A Bipartisan Plan to Revamp Oregon’s Pension System

Oregon’s state government is Democratic controlled, with that party in charge of both legislative chambers and the governor’s chair. But one prominent Oregon Republican senator is looking to move state retirement system members into 401(k)-like plans to help patch up its $20 billion-plus funding hole. Luckily for him, he’s got some help from a Democrat peer, who is his proposal’s co-sponsor.

Amid about a dozen bills eyeing changes to the $77.9 billion Oregon Public Employees Retirement System (PERS), roughly half of them, all sponsored by Sen. Tim Knopp, center on shaking up its defined benefit plan. Knopp, who was a small business owner for two decades, is the former majority leader of the Oregon House. He is co-chair of the Senate Workforce Committee, which has jurisdiction over pension matters.

His ally on the bill is Sen. Arnie Roblan, a Coos Bay Democrat who is also a former high school principal and math teacher. He previously was the speaker pro tem of the state House.

This across-the-aisle plan stands in contrast to the partisan warfare over state pension overhauls that rage on in other places, notably Kentucky.

One of the main measures Knopp is looking to pass would establish a new 401(k)-style retirement plan for new employees. Employers would contribute 10% to the account and employees  will have option to kick in an extra 2%. The retirement system’s board would also be required to offer employees a menu of investment choices for their accounts.

“The times of somebody working 30 or 40 years in the same job seems like it’s pretty rare these days,” Knopp said. “People are tending to move around between the public and private sector and 401(k)s are much more flexible and easier to move and to continue to put money into than a defined benefit, which stops accruing when you leave employment.”

With the Dems in charge of the entire state government, Roblan’s help would increase Knopp’s chances of passing the measure. “He’s the chair of a joint committee on student success where there’s a lot of education reforms that are happening this session,” said Knopp. “There is Democrat support out there, so we’re hopeful.”

The two will meet with Gov. Kate Brown next week for an analysis of the bill, both Knopp and Roblan’s offices confirmed.

Oregon’s pension system is 70% funded, which Knopp admits is not a doomsday scenario, but is “a critical moment” for the pension system as the next downturn could create “serious problems” for its status.

“We’re either going to work to reverse that trend, or we’ll blow a hole wide open in it,” he told CIO, citing Illinois as an example. “Basically, they can’t pay it,” he said of the state government’s pension liability.

Additional bills Knopp will try to push through in the current legislative session include workers choosing between the traditional defined benefit pension system or a new 401(k)-style defined contribution plan. He also wants to require the pension system to study options for an early retirement program where workers would collect benefits and work for a little longer with frozen pension accrual.

Another Knopp bill is dubbed a “kitchen sink” proposal that calls for multiple actions, one of which directs employee contributions to support the fund rather than individual accounts. It also makes $100,000 the highest salary that can be used to calculate a pension after Jan.1, 2020, and changes the metric to average a worker’s top five years rather than the current three. The pension calculation factor for service performed would become 1.2% of the final average salary for each year worked.

“That was merely a bill that took several of the concepts we had been working on in the last few bills and put them all together,” he said.

The final Knopp-sponsored bill would force both employer and employee to contribute 3% of salary to supplemental individual retirement accounts, cutting the employer contribution pickup of worker contributions in half.

The 2019 session began Tuesday and ends on June 30. Should none of Knopp’s proposals move forward, the Bend senator is hopeful he can get his ideas passed eventually.

“There are a lot of people that do not want Oregon to devolve into a complete fiscal mess like some states have ended up,” said Knopp.

Oregon PERS will comment on the bills and their potential impacts, according to the pension system’s website.

The fund’s asset mix was 38.7% public equity, 20.8% private equity, 19.78% debt securities, 10.68% real estate, 7.70% alternative equity, and 2.27% opportunity portfolio, according to its most recent comprehensive financial annual report.

Sen. Roblan and Gov. Brown were unable to be reached for comment.