Webinar will be posted to organization website

Transcription

1 Webinar: PERS: Understanding the issue and the challenge 1

2 Session recorded d Participants Also available Webinar will be posted to organization website 2

3 Problems in the webinar 1. Your volume controls 2. Call OSBA at

4 Jim Green OSBA Deputy Executive Director Welcome and Introductions 4

5 Webinar Speakers Jim Green, Deputy OSBA Executive Director John Tapogna, President ECONorthwest 5

6 Agenda Opening and introductions Background Tapogna - presentation Questions Green - Legislative Solutions Questions Wrap up and next steps 6

7 Background on PERS 2003 Reforms Rate relief Rates Now Will go from 19% to 26% If we do nothing rates will continue to increase for several years. 7

8 John Tapogna 8

9 PERS: Understanding the nature of the challenge 9

10 Different Ways to Run into Trouble with a Public Pension System 1. Design an expensive program 2. Defer or delay contributions to fund the system regardless of its generosity 10

11 PERS History In 1979, the PERS Board set a goal that post-retirement income for a career employee when added to Social Security should replace percent of the employee s pre-retirement retirement income. 11

12 Guaranteed Rates and 30% Excess Crediting 20% 10% 0% -10% Guarantee Tier-1 Crediting -20% Returns -30% Source: PERS by the Numbers (2012) page 14 12

13 Average Replacement Ratio Based on Final Salary, PERS Retiree with 30 years of Service, PERS + Social Security 140% 130% 120% 110% 100% 90% 80% Adequate Replacement 70% 60% Source: ECONorthwest calculated using PERS by the Numbers (page 5) and an assumption that Social Security replaces 30% of final average salary. 13

14 3 States, 3 Economies, Similar Liabilities State-Sponsored t Sponsored Plans*, 2010, (in thousands) 300,000, ,000, ,000, ,000,000 Total Personal Income Liability Assets 100,000,000 50,000,000 0 Washington Colorado Oregon Source: Pew 2012 and BEA; *All three states deliver pensions to state and local public employees primarily through statesponsored plans (that is, 98% of membership in OR and 95% in WA and CO). In each state, a number of separate, local 14 government plans exist and are not reported here.

15 Oregon/Washington Rate Comparisons for Selected Plans 35% 30% 25% Comparison of Member and Employer Contribution Rates, Oregon PERS (School Districts) and Washington TRS, 2011 Valuation 20% Employer-UAL 15% Employer-Normal Cost Member Contribution 10% 5% 0% TRS 1 TRS 2/3 OPERS 1/2 OPSRP Source: WA Office of State Actuary Actuarial Valuation Report /2012 (page 13) and Milliman OPERS December 31, 2011 Valuation 10/2012 (page 37 and page 43) 15

16 School District Payroll 2,786,000,000 1% of Payroll 27,860,000 Average Teacher Compensation 90,189 Teacher Equivalents per 1% Payroll 309 July 1, 2013 Rate Increase as % of Payroll 7.2% Teacher Equivalents 2,224 16

17 Average Base Contribution Rates Including IAP (No Adjustment for Side Accounts), Assumes 7.25 ROR 40% 35% 30% Con ntribution Rate 25% 20% 15% 10% 5% 0% Source: ECONorthwest. Historical data from PERS: By the Numbers. September 2012 (page 17). Projections derived from Larrabee Actuarial Shortfall and Contribution Rates, November 30, 2012 (page 7) 17

18 Reform Principles i 1. Adequacy: Beneficiaries should have an adequate retirement income. 2. Legality: The reform should stand a high h likelihood of withstanding legal challenge. 3. Sustainability: The reform should support the plan s long-term viability. 4. Fiscal Impact: The collection of reforms should meaningfully reduce the system s unfunded liability and provide fiscal relief in

19 Policy Options 1. Limit future COLAs 2. Change the annuity rate used in money match calculations 3. Reform methods to calculate final average salary 4. Redirect member contributions for Tier I and Tier II employees to the pension programs 5. Eliminate tax remedy payments for non- Oregon resident retirees 19

20 Accrued Liability and Impacts of Key Proposals (in millions) Active Inactive Retiree Total Rate Impact Accrued Liability 19,583 4,896 36,719 61,198 COLA cap at $480 1, ,623 4, % Eliminate Money Match 3,200 2, , % Reform FAS Calculation % Out of state tax adjustment* % IAP redirection or sunset < < % - 6.7% *Policy would affect some members who are not currently retired. Milliman s estimate did not breakout savings by 20 group.

21 40% 35% 30% 20% Average Base Contribution Rates Including IAP (No Adjustment for Side Accounts), Assumes 7.25 ROR tribution Rate 25% 15% 10% 5% 0% Lower estimate assumes member contribution is redirected to pension system and/or sunset. Cont

22 Jim Green 22

23 PERS Reform Options outlined in SB Cap Cost of Living Adjustments savings for school districts: Approximately $245 million. Capping the COLA still will allow all PERS retirees some level of a COLA on their retirement benefits. 23

24 PERS Reform Options outlined in SB Eliminate the PERS Tax Adjustment for Out- of-state Retirees savings for school districts: Approximately $16.7 million. PERS retirees receive extra money to offset the effect of state taxation on their retirement plans. PERS makes these payments to the pension whether or not the retiree lives or pays taxes in Oregon. 24

25 PERS Reform Options outlined in SB Redirect the 6% I.A.P. for Tier 1 and Tier 2 Members savings for school districts: Approximately $173 million. State law requires PERS Tier 1 and Tier 2 and OPSRP members to contribute 6% of their salary to retirement, although 70% of public employers pick up the employees share. The 6% is placed into an individual account (I.A.P.) where it behaves like a 401k, which the member will receive at retirement in addition to their standard pension formula. This proposal would redirect the 6% from Tier 1 and Tier 2 members back into the PERS fund so members have buy-in into the system. 25

26 PERS Reform Options outlined in SB Reduce the Money Match Annuity Rate Savings for school districts: Approximately $67 million. The Money Match, which is a unique benefit only to Oregon s pension plan, has generated increased benefits for most retirees who receive it. Under Money Match, a member s individual account balance grows at 8% each year, guaranteed. At retirement the account balance is doubled, and the resulting balance is converted to an annuity which also grows at 8% annually. Money match retirees also receive the 2% COLA. 26

27 PERS Reform Options outlined in SB Prevent Pension Spiking Savings for school districts: $39 million. Government employees about to retire can apply overtime, vacation pay, unused sick pay and other adjustments to boost the level of final average salary (FAS) (used in pension formulas) of near-term retirees. The recommended reform would tighten the definition of FAS to mitigate pension spiking. 27

28 Submit questions 1. Type question here 2. Click to submit 28

29 Questions and Answers: PERS: Understanding the Nature and the Challenge 29