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Wednesday, August 07, 2019

It Doesn't Have To Be This Way

Short post to clarify something.  In the past several days I’ve gotten emails from a couple of readers who have had reason to contact PERS’ Customer Support line.  In two instances, callers have received misinformation concerning the assumed rate to take effect January 1, 2020.  On July 26, the PERS Board approved keeping the assumed rate at 7.2%, unchanged from the rate adopted in July of 2017 for the 2018-19 calendar years.  The Board considered a range of possible assumed rates before deciding in a close vote (3-2) to retain the rate already in effect.  

The misinformation was that the rate wasn’t finalized (which is actually true), and that the rate could still change down to 6.8% (the number actually given by one or both CS agents).  Callers wrote to me asking how this could possibly be true when the Board’s vote was supposed to be final.  The answer to that question is:  the rate IS 7.2% and will NOT CHANGE in January 2020.  

The confusion, I think, stems from the true part of the statement and the added requirement imposed by SB 1049 passed by the Legislature in May 2019.  SB 1049 requires that the PERS Board and Staff report to the Interim Joint Ways and Means Committee on actuarial changes (or not), their impacts on employer rates, and on the UAL.  The rate is not considered final until Interim Ways and Means approves the Board’s decision *and* the formal rule change is filed with the Secretary of State’s Office with the required 30 day comment period.  At that point, and only at that point, does the rate become final.

So, while it is true that the Legislature could force the Board to revisit the assumed rate decision, that is so unlikely in this case as to be considered impossible.  Why?  Because SB 1049 was written with the savings based on the assumed rate remaining at 7.2%.  Thus, it is virtually impossible to believe that the Legislature would undermine itself when the Board has done precisely what the Legislature assumed in the writing and passage of SB 1049.

But, there is a bigger problem that this exposes.  How to counteract the misinformation that is communicated by PERS frontline staff, which leads to chaos, despair and utter confusion?  While many PERS frontline staff are extremely helpful and well-intentioned, they don’t always have the answers to questions posed by callers or emailers.  Somehow PERS has to get a better handle on the training of these people, especially in the aftermath of complex Legislative changes.  Instead of being so “helpful”, sometimes it would just be better to say “I don’t know” and offer to either transfer the caller or the problem to someone in a better position to know.  While it took me less than an hour to get this particular matter straightened out and with an assurance that the correct answer would be communicated to all Frontline staff, I think PERS needs to be more proactive in its training of Frontline staff so these wrong answers don’t arise in the first place.  People on the cusp of retiring following a policy change do not need the added anguish that an incorrect answer provides.

Kevin Olinek, if you are reading this, please consider this a strong suggestion that you need to impose a better training regimen on the front-facing staff in your organization.

Thursday, May 23, 2019

Tricksters, Hucksters, and Scamps (Warning: this is long)

[Note:  this is a work in progress.  Expect some changes over the next day or two, mostly in clarifying language and as I discover more things along the way.  Legislative language is torturous to read and decipher.]

As the 2019 Oregon Legislature nears the final month of its session, the biennial hair-on-fire “PERS is going to bankrupt Oregon” faeries are out in full force.  The latest attempt to rein in PERS costs has cleared the first committee hurdle.  SB 1049 was voted out of Committee and sent on to the Joint Ways and Means Committee for consideration.  So, what have our hucksters, tricksters, and scamps cooked up for the Oregon Supreme Court to review this time?  Why it is an absolute cornucopia of “fixes” that will, in all probability, spend the next two years being picked apart by the Oregon Supreme Court.  (Some of it is so impenetrable that even I don’t have the patience to try to decipher it).

SB 1049 contains a whole passel of changes.  It directs proceeds of Sports Betting in the Oregon Lottery to be directed to PERS.  Frankly, who cares?  This isn’t a huge amount of money, and it is entirely discretionary spending on the part of Oregon citizens; therefore, if you don’t want your Lottery money going to PERS, stop betting on sports.

The second piece is to extend the amortization (payback) schedule of the UAL to 22 years, from 20 years, for the Tier 1 and Tier 2 UAL.  The OPSRP UAL would remain at 16 years.  This one befuddles me.  I doubt it is illegal, since GAAP guidelines permit lengths as long as 40 years.  Oregon’s current schedule is comparatively short.  Nevertheless, the longer you amortize debt in an uncertain world, the higher the likelihood that your debt will grow rather than shrink.  Unlike a fixed-rate mortgage, the UAL is amortized based on assumptions about earnings rate, which change regularly every two years.  Currently, the rate is 7.2%, and that is surely to fall to below 7% beginning on January 1, 2020* (but see below).  Unfortunately, when the assumed rate falls, the UAL rises because more money is expected to be covered by employer contributions than by earnings.  Thus, once the new rate is determined on July 28, 2019, the actuary will revise the existing UAL to the new (2 year) rate assumption.  The general direction of assumed rates across the country is down.  Every time the assumed rate goes down, the UAL rises.  A booming economy may help; a recession would be catastrophic.  Despite all the hoopla about the booming stock market, 2018 was really kind of dreadful.  The PERS fund missed its 7.2% by 5.8 points, which is why the UAL increased from $22 billion to $27 billion.  If you don’t hit your target, the UAL increases.  Moreover, the assumed rate is perverse.  People think that lowering the assumed rate would cure all problems, but the employers don’t want that to happen; neither do members.  The PERS fund is currently funded by Earnings + Contributions.  A PERS benefit is constructed from Earnings + Contributions.  All things being equal, if earnings are assumed to be lower, then contributions (from the employer) have to increase to make up the difference.  Getting the assumed rate correct for the economy is a goal, but an imperfect one.  The rate has to be decided in advance; rarely do actuaries, market analysts, investment advisers get it exactly right.  A too low rate provides more room to be wrong in a positive direction; a too high rate provides more room to be very wrong in a negative direction.  In this context, extending the amortization period of a variable rate UAL simply broadens the horizon over which to be wrong.  The principal reason the UAL is so high is that since 1997, employers have used every dodge, every ruse, every possible accounting trick to keep their contribution rates artificially low.  If you pay too little for too long, you end up being underwater, which is where the employers are today, in a situation that is mostly of their own making.  So why would you want to extend the time over which they can pay too little for a debt that has been accumulating for more than 20 years.  The bill says that the amortization rate will be only for 22 years one time, after which it returns to 20 years.  Yep, and Bill’s your uncle.  Having said that the idea is stupid, I guarantee it isn’t illegal, so the court won’t touch it, and the unions probably won’t litigate.  It falls into the “I bet this is a FAIL” category.

The third piece is the first to directly affect active workers.  In 2003, the Legislature ended Tier 2 (Tier 1 ended in 1995), and froze the principal balances but continued to let them grow by the assumed rate (Tier 1) and by market rates (Tier 2).  For employees starting on or after 8/29/2003, the legislature created something called OPSRP (which, for simplicity here is going to be called Tier 3).  For Tier 1, Tier 2, and Tier 3, the legislature directed the formation of something called the Individual Account Program (IAP for short) into which the employee contribution (the 6%, regardless of who actually paid it) would go.  This money was allowed to earn market rates, but ownership of the account was treated like a 401K.  Because of an inability to think outside of the box, the morons of 2003 didn’t really consider the implications of removing a 6% member contribution into a privately owned, but PERS managed, account.  As of end 2018, individual IAP accounts hold almost $9 BILLION, not a penny of which contributes to the overall balance of the PERS Fund, which is currently running an approximately $25-$27 Billion Unfunded Actuarial Liability (UAL).  So the geniuses of 2003 effectively punched a $9 billion hole in the PERS fund in their effort to stanch the growth of Tier 1 and Tier 2 account balances.  The action accomplished one of their intended goals.  By 2008, Money Match no longer was the dominant method of retirement for active members; for those inactive members, it changed nothing since no new money was going into their accounts anyway.   By today, so few active members retire under Money Match that it is virtually inconsequential in the overall scheme of things.  However, there are still many inactive Tier 1 and Tier 2 members whose accounts have continued to grow and for which Money Match is the obvious and only likely method of retirement (more of this below).  So, recognizing that the 6% member contribution isn’t helping the fund at all, members have been accused of “having no skin in the game” (which beggars belief since the members didn’t want this in the first place back in 2003).  Now, SB 1049 proposes a sort of “give at the office” scenario in which 2.5% of the 6% Tier 1 and Tier 2 member contribution is DIVERTED into an Employee Pension Stability Fund (i.e. other than to the IAP).  This isn’t a voluntary contribution and its objective is to create a pseudo-employee account that grows in the same way that the IAP does, except that the member doesn’t really get a dime of the money at retirement as he or she did before.  The money is in the employee’s name, but counts as part of the overall PERS Fund.  (The fact that it is in the employee’s name is probably because the Legislature didn’t want to get slapped with a “wage theft” claim in the Oregon Supreme Court).  The intent of this money is to contribute to the member’s likely Full Formula benefit at retirement.  It is often believed that the member account balance is irrelevant to a Full Formula benefit.  This is only partly true.  If you add together the member’s regular account balance plus the EPSF balance, the Full Formula benefit is funded from these balances plus a contribution from the employer.  To the extent that a worker continues for, say, another 10-12 years before retiring, the Employee Pension Stability Fund can knock a big chunk off the employer obligation for the Full Formula Pension.  For Tier 3, which has a lower benefit structure, the Legislature only wants a tithe of 0.75% of the 6% member contribution.  Again, the idea is to reduce the employer’s obligation to fund the Full Formula benefit.   (Whether an involuntary redirection of money you can no longer lay your hands on constitutes “wage theft” or an involuntary “salary reduction” will ultimately rest with the unions and the courts).

There is a “safety valve” in two forms.  If you want to fully fund your IAP, you have the option to contribute your own after tax dollars to the IAP to make up for the diversion.  The second form is that should the fund reach a 90% funding level, PERS would stop diverting the money (until, of course, the fund dives below 90%).  Basically, the diversion is a correction for the monumentally stupid IAP plan created by some of the same people who are still today bemoaning the sorry state of PERS by failing to admit their own complicity in the problem.

The fourth piece of SB 1049 probably affects a relatively small number of individuals in the larger scheme, but will make recruiting even harder at places where high salaries are required to recruit and retain high priced talent.  The Legislation calls for a cap of $195,000 on salary earned on or after 1/1/2020 to be included in FAS calculations.  This one continues to bewilder me for a variety of reasons.  First, it is not problematic for anyone well-below the threshold of $195,000 (subject to adjustment by the same factor used in calculations of the retiree annual COLA).  For people already over the threshold, it really isn’t a problem that I can see for retirements occurring before 2023.  Currently FAS is calculated by taking your highest 36 month salary total and dividing by 3 to come up with FAS.  Included in the salary computation is half the value of accumulated sick leave (if the employer participates), the 6% member contribution (diverted or not), and the value of unused vacation time (Tier 1 and Tier 2 only).  Since your highest 36 months is likely to come in the last 10 years, you have a long look back window over which to draw 36 months, which could EXCLUDE** the period after the salary cap goes into effect.  So, for members nearing retirement, the practical effects of this are small.  Longer term, the picture isn’t quite as rosy.  Complicating this is the fact that Tier 2 has a limit at the IRS threshold (currently $280,000) as does Tier 3 (OPSRP).   Tier 1 has no such limit, as the limit wasn’t in existence at the time Tier 1 was created.   So, this new rule caps the amount of salary that can be credited for FAS purposes after 1/1/2020, but doesn’t affect uncapped salaries prior.  (**Do not interpret this to mean that THIS will be the way it is implemented.  As I note below, the devil lies in the details or the weeds.  Converting statutory language into software is a daunting task when language is ambiguous).

As they always say about legislation, the devil is in the implementation details.  Questions:  Does the PERS cap (not the IRS cap) prevent employees from contributing past $195,000 of earned salary?  Does the employer have to continue contributing once the member has passed $195,000?  What happens with any contributions between the PERS cap and the IRS cap for Tier 2 and OPSRP?  To put these questions a different way, at what point does the cap come into play - at the time the salary is earned, or at the time of retirement?  This distinction is critically important for those small number of members who are already earning over the PERS cap before this change is implemented.  It becomes a secondary problem for Tier 2 and 3 members earning over the PERS cap but still under their IRS caps that already exist on their plans.  (I have no explanation for why the Legislature decided to set the cap at $195,000.  I suppose they did this to make their numbers come out right).

I suspect that the court will have a problem with the salary cap for still-working Tier 1 members.  It doesn’t apply to the inactive Tier 1s.  The court may be also troubled by the existence of two caps for Tier 2 and Tier 3, and how they will interact.

Collectively, these changes will reduce employer contribution rates by about 5.43%, pretty much the amount that they would go up in 2021, other things being equal.  

There is an additional clinker buried deeply in the bowels of SB 1049.  The PERS Board will, if SB 1049 passes, be required to report to the Legislature 30 days before they make any changes to the assumed interest rate (and, by inference, the employer contribution rate, the actuarial equivalency factors).  Since the assumed interest rate is always adjusted (for the upcoming calendar year) in the summer of an odd-numbered year, this will compel PERS to make decisions about this slightly earlier than usual, and will now subject the decision to political pressures heretofore not required of an independent Board.  The reason for this is painfully obvious.  Go back to my third paragraph.  Raising the assumed rate means lower employer contributions; lowering the assumed rate means HIGHER employer contributions.  The stakeholders always had the opportunity to provide input to the process of rate setting, but the Legislature stayed out of the fray.  Now, the Legislature will get a voice, and can potentially use its political will to force the PERS Board to make decisions that are not in the Fund’s best interests, thereby exacerbating the problem that SB 1049 attempts to fix.

This is just a first pass through the bigger pieces of SB 1049.  The bill has other elements that I haven’t had a chance to study as well.  I will follow this post with another if SB 1049 gets any further in the Legislative process.  

UPDATE:  Not more than 15 minutes after I posted this, the Oregon Senate suspended the rules and voted out this bill in a 16-12 vote.  Three D’s voted against the bill.  The bill now moves on to the House where it is likely to have few hurdles to clear.  I’m happy to report that my Senator, Rob Wagner was one of the No votes.  Thanks Rob.

Tuesday, March 05, 2019

I'd Like To Teach The World To Sing (In Perfect Harmony)

Think of this post as the ultimate Coke-Pepsi challenge.  How do you compute the blended COLA if you worked for a PERS employer and retired after October 1, 2013?  Well, which do you like better?  Coke or Pepsi?  Most people drink these interchangeably, but there are die hards who have a very specific preference.  You aren’t going to be happy with my answer.  The correct answer is that you get some Coke, some Pepsi in varying proportions depending on when you started your PERS work history and when you retired.  There is probably no single question that I’ve been asked more about the mechanics of PERS than this one, aside from the question of “should I retire”.  I can’t answer the latter question because there are too many variables involved.  The first question is relatively easy for me to answer, but it seems hard for those not mathematically gifted to understand.  I’m going to give it the old college try here, below.

To understand the blended COLA that PERS applies, you first have to understand two really important concepts.  First, since October 1, 2013 you’ve been working under a different set of rules for your post-retirement COLA.  To grasp this, think of your career as being partitioned into two discrete blocks of time.  The first period is the time you have worked for a PERS employer prior to October 1, 2013. The second period is the time you work for a PERS employer beyond October 1, 2013.  We’ll call the first period, Period 1, and the second period, Period 2.  Together Period 1 + Period 2 equal your entire career working for a PERS employer.  Period 1 (the bulk of your career at this point) is subject to the old rules.  The old rules say that you are eligible for a 2% maximum COLA depending on the annual CPI issued by the US Department of Labor’s Bureau of Labor Statistics in February of each year.  For 2018 (to be applied for those eligible in 2019) the CPI is 3.35%.  The rules say that you are eligible for a maximum of 2% on period 1 employment with any excess over 2% (3.35%-2% = 1.35%) going into a “bank” that can be used in years when the CPI is LESS THAN 2%.  So for members who retire between August 1, 2018 and  July 1, 2019, the Period 1 COLA will be 2% with 1.35% deposited into your COLA bank (this is also true for anyone who retired earlier than now).  Period 1 is the CPI-tested portion of the COLA.  For those working past October 1, 2013, the law was changed to limit the COLA to 1.25% on the first $60,000 of retirement income, and 0.15% on any excess earnings over $60,000 per year.  This is the Period 2 portion of the COLA.  What trips most people up is the fact that the Period 2 COLA is UNRELATED to the CPI.  There is no test to determine if the CPI is less than or greater than the statutory amounts.  You get those amounts whether there is inflation or deflation, and there is NO COLA BANK.  There is no COLA bank because there is no CPI that is relevant to the Period 2 piece of the blended COLA.   (There is another twist in the blended COLA calculation if you had service eligible for the Income Tax remedy.  To make sure that the correct COLA is applied to the benefit, PERS backs out the income tax remedy from the Period 1 and Period 2 fractions of your benefit.  After completing the calculations below based on the benefit less the tax remedy, the tax remedy percentage is multiplied sum of the pieces calculated below).

Now, to calculate your blended COLA for any given year, you need to know a bunch of different variables.  First, you need to know the fraction of your entire career worked prior to October 1, 2013 (I suggest doing this in months to make the calculation easy).  Second, you need to know how much (months) you worked after October 1, 2013.  These numbers are fixed and invariant once you retire.  Then, you need to know what the current year CPI is.  PERS posts this in late February every year.  If the number is greater than 2%, you’re golden because your Period 1 COLA will be 2% and something will go into your COLA bank.  Third, you need to know what your current benefit is.  This changes every year, so look at any check starting August 1 and before August 1 of the following year.  Is your benefit for the year greater than or less than $60,000 (this is based on your current benefit - multiply by 12 if you are uncertain).  If it is less than $60,000 then the calculation of your actual COLA percentage is fairly easy.  Take the fraction of your career before October 1, 2013 and multiply that by your current monthly benefit.  Then take that and multiply that by 1.02 (the 2% COLA).  Then, take the fraction of your career spent after October 1, 2013 and multiply that by your current benefit.  Finally, take that result and multiple it by 1.0125.  Add the two sums together and you have your new benefit for the year beginning with the payment on August 1, 201x.  To generalize this to benefits in excess of $60,000, there is a third piece to the calculations.  Essentially the second step stops when you reach $60,000.  You calculate it as described on the first $60,000.  For the amount above $60,000 you use the same fraction of your career in Period 2 and multiply that fraction on the amount of your benefit above $60,000.  You then multiply that result by 1.0015 to get the COLA on the fragment of benefit above $60,000.  Add the three pieces together to get your final COLA for the given year.

People ask all the time what their “blended COLA” is.  The problem is that the blended COLA depends on variables that can’t necessarily be known in advance.  Those of us who retired prior to October 1, 2013 know the rules.  We get a maximum of 2% COLA in any year regardless of the actual CPI, but subject to how much we have stored in our COLA banks in years where the CPI is less than 2%.  If the CPI for a given year is 0.5%, new retirees will get 0.5% on the fraction of their career served prior to 10/1/13, while they receive 1.25% on the other fraction of their careers.  For Period 2 in a person’s career, CPI is irrelevant; there is no bank, and if you earn more than $60,000, you’ll get 0.15% on the excess.  The CPI calculation ONLY applies to people who retired before 10/1/13, OR to people who have careers that extend backwards before 10/1/2013.  The old rules apply to old service (prior to October 1, 2013); the new rules apply to service after October 1, 2013.  The “blend” is a combination of those factors.

In the Coke-Pepsi challenge, how much Coke you get and how much Pepsi you get in the mix depends on the distribution of your work time.  For every individual this can be unique, which is why asking PERS for your particular blend is frequently a “fool’s errand”.

Hope this helps explain some of the arcane math of the “blended COLA”.

Saturday, February 02, 2019

I Appear Missing

I’m going to be spending this Legislative session not only appearing missing, but actually missing.  I write this from an undisclosed location at a beach far way where I’ve been for the past three weeks.  I will return for a brief period in mid February for my wife’s foot surgery, after which we’ll be gone again.  My exposure to the Oregon Legislature is largely limited to the news, and the occasional email to/from one of the few folks I still know and rely on at PERS.

Speaking of PERS, the 2019 Legislative Session has opened with a half dozen or so PERS “reform” bills introduced by Tim Knopp of Bend, and at least one has a Democratic Co-Sponsor in Arnie Roblan from some burg on the Coast.  No bill has been assigned to a Committee yet, if ever.  Although the Dems have a supermajority in both houses, and own the Governor’s mansion for awhile longer, I don’t expect this session to pass without *some* changes to PERS, although I don’t anticipate anything dramatic to happen.  What concerns me is the stürm und drang generated by the media over the Unfunded Actuarial Lianility.  This is not a real number, but a number actuarially computed to represent the deficit that would have to be filled if every single PERS member retired today, and would receive the benefits promised.  Since the retirement ages vary by Tiers, and the demography of the workforce varies all over the map, the UAL is mostly a fiction used to depict the “health” of the system.  PEW has injected even more chaos into the interpretation of the UAL by talking of “cash flow” (money in versus money out).  Again, the PEW report tends towards the hysterical, while the OIC and the Treasury Department regard PERS as “a mature system”.

PERS is going to be altered this session.  I have no doubts about it anymore.  The changes can’t be retroactive, but they can be prospective or voluntary.  I expect to see both approaches used.  If you are eligible to retire, you might want to watch the session closely, but I don’t regard 2019 as a “panic time”.  If you are an inactive, already eligible to retire, I’d think about getting out soon.  While the Legilslature might not do anything unreasonable, the PERS Board will be revising the actuarial tables AND the assumed interest rate again for effect on 1/1/20.  I’m willing to bet quite a bit that the assumed rate will fall into the 6% range, which will affect both future earnings on Tier 1 accounts, and lower the payouts of benefits for both actives inactives retiring after 12/1/19.  I’d also be concerned about a number of ballot measures (one a Constitutional amendment) currently floating in the ether that would trigger more damaging changes to PERS, but are likely to be challenged in the Supreme Court, where their chances of being struck down are reasonable, near certain, if they are retroactive.  The lead petitioner on the constitutional amendment is my recently defeated, sore-loser, former House member, Julie Parrish (R - West Linn, South Lake Oswego).

So while all of you are watching the Legislature, I’ll remain hidden in my undisclosed beach location, letting Stella run at Dog Beach chasing frisbees and tennis balls.  I will remain missing.

Friday, November 30, 2018

Too Soon To Tell

I’m back from the far side of the world.  It was a fabulous trip that not only provided endless photographic opportunities, but literally closed me off from any useful news during the week before the election and for nearly two weeks after.  Only limited news got through and I enjoyed the freedom to relax and let my inner Anthropologist emerge with new people, new situations, and an endless vista of new, gorgeous scenery.  (BTW, without prompting, we were offered opinions from our Tanzanian hosts about our current occupant of the White House.  Needless to say, it wasn’t favorable, and I had the opportunity to buy a T-shirt that acknowledged I had visited one of those sh*thole countries.  I demurred).

Back to the present.  The election is over.  My own state representative, the not-lamented Julie Parrish, is gone, to be replaced by someone I like and trust more, Rachel Pruzak.  That surprised and pleased me.  Kate Brown has finally been elected to her OWN term as Governor, and the Ds now control both Legislative bodies with supermajorities.  That means that they can pass any revenue bills without support from a single R.   Whether this is a good thing or not remains to be seen.  On one hand, the fear of draconian anti-PERS legislation has diminished considerably, but that does not mean PERS is entirely out of the Legislative crosshairs.  The media, the employers, the Oregon Business Alliance, Nike, and others continue to agitate for PERS reform, while progressives continue to agitate for revenue reform, particularly an increase in the Corporate Income Tax.  This is going to set up a classic battle in the Legislature as business lobbyists square off against labor lobbyists, education lobbyists, School Boards to balance those conflicting interests.  There is nothing in Kate Brown’s proposed 2019-21 budget that suggests she grasps the magnitude of the issues that the Legislature will have to confront.  At first blush, it seems like the Legislature would be easy-peasy.  Pass tax increases without R support.  Governor signs bill.  Legislature distributes revenue to starving agencies.  Sine die.  But, and this is a big one that people sometimes forget.  Whatever the Legislature does can be undone with an initiative, referendum, or constitutional amendment.  And trust me, those groups are already starting to organize, and the Legislature is well-aware of their existence.  Any tax increase, except maybe on cigarettes or liquor or marijuana, WILL BE referred to the voters, and the likely outcome is defeat.  In the past, this has had some serious consequences.  The earliest any such measure could be on the ballot would be May 2020 or November 2020.  That is more than halfway through the next biennium.  Thus, any budget increases seen by agencies will disappear shortly after the vote, and this will be more havoc-producing than not having the money in the first place.  What all this means is that the Ds have complete control of the entire legislative and executive branches of State Government, but they will have to exercise that control with more caution than their progressive supporters would like.

So, at this juncture after the election, the only thing I can conclude about the 2019 Legislative Session is that “it is too soon to tell” anything.  There probably won’t be massive PERS reform; there also won’t be massive tax increases either.  Revenue will be tight; agencies will be squeezed, and the various issues in play will probably, yet again, be pushed down the road to 2021 or later.

Monday, October 22, 2018

Keep It Loose, Keep It Tight

Things have been quiet on the PERS front these days.  The new PERS Executive Director has been in his office for 3 months now, and we’ve finally gotten a new PERS By The Numbers, which confirms that the more things change, the more they stay the same.  Ted Sickinger is still writing his anti-PERS screeds for the Whoregonian, and both the Whoregonian and the Portland Tribune have both endorsed a Republican for Oregon Governor.  These are not surprising endorsements, but, hopefully, they will make no difference in the outcome of the most expensive election in Oregon’s history.  Just remember to VOTE, VOTE, VOTE.  VOTE as if your life depended on it - it might, metaphorically speaking.

This site will go silent until after the election - not as if it has been loquacious before the election.  But I will literally be on the far side of the world from Halloween until close to Thanksgiving in East Africa.  Once I return, I hope to offer some commentary on what 2019 portends, especially after I’ve had a chance to digest (or upchuck) the results of the 2018 elections.

In the meantime, watch this space for more commentary sometime closer to Thanksgiving.  If you haven’t bought anything through the Amazon links on this site, I just wanted to let you know that those purchases help keep this site up, even when I’m not actively writing.  Donations through the PayPal link are always appreciated if you don’t do your shopping with Amazon.  Thank you to all of those who purchase through the Amazon link (you know who you are even if I don’t).  And thank you to all who have donated through the PayPal link.

Until I return - keep it loose, keep it tight.

Thursday, July 12, 2018

Hangout At The Gallows

The political silly season has started in earnest early this year.  Over the past week, I’ve repeatedly seen two ads running regularly on several Portland TV channels during the nightly news hour.  The ads are anti-Kate Brown, and depict several infamous PERS retirees who draw large monthly benefits.  The ads are of the old newsreel type, and ask whether these people cured cancer, or won Nobel prizes, and then dismisses them as just ”retired state employees”, as if they did nothing of merit to ”deserve” those benefits.  These commercials, which have run multiple times during any half-hour segment of the local news are sponsored by a group called Priority Oregon, whose origins, association, and financing are a bit elusive (there is a bit of information out there suggesting that several individuals may be behind this organization, including the infamous Loren Park).  Each ad ends with a picture of Kate Brown, a derogatory statement about her, and a phone number for the Governor’s office.  I presume these ads are to make Kate Brown the cause of PERS’ high benefits with the implication that (a) the Governor alone is the solution to the problems; and (b) a change of Governor would dramatically alter the status quo.  I presume that these ads are a lead up to more targeted ads featuring Knute Buehler (Buehler?  Buehler?) as the savior Oregon needs as it's next Governor.

What makes these ads so pernicious is the fact that they play on the very issues incorrectly addressed in the article I refuted in the post immediately preceding this one (”A Hard Rains Gonna Fall”, below).  They also play to the Oregon Business Alliance’s package of proposals that will be delivered to the Legislature for its consideration in 2019.  Those focus on eliminating the pickup, capping benefits prospectively for future retirees (I’ve seen two numbers for the cap - $100,000 and $150,000), increasing employee health care contributions, and a Tier 4 as a pure 401K, eliminating any defined benefit for new members.  
 
Adding to the PERS angst is the recent US Supreme Court decision in Janus v AFSCME, which eliminates the requirement that unionized public employees who don’t wish to be union members will no longer be compelled to pay fair-share dues.  Higher Education has already implemented Janus, effective with July salaries paid on August 1st.  This challenges public employee union finances just as they head into the season where political sponsorship and endorsements are critical, and lobbying expenditures during the long legislative session loom large.  I expect a heavy recruiting campaign by the unions to raise employee awareness of the value of union membership.  Regardless of their success, this is a major jolt to their finances and is the beginning of a long-known objective of conservatives to seriously diminish the union role in influencing election results in local, state, and national elections.
 
So, if you thought my last post about the NYT’s screed on public employee retirement systems was either over the top, dour, or too pessimistic, this post is intended to reinforce the message that things look grim for PERS members not yet retired, and for those not yet members.  Our only good defense is a good offense.  I repeat my long-held, and frequently repeated maxim - ELECTIONS MATTER!  And the November elections matter more than most.  Just remember that your votes for local and statewide offices are critical for your own fiscal well-being, while your votes for national office are critical for your (and our) psychological, social, physical, and economic well-being.  VOTE CAREFULLY! VOTE EARLY! AND VOTE OFTEN (just kidfing).  Remember the title of this post and the last.  Poor voting choices could turn those titles from hyperbole into reality.

Sunday, April 22, 2018

A Hard Rain's A- Gonna Fall (very long)

This past Sunday (April 15, 2018), the New York Times ran an article on its front page (here), right below the fold, that talked about the unsustainability of public employee pensions.  Of course, Oregon PERS was the featured subject of this article, principally because we are one of the few states that publicly disclose the benefits received by all PERS retirees. The title of the article referred to the pension received by Dr. Joseph Robertson, newly retired, former President of OHSU, whose benefit is at the top of the the list.  The article, by Mary Williams Walsh - a long-time Times investigative reporter - was filled with inaccuracies, half-truths, faulty inferences, and a poor history.  The article attracted more than 800 comments, some disputing much of the incorrect information, pointing out errors and omissions, and criticizing the sensationalism of the article.  Of course, there was a near equal number of comments reporting on how bad the public employees were in their own states.  The placement and source of the article (NYT) resulted in it being reprinted, verbatim, in at least 20 different newspapers across the state, and being either reprinted or reprinted with editorials in many of Oregon’s own local newspapers.  I imagine countless other states found reason to reprint the article.  The NYT amplified a poorly written, poorly researched, and frequently inaccurate article at least a thousand fold over what occurs when this same information has been confined to our local “tribal” newspapers.  The effect, I fear, is going to be a much earlier, much more aggressive, and far more antagonistic push by anti-PERS zealots to light everyone’s hair on fire over this.  In turn, the November general election and the subsequent Legislative session will make all of us sense that “a hard rain’s gonna fall."

I want to try, in this post, to correct errors, recharacterize errors of interpretation, and generally try to right the wrongs perpetrated by poor reporting, in what appears to be an Arnold Foundation-funded “hit piece” on public employee pensions in the newspaper “of record” for the United States.  It is sad (to me, anyway) whenever a paper like the New York Times reports on a subject in such a biased way.  I’ve spent my entire adult life depending on the NYT to provide an unbiased record of informed reporting (except, of course, on their editorial page, which is where opinions belong).  When we have an open attack from our current President on “fake news”, it is disheartening to consider the prospect that a major source of “unfake news”  has committed the very sin we’ve been arguing against, and turning a non-story about a couple of outliers into a serious news piece.  Allow me to enumerate:

  • The article is entitled "A $76,000 Monthly Pension: Why States and Cities Are Short on Cash”.  It starts with Robertson’s pension benefit and continues its misadventure from there.   First, a significant fact.  There are more than 134,000 PERS retirees and beneficiaries (beneficiaries are not listed in the public list cited in the Oregonian).  A second fact.  Slightly more than 2,000 retirees receive pensions of more than $100,000 per year.  While the second is mentioned; the first is not.  Let’s do the math.  The percentage of retirees earning more than $100,000 comprise roughly 1.5% of ALL PERS retirees.  Put another way, 98.5% of these retirees earn less than $100K (the median is about $27,000 per year, and the average is about $32,000).  Of those who earn more than $100,000, a huge majority are Tier 1 (hired prior to 1996), under rules that have been changed more than twenty times since (although not retroactively, which has been prohibited by the Courts and the IRS).  Moreover, the top 10 recipients (as of 2018) consist of 7 former physician administrators from OHSU, one PSU faculty/administrator who worked for more than 40 years, one Community College President with 38 years of experience, and one successful football coach at the University of Oregon.  The NYT piece focuses on the just-retired President of OHSU and the Football Coach.  The OHSU President worked there for 38 years as a specialist eye surgeon, generating huge billings and income for OHSU, as well holding a series of administrative positions culminating with him being the President of a nationally recognized health sciences complex (Medical School, Dental School, Nursing School, major research center, multiple PhD programs) employing over 20,000, with a multi-billion dollar budget, and generating large sums of income for OHSU and multiplying that through the entire state.  Both he and the football coach were singled out as exemplars of what is wrong with Oregon PERS.  Both had deals (totally permissible under pension guidelines) to count “outside” income in the pension calculations.  In the case of OHSU’s President, his “outside” income came largely from his clinical practice in opthamalogy (eye surgery), which was billed through OHSU at rates including the necessary overhead to pay the PERS contribution on such income.  The football coach received a base salary, plus additional revenue from endorsement deals made with the UO Athletic Department and Nike (which received a $2 billion corporate tax break for keeping its HQ in Oregon).  Again, the endorsement payments were paid to the UO Athletic Department and were (presumably) run through UO payroll, and with the appropriate pension payments made to PERS on all income.  None of this should have come as a surprise to the institutions; nothing was done in secret.  None of this should have surprised the Legislature or PERS, both of which were aware of the details as they were formulated, and as the pension benefits were accruing.  If there was anything untoward, there was plenty of time to object during the negotiations and the signing of the employment contracts.  (And neither recipient is exceptional in salary, being compensated at below average rates for the positions and the institutional “leagues” in which they operate).
  • “Oregon’s costs are inflated by the way in which it calculates pension benefits for public employees.  Some of the pensions include income that employees earned on the side [see above].  Other retirees benefit from long-ago stock market rallies that inflated the current value of their payouts.”   The second “problem” closed twice, first in 1996 with the creation of a Tier 2 that does not receive the rate guarantee that Tier 1 members receive.  The second time it closed was at the end of 2003, when ALL employee contributions to Tier 1, Tier 2, and the newly created OPSRP plan were directed to a separate account, not subject to employer match, not subject to any rate guarantee, and subject only to the performance of the market in good times and bad.  The balances in Tier 1 and Tier 2 accounts were frozen as of 12/31/2003 and only earnings have been credited for the past 15 years.  Tier 1 actives and inactives still get rate guarantees on their accounts, but for Active Tier 1 members, salary growth has generally outpaced the earnings on a frozen balance; the vast majority of retirements that have taken place in the past 6 or 7 years have been under Full Formula, not under the “lucrative Money Match” alluded to in the article.  Most of the cases where new retirees earn far more than their Final Average Salaries are instances where the employee has long been inactive, but not retired.  In these cases, the Final Average Salary is frozen at the last known salary when the member worked, while balances continued to grow at the assumed rate until retirement.  Not surprisingly, a large majority of these people end with benefits exceeding their Final Average Salary.  (Note:  the Legislature tried to solve this problem in 2003 by creating a very limited, very short-duration, option to induce inactives to withdraw their money from the system.  The deal was open for slightly more than a year, and offered these members the option to withdraw and rollover their own accounts plus a 50% employer match, forsaking the remaining 50% employer match.  Not many people took advantage of this option because it was poorly advertised, available for a short period of time, and was a bad deal that would have cost members a 25% reduction in benefits accrued toward their retirement).  Nine of the ten top recipients are Full Formula retirees, while one is a Money Match recipient.  So, the article focuses on two Full Formula recipients with unusual (but relatively uncommon) salary arrangements, and blows smoke about Money Match (when only 1 of 10 top recipients receive that benefit).  (The article does acknowledge that Full Formula is what most states use).
  • “The bill is borne by taxpayers”.  Of all the claims, this one pisses me off the most.  Of course taxpayers are on the hook for public agency budgets; that’s why they are called “Public Agencies”.  But this overlooks several important points:  1) employers are supposed to submit the amount deducted from employee payroll to pay for employee contributions in real time, and 2) they are supposed to pay their employer contributions at the same time.  If employers had fulfilled their obligations in real time, the current problem would be negligible.  But that didn’t happen.  Following the income tax remedy negotiations, the employers were expected to cover the cost of this in their current contributions.  Moreover, it took the PERS actuary longer than it should have to recognize that Money Match, not Full Formula, had overtaken the formulae calculations starting in the early 1990s.  By 1997, the tax remedy [see below] and the Money Match problems hit the employers simultaneously, with concomitant and hardly unexpected rate hikes to cover the additional expenses.  Instead of just paying them, while the overall economy was growing, the employers caviled, whined, wheedled and cajoled the PERS Board and the Legislature to come up with ways to “amortize” their payments over a longer schedule, “smooth” the ups and downs of the market, and eventually to put rate collars on how much the contributions could grow from biennium to biennium.  In addition, they sued to claw back some earnings crediting to members in 2000 for 1999, setting up the 2003 reforms (see above and below), which, in fact, clawed back 8.67% of the 20% credited earnings from all Tier 1 members who were in the system in April 2000.  In short, the employers, the Board, and the Legislature used creative techniques that allowed PERS employers to deliberately underfund their contributions to the system.  This further overlooks another important factor.  The budgets of many public agencies are built from small taxpayer contributions, coupled with significant user fees levied on the primary beneficiaries of the service.  Higher education, an example I’m most familiar with, started in the 1970s with 90% of revenue coming from the State General Fund (Income Taxes).  By 2017, the state contribution from General Fund dollars (Income taxes) was less than 10% of the operating budgets.  Tuition, grants, contracts, patents, administrative overhead, rentals, fees cover the remaining 90% of the budget - the user fees.  My local city charges me significant water and sewer usage fees, which covers a significant portion of their operating budget.  So, it is a mistake to claim that “…the bill is borne by taxpayers”.  It is partially borne by taxpayers; the remainder is paid by those who use the systems  (think tuition; campground fees; hotel occupancy taxes, water and sewer bills).  My faculty and administrative salaries and benefits were NOT paid from taxpayer money; they were paid from the 90% of the revenue generated from the sources other than tax dollars cited above.  Remember that higher education has been funded with only 10% - 20%  of income tax dollars since the passage of Ballot Measure 5 in 1990.
  • The article cites Josephine County as one of the PERS “basket cases”, but fails to mention that Josephine County prides itself on having the lowest property tax rates in the state.  Josephine County refuses to raise its property taxes to support public services, and it is little wonder that they can’t fix roads, jails are at half capacity because of lack of guards, and 911 calls are not promptly acted upon.  One school superintendent complains that PERS is the root of all their problems.  He notes:  “The system (PERS) is run at the state level, but it is bankrolled in large part by obligatory contributions from local governments.”  Again, this superintendent must be completely ignorant of Ballot Measure 5, which passed his county overwhelmingly (and statewide by a smaller margin) in 1990.  Measure 5 did several things (among many others). It limited total property taxes to no more than 1.5% of assessed value (with exceptions for self-inflicted voter-approved levies); Second, it directed that about 90% of school funding come from state general fund revenue (State Income Taxes), while allowing local school districts to assess up to $5 per thousand of assessed value on real property (this is 180 degrees different from pre-Measure 5 rules, where 90% of local school funding came from property taxes and 10% came from the State). Measure 5 also provided no funding mechanism for this massive change in school financing, leaving it to the Legislature to reallocate existing funds to cover the school budgets.  Higher Education and Human Resources were massively underfunded to come up with the revenue to cover K-12 funding.  Worse, the local school boards set the proposed school budgets and negotiated with their public school teachers and support personnel; the district in turn negotiates with the Legislature for their 90% based on the locally established budget.  The state imposes no restrictions on salary and benefit packages for the school districts; they negotiate within the district with the Superintendent and the locally elected School Boards.  As of 2018, all school districts within Josephine County have school tax rates at least 20% below the statutory $5 per $1000 maximum, while the large school districts in the larger areas have maxed out their $5 rate, and have also received approval from the State to form local improvement districts (“local option”) to tax outside the maximum.  Josephine County also has a total effective property tax rate of 0.62% of assessed value (less than half the maximum allowable), while larger counties tax at or above the statutory maximum 1.5% (depending on levies and local options).  The article never once mentions Ballot Measure 5’s hamstringing effect on local funding of schools, much less the paradox of having 90% of the funds coming from the state, yet the state having no control over the local school boards or salary and benefit negotiations of teachers and support personnel in those schools.  Moreover, it never mentions Josephine County’s preoccupation with being anti-tax of any kind.  
  • “For decades, PERS calculated pensions two different ways, and retirees could choose whichever produced the bigger numbers.”  FALSE, FALSE, PANTS ON FIRE FALSE.  No member chooses anything about his/her pension except the optional payout method (with a beneficiary, without a beneficiary, lump sum, partial lump sum, annuity certain).  The Oregon statutes clearly require PERS to calculate benefits all applicable ways, and PERS CHOOSES the method yielding the highest Option 1 benefit.   PERS calculates Final Average Salary based on parameters set by the Legislature, and the elements of those parameters that each agency chooses to participate in.  For example, some agencies allow employees to accrue sick leave over their careers as an incentive to reduce absenteeism, and rewards employees by counting “HALF” the value of the sick leave in Final Average Salary calculations; other agencies do not allow its employees to accrue sick leave).  The sick leave calculation is irrelevant to Money Match retirees.  (I left over 3000 hours of accrued sick leave at the table when I retired).
  • “…when lawmakers required government retirees to pay Oregon’s 9 percent income tax, as everybody else did, they also increased pensions by 9.89%, giving retirees extra money to pay the tax with.”   Another quarter truth, with a much more complex background, and far less significant effect than dramatized in this article.  First, all Tier 1 members (those hired before 1996), were initially promised (at the time of their hire) that their PERS pensions would NOT be subject to Oregon state income tax.   In 1988, the US Supreme Court decided a case - Davis v Michigan - that concluded that, for income tax purposes, States could NOT treat resident federal retirees differently than public employee retirees.  At the time, Oregon was doing exactly what the Davis v Michigan ruling prohibited.  Thus Oregon was required to either give Federal retirees tax free treatment, or start taxing PERS retirees.  In 1991, the Oregon Legislature started taxing PERS recipients.  They were sued for breach of a statutory contract, impairment of a contract, and wage theft.  The court ruled that the taxation scheme impaired the statutory contract, but that given the State’s decision to tax PERS pensions, then a monetary solution could repair the problem.  After multiple negotiations, lawsuits, settlement agreements, PERS retirees, PERS, the Legislature, Federal retirees, and the Courts reached agreement in 1996 to start reparations beginning in 1997.  At that point, federal retirees were permitted to deduct from their Oregon Income taxes, the amount of pension income attributable to work prior to October 1991 (when the Oregon Supreme Court ruling was finalized), while being taxed on that portion of pension income attributable to work performed after October 1991.  Both Federal retirees and Oregon PERS retirees who retired prior to October 1991, received refunds of taxes paid after the Legislature started taxing PERS pensions.  The PERS retirees whose work was completed prior to October 1991 received an income tax remedy (a pension increase) of 9.89% to cover the state’s then 9% income tax (the 9.89% increase resulted because increasing the benefit by only 9% would have exposed the additional compensation to the very taxation it was supposed to remediate; thus the amount was 9.89% to cover the tax on the 9% remedy).  For those who continued to work after October 1991, their income tax remedy was a fraction of 9.89% representing work performed before October 1991, relative to the length of their entire PERS career.  For me, for example, my work career began in September 1970 and I retired in October 2002.  I received a tax remedy adjustment of 6.6%.  Anyone hired after October 1991 was not eligible for any income tax remedy; their pensions are 100% taxable with no offsetting remedy.  Only Tier 1 members hired before October 1991 are even eligible for any sort of tax remedy.  The article makes this appear as if it were a gift from the Legislature, when, in fact, it was a decision forced on the state by the US Supreme Court, and applicable to only a small subset of current members.
  • The article misrepresents Tier 1 and Tier 2 employee accounts.  These are not “tracking” accounts.  They are real accounts whose member contributions were frozen at the end of 2003.  “For workers with the tracking accounts, PERS dialed back the annual returns to 8%, then to 7.5% in 2016”.  WRONG  DEAD WRONG.  First, only Tier 1 was guaranteed any specific earnings - the assumed rate of, then, 8%.  Tier 2 had no such guarantee and has always been credited only with market earnings regardless of the amount.  The maximum annual return ever guaranteed for Tier 1 members was 8%.  Therefore, it wasn’t dialed back TO 8%; it never rose above.  Moreover, the assumed rate (the 8% referenced) had/has a direct bearing on employer contributions.  The higher the assumed rate, the less the employers have to contribute.  So, both the employers and members had a shared common interest in keeping the assumed rate high.  But, beginning in 2014, the rate was lowered to 7.75%, in 2016 to 7.5%, and effective 2018 the rate is now 7.2%.  Each time the rate is lowered, employer contributions have to rise because the system assumes less income from earnings to pay the required pension benefits.  [To be fair here, I *think* the writer intended to say that the 2003 reforms set the assumed rate as the maximum earnings crediting for Tier 1 at 8%, not that it was “dialed back”.  The “dialing back” occurred because the 2003 reforms forbade PERS from crediting regular account earnings above the assumed rate to any Tier 1 member.]
  • Finally, the article continues to blame the 2008 stock market meltdown for much of today’s current problem.  While there is no doubt that the 2008 losses exacerbated the problems of PERS and every other pension system in the US, the article omits one salient fact.  By 2007, Oregon PERS was 106% funded; the 2003 reforms began to reduce future costs, capping Tier 1 returns at the guaranteed rate and no more helped considerably, and good stock market returns helped erase the UAL and re-fund the system.  By 2007, PERS had amassed nearly $1 billion in its contingency reserve, an account designed as a rainy day fund to protect the system from unexpected events.  About 2/3 of the way through 2007, the employers were still absorbing the increases that began in 1997, but spread over what seemed like an eternity, and they were still complaining bitterly to the PERS Board about the rate increases.  About this time, the actuaries proposed the concept of rate collaring - a way to keep costs within a more predictable corridor based on the funded status of the system.  After some discussion, the Board adopted the rate collaring method, which limited increases to employer rates to 3% if the system was less than 80% funded; 6% if the funding dropped below 70%.  In addition, the Board (completely reconstituted after the 2003 reforms), agreed to shift most of the contingency reserves (near $1 billion) to employers to further buy down their contribution rates.  (In an exquisitely agonizing piece of irony, the 2000 employer-initiated litigation that led to the 2003 reforms was about the Board FAILING to fund the same reserves adequately).   So, when 2008 rolled around, the stock market tanked by 27%, and PERS and the employers were left with no contingency reserve with which to buffer the 2008 losses.  Of course, the 2008 losses led to further major increases in employer contributions, but they didn’t take effect immediately (as they should have) because of the smoothing (which introduces gains and losses over a prolonged period of time), and the rate collars.  Once again, in 2013, acting against all sensible legal advice, the Legislature, egged on by employers, passed Legislation to reduce the statutory COLA.  This reduction was projected to reduce the UAL by $5.8 billion over 20 years.  In a move that defied all logic, the Legislature not only passed the legislation, but it allocated more than 10% of the projected savings to agencies to spend in the 2013-15 biennium.  Most agencies went on a spending spree with the extra cash instead of using it to further retire their pension obligations.  Just as the 2015 Legislature was ramping up, the Oregon Supreme Court ruled that this, too, was a breach of contract in a unanimous decision, blowing a $580 million hole in the Legislature’s budget, digging the UAL deeper, and paralyzed the Legislature from trying any further efforts to reform PERS.  (As a financial footnote, once 2018 finishes, the 2008 stock performance disappears from typical 10 year averages.  From 2008 to 2017, the overall return for Oregon PERS has been 5.9%, which includes the  -27% return in 2008.  If we assume that 2018 will earn nothing more than the current assumed rate of 7.2%, the 10 year average for the period of 2009-2018 will be about 10.2%, significantly greater than any of the assumed rates during the period).

This is a short (?) rebuttal of many of the points in Walsh’s article.  Sadly, this rebuttal does not have the audience that Walsh had.  Walsh and the NYT managed to magnify the misinformation over an audience more than 1000 times greater than a similar piece written for any local, useless rag.   Moreover, it added credence to the misinformation regularly reported in our local newspapers.  Further, Walsh’s piece has been reprinted in whole or part in at least 20 Oregon community newspapers, with nasty editorials about the “PERS Beast” or the “PERS Dragon” appearing in those and other local outlets.  This has, unfortunately, energized and bolstered the anti-PERS zealots across the state’s media and political chattering class.  As a result, it has made what was likely to be a significant issue in the 2019 Legislative session, into a MAJOR (if not central) issue in political campaigns, including the upcoming May primary, the November election for Governor, for the Oregon House,  one-third of the Oregon Senate, and a Supreme Court seat or two.   So, this leads to the obvious question.  What could the Legislature do?   A lot will depend on the outcome of the November elections and the resulting composition of the Governor’s mansion, the House, and the Senate.  All currently rest in control of the Ds, but control is tenuous.  Neither house has a “supermajority” needed to block or to enact any kind of anti-PERS legislation, or to enact or block any tax revenue measure, including raising the pitifully low Corporate Income tax (did I mention that Oregon has the 6th lowest corporate tax in the US?).  The 2017 Legislature ended in effective gridlock.  All signs point to both parties working exceptionally hard to increase their numbers in the Legislature.  Regardless of how this turns out, I expect the anti-PERS crowd (largely the crew of homies from the Bend/LaPine/Sunriver/Redmond area) to continue their assault on PERS benefits.  I would expect legislation on pension caps (the number $100,000 appears over and over again), forcing an end to the employer “pick up” of the employee contribution, anti-spiking (removing further accumulation of sick leave, vacation time, overtime, comp time, and outside sources of income), and even some legislation intended to either incentivize inactives to cash out of the system, or to force them into accepting smaller pensions.  The worrisome part of these proposals is that the Legislature may just throw up its hands and pass something against rational legal advice and let the Oregon Supreme Court sort it out.  They gambled on this approach in 2013 and lost bigly, digging the hole the system is in today.  The Supreme Court of 2019 will be different from the Supreme Court that ruled unanimously in early 2015 against the retroactive grab at the COLA from the 2013 Legislature.  I was pessimistic going into the 2017 legislature; I’m downright depressed about 2019.   Not only do I expect 2019 to shadow a “hard rain falling”, I also expect “Lawyers, Guns, and Money” because the “shit has hit the fan.”  I wish it weren’t going to get nasty, ugly, and brutish, but I’m expecting the 2019 session to be one of the most contentious in my 48 year history living in Oregon, and PERS will be center-stage in the action.  To make matters even worse, PERS goes in at a real disadvantage this time, as its long-time resident expert and current Executive Director, Steve Rodeman,  retires on June 1, 2018.  The new executive director will come from outside PERS and Oregon, and will go into the 2019 Legislative session at a distinct disadvantage in not fully understanding the system, and all of the complex interactions that any legislative action might produce.  Rodeman excelled at clear communication of anticipated and unanticipated consequences of legislative actions, thus preventing most legal quagmires before they were created.  In addition, the PERS Board loses its Chairman in August 2018.  While the Board Chair does not report to the Legislature, the fact that John Thomas has been one of the most knowledgeable Chairs in PERS history, the new Chair, who will be new to the Board as well, has a steep learning curve in front of him/her and will have to depend more on staff (many also new and inexperienced) for guidance.  This will create an information vacuum that no one will be able to fill quickly enough to do a credible job dealing with the potential fallout from any proposed PERS legislation.  Thus, I expect a lot of anti-PERS legislation to be proposed during this period of extreme political pressure and information/leadership vacuum.  Trust me that revenue reform is the only real long-term solution to Oregon’s problems, but Oregon will only get some sort of a more balanced tax system over the bodies of future PERS retirees.  Worse still, the NYT article may be the wedge that finally creates the schism between the older members with better retirement benefits and the younger employees in the system who have less generous benefits.  I expect the demands for generational equity to create a flash point for legislators and unions representing many public employees in 2019.  

Sunday, February 11, 2018

Soul Suckers

On schedule, the 2018 Legislative session is up and running.  While this short (35 day) session is unlikely to produce any serious fireworks, several of the usual cast of soul-sucking Rs - my own Representative Julie Parrish, and the dynamio trio from Central Oregon - continue to try to exact pounds of flesh from active PERS members  None of these proposals is likely to go anywhere, but they offer a glimpse into what the 2019 session could offer, unless we are able to unseat some of these clowns in November. My opinion of Julie Parrish is unprintable, even on my own, uncensored blog.  Suffice it to say that she is as strong as an ox, half as smart, and mean as a junkyard dog.  (How is that for a string of mixed metaphors?)

On the better news front.  All PERS investments did well in 2017, and Tier 2 and IAP accounts will be credited with 15%+. Those with variable accounts and are not retired will see closer to 20%.  Tier 1 members will still get the 2017 Guarantee of 7.5%.  The 2017 CPI-U for the Portland-Salem metro area was up 4.19%, which means that the COLA for pre-October 2013 retirees will be the maximum 2% with an additional 2.19% heading into the COLA bank.  Those retiring later will see a lesser COLA, but the surplus will still go into their COLA banks to be applied against their pre-October 2013 maximum 2% COLAs.  In more news, the first retiree monthly check to be affected by the withholding tables resuting from the December 2017 Tax Reform will be issued on March 1, 2018.  This should result in less Federal withholding, possibly less State withholding, and higher net benefits.  For some, this really represents a tax cut; for others, me included, this is going to result in us having to completely rethink withholding strategies as it is unlikely that our taxes will really go down when they are due in April 2019.  The IRS has constructed their new withholding tables with an eye towards underwithholding, which means you might be in for a surprise in April 2019, unless you plan ahead.  As soon as you finish your 2017 taxes, you ought to start planning for 2018.  There is little room for error during 2018, to avoid unpleasant surprises in 2019.

The stock market correction that began the week before last has many people freaking out.  I am not one of them.  History and statistics show that drops of 10% or more occur, on average, about every two years.  I have no idea how this has affected the PERS Portfolio, but expect the media and Legislative wags’ hair is on fire far more than the OIC.  Remember that part of the reason for lowering the assumed rate every two years since 2013 is the result of the Oregon Investment Council’s de-risking strategy. The time to be concerned is October 2018, not now.  Me, I’m looking for bargains and keeping the faith in my own portfolio.

Finally, Executive PERS Director Steve Rodeman has announced his retirement effective June 1, 2018.  I don’t know whether Steve will be retiring his shingle, or simply taking his PERS Benefit and moving on to a private sector posting.  Steve is the last senior manager I know personally (since 2003), and his departure completely breaks all my ties with PERS staff since 2000.  Getting direct information and advanced copies of documents will be more challenging than ever now.

Since I will be in town for most of the short session, I will be following PERS-related developments as they arise.  So far, the main action is a move to take judges and legislators out of PERS, a move to bring back some investment options in the IAP, after PERS' ill-conceived and poorly received move to target-date funds based on age, and a move to allow retirees receiving the tax remedy to lose it if they move out of state, or restore it if they move back, on a much quicker schedule that is current practice.  More from Soul Sucker U (SSU) as it happens.

Friday, December 22, 2017

The Far Side of The World

I’m going to end the year on a semi-positive note, by simply making the post the lyrics to a song I love (the title of this post).  A bit of context.  This song was written and recorded in early 2001, before 9/11 and after the 2000 elections.  It remains as fresh today as it was in 2001.  It is an optimistic song, and describes my own wishes and goals for the next few years.  I give it to you as a Holiday greeting and well wishes on your own retirements.   (Lyrics are copyright, Jimmy Buffett 2001).

 

"Far Side Of The World"

Ramadan is over,
The new moon's shown her face,
I'm halfway round the planet,
In a most unlikely place.

Following my song line
Past bamboo shacks and shops
Behind a jitney packed like sardines,
With bananas piled on top.

I ran away from politics,
It's too bizarre at home.
Away I flew, tuned into Blue
"Maybe Amsterdam or Rome"

Awakened by a stewardess,
With Spain somewhere below.
On the threshold of adventure,
God I do love this job so.

So while I make my move
On the big board game
Up and down a Spanish highway,
Some things remain the same.
Girls meet boys
and the boys tease girls
I'm heading out this morning,
For the Far Side of the World.

Oh I believe in song lines
Obvious and not
I'd ridden them like camels
To some most peculiar spots.

They run across the oceans
Through mountains and saloons
And tonight out to the dessert
Where I sit atop this dune.

I was destined for this vantage point
Which is so far from the Sea
I've lived it in the pages of Saint-Exupery

From Paris to Tunisia
Casablanca to Dakar
I was riding long before I flew
Through the wind and sand and stars.

Caravan
Ride that hump
And Timbuktu's a jillion bumps
Sleeping bags and battle flags
Are coiled and furled
That's the way you travel
To the far side of the world!

A Sunset framed by lightening bolts
Burns a lasting memory
And a string of tiny twinkling lights
adorn the sausage tree.
While the embers from the log fire
Flicker, fly, and twirl
Then drift off toward the cosmos
From the Far Side of the World.
Well it's Christmas and my birthday
and so to that extent
The Masai not the wise men
Are circling my tent.
I teach them how to play guitar
They show me how to dance
We have rum from the Caribbean
And Burgundy from France.

New Year's Eve in Zanzibar
With Babu and his boys
High up on the rooftop
You can relish all the noise.

They are dancing on the tables
People bouncing like gazelles
Two 0-0-1 is ushered in
With air raid horns and bells.

Time to sing time to dance
Living out my second chance.

Cobras and sleeping bags are coiled and curled
That's the way it happens
On the Far Side of the World.

Back at home, it's afternoon
Six thousand miles away.
I will still be there when I get through
Attending this soiree

There are jobs and chores and questions
And plates I need to twirl,
But tonight I'll take my chances,
On the Far Side of the World.
That's the way it happens
On the Far Side of the World.

 

 

Happy Holidays To All

Tuesday, November 21, 2017

Tin Foil Hat

If I were a paranoid person, I might be putting on my tin foil hat about now as I ponder two things “hanging” out there with PERS.  The first is a curious email I received about 10 days ago concerning Residency Recertification.  Others received a similar email, but so far as I can tell, a large swathe of others did not.  The email requested that we “recertify” our Oregon residency (or perhaps lack thereof) before December 15, 2017.  The puzzling thing about this email is that it offered no rationale, no reason, no apparent option for those whose residence has remained the same since retirement or after.  The issue at stake is the Income Tax Remedy that retired Tier 1 members get as long as they pay Oregon income taxes.  The law changed in 2013 (SB 822) requiring that Tier 1 retirees who live out of state and who retired before the end of 2011 be ineligible for and lose the Income Tax Remedy.  (Those members retiring on or after 1/1/2012 had already lost the tax remedy if they retired or lived out of state and did not pay Oregon income taxes).  SB 822 captured the rest of the out of state Tier 1 PERS retirees, regardless of when they retired.  The problem is that PERS gets tax information directly from the Oregon Department of Revenue, but the information is always a year out of date.  Thus, when the ODOR confirms to PERS that you paid Oregon income taxes, they are confirming late in one year for the previous calendar year.  PERS has always taken these DOR certifications as both retroactive and prospective, thus providing a window of two years for a residency certification.  But there are problems with this approach because some people don’t make enough while living in Oregon to be required to pay Oregon income taxes, while others file in October, which is too late for the DOR certification sent on to PERS.  So PERS has set up a mechanism where you can self-certify either via a printed form and paper mail, coming in and filling out the form in person, or doing it online via PERS’ OMS (Online Member Service) portal.  But herein lies the problem, and why my tin foil hat antennae are waving around in the wind.  First, the email was sent to what appears to be a nearly random group of people, almost all of whom have lived in Oregon during their working careers and their retirements and have consistently paid taxes in Oregon at the prescribed April 15 timeframe.  That begs the question of WHY these people (including me) had to go in and confirm what PERS already knows, that I am and continue to be an Oregon resident and, therefore, eligible for the tax remedy.  The second problem is that there doesn’t SEEM to have been any effort to communicate with people for whom PERS has no email address, nor with people who don’t have an active OMS account (many don’t; I didn’t until I got this notice).  Third, when asked, PERS doesn’t seem to have a rational reason to offer for the how and why of this email message, other than to say that it went out to a wider group (????) than they intended.  So…………..

Let this be a warning to ALL readers of this site.  Since we don’t know the real reason for this email, and we don’t know how the recipients were selected, my advice to ALL is to either go online to PERS’ OMS portal (go to the PERS web site and it will be obvious) and RECERTIFY YOUR RESIDENCY.  Failure to do so, particularly if you are an Oregon resident, might (we don’t really know the motivation here) cost you a tax remedy for all of 2018.  If you don’t have an email account (how are you reading this blog???), then get the paper certification form the PERS website (you got here; you can get there), print it out, fill it out completely, and send it to PERS.  The DEADLINE for receipt of this form is December 15, 2017.

The other gamma rays penetrating my tin foil hat these days has to do with the NON-APPEARANCE of the new Actuarial Equivalency Factors (AEF), promised by late October or early November.  These are the crucial tables that permit a member to figure out how their benefit would be affected if they retired on or after 1/1/2018.  The significance of these tables is that they take into account all the new assumptions, including the reduction in the Assumed Interest Rate from 7.5% to 7.2% and modifications to the mortality tables.  These factors apply to retirees under Money Match, Formula plus Annuity, and Full Formula with a beneficiary option (in other words, most potential retirees).  The last date to retire under the old AEFs is 11/30/17 for 12/1/17.  People eligible to retire right now are in a predicament because these tables are essential for determining how much a delay in retirement will cost them, both in future value (due to lower assumed rate) as well as the value of the lost retirement benefits from delaying (all other things being equal - longevity, pay, etc).  When I checked the PERS web site about an hour ago, the current (effective 1/1/2016) AEFs are still posted, and I cannot find a link to the NEW AEFs.  As far as I am concerned, this borders on being unethical by leaving people unmoored at one of the most important times in their lives.  A paranoid, tin foil hat-wearing person might think that the lack of these new AEF tables is a deliberate attempt to keep people in the dark so there isn’t a more massive rush to the door than I suspect will already be the case.

As a final note, I am tempted to be generous to PERS in my interpretations,  were the consequences not so severe for current, unnotified retirees eligible for the income tax subsidy, and for those on the very tippy cusp of retirement trying to figure out what to do before November 30th.  I will say that PERS Communications are not the same since David Crosley left the building and retired on June 30, 2017.  PERS has a difficult act to follow, but David’s retirement was hardly a surprise, and his replacement has been with PERS for quite a while.  To me, these two very unrelated events (or non-events) have left a very sour taste in my mouth.  But that isn’t half the taste others may feel if they get trapped by either of these nasty surprises.

Friday, October 13, 2017

Rattle That Lock

I’m getting lots of emails from members eligible to retire, but undecided.  The primary issue is related to whether the change to the assumed rate and the mortality tables will adversely affect members in the near term.  The short answer is that any change to the assumed rate has an impact on not-yet-retired members who plan on retiring via money match, Full Formula with beneficiaries, and Formula plus Annuity.  For inactive members eligible to retire, the answer to me is a no brainer.  Rattle the lock, break the chains and get out by December 1, 2017.  If you wait any longer you’ll lose money, plain and simple.  There is no way to recover the loss because you aren’t earning an offsetting PERS-employer based salary.  If you are working for a non-PERS employer, you have no constraints on your ability to work, so there is no incentive to stay in PERS past December 1, 2017 so long as you are eligible to retire from the Tier you were in at the time you worked for your PERS employer.  For all others, the calculus is much more complicated.  If you are still working for a PERS-covered employer, you have to consider factors such as lost earned income, health care benefits, and future growth in the IAP account, not to mention growth in your Tier 1 or Tier 2 account due to earnings or the assumed rate.  The 2018-19 Actuarial Equivalency Factors (which combine mortality factors, salary growth, inflation, and the assumed interest rate) won’t be known until the end of October or the early part of November (so I’m told).  Thus, the PERS Online Calculator will give inflated estimates of retirements past December 1.  Matt Larrabee, PERS’ Principal Actuary from Milliman, told me after the July meeting that the “setback” for members would be approximately 4 months.  To understand this, you need to appreciate the concept of a “crossover” point.  Basically, if you estimate your benefits for a December 1, 2017 retirement and then estimate your benefits for a 2018 retirement (using the new AEFs, not yet available), it will take you until April 1, 2018 to recover benefits lost from the change to the assumed interest rate.  Thus, on or after April 1, 2018 (approximately, depending on age and other factors), your benefit will the same as it was on December 1 using a different assumed rate and a different set of mortality factors.  If it were this simple, the advice would be obvious.  If you weren’t planning to retire until April 1, 2018 or later, you’d be no worse off than you would be retiring on December 1.  However, this ignores some things that really need to be considered.  1)  Are you ready to retire (a not-insignificant factor for many people)?  2) Can you afford to retire (this has a bunch of subquestions, including the healthcare question, made infinitely more complicated in the past two days by actions at the Federal level)?  3) if you continued to work, what risk does the 2018 short legislative session pose (at this point, minimal, but things can change although I doubt it)? 4) Is the reduction in overall benefit from retiring later, rather than earlier (Dec 1), offset by the additional income you’d make by continuing to work, getting healthcare benefits, and contributing further to your retirement plans?

All these questions should be filtering through your decision matrix about now.  I will have my hands on the new AEF tables as soon as they are made public.  While they are voluminous and difficult to assess globally, I will post them here so that people will be able to see their precise impact.  I can’t advise anyone what to do, and don’t do it.  I make an exception for inactives.  Just keep in mind that nothing good will come your way by waiting past December 1.  While your account may grow, the growth rate will be lower, your life will be (presumably) shorter, and the end result will probably leave you no better off than you’d be just taking what you have on December 1, 2017 and getting yourself out of the cross hairs.  As Pink Floyd said, ‘rattle that lock; break those chains’.  For the rest, the decision is complicated, and you need to think your answer through carefully; it isn’t an obvious one.

Monday, September 18, 2017

Long Time Gone

It has been nearly two months since I posted the last entry.  Truthfully, nothing much of substance has happened, although the various newspapers around the state, the various anti-public employee organizations (e.g. OSBA, OBA, PBA) are still running around with their hair on fire about the “PERS Problem”.  Even national columnists and investment advisors are writing about the impending doom from a public pension debacle.  While I agree that the public pension systems around the country are in varying degrees of trouble (how can a state as small as Kentucky for example, have a UAL of $41 billion?), the solutions vary from state to state and from public entity to public entity.  One certain thing is that States, by the constitution, cannot go bankrupt.  As an extension, a public retirement system run by the State cannot go bankrupt.  This point seems to be lost on many (most) of the commentators who pursue the Oregon PERS “problem” as if it were cholera that needs to be eradicated by “whatever means necessary” (including those presently illegal federally or at the state level).  Op-Ed writers from around the state seem to think that the City Club’s 2011-12 report contains the solutions to most of Oregon PERS’ problems.  So far, I’m completely unpersuaded by this argument.  Moreover, the COLA freeze, adopted by the Legislature in 2013, was definitively ruled an illegal breach of contract by the Oregon Supreme Court in 2015.  And this was in the City Club’s 2011-12 report.  The Moro court made clear that prospective changes would be permissible, but implementation of prospective changes carry with them the problem of how to preserve the accrued benefits protected by the requirement that retroactive changes can’t be made.  So, for instance, going to a 5 year averaging for FAS has the problem that the accrued benefit includes the 3 year average for FAS, and so how do you implement this for anyone reasonably close to retirement?  Similarly, the $100,000 cap (not indexed for inflation) has multiple problems because of the accrued benefit matter.  As long as individuals have access to the 3 year average, it will trump any 5-year average or salary cap for individuals close to retirement.  Ditto for sick leave.  You can stop further accrual, but you can’t take away what is already accrued.  Inactives are protected from any of these rule changes so long as they accrue no service credit after the effective date of the changes.  Tier 4?  Sure, go ahead and see how that works recruiting for difficult-to-fill positions now.

In short, there is nothing I can see on the near-term horizon that would create the savings that PERS would need to make to pay down the UAL.  So, let’s propose something really radical.  How about if the damned employers just pay their bills as they have supposed to have been doing since the beginning of the “troubles”.  There would be no liability but for employers failing to pay bills when they were due.  How about the Board actually growing a spine and simply telling the employers that “…the game is over”.  “You’ve played it well, gamed it out beautifully, but your win streak has come to an end.”  Of course this will be disruptive to employers, to public employees, and the like.  But blaming the public employees for problems over which they’ve had little to no control is giving a complete pass to the real villains in this fiasco (which is far tamer than fiascoes in other states).

Friday, July 28, 2017

It Could Be Worse

After all the stürm und drang of the Legislature, the final piece of next year’s puzzle has fallen into place.  The PERS Board today adopted its new assumed rate for the 2018-2019 calendar years.  The Board spent very little time debating between the extremes of 7.1% recommended by the OIC and its consultant, and the slightly more optimistic forecast of other consultants used by Milliman at 7.2%.  In the end, the Board went to 7.2%, largely because the actuaries gave them the latitude to adopt any rate between 7.0% and 7.25% as a responsible choice.  A few wanted to split the difference at 7.15%, but there was no opposition when Board Member Pat West (the member rep on the Board) moved to adopt the 7.2% rate.  It was quickly seconded by the employer rep on the Board, Lawrence Furnstahl of OHSU.  The rest of the Board quickly approved the motion and, in a blaze of light, the meeting was over.

After the meeting, I checked with Matt Larrabee, the principal actuary for Milliman, who confirmed for me that the setback would be 4 months for a typical retiree.  This means that if you delay retirement past December 1, 2017, it will take you 4 additional months of working to recover the benefit you would have received if you retired on December 1.  While the most directly affected members are those who remain eligible to retire under Money Match (less than 13% of all non-retired members), it will have an impact on beneficiary options for Full Formula retirees as well.  The changes to mortality had virtually no impact on the rates, as changes in one element were offset by other changes.  Overall, the totality of the economic assumptions other than the assumed rate itself, had a near zero impact on liabilities for the system.  The impact to employers on the uncollared rates will be approximately 1.9% of payroll, less than it could have been.

There was no opposition by any stakeholder to the change, at least not at today’s meeting.  In fact, the Board didn’t even offer the possibility of public testimony, and the Board Chair John Thomas repeatedly interrupted almost any speaker at the podium to sermonize.  While he’s done a good job as Board Chairman, and clearly knows financial analysis, I find him personally tiresome as though he is lecturing small children.  Thankfully, I’ve chosen not to attend Board meetings because of his overall mien.  I went today solely because the decision was important to a lot of people, and because I’m still adjusting back to Portland time from my time spent in Iceland.

All in all, the title pretty much covers my feelings.  It could have been a lot worse.

This will be my last post for awhile, in large part because we are moving into “ordinary time”, where nothing of the moment will take place.  The next time for something significant to occur will be the working report from Governor Brown’s group studying how to lower the UAL by $5 billion.  That will, in turn, lead to some legislative momentum that might occur during the short Legislative session next February.  However, any substantial changes to PERS will probably not come before the 2019 Legislature.  If nothing positive happens between now and then, we might expect to see some attempts to significantly alter PERS.

Wednesday, June 28, 2017

Another One Bites The Dust

The 2017 Legislative session began with a bang, and goes out with a whimper.  PERS reform was on everyone’s mind as the session began, and we saw at least a dozen bills and amendments that attempted to “reform” PERS.  But, from the very beginning, the Democrats made clear that without corporate tax reform, they were not going to be the “bad guys” for more PERS reform.  Thus, they presented the Rs in the Legislature with the uncomfortable choice between corporate tax reform and PERS reform.  The Rs chose to wimp out on corporate tax reform, and the Ds decided they weren’t going to be on the hook with voters and the unions for any more PERS reform.  So, the Legislative session will end sometime soon with neither goal accomplished, and the situation even worse when they return in 2018 for the short session and in 2019 for the long session.  Those who hung in and retired before the Legislature did anything bad are now spared the uncertainty for the future, while those who decided to gamble have bought themselves another 6 months or so before PERS itself makes some crucial changes that will exacerbate the problem statewide, although the change is necessary.  Next month (July), the PERS Board will make decisions about the economic assumptions necessary for the next system valuation, which is the basis for setting employer rates for the 2019-21 biennium.  These assumptions include the assumed interest rate, salary growth, mortality tables and the all-important actuarial equivalency factors that will take effect on January 1, 2018.  Two of these three assumptions are likely to change significantly.  The assumed rate is likely to go to 7.25% (or possibly lower, to 7.0% - see California’s recent decision), while the mortality factors are headed to greater longevity per the IRS tables that just changed.  In total, a 25 basis point reduction in the assumed rate, coupled with a normal secular growth in mortality should produce a 3 month setback in benefit (you have to work 3 months longer to recover the benefit you’d receive 3 months earlier under a higher assumed rate).  People affected by this change are all whose best benefit is “Money Match” retiring on or after January 1, 2018, and all Full Formula retirees who choose an option with a beneficiary.  Full Formula retirees who select Option 1 (no beneficiary) are NOT affected by changes in mortality or assumed interest rate, as the benefit is simply the product of the formula itself.

Those of you who are gambling that you can escape without any further pain are, unfortunately, delusional.  The situation is likely to get worse in the near future, and the next long Legislative session, if not the 2018 short session, is likely to include some unavoidable changes to future PERS benefits.  I don’t see how this can be avoided, and most people “in the know” agree with my assessment.  I can’t predict what will fly and what won’t fly.  But I expect that desperate times may beget some desperate measures, even those with a slim likelihood of getting through the Courts.  Court membership changes with each election and one of these days we may get a court that is not so sympathetic to the plight of active workers.  If you are near retirement, I advise you to consider seriously making plans for exiting the system before the 2019 Legislature convenes in early February 2019.  The pressure will be excruciating on that body to do something about escalating PERS costs.  The Board’s decision on rates might be the trigger to push some reluctant legislators over the edge, and financial exigency might force the Courts to consider some changes that we might not have thought legal in the past.  I don’t imagine any cuts to current benefits of the already retired, but if you aren’t retired by the beginning of 2019, I can’t save you from yourself.  It is naive to think that the PERS problem is going to go away.  I think this year’s Legislature squandered some opportunities to remake the corporate tax structure more equitable for the personal income tax payers in the state.  I think the mainstream media squandered its chance to have any influence by its constant drumbeat of bad news that blames “greedy” employees without considering the role of the greedy and irresponsible employers in the current fiscal miasma.  I can say “I told you so” only so many times, but until the media examines the role the employers have played in creating the fiscal crisis of PERS (by not paying what they owed, when they owed it), the situation is going to get worse and worse.  I don’t have a solution to the problem except to repeal Measure 5, which is the ultimate cause of this problem.

This year, the Legislature had a chance to do something meaningful, but blew it.  As Freddie Mercury screams “Another One Bites The Dust”, this Legislature will go down as the least productive, least effective, and most useless in recent memory.

This will probably be my last post for awhile.  I’ll be in Iceland for a good part of July (taking pictures and having fun), but will be back in time for the PERS Board Meeting at which the assumed rate change will be announced.  I’ll probably post something then after the decision is final.  Don’t expect new Actuarial Equivalency Factors to be available to me or to anyone else until the latter part of October, so don’t ask me for specific details about this change until then.  I will have no more information at the end of July than I have now.  We’ll all have to wait.  The actuary doesn’t begin its recalculation of AEFs until after the Board approves the economic assumptions for the next two years.