PERS board OKs retiree benefit cuts.

Byline: David Steves The Register-Guard

CORRECTION (ran 9/28/05): A story Saturday on Page D1 did not clearly explain how the Oregon Public Employees Retirement System proposed to recover $1.9 billion in benefits, as required by the courts. The money would come from an estimated 140,000 individuals, including retirees, PERS members still working and "inactive" PERS members. About $800 million would be recovered from 32,000 retirees.

TIGARD - The state pension board Friday gave the go-ahead for a proposal to cut retirees' benefits by $1.6 billion - but sought to soften the blow by spreading the cost out over their remaining life expectancy.

All five members of the Public Employees Retirement System board voiced support for the recommendation, and said they would give it their formal approval after the details are worked out in the next month or two. Once in place, the adjustment will come out of the retirement checks of 32,725 former public employees - teachers, college instructors and government workers - who retired after PERS credited their accounts with a 20 percent return for 1999.

Board members directed staff to pursue the payback strategy in response to an Oregon Supreme Court decision that upheld a lower court decision that those retirees instead should have received a bump of 11.3 percent that year - and that by giving them a 20 percent return, the PERS board abused its discretion at the expense of their public employers and the taxpayers who ultimately provide their revenue.

Board members and others said the decision was difficult - but acknowledged it would be more difficult to accept for those who retired with an expectation of higher pension checks than they now stand to receive.

Tom Grimsley, a board member and the choir teacher at Cascade Middle School in west Eugene, said retirees had a right to be angry. He said he had read hundreds of e-mails from retirees and heard from about a dozen unhappy pensioners at Friday's board meeting. Unlike PERS members such as himself, who can make up for the blow by working longer or saving more from their paychecks, retirees will have to make do with less - or else find new revenue sources by, for example, finding new work.

"That is unfair,' he said. `But what can we do, based on statute and our legal advice? At this juncture, it's the best of a terrible situation."

The board decision was spurred by a lawsuit filed by the city of Eugene and other local employers. They contended - in a view ultimately upheld by the courts - that the rates they paid into employees' retirement accounts for 1999 had been driven up illegally by excessively high credits for workers.

Thousands of workers retired within the next few years - an exodus driven both by the aging workforce and the pension system's widening unfunded liability that led to reforms by the 2003 Legislature.

Many of those pensioners had spent the past few years hoping their generous retirements were safe from the reductions imposed on their former colleagues still in the workforce. But the court decision - and Friday's PERS board action - proved otherwise.

Steve Rodeman, legal affairs manager for PERS, told the board that he and other staff had looked at alternatives that would not have hurt pensioners. They included paying back the $1.6 billion owed to public employers through reduced administrative expenses, contingency reserves, and future earnings.

None of these options met the tests of being legally permissible, fiscally sound and responsible to the board's fiduciary responsibilities, he said.

That left taking the money back from those who received it: pensioners and those still working whose accounts were credited with the returns deemed excessive by the courts.

To make the reduction easier to take, staff recommended using life-expectancy tables to estimate how long each retiree will live and spreading what he would owe over his projected remaining lifetime. Those who outlive those projections effectively would overpay their debt; those who die earlier would pay back less than they owe.

But the approach is simple and less costly than charging pensioners with a lump-sum payment and interest on what they don't return immediately, Rodeman said.

Craig Stroud, the retirement system's head of benefits payments, said it would take several years to calculate the reductions and begin collecting back from all PERS retirees. The first wave to be affected will start seeing their retirement checks drop in mid- to late 2006.

The decrease will vary depending on each PERS retiree's circumstances. The pension agency provided an example that showed the new change would cost $64 a month, or 2.74 percent, for a retiree with a monthly income of $2,336.

The board met Friday in front of a standing-room-only audience dominated by retirees.

Many in the audience expressed their dissatisfaction with the proposal. Some sat silently with white stickers affixed to their chests, declaring the number of years they'd worked.

Others spoke bitterly to board members, saying they felt betrayed and left in the lurch.

Michael Arken, who retired after working for the Portland Water Bureau, said he was never told when he was getting his retirement income paperwork that his income would be subject to change without notice.

Given that he's taking a financial hit, he told the PERS board, he wants to reset the clock.

"I would like my job back and my age back and my benefits back," he said.

ON THE WEB

More information and a link to submit comments on the Public Employees Retirement System board's decision on reduced benefits for retirees:

oregon.gov/pers