The Oregon Public Employees Retirement System board recently leaned from their actuaries that the system will require another massive increase in contributions starting in the 2027-2029 biennium. This means that by 2027, contributions will have increased almost 80 percent from the biennium just ended, from $5.26 billion to $9.35 billion, over 25% of payroll.

Here is my testimony to the September 26 meeting of the  PERS Board, where I describe the years of failures by both PERS Boards and the Legislature that have led to today’s situation.

Members of the PERS Board:

More bad news this time has once again left you with nothing but bad choices.

Expiration of side accounts and continued payroll growth are driving an incredible $1.58 billion increase in employer contributions for 2027-2029 on top of an even larger increase two years ago. This will undoubtedly send fresh shock waves through every public employer, as it should. The PERS Board’s mission of providing stable and predictable contribution rates lies in tatters.

Once again you get little help from OPERF. Far from it. Investment performance has collapsed into a major crisis, with no quick solution in sight. The Oregon Investment Council is under intense scrutiny, and wide-spread media coverage ( here, here, here, and here) is raising public awareness. You don’t have to be an investment professional to see that it’s going take years for OPERF to regain a semblance of normalcy, especially when we have an Investment Council that issued this misleading press release cherry-picking shreds of good news while not acknowledging the disaster of the last four years.

For years, PERS Boards have used OPERF as a piggy bank, drawing a large percentage of pension payments from investment earnings and avoiding lowering the assumed rate of return. Those years of PERS Board complacency are now coming back to haunt you. We see that factors outside of your control are leading to this huge rate increase without even lowering the assumed rate, giving employers all the pain of a rate spike while doing nothing to make progress on the unfunded liability.

The PERS system has now become a runaway train, gobbling up more billions of taxpayer money as you look on powerlessly. I expect you will not lower the assumed rate, even though you should. It’s an epic mess brought on by decades of bad behavior by PERS Boards and the Legislature alike.

In 1975 the Legislature and PERS Board made the two most catastrophic decisions in PERS history: mandating a guaranteed minimum rate of return for PERS members and crediting a large share of investment earnings above that return directly to member accounts.  Subsequent PERS Boards continued excess crediting for over two decades, transforming PERS into a massive transfer of wealth from Oregon taxpayers to future retirees. By the year 2000, the average PERS pension for new retirees with 30 years of service reached 100 percent of their final salaries. System liabilities exploded, setting the stage for today’s crisis.

By the time reforms began in 2003, the damage was immense. To see the real-life impact of these decisions for yourselves, explore The Oregonian/OregonLive’s PERS beneficiaries database.

The 2008 financial crisis exposed the depth of PERS’s problems. By the end of 2008, funding had crashed from 111 percent to 80 percent and has never recovered.

After the 2008 crash, PERS Boards did not act for six years to start lowering the assumed rate of return. Finally, in 2014, a new board chairman began lowering, guiding rates down in three consecutive rate-setting sessions, from 8.0 percent to 7.2 percent. Then progress stalled again during the Shenoy era, when rates were lowered only one time, and only with actuarial pressure.

There has been virtually no progress on lowering the unfunded liability since 2008. You still seem to believe that somehow OPERF will spring to life to do the work for you. That won’t happen any time soon. OPERF’s returns from 2008 to present now stand at less than 6.5 percent per year (author’s calculation from Treasury data).

If PERS Boards had acted responsibly from 2008 forward and steadily lowered the assumed rate while the side accounts still existed to moderate the effect on employers, we would not be facing the disastrous impacts of the shocking rate increases of the last two years.

The consequences of decades of dreadful decisions by PERS Boards have now landed in your laps. There are no easy answers. I sincerely wish you the best in trying to navigate this fraught situation.