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Friday, February 17, 2017


Leave it to the Rs in the Oregon Legislature to come up with a do nothing, save nothing bill concerning PERS.  In a particularly mean mood, SB 791 was introduced yesterday.  The bill effectively ends the current 1039 hour per calendar year post-retirement work limit for PERS retirees.  Instead, the bill requires an employee to be fully retired from the employer for 6 months before he or she can be hired back in a part-time capacity.  While this is the SOP for private employer pension plans, it hasn’t been a feature of public employer plans.  I presume the reason for this bill is to “end” what some see as “double dipping” - a misnomer if there ever was one.  In fact, I can’t see employers happy with this bill because it may well cost them more money rather than less.  In common cases, an employee who is hired into a 1039-hour position after retirement possesses some unique skill that either isn’t easy to recruit for, or isn’t easy to train a new person into.  The role of the retiree is to help train a new employee assume the duties of a retiree who possesses a unique skill set.  Under the 1039-hour rule, no benefits are paid, no contributions made to PERS, and usually (though not always) no health care benefits. If employers are required to wait 6 months before they can hire a retiree back, how then are they to train someone is a hard-to-fill, hard-to-learn position that is essential.  Obviously this isn’t always the case; indeed, it may describe only half the cases.  Instead, what is going to happen is that employers are going to have to hire replacements before the essential employee leaves, and do the training simultaneously.  This results in double salary and benefits, certainly not a savings but an added expense.

To add insult to injury, this bill does not have a date certain for a starting date, instead stating that it covers any employee still active after the bill is signed into law.  So, while you’re being distracted by the effects of SB 559 and SB 560, which both would take effect on January 1, 2018, you can end up being stranded by this bill, which serves to prevent you from moving out of an agreed upon retirement plan into a brief period of part time employment with no interruption in payroll.  

The worrisome aspect of this bill is that it appears innocuous on the surface, will have broad public support as appearing to do something that it doesn’t really do, it has a possibility of slipping through the cracks and passing since it is targeted primarily at a relatively small sample of those on the cusp of retirement.   Since it obviously does not prevent reemployment of retirees, just puts a significant delay in their path, the bill will neither save money or will it do anything to address whatever ails  PERS.

One final, curious, note.  This bill completely removes the hour limitations on work for a public employer after retirement, provided that three conditions are met:  1) the employee must have spent a minimum of 6 months retired and off the payroll of any public employer; 2) if you are receiving Social Security prior to reaching normal Social Security age (i.e. between 62 and 66), the earnings limit is constrained by Social Security earnings rule (lesson:  if you plan to go back to work after retirement, don’t start drawing Social Security until you’ve fully stopped working); 3) if you are at least normal Social Security age (i.e. 66 or 67 depending on birth year), you can work as much as you want without any earnings limitation.  The only real change is with 1) as the other limits have been more or less in effect since the 80s.  What this bill does is to remove all of the exceptions now in the statutes that permit certain people to work more than 1039 hours if they live in places with certain demographic characteristics.  But then see 1) above for the important caveat.  The rule does not envision exceptions to 1), which happen to be the reason the original set of exceptions were introduced.

Thursday, February 09, 2017

Walking the DINOsaur

Leave it to the group Was/Was_Not to write my blog title for me today.    Today, my post is about Senator Betsy Johnson’s(DINO, Scappoose) fixation and preoccupation with “inactive” PERS members.  In several hearings before the Senate Workforce Committee, where Johnson has insinuated herself as a non-voting, but vocal, member she has asked both Steve Rodeman and attorneys Greg Hartman and Bill Gary about why “inactives” can’t be paid, what sounds like, zero interest on their “inactive” balances.  Bill Gary wrote an op-ed on something along these lines in the Eugene Register Guard about two years ago.  In Gary’s telling, he was flabbergasted that a 5-year UO Professor who moved on to another position, and then at retirement some 25 or so years later, ended up with a higher benefit than a public school teacher working for 30 years.  In effect, that’s our DINO question, but put more bluntly.  Why do we have to keep paying earnings on these people’s money when they aren’t doing anything to earn it?  Folks, the answer to this question revolves around the concepts of “vesting” and “accrued benefits”.  To understand what these mean, let us compare the circumstances of an “inactive” member with that of a member who didn’t work long enough to be vested.  Currently, and for as long as I can remember, one has to work for 5 years at more than 600 hours per year to be considered vested.  (I don’t know if years are prorated based on time worked during the year; for simplicity, we are going to assume 5 full time years).  An employee who terminates employment (or is terminated) before vesting has NO (zero, none nada, zilch) options about what to do with employee contributions and earnings to PERS.  They cannot keep the money in PERS and they are entitled to no benefits.  The money can be cashed out, subject to a significant tax hit, or rolled over into another qualified plan, including a rollover IRA.  The employee has neither the expectation of, or entitlement to, any employER contributions.  So, at the magic 5 year vesting point, an employee becomes a vested member in the Public Employees Retirement System (PERS).  That vesting entitles them to leave their employee account open, continue to draw earnings on it (because PERS is using the money, and there is a price for that), and to receive benefits that include the employer contribution matched in whatever way the vested Tier requires.  This is a really important concept to grasp.  In order to secure the “accrued benefit”, the member must have a PERS account at the time of retirement.  At retirement age or after, that member is entitled to receive a retirement benefit based on all the contributions in and earnings from his/her account, PLUS the employer contribution that produces the highest legal benefit for that employee.  PERS does not allow an inactive member to “cash out both employee and employer contribution", EXCEPT AT RETIREMENT.  Were this allowed, we wouldn’t be having this discussion.  But Senator Johnson MUST understand that “vesting”, “inactive” and “accrued benefits” are tied together in a neat little Gordian knot that can’t be untied without making some major changes to the plan.  And, the only change that could be made would be to give “inactives” the opportunity to cash out of the system at the FULL VALUE of their benefit at the time of withdrawal (that means the equivalent of a total lump sum settlement that can be rolled into another retirement vehicle and annuitized using whatever rate the individual can secure).  This would have to be optional, not mandatory.  This, folks, is not rocket science but the “accrued benefit” is fully defined in terms of the existing PERS Contract, “vesting” is defined, and the conditions required of an “inactive member” have all been defined in statute.  The only option is to change the statute to allow the full cash out for inactive members at a time of their choosing, or to allow them to continue to accrue earnings on their investment until they decide to retire.  

In 2003, the Legislature tried to incentivize “inactives” to withdraw from the system.  What was offered was a pittance - 150% of their individual account balance.  The offer was open for, at most, 18 months and very few people took advantage of it.  The reason should be obvious.  Why would you willingly sacrifice 50% of your employer match when you could leave the funds in the system and get 100% of the match earning, at that time, 8%?  This tactic was a failure.  Nothing short of a total lump sum settlement would ever satisfy a vested, “inactive”, Tier 1 member, nor is it likely to satisfy a vested, “inactive” Tier 2 member.  Moreover, even if Senator Johnson could suddenly figure out a legal way to implement a rate cut (to zero) for inactives, the savings to the system would be minuscule.  Why?  Because virtually all remaining Tier 1 inactives are probably at or very near retirement age, and they could simply pull the plug before implementation.

So, here’s my message, if it isn’t obvious.  Senator Johnson:  “there is no way to get there from here.”  Walk away from this idea before you look really silly.  Losing in court would be an expensive proposition for the State, and the savings absolutely trivial in the process.  Take this DINOsaur and walk it straight to bed.

Monday, February 06, 2017

The Show Must Go On (and on and on, Long Post)

Rumors of my demise, my death, my apathy have been greatly exaggerated since my last update in August 2016.  Fact is, nothing I said in August was ever superseded by later or more informative news, and so I’ve had little to say publicly about PERS (I’ve said lots on the private forum, Pers Oregon Discussion, see link on left).  Now that the political circus is back in town, the tents set up, and all the clowns are meeting with their clown faces on, we have something to discuss.

On Wednesday February 1, the 2017 Oregon Legislature convened for its long session in which thorny issues like the state budget, transportation, health, and, of course, PERS are on the agenda for their needs and for their contribution to the State’s apparent $1.8 billion budget shortfall.  This year, most of the action will take place in the Senate’s Workforce  Committee, chaired by freshman Senator Kathleen Taylor(D, Milwaukee), and vice-Chair, the estimably malign Senator Tim Knopp (R Bend), who is back for is second swing at the piƱata, after contributing to the 2003 wreckage.  The Committee is also ably “assisted” by Senator Betsy Johnson (DINO, St Helens), who is not even a member of the committee.  In the opening salvo, the Committee heard a very long presentation from Steve Rodeman, Executive Director of PERS, on the financing of PERS, as well as the demography of its current membership.  At the end of his presentation, Rodeman presciently noted that “…The PERS situation is driven by math; as an agency director, there’s little margin in having an opinion about math”.  Indeed!!!

Prior to convening the Legislature, Senators Tim Knopp and Betsy Johnson convened a “Working Group on PERS”.  Ostensibly it was convened to flesh out ways in which the existing $21 billion unfunded actuarial liability (UAL) might legally be reduced.  The committee, composed of experts and interested volunteers, had two meetings - one in September and one in December.  Members of the group thought that their input would be sought when legal issues and all of the corollary issues related to reforming PERS (“race to the door”, loss of institutional memory, effects on agency recruiting, etc, as well as the actual budget impact)) would be hashed out.  In fact, nothing of the sort occurred, and after the December meeting, Tim Knopp and most of the Republican Senate caucus dropped two bills on the Legislature to be introduced at the beginning of the session.  Those bills, SB 559 and SB 560, cover a fair bit of ground and relate to some, though not all, of the ideas I discussed in my previous post in August.  Let’s go through them seriatim.

SB 559 covers the period of time used to compute the Final Average Salary (FAS) that is the benchmark for Full Formula (FF) retirement.  The bill has an emergency clause* and is set to begin on 1/1/18.   FAS is also the measure against which the Money Match (MM) retirements are compared.  This is the metric used by those hysterical newspaper headlines shrieking about those relatively few members who were able to retire at more than 100% of their final salary.  Currently, FAS is based on the highest three years of a member’s final ten years covered employment.  Usually, but not always, those are the last three years in a member’s career.  SB 559 proposes to change the time period from the  three years to the FIVE years.   It is estimated that this would reduce the UAL by about $700 million and reduce employer rates by about 65 basis points in 2017-19.  This is a tricky proposal.   Its purpose is to dilute the FAS used to calculate the benefit under Full Formula (Tiers 1 and 2, OPSRP).  Recall that the formula involves total years of service, a multiplier for each year of service (1.67% of FAS for Tier 1 and 2; 1.5% for OPSRP), and FAS.  Option 1 (the highest benefit possible without a beneficiary) is the starting point for these calculations.  Thus, a 30 year, Tier 1 member can earn 50% of FAS.  So anything that reduces the FAS will have the attendant effect of reducing the benefit since FAS is the only variable in the equation - years of service being measurable and constant for any individual and the multiplier being set in statute.  Of course, FAS is also influenced by other variables besides how many years the average is computed over.  Adding to FAS for Tier 1 and Tier 2 is accrued sick leave (for participating employers) and the value of accrued vacation time.  Another factor that can drive up FAS is the acquisition of overtime pay for those eligible.  SB 559 ONLY deals with the time period for the multiplier; SB 560 has other interrelated effects.  The bottom line is that spreading the salary over five years has a tendency to lower the FAS since the actuary uses a 3.5% salary multiplier to calculate expected salary.    An example will illustrate.   Suppose a member is earning $50,000 in calendar 2014 and can retire with 30 years at the end of 2018.  Salary in 2015 is $51,750; 2016, $53561; 2017, $55436; 2018, $57376.  Leaving aside other additions to the totals, the basic FAS under the current rules would be based on the sum of the last three years: ( $53561+$55436+$57376)/3 = $55458, with a benefit of $27729 (with rounding).  Under SB 559, note the change.  FAS = ($50,000 + $51750 + $ 53561 + $55436 + $57376)/5 = $53625/2 = $26812.   So by taking the average out over 5 years, the simple FAS is reduced by almost $2000 and the benefit reduced by nearly $1000.   Since the average state and school district employee salary is $56,028 (Rodeman’s presentation on 2/1/17), our example isn’t very far off the mark.  Assuming the salary growth assumptions are correct, this gives a pretty good idea of how much of an impact this could have on all employees retiring under FF and Formula + Annuity (although the effect would be halved for these).  I once thought the salary assumption was way off until I calculated my own average rate of salary growth.  While it didn’t increase linearly with time, the difference between my starting salary and my retirement FAS followed an average 3.5% growth trajectory per year.  However, my final three years’ salary were nearly identical, which illustrates how off this set of assumptions can be if you focus only on a specific group of years.  Many employees reach salary plateaus near the end of their careers and the growth trajectory ceases to follow the normal pattern.  I’d be surprised if the savings from this change are as much as the actuary projects.

SB 560 is much deeper, more harmful, and worth more detail.  The essence of SB 560 is to redirect employee contributions (the 6% paid currently into the IAP) into a another fund (a second IAP-like fund?) dedicated to the pension costs for the employee (the FF, MM, or F+A) beginning January 1, 2018.  It also forbids employers from paying the “pick up” on or after 1/1/18.  The second piece of SB 560 is to place a cap on salary used to compute FAS at $100,000 beginning 1/1/2018 (see SB 559 also on how this impacts).  This bill also has an emergency clause* that takes effect upon passage.  Both bills are referred directly to the Oregon Supreme Court for adjudication.  

On the face of SB 560, the redirect appears to be “wage theft”, clearly illegal.  On closer inspection, however, the structure of the second “individual” account is such that it still belongs to the employee. If the employee ceases service for a PERS-covered employer before reaching retirement age, the member can go inactive until retirement age and the second “individual” account (the redirected 6% plus earnings and/or losses) will be used to offset the pension costs (i.e. FF or F+A, or conceivably MM in the case of Tier 1 or Tier 2).  The current IAP will be frozen as of 12/31/17 and will only accrue earnings from here on out.  If a member chooses to withdraw completely from the PERS system before retiring, they would be entitled to the balance in their Tier 1 or Tier 2 account, the IAP, and the second individual account.  No employer contribution is made in this case.   In the case of OPSRP members, there is no “member account” in the same sense of there being a Tier 1 or Tier 2 account.  The OPSRP member would have two individual accounts - the IAP (which is supplemental to the pension), and the post 1/1/18 individual account that would be applied toward the cost of the pension portion of the Defined Benefit of OPSRP (a formula-based pension).

The wild card in this portion of SB 560 is the prohibition, beginning 1/1/18, of employers “picking up” the member contribution.  While this certainly could be a negotiating tactic, the “pick-up” itself is a subject of collective bargaining and cannot simply be turned off by legislative fiat.  I presume that the intent of the bill, although this is nowhere clearly stated, is that this becomes the mandatory condition as collective bargaining contracts expire after 1/1/18.  Regardless of its interpretation, the only way this ends up saving employers any money is if all the money contributed is diverted to offset pension costs in the future, and that the employers do not incur offsetting expenses in exchange for having to discontinue the pickup.  To be completely revenue neutral to the member, the 6% member contribution currently paid for by employers would have to be added to the base salary of the member and then deducted, pre-tax, from the employee’s check.  That would be the only way this would not be “wage theft” as far as I can tell.  Of course, my legal opinion is worth what you pay for it - bupkis, nada, nothing - as I am not a lawyer.

The $100,000 cap on FAS beginning on 1/1/18 will end up saving money only for those employees who are slightly over the $100,000 FAS near retirement.  Those who are significantly over the $100,000 FAS after 1/1/18 still have either the 3 highest or 5 highest (see SB 559) years to use in computing their FAS.  The bill only says that the FAS will be limited to $100,000 for years beginning on or after 1/1/18, so members in the higher salary brackets will simply end up using other years for their FAS calculations.  Once out beyond 5 years or so from 1/1/2018, this bill will start to have a serious impact.  It will have an immediate impact on recruiting high-salaried professional into management positions, into Professorial and Administrative ranks in Higher Education, and in recruiting for positions at OHSU’s Medical School and Dental School.  Worse still, however, is that $100,000 is an unrealistically low threshold with neither an inflation adjustment, nor a recognition that the current average salary in the PERS system is approximately $56,000 per year.  Since the actuary uses a 3.5% per year salary multiplier, it would take the average member who receives no other adjustment other than the multiplier per year, less than 18 years for the average salary to be over $100,000.  This comports with Steve Rodeman’s testimony on 2/6/16 to the Senate Workforce Committee that a potential “unintended consequence” of this legislation, for example, would be to push the average salary over $100,000 in 20-25 years.  

Needless to say, both of these bills contain plenty to piss active members off.  Public testimony opens on these bills on February 13, 2017, and I expect there to be considerable argument both for and against them. I urge readers who can attend to do so.  Testimony on real impacts of these bills would also help. [Added 2/7].

One other feature of these pieces of legislation.  While both refer any legal challenges directly to the Oregon Supreme Court, which makes the resolution doable in about two years rather than four, both bills prohibit the Supreme Court from awarding legal fees to the winner.  This is a direct fiscal challenge to the PERS Coalition and any individuals seeking to challenge separately.  In the past, attorney fees have been awarded to the winners (i.e. PERS Coalition through Bennett, Hartman, Morris and Kaplan LLC).  This served to offset legal expenses of the PERS Coalition acting on behalf of all of its participant members.  Under these new wrinkles in the bill’s initial language, win or lose, the expenses will be borne by each party to the case, with no chance of recovering them in the event of a win.  This is both diabolical, and probably (at least in my opinion) illegal.

As more information about these and other proposals emerge, I will update this post, or post a new one.


*Emergency Clause does not affect the implementation date of either bill.  That is firmly established at 1/1/2018.  However, by making the bill effective on passage, the legal process or sorting out whether the bill(s) violate contracts, the Oregon Constitution, or the US Constitution, as well as collective bargaining agreements (???), can start immediately after the bill is effective, not on its implementation date.  

Sunday, August 07, 2016

Set Fire To The Rain (LONG POST)

It’s that time of year again when the Oregonian and other newspapers around the state start the “hair on fire” routine about PERS.  It seems this is a biennial event occurring with remarkable regularity in even-numbered years prior to the November elections and the upcoming biennial legislative slugfest that takes place in odd numbered years.  We skated by 2014 because the Oregon Supreme Court was mulling the legality of the 2013 Legislative grab at the COLA for retirees.  As you recall, the Court ruled 8-0 (unanimously) AGAINST the Legislature and its agent PERS.  That decision didn’t get announced until the Legislature was well in session in 2015 and it was too late to really start anything and build a rally for it.

So, here we are in 2016, a major election coming on, not soon enough for me, in November.  The chicken littles of the Legislature and the various news agencies around the state are screaming that the sky is falling, and are proposing yet another set of “reforms” for PERS to be considered in the 2017 Legislative session.  I had heard rumors of two ballot initiatives that failed to get enough signatures for the November ballot; thus, all seem to be pinning hopes on the 2017 Legislature to do something, anything, to bail out the poor, impoverished public schools and local governments before they implode.  Bear in mind the following as we go through the published proposal point by point.  When the legislature passed the 2013 COLA bills, they front-loaded the savings to be gained onto the 2013-15 biennial budget of the public schools, local governments and state agencies.  At no time were they the least bit concerned that virtually all of their advisers had told them that the COLA reduction would not be likely to pass muster with the Supreme Court.  And, worse still, all the agencies that had the extra monies, built on an flimsy legal framework, gladly incorporated all this money into their budgets and promptly spent it like drunken sailors at liberty in a port city.  It did not remotely occur to any of these geniuses to perhaps escrow the money until the court had ruled.  Finally, the actions of the legislature resulted in spending approximately 10x more in anticipated savings in the first two years, than the COLA cut actually saved in real dollars in those same two years.  Thus, it comes as no surprise that PERS finds itself short about $21 billion dollars in the Unfunded Actuarial Liability (UAL).  Bear in mind that the UAL is the amount of money needed to fund every present and FUTURE beneficiary in the system for the rest of their lives.  It is, to some extent, a “paper number” based on a whole slew of assumptions that could change in a heartbeat.

Against that background, we can now consider Ted Ferrioli’s piece published in the Salem Statesman Journal about a month ago that would, in theory, wipe away about $6+ billion of that UAL by, once again, attempting to trim future benefits of current active and inactive members of PERS.  The Supreme Court pretty much ruled out any further attempts to change the terms of benefits of those members already retired.  Ferrioli proposes three broad areas for considerations, all of which he claims have a legal basis behind them.

The first of these proposals is an attempt to remediate a problem created by the 2003 Legislature (remember back that far?).  In 2003, the Legislature closed off the Tier 1 and Tier 2 member accounts to all future member contributions.  Thus, the contribution and earnings balance was frozen at 12/31/2003 levels and only earnings were added to the corpus thereafter.  At the same time, they redirected the Member contribution to a separate IAP account where contributions would grow (or decline) at market earnings and would be available to the member as mostly a lump sum at retirement.  The employer contribution continued to pay for the actual pension or annuity received in retirement, which was either Money Match or Full Formula for most members.  What the 2003 Legislature did not anticipate is that by removing the member contribution from the PERS Fund (PERF), it no longer contributed to the overall bottom line of the PERF, including the UAL.  The money was held in trust for the member, but contributed nothing towards the overall health of the fund.  So now, Ferriolli’s plan (also echoed in Tim Knopp’s screw all the actives proposal) is to somehow redirect the redirected funds into the PERF, which would have the effect of taking away all the member’s individual contributions going forward (recall that the Court won’t let them take away existing balances in the IAP) and including them in the PERF.  This is equivalent to adding another 6% to the employER contribution without any compensating benefit for the individual member.  I suspect that the rationale for this is a long-forgotten piece of HB 2003, the main PERS legislation in the 2003 Legislature) that made the 2003 changes to the PERS system explicitly non-contractual.  This overlooks another part the PERS statutes that makes the employee contribution of 6% (regardless of who pays it) mandatory for the benefit of the individual.  I can already envision both the ferocious lobbying that will take place in the legislature and the legal arguments that will materialize if this gets enacted.  I’ll let the court settle this dispute because you can rest assured that if the 2017 Legislature attempts this, it will be “Litigation ‘R Us” in the Supreme Court shortly thereafter.  I can also see some difficult contract negotiations resulting all over the state as public employees argue that this represents a 6% compensation cut, and will assert that they are due some compensatory benefit in exchange.  Supposedly, if this were to pass, it would save about $4 billion over a 20 year period.

A second proposal is to limit the maximum pension to $100,000.  This one is a non-starter to me.  Since the pensions of Tier 1 and Tier 2 individuals are derived from the account balances of individuals, total years of service, final average salary, and, in the case of Full Formula, a multiplier of 1.67% per year of creditable service, there is nothing in the pre-2003 laws that give the Legislature license to change the maximum benefit.  The pre-2003 statutes still form the basis for Tier 1 and Tier 2 retirements, and the Legislature would be breaching the contract of those workers whose earnings on account balances, or their total service time generate more than $100,000 per year in income.  While there aren’t all that many people in the system who earn sizable 6-figure salaries - administrators of agencies, physicians at OHSU and the State Hospital, a fair number of Professors in OUS - the Legislature cannot suddenly say to them that at a certain point, there is nothing they can do to increase retirement benefits beyond $100,000 per year.  In the case of Money Match, it takes a combined employer/employee account balance of more than $1,000,000 to generate an annuity paying more than $100,000 per year.  Under current statutes, the employee is entitled to whatever the highest benefit is under the system of Tier 1 or Tier 2 rules in force.  Since these are likely to be long term employees, a change such as this would be tantamount to stealing a portion of the person’s earned benefit and redirecting it to the system.  This goes against statute as well as against the rule of fiduciaries.  Similarly, a member earning say $250,000 per year after 33 years of service would be entitled to a Tier 1, Option 1 benefit of no less than $135,000 per year under Full Formula.  There is no way you can finesse the law to say that person cannot get the benefit promised him/her at the time of hire.  No law has ever redefined the maximum benefit that can be received, and even if it were only prospective, it couldn’t apply to any Tier 1 or Tier 2 member.  Thus, the anticipated savings from this would never materialize because the court would never allow it to become law.  It might be applicable to those members who started on or after 8/29/2003 - about half the system now - since their system, OPSRP, has no contract provisions associated with it.  But, as Mr. Carlson said on the comedy “WKRP in Cincinnati”  “…I swear to god I thought turkeys could fly”. This would be good advice for the Rs in the Legislature who want to propose this “fix”.

The third proposal is the trickiest to deal with.  Ferriolli proposes to “…use a market rate for Money Match annuities, instead of the assumed rate that is currently double the market rate”.   First, consider that since the 2003 reforms went into effect, the percentage of members retiring under Money Match has been steadily decreasing from the high point of about 85% of retirees to less than 15% of retirees today.  Thus, relatively little money would be saved in either the short or long run, while the contractual elements of the current assumed rate on account balances seems pretty well established.  What Ferriolli and others are proposing is to “decouple” the annuity rate of return for Money Match retirements from the actuarially assumed rate set every two years for the fund.  The basis of the actuarially assumed interest rate is from market research done by the actuaries and the resulting rate is used to value the fund, determine the UAL, set employer contribution rates, and to establish the Actuarial Equivalency Factors for all modes of retirement.  The key words here are “actuarial equivalency”.  When PERS does its calculations for a person’s retirement benefit, it is required to award the individual the highest benefit based on the results from examining Money Match, Full Formula and, in a small number of instances, Formula + Annuity.  PERS must compare these “…on the same actuarial basis”.  It is no longer a fair comparison if PERS suddenly were to be forced to use some amorphous “market rate” (based on some unknown “market” bogey) for Money Match retirements, and the actuarially assumed interest rate (based on a totally different “market” bogey) for Full Formula retirements.  It would be shocking to discover in this world where the Money Match benefit could ever exceed a Full Formula benefit, because the comparison would be like comparing a fruit fly to a hippopotamus.  Moreover, the structure of Money Match would be corrupted in a way not permissible by current statutes.  Tier 1 member benefits receive a guaranteed rate of return on money invested.  The current rate is 7.5%, likely to go down in the not-too-distant future.  To suddenly claim that the employers get to assume earnings growth at 7.5%, members get to assume growth at 7.5%, but retirees under Money Match only get to use a considerably lesser rate of return to annuitize their account balances is absurd logic.  The assumed interest rate has been linked or coupled together for Tier 1 member balances, actuarial equivalency tables, employer contributions, and overall fund valuation since the very late 1960s.  I think the Oregon Supreme Court would have a hard time making a compelling argument that “actuarial equivalency” doesn’t really have to mean “actuarially equivalent” (based on the same set of assumptions).  The only way I can see that the Legislature’s goal could be achieved would be to lower the “actuarially assumed interest rate” to something considerably lower than it is today.  But to do that would mean that employer contributions would skyrocket, which is exactly the opposite of what anyone wants.  Employer rates move opposite to the assumed interest rate.  Higher rates mean that the fund assumes more money from earnings and less from contributions, while the lower earnings rate means more from contributions.  I’m afraid that any attempt to solve the interest rate problem would involve some messy litigation, and lots of unhappy campers, not least of whom are the loudmouth public employers.

In Ferriolli’s letter to his constituents and in his Op Ed to the Statesman Journal. he claimed these three measures would be found to be constitutional by the Oregon Supreme Court.  While I don’t doubt Mr. Ferriolli’s sincerity in his beliefs, my experience in observing the Court over the past 20 years or so has been that the Court will probably take a dim view of any of these measures, dimmer with some than with others, but, in the end, rejecting all as suitable remedies for the current ills. But, I have a recommendation for anyone proposing Legislation like this in the 2017 Legislature.  Before you set fire to the rain, put in a clause staying the implementation of any of these features until after the Court rules on their legality, and do not appropriate the funds anticipated from these measures until after you are certain that the measures will actually pass muster with the Court.  I also recommend that you listen closely to those voices yelling in your ears that these measures won’t fly with the Court.  They’ve been right too many times for you to ignore.  Don’t fall victim to the same stupidity that the 2013 Legislature fell for.  Although the good news for 2017 is that the Ds are likely to retain control of the Governor’s Office, the Senate, and the House, but that is no reason to be smug.  Both the 2003 reforms and the 2013 reforms were brought to us by D Governors and supported by D Legislative bodies.  The Rs didn’t go along in 2013 only because the COLA cuts weren’t drastic enough, so for them to claim the moral high ground over 2013’s disaster is disingenuous at best.




Sunday, July 03, 2016

What's New?

Nothing, bupkis, nada.  PERS continues to be the medias’ bogeyman, and the local government employers keep crying doom and gloom over rate increases proposed for the 2017 biennium.  But they’ve been doing this since the late 1990s, so nothing really has changed.  PERS hasn’t been a big issue in the run up to the November elections, and nothing evil made it to the ballot for November.  So, for most people not yet retired, the next shoe that MAY drop won’t be until the 2017 Legislature.  It is likely that Tim Knopp will reprise his “screw all the actives” bill, but the chances of it passing won’t be known until the elections in November are over and the dust has settled.  Assuming Gov Brown is re-elected, she has shown no appetite to tackle PERS again.  Without a lead by the Governor, the Legislature is just disorganized enough to keep from passing anything too damaging.  This is not a prediction; it is merely an observation based on years of watching the legislature - nothing affecting PERS will take place without active support of the Governor.

The small piece of good news was described in my last post, some time ago.  The 2016 COLA will drop on the next check (August 1, 2016).  For all retirees prior to mid-2013, the COLA will be 2%; while later retirees will receive somewhere between 1.96% and 1.24% depending on the contents of their COLA bank.  The explanation for the discrepancy can be found in the previous post.  (Note added 7/4:  the percentages apply only to those making $60,000 or less.  For those making more than $60K and retiring after mid 2013, the COLA diminishes from those numbers by the amount the benefit exceeds $60,000.  Sorry for any confusion, mrf).

I hope everyone has a safe and sane July 4th.  This site will continue to be mostly quiet until something more interesting than nothing starts happening.  That could be not much before mid-November, after the elections.  Of course, I still try to keep up with the news.  I have to confess that many of my usual sources have begun to retire themselves, or have left the legislative offices, or moved away.  One cannot report on PERS for 15 years without having source turnover.  I try to cultivate new sources, but I’m far removed from the scene of active employees and former students, and I don’t have as much time to just schmooze sources at PERS Board Meetings.  Life is just too busy.  Nevertheless, I still maintain a good network of people in positions to know if anything significant is coming along, so do not despair.  As long as my health holds out, I will keep plying these people for information.

Enjoy your summer.

Monday, March 28, 2016

Always Strive and Prosper

PERS has posted the 2016 COLA for all the different retiree cohorts.  This COLA will be payable on July 1, 2016 and receivable with the payment posted on August 1, 2016 (PERS always pays in arrears).  The actual CPI-U change for 2015 was 1.23%, but because of COLA banks available for all members who retired prior to 2013, those members will receive a 2.0% COLA by drawing 0.77% from existing COLA banks.  The full document, explaining the 2016 COLA, can be found at http://www.oregon.gov/PERS/RET/docs/general_info/2016-COLA.pdf.  Note that this document contains a second hyperlink to the COLA bank document that breaks down both the current balance, and the balance after the 2016 COLA adjustment is made.  Members who retired 2014 or later do not have a COLA bank because the cost of living change from 2013 to 2014 and from 2014 to 2015 was less than 2%.  Therefore, the COLA adjustments for members retiring in that time period are less than 2%.  You should save this document in your own library as it contains the figures you’ll need in the future if PERS does not publish the full bank figures in the future.

If we could figure out a way to get the Bureau of Labor Statistics to better reflect the changing costs of health care, which weigh more heavily on retirees than actives, the actual CPI changes would be “truer” to experiences we are all having.  It is always helpful when the price of gas, heating oil, and other products heavily dependent on petroleum products go down in price, but when those decreases are more than offset by the expanding out-of-pocket expenses for medical care, it is never a neutral result. While I believe that the overall cost of living may have only increased by 1.23% during 2015, I have a hard time reconciling that with the increased costs of healthcare, increased automobile insurance costs, and increased costs of visits to the grocery store.  Somehow I’ve always wanted to strive and prosper, but I never anticipated the corrosive and erosive effects of what appears to be nominal inflation.  Nominal enough that no ones wages are increasing by a significant amount, but big enough that wage increases are necessary.

Trust me, I’m not complaining.  I’m very happy to have a well-funded pension, and am glad that I made the choices I did.  But still…….

Sunday, March 06, 2016

Thank You

Just a quick post to thank all of the readers for their tremendous support of my efforts to keep you informed about PERS happenings.  Through your readership, your purchases through my Amazon link, your donations through PayPal, I never cease to be amazed at how valuable you think my thoughts are.  YOU all keep me going.  Although I am past the point where most PERS changes can affect me, I continue to be interested and intrigued by what kind of shenanigans the Legislature, the Media, the citizenry, and the national lobbying groups can think up to rob us of our rightfully earned and promised pensions.  So long as you think what I’m doing is valuable, and so long as I think I can keep up, this site will continue.


Again, my many thanks for your support.

Saturday, February 27, 2016

Over and Over

Now that the end is nigh for the latest dustup in Salem (next week sometime), PERS members have escaped another session without any further attempts to lower future PERS benefits.  But, this is probably not cause for any celebration.  Unfortunately, the mad-at-PERS set will almost certainly set their sights on either the November ballot box, or next February’s long (6 month) session.  Insofar as November is concerned, I’ve heard rumors of at least two ballot initiatives being developed to take the PERS matter out of the Legislature’s hands.  Those are usually very blunt instruments that rarely survive court challenges, but PERS would be obligated to enforce any changes until the Supreme Court rules on their outcome in 2019 or so.  The second route would be the Legislative route.  You can be sure that the Bend Republicans will fine-tune their 2016 “screw all PERS members” bill and reintroduce it in 2017.  And there are probably another half dozen “legislative concepts” floating around for 2017.  Eventually, those will be revealed, as they will require PERS input to evaluate their potential financial impacts.


While what I write isn’t much of a surprise to those who keep track of the attempts to alter PERS benefits, the vast majority of PERS members (not retirees) are oblivious to much of this background, yet they will be the ones to suffer the most drastic impacts should any of these succeed.  The Moro court pretty much slammed the door (unanimously) on any changes to benefits of those already retired, so unless I’m completely misreading the tea leaves, rumors, innuendo, and reliable sources of information, there is nothing out there that could potentially harm the already-retired.  All that said, I want to reiterate a point I’ve made over and over.  In Oregon, ELECTIONS MATTER.  Who we choose as Governor, members of the judiciary, DOJ, and members of the Legislature make a huge difference in the fate of PERS bills.  Right now, the Ds have a commanding majority in all levels of Government in Oregon.  I advocate for no candidate and no party, but reiterate that ELECTIONS MATTER.  Pay close attention to who is running.  Make an effort to go to the various town halls, arrange one-on-one with candidates, especially the ones who have no record on PERS support or opposition.  Do not depend on lobbyists or labor to do the heavy lifting.  I’ve found that personal contact makes a huge difference.  Personalize your story, what impact changes will have on you and your family, remind the candidates how many voters are in your family.  Make them hear your story and remind them that 99% of PERS members are ordinary, hard working citizens who have counted on the promised benefits to support them in their retirement.  Also educate them that not one element of the PERS benefits has been under your control, but that your decision to work or leave depends largely on the promised benefits.  Take them away, or alter them negatively, and your incentive to continue to do your hard, necessary job might vanish.  

Finally, for those who just read conclusions, my primary point is ELECTIONS MATTER.  Pay attention and vote in November’s election.  It also might help to influence outcomes by voting in the May primary.


Friday, February 05, 2016

Ride The Wild Wind

As they like to say on Marketplace, it was another wild week on Wall Street. Up days, down days, spinning half mad days. Generally not terribly helpful to those dependent on the vicissitudes of the stock market. On the other hand, we now know that 2016 official COLA will be between 1.1 and 1.2%, depending on the rounding used in the CPI-U statistic. For retirees prior to May 2013, this will translate into a 2% increase because of excess COLA banked from previous years. Newer retirees have less of a bank, and are subject to the blending provisions ordered by the Oregon Supreme Court. Those COLAs are likely to be less than 2%, but still greater than 1.5%. I was somewhat surprised that the CPI jumped as much as it did in the second half of 2015.

Keeping with the wild wind theme, those denizens of the Salem jungle convened for their even-numbered year 35 day boxing match. Tim Knopp of Bend introduced his "screw all the actives" PERS bill, but as of today the bill hasn't been scheduled for a hearing. According to those who follow the follies in Salem, this means the bill is effectively dead for this session. While I never seriously considered any anti-PERS bill likely in this short session, I do think it instructive for those still toiling in the system to keep a close watch on this because I expect it to be resurrected in the regular 2017 session. I suspect a number of other bills to be introduced then as well, none of them friendly to any member not retired from the system. There are a number of things that haven't been tried yet, all of them fair game for the still working. The Supreme Court has drawn a bright line around those things the Legislature cannot do - anything retroactive, anything to those already retired - but changes going forward are permissible. The only thing that gets dicey is trying to define the point at which something is prospective and when it is retroactive. That is particularly crucial if the Legislature tries to tinker with the annuity assumed rate, and calculations of FAS eligible for PERS benefit. Be particularly mindful of attempts to cap FAS for PERS purposes at any amount under the IRS limit. Current law caps it at the IRS threshold (about $225,000), but that is a recent development. The reason so many have unusually high benefits is because prior to (I believe) 2011, PERS did not need to adhere to the IRS cap. The 2011 legislature quietly changed that rule to avoid the bad publicity associated with benefits such as those of a certain retired UO football coach.

Anyway, this is all the current news relevant to PERS as of today. In the meantime, we continue to follow the late Freddy Mercury and "ride the wild wind".

Monday, January 11, 2016


(RIP David Bowie).  A quick note to those still waiting for the COLA adjustments to be implemented.  I’ve just learned that the cohort scheduled for January restoration has been pushed back to February.  The major reason for this is that these calculations have proven to be a bit more complicated than first imagined, and PERS strives to make them accurate the first time.  With the added pressure of a quadrupling of December 1 retirements over 2014, something had to give.  As I understand the plan, the one-time catch up payment will drop sometime towards the middle of February, while the first regularly adjusted benefit check should be the payment on March 1, 2016.

On a related subject, the 2016 COLA will be known in early February.  Based on information from the US Bureau of Labor Statistics, the actual CPI change is likely to be very small, possibly 0.5% based on the first half of 2015.  If this happens, those who retired between August 1, 2015 and July 1, 2016 will only receive slightly more than 0.5%, while earlier retirees will have some COLA bank to draw from and will see COLA closer to the 2% range.  For those who retired prior to May 1, 2013 (unaffected by the Legislative changes to the COLA), the adjustment will be 2%, but this will draw down balances from the bank quite noticeably.  At this point, the actual CPI change is only a guess, but there isn’t much in the latter part of 2015 that inspires confidence that it changed very much from the first half.

Wednesday, December 02, 2015

For the Legislature and the Boregonian at This Holiday

- Posted using BlogPress from my iPad

Monday, November 23, 2015


This is a short post aimed primarily at a small group of OUS faculty.  Many of us taught for OUS in the period when OUS created its separate retirement plan called the “Optional Retirement Plan” (ORP) in 1995.  Faculty already in PERS had a one-time, irrevocable option in 1995, to cease further contributions to PERS and join the ORP effective 1/1/1996.  At that point, PERS contributions were frozen, and the account became “inactive”, eligible only for earnings but not additional contributions.  Twenty years later, a few pieces of misinformation seem to be floating around, the original source unknown.  As a service to those who may be paralyzed by the misinformation, this posts attempts to clarify the issue.  Some members of OUS who joined the ORP at that moment in 1995, seem to think that they can “retire” from PERS, while continuing to work in an unchanged status for OUS institutions.  According to a few I’ve heard from, when querying PERS about this, some have been told that this was OK.  IT IS NOT.  In order to retire from PERS while working for a PERS-eligible institution as all OUS schools are, requires that you TERMINATE employment with the OUS institution.  While you may be able to continue to work for an OUS institution, your tenure status, your FTE status, and your benefit status has to meet certain conditions that do not favor you.  Your employer cannot continue to pay into the ORP for you.  Your work must meet the terms of either PERS or the ORP.  Generally, full-time work cannot be performed prior to reaching full, unrestricted Social Security age (66 for my cohort; older for younger faculty).  While ORP might permit you different working condition, your retirement from PERS triggers a different set of requirements that precludes you from receiving contributions from the ORP without jeopardizing your PERS benefit.  In short, those of you out there considering the “retire from PERS by 12/1/15 to lock in the current assumed rate”, are dreaming if you were planning to not terminate from the OUS institution.  It can’t be done; the IRS qualifications for both plans would be jeopardized, and PERS won’t let you do this.  Sorry to rain on your parade, but unless you are really, seriously planning to retire, this is not a workable strategy, and it won’t happen.

Monday, November 02, 2015

Another Brick in the Wall

With some encouragement, PERS has finally posted both an example of the impact of the actuarial changes, and the actual tables spelling out in detail the new Actuarial Equivalency Factors.  These new tables, effective 1/1/16 for all retirements taking place on or after 1/1/16 account for two new changes.  First, they account for a lowering of the assumed rate from 7.75% to 7.5% and, second, they account for an update to mortality tables that show retirees living a bit longer.  In the example used for Money Match members, the setback appears to be approximately 5 months.  That means that the benefit you receive on December 1, 2015 (if you are eligible to retire), won’t be the same again unless you continue working until May 1, 2016.  This is one of the longest setbacks in recent history.  

Many people will wonder what to do.  My answer is that if you were not planning to retire in the next six months, it probably makes no difference.  The only people directly affected by these changes are those who are literally on the cusp of retirement and were actively planning to retire within the window of December 1, 2015 and May 1, 2016.  For those eligible to retire now, but planning on going January 1, 2016, it makes considerable sense to accelerate your retirement by one month, as you will feel the greatest impact of the AEF changes the closer you are to December 1, 2015 but after.

You can find the new tables posted on the PERS web site.  Check the column on the right side for the top two items.

Monday, October 12, 2015

The Cost of Living

PERS is humming along these days, fixing up the COLA fiasco for those of us who retired before October 1, 2013.  If you happen to have a PERS online account (PERS’ OIS system) - and I highly recommend you having one - you can check where your account is in the processing of back COLA adjustments.  If you log into your account, you can drill down to see what your benefit will be on November 1, after all the adjustments to the COLA going back to 2013 have been made.  If you dig a bit deeper, by using the left side (purple on my computer) detailed listings, you should be able to see the one-time payment for the COLAs not given, but owed, since July 1, 2013.  I’ve noticed a couple of things about the PERS site and the way the adjustments get made.  First, the adjustments appear to be made in steps, so that if you go onto the site today, you might see your November 1 benefit and think it might be too low.  That certainly happened to me.  By the time PERS brought the website back up after routine weekend maintenance, my November 1 benefit had been adjusted a second (or maybe a third) time with the amount nearly identical to my own computations (roundoff may account for the slight difference).  The second thing you might notice if you find your one-time restoration of benefits payment, is that the tax rate seems unusually high.  This is not an error; it is a quirk of the IRS withholding tables when you get a one-off payment in the middle of a month where you get another check for the whole month.  Many have noticed this surprise.  Either consider it good news because you’ve prepaid more taxes for next April; or good news because your refund will be higher.  On the flip side, many of us have noted that the one-off COLA restoration check does not withhold State Income Taxes.  This is true for some people, but not for others.  We have not figured out what the trigger is, but suspect it has to do with (1) the amount of the gross; (2) married or single; (3) number of exemptions.   Mine did not show any state withholding, which for me is not good news.

Anyway, many of the checks seem to be scheduled to be paid on October 14th, so some of us will be getting our “bonus” just in time for the property tax bills to arrive.  My “bonus” will pay my property taxes in Deschutes County, and the leftover will head on to Clackamas County, along with a lot more money.  Regardless of the amount, I am very happy to be getting it, and am grateful to the Oregon Supreme Court and the PERS Coalition for showing the Legislature how foolish they were to go after this benefit.

If you retired on or after October 1, 2013, you can expect this same experience in the early days of next year.  And, you’ll probably enjoy the use of the money as much as those of us who retired earlier will now.

I offer PERS a “high five” for taking this bull by the horns and just getting it done as quickly as possible.  

Thursday, September 17, 2015

Sticky Fingers

Those of you contemplating retiring between now and December 1, 2015, and those who have to stay past December 1, 2015 may find yourselves asking the same question.  At some point you will need to  know how the new Actuarial Equivalency Factors(AEF) come into play with your retirement.  The new AEF tables will be available for your consideration in draft form by no later than November 1, 2015, according to my sources at PERS.  These new tables will take into account the reduction in the Assumed Interest Rate from 7.75% to 7.5%, as well as the newer, more modern, mortality tables based on actual experience of PERS members and retirees, as well as the more broadly applied tables from the IRS.  We know that the “setback” for the 25 basis point reduction in the Assumed Interest rate is approximately 3 months.  If you are able to retire on 12/1/15, but choose to continue working, you will need to work until at least March 1, 2016 before your benefit would be the same as December 1, 2015.  However, we have not yet learned how the new mortality factors will play into the AEFs.  Most information suggests that people are living longer than the last time the tables were iterated.  I can’t tell you how much longer, but every month longer a person is EXPECTED to live, the longer PERS is EXPECTED to pay.  This means that at retirement, your benefit is fixed (except for COLA) and it has to last as long as you are expected to live (it has to as long as you live, at the least, but the expectations are based on mortality tables).  Lengthening of mortality means that your fixed benefit has to be spread out over a longer period of time, thus lowering your monthly benefit.  This year is especially tricky for retirees on the cusp of retirement.  Those in the situation of being able to retire based on age, service time, or a combination of both, will have to run the numbers to see whether going on December 1, 2015 or waiting makes the most economic sense.  If you are in that situation, you are going to want to pay close attention to the new AEFs when they are available on November 1, 2015.  You have a short month in which to decide whether to retire, or continue, and how much longer you’ll have to work before you cross over the benefit setback.  I have been advising about 6 months, which seems about right, but PLEASE don’t take my word for it.  Pay attention and get your hands on the new tables and do the figuring yourself.

Once the tables are out, I will be putting some example calculations here, and on the PERS newsgroup to show how the numbers are run.  There will also be others available at the newsgroup to help newcomers and oldsters who aren’t retired to figure out the “cost” of the changes.  I can assure you that this change will be non-trivial, and if you don’t pay close attention, you may allow sticky fingers to grab a piece of your retirement that you didn’t think carefully about.

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