Board's error should benefit no one.
Suppose a grocery store clerk miscounts your change, and gives you $10 more than you had coming. Few would argue that the money is yours to keep, even if you've already spent it by the time the mistake is discovered.
Similarly, when the Public Employees Retirement Board erroneously credited public employees' pension accounts with the entire amount of a stock market windfall, fairness requires repayment. The Oregon Supreme court upheld this principle when it refused to intervene in last year's settlement of a lawsuit arising from the overcrediting of Public Employees Retirement System accounts.
Correcting the mistake will be painful for some PERS pensioners, but any other finding would have been unfair to Oregon taxpayers.
The case has its genesis in the irrational exuberance of the late 1990s, when double-digit increases in stock values came to be accepted as normal. In 1999, PERS earned a record return of 20 percent on its investments. Ordinarily, that would be good news - the retirement system board could provide its guaranteed 8 percent rate of return on retirement accounts, and put the rest in reserve for leaner years.
Instead, the board poured all of the gains into members' pension accounts. This saddled public employers with the expense of matching many retirees' inflated accounts, while leaving PERS without the resources to meet its obligations during a stock market downturn. PERS costs consumed a growing share of state and local governments' budgets, and when the stock market bubble burst the pension system's unfunded liabilities climbed to more than $17 billion.
The city of Eugene, joined by other public employer plaintiffs, sued the pension board. In 2002, Marion County Circuit Judge Paul Lipscomb ruled in the plaintiffs' favor, finding that the board had abused its discretion to such a degree that it had violated state statutes. He ordered the board to correct its error - something that could only be done at the expense of PERS beneficiaries.
Much has happened since Lipscomb issued his ruling. The 2003 Legislature approved a package of bills to reform PERS. The Oregon Supreme Court upheld some of those reforms earlier this year, and struck down others. Eugene and the other plaintiffs reached a settlement of the Lipscomb case with the pension board last year, but others who had intervened on the board's side pursued an appeal. Last week the Supreme Court ruled 5-2 that the settlement made the case moot.
The settlement requires the recalculation of the 1999 crediting in a way that reduces pension benefits by about $100 million a year, or an estimated $1.6 billion total. The 36,000 PERS beneficiaries who have retired since 2000 will see their pension checks reduced, and will also have to repay money they've received as a result of the overcrediting. Some repayments could be as much as $8,000.
But retirees have known since 2002 that repayment might be required, allowing them to prepare for the blow. PERS will also allow repayments to be made in installments.
A pension check ought to be rock solid. The upheavals of the past several years have eroded retired public employees' confidence in the security of their retirement income. And now come actual reductions in current and projected pensions, along with demands for substantial repayments. People affected by these developments deserve all Oregonians' sympathy.
But all Oregonians, including PERS beneficiaries, also deserve an affordable, sustainable public pension system - one that does not place undue strain on budgets for schools, public safety and other services. Such a system requires governance of a kind the pension board did not provide in the late 1990s, when, as Lipscomb put it, "ordinary fiscal imprudence" went so far as to become "an abuse of discretion."
PERS beneficiaries will suffer from this mismanagement only to the extent that they benefitted from it earlier.
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|Publication:||The Register-Guard (Eugene, OR)|
|Date:||Aug 17, 2005|
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