Slow Down Fast

PERS has released its latest "PERS By The Numbers (September 2008)". You can download a copy here. If you study it closely, you can see some evidence of the recent downturns in the stock market. PERS assures members and retirees in a note today that it has a handle on the current situation even though it is a difficult time.

As I've noted before, PERS has been salting away reserves since 2003 and was about 112% funded at the end of last year. Of course, the current downturn (uptick?) on the stock market, the collapse of the subprime mortgage market, the scandals involving credit swap derivatives, etc, will almost assuredly have a negative effect on the PERS Fund. This has led to some testy debate between the two candidates running for the State Treasurer's office. I haven't decided who to support, although the more I hear from each candidate, the less impressed I am with them. They both know that the PERS Fund is the largest chunk of cash the state manages. And the State Treasurer is responsible for managing those funds. You get your choice between Ben Westlund, a Republican in 2003, an independent in 2005, and a Democrat now, and Allen Alley, a Republican to the core, who worked as an economic adviser to Ted Kulongoski during his first term. Kulongoski has endorsed Westlund. This *should* be a difficult choice for PERS members/retirees. I encourage you all to study their positions carefully and take the opportunity to ask them questions if you meet them. It may help you decide.

Time The Conqueror

For those of you wondering what the Oregon Investment Council is doing to shore up the PERS Fund against the current Wall Street meltdown, the answer is pretty much the same as before. Ron Schmitz, from the Treasury, told the Oregonian that the investment mix they have is solid and that their losses this year are manageable without going into "risk managment." When the OIC met yesterday, it didn't discuss the meltdown at all in its morning meeting. But in the afternoon, they brought in a economic expert who talked about the causes of the current crisis. He attributed the crisis to "excess leverage" and equated it to "pouring lead into the stream that everyone drinks from". He supports the bailout plan before congress, but with some measures to protect homeowners from losing their homes in foreclosure.

Time will tell whether the OIC's decisions bear fruit, but the OIC's track record is certainly admirable up to this point. I don't think this year is going to be good for any accounts without a guarantee, and those with a guarantee will chew up enough of the reserve that the PERS Board will have a ready-made excuse to not pay anyone over the guarantee for another long stretch of time. I think they were considering a possible payment over 8% in this current year had Wall Street performed like it had since 2003. But alas, the sticky terms of HB 2001, passed in 2003 make this year's result dial the clock back again to the beginning so that PERS will have to replenish the reserves again when the market goes up, and hold the reserves stable for 3 consecutive years. As I've predicted before, HB 2001 has always been diabolical and pretty much guarantees nothing more than the guaranteed rate, whatever it is, for the rest of the Tier 1 members' life expectancies. Time conquers all.

The Beat Goes On

I am trying something different today -- live blogging. I am sitting outside Kantor's courtroom chatting with Robinson attorney Jim Coon. Everyone is shaking hands and passing around swine flu germs. Kantor is, as usual, running behind. Coon seems to be outnumbered four to one. It is he against 4 wideboys.

Unbelievably PERS is arguing how difficult it would be to undo the changes already implemented. Kantor is expressing disbelief at PERS argument. Malkin is arguing that they just don't have the money or staff and claiming it would take more than a year. The poverty argument is heart-tugging. Did you know that no PERS retiree has suffered.

Kantor just chewed out Malkin for submitting proposed orders in an inappropriate format.

Coon is up. Kantor is questioning where the money would come from?

Kantor ultimately rules in favor of the stay on the grounds that the are too many balls in the air and too much going on to bind PERS to refunding money now.

[Posted with iBlogger from my iPhone]

Life Sentence

In a fit of symmetry and anticlimax, the US 9th Circuit Court of Appeals upheld HB 2004 (actuarial tables) as not violating the terms of the Henderson case of 1978. For those around in 1978, the 9th Circuit held that PERS could not use separate actuarial tables for men and for women, despite the different actuarial life expectancies of the two sexes. From that point forward, PERS developed "blended" actuarial tables that combined life expectancies of men and women. There was also a stipulation that PERS would not be able to change the actuarial tables back in the future. On that basis, the PERS Coalition challenged the 2003 Legislative effort to force PERS to change the actuarial tables to reflect more modern mortality data. In HB 2004, the Legislature put into statute rules that require PERS to examine actuarial tables every two years and update them, if needed, on January 1 of odd-numbered years (legislative years coincidentally). The PERS Coalition first challenged this in Strunk, but also filed in Federal Court on the grounds that the newly enacted statute violated the terms of the Henderson case of 1978. This case was first heard by a single Appeals Court Judge, then a panel of three Appeals Court judges, and finally by a larger group of 9th Circuit Judges. A few days ago, the 9th Circuit handed down its opinion that gives the Legislature and, through it, PERS the right to change actuarial tables as spelled out in HB 2004 so long as they preserve the blended nature of the tables. As this has been happening, this is really no news at all. Nevertheless, those of you hanging by a thread hoping that somehow, some way, those nasty actuarial tables enacted in 2003 would go away. Sorry. Your life sentence was not commuted.

Shelter From The Storm

In a followup to the post of several days ago, Ley Garnett of the Oregon Treasury, emailed to correct an error he made in providing me with information about PERS' holdings in Freddie/Fannie. As it turns out, Ley reports (consistent with State Treasurer Randal Edwards) that the PERS fund only holds 0.2% in Freddie/Fannie stock - an almost trivial amount in a $60+ billion portfolio. And it is also the case that the PERS fund has weathered the latest round of slashing and gashing on Wall Street better than most. The reports I am reading (not from Treasury) suggest that the PERF is only *down* about 6% for the year so far with 3+ months to go. I can say that the Oregon Investment Council has done far better than I have. They have a lot more money to diversify with. [Help this poor soul out. Buy Apple stock. :-) ]

I Threw It All Away

The meltdown of Fannie Mae and Freddie Mac have given me pause. I'm in the process of trying to determine how much exposure the PERS Fund has to these two dismal giants and how their government takeover will affect the value of the Fund. As soon as Treasury lets me know, you'll be the first to know it here. These two housing funds are so large that any meltdown there is likely to have some significant ramifications in the value of any fund that holds them in sizeable quantities. Should know soon and will post when I get the answer.

P.S. Ley Garnett responded with a very helpful, if concerning answer. The total amount of the PERS portfolio invested in Fannie/Freddie is about $2.7 billion, mostly all in fixed income portfolios. As of the close of business today, that represents about 4% of the fund. I guess the question of the day should be, should we be worried?