Pat Robertson, executive director of PERS, told legislative leaders in September that the board of directors that oversees the pension plan for state and local government employees would most likely vote to increase the cost to state and local governments to operate the system from 12.83 percent of an employee’s salary to 15.75 percent, starting in July.
During Friday’s meeting of the Senate Finance Committee, Robertson said the Board made that vote.
It is estimated the increase in the taxpayer contribution rate will cost the state $44 million. The increase also will be passed on to local city and county governments to cover their employees who also are in the system.
Robertson assured the senators that with “time and patience and no change” the retirement system is sustainable. PERS has come under scrutiny in recent years because of the rising costs to taxpayers to run the system.
The Board believes that if the taxpayer contribution rate is left at 15.75 percent over an extended period of time, problems in the system will be corrected.
The latest financial report reveals the system has 58 percent (down from 62 percent) of the funds needed to cover its liabilities over a 30-year period. The desired industry average is 80 percent.
Robertson said Friday the drop from 62 percent to 58 percent was anticipated as the system deals with a drop in investment earnings during the Great Recession that is still plaguing the system.
But the biggest problem, she again reiterated to legislators, is that in the late 1990s the law was changed to provide employees more benefits without paying for them. Sen. Hob Bryan, D-Amory, said those changes were advocated to the Legislature by her predecessors.
She did not dispute that, but said, “We can have a bad year on investment earnings every now and again, as long as we don’t give things away without paying for them.”
In recent years, the Legislature already has taken some steps to prop up the system, such as increasing the employees contribution rate from 7.25 percent of their salary to 9 percent and slightly reducing the benefit package for new hires. Under the change, a new employee beginning in July 2011 will have to work 30 years or until age 60 to be eligible to retire. Employees hired before then only have to work 25 years to draw full state retirement.
The PERS system covers nearly 380,000 current governmental employees and retirees, including state employees, local and county government officials and local school district personnel. Of those in the system, nearly 90,000 are current retirees.