Events in the past few centuries have resulted in the transformation of our working society from self-sufficiency to wage dependency. This has resulted in an increasingly mobile workforce whose economic security was and is threatened by recessions, injury, layoffs, and eventual old age. Many members of this mobile work force have left the extended family behind which means that often the elderly cannot depend on family members for care. It is in this environment that the concept of a retirement system took root. After the Civil War retirement benefit plans were developed in various parts of the country. A relatively recent defining event that illustrated the need for pension plans for economic security was the Great Depression. During that time poverty was widespread, especially among the elderly. The federal government responded to the crisis by passing groundbreaking legislation including the Social Security Act, which was signed into law by President Franklin Roosevelt in August 1935.
Unfortunately at that time Social Security was not available to most government employees including Oregon public employees. In 1933 the Oregon Legislature passed the Old Age Pension Act that covered all Oregonians over the age of 70. That program didn’t last and the debate continued. Meanwhile Police and Firefighters established their own funds that eventually proved to be inadequate. In 1939 the Governor appointed a committee of 25 state and local government representatives who consequently recommended the establishment of a single pension system to cover all state and local employees. Still, in the face of considerable opposition, nothing was done.
Some public employers were dealing with the situation in their own way. Many of these solutions came to be known as “hidden pensions”. A few had a policy of carrying retired employees on a special payroll. Others offered part time employment to employees aged 70 and above. The City of Portland would pay retired employees who were not members of a retirement system a pension that ranged from $1 to $100 per month. The employee made no contribution and hence had no guarantee that it would be paid. Sounds like an interesting arrangement. In general, these arrangements tended to cost more than a planned retirement.
All this time, Oregon lagged behind other states and municipalities in offering some sort of retirement system. This was quickly becoming an issue of attracting qualified employees. This became more obvious with the advent of the Second World War when public employers were losing out to private industry and were less able to compete with benefits and salaries.
After much theatrical maneuvering and subsequent drama following the longest debate in the state’s history, HB344 was passed and became effective on July1, 1946. This huge leap was considered to be necessary in order to avoid more “radical” proposals.
The initial PERS was a bare bones system and many changes have been made over the years. One change concerned Social Security, which initially excluded public employees. After many years of debate, states were allowed to participate on a restricted basis. Still, in 1951 most Oregon public employees were not covered. Finally, in 1953 President Eisenhower stated that the benefit of Social Security should now be extended to cover millions of citizens who have been shut out of the system while also encouraging privately sponsored pension plans. This appeared to be a moment of opportunity so Oregon Governor McKay appointed a committee to investigate the possibility of combining PERS and Social Security. The conclusion was that the two programs together could provide a better income after retirement. Still, a problem existed. Public employees could not be covered under Social Security if they were already covered under an existing plan. The obvious rather tricky solution was to repeal PERS for a day and bring it back after Social Security took effect.
The years following started out on a generally positive note. The 1950’s ended with PERS still intact after surviving some serious threats. During the 1960’s there was a general concern about the adequacy of the program. There was a great push toward investment in a high inflation high employment environment. Members became involved and there was an attempt to make public jobs more attractive. This emphasis on growth continued in the 1970’s. Cost of living increases and retirement age limits were adjusted to the employee’s advantage. Employees were frustrated by high inflation and low wages. Fortunately independent evaluations concluded that the fund was in good shape.
The 1980’s and 1990’s were about scrutiny and more scrutiny. The optimistic spirit was gone and the general concern was about high taxes and excessive government perks. PERS became an abused political football as pension plans in the private sector began to disappear. In spite of all this Governor’s task force in the 1990’s determined that total compensation was consistent with market expectations. The State began taxing PERS benefits and a second tier with reduced benefits was introduced. Anti-tax sentiment took the form of ballot measures designed to drastically reduce PERS benefits. The draconian ballot measure 8 was passed by the electorate but later overturned by the courts.
The luck ran out in the new century. This downturn happened on many fronts including the stock market. PERS again faced accusations of inadequate funding. Variable accounts crashed, gained a bit, and then crashed again. The economy was in the toilet; times seemed desperate so it seemed like a good opportunity for more PERS reform legislation. As they say” Just as it gets to be your turn they change all the rules”. Amidst accusations of mismanagement and rising resentment, PERS became a favorite target of the budget baiters. There were reports that the plan had hit record shortfalls. So in 2003 several bills were introduced that would reform or possibly destroy PERS. These bills were subsequently challenged in court and in the end several major changes took place beginning on January 1,2004.
First, those employees in Tier one and Tier two remained in those programs although those existing accounts would only increase due to interest accruals. Tier one would continue to earn 8% on the fixed account and earnings and losses on the variable portion. Tier two would be credited with earnings and losses as before. Personal contributions or those paid by employers would be diverted into an Individual Retirement Account (IAP). This account would reflect the earnings and losses of the market. All employees would eventually get a pension that would be based on their specific program. So PERS remained with reduced benefits.
There have been numerous changes in PERS over the years. Many of these reflect the political climate and the evolving needs of public employees. Promises have been made which suited the convenience of public officials. Later a form of public amnesia developed. Public employees will continue to demand benefits promised by elected officials. Over the years progress has been slow with many setbacks and we are not ready to give up easily.