Oregon’s public pension system faces turnover at the top
PORTLAND — Just as the costs, the politics and administrative complexity of Oregon’s underfunded public pension system are set to reach a painful new peak, the system is facing turnover at the top that will be difficult to backfill.
The longtime executive director of the Public Employees Retirement System, Steve Rodeman, who’s been an encyclopedic resource for lawmakers, employers and employee groups alike, will retire June 1.
Meanwhile, the PERS board will lose its chair, John Thomas, and possibly one other member, Krystal DeAsis, whose term expires in September. They are the longest serving among the panel’s five members, and two of the three members with no financial connection to the system.
The brain drain comes as Gov. Kate Brown is under enormous pressure to “do something” about the system’s runaway costs. PERS is actually four separate retirement programs, and so complicated that even a seasoned financial professional would need some time to reliably navigate and make meaningful contributions to policy discussions. After decades of tweaks by the Legislature, the board and successive court decisions, it has become the financial equivalent of a Rube Goldberg machine.
It is deeply underfunded, with a deficit of $22 billion that is bringing successive rounds of painful cost increases to schools, state and local agencies and other public employers. And it is highly political.
The governor’s first choice to succeed Thomas, who’s termed out, has already bowed out. It’s not clear whether there is an internal applicant ready to step into Rodeman’s shoes, and the pay may be too low to attract a qualified external candidate.
The board will take up the question Monday at its regular meeting, the last before Rodeman and Thomas leave the building, making a seamless transition nearly impossible to achieve.
Debate over the system will return in the 2019 legislative session as Brown and lawmakers try to alleviate the next spike in required contributions from employers. That means wrestling with the now perennial question of whether it’s fair to reduce benefits for current employees -- particularly younger ones -- to help pay for a deficit that is mainly due to retirees.
It will be up to the PERS director and board to educate and advise the governor and legislators on the fairness, legality and economic consequences of their options.
Greg Hartman, the Portland lawyer who has represented the PERS Coalition of public employees for decades, said the loss of the director and board chair is a “sea change” for the system. He said Rodeman was an outstanding director, and whoever replaces him will likely be walking into the capitol cold.
“One of the things that has been invaluable is that everyone has seen the agency as an honest fact broker,” Hartman said. “There’s no spin. It’s just the facts, in a situation where everything is contentious. ... It’s going to take a new leader some time to build credibility with the legislature and all the other players who get involved. This is a tough job.”
The Legislature piled more work on the agency during its short session. It passed one bill to incentivize employers to make extra contributions and reduce their respective funding deficits. It is up to PERS to help those employers develop their individual plans.
Lawmakers also passed a bill that will give public employees the ability to make some investment choices starting in January. That’s a fairly standard option in a retirement program. But it’s not clear that the investment management division at the Treasury Department can legally or functionally make it happen without major implications for the current investment portfolio.
Even if it can, PERS doesn’t currently have the staff to provide investment advice to employees, which might require licensed investment advisers, according to Rodeman. Nor does it have the information technology to record their choices, or the back-office accounting that would track the investments and their earnings.
Running PERS, in other words, is not just another agency director job. It requires all the standard skills to manage the agency’s personnel, budgets, planning, and projects. But you’re also looking for fluency in actuarial science, the history of Oregon’s byzantine plan design, and the ability to accurately explain the system and the implication of any policy changes to the board, the governor, lawmakers and various stakeholder groups without being tagged as partisan.
“I hope they don’t just stick in someone who is a good state manager,” said Jim Green, executive director of the Oregon School Boards Association. “When you get into PERS, it’s a whole different animal. The agency’s decisions impact everything across the state of Oregon.”
Elana Pirtle-Guiney, the governor’s workforce and labor policy adviser, said last week that there were about a half-dozen applicants. The application window closed Monday. She said it’s unlikely the state will see someone with the experience of Rodeman or his predecessor, Paul Cleary, so anyone who comes in will have a learning curve.
Thomas, the current board chair, says he’s not sure there’s anyone in house with the ability to fill Rodeman’s shoes. He’s also concerned that the posted salary range, $150,000 to $185,000, is insufficient to attract a candidate with all the requisite experience.
The board is tasked with filling the job by the June 1 meeting, which will be Rodeman’s last. Thomas and board member Lawrence Furnstahl will serve on the subcommittee weeding through the applicants.
Meanwhile, the governor’s office is searching for a replacement for Thomas, a Eugene businessman who has served on the board since 2012. According to emails obtained by The Oregonian/OregonLive under a public records request, the candidate will likely be a direct appointment as chair.
“There’s staff support but it is a Chair-run board with a lot of eyes on it,” Pirtle-Guiney said in a February email soliciting potential ideas for board candidates. She listed the following qualifications: “Background in wealth management, financial planning, or related field; other understanding of retirement systems and retirement planning - Poise in a position that faces a lot of political pressure.”
Brown’s office had hoped to tap Richard Solomon, a Portland accountant who served for years on the citizens panels that oversee the system’s investment portfolio, the Oregon Investment Council. But Solomon told the governor’s staff he was apprehensive about the job, and on Monday, he sent notes out saying he would not be joining the board.
Thomas said he had forwarded two names for the governor’s office to consider, both Eugene financial professionals. But he said “normally a newbie is not going to be board chair.
“It took a long time until I was up to speed and conversant. ... I would not bring someone new in and say, ‘you’re the chair,’ not with this board and all the issues the system is facing.”
The current term for DeAsis, a former financial analyst for Portland General Electric who has served on the board for six years, will also expire in September. She said Tuesday that she hadn’t made a decision whether to serve another term, though the board positions typically rotate after two, three-year terms.
Since 2003, the number of members on the PERS Board was downsized to five, including one employee representative, one employer representative, and three independent board members with no financial connections to the system.
Bob Livingston, a Salem firefighter and lobbyist who has spent years tracking PERS issues, said that reconfiguration makes the situation challenging.
“It makes that total population of people available and willing to serve a lot smaller. It’s a challenging set of circumstances to meet the qualifications of the statute.”