The Associated Press

SALEM - The trial involving the state Public Employees Retirement System has gotten under way with accusations that the retirement fund works like a Ponzi scheme.

William F. Gary, attorney for the nine local governments that brought the civil case, said Monday that the PERS board views the pension fund as "an economic perpetual motion machine that continuously and miraculously pays out more than it takes in."

"The PERS system more closely resembles a Ponzi scheme, in which taxpayers are the ultimate victims," Gary added during opening statements before Marion County Circuit Court Judge Paul Lipscomb.

The civil case has forced the retirement system to defend its use of out-of-date life-expectancy tables and paper profits from soaring stock prices to increase pensions.

The state's attorney, Stephen K. Bushong, said PERS has always acted legally in its treatment of retirement accounts.

"The funding of the PERS system is in solid shape," he said.

The lawsuit was filed two years ago by the city of Eugene after PERS increased its payroll rates despite growth in the pension fund's assets. The suit alleges that the board that oversees the system has exceeded its legal authority to increase benefits.

Since the lawsuit was filed, the PERS shortfall has ballooned to $8.5 billion. the difference between what PERS has now and what it needs to meet its future obligations to 294,000 public employees who count on the pension fund for retirement.

PERS estimates it will have to increase rates next year to raise $260 million more annually to keep the pension system funded. Cities, counties and other local governments say they will have to cut services and lay off workers to cover the additional costs.

Much of the $36 billion PERS fund is invested in the stock market, and Wall Street losses have diminished the fund's value since 2000.

But the 12-member PERS board, appointed by the governor, has added to the problem.

Most retirement accounts are guaranteed to grow at least 8 percent a year. But the board, using gains from the stock market boom of the past decade, increased the accounts by an average of 13 percent a year.

Much of the PERS fund's value is based on stock prices, not cash in the bank. When stock prices fell, so did the value of the PERS fund. But the value of most employee retirement accounts are not allowed to shrink, and they continue to grow at least 8 percent annually, even if PERS doesn't have the money.

"The paper gains have been locked in and have been compounded on," Alan Stonewall, an actuary hired by the local governments suing PERS, testified Monday.

Bushong, the PERS attorney, also said Monday the pension fund's board is considering an update to its life-expectancy tables.

PERS uses the tables to determine how long a retiree might live, then calculates his or her pension check based on that estimate.

But the tables PERS uses are 24 years old, and people are living on average four years longer than the tables suggest.

PERS estimates the outdated tables add $1.5 billion to the pension fund's shortfall.

The trial probably will conclude Wednesday, and Lipscomb is not expected to rule immediately.