Battle Studies

To my surprise, the PERB meeting today was pretty low key. That isn't to say that there weren't moments where it looked like howitzers would be drawn. But on the whole there were far fewer fireworks than expected.

Not surprisingly, the new actuarial equivalency factors were adopted without any discussion. The actual tables are not public to the best of my knowledge, but they will be shortly. All we have are the adjustment factors from the previous study and the impression that the factors will again be slightly less generous than before both because of better survival rates and because Mercer changed the calculation methodology. The expected impact is about 2% lower benefits at retirement, which can be offset by delaying retirement by a few months. Of course, your mileage may vary once the factors are public.

On the topic expected to cause the most fireworks, few actually occurred. The actuary went over various options and their impact. No matter how you slice it, employer rates will be going up for 2011-13, but the steepness of their increase remains an unanswered question, subject to a variety of factors. After the actuary finished his presentation, stakeholders were permitted to comment. The only stakeholder there who surprised me a bit was the public employee's best friend, Bob Tiernan, the chair of the Oregon Republican Party. Tiernan was not there to speak for or against the employer rate hike, but to remind everyone that PERS was back on his radar and said that his party would be looking at this as part of the next campaign (Legislative and Gubernatorial no doubt). For those of you unfamiliar with Bob Tiernan, recall that he was in the Legislature the early 1990's and was the sponsor of Ballot Measure 8 (1994) which would have removed both the rate guarantee and the mandatory employee contribution and the pick-up. When those were tossed by the Oregon Supreme Court, Tiernan was responsible for the Tier 2 program, which stripped the guarantee from new members.

For the employees, Pat West of OPRI and the Firefighters, and Greg Hartman spoke to the dual need of the Board's responsibility to members and to employers. Neither was willing to take any stand on what the PERB ought to do before any proposals were on the table - maybe at the January 2010 meeting.

Steve Manton from the City of Portland gave his employer's view of the potential rate increases, neither appealing for mercy, but asking that the Board take into consideration everything.

Finally, Phil Keisling gave an impassioned plea for the Board to engage in a longer-term discussion of the of the future of PERS in the current environment. He remonstrated the Board for looking at 2008 in isolation as though it were a "black swan" event, rather than considering the 5 year run of 15%+ returns as "golden geese". He surmised that the probability of the 5 year 15% run was about the same as the single year 2008 and that the Board (and the actuaries) ought to be considering both when they start all their modeling. Keisling was arguing that the Board should not make this decision in a compressed time frame in a reactionary sense, but should take as much time as is reasonable to plan. There is no direction for the employer rates to go except up and the Board, while certainly being the fiscal stewards they were, had the responsibility to deliver the bad news to the employers even if the employers did want to hear it.

The Board responded in turn to each of these comments and basically challenged that their job was to administer the system, not to make law. They had no authority to do some of the things being floated about, and felt that they should not be held hostage to the entire fiscal situation in Oregon. They had no authority to call on the Legislature for some sort of forum on the fiscal scenarios being played out. The general consensus among the Board was that they had not intended for the double-rate collar to be so black and white as to place once employer whose funding was at 79.8% with a 3% higher increase than an employer with an 80.3% funded rate. They seemed to be telegraphing that the rate collar would be maintained, but with some more graduated rates between the two cliffs.

At this point I had to leave the meeting and I didn't hear the final 15 minutes, although I doubt anything of significance was mentioned.

It is clear that the Board is suddenly growing troubled by the responsibility it faces and the consequences of their actions on public finance in Oregon. No final decision will be made until July 2010 when the 2009 returns become finalized. In the meantime, there will be 3 more meetings fraught with hand-wringing and despair as the Board and the employers wrestle with the problem of how they can push the problem on down the road while making it clear that they aren't. It will be an interesting 7 months and the knives and guns will be hoarded and the battle studies will take place in semi-slow motion.

For me, the answer is simple. The Board should hit the employers hard now. Make it clear that this is the system the Legislature baked and there are simply no other ways the employers can weasel their way out of future promised obligations.