My primary source for Phil Kiesling's "meditation" on the PERS system failed to include Kiesling's cover letter. Since Kiesling explicitly asks that the cover letter be included, I am reprinting here since the source linked below does not include it. Kiesling tries to answer some of the questions about his motivations in the letter and set the record straight about errors and omissions and updates between the current version and previous versions. So here it is, extracted from the original source:
"Friends and fellow Oregonians:
About 4 months ago, I started making a few inquiries about the status of Oregon’s Public Employee Retirement System (PERS), which was much in the news a half-decade ago. I thought I might do an 800 word op-ed piece about the effects of the 2008 market downturn on the system. But one question led to about 3 more, and as summer turned to fall and then early winter, the end result (after multiple drafts) is the attached White Paper, which is roughly 15 times the length.
My apologies for that. I know everyone is super busy, and this hardly the stuff of compelling literature for most people. But I thought this might be of potential interest to you, given how long and thoughtfully each of you has contributed to thinking and acting constructively about important public policy issues in this state. So in case this topic is of interest, I thought I’d send it along. (And my apologies to those who received this more than once; I’ve lost track of who got some earlier versions).
Indeed, if any of you have seen an earlier draft, please consider this one to supersede that. As I explain below, I have made more than a few changes, and old versions (and their flaws) of things do tend to linger longer than they should in cyber space.
I also fully recognize that while this November 9, 2009 draft reflects an extensive effort to respond to the myriad of comments and corrections I received, I’m sure that I failed to correct everything. But having started this inquiry in July – and much has indeed changed since then – it felt like it was time to call it “baked” at least for the time being, and send it out, remaining warts and all (and I fully confess some do indeed remain.).
For those who were able to read the previous piece, there’s nothing earth-shatteringly new in here. The main explanations – and conclusions – pretty much remain the same, though there are some important corrections in both tone and substance throughout. In addition to working diligently -- though I’m sure, not completely successfully -- to wring all factual errors from the large to relatively small from this piece, I want to highlight and emphasize several major points:
• An Executive Summary has been added, to try to encapsulate the more salient, big picture points
• Updated PERS numbers have been inserted where appropriate – especially multiple references to the fact that the PERS fund has rebounded significantly during CY 2009, and may finish the year with 15-18% investment gains. That said, I also repeatedly emphasize that even with a year that may restore most of 2008’s massive losses, the outlook for PERS’ funding situation, while certainly better than it was in earlier reports, is still very challenging. Readers should take various predictions and charts – especially those based on the May 2009 -- with that caveat, but also recognize that the general trajectory of rates remains in a relatively steep, upward direction for the next few biennia, under most foreseeable scenario save for a return to very high and multi-year (e.g, 12-15% annual) rates of return.
• This draft reflects a more sophisticated – and admittedly more favorable -- discussion of the role the PERS Governing board has played, post 2003 reforms, to further reduce PERS’ vulnerabilities. However, it’s also evident that much of the “non debate/non-awareness” of PERS’ situation during 2003-2007 was due to investment returns over 5 years of close to 15% -- almost double PERS’ Assumed Earnings Rate of 8% . The 2008 market downturn definitely did not “cause” PERS’ current predicament. Rather, it simply revealed -- sooner, and more uncomfortably than virtually anyone would have liked -- the longer term problems that PERS faces under more “normal” (not to mention, any “sub-normal”) investment environments.
• The “possible options” section has also been expanded somewhat. However, I want to once again re-iterate that the main purpose of this paper was to 1) Try to slash through the dense jungle of assumptions, actuarial terms, and acronyms so that readers could more easily grasp the basic and most important aspects of the system; and 2) Describe the broad outlines of the structural challenges PERS faces in coming years, given past decisions and existing policies (e.g. everything from benefit levels to rate-setting policies, assumptions, and processes).
This paper’s purpose was not to advocate a specific PERS reform agenda. Indeed, in both tone and substance I deliberately worked to steer clear, for now, of exactly that. (I do, however, strongly advocate for a robust, open debate that involves sufficient time and opportunities to involve not just public employers and their employees, but the general public. )
Indeed, it’s been my experience over the years that fierce partisans in this debate – and there are many, on both sides – often want to quickly steer PERS-related discussions into territory that’s almost “theological” in nature. Do you -- or do you not -- think that public employees do good, valuable work, and therefore are entitled to everything (and perhaps more) than what they’re currently scheduled (or believe they’re entitled) to receive?
For many, this is the general outline of the debate they want to have – and I have few illusions that even this white paper can avoid being sucked into exactly this kind of rhetorical vortex, too. So if you hold the more positive view, the discussion can quickly become a matter of, “We were promised this in exchange for lower wages, so what’s the problem? And since private employers don’t give (or sometimes cheat) their employees when it comes to decent pensions, maybe, private workers deserve a PERS system, too!” And if you hold the more negative view, it can quickly devolve to, “What a bunch of overpaid, overprotected complainers! Let’s just cut these excessively generous benefits!”
What a dreary – and ultimately off-point -- discussion, however much energy and heartfelt passion folks bring to the table.
While some – including current retirees, whose retirement benefits, ironically, are virtually untouchable when it comes to any proposed changes that are legally permissible – might want PERS discussions to focus on this (and related questions), the larger, important point is this: Oregon has and needs a public pension system. PERS is that system, and it’s one that Oregon taxpayers are ultimately responsible for, since it’s part of a compensation package that they (and their elected and appointed representatives) have decided on, through both laws and negotiated contracts.
But what are the prices of sustaining that system, as currently configured – including the potential costs on everyone, not just taxpayers, but on public employees themselves? And what possible changes might make such a system better, stronger, and more sustainable over time, under current and future scenarios that everyone needs to plan for as best we can?
Finally, I want to call people’s attention to the possibility of important decisions relating to PERS, perhaps happening very quickly. On November 19, 2009, the PERS Governing Board will discuss – and could even decide on -- some significant policy changes that bear directly on PERS future. (For example, whether rates should increase by 6% or 3% for 2011-13 under the current “double rate collar” policy).
Given the virtual absence of meaningful discussion of PERS during the last 6 years in journalistic, political, and other circles – I’m concerned that such a fast decision-making pace could prove unwise –not mention, quite unnecessary. (Existing net Employer Contribution rates will remain in effect through June 30, 2011). If any of you have concerns – either about the speed at which changes could be made, or the proposed changes themselves -- I encourage you to communicate them directly to members of the PERS Board and staff, and sooner rather than later.
I plan to attend the next PERS Governing Board meeting – Friday, November 20th, at 1 pm at PERS headquarters in Tigard – and have been warned by many to wear a flak jacket. Indeed, the PERS “blogosphere” is already filled with many dark speculations about my own personal motives, and the origins of the white paper – Am I running for Governor (No!); is this a product of the dark cabal known as the “Junto, (??!); and am I trying to take away the hard-earned benefits of existing PERS retirees? ( a) No; b) I’m a Tier I future beneficiary myself; and c) even if I wanted to, that would be a non starter given the court rulings!)
But I am trying to do something I think is very much needed in Oregon at this time: raising some important, legitimate questions as to whether such a large and basic pillar of current public policy rests on the kind of firm foundation most would -- or should --agree is needed (regardless of their political philosophies and views about government generally). This is ultimately a question of how well we collectively manage this function – not just to ensure we get it right for today’s workers and citizens, but also for those citizens of future years and decades who deserve something better than inheriting a mess that we could have/should have fixed on our watch -- but chose not to because we didn’t want to be inconvenienced by difficult discussions, much less actual decisions.
You may also feel free to forward this white paper to others. I only ask that if you do so, you also forward the above discussion that includes my various caveats (“Mistakes were made”) and the larger context I’m trying to put this into.
Thanks for any interest you might have in this – and for those brave enough to wade in, happy reading!