Image provided by: SEIU Local 503; Salem, OR
About The Oregon state employee news. (Salem, Oregon) 1959-1969 | View Entire Issue (Dec. 1, 1969)
Page 6 OREGON STATE EMPLOYEE NEWS interview with Straub, Continued OSEA: Why were three firms selected to make the investments? Why not just one? S T R A U B : Three firms were selected to provide competition and to provide a broader spectrum o f investment skill. OSEA: Will the money be divided equally among the firms for investment, or w ill one be given more than the other two? STRAUB: The money w illb e divided equally for two years. A t the end of that time, the firm w ith the most successful results w ill obtain a larger share of the cash flow for investment. OSEA: How long is the Investment Council committed to the three firms? STRAUB: There is no set time that these investment firms are employed. Their services can be terminated on notice. OSEA: What has been the investment return rate o f the stock market during the past ten years? STRAUB: Approximately ten per cent. OSEA: How are the investment fees made by the firms charged to individual accounts? STRAUB: The administrative costs o f investing the funds are pro-rated back to the accounts whose money is being invested. OSEA: Do individual members have to pay a sales fee at the time they withdraw their funds from the variable annuity account? STRAUB: No. OSEA: Under what conditions may PERS members withdraw from the variable account? STRAUB: A t the time o f their retirement, if they so choose, or if they quit. OSEA: Are there any restrictions placed on the type of investments the firpis can make? STRAUB: Only that the stocks have a readily determinable market value, that they be freely traded. We prohibit the use o f speculative stock activities, such as short sales and buying on margin. OSEA: What is the "prudent man rule?" STRAUB: The prudent man rule is a concept of investment that broadly permits money to be invested in anything in which a man of prudence and sound judgement would invest his own funds. OSEA: Have the investment firms begun the investment program? STRAUB: Yes. We started July 1,1969. OSEA: How much money was invested? Was any o f it from the PERS fund? STRAUB: To date, $24 m illion has been made.available to the three investment firms for purchasing stocks. The difference is kept working in short term, fixed income obligations. Approximately two-thirds o f the investments in stocks are Public Employees' Retirement System funds. OSEA: A fter the program begins on Jan. 1, 1970, w ill additional stocks be purchased each month w ith PERS contribution funds? STRAUB: Available cash w ill be turned over to the investment managers fo r buying stocks. However, they may elect not to buy stocks during any particular period if they consider it unwise at that time. The amount of cash held in reserve is w ithin the discretion o f each o f the three investment managers. OSEA: A weekly magazine in Portland has expressed some criticism of the Investment Council fo r not investing the PERS and Industrial Accident funds in Oregon firms. What's your answer to that criticism? STRAUB: Our objective is to obtain the best possible investments of the employees' retirement funds. Any time an Oregon firm offers equally attractive investment prospects, we favor buying stock in that firm . If it does not offer as attractive investment opportunities as a firm located elsewhere, we think the investment should be placed elsewhere. Our policy, and I think it is a sound one, is to manage your money in as professional and productive a manner as possible. OSEA: Mr. Straub, you have emphasized the fact that the variable annuity program is a long-term investment plan. In an interview w ith the OSEA NEWS last May you said, "I want to be very careful not to build up false expectations. It is impossible fo r anyone to predict what the stock market w ill do in a short-term period." We would like you to expand that statement. STRAUB: The stock market has ups and downs. Occasionally it has severe ups and downs. This is because the stock market not only reflects business conditions, but it also reflects many psychological factors that are d iffic u lt to predict and sometimes swing to extremes—both on the upside and the downside. This is why I believe that only money that can be left invested in stocks should be put into the stock market. Short term performance, and by this I mean two or three yeiars, could be disappointing. I don't think it w ill, but it is possible. Even if it should happen, it does not change my conviction that long term performance in carefully and wisely chosen stocks w ill be rewarding. OSEA: Investing in the stock market can, o f course, be risky. But it can also pay dividends. It is precisely the uncertainty of the market that is worrying many employees who are wrestling w ith the decision o f whether or not to get into the program—especially older employees who have less than ten years to work until retirement. What would you say to them? STRAUB: If I were to retire from public service in two years—which may be the case but I hope not—I would still elect the variable annuity option and then leave what money I have in the variable annuity program after my retirement. OSEA: You o f course, are also a public employee and, as ~ such, a member o f the PERS. If it isn't too personal, would you tell us whether or not you are going to put part o f your retirement contributions into the variable annuity program? STRAUB: As an elected official, I elected not to come under the retirement system. NEWS: What are the variable annuity options at the time of retirement? STRAUB: There are two. An employee may leave his money in his variable annuity account or shift it to his fixed account. OSEA: If an employee leaves state service prior to earliest retirement age, how does he withdraw his variable account balance? May he get his money immediately, or w ill he have to wait fo r a period o f time? STRAUB: He can obtain his-money almost immediately by applying to the PERS, in the similar way that he can now obtain his funds. OSEA: Is it possible to leave investments in the variable program if an employee leaves state service prior to retirement? STRAUB: Yes. OSEA: A t retirement, w ill a member receive retirement benefits varying in amounts from month to month based upon the investments? STRAUB: Generally, adjustments w ill be made once a year at the beginning o f the year, if the change in market value of stocks exceeds 2 per cent. If upward, it w ill be increased; if downward, it w ill be reduced. In the event of sharper stock m arket changes, the Retirement Board could make adjustments more often than annually. OSEA: If a member participates fu lly in the variable annuity program, and shortly before his retirement the market suffers a sharp decline, what options does he have to try to recover? STRAUB: He can leave his money in the variable annuity program. OSEA: Do you think the Legislature might consider an amendment to the law to permit employees to change their election (say at tw o year intervals or something like that) instead o f having to make an irrevocable election to invest in the variable annuity program? What are the good or bad points about such a proposal? STRAUB: The psychology behind making the selection irrevocable is in permitting the investment managers to take a longer term, less speculative approach to the stock market than would be possible if the funds were subject to withdrawal at any given time. Studies show that a better investment performance can be achieved when there is a consistent cash flow into the account and problems of liquidity do not have to be considered by the investment manager. I think the Legislature might consider allowing employees who elect to come under the variable annuity program i o discontinue future contributions to the variable annuity funds at certain specified intervals—once a year or once every other year. ________________________________________________________________ I
