SALEM — A new study from the Pew Charitable Trusts finds Oregon’s public pension system might be better funded than those of most other state’s, but is doing enough to pay down its unfunded liabilities.
The country’s state pension funds reported a $1.4 trillion deficit in 2016, up $295 billion from 2015, according to a study released Thursday by Pew’s Public Sector Retirement Systems Project. Oregon’s unfunded liability, the amount by which the system’s obligations to retirees exceed what its assets can cover, is $25.3 billion.
“Many state retirement systems are on an unsustainable course, coming up short on their investment targets and having failed to set aside enough money to fund the pension promises made to public employees,” the study states. “Even as contributions from taxpayers over the past decade doubled as a share of state revenue, the total still fell short of what is needed to improve the funding situation.”
In 2016, Oregon PERS was 81 percent funded — compared to a national average of 66 percent — according to the study.
An actuarial analysis released in September, though, indicates that the funded status of the state’s system, including side accounts that allow certain employers to offset payroll rates, has since declined to 75 percent.
Oregon took an incremental step toward paying down some of the system’s unfunded liability this past legislative session. Senate Bill 1566 sets up an incentive system for public employers that set extra money aside to pay their PERS bills.
In Oregon’s system, state and local public employers that are PERS members contribute funds. That money is invested, and the returns on those investments constitute most of the benefits paid out to employees.
Although 2017 was a year of strong investment returns, the same volatility that can bring high returns one year can bring harsh losses the next, the study noted.
Last year, the PERS board lowered its assumptions about how much the state’s investments would earn from 7.5 percent to 7.2 percent.
The study found that from 2014 to 2016, many states, including Oregon, did not contribute enough money each year to pay down the debts.
“There is no one-size-fits-all solution to the pension funding shortfall and the budgetary challenges facing individual states,” the analysis states, “but without new policies that commit states to fully funding retirement systems, the impact on other essential services — and the potential for unpaid pension promises — will increase.”
However, Pew’s analysis did not account for Oregon’s use of what’s called a rate collar, a method the state uses to stave off dramatic increases in how much employers are paying toward PERS.
The study also looked at an indicator called “operating cash flow ratio,” which measures the difference between money flowing out (essentially, benefit payments) and cash before investments (essentially, employer and employee contributions), divided by the level of assets at the beginning of the year.