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Friday, January 02, 2015

On The Outside Looking In

Welcome to 2015, goodbye to 2014.  The new year promises to be interesting for PERS retirees.  Hopefully the interest will be positive, not negative.  Early next month the Legislature convenes for its biennial long session, the one where bad things happen to PERS members and retirees.   So far, nothing bad has been proposed, and very few leaves are rustling in the wilderness.  

One thing certain to happen in 2015, probably within the next three months, is the Oregon Supreme Court ruling in the consolidated Moro et al cases, which pits PERS retirees against public employers, the State, and PERS.  At issue is the formulation of the retiree cost-of-living-increase, which changed dramatically under SB 822 and SB 861 during the 2013 regular and special sessions.  Also at issue is the “income tax subsidy” formed from SB 646 (1991) and HB 3349 (1995).  All cases raise the question of whether the legislature can change the terms of a retirement contract after a member has retired.  This raises the larger question of when contract rights to a particular form of a retirement system vest - at system entry, at the time one is fully vested in the retirement system (5 years presently), or at the time of retirement.  Also at issue is whether the Oregon Supreme Court’s ruling in the Strunk et al case in 2005 remains in force, or whether the current court believes the ruling was incorrect.  For one court to overturn a previous court’s ruling is unusual, and is embodied in the expression stare decisis, which means that the previous decision should stand.  In any case, the time frame for the court’s ruling, following previous history, as well as more recent court history, is 4-6 months from the time of oral argument.  The oral arguments in these cases were held in early October, which suggests a ruling anytime between now and mid-March.

With the Legislature convening in early February, the timing of the Court’s decision in Moro could have an impact of the budgeting process for 2015-17.  I believe that the preliminary budgets, both the Governor’s budget and the Chairs’ budget, were built on the expectation that the Court would uphold the cuts to retiree benefits.  If not, Governor Kitzrobber, now on round 4 of his administration, has vowed that no further PERS cuts would come from his office (no one knows what might come from the “first lady’s office”).  The Dems have also generally promised that they will leave PERS alone this session regardless of the Court ruling.  With stronger majorities in both houses of the Legislature, this makes further PERS changes unlikely.  Note, I did not say impossible.  I expect ferocious lobbying from any number of sources, Oregonian, OSBA, OBA, COSA, AOI, whining and sniveling over school budgets if the Court overturns the Legislative changes in 2013.  Thus, depending on the nastiness of the lobbying, the ugliness of public outrage, and any number of other factors, I am going to assume that something will be done in the Legislature to some groups of PERS members - new hires, hires within the last 5 years, unvested members, all members, retirees, active members, inactive members.  One of the strategies the Legislature has learned over the 10 years intervening between 2003 and 2013 is the “divide and conquer”.  So carving up PERS members into more and more discrete groups will lead to more attempts to “pick off” one group at the expense of some other group.  They tried in 2013 to limit their exposure to retirees, until actives realized that anything affecting retirees will eventually affect them.  That is one of the reason that the PERS Coalition engaged so fiercely in this legal battle.

So, keep your browser pointed in this direction.  We remain on the outside looking in, but the more of us start looking, especially with bright flashlights, the more we will illuminate the world that operates as much as possible in the dark.

Here’s hoping for a good year for all PERS members and retirees.  A victory in the court, and no action from the Legislature would meet my definition for a good year.

Wednesday, December 03, 2014

Waiting in the Weeds

PERS news has been nearly non-existent for awhile now.  Following the Supreme Court hearing on the Moro et al cases the MSM has gone fairly quiet.  The November election brought about a few changes in the composition of the Legislature, but nothing that should be too concerning.  Most of the Rs running against the Ds got a pretty good shellacking at the polls.  If our re-elected Gobernator is to be trusted, we won’t see any PERS legislation pop up in the 2015 Legislature.  Of course, there are renegade Rs who would love to reopen that wound.  There are many behind-the-scene negotiations and strategizing going on right now.  I think the major concern is how the Legislature will respond IF the Supreme Court overturns some or all of the 2013 Legislation concerning the COLA and the income tax remedy.  Reading the transcript of the hearings reveals some very interesting threads, if you are interested in those sorts of things, that, when pulled, lead to some vexing outcomes.  If the past is any indication of the future, the decision from the Court should come down sometime between now and early March.  That will give the Legislature time to digest and decide how to deal with the rulings, if negative for PERS and the employers.

At the end of November, the PERS Board met and Milliman presented a series of potential outcomes on employer rates for the future.  The good news, for employers, is that rates should continue to fall, and that should reduce the pressure on PERS to find ways to stab retirees and actives in the back again.  Of course, Milliman’s analyses considered only one variable in this complex calculus.  They looked at what happens under varying earning scenarios.  They found that only a 2008-like outcome could produce some nasty changes for the employers.  Otherwise, absent a decline like 2008, the employers come out pretty well through all of this. I didn’t attend the meeting so I don’t know whether the code monkeys at Milliman considered the one variable we’re all interested in.  What happens if PERS and the legislature LOSE on SB 822 and SB 861?  What happens to rates then?  Perhaps that is unconcerning to Milliman.  I recall during the 2013 Legislature hearing former Deputy Director Cleary remarking to one of the actuaries (supposedly out of earshot, but not mine), that whatever happened to the bills, PERS could always cover the reversal out of the contingency reserve.  It sounds like PERS is planning to dig into the contingency reserve to cover the court order restitution, and then ding employers for ongoing costs.  Obviously PERS is not terribly concerned about the outcome since they didn’t ask for a consideration of the employer costs if the bills are overturned.

By this time, most PERS retirees receiving a monthly benefit should have received the legislative spiff to the COLA of $150 (less taxes), and the add-on to that if PERS benefits are $20,000 per year or less.  The checks went out on November 24, post-dated to November 26.  I haven’t heard from anyone who qualifies for both checks, but my check showed up in my bank account on November 26.  If you receive a monthly benefit and haven’t received your “bonus”, please contact PERS as soon as possible.  If you don’t receive a monthly benefit, you aren’t eligible for the bonus.  This will continue each year until 2019.  The bonus does not increase your base benefit.

I expect this to be my last post for calendar 2014.  There simply isn’t enough going on to warrant any more frequent posts.  After the new year, life starts to get interesting again, and posts may become more frequent.

I wish everyone a joyous holiday celebration of the Winter Solstice and good tidings for whatever holiday you celebrate towards the end of this month.  I hope the New Year brings good fortune to everyone and that we can manage to get through an uneventful legislative session.



Tuesday, October 14, 2014

My Oh My

Just back from traveling for almost a month.  By the time I arrived home I had at least three phone calls from friends and acquaintances from the PERS Wars who had attending today’s hearings.  We all know enough about the litigation process not to read too much into anything the court says or does in these situations.  However, that said, two things pop out from the reports.  First, the court seemed much more engaged in the whole process this time than they did in the Strunk case.  And second, the crowds were duly noted.  Only about 9 non-litigants, lawyers got the primary viewing in the actual Supreme Court gallery.  Experienced court watchers knew to get there early and to claim a place in line.  Overflow seating was provided on the second floor library, downstairs from the actual courtroom itself.  Media was out in full force, which shows just how important this outcome actually is.  That sword cuts two ways, as we know from past experience.  Our least favorite newspaper (is that what it still is???) won two Pulitzers from its reporting (muckraking?) on PERS issues and bullied the court into some decisions that we’ve all been living with for some time.  Thus, the overwhelming show of force by the media can be a negative factor for us as they have the bully pulpit to cajole the court into decisions that might go another way if based solely on legal principles (oh, did you think they decided only on legal issues?).  Fortunately, the Statesman Journal, which has Hannah Hoffman, whose reporting on PERS matters for the SJ has been a model of probity and fairness.  I’m told - I haven’t listened to the podcast yet - that she quickly and capably summarized today’s hearings on OPB’s Think Out Loud.  While I regard no reporter as an ally in these proceedings, I am convinced that Hannah’s reporting is the most balanced, the least one-sided of any of the reporting on PERS in the past dozen years.  Anyway, the court, as usual, has many issues to consider.  I based my odds yesterday on the purely legal arguments in the case.  It is impossible to handicap how public sentiment or economic necessity may play a role in the court’s decisions.  To think that the Court has lived in a cave for the past 15 years is nonsense.  All justices are elected and they are also PERS members, although in a slightly differently structured benefit array.  They can’t turn off their own reactions to public sentiment any more than any of us can.  They know full well that “…the whole world is watching”, or something close.  Their decision will be closely watched, carefully timed, and choreographed for maximum impact.  Whether retirees actually win on any of the issues remains, at best, a 50:50 bet all around.  In other words, you place your bets carefully expecting to gain back only what you bet.  


In any case, I want to personally thank everyone who attended the hearings today - a good turnout avoids the look of apathy, which has been the enemy of PERS members for decades - and especially the people who called me with more information.  

Monday, October 13, 2014

Across the Great Divide

Tomorrow, in Salem, the Oregon Supreme Court will finally take oral arguments in the four consolidated cases contesting the legislative changes to the retiree COLA and the "income tax remedy" for retirees living outside the state of Oregon and not subject to Oregon income tax. Expect a decision in four to six months. My current handicap gives a slight edge to the plaintiffs (us) in the COLA contest (my current betting is a modest 55:45 edge to retirees). The tax remedy is much trickier to handicap. If the case is based on HB 3349 (passed in 1995), I suspect that the plaintiffs have nearly no chance to triumph (20-1 against), while the original SB 656 (1991) May have a slightly better chance (50:50 today). The PERS Coalition is not even contesting HB 3349.

If you want to do your part, you can try to attend the hearings tomorrow. Sorry for the late notice. I've been traveling since the 3rd week of September and will only get home later tomorrow afternoon.

- Posted using BlogPress from my iPad

Sunday, August 17, 2014

Before the Deluge

We are less than one month away from the official start of “silly season” - the date where serious campaigning for the November elections begins in earnest.  As PERS retirees, we face a series of choices ranging from bad to awful, coupled with a few other nasty ingredients to make our lives an uncertain hell.

In the near term, the Supreme Court will hear oral arguments in the Moro et al cases (those involving the COLA cuts and the changes to the out of state income tax remedy) in early October.  This will put a final Court ruling into the window during which the 2015 Legislature will convene.  If the past is a prelude, I would expect the Court to decide these cases by early March, 2015, in plenty of time for the Legislature to make decisions about what, if anything, they will do in case the ruling goes against the defendants in these cases.

The decision made by the Legislature in response to an adverse (to the State) ruling in Moro et al, will in turn depend on two outcomes that will be determined in November.  The first involves the choice of who will be Governor for the next 4 years. One candidate, the incumbent John Kitzhaber, has claimed in public debates with his opponent and in other forums that regardless of the outcome of the Moro cases, he is through with PERS modifications and wants to move on to other issues.  His opponent, Dennis Richardson, has made a career out of trashing PERS, PERS retirees, and PERS members.  He has made it equally clear that if the court rules against the State in Moro et al, that he will propose an omnibus bill that includes every possible modification of PERS that hasn’t already been ruled on by the court.  This approach - the spaghetti theory of legislation - takes all the various ideas that have been floated in the past and rejected for one reason or another, and burdens the Oregon Supreme Court with the final authority to rule on every single one once and for all.  Besides the sheer political impracticality of such a bill, the chaos that would result between the bill’s passage and the Court’s final adjudication would be unmitigated catastrophe as PERS always implements every legislative mandate until they are told to stop.

This then brings up another squirrelly matter - the composition of the Legislature.  In the past sessions our two former Governors - Kulongoski and Kitzhaber - have had majorities in one or both houses of the Legislature.  That made it possible for each Governor’s wishes to prevail to a large extent in getting through the legislative gauntlet.  This year, as is normal, nearly half the legislature is up for election.  Many incumbents have chosen not to run again, and many others are in highly contested races.  This combines to make the composition of 2015’s Legislative Assembly a potential minefield.  It is possible for 6 different outcomes in the combined Legislative and Gubernatorial races.  Each outcome has a different potential for more or less PERS change in the future.

Needless to say, this Fall’s election will have significant implications for PERS members and retirees contingent on how the results combine with the Supreme Court’s ruling on the Moro et al cases.  Some of those outcomes will not matter to PERS members and retirees; but others could matter a great deal.  I’m not going to suggest how people vote, but I do want people to understand the implications of voting (or not) on their potential or current pension.  This is NOT an election without potential consequences.  The gubernatorial decision could not present any more diametrically opposed choices with respect to PERS.  In one case, the status quo is the WORST possible outcome; in the other case, the status quo is the BEST possible outcome.  

If all this weren’t enough, we have the added problem that the Executive Director of PERS for the past 10 years - Paul Cleary - has given his retirement notice to the PERS Board, effective December 1, 2014.  The Board, which is not particularly member friendly these days, has already held its meeting to establish criteria for Cleary’s replacement, and whoever is selected is going to be a total newbie going into 2015 Legislative session.  All previous directors have discovered that serving the Legislature is a very harsh, nasty, and brutal challenge.  On the one hand, your job is to represent the agency, whose total existence is to service the membership and retirees; on the other hand, the agency can’t run effectively without money from the Legislature to keep and update personnel and equipment to serve an ever-growing portfolio.  Reading the position description and the salary requirements (or limitations) is quite worrisome in that the Board wants pretty much a combination of the last three directors rolled into a single person.  The obvious candidate is not someone I think has a particularly good public persona, but is a known commodity.  That may doom his chances.  I really have no idea who and what is out there looking for a thankless job such as this.  Good luck to the Board on finding Mr or Ms Right.  Moreover,  the Board Chair has adopted a real take charge attitude with respect to everything PERS, but unfortunately, his “take charge” mentality isn’t one driven by the welfare of public sector employees.  As an individual mostly counseling private corporations and private individuals on managing their own assets in retirement plans, he isn’t one who is particularly fond of the PERS structure or benefit arrays.  This could have a significant influence on who gets selected to run the agency in the next month or so.

Putting all these pieces together forms a complex dynamic, with a large number of permutations and combinations.  Here we have a scenario in which a new agency chief will confront a new (or returning) Governor, a largely restructured Legislature, and a undecided set of Supreme Court cases that can alter the economic landscape for PERS members and retirees for the foreseeable future.  

Anyone who says that elections don’t matter better rethink that again, at least for now and in Oregon.  This next election could be the most significant for PERS members and retirees for the next decade or two.  Whatever else, VOTE in favor of YOUR pension, however that works out for you.  For me, it will probably mean that I have to hold my nose in a couple of places, but I didn’t just fall off a turnip truck.  I don’t have to like who I’m voting for, and maybe I’ll really be just voting against someone else.  Whatever works for you best, think carefully before marking your ballot.  The outcome WILL matter.


Monday, June 16, 2014

Postcards From Paraguay

School is out and everyone seems to be on vacation (though looking outside, I keep wondering if summer will actually show up on schedule).  This means that for PERS retirees and near retirees, nothing much is happening, which is why this site has been so quiet for two months.  The only emails I’m getting these days are from candidates for the November elections.  Honestly, I don’t know why these people waste the time and energy sending this stuff out now; nobody cares until after Labor Day, the official start of the political “silly season”.  

As far as PERS is concerned, the action will be in the Fall when the Oregon Supreme Court takes the oral arguments on the lawsuits over SB 822 and SB 861, the two bills that alter the retiree COLA, and encompass the income tax subsidies (SB 656 and HB 3349) for out-of-state retirees.  As I’ve learned from experience attending these oral arguments, they are rarely helpful in reading what the outcome will be.  The attorney presentations are brief, interrupted often by Justices’ questions, and never reveal anything about what outcome the Supremes will render.  With the oral arguments scheduled in early Fall, it is likely that the final verdict will be rendered sometime in the early part of 2015, possibly before the Legislature convenes in February.  I’d be surprised if a verdict arose in this calendar year, but stranger things have happened.

Regardless of the court’s final decision, the Fall elections will have a definite impact on PERS issues.  The D’s have announced that they are “done with PERS, regardless of the Court outcome”, while the Rs have said nothing.  Nonetheless, the default R candidate for Governor, Dennis Richardson, has served in the Legislature long enough to have sponsored, cosponsored, or shilled for nearly every anti-PERS member/retiree bill since 2003.  He is considered the strongest opponent of PERS members/retirees, but oddly as Governor his power would be limited to encourage and bully for certain legislation.

I am again confronted by the prospect of not voting in two races this fall - I cannot gather the energy or trust needed to vote for our current Governor, who stuck the knife in about as deeply as possible to all his backers in the last general election.  That makes me absolutely insecure about his claim “to be done with PERS, no matter the court outcome”.  I just don’t believe him and, therefore, have great difficulty supporting his re-election.  On the other hand, Dennis Richardson is so slimy (to me anyway), that I can’t vote for him either.  Thus, my current dilemma.  The other race that I find myself incapable of becoming enthusiastic about is Richard Devlin’s race for re-election to the Oregon Senate.  He’s my Senator and I know him pretty well.  His behavior during the 2013 sessions was nothing short of reprehensible.  When questioned about his advocacy of cuts to retiree COLAs and to the income tax subsidy, he was downright rude and nasty to questioners who challenged his loyalty to his supporters.  At one point during one of these meetings I thought he was certain to have a heart attack or a stroke because he was beet red with anger at the opposition citizens (including me).  I don’t even know if he has an opponent, that’s how disinterested I am in his race.  Chalk up another “no vote”.  So far me, the only reason to vote this Fall are for local issues, especially the ones that want to tax me more for my PERS benefit.  My former employer (PSU) is using its newly acquired autonomy to cut budgets because of “PERS costs”.  Fortunately, they aren’t asking me for money, but my colleagues get to suffer because we retirees are again their convenient “whipping boys/girls”.

I’m going to travel around this summer, mostly outside of Oregon because I need a serious break from the constant pounding of the drums against PERS retirees.  I plan to spend my hard-earned dollars almost anywhere but in Oregon.  My loyalties and affections for the state where I’ve lived for 44 years are diminishing rapidly.  I will send postcards in the form of new posts whenever something interesting or of note occurs.  But for now, I want to stop hearing the noise.  I don’t feel like supporting Oregon’s endeavors.  I don’t expect it to be better elsewhere, but at least somewhere else the locals will be happy to see me and happy to take my money.  This is the start of my own “Boycott Oregon” campaign.  Feel free to join or feel free to start your own “Support Oregon” or “I Heart Oregon” campaign.  For me, this state needs a swift kick in the butt in the form of retirees stopping supporting Oregon for awhile.  I know that people will accuse me of “cutting off my nose, etc”.  If the budget falls, blah, blah, blah.  Trust me, budget falls, budget increases matter not a whit when it comes to PERS.  They simply want our money and will take it however they can get it.  So, I will be supporting WA, CA, NV, UT, AZ as well as places abroad for awhile.  

Friday, April 11, 2014

Tumbling Dice

The Special Master hearings in the Moro et al consolidated cases (SB 822 and SB 861) are due to conclude today, if they haven’t already.  As a result of circumstances beyond my control (taxes, travel, crises), I wasn’t able to attend any of the hearings; however all of the pleadings, briefs, and responses are posted on the web page of the Bennett, Hartman PERS site (here).  There is a remarkable deja vu about the pleadings, especially those concerning the COLA changes incorporated in SB 822 and SB 861.  Besides the historical argument, new to the briefs this time around, there is an extensive discussion of what the court actually concluded in its 2005 Strunk decision on the Legislative reforms of 2003.  The state’s response is also predictable, denying certain facts as facts, arguing that the plaintiffs are trying to present as facts, legal conclusions.  The back and forth between the parties is so much like the Special Master hearings in 2004 that just reading the different parties arguments makes me feel like I’ve been teleported back to 2004.

The arguments over the income tax subsidies for out of state retirees is all new.  The crux of the argument revolves around the Hughes case (1991), the adoption of HB 3349, and what the legislative intent of SB 651 (1991) was.  This could be a trickier legal battle than I thought it might have been in the past.

The Special Master will digest all this material and present his report to the Oregon Supreme Court on or before April 30, 2014.  Once the report is available, I will provide a link to it from here.  Do recall that the Special Master report is simply another piece of evidence used by the Supreme Court in formulating its rulings.  The justices are not obligated to use any or all of the report; they may reject some findings, accept others, and completely ignore still others.  

Stay tuned as we play out this craps game on the legal felt in Portland and Salem.

Monday, March 24, 2014

Throw Back the Little Ones (long)

In the past 6 months, conservative think tanks have been filling the inter webs with studies of public employee pensions.  These studies, intended to inflame legislators and the public, have had varying effects.  One group, the Arnold Foundation, has funded research and funded documentaries on PBS, has attacked the very foundation of public employee pensions and have advocated for a reduction in public employee benefits.  Another group, the American Enterprise Institute, has followed suit in trying to point out that public employee pensions are so generous to defy rationality.  These sensational studies have taken hold with the public and with state legislatures.  =

Today, I want to share with you a critique of the latest study published by the American Enterprise Institute.  I don’t usually do “guest posts” here, but I wanted you all to read this first here so that you can have ready ammunition to undermine the dubious statistics used by the AEI to attack public employee pensions,  My colleague, Val Burris, Professor Emeritus at the University of Oregon, has generously shared his critique of the latest AEI study of public employee pensions.  Val shows that everything about the study is “cherry picked” and that the conclusions do NOT follow logically from the data.   The next time someone throws these data in your face, you can throw them back because the AEI’s study does not follow logically from any data published.  Neither Val nor I can speak to other pension systems, but when it comes to Oregon’s PERS, the AEI document is badly flawed and misleading.  This does not bode well for interpretations of other states.  What follows is Val’s analysis of the latest screed from the AEI.  

Not So Honest: The AEI’s Latest Attack on Public Employee Pensions


Val Burris, Professor Emeritus, University of Oregon 


This month the American Enterprise Institute (AEI) published a report titled “Not So Modest: Pension Benefits for State Government Employees.” The AEI is a conservative think tank in Washington DC that is financed mainly by large corporations, too-big-to-fail banks, and assorted right-wingers within the American plutocracy.  Andrew G. Biggs, the author of the report, is a public policy huckster who has spent most of his career in the employ of right-wing think tanks like AEI and the even more far right Cato Institute, spreading disinformation in the interest of big business and the super rich.  For several years he also served as a low-level official in the George W. Bush administration promoting the privatization of Social Security.  The AEI study is representative of the kind of the ideologically-driven, pseudo-scientific analysis that spews forth from the well-financed network of right-wing think tanks – promoting tax breaks for the rich, cuts in public services, deregulation of corporate malfeasance, and climate change denial. The study presents comparative data on public employee pension benefits in all 50 states, but my focus in this comment will be specifically on the findings presented for Oregon PERS retiree benefits in each of the report’s four main figures.


Figure 1.  In this figure the author uses data from Comprehensive Annual Financial Reports (CAFRs) of various states to estimate pension benefits of full-career retirees.  The crucial issue here is what counts as a “full-career” retiree.  As we shall see, the author’s definition is both arbitrary and bears little resemblance to the data he presents. On page one the author specifies a full-career retiree as someone retiring “after 30-34 years on the job.”  However, there is considerable variability in how this definition is applied across states.  A few states report benefits for a specific category of retirees with 30-34 years of service, but more often they collapse retirees into broader categories like 30+ years of service, or 31+ years of service.  Such categories typically include a quarter to a half of retirees who have put in 35 or 40 or even 45 years on the job.  Therefore, in many if not most cases, the data in Figure 1 do not correspond to the definition of a “full-career” retiree that is stated in the text.  Moreover, as one might expect, retirees with 35 or 40 years of service typically receive higher pensions than those with lesser service.  If this is true, then the average benefit reported for many states will be considerably higher than the benefit of a worker retiring with 30-34 years of service, which is the only definition of a “full-career” retiree that the author provides anywhere in the report.  


As I have just explained, data for different states are not comparable because states do not report the years of service of their most senior retirees in the same categories.  For Oregon the highest category reported is 31+ years of service, which is the category that the author actually used in his report.  Therefore, despite what one might be led to believe, when the author computed his estimates of retiree benefits shown in Figure 1, an Oregon public employee retiring with 30 years of service was not counted as a full-career retiree, whereas an employee retiring with 35 or 40 years of service was counted.  By comparison, for New York State, which reports its data in more detailed categories (and which the author disingenuously uses to illustrate what the data supposedly mean and how they were assembled), a retiree with 30 years of service was counted as a full-career retiree, but one with 35 or 40 years was not.  Hence, the author is mixing apples and oranges, and it would be unwise to rely on his data for comparing one state with another.  


Returning to the New York State example will give us a clearer sense of just how non-comparable the data for different states may be.  In Figure 1 the author cites an annual benefit of $43,020 for a full-career New York State government retiree.  This figure refers only to those retirees with 30-34 years of service – nothing higher.  The first thing to note is that these retirees account for less than half of New York State retirees in 2012 with 30 or more years of service.  Second, if the author had followed a method more closely corresponding to that applied to Oregon (but never mentioned in the text) and counted all of those with 30+ years of service, the average annual benefit would have been $51,291, or nearly 20% higher than reported.  


The annual benefit of a full-career Oregon PERS retiree reported in Figure 1 is $58,188, which corresponds to the figure for retirees with 31+ years of service in the 2012 CAFR.  But I suspect many readers might think that someone with only 30 years of service should also be placed in the “full-career” category (or 28 years of service or maybe 26).  According to the Oregon CAFR, PERS members retiring in 2012 with 26-30 years of service received an annual benefit of $42,096.  If we were to define full-career retirees as those with 26 years of service or greater, the average annual benefit (combining the 26-30 and 31+ categories) would be $48,712, or roughly $10,000 less than the figure reported for Oregon PERS full-career retirees.  So, once again, one’s findings are highly sensitive to differences in how terms are defined and how data are assembled.


Apart from comparing apples and oranges, the author of the AEI report is also cherry picking to exaggerate public employee pensions by focusing on a limited number of cases.  Oregon PERS members retiring in 2012 with 31+ years of service account for only one-eighth of those retiring that year and slightly more than one-quarter of total benefits that were initiated that year.


Figure 2.  In this figure the author uses data from state CAFRs and the BLS Survey of Occupational Employment Statistics to compute what he calls the “total retirement income” of state government retirees.  This involves combining the questionable estimates of the pension benefits of public employees from Figure 1 with equally questionable estimates of their Social Security benefits.  The sum is then reported as a percentile of the yearly earnings of full-time, full year workers in the same state.  


How exactly does the author estimate Social Security benefits of retired public employees?  On page 3 he says that Social Security benefits were calculated on the basis of a retiree’s final salary at the time of their retirement.  This suggests that final salary accurately reflects the average annual income that retirees received over the entire 35 years that were used in calculating their Social Security benefits.  This is obviously an absurd assumption, especially in the case of full-career employees who can be expected to have started at a relatively low salary and then moved up in rank and salary over the decades.  


A more realistic assumption would be that an entry level public employee might begin working at roughly half of their final salary (in real dollar terms) and move up gradually over the course of their career.  Most employees also have a number of low income years, either before they entered into a steady career or because of breaks in employment.  So the idea that full-career employees have always earned the same salary they received at the time of retirement exaggerates their Social Security contributions and subsequent benefits by a considerable margin. Using my own case as an example, my average salary for purposes of calculating Social Security benefits was 74% of my final salary; hence, using my final salary to predict my Social Security benefits would grossly exaggerate the amount of those benefits. 


Also troubling is the fact that the Social Security benefits calculator used by the author appears to report monthly benefits at the age of “full retirement” (age 66), whereas most people begin collecting Social Security at an earlier age where they receive up to 25% less than the full retirement benefit.  Moreover, the youngest age at which one can receive Social Security benefits is 62, whereas the author, elsewhere in his analysis, assumes that full-career public employees are retiring at an age of 60 when Social Security is not even available to them.  I will have more to say on this later.


Working backward, it is possible to calculate that the author estimated Social Security benefits for the average full-career Oregon PERS retiree to be $24,302 per year.  More realistically, if we were to define full-career retirees as those with 26 or more years of service, estimate that the average salary for their top 35 income-earning years was 75% of their final salary, and assume an average age of 64 for beginning Social Security benefits (the national average is 63.8 years), our full-career Oregon PERS retiree would receive Social Security annual benefits of $19,322 beginning at age 64 – or less than 80% of the estimate in the AEI report.


The author purports to measure total retirement income of public employees as a percentile of the income of “full-time, full-year” workers in their state using the BLS Survey of Occupational Employment Statistics.  There are two problems here.  First, the BLS survey does not distinguish between full-time and part-time employees; the two are combined in its salary estimates.  According to the 2012 Current Population Survey, roughly one-quarter of Oregon employees worked part-time on a regular basis, so the author of the AEI study is comparing PERS pensions to the salaries of a large number of part-time workers.  Second, the BLS survey is conducted in a single month and cannot say whether workers will continue to receive comparable salaries throughout the year, especially in a time of recession and high unemployment.  For both of these reasons, the earnings of workers in the BLS survey are certain to be lower than those of genuine “full-time, full-year” employees and the percentile ranking of PERS retiree pensions will therefore appear higher than is actually the case.  


Based on the multiple fudge factors enumerated above, the author of the AEI study reports that a full-career Oregon PERS member retiring in 2012 received a total income (pension plus Social Security) that ranked at the 90th percentile of Oregon’s current full-time, full-year employees.  With more accurate measures of pension and Social Security benefits, as well as a very rough adjustment for the presence of part-time employees in the comparison group of current workers, I estimate that a full-career PERS retiree in 2012 would have earned slightly above the median (50th percentile) based on their pension alone and somewhere between the 70th and 75th percentile based on pension plus Social Security income (if indeed they were of sufficient age to draw Social Security benefits).  These results should be treated with caution because of the difficulty of estimating the distribution of salaries of full-time workers from data that conflate both full-time and part-time workers.  But, without question, they are more accurate than the figures presented in the AEI report.


Figure 3.  This figure purports to represent the current value of lifetime pension benefits of full-career state government employees using some creative assumptions and methods of analysis.  First note that this analysis incorporates all of the questionable data and measures encountered in the previous two figures.  In addition, the figure raises several additional problems.  As noted at the bottom of Figure 3, the analysis “assumes retirement at 60, survival to 85, 2.5 percent COLAs, and 3.5 percent discount rate.”  Let us address each of these as they apply to the estimate of lifetime pension benefits of an Oregon PERS retiree.


The assumption of retirement at age 60 is not too far out of line with the average reported by Oregon PERS, but it is at variance with the assumptions of the previous two figures, which focus exclusively on public employees with relatively extended years of service and who are eligible to draw on Social Security (available only at age 62) at the same time they begin to receive their pensions.  Clearly, the author is altering his assumptions about age of retirement to fit whatever biased message he wishes to promote in each individual figure.


According to the Social Security Administration, the life expectancy of a 60-year-old retiree is 81 for males and 84 for females, so by assuming a life expectancy of 85 the author is trying to sneak in a few extra years of expected benefits to boost his predetermined conclusions.  Further, the COLA for Oregon PERS retirees is nowhere near 2.5 percent as a result of recent legislation.  It is currently 1.25 percent for the average full-career PERS retiree.  The assumption of a 3.5 percent discount rate also exaggerates the present value of public employee pensions.  Oregon PERS pensions (and those of most other states) assume a long-term market return of between 7 and 8 percent.  By using a discount rate of half or less of this value the author is guaranteeing a highly inflated estimate of the present value of a given pension income stream.  


The author of the AEI study claims that the average full-career Oregon PERS retiree in 2012 received a pension with a current value of $1,204,776, making them an example of what he calls “pension millionaires.”  What happens when we make more realistic assumptions of (i) defining full-career public employees as those who have 26 or more years of service at retirement, (ii) who retire at age 63 (the average PERS retiree in 2012 was age 61 with 22 years of service, so 63 years of age seems like a reasonable estimate for those retiring with 26+ years of service), (iii) whose life expectancy is 83 years, (iv) who receive a 1.25 percent COLA, and (v) where the discount rate is 7.5 percent?  Under those assumptions, the average current value of a full-career PERS retiree’s pension is roughly $560,500 – much less than half of the AEI study’s estimate and considerably less than a million dollars.


Figure 4.  In this figure the author introduces his own method for computing replacement rates for public employee pensions by returning to the ploy of juicing pension benefits with inflated estimates of Social Security income to make the case that public employee pensions are excessive.  By this method the author estimates that “total retirement income” replacement rates are 105% of final salary for full-career Oregon PERS retirees.  Compare this with the statement in PERS By the Numbers which says that pension benefits for PERS members retiring in 2012 with 30 or more years of service equaled 70% of final salary.  The 2012 Oregon PERS CAFR reports roughly the same replacement ratio for employees retiring with 26 or more years of service.  


Even though I consider it illegitimate to conflate pension income with Social Security income, I replicated the author’s method using more realistic estimates of pension and Social Security benefits of full-career PERS retirees and came up with an average replacement rate of 97 percent of final salary for pension and Social Security combined.  It is important to remember that this replacement rate applies only to a small minority of PERS retirees with the longest years of service.  The comparable replacement rate for the more typical PERS retiree with 21-25 years of service is only 46 percent of final salary for pension alone and roughly 70 percent for pension plus Social Security (although the latter figure could easily be exaggerated because of the somewhat generous assumptions I made about these employees’ pre-PERS or non-PERS income for purposes of estimating Social Security benefits).  


Concluding Remarks.  There are two more sweeping problems with the AEI study.  The first is that it ignores the very different mix of occupations among state and private sector workers and their required skills and qualifications.  For example, 52 percent of state or local government employees have a college degree compared with 35 percent in the private sector.  Second, and more egregious, is the complete failure to examine, or even consider, the issue of total compensation (salary plus benefits) as the appropriate standard by which to assess economic returns to careers in public service and the relative benefits accruing to public versus private sector workers.  As many studies have shown, public employees tend to accept lower salaries in exchange for some degree of job security and the promise of an adequate pension.  This is a topic about which right-wing think tanks have also generated a deluge of disinformation.  But, according to what is arguably the most reliable and methodologically rigorous study of this question from the nonpartisan Center for Retirement Research at Boston College, state and local public employees experience a wage or salary penalty of 9.5 percent versus comparable private sector employees; whereas, they make up roughly 5.5 percent in terms of more generous pensions, health insurance, and other benefits.  This results in a net deficit of 4.0 percent in total compensation for state and local government employees.  To focus on the magnitude of public employee pensions in isolation of the wage and salary penalty experienced by public employees (and hence their greater difficulty of accumulating private savings for retirement) is an extraordinary omission of the sort that only an ideologically blinded spokesperson of a politically motivated organization would ever consider reasonable.

Thursday, March 20, 2014

Take Your Hands Off It

I ran across this report the other day.  I thought I’d share it as it outlines how two groups have gotten into the public employee pension scrum across the country and they are trying to undo all of the progress made in gaining decent pensions for all public employees.  Don’t be foolish enough to charge the author with bias.  All reporting is biased to a degree, including that by the foundations the author is taking to task.  When in doubt, check the references at the end of the report to decide for yourself whether the bias is relevant or not.  Here is the link to the foundation report.

Monday, February 17, 2014

Whipping Boy

The news on PERS these days is pretty spare.  Things will heat up again next month when the special master starts taking the written briefs and arguments from the plaintiffs and the responses from the defendants.  These will be posted on the Bennett-Hartman website as they are received and processed.  When the first of these links go up, I will post a clickable link to them.  The Legislature “seems” to be in session, although nothing related to PERS has been posted.  There was a brief kerfuffle when a legislator from the southern valley tried to help one of his “friends” (a PERS member) gain a benefit that few of us can access - an exception to the 1039 hour rule that would have allowed certain designated members (sheriffs, police chiefs, fire captains, etc) to retire, but continue to work full time because they were in a hard-to-replace position in a small community.  The present law allows this for communities under 75,000, but the amendment (which died after getting publicly trashed by the media) would have raised the threshold to 110,000.  It never ceases to amaze me how much chutzpah legislators have when it comes to PERS.  Trash the ordinary member who has worked a full career in public service, but create special exceptions for their friends.  Bah, humbug, and worse.

Trashing and beating public employees continues to be a national sport.  The John and Laura Arnold Foundation continues to fund efforts across the country to get states, municipalities, school districts and the like to take away benefits for future retirees, and to reign the existing benefits in for current retirees.  The COLA reduction movement is a specific area the Arnold Foundation has funded in many states across the country.  Last fall, PBS (including OPB), ran the first of a number of programs on “Pension Peril”, which followed the Arnold script fairly closely.  In a scathing article published on Pando, former Washington Post columnist David Sirota, wrote an article entitled “The Wolf of Sesame Street” exposing the role the Arnold Foundation played in funding the series for WNET, the NYC public broadcasting affiliate.  It turns out that WNET had actually solicited the money from the Arnold Foundation, and the Arnold Foundation happily donated the $3.5 million needed to finance the program.  Sirota documented the violations of the Public Broadcasting Charter in pretty significant and damning detail.  After a week of backtracking, double-speaking, denials, and plain B.S., WNET finally decided to return the $3.5 million to the Arnold Foundation and effectively terminate any further development of the series.  As I said elsewhere, it will be hard to measure the damage done by the early installment of the series (I did not watch it), but it is a small victory for public outcry and for David Sirota’s activism that WNET realized what a public relations disaster this was and did the only thing it could do to stem the further erosion of its public image.  Despite this, public employees still seem to be everyones’ “whipping boy” for the foreseeable future.

I’m done with my fall/winter traveling after logging 33,000 miles between late October and today.  We are taking a break from long stints on crowded airplanes, eating out, sleeping in unfamiliar and often uncomfortable beds.  I will be around for all the public hearings on the SB 822/SB 861 lawsuits.

Stay tuned.

Monday, January 20, 2014

Time Without Consequences

The Oregon Supreme Court has published its schedule for the Special Master hearings and for the oral arguments in the cases involving SB 822 and SB 861.  These cases pertain to the PERS retiree COLA and the legislation involving the out-of-state subsidy for Oregon Income Tax.  To make things as clear as possible, there is no litigation that I am aware of involving HB 3349, the 1995 legislation that provided retirees with a direct income tax subsidy for Oregon income taxes for work performed prior to October 1991.  The only litigation involves SB 656, passed in 1991, which provided a boost in PERS benefits to retirees based on length of service, not income and tax obligation.  

The Special Master’s status conferences were and will be held on January 10, February 14, and March 14, 2014.  The Special Master will take testimony from April 1 to April 11 on the evidence.  The Special Master’s report is due to the Supreme Court on April 30, 2014.  

Subsequently, the Supreme Court will begin Oral Arguments on the combined cases involving SB 822 and SB 861 in September 2014.

The final decision, as predicted, will occur sometime between 12 and 14 months from now.  This follows the pattern established by the 2005 Strunk Court in its ruling on the 2003 Legislative reforms.  Again, without an appellate court history, the Special Master’s role is to create a legal framework that the Supreme Court may use in its deliberations to reach a final decision on the constitutionality and legality of legislative actions taken in SB 822 and SB 861.  As I anticipated, the final decisions will be available to the 2015 Legislature, although it is unlikely that a decision will be available by the time the Legislature convenes.  Gov John Kitzrobber has claimed he will not put PERS issues back on the Legislative calendar regardless of the outcome of the consolidated Moro et al cases.  That, of course, depends on whether Gov Kitzrobber is reelected, a prediction that isn’t entirely certain at this point.  I certainly am not anticipating voting for him, but I won’t vote for his presumptive opponent either.

Sorry for the long delay between postings.  Between being far out of town, and attending to various family emergencies, I haven’t been paying as close attention to PERS issues as usual.  Things should improve as the legal machinations get moving.

Monday, December 23, 2013

Your Luck Didn't Last

While I was away in Myanmar (Burma), PERS sent out letters to those people it thinks are not eligible for continuance of the income tax subsidy.  Predictibly, a few long-time Oregonians were caught in the dragnet and they are busily trying to get PERS to undo their mistake.  Worse, in my last message before leaving for Myanmar, I had specifically emailed PERS to clarify what the effective date of the change would be.  I posted, based on PERS’ response, that the first check to be affected by the change would be the check received on February 1, 2014 (for January 2014).  However, the same letters out-of-staters received while I was gone tell retirees that the effective date will be the check received on January 1 (or 2nd), 2014.  So, I must apologize if the information I provided in my last post misled anyone.  I am trying to get clarification from PERS now, and I will update this post if I hear anything that either supports my original post or contradicts it.  In the meantime, I am profoundly sorry that my post might have been misleading.  I thought I had the information correct (and I confirmed it by rereading the email PERS sent me).


UPDATE:  I just heard back from PERS.  The official start date for the reduction in benefits due to loss of the Income Tax subsidies (SB 656 or HB 3349) is for the check to be received on JANUARY 1, 2014.  The original date I posted did NOT come to me via a direct communication with PERS.  I should have followed my usual course of action to “trust, but verify”, but in this case I relied on information gleaned from a usually reliable source who had posed this question to three different PERS Customer Service representatives.  In my haste of getting ready for my trip, I did not follow this up with a clarifying or confirming email to PERS.  I accept total responsibility for my failure to verify and apologize profusely to anyone seriously misled by this information.  It did not come from an “official” PERS source, but I do believe that this information came from PERS representatives who were not looped in on the conversation.  Again, my apologies.

Tuesday, November 26, 2013

Your Luck Won't Last

For those wondering about the discontinuance of the income tax remedy for out-of-state residents, PERS has confirmed that the first check affected by the Legislature’s actions will be the February 1, 2014 check.  You may have received a letter about this, but nothing on PERS’ website indicates whether PERS is obliged to send you an individual notification of this reduction BEFORE it hits on 2/1/14.  Do not assume that if you haven’t heard from PERS that you aren’t affected.  You have until mid-December to confirm your tax status to PERS; otherwise PERS can treat you as an out of state resident if you didn’t pay Oregon Income Tax in 2013 for 2012.  If you are an Oregon resident, subject to Oregon Income Taxes (whether you have to pay or not), you are not affected by SB 861 and SB 822, but if you are in ANY doubt, confirm your residency status to PERS using their affidavit.  Otherwise, you might find yourself without the income tax subsidy for 2014 and have to wait until 2015 to get it straightened out.  Forewarned is forearmed.

Peace out all.  This is my final post until I return from Myanmar (Burma) on December 19.  I hope that all will have a relaxing and festive Thanksgiving, and a joyous run up to the Winter Holidays.  

Thursday, November 21, 2013

25 To Life

Without much fanfare - actually without any fanfare - PERS quietly posted the new Actuarial Equivalency Factors on its website in (my opinion) a rather obscure location.  After studying the factors and matching them up with a few other sets I have stored away from past years, it does look like the option 1 (base) benefit has declined by somewhere in the vicinity of 2-3.5% depending on retiree age.  By itself, this corresponds to about the three month setback I’ve discussed as rumor in previous posts.  There are a few surprises in the tables, primarily in survivor benefits.  From reports I’ve gotten, both those posted publicly, and in instances where people have reported to me privately, it appears that members with younger spouses seem to get some of the reduction back as the joint survival tables show about a 1% improvement over prior tables.  I’m not sure I fully understand the reason for this, although I know that the PERS member cohort is living slightly longer than in the past, which accounts for the initial reduction (along with the cut in the assumed rate).  But, the add back for beneficiaries is a bit of a surprise, and I can’t totally explain why it should be the case.  Nevertheless, Option 1 is definitely a reduction, while Options 2 and 3 (and their corollaries 2a and 3a), appear to recover a very small about of the Option 1 setback from earlier sets of tables.  

So, I’m hearing stories about a net setback of 1.5% - 2.5% with a spousal or domestic partner beneficiary, slightly more of a setback for Option 1 (no survivor, no refund, maximum) benefit.

For those of you who want a copy of the new tables, they can be found here .  

I will probably have one more post before I leave the country and will be gone for much of December.  Where I’m going, they barely have telephones, much less internet, and cellular service (I was told I can rent a cell phone for $2500 - no thank you).  So you will see nothing from me between November 30 and December 18, while you may see one post before Christmas.  Do not panic.  That is dead time in the PERS world and so the fact that nothing gets posted in that period is not a sign that I’ve lost interest; I am merely seriously out of the country and unreachable.  I hope to have some cool photos when I return.

Friday, November 01, 2013

Dirty Lowdown and Bad

It has come to my attention that a variety of public agencies (school districts, in particular) are trying to scare the bejesus out of Tier 1 members by sending out incomplete or deliberately vague information about changes to PERS benefits coming on retirements taking place after December 1.  In one particularly egregious example, sent to me multiple times by PERS members from a particularly large school district in the south center of the Willamette Valley implied that bad things might happen if eligible employees missed the December 1, 2013 retirement date.  I’m going to shout this by using all caps - THE THINGS HAPPENING AFTER DECEMBER 1 HAVE ALL BEEN KNOWN FOR SOME TIME, ARE NOT NEW, ARE NOT RELATED TO ANYTHING THAT THE LEGISLATURE DID OR DIDN’T DO.  MOREOVER, WHILE THEY WILL PROBABLY HAVE A SLIGHTLY NEGATIVE IMPACT ON YOUR BENEFIT IF YOUR PLANS DON’T CHANGE, THEY ARE IN NO WAY THE IMMINENT DOOM THIS PARTICULARLY NASTY MEMO IMPLIED.

Let me clarify what is going on.  The two things that are going to change are 1) the assumed interest rate decreases from 8.0% to 7.75%.  The PERS Board chose to reduce the interest rate by ONLY 25 basis points to minimize the impact on employers, but the side effect is that Tier 1 members subject to the rate guarantee will be earning at guaranteed rate of 7.75%, a net reduction of about 3% on total earnings.  You can make up that difference by working an additional 3 or 4 months.  The second thing to happen is that the assumed rate is also reflected in the Actuarial Equivalency Factor, which is used to convert the Option 1 Lump Sum Benefit (Total Lump) sum, in a series of other kinds of payments more suitable to be paid out over time.  The idea is that regardless of what payout option you take, they need to all be actuarially equivalent taking into account the same factors.  The AEFs are revised every two years, just like the assumed rate is revisited every two years.  They are done at the same time because they interrelate in all the same calculations.  So, by lowering the assumed interest rate, taking into account changing mortality of both the PERS and general population, changing assumptions about inflation and salary growth, the AEFs are likely to change in a way that will reflect the fact that the typical PERS retiree is likely to live longer than the predictions from the last set of tables.  These mortality factors can’t change too much because humans are reaching the asymptotic plateau of mortality without major changes in the mortality and morbidity of the major killers.  Nevertheless, mortality factors have changed and, coupled with the lowered earnings assumption, make it likely that members approaching retirement age will see benefits reduced by anywhere from 1.5% to 3.5% depending on age at retirement, spouse’s age, if germane, and benefit payout choice.

The actuaries have not released the revised AEFs to the public yet, but they’ve suggested broadly that they will result in a rough 3 month setback.  This means that someone who can choose between December 1, 2013 retirement (under 8% and old mortality tables) and February 1, 2014 would receive approximately the identical benefit.  So, if you were planning to stay until February, but can retire at the end of this month, there is no financial advantage to you (aside from 3 months of additional income and 3 months of additional contributions to the IAP) to wait until February.  But if you can’t retire in December, or don’t want to retire in December, you can neutralize the impact by working roughly 3 months longer.

While the most offensive of these letters does encourage members to scour the PERS website for more information, the vagueness, the absolute failure to reveal the nature of the changes and the fact that they have been known for a fair amount of time is truly one of the most dirty, lowdown, and bad scare tactics I’ve seen in some time.  I should hardly be surprised since this school district comes from one of the most litigious region of Oregon.  That they would try to intimidate by scaring with, at best, misleading information is offensive and odious.  If I were a member of a union in that area, I might be inclined to file an unfair labor practice complaint against the school district.  The district could have been perfectly straightforward and mentioned the changes taking place without detailing exactly what impact they might have.  There is nothing you can be sued for by giving out factual information without offering any interpretation.  The actual notice simply scares workers needlessly without providing an iota of fact, just “beware of the boogeyman”.  Shame on this district.




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