Pension liability threatens boost in school support

Pension liability threatens boost in school support

(Ore.) A ballooning public pension liability in Oregon is threatening Gov. Kate Brown’s plan to lengthen the school year and reduce class sizes, after release last week of an actuarial analysis.

Like many other states, Oregon is grappling with aging baby boomers heading into retirement—many of whom were forced to delay their plans because of the recession but now are increasingly making the jump.

According to a report from a commerce and advocacy group known as the Oregon Business Plan, pension contributions from public employers will nearly double in the next decade from just over $5 billion in 2019 to nearly $9 billion in 2029.

That escalation, the organization warned, will likely force out almost any proposed increase in K-12 support—while possibly forcing cuts.

“There’s no question that Oregon needs to raise its investment in education,” the authors of the pension report said. “Looming in the background of any revenue increase are even larger increases in payments that schools, universities, state agencies and local government will have to make into the Public Employees Retirement System.”

Lawmakers are currently considering a variety of tax increases on businesses that could generate the desired $2 billion net that the governor wants. Part of that discussion includes options that might protect the money from being drained away by bulging pension costs.

As the work in Salem proceeds, they can at least consider what is happening in other parts of the country, because almost every state is struggling with the same issues.

Teacher pension liability has become a $400 billion problem nationally.

In Michigan, the teacher retirement system is underfunded by nearly $30 billion. In Texas, the liability sits at more than $35 billion. And in Illinois, the state’s unfunded pension liability is close to $135 billion.

Given the good economic conditions across the nation, many Legislatures are looking to bring down those costs.

In Kentucky, legislation is pending that would add an age requirement aimed at making more teachers wait longer before they can take a pension. Meanwhile, the governors of California and Indiana have both included big school pension buy-downs as part of their proposed 2019-20 budgets.

In 2018, the Oregon Public Employee Retirement System paid out nearly $4.7 billion in benefits to some 114,000 retirees. Overall, the system is supported by close to 370,000 members through all levels of state and local government.

The aging workforce has escalated costs for several years and will only continue with a peak expected close to 2033.

Like most public and private investment funds, the Oregon pension pool has benefitted greatly from the bull market on Wall Street. But, as the market has cooled, pension managers here are also planning for a slowdown.

Even with that caution, however, the pension’s actuary team noted that the fund’s performance in 2018 fell well below the earnings assumption of 7.2 percent.

“The initial earnings estimates for 2018 were 0.48,” the Oregon Business Plan reported. “But (the fund’s actuary) Milliman also warned that in the final analysis returns may have even dipped into negative territory.”

The Business Plan analysis said that even if the 2018 earnings end up close to the half-percent mark, public employers would be facing an additional increase in their rates by 2021 of more than 2 percent or $300 million in dollars.

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