a new agreement at 9 a.m.
But after a dispute over whether or not the proceedings should be treated as a public meeting (and, thus, open to the public), the union decided to skip Friday’s opening session.
TriMet called it a “no-show delay” tactic. “This starts the 150-day clock for negotiations as required by state statute,” the agency said in a press release.
ATU 757 has called on TriMet to make the bargaining sessions open to all comers as public meetings. Although previous negotiations with past contracts have been closed sessions, TriMet has said it is willing to allow members of the press attend,
But the agency doesn’t believe the sessions are subject to public meeting laws.
“These are difficult and complex issues that deserve both transparency and a negotiating atmosphere that avoids spectacle,” said Randy Stedman, TriMet executive director of human resources and labor relations.
TriMet has asked a Multnomah County Circuit Court judge to rule whether the sessions qualify as public meetings under the law.
The union sent Stedman a letter on Thursday, saying it didn’t intend to start bargaining until the legal dispute is settled.
In a volley of emails this week, ATU said TriMet’s decision to open the sessions to only “established” media outlets would amount to the agency hand-picking who covers the talks.
“I think the union has made clear its position that it cannot agree to your conditions on negotiations,” wrote ATU 757 President Bruce Hansen in the letter to Stedman.
TriMet said it wanted to meet Friday to establish ground rules and exchange proposals. The agency has posted its proposal on its website.
The last contract ended in November 2009. But it wasn’t until July that an arbitrator sided with TriMet’s proposal, resulting in employees paying more toward health care benefits. The agency said Friday that it wants the next contract to continue reducing the costs of what it calls “one of the richest health care benefits in the public transit industry.”
TriMet’s new proposal calls for moving the current preferred provider plan from a 90-percent-to-10-percent split to an “80/20 plan that includes employees paying six percent of the cost of the service provided.” This change would match what TriMet administrative employees pay for the preferred provider plan, the agency said.TriMet, union contract negotiations stall before they start (poll) | OregonLive.com.