SALEM, Ore. (AP) — Democrats unveiled a plan Friday to rein in Oregon’s rising pension costs, a peace offering to Republicans who have shut down the Senate this week demanding reform to a system that’s racked up over $25 billion in debt.
The proposal, which has been in the works for around two months, relies on mitigating employee contributions and refinancing the state’s pension debt to shield public employers from facing the brunt of upcoming rate hikes.
“It is putting money into the system, which is allowing us to not have to pay such high rate increases,” said Speaker of the House Tina Kotek following a hearing on the proposal.
The proposal was released less than an hour after Republicans skipped a Friday Senate vote on a $1 billion a year increase in classroom funding, which would be paid for through a half a percent tax on some of Oregon’s most affluent businesses.
This marks the seventh time in four days Republicans have denied the chamber enough members to formally conduct business. Republicans say the unusual move, which was last employed by Democrats in 2001, is the only tool they have to air their grievances.
Republicans say they refuse to vote on any new education funding that doesn’t address the state’s Public Employment Retirement System, known as PERS. Teachers are just some employees covered by the system, and Republicans claim that any new funding will be diverted to pay down rising pension costs.
For years, PERS has been paying out more in benefits than it has taken in in contributions, causing debt to skyrocket. That has caused rate hikes, forcing public agencies to pay more into the system each year.
Senate Democrats are proposing redirecting some employee benefits to help pay down the funding liability. Employees currently pay 6% of their salary into a 401(k)-type retirement plan, a separate account from the public pension fund. Under the Democratic plan, 2.5% of the 6% in contributions would be used to help fund PERS. Employees on the plan known as OPSRP, which has less generous benefits and makes up the majority of active public employees, will only have to mitigate .75% of their contributions.
That idea would mean less money for employees’ individual pension accounts, but it would also lower PERS costs for school districts and other public employers who pay into PERS.
But that’s a no-go for unions, who said it would cut retirement benefits anywhere from 7 to 12.5%. A coalition of public employee unions said it’s willing to sue the state if the legislature moves forward with the plan.
“Oregon educators have shown time and time again that they will stand up for their students,” said John Larson, president of the Oregon Education Association. “If lawmakers turn their backs on educators and cut retirements, we will see them in court.”
Employers face a significant 5.5 percentage point rate increase in 2021, but Kotek said Democrats’ plan could mitigate the rate hike’s impact possibly all together.
“Not only would there be any increase, it might even provide rate relief,” she said.
She added that the cuts only target one aspect of an employee’s retirement benefits, and the overall impact on employees would be less than that 7 to 12% range.
That’s a difference from the governor’s plan, which would have only insulated educators from rate hikes by requiring more contributions from employees and siphoning cash from other accounts for one-time payments.
Democrats are also suggesting restructuring repayments for employees on the Tier 1 and Tier 2 pension plans, which enjoys the most generous benefits and is one of the main contributing factors to the state’s unfunded liability. The plan would extend repayment from 20 to 22 years, lowering the state’s yearly payments but at the expense of incurring more costs in the long run.
It remains unclear whether the plan is enough to coax Republicans back to the Senate when it reconvenes on Monday. Kotek said that crafting the proposal was a “bipartisan conversation,” but wouldn’t detail the main players at the negotiating table.
Sen. Tim Knopp, the Republican from Bend who has acted as a liaison for conservatives, said he hasn’t seen the plan but that, on its face, the ideas presented are “constitutional and move us in the right direction.”
A public hearing for the proposal is set for Tuesday.
Follow Sarah Zimmerman on Twitter at @sarahzimm95 .