PORTLAND — Oregon Treasurer and Portland mayoral candidate Ted Wheeler issued a statement last week noting that the state pension fund’s investment returns were 2.1 percent in 2015.
That beat the Standard & Poor’s 500 index, and topped the performance of 88 percent of comparable institutional investment funds.
What Wheeler’s statement didn’t mention was that investment returns for the year still fell 5.6 percentage points below the system’s 7.75 percent assumed rate of return for 2015.
That’s terrible news for public employers and taxpayers. It means the pension system’s unfunded liability just increased by another 20 percent — growing from $18 billion at the end of 2014 to between $21 billion and $22 billion a year later.
That will put renewed upward pressure on payments the system’s 925 public-sector employers are required to make.
Public employers had already been warned to expect maximum increases over the next six years, which would take their pension fund contribution rates from an average of about 18 percent of payroll to nearly 30 percent, redirecting billions of dollars out of public coffers and into the retirement system.
In reality, those “maximum” increases could be a lot bigger.
Milliman Inc., the actuary for the Public Employees Retirement System, told board members at their regular meeting Friday that the pension fund now has 71 to 72 cents in assets for every $1 in liabilities.
That’s an average number across the entire system. Some individual employers’ accounts, including the system’s school district rate pool, are flirting with the 70 percent threshold that triggers larger maximum rate increases.
Here’s how it works: To prevent rate spikes, PERS limits the biennial change in employers’ payments to 20 percent of their existing rate. For example, if an employer is required to make contributions equal to 20 percent of payroll, the rate increase is “collared” to 20 percent of that number, or a 4 percentage point increase.
That 20 percent increase is what employers have been warned to expect every other year for the next six years.
But when an employer’s funded status falls below 70 percent, that collar begins to widen on a sliding scale — up to a maximum of 40 percent.
