Oregon Assigns Special Task Force to Find Ways to Cut Pension Deficit Down from $22 Billion

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Oregon Faces Down $22 Billion Deficit in Pension Plan 

Oregon is creating a special task force in order to tackle the massive $22.0-billion pension deficit that could financially cripple the state and many of its services.

Lawmakers have been at a loss for months now in how to tackle the liability, which is only continuing to grow.

At this point, the state is looking at a number of ways to help cut down on the deficit, including cutting social services, asking members to pay in, and increasing taxes, among many other solutions.

But the problem is that no one solution will be able to make up the billions of dollars that Oregon simply cannot afford to pay out to its retirees.

The special task force is being assigned to find ways to cut $5.0 billion off the Public Employees Retirement System’s deficit, a strong first step towards balancing the budget.

Oregon finds itself mired in these financial troubles due to a mix of the damage still being felt from the Great Recession in 2008 (although the state has experienced seven straight years of recovery) alongside over-optimistic figures in terms of pension investments.

For instance, the investment council of Oregon believes that the pension system’s assumptions for the returns on the investments it makes are inflated and unrealistic. The assumed rate of return is 7.5% a year, but the fund has rarely hit that number. Over the past decade, the pension fund investment averaged 6.2% annually. And things have only gotten worse since. In 2015, the fund only earned 2.1%, while most of the way through 2016 it was at 4.6%.

With those numbers unable to meet the expectations, the state pension program will only continue to further drift away from a balanced budget.

And lowering the expectations on those returns will have dramatic consequences on the state budget. Each percentage point that it drops would mean having to make up over a billion dollars in the state budget in order to account for the loss of expected income.

At this point, some officials have compared the way the pensions system is constructed to a “Ponzi scheme” in that they were continuously borrowing to pay out current retirees, always putting the debt off until it ballooned to its current size.

 

Sources:

Governor appoints task force to cut pension deficit,” The Oregonian, May 31, 2017.

‘This is becoming a moral issue’: Officials face truth behind Oregon’s soaring pension costs,” The Oregonian, September 21, 2016.

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