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PERS: Let’s talk solutions

Angela EckhardtQuickPoint!

Gubernatorial candidate Ron Saxton deserves praise for making the state’s financially insolvent Public Employees Retirement System a campaign issue. The fact that PERS threatens to bankrupt Oregon cities, counties and school districts is not news to elected officials. Previous reforms have left the fundamentally flawed structure of PERS intact, and the mounting debt is getting harder to ignore. Let’s talk real solutions.

Last year Cascade Policy Institute asked one of the nation’s foremost experts on Social Security and pension reform to help devise a comprehensive reform plan for PERS. In the May 2001 Cascade report Pension liberation for Oregon, Peter J. Ferrara, J.D., explains that the system’s problem lies in the current defined benefit / defined contribution hybrid structure.

Ferrara recommends creating a simplified defined contribution plan for all new PERS covered employees. Workers and employers would contribute five percent of wages, for a total of ten percent, into a personal account for each worker. Workers would choose from a mutual fund or a money manager from a list approved by the state, for the investment of account funds. Benefits would be financed by the accumulated account funds at retirement, leaving no liabilities for government employers and taxpayers.

Workers would save on their contribution portion, and would enjoy greater investment freedom, with complete portability and no vesting requirement. Employer costs would be reduced by about 35 percent, with the savings initially devoted to reducing and eliminating unfunded liabilities.

Private sector employers have moved sharply toward defined contribution plans in place of older defined benefit plans, and a similar trend is now underway in states across the country. Oregon should immediately begin the transition to a fully funded defined contribution retirement system, starting with all new PERS covered employees.

© 2006, Cascade Policy Institute. All rights reserved. Permission to reprint in whole or in part is hereby granted, provided the author and Cascade Policy Institute are cited. Contact Cascade at (503) 242-0900 to arrange print or broadcast interviews on this topic. For more topics visit the QuickPoint! archive.

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