A letter to the editor in the February 24 Oregonian, from a Portlander named Bill Chalmers, makes a point that had perplexed me when I read a February 19 story about PERS. The February 19 story, by James Mayer, said that PERS rates are going up for three reasons:
1. Investment losses for 2000, 2001, and 2002 are being spread out over time.
2. The public payroll is smaller than expected because many people retired in 2003 and some local governments have frozen wages.
3. PERS enjoyed better-than-expected stock market gains in 2003, which increased the future liabilities of PERS by increasing the benefits that it will owe its participants.
Why does this put me in mind of G. Harrold Carswell? When President Nixon nominated Judge Carswell for a seat on the Supreme Court almost 35 years ago, critics said that the judge was a mediocre candidate. Senator Roman Hruska stood up for the mediocre judge, famously saying, "Even if he is mediocre there are a lot of mediocre judges and people and lawyers. They are entitled to a little representation, aren't they, and a little chance? We can't have all Brandeises, Cardozos, and Frankfurters, and stuff like that there."
My friends assure me that PERS goes to a lot of trouble when it chooses outside investment managers, putting them through a rigorous selection process to get those most likely to produce superior returns. But if those managers, by producing superior returns, are simply pushing the system further into the red, then PERS shouldn't be hiring them. (Wouldn't it be something if PERS promised to fire any manager who achieved better than an 8% return?) If Mr. Mayer's article is correct, then the public agencies that pay the PERS premiums should be pressing the agency to fire those money managers that outperform the averages.