Tigard – On Friday afternoon the PERS Board adopted higher employer contribution rates for the coming biennium, effective July 2011.

Rates have increased for almost all of the 872 employers, which include state agencies, universities, community colleges, school districts, cities, counties and other local governments. System-wide rates will increase by 5.6 percent, to a total 10.8 percent of covered payroll. In dollar figures, that translates to $1.1 billion of increases, bringing the total contributions to $2 billion and more than doubling the previous biennium’s contribution for public employee pensions.

These figures do not include the additional 6 percent member contribution pickup that employers pay for 70 percent of all employees. It also does not include the annual payments on bonds called “side accounts” that many employers previously took out to offset contribution rates.

Mercer Actuary Matt Larrabee noted to the Board that a key issue of the “side account” offsets are that they are based on a 2007 valuation. If assumptions are met, offsets will decrease further in the next 2013-15 biennium, raising effective rates.

Also noted in Larrabee’s presentation was that the rates are 4 percent below what they would be without the current rate setting rules. In the absence of the “rate collar,” rates would be set at 14.8 percent, not at 10.8 percent as they are currently. This deferred contribution will be made up in future bienniums.

The rate increases have been largely expected, but the Board finalized them on Friday. These rates represent the amount each participating public employer must contribute to the Public Employee Retirement System (PERS) to fund the pensions of their current and retired employees.

Of the contributions, 67 percent goes to funding current employees and 33 percent to retired or inactive employees. More than half these contributions are to pay off previously accrued benefits that remain unfunded.

In 2007 PERS was 97 percent funded, but the market crash in 2008 reduced the funded status considerably. As of 2009 the unfunded liability was $13.6 billion, down from $16.1 billion in 2008, mostly attributable to portfolio gains. The $13.6 billion unfunded liability still leaves the system 24 percent unfunded and triggered rate increases to fill the gap.