HOUSE COMMITTEE ON PUBLIC EMPLOYEE RETIREMENT SYSTEM

 

 

January 16, 2003   Hearing Room E

3:00 p.m.      Tapes 2 - 4

 

MEMBERS PRESENT:            Rep. Tim Knopp, Chair

                                                Rep. Alan Brown, Vice-Chair

                                                Rep. Deborah Kafoury, Vice-Chair

Rep. Greg Macpherson

Rep. Mary Nolan

Rep. Dennis Richardson

Rep. Wayne Scott

 

STAFF PRESENT:                  Cara Filsinger, Administrator

Annetta Mullins, Committee Assistant

 

MEASURE/ISSUES HEARD:            Informational Meeting

                                                            Report from PERS Staff

                                                Public Hearing

                                                            HB 2001

 

These minutes are in compliance with Senate and House Rules.  Only text enclosed in quotation marks reports a speaker’s exact words.  For complete contents, please refer to the tapes.

 

TAPE/#

Speaker

Comments

TAPE 2, A

004

Chair Knopp

Calls meeting to order at 3:02 p.m. and opens informational meeting.

INFORMATIONAL MEETING

013

Jim Voytko

Presents written statement (EXHIBIT A) and graphics (EXHIBIT B) on the status of PERS. 

 

Voytko

Presents status of pending employer PERS rate increase (EXHIBIT A, page 1).

037

Chair Knopp

Asks if the Board is required to give notice of the new rates.

 

Voytko

Explains that the rate notices have been mailed out but they have not become official.  Believes the Board has the authority to adopt the rates and the effective date.

 

Voytko

Reviews 2001 Employer Rates (EXHIBIT B, page 2).  Notes school districts’ rates vary. 

053

Chair Knopp

Asks if the rates shown are without the pickup.

 

Voytko

Responds affirmatively.

059

Voytko

Reviews Unfunded Liability (EXHIBIT B, page 3).

071

Voytko

Reviews Employer Rate Outlook (EXHIBIT A, page 1 and EXHIBIT B, page 4).

084

Rep. Richardson

Asks what the return received has been for the last three months.

 

Voytko

States there was a modest positive return in the fourth quarter of last year.  Adds that the fund over the last three years has not earned its actuarial assumptions.  States that the rates are available and he will report back.

 

Rep. Richardson

Asks if there are expectations that the eight percent will be maintained.

 

Voytko

Explains why they continue to expect eight percent.

116

Voytko

Explains what happens when they would earn more than eight percent (EXHIBIT B, page 5).

134

Voytko

Explains projections with six percent earnings (EXHIBIT B, page 6).

142

Voytko

Responds to status of the Board’s decision on actuarial equivalency factors and the mortality/retiree longevity assumption embedded in them (EXHIBIT A, page 1 and 2).

176

Voytko

Explains graph on account growth (EXHIBIT B, page 8).

201

Voytko

Explains benefit growth graph (EXHIBIT B, page 9).

258

Voytko

Explains the Board is trying to pursue a concept to ensure that monthly benefits do not go down as a result of the change until post implementation events are sufficient to raise the benefit above the old level even when modern actuarial tables are applied to it.

 

Chair Knopp

Asks if the Board took a different tact than what Judge Lipscomb ruled.

 

Voytko

Responds yes and explains.

 

Chair Knopp

Asks if the red line is “full and immediate” and asked whether the Board could come to the conclusion that full and immediate is the green line (EXHIBIT B, page 8).

294

Voytko

Comments on request to the court for an explanation of “immediate.” 

308

Chair Knopp

Asks if the Board is acting on legal advice received from the attorney general.

 

Voytko

Explains sources of information given to the Board.

 

Chair Knopp

Asks if the information relates to the mortality table or other issues as well.

 

Voytko

Responds it is on the mortality table and more.  Adds that the experts have been asked specific questions.

 

Chair Knopp

Asks if the Board has a policy to keep the advice private.

 

Voytko

Responds that the Board operates under state law and suggests it is up to the attorneys to release information that is covered under attorney/client privileges.  Notes there is litigation pending.

350

Chair Knopp

Comments it would be valuable to understand why the Board has made the decisions they have made.  Asks that the Board release information on advice they have received on these issues.

361

Rep. Macpherson

Asks if the policy of the Board on the transition rule was driven by their decision of what they thought was good policy, or by their legal constraints they were advised on.

 

Voytko

Responds that without direct access to the Board and their willingness to speak, believes it is fair to say there are legal constraints and opinions about where they lie.

384

Voytko

Responds to the status of the litigation before Judge Lipscomb in Marion Circuit Court (EXHIBIT B, page 2).

463

Chair Knopp

Asks if the decision on the appeal will apply only to those who appeal, or to everyone.

TAPE 3, A

 

Voytko

Explains that the exchange of information between the Board and attorneys is in executive sessions.

042

Chair Knopp

Calls attention to the spread sheet on history of PERS since 1946 (EXHIBIT C), the book of statutes relating to PERS, and news articles on PERS (EXHIBIT D).

PUBLIC HEARING – HB 2001

065

Chair Knopp

Opens public hearing on HB 2001.

 

Dave Heynderickx

Legislative Counsel.  Explains HB 2001 and reviews history of PERS’ earnings capabilities.

139

Heynderickx

Explains subsection (2) of HB 2001.

163

Chair Knopp

Comments he has requested language to amend line 23.

 

Heynderickx

Responds that PERS staff was going to talk to the actuary.  Believes Voytko can explain.

170

Chair Knopp

Explains the effect of the requested amendment.

189

Heynderickx

Explains that the discussion is about the majority of the people in the fund.  Gives understanding of how the actuary makes decisions.

229

Rep. Nolan

Comments on her understanding of subsection (2) and asked if they are recognizing the policy of the 30 month reserve, or whether this would prohibit the Board from maintaining a reserve.

 

Heynderickx

Explains that after the reserve account is paid up and is fully funded, at whatever level the reserve is, the Board has always had a policy to maintain a reserve for 30 months; the reserve was depleted in the first year of the losses.

 

Chair Knopp

Comments that the bill does not say what the policy should be.

287

Jim Voytko

Director, Public Employees’ Retirement System (PERS).  Comments that because this legislation affects benefits, neither he nor the Board will present a position on the legislation.  Presents staff analysis of the bill (EXHIBIT F).

372

Chair Knopp

Asks if the $100 million liability is annually.

 

Voytko

Responds he believes it is annually.  Explains that because the State is by far the largest employer, the State would garner the largest amount.

 

Chair Knopp

Asks how much it would reduce the unfunded liability.

 

Voytko

Responds it would reduce the liability by just under $100 billion.

 

Chair Knopp

Asks if Johnson, the actuary, will testify on the bill.

 

Voytko

Advises that the actuary needs a formal definitive change in the plan structure in order to make a change in actuarial assumptions, and that Johnson is prepared to explain the rates.

 

Chair Knopp

Summarily states that the actuary is saying this bill saves $100 million in statewide costs as it relates to PERS annually, and it would take about $1 billion off the unfunded liability.

 

Voytko

States that Chair Knopp is correct in his summary statement.

412

Voytko

Comments on a hard cap versus a concept that would tightly constrain the opportunities for earning above eight percent.  Offers that the legislature could constrain the opportunity to get above eight percent; perhaps consider limiting Tier I credit.

TAPE 2, B

 

Voytko

Continues explanation of limiting earnings.

049

Voytko

Explains that no trust fund moneys go to employers.  Concern is for any indication that would create a new crediting sequence.  Will provide in writing whether the existing crediting accomplishes the aim without using the employer language.  Gives example of crediting to accounts.

 

Voytko

The Board does have guidance about how big the gain loss reserve should be in numerical terms, but SB 134 of last session instructs the Board and the staff to set up a reserve that is of sufficient size to avoid the creation of Tier I deficit.

087

Rep. Macpherson

Asks if there is anything in the private section that the legislature can get information from.

 

Voytko

Responds there really is not.  Believes there is one fund that guarantees a financial return but it is at a substantial discount. 

106

Rep. Richardson

Comments on history of earnings and asked if a new calculation would not adjust the rate down.

 

Voytko

Explains process the actuary uses and investment strategies of the Oregon Investment Council.

 

Rep. Richardson

Asked how the actuary is selected.

 

Voytko

Explains the selection process.

161

Chair Knopp

Asks if it was Voytko’s testimony that the actuary would see this as a hard cap.

 

Voytko

Explains how the actuary looks at earnings over a 26-year period.

 

Chair Knopp

Asks if the Board has taken a position in favor of expediting the Lipscomb decision to the Supreme Court, and whether the Board has taken a position on expediting legislation to the Supreme Court.

 

Voytko

Responds the Board has not taken a position and there is nothing in the goals and objectives.   Comments on timing of Board actions and expediting the process.

223

Rep. Richardson

Asks if the actuarial liability is set at $14.3 billion.

 

Voytko

Explains there is in addition about $500 million associated with the retiree health plan.  Explains trust fund to fund the subsidy provided for health insurance for retirees.

 

Rep. Richardson

Asks if the projection is that it will take about 26 years to get back into the black.

 

Voytko

States the 26 years is a choice they make.  Explains that the Board has an amortization schedule.  Explains history of amortization table.

272

Rep. Richardson

Asks if the actuary has recommended eight percent for the last 12 or 13 years. 

 

Voytko

Responds that is his understanding.

274

Rep. Richardson

Asks if the actuary has justified how to retain the same eight percent in the current market and with the projected deficits.

 

Voytko

Responds that the actuary did present a justification and showed a composition of the anticipated return.  Comments that the eight percent in 1999 was excessively low, but it was not meant for just that period.  Explains that the estimation of the assumed rate is independent at the time the decision is made.  State that the unfunded liability has no effect, nor the rate of return.

 

Rep. Richardson

Comments that the eight percent projected in 1998 may have been grossly low because with the deficit, he is still projecting eight percent.  Gives example of calculations on reduced funds.

 

Voytko

Explains on projections and states that the estimation of the assumed rate is independent of the financial situation of the fund or system at the time it is made; the estimate is what is going to be earned by the fund, not whether it is the right size.  Adds that the unfunded liability plays no role in the estimation of the assumed rate or the size of the principal.

313

Jim Green

Oregon School Boards Association.  Submits prepared statement in support of HB 2001 for the Oregon School Boards Association, Association of Oregon Counties, Special Districts Association of Oregon, and the League of Oregon Cities (EXHIBIT F).

359

Brian Delashmutt

PERS Coalition, which includes Oregon Council of Police Associations, Association of Oregon Correction Employees, Federation of Oregon Parole and Probation Officers, and Oregon Nurses Association.  Adds that he is also, today, representing the PERS Coalition, which represents all the public members who have an employee interest. 

Responds that they also have a concern on the question of access to legal advice to the PERS Board in executive sessions. 

 

Chair Knopp

Asks if they have legal advice on how to get the testimony from the Board.

 

Delashmutt

Responds that they have been denied access on the basis of attorney-client privileges.  Believes their inability to get the information fosters more litigation.  States that SB 134 was the precursor.  It talks about the sufficient size of the gain/loss ration.  Explains goal of SB 134.

TAPE 3, B

025

Delashmutt

States they too have a list of suggestions and will continue to reinforce them.  States that HB 2001 has been agreed to by the employers and employees, with the one caveat about lines 22 and 23.  Explains concerns.

 

Chair Knopp

Asks if they will support the hard cap if it is in agreement with the actuary.

 

Delashmutt

Comments they do not expect there will be a time soon when there will be more than eight percent.  Comments on concerns and realizations of their members and the future of the system.

075

Chair Knopp

Asks if Delashmutt has thoughts on an expedited clause on suits.

 

Delashmutt

Comments their concern is that the sooner they can get this resolved, the better it is for all parties. 

 

Anthony Bieda

Lane County Government. States that Lane County has participated and cooperated with the Association of Oregon Counties and the Employers Task Force in developing recommendations, and they support those recommendations.

 

Bieda

States that Lane County has said they will work to fix the system to hold down the employer rates. 

 

 

Comments on issue of crediting earning above the guarantee, greater liabilities down the road, that increase liability increases employer rates, and to some degree the awarding above eight percent to member accounts could be construed as representing a unilaterally award of benefits above the amount expressed by the legislature. 

 

Chair Knopp

Asks if Bieda means there should be a defined percentage.

130

Bieda

Responds there are many different ways to define what the benefit level should be.  Explains his position on the benefit level.

130

Tricia Smith

Oregon School Employees Association (OSEA) and member of the PERS Coalition.  Comments OSEA supports Delashmutt’s comments.  Will focus comments on the deletion in lines 14-16 of HB 2001, and they assume the sentence in lines 22 and 23 drove the deletion in lines 14-16.  They are concerned about deleting the goal that the gain/loss reserve is funded adequately to guarantee Tier I accounts are funded appropriately, and no more than that.  They don’t want to see changes in statute today that 25-30 years will cause a fund that cannot be used.  Hopes the changes also take into account whether it is appropriate to delete the language.  States they also support the concept of limiting concerns to the assumed rate guarantee. There is some merit in the idea that a less hard language in the statute that would limit future suits.

184

Chair Knopp

Suggests that Heynderickx include an expedited appeal process in the amendment he has been requested to draft.

 

Dave Heynderickx

Legislative Counsel.  Suggests the chair think about expediting the process.  Explains complications that may be realized in the future if there is an expedited review provision.  Comments on decrease of members in Tier I and possible suits in the future. 

249

Voytko

Comments on limitations of use of gain/loss reserves.  Believes moneys placed in the reserve will be used for only Tier I accounts.  Explains fluctuations in reserve account and the ability of the Board to change its funding policy. 

 

Heynderickx

Adds that he agrees with Voytko.  Explains scenario from his point of view.

 

Voytko

Agrees there will be a time when there will be 20 percent earnings, the fund is loaded, and the question will be whether the employees have a contract right to a minimum return equal to the assumed rate, or a minimum return equal to the assumed rate and excess earnings.

 

Heynderickx

States it would be to the extent that there are no other statutory demands for reserves and other things in place.  Comments on SB 134 of last session. 

 

Voytko

Explains that is why he has proposed the alternative of an effective cap.  Explains his proposal.

341

Chair Knopp

Asks if an expedited clause would say in the future that we thought it to be  unconstitutional.

 

Heynderickx

Advises that one would have to get to the day when harm is inflicted.

 

Chair Knopp

Asks if Heynderickx believes there is no need for the clause.

 

Heynderickx

Responds affirmatively.

365

Rep. Richardson

Asks if they are not talking about a right in this issue.  Explains his question. 

394

Heynderickx

Comments on a negative view of unnecessary expedited review.

 

Chair Knopp

Asks if it is possible to include a sunset clause on an expedited process.

 

Heynderickx

Comments on previous provisions on automatic appeals.

TAPE 4, A

015

Heynderickx & Voytko

Discuss court procedures.

030

Voytko

Comments on ability to appeal, and effect of decisions retroactively.

 

Heynderickx

Counters that if someone came in during the first year, only that one year would be looked at. 

 

Koytko

Counters that because of the Lipscomb decisions, the set of transactions they would have to undo would date from the time they made a crediting under the circumstances described and the time the court ruled.  States that is where expedited decision making would become possible, but would not argue for or against it. 

073

Chair Knopp

Asks Heynderickx to draft amendments; explains content.

 

Heynderickx

Advises that the deleted language mentioned by Tricia Smith in lines 13-16 should be reinstated.  Explains why the language should be reinstated.

083

Chair Knopp

Adjourns meeting at 5:01 p.m.

 

EXHIBIT SUMMARY

 

A – Informational Meeting, prepared statement, Jim Voytko, 4 pp

B – Informational Meeting, graphics, Jim Voytko, 9 pp

C – Informational Meeting, spreadsheet on PERS history, PERS staff, 2 pp

D – Informational Meeting, news clippings, staff, 4 pp

E – HB 2002, PERS summary, Jim Voytko, 2 pp

F – HB 2001, prepared statement, Jim Green, 3 pp