Below is a comment I plan on making on the Yahoo PERS group site to this post here. (Maybe I will, maybe I won't.)

As to the potential surplus (when the last tier one member expires) it cannot go to the government; assuming that greater than 8 percent returns can only be achieved through investment in private equities. Perpetual returns in excess of 8 percent (on average) would have to be distributed to someone other than the government, but if we wait until the last tier-one member expires then there is an undistributed excess that would have been obtained through unlawful investments on the account of the government.

If assumed rates were less that the cost of borrowing then we would not have compounded the risk of loss to the extent of the borrowing.

The UAL was actually lowered to enable the bonding, and reduce the size of the fund (assuming that it must be fully funded) needed to cover liabilities. If the total liability is confined to the fund (in the event of termination), and that fund must not be underfunded, then a lower rate of return assumption on investments would require a much larger fund balance today for the benefit of PERS beneficiaries.

The SC in Strunk actually solved this riddle, in part. The tier-one folks get 8 percent on past deposits notwithstanding a zero funding scheme or bonding that was assumed to be justified based on projected returns in excess of the cost to borrow and even under a full funding scheme where assumed returns are less than the cost to borrow. It is this last phrase that is curious, because it merely notes, purely academically, a projected imbalance but which can only rationally serve as guidance to restore soundness, without any bonding whatsoever and no full funding either. But then this conflicts with the limitation of liability of all PERS beneficiaries to the fund itself (ORS 238.600(2)).

Any student of political science could dig up a definition of incrementalism and apply it here, where the sides in the debate cannot find a comprehensive rational solution, but where the bond folks get both sides just a little of what they want, and a cut for themselves to boot.

Greg H. needs to cut the crap of "interest follows principal" and say that the legislature could terminate PERS immediately and saddle the PERS beneficiaries, including already retired tier-one members with a reduction of payments. He could demand now that all rights be fully funded today and that the investments (conservative) not suffer the risk of loss of a stock market that could tank. By trying to get more than 8 percent he is actually supporting the position of the bond peddlers, for that potential for more than eight could not even be possible if the plan (at least as to the tier-one past accounts) is treated as a pay as you go system, and the only compellable demand is to a payment in a given budget cycle for a particular obligation due at that time. Thus it is partly Greg H.'s fault, politically, for trying to demand that the possibility to get more that 8 must be retained, for without that possibility then there would have been zero need to fully-fund (but at too low a UAL, based on too high an assumption) and thus justify (arguably) the issuance of bonds.

Where does Lipscomb (City of Eugene) fit into this puzzle? The SC is mindful that the employer cannot benefit from the private investments in the commingled PERF, even if this issue was not raised at the trial court level. If the SC favors the pay-as-you-go system, implied by a contract theory of the pension system, and obligations that are determinable upon termination of PERS regardless of zero or full funding, then they would have to at least look long and hard before giving any of the gains from private investments to the employers that might be retained by the employers upon early termination of PERS.

If the prospect of getting greater than 8 percent is all but lost then the PERS beneficiaries, trusting that the legislature and the courts will make good on payments in the future when due, could oppose the issuance of the past bonds, and any that might be contemplated in the future. The advanced funding of a public pension, where the pension sponsor is both the obliger and potential bond issuer, as is the case with Oregon, is simply irrational. If, as some have argued, in other courts, that a pension obligation bond is designed to meet a preexisting obligation then the bonds are merely a choice of a method to make good on that obligation, so as to escape constitutional restraints on borrowing (for a new obligation) and for other creative mischief, usually with one common goal of bonding so as to feed money to favored investments, and always against the correction of features of a pension plan that has gone unsound (lest they lose the opportunity to bond and invest).

You can continue to focus on incrementalist minutia, gleaning what anecdotal pieces you can, from which you try to deduce a rational plan. I will instead start from a choice of alternative and complete rational schemes and work backwards to decrypt the creative incrementalist handiwork of folks that are bent of using risk free capital to advance their personal interest, inclusive of the folks receiving the investments that emerge from the office of our State Treasurer.

Good analytical puzzles like these do not happen by accident. They (the designers) have even factored in, I suppose, your potential belief that I (figuratively) am either your enemy, or naively uninformed.