Average school district PERS rates to increase 1.4 percentage points

Published: July 25, 2024

Average school district pension rates will continue to creep up next year. Districts with side accounts intended to buffer costs will see the biggest percentage increases, a tough pill to swallow for school leaders already making budget cuts to meet rising expenses.

The PERS Board will hear a report from Milliman, the state's actuary, on Friday, July 26. According to the report, the average school district base rate will increase 1.4 percentage points for 2025-27 to 27.3% of payroll. The average rate including side accounts will climb 5.3 percentage points to 20.5%.

School districts will pay $2.27 billion into the Public Employees Retirement System in the next biennium, a predicted $670 million increase from this period, according to the report.

Oregon is wrestling with how to accurately meet education's rising costs and provide enough funding for schools to provide a high-quality education for all its students. Education advocates including OSBA, Gov. Tina Kotek's office and legislators are laying the groundwork now for determining the 2025-27 State School Fund.

Employee costs are about 85% of school districts' budgets, and around a quarter of that is eaten up by pension costs. Accurately accounting for how much those costs will rise is an important part of encouraging discussions on producing a more realistic estimate of schools' costs next biennium for programs and staff, known as the current service level. Although Kotek's office has embraced some advocates' concerns about CSL models, there are still differences in accounting for PERS costs.

Starting in 2011, PERS costs shot up, devouring funds that could go to classrooms and becoming a front-row legislative concern for OSBA and other education advocates. In 2021, big investment returns and legislative adjustments flattened the PERS trajectory. Average costs increased about a percentage point in 2023.

School districts' individual costs vary wildly depending on the age of their workforce and whether they have side investments to cushion the costs. The PERS Board is scheduled to meet Oct. 4 to adopt individual employer rates.

PERS covers public employees, including school district staff. Its funding relies on a combination of investment returns and payment from employers, including schools, to meet pension costs. If the system doesn't have enough money for pension benefits for all members, employers' costs go up.

PERS funded status including side accounts fell from 79% to 77% because investment returns were less than expected while payroll costs increased more than predicted. The system's shortfall, known as the unfunded actuarial liability, increased to $24 billion.

The PERS formula assumed asset returns of 14.3% for 2023-25. Actual returns were 4.3%, according to the report. The period's poor returns hit school districts with side accounts especially hard.

Some of those side accounts will start expiring in 2027, and school districts will be watching closely how PERS handles those changes.

- Jake Arnold, OSBA
[email protected]

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