Letter to the Editor

Editor’s note: Former PSU Prof. Marc Feldesman published this response to an October 30 Vanguard article about a recent talk of his on the topic of the Public Employees Retirement System (PERS) on an internet mail list which he oversees. For more information, see http://web.pdx.edu/~h1mf/pers.htm. His response is reprinted here in its entirety.

As some of you know, I gave a talk last week to RAPS – Retirement Association of Portland State – on PERS. The talk was entitled: “PERS Reform: The Good, The Bad, and the Ugly” (a cute title shamelessly stolen from a favorite movie of mine — you know, that great spaghetti western called “PERS Reform”). There were about 100 people in attendance, including active Tier 1 and Tier 2 members, as well as a good number of recent and not-so-recent retirees. I write this email not to reiterate the talk, or even to advertise it after-the-fact, but because PSU’s Vanguard (the school newspaper) covered the talk and reported on it in an edition last week. I only recently had time to read the whole article. I can genuinely say that any resemblance between what I said and what was reported in that article is purely coincidental. I don’t want to take time and bandwidth to offer a point-by-point accounting of all the inaccuracies in the article (I know the reporter was there, but I’m not sure he was awake). But I do want to challenge most of the major inaccuracies reported.

1) I DID NOT ever once say that current Tier 1 or Tier 2 members would be affected by the changes in retirement age imposed by the “successor plan” enacted as HB 2020. HB 2020 creates a new plan for people hired on or after 8/29/03. This NEW plan for NEW people has an age 65 retirement age, or age 58 with 30 years of service. I did note the significant differences between the new retirement age and the eligibility ages for current Tier 1 and Tier 2 members.

2) PERS does *not* cover all faculty at PSU. It covers most, but some, particularly newer employees and some older ones as well, opted to go with OUS’ own “optional retirement plan”, which is a defined contribution plan that is managed outside PERS.

3) I said that PERS has been “on the radar” since 1994, not 1984. 1994 is significant because that was the year voters passed Ballot Measure 8 – aimed directly at PERS members. Two years later, the Oregon Supreme Court overturned Ballot Measure 8, but the issues raised by Ballot Measure 8 really began to alert the public – or at least some members of the public – of a potential problem with PERS.

4) I didn’t criticize the old PERS Board for voicing any policy. I criticized them for adopting an administrative rule that effectively said that they wouldn’t change mortality tables unless they produced higher benefits for members.

5) The current PERS system is not NOW a dead end. The reporter erred in reporting that I said that the 6 percent employee contribution has been going into the “transition account” since January 1. What I said is that STARTING 1/1/04, the employee contribution (6 percent) will be going into a “transition account”, now named an Individual Account Program or IAP.

6) I don’t want to try and explain how the reporter mangled what I said about the 8 percent guarantee starting calendar year 2003. I didn’t state this as “not a threat”. What I pointed out is that HB 2003 reinterprets what the 8 percent guarantee means and I offered a simple example to illustrate how it might work. What I DID say is that if the market were to do badly for a long time, the reinterpretation has a “flip side” in that if the long-term average rate of return ends up being below 8 percent for a given employee, the new law would require the employers to gross up the balance (add $$) to the employee’s account to meet the lifetime average guarantee. At the same time, I thought that for the near term, no employee close to retirement is likely to drop below the lifetime average of 8 percent, even with several years of 0 percent earnings. (This was not reported as “good news” or even as “not bad news”, but simply a fact of how the legislation is constructed and how I understand it to be implemented. The redefinition of the “8 percent guarantee” (or more correctly, the “assumed rate guarantee”, is the subject of some of the litigation before the Oregon Supreme Court).

7). Finally, with respect to the PERS deficit, I did report that HB 2003 eliminates the “call” on employers to erase any PERS deficit that persists for 5 years. By removing the “call”, by requiring the deficit to be eliminated via holdbacks to employees, and by largely preventing a deficit from occurring in the future, the question of the “call” becomes essentially moot.

I NEVER said that PERS has 5 years to “remove its deficit liability”. The reporter badly mangled what I said as #7 and came out with this statement.

So, for any of you who happened to run across the Vanguard article (in a Google News search, perhaps), you’ll be wasting time reading it expecting any pearls of wisdom from me. It bears almost no resemblance to what I said. Anyone who attended can confirm that. But, there is a nice picture of me wearing a tie, and this itself may be a reason to read the article; many of you didn’t even know I owned a tie. 🙂

Marc Feldesman