Among the proposals for reforming the Public Employees Retirement System is one to redirect the contribution that currently goes to employees’ individual retirement accounts to the pension fund instead. The idea is to help reduce payments employers have to make to the woefully underfunded system.
The idea, understandably, immediately draws employees’ ire and accusations of unfairness. But it’s important to dissect some of the underlying principles that make this a proposal worth deep consideration.
First, keep in mind that all PERS recipients receive both a pension and the individual account. The pension is the monthly payment that an employee is promised upon retirement. The individual account, however, is like a 401(k), in which the employee or employer makes contributions to an account whose funds are invested. The ultimate payout depends on how those investments fare.
Public employers in Oregon cover the pension payment, but a majority also cover the 6 percent contribution to those individual accounts for most of their employees. (Some represented employees have recently agreed to make the contribution themselves after negotiating salaries with a 6 percent bump). While employees understandably don’t like the redirection proposal, which would cut their total compensation, the sustainability of the pension system as well as Oregon’s ability to provide basic public services are at stake here. Already, public employers are contemplating significant layoffs starting in July. The unfortunate reality is that 6 percent of nothing is nothing.
Legislators: 132 days to go.
– The Oregonian/OregonLive Editorial Board
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