Oregon's largest pension fund wants to pull the plug
on thousands of public employees' retirement parties--and
the unions that represent them aren't happy.
About 185,000 public employees in Oregon are members
of the $33 billion Public Employees Retirement System.
Most of them have their pension money invested in what
are called Tier 1 accounts, which last year rode the rising
stock market to a 23.4 percent return. But on Feb. 8,
the PERS board proposed trimming that return back to 18.5
percent.
The difference, which amounts to $1.279 billion, would
be deposited in a rainy-day fund to be used in the event
that financial markets turn sour. All Tier 1 accounts
are guaranteed to grow by at least 8 percent annually;
the rainy-day fund would make the necessary payments if
investment returns fall short of that mark.
Dale Orr, PERS' chief financial officer, says actuaries
recently advised the board to boost rainy-day reserves
from its current 18-month reserve to the equivalent of
30 months of liabilities.
The decision to require employees to fund the increase
angered some PERS members, especially those close to retirement,
because they will probably never receive the benefit of
their contributions to the rainy-day fund. Additionally,
says Greg Hartman, an attorney for a coalition of several
large public employee unions, the current reserve for
the guaranteed payments is substantially overfunded.
Len Anderson, a former PERS board member, says if the
board does vote to reduce last year's Tier 1 return, the
decision will cost a veteran employee about $6,000--and
since employers match the account total of retiring employees,
the cost is doubled.
Anderson and others argue that the PERS board would be
using employee money to cover a potential liability that
is legally employers' responsibility--an assertion that
Orr concedes.
The issue of employer contributions has become increasingly
problematic because unlike employee funds, employers'
funds cannot be invested in the stock market. Thus, employee
account balances--which employers usually must match at
retirement--have grown far faster than the money that
employers have set aside.
Although the PERS board could force state and local governments
to shoulder the proposed increase in the rainy-day fund,
Orr says such a move would destabilize public employers
already reeling from rapidly rising contributions.
Union leaders don't buy that argument and are urging
their members to lobby PERS officials.
Should the board ignore the unions, Hartman says litigation
is also a possibility. "The board is being asked to increase
the gain/loss reserve in order to artificially reduce
the amount of employee accounts to the benefit of employers'
accounts," he says. "There could not be a more clear breach
of the board's fiduciary obligation to the beneficiaries
of this trust."
The PERS board is scheduled to make a final decision
March 27 on the allocation of last year's gains.
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Willamette Week | originally
published March 1,
2000
