PERS reforms stall in face of complexity, mounting costs

State Department of Administrative Services building in Salem. (Rachel Alexander/Salem Reporter)

SALEM — Public workers who expected to contribute more to their savings in July to make up for cuts to retirement benefits will have to wait until September.

The agency that pays out billions in retirement benefits to Oregon public workers is delaying a new program designed to allow employees to try to counterbalance recent benefit cuts by the Legislature.

Last year, lawmakers changed Oregon’s costly pension system, which is facing about $27 billion in debt. Legislative budget analysts expected the changes to save public employers $1.2 to $1.8 billion in pension costs every two years, starting in 2021.

The Oregon Public Employee Retirement System, known as PERS, is a hybrid. There’s a basic pension and a 401(k)-style savings account on top.

One revision re-routed a slice of employees’ salary that previously went to the savings account to help pay for the pension instead.

Employees will contribute the same amount of money to their retirement, but a greater portion will go to fund pensions. As a result, employees say they will end up with less money when they retire.

The new law included a provision where employees could choose to send some more money to the savings account to make up for the decrease.

If they’re going to delay the implementation of the part that would allow members to spend their own money to keep their retirement whole,” says Joe Baessler, associate director of AFSCME Council 75, a union representing mostly public workers, “They probably should also suspend the diversion, at least until they can figure all this stuff out.”

Delaying the new savings option was necessary, PERS Director Kevin Olineck said in a phone interview Thursday.

The agency will let workers make additional payments to equal what they would have put in had the program started as scheduled.

“The members will be kept whole,” Olineck said.

The delay in the savings account’s start is one signal that the reforms in Senate Bill 1049 appear to be stretching the agency’s abilities.

State workers have spent 17,200 hours over six months, through December, putting the changes into place, according to PERS records. More than 150 employees have been involved “to some degree” in helping to make the changes, according to PERS.

“When you have to ramp up to put into place a project of this magnitude, you have to take people off their day-to-day jobs and move them over to project work,” Olineck said. “That results in them not being able to support their coworkers or they’re taking off doing their regular operational work.”

The Legislature allotted about $39 million to incorporate the PERS reforms.

But Olineck expects the project will cost an additional $1.7 million, according to a Jan. 17 letter he sent to key legislators who lead committees on budget and information technology.

The project requires more office space and money to pay workers from the Department of Administrative Services and Department of Justice, Olineck said, and more money to “support program management and project execution.”

The agency could need even more money on top of that to finish the delayed project to let employees contribute more to their retirement.

But Olineck says the amount that government employers will avoid paying in pension costs will be greater than the costs the state will incur for putting the reforms into action.

Olineck, who took the helm in 2018 after running large public pension systems in Canada, said he now runs the second-most complex pension system in the U.S.

That complexity is due, in part, to the constant reforms in recent years intended to tame the system’s staggering debt.

Last year, Sen. Betsy Johnson, D-Scappoose, asked Olineck in a public hearing whether the agency, charged with running an oft-tweaked system, was hitting a “legislative fatigue wall.”

At times, the agency has relied on manual fixes to meet tight deadlines set by new reforms, and reforms that have been passed and then later deemed unconstitutional by courts impeded “forward progress on much needed operational process and system changes,” Olineck responded in a letter last February to Senate President Peter Courtney, D-Salem.

“There is a risk that any future changes to the plan that aren’t given the appropriate time and resources for implementation could negatively impact the agency and its ability to function in a cost effective, efficient and risk-mitigated fashion,” Olineck wrote.

The agency “has been clear from the beginning — while the legislation was being considered — that implementing the PERS changes would be a challenge, particularly from an IT perspective,” said Kate Kondayen, a spokeswoman for Gov. Kate Brown.

“Legislators and the Governor’s office were told that during bill deliberations,” Kondayen said in written responses to questions from the Oregon Capital Bureau. “We always expected that temporary solutions would be needed in order to implement on the timeline the Legislature set.”

She said Brown is monitoring developments “closely and providing support as needed.”

The Department of Administrative Services, the state’s hub for operations, is also monitoring the work.

PERS has been receptive and responsive to the feedback” provided by an analyst from the state’s central IT office, said Liz Craig, a spokeswoman for the Oregon Department of Administrative Services.

 Reporter Claire Withycombe: [email protected] or 971-304-4148.