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Since You Asked: PERS has a long and bumpy history Sunday Oct 9, 2016 at 12:01 AM I know there have been several articles regarding PERS but I would like to see a simple explanation of how this all got started. How and when did it begin ? Who is responsible for creating the current contract that apparently cannot be amended ? What is the guaranteed interest rate paid on PERS investments? How much are public employees required to contribute to their own retirement fund? What does the lowest level tier receive in benefits? How much longer are we expected to pay for this? — Donna L., Medford Well, Donna, first of all, there is no simple explanation. Second, that's way more questions than we have space to answer in detail. But we'll give you the executive summary: PERS, Oregon's Public Employee Retirement System, was created in 1946. It included what was called a money match, which essentially said that government agencies participating in PERS had to match the combination of contributions made by employees and investment returns. In 1975, the Oregon Legislature upped the ante by guaranteeing the retirement accounts would grow by no less than PERS' assumed earnings rate each year, even if actual investment returns were lower. In the 1980s, that assumed earnings rate was set at 8 percent (the rate is currently 7.5 percent). Between 1980 and 2000 the average return to employee accounts was 13 percent and the high was 21 percent. But in the down economy of 1979, the Legislature agreed that in lieu of wage increases for public employees, the employee contribution could be paid by employers. In 1996, as the obligations began stacking up in earnest, the state changed the benefits package and so-called Tier 2 employees hired after that point received a less-generous deal that was based on market returns, with no guaranteed earnings rate. In 2003, Tier 1 employees' returns were capped at PERS assumed earnings rate and a Tier 3 was created with further reductions in benefits for new hires. According to the state, Tier 3 employees' pensions are intended to pay 45 percent of their final average salary and they can participate in an additional program similar to a private 401(k) account. In 2013, the Legislature's "Grand Bargain" further reduced PERS costs, but the Oregon Supreme Court struck down the bulk of the savings, saying the state had agreed to a contract with its employees and was required to honor it. The court decision added about $5 billion to the fund's deficit, which is heading toward $20 billion. And the outlook this year is definitely gloomy: State and local governments are expected to have to increase their contributions into the system by 4 percent of payroll costs in each of the next three bienniums. That amounts to about $2.5 billion — money that will have to come out of those governments' budgets, most likely in the form of staff reductions and cuts in services. Because the courts have ruled that the PERS contract must be adhered to, there is no simple fix. PERS' biggest financial burden is with public employees hired before 1996, when the Legislature began reducing the benefits. Currently, about 1,500 PERS retirees receive pensions of more than $100,000 a year and another 23,000 are paid more in retirement than they were while working. Almost all were hired prior to 1996. There are currently about 121,000 PERS retirees. Time will address some of the issue, as Tier 2 and Tier 3 retirees replace those who retired under Tier 1 plans. But that won't happen rapidly, meaning the state and its taxpayers likely will be dealing with the issue for decades to come. — Send questions to “Since You Asked,” Mail Tribune Newsroom, P.O. Box 1108, Medford, OR 97501; by fax to 541-776-4376; or by email to [email protected]. To see a collection of columns, go to mailtribune.com/youasked. We’re sorry, but the volume of questions received prevents us from answering all of them.