Teachers must be part of the PERS solution
Cue the howls of outrage.
Gov. Kate Brown finally did on Friday what many have long urged her to do: proposed real action to shore up the Public Employees Retirement System. Whether the most controversial pieces of Brown’s plan ever come to pass is anyone’s guess, but the reason for them is not open to question.
The howls are coming from the business community and from teachers. Both should dial back the volume and consider the consequences of continuing to do nothing.
Majority Democrats in the Legislature are pushing a business tax plan designed to raise $2 billion for schools. Teachers and school supporters are clamoring for more education dollars to keep class sizes down and improve graduation rates.
But even if the new revenue materializes, school districts still face mounting pension payments driven by the PERS system’s unfunded liability. PERS actuaries forecast a 38 percent increase in pension contributions for school districts in the coming biennium, totaling $1.1 billion.
Brown’s announcement Friday of a plan to address those pension payments would tap a variety of revenue sources, including diverting some of the income-tax kicker rebate to schools, dedicating a portion of capital gains and estate taxes and instituting a temporary surcharge on state licenses.
The two steps that are generating the most noise, however, are taking $500 million from the $2 billion capital surplus held by SAIF Corp., the state-owned workers’ compensation insurance fund, and requiring teachers to start contributing to the retirement system.
Business interests say SAIF should be off-limits, because it keeps Oregon workers’ comp insurance rates among the lowest in the country, and tapping the surplus could jeopardize that. But Brown seeks only $500 million, 25 percent of the surplus, which should leave SAIF with enough cushion to meet its obligations.
The teachers union, as expected, blasted the new employee pension contribution as a pay cut. While it is that, it’s structured to be as painless as possible.
The governor’s plan would have Tier 1 and 2 employees (those hired before 2003) contribute 3% of their pay after exempting the first $20,000 of salary. Tier 3 teachers hired later would contribute 1.5% after the first $20,000.
That’s hardly draconian, especially considering that Oregon is virtually the only state in the country where public employees contribute nothing to their retirement system. It also gives employees both a defined-benefit pension — virtually nonexistent in the private sector these days — and a 401(k)-style defined contribution plan. Most state systems offer one or the other, but not both.
None of these PERS changes would affect those who already have retired, or reduce payments to those who retire in the future. The courts have rightly held that the state may not reduce benefits already earned. But it may make changes in the system going forward.
The employee contributions could cut schools’ PERS contributions by $100 million every two years starting in 2021, and more in future years. That means more of those extra dollars raised for schools would make it into the classroom — not to mention be available for teacher pay raises — rather than continuing to drain district budgets to shore up an unsustainable system.
Teachers enjoy one of the most generous pension systems in the country. Suggesting that they help sustain it in some small way is not anti-teacher. It’s pro-common sense.