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June 28, 1999 01:00 AM

LEGISLATIVE WORK: BILL TAKING AIM AT OREGON SYSTEM'S UNFUNDED LIABILITY ADVANCES

Arleen Jacobius
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    SALEM, Ore. -- The final bill aimed at eliminating the $32.9 billion Oregon Public Employees Retirement System's unfunded liability squeaked through the state Senate by two votes and late last week still was being debated in the House Rules & Elections Committee.

    The bill, an amalgam of earlier, separate efforts, attempts to bring the retirement system -- now 92% funded -- to full funding and would reduce three existing pension options to a single plan for new employees. But it faces strong opposition from the state's Democratic governor and treasurer.

    An earlier attempt to create a defined contribution plan was not included in the current bill because of legislators' concerns that doing so could worsen the system's unfunded liability. Another bill that would have created an optional defined contribution retirement plan for community college districts died in committee.

    In hearings before the Senate Judiciary Committee in which the bill was sculpted and moved to the floor, state Treasurer Jim Hill voiced skepticism about creating a defined contribution plan to replace the current defined benefit plan.

    Instead of substituting the state's defined benefit plan with a defined contribution plan, the bill includes a provision that allows certain employers to opt out of the public employee system, a provision both the treasurer and governor strongly oppose.

    Earlier this month, Gov. John Kitzhaber sent a letter to Senate Majority Leader Gene Derfler, R-Salem, and Sen. Neil Bryant, R-Bend, chairman of the judiciary committee and the bill's sponsor. "While some local governments believe it would be beneficial to be able to opt out, I am concerned that such a step would introduce an element of instability into our system which would defeat the purpose of pooling," Mr. Kitzhaber wrote. "Moreover, the opt-out provision could cause some jurisdictions' retirement plans to fall short of the goals for our PERS system."

    He also said he was "not convinced that a third tier is required to control the costs of PERS." He suggested local entities be allowed to issue bonds to capitalize their unfunded liabilities at a low interest rate.

    Under the bill, this third tier would have lower pension benefits and less flexibility, Mr. Bryant said.

    The bill also would allow employees to take their money and their employers' contributions in lump sums when they retire. Proponents say this provision makes the defined benefit plan as portable as a defined contribution plan.

    The treasurer opposes this provision because once an employee withdraws all of his or her money, he or she is out of the system. By contrast, workers who take their account money in annuities and leave the employers' contribution in the system get cost of living increases and health benefits after they retire.

    Said Michael Parker,, Mr. Hill's spokesman: "SB 722 is a bad bill. It hurts employees, but does not fix the problem."

    The Republican majority made just one concession: Before sending the bill to the Senate floor, the committee amended it to authorize local public employers to collectively issue bonds to fund pension liabilities and increase employer assessments to pay the unfunded liability, Mr. Bryant said.

    With Republicans controlling both the House and Senate, even the bill's opponents expect the measure will pass the House.

    Sen. Kate Brown, D-Portland, the Democratic leader in the Senate, said she opposed the bill because "it went a lot further than it needed to go." In particular she opposed the third tier and the local government opt-out provision, she said.

    "If the opt-out stays in, I'm confident that the governor will veto the bill," Ms. Brown said.

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