Oregon treasurer recommends PERS changes

Oregon treasurer recommends PERS changes
Ted Wheeler. KATU News video file image.

PORTLAND, Ore. (AP) - Oregon Treasurer Ted Wheeler is asking state pension officials to reconsider their assumptions about the rate of return on pension investments — a move that would potentially exacerbate budget struggles for local governments in the short term.

The recommendation was one of several ideas for strengthening the pension fund's balance sheet that Wheeler laid out in a letter last month to the board that oversees the Oregon Public Employees Retirement System.

Critics nationally have warned that public pension funds may be counting on investment returns that would be impossibly high to achieve with the sluggish economic growth that experts forecast. PERS assumes its investments will grow 8 percent a year.

Investment growth is the primary income that pays benefits for current and future retirees, but significant contributions also come from government agencies whose workers participate in PERS. State and local governments, public safety agencies and school districts contributed $627 million to pension funds last year, records show.

Lowering the assumptions about future investment growth would require government agencies to increase their pension contributions to make up the difference, leaving them less money available for services. However, overly optimistic assumptions about investments would leave the pension fund with a deep shortfall in the future, requiring taxpayers to make up the difference down the road.

"Oregon deserves a pension system that provides a decent benefit and does not require taxpayers to choose between funding basic services or retirement costs," Wheeler wrote.

He acknowledged that lowering investment assumptions would increase the short-term burden on public employers and suggested accounting changes to help mitigate the impact.

His letter was first reported Friday in the Oregonian.

Based on the current 8 percent assumption, PERS investments are estimated to be able to cover 81 percent of pension obligations, which is considered healthy by industry standards.

PERS is working on a response to Wheeler that will be presented at a board meeting Aug. 28, said David Crosley, an agency spokesman. The 8 percent assumption is reviewed every two years and was most recently approved in July 2011, he said. It's been unchanged since 1989.

Investment returns on PERS' primary account have seesawed wildly since then, posting annual gains as high as 24 percent in 2003 and losses as high as 27 percent five years later, records show. The fund posted a 2.2 percent gain in 2011. Since 1970, the average return has been 10.3 percent.

"I think it's important that those decisions are not politicized and that the PERS board act in a way that ensures the PERS fund stays healthy," said Heather Conroy, director of the Service Employees International Union, Oregon's largest public-employee union.

She declined to weigh in on the wisdom of modifying the investment assumptions.

In addition to revisiting investment return assumptions, Wheeler said he'd push for the Legislature to revise pension benefits, adding that "a wide menu of options are being discussed."

For retirees living out of state, he suggested eliminating supplemental pension payments intended to cover Oregon income taxes, since those workers don't pay those taxes. He also suggested capping the annual cost-of-living increase so it only applies to a portion of a retiree's income. He didn't suggest a specific threshold.

Copyright 2012 The Associated Press.