Oregon PERS had a $16.43 billion funding shortfall as of April 2003 (Pensions & Investments, April 14, 2003). There were also structural problems with the pension fund, according to Mary Ellen Glynn, spokeswoman for Oregon Gov. Ted Kulongoski. "It was a real mess," she said.
Ms. Glynn said the guaranteed benefit from Oregon PERS' defined benefit formula, which was very large, "worked well in the 1990s when the markets were doing well, but did not work well during the markets' downturn." That is what led to the huge funding shortfall. The new pension plan has a lower formula for the defined benefit portion - 1.8 % times the final average salary and years of service for police and firefighters and 1.5% times the average final salary and years of service for other public employees, according to the fund's website.
Ms. Glynn also said that several lawsuits have been filed against the new plan. The suits claim the law creating the new fund is illegal because the old law established a contract with state employees that can't be changed. "Obviously, we disagree with that," said Ms. Glynn.
"It will be interesting to see if other states adopt (the new Oregon plan)," said Randy Taylor, senior vice president of CitiStreet, North Quincy, Mass., which was selected as the provider for the defined contribution part of the new plan. "Oregon had budget issues," he added.
Earlier this year, legislators in Virginia introduced a bill to create a new defined contribution plan for public employees, but abandoned it after the expected cost savings proved elusive.
A bill creating a plan was introduced on Jan. 14 in the House of Representatives. But according to Jeannie Chenault, director of public relations for the Virginia Retirement System, Richmond, a fiscal impact statement indicated that besides high setup costs, the existing retirement system would need higher contributions to cover workers remaining in its defined benefit plan. The bill was tabled Feb. 9 and no further action is expected.
Overall, government 457 plans in this year's P&I survey accounted for more than half of the nearly $100 billion in total assets of the nation's 50 largest public defined contribution and deferred compensation plans.
Click here for table of top 50 public defined contribution plans or click here for profiles of the top 50 public defined contribution plans
Coming in a distant second to the 457 plans' $53 billion were 401(k) plans, with about $13.4 billion in assets. In third place were 403(b) plans with about $11.2 billion in assets, but most of that was from the $9.8 billion New York City Teachers' Retirement System, according to statistics compiled by P&I.
The 401(a) plan, which is increasing in popularity, accounts for $10.3 billion in assets among the top 50.