The actuary delivered projections to the PERS Board showing what would happen to contribution rates during the next two decades under various investment return scenarios.

(PERS/Milliman Inc.)

If the stock market's record run and bountiful returns persist through the end of the year, Oregon's beleaguered public pension fund might finally see some relief.

The Public Employees Retirement Fund's investments have earned 12.5 percent through the end of October, well above the system's assumption of 7.5 percent. That should lop nearly $2 billion off its $25.3 billion deficit.

Unfortunately, as the system's actuary explained to its board members Friday, the bull market won't do a thing to slow the seemingly relentless increase in pension costs facing government employers and taxpayers during the next five years.

Those divergent results underscore the depth of the fund's structural problems, as well as how painful it will be for government employers to unwind them.

John Thomas, the board chair, repeatedly emphasized that point during Friday's meeting, calling the cost increases a significant issue for all Oregonians. "This is not going to go away. We're going to do what we can to get to sustainability, but it's not going to be easy for employers."

Don't Edit

PERS Board members at Friday's meeting.

Ted Sickinger| The Oregonian/OregonLive

PERS published projected contribution rates this week for the system's 900-plus participating employers, effective July 2019. It plans to issue rate advisories to individual school districts, municipalities, and government agencies next week.

Carol Samuels, a Portland banker who works with municipalities throughout the state, sent an email notifying her clients that the rates were posted on the PERS website.

"Take a deep breath before looking," she advised.

Indeed, the cost increases are breathtaking, in some cases 5 to 8 percentage points of payroll.

As it is, required PERS payments from the system's 900-plus employers jumped 45 percent in July. While the system expresses those rates as a percentage of payroll, in dollar terms, it means employers will collectively contribute $2.9 billion during the current two-year budget cycle, compared with $2 billion in the last.

That's a painful increase for many school districts, municipalities and state agencies struggling with tight budgets. But there's a lot more coming. Systemwide, PERS contribution rates are set to rise about 4.5 percent of payroll in 2019, with a similar increase in 2021. That translates to almost $1 billion in extra contributions for the 2019-21 budget cycle and another $1 billion in 2021-23.

Steve Rodeman, the director of PERS, sent an email to an employers group this week saying that the actuary's financial modeling confirmed "the almost complete certainty that 2019-21 and 2021-23 employer rates will be the full increases allowed under the current rate collar policy before they start to moderate in subsequent biennia."

Don't Edit

(PERS/Milliman Inc.)

Looking forward, that means employers will be required to contribute about $5 billion per biennium to the system by 2021 – or 2.5 times what they did last biennium. And that doesn't count other retirement costs, including social security contributions, the employer "pick-up" of employee contributions to a supplemental retirement account, and debt payments on pension obligation bonds issued by many employers in previous attempts to reduce their pension costs.

The projections also assume that pension fund managers will continue to deliver the system's assumed rate of investment returns – 7.2 percent a year – over that five-year period. If that doesn't happen, the rate increases would continue in subsequent periods.

Jim Green, executive director of the Oregon School Boards Association, noted that by 2019, some districts' contributions will equal one-third of their payroll costs. Required PERS contributions for a teacher earning $60,000, for example, would cost that district an extra $20,000 a year.

"They're pretty astounding," he said of the rates. "That eats up any increases we would see in the state school fund. It's just gone."

- Ted Sickinger

tsickinger@oregonian.com

503-221-8505; @tedsickinger