The Oregon Treasury is calling off – for now – an effort to give public employees a choice in how a portion of their retirement savings is invested. The decision came after the agency determined that the legislation prompting the move could leave investment managers open to lawsuits if things don’t go well.
Last year, the Oregon Investment Council adopted a new target date investment strategy for members’ individual accounts, which are funded by member contributions and provide a separate, supplementary benefit on top of the defined benefit pension program.
The age-based approach automatically reinvests members’ individual accounts, gradually adopting a more conservative mix of stock and bond index funds as they near retirement age. That’s a fairly standard option in most 401(k) plans, and the Public Employee Retirement System and Treasury were able to implement that system at the beginning of this year.
In the meantime, however, employee groups and unions persuaded legislators to give members the ability to choose how their account balances were allocated among the 10 target-based funds, so they can customize their investments based on their own risk tolerance.
The Treasury put a stop to that effort earlier this month, acting on a provision in the legislation that gave it discretion to pull the plug if it determined that the changes could cause legal or fiduciary problems.
Earlier this month, Deputy Treasurer Darren Bond told the PERS Board that the program could be implemented after amendments to the legislation, but not without further consultation with lawyers to determine the legal requirements and necessary disclosures to members.
Treasury spokesman James Sinks said the legislation, among other things, failed to lay out what investors need to know before making their investment choices. Moreover, the legislation didn’t give Treasury investment managers and members of the Oregon Investment Council immunity from liability in the event a members’ choices don’t pay off and they decide to sue.
John Skjervem, Treasury’s chief investment officer, said there are no technical barriers to providing members with control over their investment mix. “The path is straightforward. They just have to rectify the legislation.”
Skjervem said managers would prefer to limit how often PERS members can change their investment mix, perhaps to once a year. He also suggested that academic studies show that most members will be better off with the investment mix that Treasury assigns them based on their age, rather than trying to time the market.
