Well-Run Programs Should Not Fall Victim to PERS

Published Thursday, October 19, 2017

The Public Employees Retirement System (PERS) Unfunded Actuarial Liability (UAL) Task Force, appointed by Governor Kate Brown, held its final meeting last week. By November 1, the task force will pass along ideas for reducing the UAL to the Governor for consideration.

Whatever the end result, this exercise will not prevent escalating PERS payments from devouring ever-larger chunks of the state budget. At best, some of the ideas could be paired with meaningful long-term pension reform to become part of a broader solution.

Worse, some of the ideas would be counter-productive, removing valuable assets from state control or raising costs in other areas to slow down PERS increases. Among the risky ideas, one is particularly concerning for businesses: changing the way SAIF, Oregon's workers' compensation system operates and/or reducing its reserves.

There are many reasons for skepticism about changes to SAIF, but two stand out: First, SAIF plays a critical role in keeping workers' compensation costs low and workers safe. Second, SAIF is funded by employer premiums, and taking money from reserves to apply to state pensions would represent a break in trust and take SAIF away from its mission.

Oregon's workers' compensation system is one of the best in the nation, with affordable employer premiums, excellent worker benefits and a strong emphasis on improving worker safety. It has not always been this way. Before the Mahonia Hall reforms of the 1990s, Oregon's system served neither employers nor employees well.

Since then, SAIF has used a variety of methods to increase the safety of workers and workplaces, including the presentation of safety programs across the state, and partnerships with industry associations such as OBI to reach more workers. The results are undeniably effective; Oregon's injury rates have continued to decline since the Mahonia Hall reforms.

Another strength of SAIF is that it is funded entirely through employer premium payments and investment income. No state revenue is used to fund the corporation. Yet the proposals under consideration by the task force suggest that SAIF resources, which are a major contributing factor in Oregon's successful workers' compensation system, should be appropriated by the state to help cover its unfunded pension liability. Not only is this unfair, it disregards the reason SAIF maintains reserve monies - to fulfill SAIF's statutory mission to make insurance available to as many Oregon employers as inexpensively as may be consistent with the overall integrity of the Industrial Accident Fund.

SAIF's maintenance of working capital is critical to the strength and stability of the Industrial Accident Fund. Those monies are used to buffer downturns, meet unexpected new medical costs, adjust to regulatory changes, and help employees and employers recover from catastrophic events. Any reduction to this working capital would lead to unpredictable consequences for Oregon's workers' compensation system. Given that the majority of SAIF's customers are small businesses, a reduction in working capital and resulting increases in premium rates would impair not only the integrity of the Industrial Accident Fund, but the fulfillment of SAIF's mission as a provider of low-cost workers' compensation insurance.

Oregon Business & Industry strongly supports meaningful PERS reform. We believe that reform can be achieved without putting at risk other programs, such as the SAIF workers' compensation system, that currently operate efficiently and achieve their mission.

To read more about the options considered by the PERS UAL Task Force, click here.