Democratic leaders have settled on recycling an old, but nevertheless controversial method to shave the crippling increases in pension costs forecast for Oregon's public employers over the next six years: employee cost sharing.

The plan, along with other cost-containment measures proposed Monday, is the opening gambit in an end-of-session tug of war over new revenue proposals and the effort to plug the state's $1.4 billion general fund deficit.

Senate Bill 1068, sponsored by Senate President Peter Courtney D-Salem, and Sen. Mark Hass, D-Beaverton, would have employees contribute 1 percent of their salary to the pension fund starting July 1, 2018. Employees' "risk sharing" contribution would grow to 2 percent on July 1, 2019, and be adjusted thereafter based on the funded status of the system and its overall cost.

The state's public employees have not contributed to the pension fund since 2004. That's when lawmakers redirected a required 6 percent retirement contribution into separate employee-owned accounts to defuse the runaway growth of pension benefits under the Public Employees Retirement System's lucrative money match formula.

The bill is structured so the new contributions wouldn't reignite that problem, but they wouldn't have much impact on the health of the system or its $22 billion funding shortfall. Instead, it would shift some contributions to employees and provide some budget relief for government employers and, ultimately, taxpayers.

The lack of employee contributions makes Oregon PERS an outlier among state pension systems, which typically look to employees to cover a quarter or more of the cost of benefits. The average employee retirement contribution in state plans where employees also get social security, which is the case with most employees in Oregon, is 6 percent of payroll, according to the National Association of State Retirement Administrators.

Still, Courtney drew a line in the sand Monday. He said he wouldn't advance the pension bill, which he developed in consultation with public employee unions, unless lawmakers agree to a "significant revenue package," meaning higher corporate taxes.

"Cost-containment and PERS reforms can be part of the solution," Courtney said in a prepared statement. "Tax reform that raises significant revenue needs to be in the equation. Then, we can change Oregon's future. Then, we can put our state back on a sustainable path. We've worked all session to get to this critical point. It's time to close the deal."

Because the employee contributions wouldn't kick in until July 2018, savings for public employers in the next two-year budget cycle would be modest – about $100 million. With the higher contribution in effect over the full two years of the following biennium, the overall savings to employers would grow to more than $400 million.

About 40 percent of PERS contributions come from the general fund, so the state budget savings in the next two years would amount to about $40 million – not much against a $1.4 billion shortfall.

Senate Republican Leader Ted Ferrioli of John Day called the proposal "'PERS Reform-Lite,' not the robust restructuring needed to protect the system's long-term solvency.

"The 'Risk Sharing' proposal authored by public employee union members, while better than a 'study' or a 'task force' as the governor has suggested, fails to deliver the savings necessary to allow the Legislature to prioritize education, health care and public safety," he said in a prepared statement.

In fact, SB 1068 might not deliver any savings to employers for years. For starters, the PERS Board already is considering lowering the assumed return rate on its investments, a change that could bring a much larger increase in employer contributions than the cost shift to employees under the bill.

Meanwhile, employers have already been told to expect contribution increases this July, as well as in 2019 and 2021. If some of the employers' current costs are transferred to employees, future rate increases could shift forward, erasing any savings.

PERS has not discussed implementation of the bill with its actuary, while the PERS Board has already adopted new employer contribution rates that kick in July 1. PERS Executive Director Steve Rodeman said he didn't know whether the system's board would recalculate employer rates.

Moreover, the cost shift to employees could be undermined by subsequent concessions in collective bargaining. And finally, the bill includes a provision that refunds contributions to employees who leave public employment before they vest in the system.

Tim Nesbitt, a consultant to the Oregon Business Council, said the full, advertised savings are unlikely to materialize. "It will be steeply discounted by the refund effect."

The business council has been pushing for a combination of new employee contributions and benefit reductions that would collectively save employers 6 percent of payroll, or about $1.2 billion each biennium.

Nesbitt called the new proposal "something to work with," but said the numbers contemplated "would be a huge disappointment, especially when you consider its (limited) impact on school funding this biennium."

Unions, meanwhile, are saying they can't support the plan without comprehensive revenue reform that raises corporate taxes.

"While we can't support this plan, we are willing to engage with the Legislature around cost containment so long as it is connected to real revenue reform, paid by corporations, that allows Oregon to invest in better schools, greater access to health care, and improved services for all Oregonians," Steven Demarest, president of the Service Employees International Union Local 503.

While the bill characterizes the employee contributions as "risk sharing," it includes a number of provisions that would limit any cost increase for employees over time.

The employee risk share payment, for example, is calculated based on the cost of newer, Tier 3 employees, which is far lower and not as volatile as those of older Tier One and Tier Two employees, who comprise the bulk of the system's unfunded liability.

Below a minimum system cost, employees would pay nothing. Increases in employee contributions are limited in any one biennium and the employee contribution is capped at 4 percent of salary.

The Oregon Business Plan Coalition, which includes the state's major business associations, said Monday that the 1 percent employee contribution proposed Monday would do little to slow the runaway pension cost increases for schools and state agencies.

"Oregon government employees should be paying a portion of their pension costs, just like those in every other state do. But the cost sharing proposed doesn't adequately match escalating costs."

- Ted Sickinger

503-221-8505; @tedsickinger