February 22,2003 6:00 pm Pacific Time
SOURCE: Parish & Company.
Oregon Public Employee Pension System (PERS) and Corporate Governance Reform Implications: Governor Kulongowski, Oregon Investment Council, Portland City Club, State Economist Tom Potiowsky and Oregon Senators Ron Wyden and Gordon Smith
PORTLAND, Ore., Feb. 22 /PRNewswire/ -- Today Parish & Company,
supporter of the Securities and Exchange Commission and global leader in
advancing key corporate governance and financial reporting reforms, summarizes
related proposals made to the Oregon Investment Council (OIC) at its monthly
meeting on January 29, 2003.
Parish & Company conducted an extensive national review of public
plans in 1999 which received little coverage in the business press. This work
is now gaining considerable attention since many states, including Oregon, now
struggle with underfunded plans. This update focuses upon California,
New York, New Jersey, Michigan, Ohio and Florida, each with plan assets in
excess of $45 billion.
The fastest growing expense for many states is pension expense and
therefore these expenses are now resulting in significant layoffs. Oregon is
indeed in the most significant financial crisis in 25 years in which Portland
Public Schools Superintendent Jim Scherzinger has already cut 24 days from the
school year. Teachers are now considering a strike. Other public officials are
making similar cuts to public safety, including releasing large numbers of
prison inmates and mental health patients.
Parish & Company advocates providing an excellent pension plan to
employees and strongly opposes privatization. In most states the majority of
participants in such plans are teachers and health care workers, the bedrock
service providers for a sound economy.
In Oregon the Oregon Investment Council (OIC) selects and monitors
investment managers. Total plan assets at one point were almost $40 billion or
three times the entire annual state budget. Current OIC members include
Gerard Drummond, Diana Goldschmidt, Mark Gardiner and Jerry Bidwell, all
appointed by the Governor, in addition to State Treasurer Randall Edwards and
analyst James Voytko. The appointments are unpaid positions, represent a
diverse mix of skills and appear to be free of the conflicts of interest that
appear to exist in many other states.
Now is the time for the Oregon Education Association (OEA), the Portland
Association of Teachers (PAT) and the Service Employees Industry Union (SEIU)
to lead the effort in fixing PERS in addition to becoming more active on
corporate governance issues. Indeed, the newly designated leader of Calpers, a
$150 billion public pension, is Sean Harrigan, a union leader. Parish
& Company strongly supports these organizations yet there failure to act on
PERS reform has clearly impaired the publics confidence.
Some of the PERS and corporate governance reforms advocated by Parish
& Company involving Oregon's plan include the following:
1. Making PERS less "top heavy." PERS benefits are
often too heavily
weighted toward high paid administrative positions and influenced by
overtime wages. The IRS and related ERISA guidelines have adopted
numerous discrimination testing rules for private pension plans yet
these rules were never adopted in PERS. The focus of PERS, as with
private plans, should be fairness and providing a good retirement to
2. Parish & Company therefore advocates new guidelines
that would make
PERS contributions on qualifying salary up to $60,000 and index this
salary amount for inflation going forward. Additional tax deferred
vehicles would be available for contributions in excess of $60,000.
3. Such a reform will be difficult because those
crafting new rules are
mostly higher paid administrative employees, most directly impacted by
such a reform, yet this gesture of fairness will help restore
the publics confidence and ensure the systems long term viability. It
should also be the cornerstone of Governor Kulongowski's plan.
4. Guaranteed rates of return should be market based,
not arbitrary such
as the 8 percent rate guaranteed to all pre 1996 Tier I participants.
Parish & Company advocates guaranteeing the rate on the 10 year
Treasury bond, adjusted semiannually and matched to contributions made
by employees, with no mark to market adjustments. Participants deserve
a guaranteed rate option yet it must be a trusted market rate that will
change over time.
The current guaranteed 8 percent
rate has actually pushed the OIC to be
more aggressive in its investment policy. It now maintains a target
allocation of 70 percent stocks and 30 percent fixed income. As a
result, staggering additional losses have been incurred, contributing
further to the deficit.
Parish & Company advocates
an asset allocation in which stocks and real
estate would not exceed 50 percent with the remaining 50 percent being
a time laddered portfolio of fixed income securities. This should
indeed be mandated by the Oregon Legislature to release the pressure on
the OIC to jump an unrealistic "investment return bar."
5. Given the significance of the OIC, Parish &
Company also advocates
making these paid appointments at a salary of $60,000 per year with a
maximum term of 6 years. It is absolutely ridiculous, given the direct
significance of these decisions to the state, to not make these most
important appointments paid.
6. Regarding corporate governance, Parish & Company
supports new SEC rules
requiring that key proxy merger votes be disclosed, preferably on the
OIC's website. This is especially important given that one private
company, Institutional Shareholder Services (ISS) is the only
substantial advisor issuing opinions on such mergers to public pension
In Portland, Oregon on Sunday February 23rd at 4:00 on Cable Access
Television Station 11 these and numerous related issues will be examined on
Oregon Voters Digest, hosted by Bruce Broussard. Bill Parish will be the
If you are a public pension official, investment manager or journalist
would like to invite Bill Parish to speak at your event, please see the
contact information below. Bill was the keynote speaker at a national
conference on accounting reform at Kent State University in 2002 and his work
is widely quoted in leading publications including Bloomberg, The New York
Times and USA Today.
His presentations are generally considered both entertaining and highly
useful, whether to large groups of money managers, teachers or public
This press release can be found in the PR Newswire archive at www.prnewswire.com
Parish & Company
10260 SW Greenburg Rd., Suite 400
Portland, OR 97223
Tel: 503-643-6999 Fax: 503-221-3161