Understanding the effect of deferring the state's contributions

The Legislature ordered the deferral of $448.6 million in the state’s contributions to pensions as a way to save money in the recession-affected budget. The money stayed in the General Fund for other items.

But it’s important to stress that the deferred payments cannot and will not affect current state workers’ constitutionally protected pension benefits. It will not affect individual benefits. However, the potential downside is that the long-term lack of funding will force pressure to create additional state pension plans that may be less fair.

The state has deferred pension payments in the past. But it’s a double-edged sword.

In the long run, it’s fiscally imprudent to eliminate current funding of pension benefits. In effect, you either pay now or pay much more later. But in the short term, removing the pension funding means that the number of layoffs is lower than it could have been.

Moreover, in the short-term, employee PERS 2 contribution rates will also go down. On July 1, the contribution rate for PERS 2 members will go from 5.45 percent to 3.89 percent (the rate for PERS 1 members is fixed by statute at 6 percent).

But what goes down, must go up. We will probably see rates rise in a few years as the state tries to make up the difference from what it deferred this biennium.