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Sunday, March 26, 2017

Hey, That's No Way to Say Goodbye

Well, here we are two full months into the legislative session with not a single PERS bill having gotten a committee work session.  Most of the action is taking place in the Senate Workforce Committee, where Senator Kathleen Taylor has been running a very tight ship.  There have been four or five information sessions on various PERS bills with various experts and attorneys, but no work session scheduled on any bill through agendas posted for as late as April 3.  While it is too early to write these bills off, it certainly appears that few will survive this year’s legislature.  However, the most likely candidate is Senate Bill 560, which has already been substantially changed by gutting pages 2-16 of the original bill, and with 7 amendments replacing the gutted part.  The 6% pickup diversion is unlikely to fly, not because of constitutional issues, but because of union issues.  We learned from testimony on March 22, that SEIU has had language going back to the origin of the pickup (1979) calling for a salary increase to offset any requirement that the employee pay his/her own 6% from salary.  SEIU negotiated a contract in 2016 that has members paying their own 6% pickup, while the state gave a 6% raise to offset it, plus another 0.95% in cost-of-living increases.  We don’t know the status of other contracts, especially for local bargaining units, but likely has similar language in their contracts, or unions will use SEIU’s leverage to obtain a similar deal.  That leaves the FAS cap of $100,000, the five-year FAS computation (instead of 3), the totally confused idea to cap the annuity rate on retirement (I say confused because the clear intent of this is to limit the annuity rate for future Money Match retires, which are fewer and fewer in number, but the bill isn’t worded that way).  That drew a rebuke from Steve Rodeman, Executive Director of PERS, who cautioned the committee that they really didn’t want to go where the bill was heading, simply because annuity rates figure in all sorts of calculations.  He urged the Committee to work with him and Legislative Counsel to get the wording right; otherwise, the bill is courting difficulty.  Other pieces of the bill would cut the statutory formula rate (currently 1.67% for Tier 1 regular; 2% for P&F; ditto for Tier 2; lower for OPSRP) from its current level to 1.0% for general service, and 1.2% for P&F.  These are serious cuts, but would apply only to service performed on or after 1/1/2018.

 The theoretical “drop dead” date for bills to get a hearing is April 18, 2017.  Of course, there are a variety of parliamentary maneuvers that can extend the deadline all the way to sine die on July 8, 2017.  So, there is no reason to become complacent about the April date, although it may give some breathing room to those inclined to anxiety disorders.

People continue to ask me about “best” dates to retire.  I wish I could give a definite answer, but every situation is unique.  The only piece of SB 560 that doesn’t take effect on January 1, 2018, is the decoupling of the Money Match annuity rate from the assumed interest rate.  That piece is currently structured to take effect on passage, which could be anytime after May 1, 2017.  But that particular piece requires redrafting to remove the complex language that Rodeman warned against; that will require time.  Taylor and Knopp (committee vice-Chair) have agreed that they have to make decisions about bills to move to work sessions within the “…next three weeks”.  But complicating (or not, depending on your viewpoint) their decisions are some hard political realities.  After 2013, the Democrats don’t want to be tarred with another failed attempt to reform PERS.  In 2013, they sold their souls to the devils, Kitzhaber and the Rs in the Legislature, to achieve two different objectives - reforming PERS and providing small business tax cuts.  The Ds favored the former; the Rs the latter.  The “Grand Bargain” was struck when those two pieces secured enough opposition votes to pass both.  Unfortunately, the PERS cuts were largely overturned by the Supreme Court, while the latter quietly got lost in the shuffle and now add to the state’s growing deficit.  The Ds learned their lesson from that experience, and aren’t likely to agree to more PERS cuts without the Rs coming along with them on measures to raise revenue (some sort of Corporate tax), and also a transportation package to fix Oregon’s crumbling roads and highways.   The PERS bills are all R bills this time; they can’t pass without a couple of Ds going along.  To get out of committee, SB 560 needs all Rs and at least one D.  To pass in the House, all the Rs have to go along, and at least 4 (or 5) Ds have to go along, as well as the Governor.  But, those votes won’t come without R cooperation on the two big D objectives this session.  There will be a lot of back room deals being cut.  The reason for this extended sojourn into the political theatre, is to underscore how hard it will be to handicap the likelihood of PERS reform passing in the absence of these other pieces.  Thus, if you think you are going to retire under Money Match (remember, this isn’t YOUR choice; PERS chooses the best outcome for you), you may want to give serious consideration about going no later than May 1, 2017 (right now potential FF retirees aren’t protected under the current version of the 560-3 amendment, but we are optimistic this will change once Rodeman and LC get involved with the committee) because of the possibility that SB 560 will pass into law between May 1 and July 8 (no predictions offered there; you are on your own).  If you KNOW you aren’t going to retire under Money Match, then it is probably safe to wait until after the Legislature adjourns but not any longer than December 1, 2017.  If you are in doubt, be sure to do, at least, the PERS online estimator.  You might be surprised.  (It goes without saying that the PERS Coalition intends to litigate any changes; but this will present somewhat of a generational conflict, since many of the changes will affect younger OPSRP workers much harder than the “lame duck” Tier 1 and Tier 2 members).

To cap this epistle, I recall a line uttered by Senator Laurie Monnes Anderson (D) when she remarked that “…I guess the best thing would be for Tier 1's to die”.  She regretted it the moment it came out, but it is an unspoken truth, so those of you who are Tier 1 (retired or otherwise) now know how the Legislature really feels about you.  And I say, longevity and health are the best revenge.  Or in the words of Chris Smither, “hey, that’s no way to say goodbye”.


Tuesday, March 07, 2017

You Want It Darker

Just a quick post to note that SB 560 (a cornucopia of crap) and SB 913 (another capsule of crap, slightly different from SB 560) will have their first public hearing on Wednesday March 15 at 3 p.m. before the Senate Workforce Committee.  These two bills together contain an obnoxious amount of damage for potential PERS retirees and each strike in a slightly different way.  If SB 560 isn’t to your liking, try SB 913.  Both cover similar turf, although SB 913 contains a really ugly piece that isn’t a part of SB 560.  That ugliness takes the form of a decoupling of the actuarially assumed interest rate (used for valuing the fund, setting employer rates, determining Tier 1 earnings), and the annuity rate, used for setting benefit levels for retirees over a large class of individuals.  It would be good if affected, or potentially affected, individuals showed up for the hearing.  You won’t be able to testify on the 15th because it is invited testimony only from the experts at PERS, State Lawyers, and probably PERS Coalition Lawyers who will try to sort out the probably illegal from the possibly legal aspects of each of these bills.  We already know that the 6% redirection isn’t likely to fly, but I’ve already heard rumors that the bills principal Sponsor, Senator Tim Knopp, has at least half a dozen amendments ready for SB 560, the more “benign” version of the two bills.  It is only benign because it gives members until December 1, 2017 to get out before being affected; SB 913 takes effect on passage, which means that you’d probably need to be out of the system (i.e. retired) by absolutely no later than May 1, 2017 (preferably April 1 to be certain).

In any case, while there is no reason to hit the panic button yet, if you are already thinking about retiring during 2017, you might want to give some thought to how you might manage an April 1 or May 1 retirement.  While I continue to hear rumors that the Ds aren’t willing to support any of the bills dropped by the Rs, the problem remains that there is a $1.6 billion (or $1.7 or $1.8 depending on day of week and who is quoting the figure) shortfall between budget needs and revenue, there is a desperate need for a transportation package, and the Ds don’t have a strong enough majority to pass any revenue increases without buy-in from at least 3 or 4 Rs.  So, there is the dark version of this year’s legislature in a nutshell.

You’ve been warned.  At the very least, be sure to watch the recording of the meeting on March 15.  The Legislature posts the feed shortly after the committee adjourns.  Then you will have more information than I can provide you here. 

This site will go dark next week for a short while as I will be out of town and unable to post.



Thursday, March 02, 2017

Rough God Goes Riding

This is just a quick note to alert affected PERS members that SB 913 has dropped.  This bill, introduced by one of the dynamic trio (Moe, Curly, and Larry)  of Central and Eastern Oregon legislators, attempts to throw just about everything against the wall to see what sticks.  In addition to duplicating HB 3013 on the assumed interest rate, this bill goes after issues related to vesting and inactive membership, and just to put the icing on the cake, makes some changes to OUS Optional Retirement Plan that makes sure that the pain is shared amongst all eligible public employees.  I haven’t had time to analyze this bill closely.  I’ve read it briefly, and the Warren Zevon line:  “…send lawyers, guns and money, the shit has hit the fan” is apt once again.  Warren anticipated just about every circumstance (except for Send in the Freaks, which is a Was/Was Not epistle).  All I can say to people is that most of the cards are out on the table.  If you stay voluntarily past April 1, 2017, you are taking a chance.  Don’t say you haven’t been warned.  The Rs in the Legislature are doing a full-court press on the Ds, and the Ds don’t have the votes to override a Governor’s veto.  So, be afraid, very afraid. (There is some confusion over this statement.  Consider this primarily in the context that the Ds also don’t have enough votes to pass any revenue measure without Republican support, and the quid pro quo for that support might be support for a or some PERS measures.  Hence, the problem with a Governor veto).  For those of you stuck past April 1, 2017, you have my sympathy, and hope that you will work really hard to help the Legislature understand that Ballot Measure 5 (1990) is the REAL ENEMY here, having given citizens one of the highest personal income taxes in the nation, a mediocre property tax, and businesses a nearly 30-year holiday against paying their own way in this state.  I’m hoping that our rough god does his work on Don McIntire (already deceased) and Bill Sizemore (one can hope), for gifting this state with the biggest, smelliest turd ever.  I pray nightly that their souls will burn in hell for eternity.  They’ve given Oregon the gift that keeps on taking and taking and taking.

Wednesday, March 01, 2017

Gentle On My Mind

There seems to be some confusion about the recent spate of posts about proposed changes to PERS.  To gentle the minds of those already retired, none of these bills propose to do anything to anyone already retired, or to anyone retiring before any of these bills are enacted (if at all).  So those of you already retired can spare your anguish, and return to your (hopefully) relaxing retirement.  All these bills target those still working and those not working for a PERS agency, but not yet retired.  While I think that targeting the next generation to pay for our retirements, it really is no different than Social Security.  It isn’t fair, but it is life.  I oppose it on principle, and will fight like hell to keep any of these obnoxious bills from taking effect, but the reality is that there is no other way to pay for PERS without a general tax increase aimed at businesses that have gotten away with tax murder since the passage of Ballot Measure 5 in 1990.  As far as I can tell, payback for those businesses is a bitch, but it is necessary.

Tuesday, February 28, 2017

Lawyers, Guns, and Money 2

Warren Zevon always had an excellent ear for music, irony, and social commentary.  Zevon’s observation fits perfectly with today’s referral of House Bill 3013 to the House Business and Labor Committee, which motivates this post.  Much of the content has already been included in emails to the bill's chief sponsor, Rep Gene Whisnant, one of a trio of ALEC-supported,   Bend area legislators responsible for the spew of anti-PERS member legislation sclerosing the Legislative pipeline this year.  HB 3013 is a deceptively simple bill that effectively decouples the interest rate used for valuing the fund, setting earnings on investments for Tier 1 members and Employers, from the annuity rate used in actuarial tables to compute benefits for retiring members.  In short, the annuity rate would be approximately halved relative to the assumed rate, which would have the effect of severely reducing money match benefits, and all beneficiary forms of Full Formula and Formula plus Annuity.  There is but one exception to this bill left unstated, and it is to that exception that the rest of this post is devoted.


My major worry over previous suggestions to decouple the assumed rate from the pension earnings rate was that it would target only Money Match members.  I knew that this method would violate contract provisions, state statutes, Oregon Administrative rules, and very possibly the Internal Revenue Service's basis for qualifying the plan. Because PERS gives Tier 1 and Tier 2 members the "best of" comparison in determining their method of retirement (Money Match, Full Formula, and Formula + Annuity for the small number of members still eligible), those benefit comparisons must be based on "Actuarial Equivalency".  To change the annuity earnings rate only for Money Match would destroy the basis of actuarial equivalency, which would violate the contract, state statutes, and IRC code.  It appears that HB 3013 attempts to evade this problem by changing the annuity earnings rate for ALL forms of retirement methods (Money Match, Full Formula, Formula Plus Annuity).  That MAY take care of the statutory, contractual and IRC problems, but reveals a fatal flaw in the bill that would be exposed if the Actuaries were ASKED to consider employer savings for any range of scenarios instead of using only past behavior of PERS retirees.  Let me explain below.


Taking the bill's assumptions, its effects would be to virtually eliminate the Money Match comparison for all but a few PERS retirees (mostly the long inactive).  In effect, this bill would push the vast majority of future Tier 1 and Tier 2 retirees to the Full Formula.  This won't be by choice, of course; it is a natural consequence of devaluing the Money Match benefit compared to Full Formula.  And this is where the complication emerges.  The calculation of Full Formula depends on only 2 variables and 1 constant:  Final Average Salary (however it is computed), years of service, and a multiplier depending on class of service (General Service 1.67% per year; Police, Fire, and Legislature and Judges - 2.0% per year service).  What this calculation yields is the Option 1 benefit (no survivor option).  This is the highest Full Formula benefit any member can receive; any optional benefit forms all derive from this base benefit.  Notice that no mortality figures into this calculation, no interest rate, no assumed rate, no annuity formula.  Thus, nothing external to this Formula can change this, except for changes to the calculation of FAS and possibly the multiplier, but those can only be prospective while the previous rates are locked in statute.  For anyone retiring in the next year or so, the changes to the multiplier and computation of FAS will have minimal effect.  


So what you might say.  Weigh that against the stark reality that there are more than 70,000 active and inactive members currently eligible to retire.  What this proposal does not anticipate, and the actuaries probably haven't seriously considered is that human behavior can play a considerable role in tilting the odds against some or most of the possible savings of this bill.  Recall the Option 1 benefit (no survivor option).  The reasons most people don't choose this option are twofold:  1) they don't want their spouse to lose access to their benefit should they die; 2) keeping the annuity rate the same as the assumed rate provides reasonably priced "insurance" for the surviving spouse.  Decouple the two rates, reducing the annuity rate relative to the assumed rate, will increase the cost of the "insurance" for adding the beneficiary.  This can already be seen as an effect of lowering the assumed rate twice in the past four years, with another reduction probable for January 1, 2018.  So, what are current retirees doing?  I'm encountering more and more retirees choosing the Option 1 benefit and purchasing a relatively inexpensive term insurance policy on themselves to cover themselves against early death so the spouse is taken care of through an insurance or annuity program that is cheaper to finance than taking out the "insurance" on an Option 2, 2a, 3, 3a, 4 settlement.  Here's the rub.  If you decouple the annuity rate from the assumed rate, I anticipate that more and more people will consider taking Option 1 instead of the actuarially-affected and tested versions of Option 2, 2a, 3, 3a, 4.  Thus, instead of saving employers money, every employee who selects a Full Formula Option 1 benefit is unaffected by changes in the annuity rate or the mortality tables.  But, to the employers, this is the most costly option for an employee to take because PERS will require the employer to deposit cash to cover the cost of making up that employee's Option 1 benefit but using a lower earnings rate on which to base the contribution.  Thus, instead of saving employers' money, this will cost them even more, as if no disconnection occurred at all.  If large numbers of members start taking this Option, it will show up quickly in PERS' experience data, and downstream, employer rates will start to rise in direct proportion to the degree of disconnect between the actuarial rate and the assumed rate.  This is, of course, the exact opposite of what this bill hopes to achieve. I expect that any savings this bill might create will be ephemeral, and be totally negated by employees discovering the potential value of the Option 1 benefit.


A corollary problem exists with the Lump Sum Settlement.  Again, a Full Formula lump sum consists of employee contributions to Tier 1 or Tier 2 accounts plus a an amount required to generate the present value of the monthly benefit taken over the expected life of the member.  But the low earnings rates that gets factored into the employee lump sum means that the expected contribution from the employer has to be considered to be what it would take to generate the monthly Option 1 benefit, but under decreased earnings assumptions.  Thus, the cost to employers for Full Formula Lump Sum settlements will be higher under the reduced annuity rate than they would if the annuity rate and the assumed interest remained coupled.  The logic here is exactly the same as why a lowering in the assumed interest rate requires employers to contribute more to the system.


I welcome your thoughts on this matter.  I think you will find that if you ask PERS or ask its actuary to consider a scenario where increasing numbers of members choose the Option 1 Full Formula benefit, or the Total Lump Sum Settlement under Full Formula, that they will concede my points.  Obviously, these scenarios would not follow the current pattern of PERS retirees, but we are no longer living in obvious times.  When stressed, humans have an extraordinary capacity to adapt, and one significant adaptation would be to choose a different payout method for receiving their PERS benefit.


There are certainly some flaws in my argument.  The most obvious one is that some members will not be able to get affordable term insurance to offset the beneficiary concern.  Second, a no-beneficiary option requires spousal consent, which may be uncomfortable for some.  Nevertheless, I think this bill will expose some real flaws in the logic and estimates behind the bill's formulation.


 Bottom line though is this is a very BAD bill that could be far more harmful to far more people than anything otherwise proposed so far.  To quote the full context of the late Warren Zevon's borrowed title: "...send lawyers, guns, and money, the shit has hit the fan."  Indeed!   (Oh yes, one more turd-blossom in this offensive piece of legislation.  It would take effect on passage, so anyone not yet retired on the date this bill were to be passed, assuming the Governor would sign it - a slim likelihood, would be trapped by it.  This bill has a long way to go, but if you were thinking about retiring, my advice would be sooner rather than later with this bill now in the pipeline.)

Friday, February 17, 2017


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

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

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

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

Thursday, February 09, 2017

Walking the DINOsaur

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

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

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

Monday, February 06, 2017

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

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

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

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

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

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

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

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

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

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

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

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


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

Sunday, August 07, 2016

Set Fire To The Rain (LONG POST)

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

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

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

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

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

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

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




Sunday, July 03, 2016

What's New?

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

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

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

Enjoy your summer.

Monday, March 28, 2016

Always Strive and Prosper

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

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

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

Sunday, March 06, 2016

Thank You

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


Again, my many thanks for your support.

Saturday, February 27, 2016

Over and Over

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


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

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


Friday, February 05, 2016

Ride The Wild Wind

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

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

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

Monday, January 11, 2016


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

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

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