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Saturday, January 10, 2009

Dirty Low Down and Bad

The Boregonian today had the painful news that some PERS retirees and actives are going to feel some serious hurt when the 2008 earnings (losses) get posted. First off, retirees who kept money in their variable accounts after retirement will see their variable benefit cut nearly in half in the check for the month of February. The variable investments declined by 48% for the period November 1, 2007 to October 31, 2008. The remaining hurt will be doled out to a variety of classes of people - the Tier 1 actives with money in the IAP will see market returns in the IAP. They are estimated at about -29%. That same figure applies to Tier 2 members on their regular accounts and on their IAP accounts. Tier 1 members with IAP accounts will see a -29% loss in the IAP portfolio, while the Tier 1 regular account will receive the guaranteed 8%.

All tallied, the PERS fund (PERF) has an estimated value of $46 billion at the end of 2008; it began 2008 with a portfolio value at about $65 billion. I am absolutely certain that the various reserves are not sufficient to backfill for the losses, although the Tier 1 gain/loss reserve is probably adequate to cover the 8% guarantee.

The only "good" news here is that the PERS Fund did less badly than most other pension funds in other states. Perhaps that, too, will change once the new accounting rules kick in this year that requires private equity funds and hedge funds to use "mark to market" accounting to value their portfolio. According the Snoregonian, about 25% of the PERF is in these instruments.

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