Kicking the PERS can down the road (Jack Bog's Blog)

The folks who run Oregon's big public employee pension system have voted to continue to calculate the required contributions by governments throughout the state based on the assumption that the pension fund will earn 8% a year on its investments. But nobody on the board expects that that will actually happen, and many economists think using that high a rate is irresponsible. Here's a story from last spring about heavy criticism of California's use of 8%, when experts felt that 4.14% was a more appropriate assumption.

Heck, even the City of Portland has wised up and is using 4.5% in its calculations regarding its police and fire pension accounts. But don't pat Portland on the back for fiscal responsibility -- unlike the state, it has nothing set aside for police and fire pensions. That's right -- nothing. It just pays pensions out of current property taxes -- and those annual payments are going to double over the next 20 years.

Anyway, the Oregon state pension system is underfunded, and with unrealistic assumptions about earnings, the problem will only get worse. As for any meaningful reform coming out of the bobbleheads in the state legislature, forget it. The unions will crucify any Democrat who even talks about it. Just ask Greg Macpherson.

Comments (10)

The PERS Board, just like everybody else in a role to make a decision, want to pretend that some mythical, future stock market rally will save the day for PERS.

To quote HW: "Not. Gonna. Happen. Read My Lips."

But it is so much more fun to put on your happy face, like Gov Re-tread did when he negotiated the big Union contracts this week. Keep the Unions happy. Until your weeks away from retirement, like Gov Kulo was, when he got tough with the Unions.

Maybe that will be Mayor Stupid Duck's new agenda: Get Real about yoour Pension obligations, P-town!

Posted by Harry | July 30, 2011 8:45 AM

Isn't it about time to fire the entire bunch of partisan putzes that run Oregon PERS? There is no way these people are going to squeeze 8% out of the current economy. Just to get 4% you have to be willing to buy into 30 Year Treasuries or AA rated corporate bonds at least 5 year maturities.
And did these jerks actually collect money from Tier 1 retirees they overpaid?
Or is there an excuse for that issue as well?

Posted by Dave A. | July 30, 2011 8:58 AM

What's that word? Unsustainable. The house of cards known as public employee pay & benefits will come down eventually, even in Oregon, though Oregon is way behind the curve.

Posted by boycat | July 30, 2011 9:13 AM

8% is a pretty good approximation of historical earnings. And state funds can take a long view, so the chance of being dramatically wrong over future decades is small.

Posted by Allan L. | July 30, 2011 11:53 AM

The view they can take isn't as long as it used to be. The boomer retirements are here.

Posted by Jack Bog | July 30, 2011 12:21 PM

Excellent point about the aging population. It's also hard to drive growth. Look at Japan. With their aging demographics and ZPG the Nikkei 225 has trended generally downward the last 20 years.

Posted by Newleaf | July 30, 2011 1:43 PM

"Isn't it about time to fire the entire bunch of partisan putzes that run Oregon PERS? There is no way these people are going to squeeze 8% out of the current economy. Just to get 4% you have to be willing to buy into 30 Year Treasuries or AA rated corporate bonds at least 5 year maturities."

The PERS Board doesn't actually invest the money. Rather it is invested by the Oregon Investment Council which is composed mostly of volunteers from private business. You can read the about the OIC here. http://www.ost.state.or.us/About/OIC/Members.asp

"And did these jerks actually collect money from Tier 1 retirees they overpaid?"

The collection of money's allegedly overpaid to PERS recipients was blocked by a judge. The PERS Board appealed the ruling which (along with a bunch of other PERS related litigation) is currently before the Oregon Supreme Court. The Court has indicated it will rule "soon".

Posted by Anon Too | July 30, 2011 3:02 PM

Anon Too: Thank you for the updates and corrections about PERS.

Posted by Dave A. | July 30, 2011 7:32 PM

I think one quote from the article about PERS returns says it all:

"averaged only 5 percent over the last five years and 6.6 percent over 10 years."

8% seems a bit difficult. Each 0.25% diff in return means $140M extra needed.

Posted by Steve | July 31, 2011 10:33 AM

The side benefit of needed to reach 8% numbers with 5% history - Higher risk investments.

This ought to turn out real good. Maybe Weiderhorn can run the investment board.

Posted by Steve | July 31, 2011 10:38 AM

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Saturday, July 30, 2011

Kicking the PERS can down the road

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