Board Members present: Susie Smith, Dorothy Anderson, Sandra Bishop, and Mike Dyer.
Others present: Randy Berggren, General Manager; C. J. Barnes, Manda Bednarczyk, Ken Beeson, Cathy Bloom, Chuck Dalton, Sandra DeLuna, Marty Douglass, Dick Helgeson, Garry Kunkel, Roseanna McArthur, Kris Middlewood, Jim Origliosso, Dick Varner, Debra Wright, and Krista Hince of the EWEB staff; Peter Bartel, Eric DeFreest, Peter Newerth, Bill VanVactor, Jim Whitty, and Warren Wong, members of the public; and Daniel Lindstrom, Minutes Recorder.
In the absence of President Smith, Commissioner Anderson called the Work Session of the Eugene Water & Electric Board (EWEB) Board of Commissioners to order at 5:40 p.m.
General Manager Randy Berggren reviewed the agenda of the Work Session and noted that the agenda of the Regular Meeting of the Board allowed time for action on issues to be considered during the Work Session.
PUBLIC EMPLOYEES' RETIREMENT SYSTEM
Treasurer Jim Origliosso stated that consideration of issues related to EWEB's contribution to the Oregon Public Employees' Retirement System (PERS) was related to distribution of Accumulated Assets, the second topic scheduled for consideration during the Work Session. He introduced Eric DeFreest, representing Calkins & Calkins, General Counsel to the Board; and Peter Newerth, representing Coates Kenny, Inc., EWEB Consulting Actuaries.
Mr. Origliosso provided an overview of issues raised by PERS rate increases for local government employers proposed in October 1998.
Mr. Origliosso explained that EWEB's PERS contribution rate increased from 12.6 percent for 1998 to 21.76 percent beginning July 1, 1999. He referred to his memorandum dated December 29, 1998, distributed with the agenda of the meeting, and noted that it explained how the rate for 1999 was significantly higher than the anticipated increase to 13.78 percent. He said the new rate did not include the EWEB "pick-up" of the employee contribution to PERS of 6 percent.
President Smith joined the Work Session at 6:10 p.m.
Mr. Origliosso displayed flow charts which described processes used by PERS to distribute annual investment earnings when they were above and below a preset minimum of 8 percent. He noted that all decisions about distribution of earnings were made by the PERS Board; that an established Gain/Loss Reserve was used to stabilize distributions to various accounts; that distributions to Member Variable Accounts and Tier II Regular Accounts were determined by actual earnings; and that Employer Accounts, Member Tier I Regular Accounts, and Retiree Benefits in Force reserves were guaranteed a minimum of 8 percent distribution by statute.
Commissioner Dyer asked if member accounts could be described as "defined contribution" or "defined benefits" plans. Mr. Origliosso replied that PERS benefits are a hybrid consisting of the higher of a defined benefit or a defined contribution plan complicated by "money match" features.
Mr. Origliosso stated that approximately half of the statewide PERS rate increase was due to the enactment of HB3349 in 1995, which increased benefits to compensate for rulings determining that state pensions were taxable. He explained that the financial impact on the State was zero, since increased benefits were offset by increased taxes, but that the cost of the benefit to local governments increased without offsetting revenue.
Mr. Origliosso noted that the HB3349 change accounted for 1.72 of the 7.98 percent increase in the EWEB 1999 PERS rate.
Mr. Origliosso reviewed revised actuarial assumptions and revised actuarial methods used in the calculation and deferred rates of change which accounted for the 6.26 percent balance of the increase in the EWEB 1999 PERS rate. He explained that "money match" features of Oregon PERS allowed retirees to choose benefits based on an employer match of account balances rather than predefined benefits. He said recent high investment returns had made the feature an attractive alternative.
Mr. Origliosso said strategies under consideration which could bring EWEB's pension obligations under control included
Mr. Origliosso reported that EWEB would participate in a PERS Administrative Hearing on January 12 to seek reconsideration of decisions made about the EWEB rate. He said the process was similar to rate-making procedures and that there was some hope for relief from the large increase proposed.
Mr. Origliosso said that attempts to reform the PERS system would be made during the 1999 session of the Oregon State Legislature. He suggested that continuing the system as it currently operated was not in the best interest of public employers or of public employees. He said that contracts with current employees likely limited changes which could be made to those who would be hired in the future, but would provide long-term relief.
President Smith asked that the potential of withdrawing EWEB from the PERS system be explained. Mr. Origliosso replied that such withdrawal would involve legislation rescinding the election to enter PERS and that to do so would leave EWEB with the responsibility to self-fund all of the retirement obligations. He said the financial interests of EWEB would likely be better served by pooling interests and sharing risks with other local governments. He said PERS could allow such pooling by local governments without new legislation.
Commissioner Anderson asked if there were differences between EWEB employees and those of other local governments which could account for its higher rate increase. Mr. Origliosso replied that employee longevity, relatively high pay scales, and the large number of employees in variable retirement accounts could be factors in the difference.
Mr. Origliosso reported that EWEB, the City of Eugene, and Lane County were engaged in discussions regarding cooperative efforts in the 1999 Legislative Session and that PERS issues were included in the discussions. He said the League of Oregon Cities also had a working group considering local government PERS issues.
President Smith suggested that PERS issues be raised at the EWEB Legislative Luncheon scheduled for January 6.
Mr. Origliosso referred to a document distributed at the beginning of the meeting entitled "Eugene Water & Electric Board (2132)--Possible Rate Options." He reviewed alternatives including a lump sum payment of $3 million to reduce HB3349 liability, rolling one-third rate increase, and delaying the rate increase described in the document. He said the PERS Board seemed willing to arrange payment options on any alternative, as long as actuarial recommendation were accepted.
Commissioner Dyer asked how benefits were calculated in the PERS plan. Mr. DeFreest explained that calculations were either based on approximately 50 percent of a retiree's final salary, or on a average 8 percent interest paid on an annuity created from an employee account matched by the employer.
Commissioner Dyer asked for a description of the PERS Board of Directors. Mr. Origliosso said that the Board was composed of 12 members appointed by the Governor--eight representing labor interests, four representing employer interests.
Commissioner Bishop asked for an evaluation of what could be accomplished at the January 12 PERS Administrative Hearing. Mr. Origliosso replied, as follows:
Mr. DeFreest pointed out that if the PERS Board agreed to change investment crediting procedures, its actuarial assumptions would also change.
Commissioner Dyer asked if PERS retirement plans were unique in their operating structure. Mr. Newerth replied that private corporation "cash balance" retirement plans were similar, but were seldom fully funded by employers.
Commissioner Anderson asked if changes made to the PERS system would only affect the variability of future liabilities. Mr. Newerth said that if a decision was made to limit future investment crediting procedures, as much as 30 percent of the current rate increase would be eliminated.
ACCUMULATED ASSETS
Mr. Origliosso referred to his memorandum dated December 30, 1998, regarding Strategic Application of Accumulated Assets, distributed with the agenda of the meeting. He reviewed information in the memorandum about the continued availability of $6.5 million in reserves and the priorities of the Board regarding its allocation which appeared to have emerged, as follows:
President Smith said that she did not believe the Board had agreed to allocate $800,000 for the Universal Service Plan. Mr. Origliosso replied that the number had been chosen from the preliminary staff proposal, for want of any alternative reference suggestion.
Commissioner Dyer said that he would like further discussion of individual elements of the proposed plan before making any decision regarding an allocation.
President Smith said that a new Board member and new financial challenges made her believe allocation of all accumulated assets should be reconsidered.
Commissioner Anderson said that she agreed with President Smith, but that the REACH utility assistance program needed immediate action to continue its operation. She said she favored immediately setting aside support of it as proposed in the plan.
Customer Relations Manager Chuck Dalton suggested that $10,000 proposed for development of an Internet World Wide Web Information and Referral Data System should also be considered a high priority.
Commissioner Dyer said that he questioned whether support should be provided for the proposed Utility Scholarship and Self Sufficiency programs.
President Smith said she believed additional Board discussion was needed about the ability of the proposed Universal Service Program to pay for itself.
Mr. Origliosso suggested that the Board could use its Board Donation Policy to fund specific proposals from the proposed program by making required findings. Mr. Berggren added that such donations could incrementally meet required needs of programs.
President Smith said she believed $60,000 was needed immediately to fund elements of the Universal Service Program proposal.
Commissioner Bishop said that she could support making such immediate allocations if the Board wanted it, but also wanted a deadline on its decisions regarding the balance of accumulated assets.
Commissioner Dyer said he believed it was important for the Board to consider allocation of accumulated assets in light of the likely need for increased funding of Year 2000 readiness and PERS obligations.
Commissioner-elect Bartel asked for information regarding the World Wide Web Information and Referral Data System. Mr. Dalton described the program as being developed through Lane Community College and giving tools to individuals and agencies which would assist low-income persons to access utility and other assistance programs.
President Smith determined there was consensus to consider allocation of $60,000 accumulated assets for the REACH and Information and Referral Data System during the Regular Meeting of the Board.
President Smith said that she assumed from previous discussion by Commissioners that rescinding the establishment of a Medical Benefit Trust with $3 million of accumulated assets would also be considered during the Regular Meeting of the Board.
Commissioner Bishop said that she preferred to wait to make a decision regarding the trust until PERS issues were clarified. Mr. DeFreest replied that he did not believe there was any legal way a Medical Benefit Trust could be established by EWEB. Mr. Origliosso said that he did not believe full clarity regarding PERS issues would be reached until the 1999 Session of the Oregon Legislature was completed.
Mr. Berggren said he believed it would be two to three months before a staff recommendation regarding the Universal Service Plan could be completed because of the complex nature of determining how proposals would reduce costs. He said he intuitively believed such reductions would be possible but that he felt it was necessary to provide detailed analysis before recommendations for Board action were prepared.
The Work Session adjourned at 7:35 p.m.