Double posted here and on Yahoo PERS group here.

As to the last question, yes, in part.

My targets are the bond rating folks, bond peddlers, actuaries, and bond counsel too.

If you can set aside the character of PERS as a "pension" but rather view it as just a savings bank, then we can draw parallels to banks in the late 1920's. The bank accepts stocks (or holds stock in its own name) as collateral to lend money (or here to promise a stream of payments).

The central remedy to the banking problem in 1920's was to prohibit financial institutions from accepting stocks as collateral to cover demand deposits. A difference between the bank of then and a pension trust from today is the constraint upon early withdrawal.

A plan that runs a deficit is like a unsound bank. The pension bonds hide the imbalance but does so only by exacerbating the problem that caused the imbalance in the first place, making high risk investments. The bonds could be like a direct transfer to the beneficiaries. But here in Oregon the transfer was not complete.

What do I mean by this? That the transfer was not complete. The bond proceeds are now held by PERB in trust for the employers and in turn entrusted to the Oregon Investment Council. The employer is designated as the beneficial owner of this money, that is they get to benefit from the private investment of this money for their own account. Any gains on the money through private investment reduce the other "employer contributions" that might otherwise be demanded direct from the employer. There is a one-to-one relation between the money that the PERB will take from the lump sum accounts of the employer and what they would otherwise get from employer contributions.

It is my belief that the lump sum accounts, the employer accounts, as they are structured in violation of the constitutional prohibition on the government taking an interest in stock. The money has been commingled, for purposes of investment, with other PERS accounts. If the beneficial interest of these accounts cannot inure to the benefit of the employer then to whom should they inure? Would it be the PERS beneficiaries exclusively? I think so, but only so long as the employers participate in the risky private investments instead of conservative investments such as US government bonds.

If the bonding was a one time, and one time only, deal where PERS was terminated or multiple tiers were abandoned in favor of one common sound plan going forward, then the employers would have abandoned all claim to the benefit of these lump sum accounts (including the principle) and it would have been a complete transfer, one for which a complete release would be been negotiated.

Today, if PERS were terminated the employers can then assert ORS 238.600(2) and simultaneously assert their beneficial interest in the principal in the lump sum accounts as not within the fund covered by the ORS section noted above. The creativity associated with placing the lump sum money within the control of the PERB was only to enable investment in private risky ventures and not to give up all future claims to the balances.

While the PERS beneficiaries are sold on the idea that the bonding was for their benefit it was not. In Oregon at least it was partially a means of just getting around Sprague v. Straub, where the court allowed the PERB to invest in stocks, but only if it was for the benefit of the PERS beneficiaries and where loss was not guaranteed by the government. The PERB has no business accepting the entrustment of employer accounts that are invested in private stock. If PERS is terminated and the lump sum accounts are returned to the employers then we get a nice good and ugly battle over these accounts; if the employers get them back they would cease to be invested in private stock because the PERB would cease to exist or remain only to deliver annuity payments, and likely end all risky private investments on behalf of anyone.

For illustration, imagine that the pension trustee for government employees was a wholly independent non-profit. It would be odd, to say the least, if the employers borrowed money to then transfer to the independent entity only to have them reentrust it to the Oregon Investment Council for investing. The conceptual tolerance of PERB in making investments in private stock was based on just such an independent characterization. The lump sum accounts are effectively never in the hands of the PERB until the PERB makes a demand in like fashion to that of current "employer contributions."

Would there be any benefit for PERS beneficiaries to challenge the ability of employers to invest the lump sum money in private stock? Such a challenge would reveal the the superficiality of the purpose behind the bonding at the outset. It would also reveal the seeming omission of obtaining a full and final release of the employer from further liability for future investment loss and for continuing unsound plan design. The scheme only slightly obscures the goal of simply borrowing money to be invested in private investments. The profits, if there be any, simply defray a cost that bears no relation to the lump sum accounts, other than designation of the pot from which the government reaches to cover the obligation. (Analytically, I have cynically remarked that any and all government expenditures could be covered this way. Just borrow lots of money, place it in risky investments, then if we win we can simply cut taxes until there are no taxes, just rely on profits earned by the OIC.)

It could all work if someone believes in perpetual bubbling of investment assets. I don't.

The core of the Bush push on SS is just to increase demand for stocks, with bonded dollars, through a little bit of decoupling to hide the net effect. There are at least two net losers in the SS scheme, the individuals at risk of a drop in stocks and the taxpayer for the eventual bond payments. Again it all depends on the fiction of the perpetual bubble of stocks and other assets.

The Pension Obligation Bonds give the employee the illusion of greater security, it gives the employer a creative opportunity to play in the stock market and it gives Wall Street a great big smile for profitable bond deals where much of that bond money is returned immediately to the casino. They have effectively converted a bubbled price of stocks with a claim on taxes of the folks that are left to pay them. These are the same taxpayers upon whom the PERS beneficiaries will depend to cover the obligations.