Jeff Amy with the Associated Press had this article Sunday about an outside expert recommending PERS to change its fairy tail underlying assumptions. The recommended changes would affect the underlying investment return assumption that I’ve been harping on for years. Here is the article.
From the article:
The system assumes that inflation will run at 3 percent each year, and that it will earn 4.75 percent above that on its investments, for a total return of 7.75 percent. GRS, though, says that inflation assumption is too high, and says the board should consider planning around a rate of 2 percent to 2.5 percent….
The recommendation comes at a time when the pension fund is already facing the possibility of mandating higher contributions. Projections presented last year showed that, even with the current assumptions, PERS would only be 63 percent funded in 2042. The current funding policy calls for being 80 percent funded by that year, and for mandating higher contributions if that projected level falls below 80 percent for two years in a row. The updated projections will be presented later this year, and the system will be aided by a 15 percent gain in the year ended June 30.
The recommended change leave a disastrous 54% funding level.
The expert recommended that the PERS board change the system now. But outgoing PERS Direct Pat Robertson wants to keep ignoring the problem:
GRS urged the system’s board to make changes quickly, but outgoing Executive Director Pat Robertson says the board needs to consult its regular actuaries.
Changes need to be made “in a deliberative fashion and not in a reactionary fashion,” Robertson said. “We are not in the funded status we need to be, I’ve said that before, but we have $27 billion on hand to help us get there.”
Robertson is in left field. Making changes would not be reactionary. PERS’s problems have been well known since at least Governor Barbour’s administration. My first blog post on the fairy tail investment assumption that GRS is talking about was six years ago. Others were writing about PERS’ problems before me.
If making the needed changes would be reactionary, it’s only because Robertson and the Board have ignored the problems for years. Enough already.
I’m questioning whether Robertson understands the problem. Her continued statements like “we have $27 billion on hand to help us get there” are misleading. The whole problem is that PERS will not be able to pay all its bills when they come due. That it has enough money to pay some bills isn’t a solution. It’s not even a legitimate response to questions about the problem.
Having air in 3 tires doesn’t help if 1 tire is flat. Being about to pay most of your bills at the end of the month will not help when you can’t pay them all. Not having enough money to pay retirees all their benefits is a big deal.
PERS being substantially underfunded is a big deal. It’s long past time to address the problems.