Thin Line Between Love and Hate

This is a slighted edited version of a post I made over on the BlueOregon site. The title of the blog entry pretty much says it all, but it doesn't hurt to explain it a bit.

I'd be willing to hazard a guess that if the whole issue of the 1999 earnings crediting decision were left alone, and that if PERS and everyone else agreed that the 2000 PERS Board made a stupid, but not illegal, decision and that no restitution is due from innocent PERS members and retirees, most of the legal disputes would disappear and many PERS members would come onboard with the rest of the reform. The 1999 earnings crediting edecision has become the beach on which everyone is willing to spill blood and die. Since the legal theory on which the current Board's actions rest have never been tested, there is no end to the litigation will follow from the Board's attempt to "go there". No matter the outcome. Everyone loses if this battle goes on much longer. There is NO way for the employers to WIN even if they win. They've already got a totally demoralized work force, an energized and demanding set of unions who are finding a whole new set of issues, and factions within employer groups and employee groups that are fighting with each other. There are huge political consequences for both parties if this battle goes on much longer. A sitting Governor is vulnerable because he has brought the wrath of public employees down on himself. He further damaged his credibility by avoiding any significant participation in the fractious budget debates in this year's legislature.

The earnings on the PERS Fund were about 34% in 2003. All of that is sitting in reserve funds except for what was paid out to Tier 2 members. According to the actuaries, the combination of funds reserved from 2003 plus the excess above the 2004 assumed rate are nearly enough to take care of the 1999 earnings decision and we could just move on. The legislation accomplished creating a new retirement tier for new public employees, it stopped employee money from flowing into Tier 1 and Tier 2 accounts, it eliminated further money going into the variable, it approved a new mechanism for implementing mortality table changes every two years, and new mechanisms were put into statute to prevent the PERS Board from paying out more than the assumed rate until some very strict reserving tests are met (and with the global economy, post 9/11 and post Katrina world, it is highly probable that the PERS Board would rarely be in a statutory position to pay more than the assumed rate anytime in the future). Moreover, the PERS Board has been restructured completely and new rules permit and require the AG's office to stay out of legal advice to the PERB where it has a conflict of interest. There is a new actuarial firm that doesn't have 30 + years of history with PERS. These changes alone account for about half of the savings from the reform, and serve to prevent PERB from making the kinds of misjudgements it made in the past. Moreover, the Oregon Investment Council is now meeting with the PERS Board and Staff much more regularly so that the goals are more fully aligned. The Supreme Court has spoken on several issues crucial to PERS members and retirees and effectively "divided the baby" on the PERS Reforms. To be sure PERS members and some retirees lost more than they might have gained, but the net effect was to allow both sides to declare "victory" and move forward.

So to the PERS Board, to the Legislature, to the Governor, and to the group of 8 employers, I ask that instead of seeking the punitive recovery for 1999 earnings, 6 years after the fact, why not just let it drop? It isn't the biggest piece of the pie. The employers and the public accomplished major changes to PERS. Why not quit while you're significantly ahead?

The 1999 earnings decision has become such an incendiary flashpoint that it threatens to tie this matter up for many more years as multiple major lawsuits are planned, there is one in the pipeline in Multnomah County Circuit Court, and there is still a US 9th Circuit Court of Appeals case pending.

Silly ideas like terminating PERS will become so economically and legally unpalatable that they'll never fly. Even sillier ideas like firing all public employees one day and rehiring them the next day under a new 401-k system are so moronic as to defy comment.

This battle could be a lot closer to over if the 1999 earnings issue were taken off the table. At this point, the PERS members have nothing more to lose by pursuing further legal action, while the public has an enormous stake whether it wins or loses these legal battles. Just remember that the thin line between love and hate is drawn on the 1999 earnings credit decision.