The History of PERS – Before PERS

The Oregon Public Employees Retirement System History: The first 60 years
2010 report published by PERS

Introduction: Pre-PERS

Emergence of pension plans in the U.S.

Pension programs were essentially unheard of when pioneers embarked on their arduous journeys across the Oregon Trail in the mid-1800s. Perhaps some were aware of early U.S. fraternal organizations that provided actuarially based life insurance plans. Maybe a few recalled a controversial pamphlet Thomas Paine published in 1795 calling for the establishment of a public system of economic security that would pay annual benefits to every person over age 50.

It is more likely, however, that pioneers had more immediate concerns as they took their families on a perilous trip to the magnificent Oregon Country.

Ironically, these same pioneers were part of the sociological changes that would increase the necessity of pension plans. As the traditional extended family broke down into the smaller nuclear family unit, the population became more mobile, and it was no longer safe to assume family members would live close enough to each other to care for elderly parents or grandparents.

As villages and small cities crept across the Oregon landscape, opportunities for businesses lured young men and women away from traditional homesteads. Dependant on wages rather than on self-sufficiency, the economic security of many Oregonians could now be threatened by recessions, layoffs, injuries, and old age.

The idea of a pension plan was no longer a peripheral concern, and retirement programs were mentioned with increasing frequency.

First pension plans

In 1857 the New York City police established the United States’ first municipal benefit plan. Within a decade, the Civil War veterans and their families were receiving pensions. In 1869 New York City teachers had a voluntary retirement system plan, and in 1895, the first compulsory teachers’ retirement systems were formed in San Francisco and St. Louis. The concepts of retirement and disability funds were now more then speculation.

Perhaps the single, most important event that forced the nation to realize the necessity of pension plans for economic security was the Great Depression. As the 1930s rolled in, millions of people were unemployed, banks and businesses had failed, an estimated two million men wandered the country hoping to find work, and the majority of the elderly in America were living in poverty. Clearly, something had to be done.

U.S. Senator Huey Long, a radical populist, introduced a program in 1932 called Share Our Wealth. Included in his proposed solution to the nation’s economic crisis was the concept that everyone over the age of 60 would receive an old-age pension.

That same year, Dr. Francis E. Townsend, a California doctor who found himself unemployed without savings, took up the battle for the elderly and drafted the Townsend Old Age Revolving Pension Plan. Under this plan, the government would provide a monthly pension of $200 to every citizen over 60 years old. Funded by a two-percent national sales tax, the three eligibility requirements were that the person had to be retired, the person could not have a criminal record, and the pension had to be spent in the United States within 30 days of receipt of the funds. His plan was published in a newspaper in 1932, and within two years there were more than two million people actively promoting the Townsend Plan.

Upton Sinclair was yet another person to propose a pension plan. Called End Poverty in California, he wanted the state to give $50 a month to every unemployed person over age 60.

While none of these plans came to fruition, the support they received made it clear the time for a pension plan had come. Indeed, the United States was somewhat slow in getting such a plan off the ground. England had started its first program in 1834, and 34 other European countries had some form of government-provided, old- age insurance by 1937. Canada had passed its first old-age pension program in 1927.

Social Security

In June 1934, President Franklin D. Roosevelt appointed Frances Perkins as head of the Committee of Economic Security. He provided her with a 23-member advisory council represented by labor, industry, and the general public to look into a plan to protect the unemployed and the elderly against financial destitution. Despite Perkins’ fears that her revolutionary bill for the establishment of such a program would not survive, it passed both houses. Roosevelt signed the Social Security Act into law in August 1935.

For many, fears and worries about old age were eased. Unfortunately, Social Security was not available to most government employees, and Oregon public employees were among those not covered by the act. This was a matter of serous importance to thousand of Oregon’s state and local employees, and interested parties began to look for solutions.

Oregon’s old-age pension trials and triumphs (pre-PERS)

Early retirement plans

Oregonians were not idle while other states looked into pension programs for their public employees. In 1911 Oregon teachers organized a statewide pension fund, The Fireman’s Relief and Pension Fund started in 1913, and the Policeman’s Fund began in 1918. However, while these funds marked a beginning of retirement plans for public employees in the state, it did not signal the beginning of a trend, and numerous other proposed retirement plans failed to pass.

In 1933 the Oregon Legislature passed the Old Age Pension Act establishing a pension program for all Oregonians over the age of 70. Each county was in control of its own residents, and the pension fund was available to anyone who met very specific criteria. Employees from both the public and private sector could qualify. Payments were low, however, and the program was short-lived.

When Social Security was signed into law in August 1935, many employees in private industry breathed a sigh of relief. But since it excluded public employees, there was still much work to be done to provide economic security to all elderly.

The need for a retirement system for state and local government employees was no longer contested. While the demand for a pension program was concentrated in Portland and Multnomah County, it was widely believed that a retirement system would both improve the quality of life for retirees and contribute to the well being of government organizations.

Momentum for statewide retirement plan

Herman Kehrli, executive director of the League of Oregon Cities, had been concerned about pensions for some time. In 1934, he addressed the Portland City Council, saying, “The need for an orderly retirement program in the city service has grown more and more acute and the financial insolvency of the existing system has become obvious.”

Expressing his concern over the declining reserves in the existing police and firefighters’ funds, Kehrli stressed the need for actuarially sound principles as a foundation for a single system for all municipal employees.

The retirement issue became increasingly significant over the next five years, involving public employees at the state, country, and municipal levels. Discussions moved beyond the Portland City Council and were taken up by the state legislature. A number of pension-related measures came up during this period, but all were defeated.

Governor Sprague appointed a committee of 25 state and local government representatives in 1939 to study the feasibility of a retirement program
in Oregon. The committee prepared a majority report recommending the establishment of a single pension system to cover all state and local employees not already members of an established plan. A bill was drawn up, but it contained a number of compromises that were not satisfactory to many who had actively supported pension legislation for public employees. The bill was not even introduced during the 1941 session.

Governor Sprague

Governor Sprague did, however, address the legislature about his committee’s findings. “This committee has studied annuity systems and prepared a plan which is entirely sound from an actuarial standpoint. I realize there is much opposition to a retirement system for public employees; but, as federal Social Security is extended to cover more and more groups of citizens, the state and local units of government must move to set up suitable retirement plans for their employees.”

Hidden pensions

Momentum was now stronger than ever and a group of dedicated individuals, led by Kehrli, doubled their efforts to come up with a solution. Their findings revealed that according to the January 1942 U.S. Bureau of the Census report, only 7.6 percent of the public employees in Oregon were covered by some retirement system, while 46 percent of state and local employees of other states were covered.
Addressing members of the Oregon Finance Officers’ Association and the League of Oregon Cities, Kehrli summed up the problems Oregon and its public employees were facing.

“Too little attention is given to the loss of efficiency and to the cost involved in the ‘hidden pensions’ that are being paid in the form of salaries to superannuated employees. Most public agencies follow the practice of keeping their employees on the payroll just as long as they are able to report to their place of work. At least two of them in Oregon, however, have recognized the policy of paying ‘hidden pension’ salaries on a full-time basis and have made provisions for carrying superannuated employees on a special payroll. The City of Portland has for some years been paying superannuated employees who are not members of a retirement system a pension from $1 a day to $100 per month. The employee makes no contribution toward this pension and has no guarantee that it will continue to be paid. The State Board of Higher Education has also adopted the policy of providing a part-time job at half-salary to employees who reached the retirement age of 70. These two agencies are spending over $100,000 per year for this pension payroll. Where a definite policy of this type exists, it is perhaps easier to see just what is happening and what the price. But it is a fact that the same thing is happening and the cost is greater in these departments and in those cities and counties that have not established a retirement age but continue their employees on at full salary. A planned retirement system would do in an orderly way what is now being done in a most haphazard and expensive way.”

Other factors

Attracting qualified employees to civil service was another major factor in setting up a retirement system. An article by I.A. DeFrance of the League of Oregon Cities that appeared in the August 7, 1944 issue of Welfare of State and Local Employees addressed this issue. “The state and local governmental service is in competition with the Armed Services, war production, and private industry and is losing the contest to the more attractive wages, Social Security, and retirement benefits offered by private industry. There is a serious shortage of competent help, and if the state and local governmental agencies are to secure and retain their fair share of the trained and skilled personnel of the nation, they must make their service more attractive by providing social security and retirement benefits equal to this offered by private industry. The welfare of the state and its future for decades depends upon the type of personnel attracted to the public service after the war.”

Nearing the finish line

The problem gained increased public attention. Kehrli, DeFrances, and scores of municipal and state organizations worked around the clock to gather material to convince legislators and voters that it was imperative to establish a pension system for public employees. Telegrams, memos, and letters were passed back and forth between Kehrli and administrators of retirement plans in states across the country. Insurance companies were solicited for actuarial estimates, and figures and charts piled up in Kehrli’s office. Finally, in the winter of 1945, House Bill 344 began to take shape.