Paying for the Past, part 1: the PERS breakdown
MEDFORD, Ore. - As of 2017, there are more than 138,000 monthly payments made to PERS recipients.
That totals $350 million each month and about $4 billion this year alone.
"PERS was written with some things in it that have turned out in hindsight to be awesomely expensive. I mean no one intended I'm sure to right a really really crazy expensive pension plan but we sort of backed into it," retired 30 year financial advisor, Peter Sage said.
How we backed into it requires a breakdown of its three programs: Tier One, Two, and Three.
Tier One employees - hired before January 1, 1996 - are guaranteed an assumed rate of returns on their member account annually and can retire under the benefit option that has the highest monthly benefit: money match, full formula (1.67% x years served = percentage of final salary) and for those hired before 1981 - formula (1% x years served = percentage of final salary) + annuity.
The Tier Two package is a scaled down version of this.
It applies to public employees hired between January 1, 1996 and August 28, 2003.
This group of employees is not guaranteed an annual rate of investment returns. They're able to retire under money match or full formula (1.67% x years served= percentage of final salary).
The last category Tier 3, otherwise known as the Oregon Public Service Retirement Plan, scaled these benefits down even further.
The group also does not have guaranteed annual investment returns and is only able to retire based on a formula that provides a smaller benefit than Tier Two (1.5% x years served = percentage of final salary).
The next step is understanding the implications of the three calculation categories.
Money match, as the name suggests, promises employees to match the amount that is in their employee account. For Tier One members that account grows with guaranteed interest each year they are employed.
For Tier One and Tier Two public employees who worked for the state for 30 years, full formula is designed to provide 50 percent of their final salary. It is 45 percent for Tier Three.
For the few who were hired before August 1981, formula + annuity gives them two pools of money.
One is the calculated retirement benefit using a formula similar to full formula.
The other - is the added annuity payment a member's account balance gets.
The question now is, which of these categories is most costly and why?
"The real problem for the state of Oregon is they promised people not a mechanism to build money but a guaranteed result of that money. Ah, so you see the risk of how well you would do was largely taken on by the state of Oregon."
One of the largest problems comes down to the guaranteed returns employees were promised before 1996 and the 6 percent contribution that was included before the 2003 legislative reforms.
As an example: someone with a $50,000 account balance in 2002 received a $3,000 increase from the 6 percent member contribution ($53,000) and on top of that were credited with an 8 percent assumed earnings rate of $4,240 bringing that account up to $57,240 by the end of the year.
What does that number look like after 30 years of service? $216,000
Regardless of how much money is being made to pay for this, the PERS board is coming up short because of today's market returns.
"The real problem is that in a world of two percent interest, if you're guaranteeing 8 - ha you've got a problem," Sage said.
As of 2015 the deficit is at $22 billion. But what does that number mean in the grand scheme of things?
"Well that's about this year's budget to run schools and healthcare and all the things we do at the state level," State Representative, Pam Marsh said.