Yet another state is preparing for a major hit by the pension storm. Oregon’s pension fund for public employees is now in a $16 billion hole caused by the failure of its investments to come anywhere close to the 8 percent rate of return the state was predicting. Now lawmakers are forced to choose between contributing billions of taxpayer dollars to close the pension gap or fully funding the state’s school system.
The Seattle Post-Intelligencer has the details on exactly how the state got itself into this mess. The main culprit, as usual, is a set of overly generous benefits that actually allowed some state employees to earn more in retirement than they did during their working days:
— Workers hired before 1996 get a guaranteed annual return on their account of 8 percent, regardless of the actual performance of financial markets. In some years when market returns exceeded 8 percent, the entire growth amount was credited to member accounts — as much as 21 percent in one year. As a result, workers shared in the fruits of economic booms without losing out during busts.
— Some retiring workers can choose an option known as the “money match,” in which the pension fund doubles the money in a retiree’s account and converts it to an annuity. With accounts swollen by generous credits of investment returns, the option can result in a substantial retirement benefit.
— Depending on their date of hire, some workers who reject the money match option get credit for unused sick leave and vacation time to boost the value of their pension check in retirement.
— Public employees are required to contribute 6 percent of their salary to their pensions. In the past, many government agencies have agreed to pick up the 6 percent contribution for their workers in lieu of pay increases.
To their credit, state lawmakers have realized the scope of the problem, and there is a real chance that many of the most egregious benefits will be cut this year. But as we’ve seen before in these situations, the real losers will be the young, while the boomers will get away scot free—the state Supreme Court has ruled that pensions for current retirees cannot be altered:
Identifying major savings on pension costs is tough to do. The Legislature has twice scaled back pension benefits for new hires, in 1995 and 2003, with workers now getting far less generous retirement income than those hired in 1995 or earlier. But the system’s significant cost drivers are promises made to current workers and retirees, and state Supreme Court has ruled those benefits are largely sacrosanct because they amount to a contract between the government and its employees.
And to pay these grossly inflated pensions, Oregon kids are going to get less in the way of services—$308 million less, or $560 per kid. The blue war on the young continues.