HOUSE COMMITTEE ON PUBLIC EMPLOYEE RETIREMENT SYSTEM
April 10, 2003 Hearing Room E
3:00 PM Tapes 48 - 49
MEMBERS PRESENT: Rep. Tim Knopp, Chair
Rep. Alan Brown, Vice-Chair
Rep. Deborah Kafoury, Vice-Chair
Rep. Jeff Barker
Rep. Tom Butler
Rep. Greg Macpherson
Rep. Mary Nolan
Rep. Dennis Richardson
Rep. Wayne Scott
STAFF PRESENT: Cara
Filsinger, Administrator
Annetta Mullins, Committee Assistant
MEASURE/ISSUES HEARD: HB 2002 – Public Hearing
HB 2328 – Public Hearing
HB 2329 – Public Hearing
HB 2400 – Public Hearing
HB 2402 – Public Hearing
HB 2406 – Public Hearing
HB 2408 – Pubic Hearing
HB 2635 – Public Hearing
HB 2795 – Public Hearing
HB 2928 – Public Hearing
HB 2978 – Public Hearing
HB 2979 – Public Hearing
HB 2980 – Public Hearing
HB 2981 – Public Hearing
HB 2982 – Public Hearing
HB 3314 – Public Hearing
HB 3320 – Public Hearing
HB 3595 – Public Hearing
HB 2003 – Public Hearing
HB 2008 – Public Hearing
HB 2020 – Public Hearing
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 48, A |
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|
003 |
Chair Knopp |
Calls meeting to order and announces the order in
which agenda items will be considered. |
|
|
Chair Knopp |
Opens a public hearing on HB 2002. |
|
HB 2002
– PUBLIC HEARING |
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|
|
Chair Knopp |
Closes the public hearing on HB 2002 and opens a
public hearing on HB 2328. |
|
HB 2328
– PUBLIC HEARING |
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|
|
Chair Knopp |
Closes the public hearing on HB 2328 and opens a public
hearing on HB 2329. |
|
HB 2329
– PUBLIC HEARING |
||
|
|
Chair Knopp |
Closes the public hearing on HB 2329and opens a
public hearing on HB 2400. |
|
HB 2400
– PUBLIC HEARING |
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|
|
Chair Knopp |
Closes the public hearing on HB 2400 and opens a
public hearing on HB 2402. |
|
HB 2402
– PUBLIC HEARING |
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|
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Chair Knopp |
Closes the public hearing on HB 2402 and opens a
public hearing on HB 2406. |
|
HB 2406
– PUBLIC HEARING |
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|
|
Chair Knopp |
Closes the public hearing on HB 2406 and opens a
public hearing on HB 2408. |
|
HB 2408
– PUBLIC HEARING |
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|
|
Chair Knopp |
Closes the public hearing on HB 2408 and opens a
public hearing on HB 2635. |
|
HB 2635
– PUBLIC HEARING |
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|
|
Chair Knopp |
Closes the public hearing on HB 2635 and opens a
public hearing on HB 2795. |
|
HB 2795
– PUBLIC HEARING |
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|
|
Chair Knopp |
Closes the public hearing on HB 2795 and opens a
public hearing on HB 2928. |
|
HB 2928
– PUBLIC HEARING |
||
|
|
Chair Knopp |
Closes the public hearing on HB 2928 and opens a
public hearing on HB 2978. |
|
HB 2978
– PUBLIC HEARING |
||
|
|
Chair Knopp |
Closes the public hearing on HB 2978 and opens a
public hearing on HB 2979. |
|
HB 2979
– PUBLIC HEARING |
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|
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Chair Knopp |
Closes the public hearing on HB 2979 and opens a
public hearing on HB 2980. |
|
HB 2980
– PUBLIC HEARING |
||
|
|
Chair Knopp |
Closes the public hearing on HB 2980 and opens a
public hearing on HB 2981. |
|
HB 2981
– PUBLIC HEARING |
||
|
|
Chair Knopp |
Closes the public hearing on HB 2981 and opens a
public hearing on HB 2982. |
|
HB 2982
– PUBLIC HEARING |
||
|
|
Chair Knopp |
Closes the public hearing on HB 2982 and opens a
public hearing on HB 3314. |
|
HB 3314
– PUBLIC HEARING |
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|
|
Chair Knopp |
Closes the public hearing on HB 3314 and opens a
public hearing on HB 3320. |
|
HB 3320
– PUBLIC HEARING |
||
|
|
Chair Knopp |
Closes the public hearing on HB 3320 and opens a
public hearing on HB 3595. |
|
HB 3595
– PUBLIC HEARING |
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|
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Chair Knopp |
Closes the public hearing on HB 3595 and opens
public hearings on HB 2003, HB 2008, and HB 2020. |
|
HB
2003, HB 2008, HB 2020 – PUBLIC HEARINGS |
||
|
027 |
Duncan Wyse |
Oregon Business Council. Comments on testimony of Ron Parker at a previous meeting. States they have contracted with
EconNorthwest to look at the various proposals and existing system, and to
map out the financial implications of the various proposal on the state’s
fiscal condition in decades ahead.
States that the Oregon Business Council highlighted PERS reform as the
number one priority (EXHIBIT A). They felt the need to develop a full
accounting of the liability and to look at the various alternatives including
adjustments to the existing plan and options. |
|
052 |
Wyse |
Introduces John Tapogna and Carl Batten,
EconNorthwest. |
|
027 |
John Tapogna |
EconNorthwest.
Reviews history of firm, including contracting with PERS to develop
models to assist in forecasting liabilities and employer rates. |
|
071 |
Tapogna |
Presents PowerPoint presentation in response to
three questions asked by the Oregon Business Council (EXHIBIT A). |
|
097 |
Tapogna |
Continues presentation (EXHIBIT A, page 2). |
|
119 |
Tapogna |
Continues presentation relating to Sources of the
Problem (EXHIBIT A, page 2). |
|
190 |
Tapogna |
Continues presentation (EXHIBIT A, page 3). |
|
255 |
Tapogna |
Continues presentation (EXHIBIT A, page 4). |
|
342 |
Tapogna |
Continues presentation (EXHIBIT A, page 5). |
|
438 |
Tapogna |
Continues presentation (EXHIBIT A, page 6). |
|
TAPE49, A |
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|
003 |
Rep. Macpherson |
Asks if the witnesses would anticipate, or have, a
legal analysis that says it is permissible to say we would cover the account
balances that are in place currently and match them, and that would be
sufficient to meet our legal obligations. |
|
008 |
Tapogna |
Responds they would leave that to the legal experts’
determination. |
|
010 |
Rep. Macpherson |
Asks why they characterized the “Macpherson Plan” as
compared to the “Fair Plan” and described the Macpherson Plan as a defined
benefit plan rather than a combination of both, when it has both elements. |
|
015 |
Tapogna |
Responds they were looking at it from the
perspective of the employer rates.
States when they look at the employer rates, they are not considering
the employer cost of the pickup.
Explains they saw the defined benefit portion of Rep. Macpherson’s
plan replacing part of the current plan that is considered the employer
contribution now for new hires, and the defined contribution portion of the
plan would replace the part of the current system that is called the employer
pickup. Adds that none of the
employer rates shown in the presentation show any employer pickup. |
|
025 |
Rep. Macpherson |
Comments the witnesses refer to the cost of a
defined contribution system as a six percent normal cost. Asks if they are aware that the Fair Plan proposal
involves individual elections by members to decide to contribute up to six
percent for general service or higher rate for police and fire. Asks if they were taking into account that
many employers would not choose to make that contribution to the system. |
|
036 |
Tapogna |
Responds that the cost they estimated was a six
percent cost to employers, which is what would happen under the Fair Plan if
every employee contributed six percent.
|
|
052 |
Rep. Macpherson |
Comments that the costs on employer rates that are
referenced using a six or eight percent kind of model does not refer to the
two proposals before the committee because the defined contribution proposal
involves elective employee action. |
|
|
Tapogna |
Responds that Rep. Macpherson is correct. |
|
059 |
Rep. Macpherson |
Asks if it is coincidental that they used an eight
percent, the cost which the actuary provided for the plan he proposed, and
used the six percent which is the maximum amount in the proposal by Rep.
Richardson. |
|
063 |
Tapogna |
Responds it is more than coincidence that they used
the eight percent costs that Mark Johnson calculated for Rep. Macpherson’s
proposal. They believe Johnson does
excellent work and that is a good estimate and it seemed Rep. Macpherson’s
proposal was a good representative of a defined benefit plan. |
|
073 |
Rep. Macpherson |
Asks if they have any experience with modeling what
the actual conduct of employees is when presented with a one-for-one match
opportunity. |
|
077 |
Tapogna |
Responds they do not have a model. States that the information provided for
no new members in a defined contribution plan is not an attempt to do that;
it is modeling a plan where the employers puts in exactly six percent. |
|
086 |
Rep. Macpherson |
Comments that the economic analysis from
EconNorthwest is very helpful.
Suggests that when they do the benefit analysis, there are experiences
by people who work in that field that would have brought some precision to
the those kinds of issues that perhaps would have been helpful for the
committee to understand the real choices before the committee, and to present
an elective plan as being a six percent normal cost plan is not a fair
characterization of what has been presented. |
|
|
|
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|
095 |
Tapogna |
Responds it was not their intention to represent
this as a cost of the so-called Fair Plan.
|
|
105 |
Rep. Macpherson |
Comments that eight percent happens to be the cost
Mark Johnson calculated for the pension program within the hybrid proposal
that he has brought forward, but eight percent has no particular relationship
to the defined benefit costs; defined benefit plans costs six, or four, or
nine, or in the case of public plans, they cost 14 or 15 percent. States that he regards the statement that
they were modeling a conventional defined benefit plan and a conventional
defined contribution plan as disingenuous.
They were, by implication, trying to model the two proposals before
the committee and yet they have not costed the effect of the defined
contribution component because they have not considered the fact that it is
an elective plan and it depends on employee choice, which is a critical
aspect of how it functions. |
|
117 |
Chair Knopp |
Asks if Rep. Macpherson has information relating to
experience of employee choice in a match situation that he would like to
share with the committee. |
|
|
Rep. Macpherson |
Responds he does not have the data himself but
believes it would be important data for the committee to have. |
|
131 |
Wyse |
Comments that they asked EconNorthwest to do this
presentation in a pretty tight timeframe and they would like to refine the
information to make it clear. |
|
139 |
Carl Batten |
EconNorthwest.
Comments that without having modeled the behavior of employees given
choices, they believe if they were to choose less than the maximum
contribution, the cost of the defined contribution plan would be lower. |
|
146 |
Rep. Richardson |
Asks if “and DB (8% normal cost)” and “and DC (6%
normal cost)” were deleted, whether it would be correct that this would apply
whether it is a defined benefit or defined contribution at six or eight
percent (EXHIBIT A, page 6). Asks if this is referring to the cost
to employers. |
|
|
Tapogna |
Responds that is correct. |
|
156 |
Rep. Richardson |
Comments that Tapogna said that an eight percent
return on investment is insufficient to pay the eight percent guarantee because
all moneys have not been in there for the entire year. Asks what percentage return would be
required to pay for a guarantee of eight percent. |
|
166 |
Tapogna |
Responds he has not calculated that. |
|
174 |
Rep. Richardson |
Comments that they indicated the levelized figure
was 23.9 percent for 25 years. Asks
if the employer pickup can be added to make the current employer rate 29.9
percent. |
|
181 |
Tapogna |
Responds, yes, assuming they continue to pay the
pickup for the next 25 years. |
|
189 |
Rep. Richardson |
Asks if there were a termination of Tier I and Tier
II and all employees were in a new plan costing either eight or six percent,
the 25-year liability would go, for those paying the pickup, from 29.9 to
either 13.1 or 11.1 percent. |
|
195 |
Tapogna |
Comments that the 11.1 and 13.1 percent do not
include the pickup. Six percent would
be added for those who are not currently paying the pickup. |
|
209 |
Rep. Richardson |
Comments that the eight percent is supposed to be an
average rate of return over 40 years, and it has been over eight percent in
eighteen of 26 years. Asks if it is
reasonable to assume that if the eight percent were correct, in the next 12
or 20 years it is more likely than not that the returns will be less than
eight percent to counter balance. |
|
228 |
Rep. Richardson |
Asks if $250 million will be expended for the
unfunded liability in the next biennium. |
|
229 |
Wyse |
Responds that if no action is taken and the rates go
up by eight percentage points, there will be roughly an additional $250
million added to the budget shortfall. |
|
244 |
Rep. Richardson |
States that the Fair Plan presently has a request
for amendments which will provide a partial base to employees regardless of
whether they pay anything into the plan to provide for the younger employees
who may not have the vision to contribute on their own. |
|
272 |
Chair Knopp |
Announces that amendments are being drafted to HB
2003 and asks that members let him know if they wish to include amendments in
HB 2003. |
|
301 |
Chair Knopp |
Closes the public hearings on HB 2003, 2008 and HB
2020 and adjourns meeting. |
EXHIBIT
SUMMARY
A
– HB 2003, HB 2008, HB 2020, white paper summary, Duncan Wyse, 1 p
B
– HB 2003, HB 2008, HB 2020, PowerPoint presentation, John Tapogna, 6 pp