Subcommittee hears PERS budget overview, modernization costs and growing contribution pressures
February 17, 2025 | General Government, Ways and Means, Joint, Committees, Legislative, Oregon
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The Joint Committee on Ways and Means Subcommittee on General Government met Feb. 17, 2025, for an informational briefing on Senate Bill 5534, the Public Employees Retirement System primary budget bill and related policy and operational work for the 2025–27 biennium. Presenters outlined the governor’s proposed investments in modernization, current funding metrics, and drivers of rising employer contribution rates.
Why it matters: PERS administers retirement benefits for roughly 95% of Oregon public employees and holds more than $100 billion across its trusts. Changes in investment returns, the scheduled drawdown of employer side accounts, payroll growth and statutory adjustments affect employer budget obligations across state agencies, school districts and local governments.
Courtney Rogers, chief financial officer in the Department of Administrative Services Chief Financial Office, summarized the governor’s recommended budget for PERS and said the proposal “includes targeted investments to modernize systems, enhance operations, and strengthen compliance and risk management.” She told the committee the largest single request in the proposal is $34 million “for modernizing the core retirement system applications division,” and additional funding for staffing and technical updates.
Kevin Olinnick, director of PERS, and Richard Horford, chief financial officer for Oregon PERS, gave a system overview. Olinnick described PERS as a multi‑trust retirement system covering state agencies, public universities, school districts, statutory judges and participating local governments and special districts. He said the system currently pays roughly $6 billion a year in pension benefits and receives about $3.7 billion in contributions, with investment earnings making up a substantial portion of benefit funding.
On investments, presenters said PERS uses an assumed earnings rate of 6.9% for valuations. Olinnick and Horford told the committee actual recent returns fell short of that assumption: an annualized return of roughly 5.7% for the most recent year and weaker returns over 2022–23 lowered funded status and contributed to higher employer rates. Horford noted private equity and commercial real estate underperformance in the most recent period reduced near‑term returns and that PERS’ long‑term performance has historically been competitive.
Presenters outlined major drivers of the 2025–27 contribution increase: weaker recent investment returns, projected payroll growth across participating employers, and the scheduled runoff of employer side accounts (prepaid employer contributions). Olinnick said side accounts totaled about $5.4 billion at the end of 2023 and declined to roughly $4.4 billion in 2024; PERS staff told the committee about half of side accounts will be fully amortized by 2027. Those declines, combined with lower investment returns and higher payroll, pushed the system’s unfunded actuarial liability and employer contribution needs upward.
Committee members also pressed staff on member buybacks and individual cost. Olinnick explained that certain service purchases are priced on an actuarial (net present value) basis and may be substantially higher than the cumulative contributions the member made during the period, because the calculation includes the investment earnings that would have accrued on those contributions. As Olinnick summarized, the actuarial calculation “takes into account those lost investment earnings on the contributions” and therefore can make the buyback costly.
Several lawmakers asked how specific reform packages and prior legislation changed PERS administration. Rogers and Olinnick cited Senate Bill 1049 and House Bill 4045 as triggers for additional implementation work and noted that a member redirect created by prior legislation (identified in testimony as a result of an earlier Senate bill) reduces the employer rate by directing a portion of some members’ defined‑contribution contributions into an employee pension stability account; PERS staff estimated that redirect reduces employer contributions by roughly $315 million on a biennial basis in the current projection.
Presenters described the board and governance: a five‑member PERS board (two member/employer representatives and three independents) sets actuarial and policy parameters; investments are overseen by the Oregon Investment Council and implemented by state treasury staff and external managers.
The subcommittee did not take formal action; agency staff said detailed operational budget and policy package hearings will follow on subsequent days, and statutory reporting items will be heard later in the week.
The briefing closed with staff notifying members that PERS will return to present the operational budget and policy packages in a later hearing day.
Why it matters: PERS administers retirement benefits for roughly 95% of Oregon public employees and holds more than $100 billion across its trusts. Changes in investment returns, the scheduled drawdown of employer side accounts, payroll growth and statutory adjustments affect employer budget obligations across state agencies, school districts and local governments.
Courtney Rogers, chief financial officer in the Department of Administrative Services Chief Financial Office, summarized the governor’s recommended budget for PERS and said the proposal “includes targeted investments to modernize systems, enhance operations, and strengthen compliance and risk management.” She told the committee the largest single request in the proposal is $34 million “for modernizing the core retirement system applications division,” and additional funding for staffing and technical updates.
Kevin Olinnick, director of PERS, and Richard Horford, chief financial officer for Oregon PERS, gave a system overview. Olinnick described PERS as a multi‑trust retirement system covering state agencies, public universities, school districts, statutory judges and participating local governments and special districts. He said the system currently pays roughly $6 billion a year in pension benefits and receives about $3.7 billion in contributions, with investment earnings making up a substantial portion of benefit funding.
On investments, presenters said PERS uses an assumed earnings rate of 6.9% for valuations. Olinnick and Horford told the committee actual recent returns fell short of that assumption: an annualized return of roughly 5.7% for the most recent year and weaker returns over 2022–23 lowered funded status and contributed to higher employer rates. Horford noted private equity and commercial real estate underperformance in the most recent period reduced near‑term returns and that PERS’ long‑term performance has historically been competitive.
Presenters outlined major drivers of the 2025–27 contribution increase: weaker recent investment returns, projected payroll growth across participating employers, and the scheduled runoff of employer side accounts (prepaid employer contributions). Olinnick said side accounts totaled about $5.4 billion at the end of 2023 and declined to roughly $4.4 billion in 2024; PERS staff told the committee about half of side accounts will be fully amortized by 2027. Those declines, combined with lower investment returns and higher payroll, pushed the system’s unfunded actuarial liability and employer contribution needs upward.
Committee members also pressed staff on member buybacks and individual cost. Olinnick explained that certain service purchases are priced on an actuarial (net present value) basis and may be substantially higher than the cumulative contributions the member made during the period, because the calculation includes the investment earnings that would have accrued on those contributions. As Olinnick summarized, the actuarial calculation “takes into account those lost investment earnings on the contributions” and therefore can make the buyback costly.
Several lawmakers asked how specific reform packages and prior legislation changed PERS administration. Rogers and Olinnick cited Senate Bill 1049 and House Bill 4045 as triggers for additional implementation work and noted that a member redirect created by prior legislation (identified in testimony as a result of an earlier Senate bill) reduces the employer rate by directing a portion of some members’ defined‑contribution contributions into an employee pension stability account; PERS staff estimated that redirect reduces employer contributions by roughly $315 million on a biennial basis in the current projection.
Presenters described the board and governance: a five‑member PERS board (two member/employer representatives and three independents) sets actuarial and policy parameters; investments are overseen by the Oregon Investment Council and implemented by state treasury staff and external managers.
The subcommittee did not take formal action; agency staff said detailed operational budget and policy package hearings will follow on subsequent days, and statutory reporting items will be heard later in the week.
The briefing closed with staff notifying members that PERS will return to present the operational budget and policy packages in a later hearing day.
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