The body was scarcely cold, but it got a quick burial. I am referring to the 10-year investment returns of the Oregon Public Employees Retirement Fund for the period 2008-2017. This report and many other historical reports of OPERF investment returns are gone from the Oregon Investment Council’s website. When I inquired about this, the OIC’s public information officer explained that the website was redesigned because it was “cluttered”. Now, citizens have access to these historical reports only through a public records request.

Part of the “clutter” that was removed was the last 10-year investment return report that includes both up markets and down markets, the report for the period 2008-2017. This is a very significant report because it is a strong indicator of the kind of returns we can expect from OPERF over the long term. It is not a pretty picture.

For the period 2008-2017, OPERF returned barely 6 percent annualized. If the PERS Board used 6 percent as their assumed rate of return (as they should), the PERS unfunded liability explodes to over $30 billion. An unfunded liability of this size would cause chaos in their calculation of how much public employers need to pay into PERS. They could no longer whistle through the graveyard. They (and state leaders) would have to face the fact that PERS is in deep trouble.

How deep? Using data from PERS’s actuary, a simple spreadsheet shows that over the next 25 years, when pension payments are expected to balloon from $5 billion per year to over $8 billion, an employer contribution of 40 percent of payroll is needed to keep PERS solvent. Compare that to the current employer rates of about 18 percent of payroll. PERS administrators are most certainly not oblivious to this fact. But they choose to downplay it.

Instead, the PERS Board clings to a nonsensical rate of return of 7.2 percent, a return not achieved over the long term by the OIC for many years.

With all of that pesky “clutter” gone from the OIC website, PERS administrators are wasting no time in producing self-serving and misleading reports about OPERF returns. See the attachment to the PERS Board meeting agenda for April 1, 2019 titled “2018 and Cumulative Investment Performance.” Page 9 trumpets that OPERF ranks first among its peers for 10-year investment returns. Of course, the 10-year figure that is being used represents a time period that contains only an uninterrupted bull market in stocks.

If we use the 10-year period ending in 2017, which includes the last bear market in stocks, suddenly OPERF is not number one. Little Nevada’s public employee retirement fund outperformed OPERF by almost 1 percent annualized for this period, using simple index funds, a passive investing style, and very low allocation to the controversial private equity sector. An additional 1 percent per year may not sound like much, but if OPERF had returned 7 percent instead of 6 over the decade, the unfunded liability would be billions smaller.

Page 11 of the report flatly (and falsely) states that “Private Equity has been (and is expected to remain) OPERF’s most productive asset class exposure.” The fact is that over the 10-year period ending in 2017, OPERF’s private equity investments did not even match the S&P 500. OPERF’s miniscule allocation to passive investments did much better, posting the best returns in the entire OPERF portfolio. Why is OPERF’s allocation to passive investments so small if it performs so well? That is the topic for another post.

So we need to look critically at each report that comes from PERS administrators and the OIC. With the historical reports now locked away, they are free to cherry-pick data to put the best possible spin on the situation while outside critics play catch-up using cumbersome public records requests.  But one thing is certain. Until our state leaders start questioning these policies, PERS administrators and the OIC will continue with business as usual until the PERS-induced fiscal crisis is upon them (and us, the taxpayers).