According to a report in the Salem (Oregon) Statesman Journal, Circuit Judge Paul Lipscomb ordered the pension board to reconsider how it divvied up stock market profits from 1999, so that more money goes into reserves instead of worker pension accounts.
Lipscomb concluded the Public Employees Retirement System (PERS) is fundamentally strong, but PERS Board decisions led to unnecessary funding shortfalls. By failing to put more in reserves, Lipscomb ruled, “the board threatens to gradually, but inevitably, kill the proverbial goose that lays the golden eggs,” the Statesman Journal reported.
He faulted the PERS Board for ignoring a law requiring it to establish a contingency reserve. And he said the board should have set aside more 1999 stock market earnings to meet its goal of having the gain/loss reserve last through 30 months of a flat stock market.
The gain/loss reserve was designed to cover the 8% annual guaranteed earnings increase for pension accounts of Tier 1 members, those who joined the system before 1996, the newspaper said.
PERS earned a 25% return for those veteran public workers in 1999, and put 20% into their pension accounts and 5% into the gain/loss reserve. At the time, unions protested that more should have gone into worker accounts, while local government leaders said more should go into reserves.
Local Governments File Suit
Lipscomb’s long-awaited ruling resolved a 1999 lawsuit by Eugene and other local governments. They complained PERS was passing on too many costs of the pension system to employers and taxpayers, which attorney Bill Gary said led to a “feeding frenzy” at public expense, according to the newspaper.
If the ruling stands, it also could reduce pensions for public employees, especially those hired before 1996, though the true impact is hard to quantify at this point, the newspaper said.
Since the lawsuit was filed, the stock market went from boom to bust, and PERS’ finances went from rosy to worrisome. By the end of 2001, PERS was more than $8 billion short of what it needed to cover its expected pension obligations to members, according to the Statesman Journal.
A recent PERS analysis concluded that “unfunded liability” could grow to $20 billion in five years unless the stock market makes a dramatic recovery.
Lipscomb also criticized the PERS Board for failing to update 1978 life expectancy assumptions used to set pensions when people retire. Though the PERS Board moved to rectify that earlier this year, voting to implement realistic mortality tables by January 2004, Lipscomb said that is “too little, too late.” (See Have Oregon PERS Tables “Out-Lived” Their Usefulness? )
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