HB 4144 will dramatically reduce the long-term costs of PERS without legal challenges or benefit cuts.
Oregon’s top labor, business and local government associations have endorsed the bipartisan Investment Modernization Act, a proposal in the 2014 Legislature that will save Oregonians an estimated $2.8 billion and also create jobs in-state.
The savings, which will be achieved over the next 20 years, will be possible via a long-overdue restructuring of the Oregon investment program, which has not changed markedly since the 1970s.
“The Legislature has the opportunity to save Oregonians $2.8 billion over the next 20 years, and also to help ensure that Oregon’s public investments are better protected,” said State Treasurer Ted Wheeler, a member of the Oregon Investment Council.
The legislation, House Bill 4144, was introduced by a bipartisan coalition that includes Reps. Tobias Read, D-Beaverton; Vicki Berger, R-Salem; John Davis, R-Wilsonville; Margaret Doherty, D-Tigard; Caddy McKeown, D-Coos Bay; Nancy Nathanson, D-Eugene; and Jeff Reardon, D-Portland. The bill was requested by the Oregon Investment Council following studies of best practices in the investment industry.
“This legislation is exactly the kind of common sense, cost-cutting innovation that Oregonians are clamoring for,” said Rep. Read, the chief sponsor of House Bill 4144.
The list of endorsers for the bill includes Service Employees International Union (SEIU), Associated Oregon Counties, Associated Oregon Industries, Oregon Business Association and the Oregon Business Council.
“House Bill 4144 will make an already effective investment operation more efficient, will save tens of millions of dollars a year, and will bring work back to Oregon for which we are being charged exorbitant Wall Street fees,” said Arthur Towers, political director for SEIU Local 503, a union representing 55,000 public workers, care providers, and non-profit employees in Oregon.
“This is the sort of innovative reform that Oregon needs, and we look forward to working with the Oregon Investment Council, the Treasurer and the Legislature to ensure the new model has legislative accountability, public oversight and necessary flexibility.”
A letter signed by business representatives says: “Billions of dollars in saved fees will directly translate to less money that’s needed to oversee Oregon’s investments – and means Oregon can stretch public dollars even further.”
The proposal will yield changes to the staffing structure of the state investment office, will create a new independent agency, and would result in less need for expensive Wall Street firms to help guide the state’s $87 billion public portfolio. The savings to Oregonians will directly reduce the long-term costs associated with the state’s pension portfolio and other public funds.
The savings to the pension system will be achieved by cutting investments fees— not by amending benefits for workers or retirees. Based on an analysis of the Oregon pension versus peer public funds, the savings could be $80 million annually, or more, in reduced investment fees. That translates to approximately $2.8 billion over two decades.
Treasury estimated the impact of the savings over 20 years because that is the horizon used to amortize unfunded actuarial liabilities in PERS.
Under the structure of the investment program established in the 1970s, when Oregon first started investing in stocks, the investments were comparatively small and the stock trading was outsourced. In those days, the pension fund was less than $1 billion.
As of Dec. 31, the fund had grown to $67.1 billion and is invested globally in an array of public and alternative investments.
“The investment world is exponentially more complex and our structure must adapt,” said Dick Solomon, a Portland accountant and the chair of the Oregon Investment Council.
You can learn more about the Investment Modernization Act on the Treasury website, Here.
The Oregon State Treasury protects public assets and saves Oregonians money through its investment, banking, and debt management functions. State investment policies are overseen by the Oregon Investment Council.
The State Treasury also promotes public outreach and education to help Oregonians learn strategies to save money, invest for college and make smart financial choices. You can track Treasury-related news on Twitter at @OregonTreasury.