We learned at the January 31 meeting of the PERS Board that public employers will not be asked for a nickel more in contributions to PERS (as a percent of payroll) beginning in 2023. This continues the counter-productive policy of this board under Chairperson Sadhana Shenoy, who was appointed in 2018 by Kate Brown as an “independent” board member and has shown herself to be anything but.

In 2019, Shenoy cast the deciding vote in a split decision to hold the assumed rate of return on PERS investments unchanged in 2019, keeping employer contributions low. Under pressure from actuaries, the board lowered the assumed rate of return in 2021, but not enough. A fabulous stock market in 2021 and a still-too-high assumed rate of return produced the zero percent increase in employer contributions that we now see. These decisions align perfectly with the agenda of the public employee unions but put PERS at substantial risk when the current bull stock market ends.

In my July 11 op-ed published in The Oregonian, as well as in previous posts in this blog, I explained the need to bring a lot more money into PERS. A good stock market year does not change this fact. Employer contributions currently account for less than $3 billion per year. Pension payments are currently about $6 billion per year and will be north of $8 billion in a few years. The difference is made up by withdrawals from the Oregon Public Employees Retirement Fund, a rate of withdrawal that is not sustainable.

Kate Brown has quietly re-appointed Shenoy to another 3-year term as PERS Board chairperson, so getting the board back on a track that tries to solve the PERS problem rather than prolong it will have to wait until a new governor appoints a truly independent individual to replace Shenoy.

Meanwhile, we all hold our breath as the stock market churns away.

Here is my testimony to the board’s January 31 meeting that elaborates on the above topics.

Members of the PERS Board:

We see in today’s Milliman report that it appears net collared employer rates will not rise at all this year using the preliminary 2021 investment returns of 20.05%.

I’m sure that from your perspective this is a great success, since you have shown you believe your mission is to serve the interests of public employers and employees at the expense of the other half of your fiduciary duty, the half that calls for administering PERS with the thought in mind of being able to pay future pension obligations.

In fact, this board, under Chairperson Shenoy, has reverted to the behavior of past PERS boards when they were controlled by the interests of public employee unions: use the Oregon Public Employees Retirement Fund as its piggy bank as if spectacular investment returns will continue as far as the eye can see and let someone else deal with the funding problem when the chickens come home to roost.

I have pointed out to you in multiple previous testimonies that long-term PERS investment returns are not sufficient to eliminate PERS’s unfunded liability. New money must be added to the system via employer pension rates that must keep rising until your assumed rate of return matches actual OPERF returns over the long term. Even with this year’s spectacular returns, you are not there yet in a way that can be considered sustainable. A serious downturn in the stock market would still be very damaging to the PERS system and would force employer rates to be raised quickly and painfully.

The only glimmer of good news I found in today Milliman’s report was that your new rate collar system has provided a measure of protection of the PERS system from the worst impulses of this board by accomplishing the unheard-of: collaring rates upward by about 3 percent. At least you can no longer use the rate collar as an additional little piggy bank as you did when rates were almost always being collared downward despite the obvious need for substantial money to be added to the system.

In 2021, the legislature spent billions in windfall tax returns, and not one extra nickel went to the PERS problem. 2022 is shaping up to be a similar situation: more billions to spend and nobody talking about PERS. This is the way the Democrat super-majority has governed and intends to continue governing until voters stop them. We can only hope this is the year when voters say “enough” and hope that it is in time to mitigate the inevitable PERS crisis.