October 2005 Discussion Forum
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Case Study 2: Pers and the pension revolution: Active participant ... or passive bystander?
After considerable reflection, Alyson Green had decided to throw her hat into the ring to become the next CEO of the state’s public employee retirement system, named PERS for short. The state’s Governor, who she had gotten to know well before he ran for office, had been very persuasive. It was his perception that, with the retirement of PERS’ long-serving previous CEO, the organization needed new, vigorous leadership. With her strong track record as a private sector ‘turn-around’ specialist, he thought that Alyson fitted the bill perfectly. PERS’ Board of Trustees must have agreed with the Governor’s assessment, as they decided that Alyson was the strongest of the three finalists for the job. They had made her an offer, and she had accepted. Now six weeks on the job, she had started to make serious preparations for her first Board meeting, only two weeks away. As she felt that this first meeting would offer a unique opportunity to establish a few key strategic priorities for PERS, it was important for her to develop her own view on what they should be.
While the state had made various employee pension provisions for almost a century, the current PERS organization was established as an autonomous state agency in the 1950s. According to its most recent Annual Report, PERS looks after the pension arrangements of some 150,000 current and former state employees, and is fully funded, with plan assets and liabilities both valued at about $50 billion. The PERS pension contract is a typical public sector ‘DB’ arrangement where pension payment accruals are based on years of service, final earnings, and are fully indexed to consumer prices (CPI) post-retirement. Normal contributions reflecting new service are split 50-50 between the employer and employees. The allocation of any balance sheet surpluses, or dealing with balance sheet deficits, would follow from processes that are partially pre-determined by stated pension contract rules (e.g., consistent with generally accepted actuarial principles) and partially determined through negotiation between the various stakeholder groups (i.e., state government, active employees, and pensioners).
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