PERS in Better Shape than Media Says

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PERS Coalition attorney, Greg Hartman.

By Greg Hartman
PERS Coalition Attorney

The PERS Board meeting on January 29 was a full house with many there to see what the board would do on the issue of needing to raise employer rates in wake of the extremely poor stock market returns from investment year 2008. As anticipated the board adopted a graded approach that will “smooth” or moderate the increases over time and, as a result, on average the increase in employer contribution rates on July 1, 2011 should average around 3.5 percent. This decision was based in part to the excellent earnings by the fund in December 2009 (4 percent), and jurisdictions’ average funded status will probably be around 78 percent. Remember that individual employer rates can very widely from the average and that the impact of various employer “side accounts” will also be considerable.

PERS Board Chairman James Dalton made a point of emphasizing that employer contribution rates are going up substantially and everyone should be aware of that. Based solely on the projections done by the PERS actuary, Dalton is correct. However, these projections often miss reality by an enormous margin.

The best example of this may be the recently concluded investment year for 2009, which came in at 19.5 percent — way outside of any projections. Historically bad investment years have been followed by good ones, so we may have some additional catching up to do on the investment side. The bottom line is that 2008 put a big funding dent in PERS (and any other stock market-based fund) and depending on how long it takes the market to recover we could see significant increases in employer contribution rates … or not. Only time will tell.

The board also dealt with preliminary earnings distribution and the good news it that the regular account, again, earned about 19.5 percent so there are significant earnings to distribute. The board decided not to make any distribution to the contingency reserve and distributed everything on a pro rata basis. As a result the rate guarantee reserve will go from a negative $987 million to a negative $421 million — very good progress in just one year.

You can be assured that our firm monitors everything related to PERS extremely closely on behalf of all AFSCME members and all of the other member unions of the PERS Coalition.