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Monday, November 23, 2015


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

Monday, November 02, 2015

Another Brick in the Wall

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

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

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

Monday, October 12, 2015

The Cost of Living

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

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

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

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

Thursday, September 17, 2015

Sticky Fingers

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

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

Tuesday, August 04, 2015

Fool To Love You (Long Version)

At the request of a reader, I am reprinting a July 27, 2012 post in its entirety.  I’m not bragging, but this post anticipated everything that has happened since 2012 and seems eerily prescient in hindsight.  It traces the origins of many of the things that have happened since 2012 to the present in a long, but relatively concise form.  Every word that follows was written in 2012:


Our State Treasurer, Ted Wheeler, is reported to have written a letter to the PERS Board urging them to consider lowering the assumed rate from its current 8% to something closer to 6%.  Ted also suggested that retirees share the burden of future cuts to PERS by altering the COLA provisions to apply to only a certain portion of a retiree's benefit.  No amount was given, but a guessing person might be inclined to think that Ted would be happy with something along the range of the mean PERS benefit (roughly $25,000 per year).


Between Ted Wheeler and Knute Buehler, candidate for Secretary of State, PERS members don't need any enemies in the Legislature.  One current office holder, Wheeler (what is it with guys named Ted?), and another candidate for an unrelated office want to take away benefits from existing retirees, and hammer current workers getting close to retirement.  


First, for the assumed rate change.  It is well-known that the PERS Board, along with the independent actuary working with PERS, determine the assumed rate.  The last time this issue arose was in 2011, when the PERS Board and the actuary considered changes from the current 8% to either 7.5% or 7.75%.  The actuary concluded that the long term (30 year) likelihood range of returns on investment would be between 7.75 and 8.25%.  At the time, there seemed to be no compelling reason for PERS to change its assumed rate from 8%, since the middle of the estimates included that very value.  Fast forward a bit more than a year later and public retirement systems across the country are reconsidering their assumed rate profiles and many are lowering their long-term estimates from 8% or more to the mid 7% range.  CalPERS and CalStrs - the two biggest retirement systems in the country - lowered their assumed rate to 7.75% last year, and to 7.5% this year.  There is no doubt that the 8% assumption is probably too high, and there is no doubt that the PERS Board has the authority and responsibility to change it.  Whether it deserves to be dropped all the way down to 6% is an entirely different argument.  I can find no evidence anywhere that public systems are going that low.  The lowest I've seen assumptions from systems in PERS' range is about 7% - most are higher.  A reduction to 6% would have profound effects on future retirees, current Tier 1 members, and employers.


A 200 basis point reduction in the assumed rate would mean that employers would have a substantial increase to their already high contribution rates.  This is because if PERS is assuming a lower rate on investment returns, then the money not raised by the additional 2% would have to be made up by employers.   Ted proposes that PERS could mitigate "some" of the employer increase by lengthening the period of time over which the balance due is amortized.  This would be equivalent to making a 30 year mortgage into a 40 year mortgage.  The payments are lower, but the amount of interest collected is significantly higher.  For active Tier 1 employees, a reduction in the assumed rate would have two effects:  one, it would lower the return on their Tier 1 accounts significantly and would reduce their final account balance at retirement significantly;  and two, it would increase the likelihood that they wouldn't retire under Money Match for much longer.   Remember that PERS has to pay the member the retirement benefit that is the highest of two different calculations - the Money Match calculation or the Full Formula calculation.  For members on the cusp of retirement, the impact would be more immediate.  Assuming that the rate change takes place on a normal schedule (Jan 1, 2014 effective date), any retirements taking place on or after that date would have benefits calculated on the basis of a significantly lower earnings assumption.  Last year when PERS considered lowering the rate to 7.5%, the actuaries reported that the impact would be such that a member would have to work 6 additional months to offset the benefit loss.  If that's the case with a 50 basis point reduction, then the effect of a 200 basis point reduction would extend that to 24 months of additional work just to receive the same benefit as one would receive on December 1, 2013.  For those who can't wait to retire, the immediate effect would be approximately 17% lower benefits (dependent on age of retiree and benefit option chosen).


The second proposal is a change to the COLA provision.  Ted didn't provide any detail here, but other similar proposals have been made.  Assuming that Ted's idea is about the same as the others, the effects are pretty straightforward.  It isn't clear whether Ted is proposing this for current retirees or only future retirees, but it doesn't make a lot of economic sense to propose it only for future retirees.  Legally, however, it probably does make considerable difference.  The current COLA provision was enacted in 1971.  In statute is the requirement that PERS provide a COLA based on the Portland-Salem metropolitan area inflation index.  The requirement is that retirees receive the lesser of 2% or the actual change in the cost-of-living index for the previous year.  In February of every year, the US Bureau of Labor Statistics releases the relevant figure.  If the change from the previous year is more than 2%, retirees receive a 2% cost of living adjustment on July 1 (paid August 1) of each year.  If adjustment is greater than 2%, the difference between 2% and the actual change is "banked" for years in which the cost-of-living adjustment is less than 2%.  Both the amount (2%) and the banking provision are contained in the statute.  In 2003, the legislature enacted a COLA freeze for retirees in the April 1, 2000 to April 1, 2004 retirement cohort to recover alleged over crediting of the 1999 earnings (the City of Eugene case).  The COLA freeze was challenged by Martha Sartain and OPRI, and the Oregon Supreme Court ruled in the consolidated Strunk case (including the Sartain challenge) that PERS could NOT pay a retirement benefit to which no COLA attached.  In other words, the Legislature had altered the contract between retirees and PERS.  The Supreme Court ruled this to be a breach of contract and the COLA freeze was lifted (there were other twists and turns in these cases that made the impact on retirees the same, but that isn't the point here).  So, any attempt to alter the provisions of the existing COLA for current retirees is likely to be met with a strong legal challenge again, and if history is any guide, PERS and/or the Legislature is unlikely to get away with a change that alters the existing contract.  When retirees retired, the agreement in effect at that time was that they would receive a COLA on their entire benefit annually so long as the cost of living increased in the previous year.  Both the amount of the COLA (2%), the benefit to which it applied (all of it), and the banking provision are all spelled out in the Oregon Revised Statutes and have been in effect since 1971.  


The final change Ted proposed was a revisit of the tax remedy payments for out-of-state retirees.  In the 2011 Legislature, legislation was approved and signed into law that prevents PERS from paying any tax remedy payments to Tier 1 members who retire on or after January 1, 2012 (and who were eligible for such payments in the first place).  The original proposal would have removed the payments from ALL out of state retirees, regardless of when they retired.  After hearing from the Legislative Counsel and (probably) the Attorney General, the Legislature wisely decided that applying the rule retroactively to members already living out of state would be challenged legally and that there wasn't a strong case that could be made in favor of the retroactive provision.  Ted is proposing that the Legislature reconsider that proposal and apply it to all PERS retirees who no longer live in Oregon, retroactive or not.


Some PERS retirees have just finished a 12 year period of constant litigation, uncertainty, and anxiety.  Just now, as the dust has settled on the 2000 City of Eugene case, the 2003 Legislative reforms, and the 2004 PERS-City of Eugene settlement agreement, another Ted is proposing another set of changes to PERS that would trigger yet more litigation, more uncertainty, and higher anxiety yet for people who just want to live their retirement in peace.  We all lived up to our end of the bargain - we did our jobs at a high level of competence, we accepted a lower salary in exchange for a reasonably secure retirement, and we retired based on contractual promises made at the time we retired.  We've lived through the last decade always in doubt about when and what shoe would fall next.  Two of the three proposals suggested by another Ted would reinstate the uncertainty and dread that surrounds existing PERS retirees.  The third proposal would take people who are on the verge of retirement and change the rules significantly.  At what point do those of us who did our jobs and who are doing our jobs get to retire with some certainty that our benefits are really secure?  Apparently two people named Ted, both of whom got lots of love from PERS members and retirees in their election campaigns, feel that we don't deserve any peace.  That's a rotten repayment for all those votes.  


So, to both Teds I say, "I was a fool to love you", and all you've done is to increase my cynicism at the whole electoral process.  It just isn't worth squat voting these days, especially for offices in the State of Oregon.  Promises be damned; contracts be damned; statutes be damned.  


 P.S.  See what I mean by "Ted".  Ted Sickinger of the Oregonian is another of the nutso journalists that continue to write screeds against PERS members and retirees and advocates changes to benefits.  Fortunately, I have no friends named "Ted".  If I did, I'd probably want to defined them just because they were named Ted.  I don't trust people named Ted anymore.


P.P.S 8/2/12.  Indiana's PERS just dropped its assumed rate from 7.25% to 6.75%, the lowest I've seen thus far.

Monday, August 03, 2015

The Ghost of Tom Joad

Times continue to get tougher for PERS members, especially those within a couple of years of retirement.  First, the change to the COLA for work past October 1, 2013.  The next shoe dropped last Friday with the cut to the assumed rate.  The new rate, effective January 1, 2016 will be 7.5%.  This affects Tier 1 members, active or inactive, because it lowers the rate of return on account balances after December 31, 2015 (the 2015 crediting will be at 7.75%).  This will not matter if you retire under Full Formula and choose Option 1, but it will matter if you choose any other payout option.  Why?  Because the reduction in the assumed rate also affects the Actuarial Equivalency Factors, which are used to price your benefit.  A lower assumed rate of return means that in order to stretch your benefit out to your actuarial life expectancy, the fund is assuming that you will earn less on your investment and will have to reduce your payout accordingly.  The actuaries expect that to earn the same benefit as you would have earned on December 1, 2015 (if you were able to retire), you’ll have to work 3 months longer.  If that weren’t enough, the actuaries also are recommending an adjustment to the life expectancy factors that take into account longer life spans, on average, for most people.  This means that your money will not only earn less, but will have to last longer.  The new factors for calculating your expected benefit will not be available until late November, which means that trying to plan for retirement between December 1, 2015 (the last date upon which the existing interest rate and mortality factors will be in effect) and later, especially in the first half of 2016, just got more challenging.

If all of this makes you feel like you are seeing the leading edge of a depression, the title is intended to evoke that spirit.  There is no ghost of Tom Joad.  For PERS members, he is alive and experiencing deja vu all over again.

Tuesday, July 28, 2015

Just Pleasing You

The rule-making process for implementing the Moro decision (COLA case) is beginning to unfold.  The PERS staff, and hopefully the PERS Board, are trying to make sense of the Legislature’s 2013 cluster-f**k with the COLA.  The PERS staff has been studying ways to implement the second piece of the COLA restoration project - making retirees whole again after the court unraveled the mess made by 2013’s ineptness.  I’m happy to report that staff posted their proposed rule making for this part in today’s PERS Board packet for Friday’s Board meeting.  The staff is proposing to treat SB 822 as though it never happened, since it was amended five months later with SB 861.  The effect of this is that PERS staff, assuming the rule is approved without revision, will treat the period between May 1 and October 1, 2013 as part of the “old rules”, not subject to the mess created by SB 822.  This would settle the question of whether those who retired after May 1, 2013 and before November 1, 2013 would have to be treated somehow different than everyone else, while those retiring after October 1, 2013 would have to be treated a third way.  The proposed rule basically eliminates SB 822 and treats those who retired before November 1, 2013 (last possible retirement date, October 1, 2013) as if they remained under the old COLA rules, while those who retired after October 1, 2013 would be credited with an additional 5 months of time under the “old” COLA rules before their revised COLA enters the blending phase.  This change makes it possible for PERS to program their ORION system (their retirement benefit calculation system) to simply treat new retirees as either under the old system (all work completed by October 1, 2013) and therefore subject to the “old” COLA rules, or under the new system, whereby their work time is segmented in a way similar to the HB 3349 (tax remedy for in state residents) is handled.  Therefore, if you retire(d) after October 1, 2013, your working career will be apportioned by the work time prior to October 1, 2013 as a percent of your total working time.  If you worked 90% of your career prior to October 1, 2013 then 90% of your COLA will derive from the “old” COLA rules, while 10% will come from the rules under SB 861 (1.25% COLA up to $60,000, 0.15% on amount over $60,000).  This will tremendously simplify their work at a small benefit to retirees and a nominal cost to employers.  It is going to be a long time before most employees are away from the old rules, and this solves the fairness problem.  Alternatives might have been an income weighting, an FTE weighting, and all kinds of other grubby calculations.  This route simplifies life for all concerned, although it is almost surely going to agitate someone in the media, somehow.

Speaking of the media, what ever became of a discussion of the “other” part of the Grand Bargain?  You know, the part where the legislature exchanged about a half a billion dollars of PERS benefits for about a half a billion dollars of small business tax cuts.  It is really amusing to watch the media wrap themselves in a ball of fury over the Supreme Court’s ruling (the one every legal adviser to the Legislature suggested would NEVER fly), while conveniently ignoring the other cost driver in their ill-considered effort to steal benefits legally earned by PERS members.  I guess PERS members are just too easy a target for the media, while small businesses (whatever that actually means) just continue to get a pass.  Me?  I’m going to remember the idiots who brought on this mess in 2013 and consider them in my sights in 2016.

Monday, June 15, 2015

Dangling Conversation

Many people were confused when PERS posted its explanation of how the lost COLA will be restored to retiree accounts.  It always seemed to me that something was missing, yet was obvious.  After many questions addressed to me and to others over on our PERS Discussion Group, I decided that I would go to the source - PERS - and ask for clarification, and, if necessary, an update to the web site.  I am happy to report that the confusion is gone now, and PERS has corrected their FAQ about the restoration in the way I assumed it would be done, but was uncertain because of the unclear language.
You can go to the PERS website (see link to the left of the posts), or you can read the relevant change here.  In particular, for those members who retired prior to May 1, 2013, the COLA restoration will take place in only two steps.  The first step will be a 2% COLA on the CURRENT (uncorrected) benefit effective July 1, 2015 and paid out on August 1.  The second (and only) step will take place in the period between now and the payment received on November 1, 2015.  At that point, the 119,000 retirees who retired before May 1, 2013 will have the accrued unpaid COLA restored and the benefit RESET to the correct level so that the November 1, 2015 payment will be corrected (and will be a one-off large check).  Your first normal payment with all benefits corrected will be the December 1 check.  The official wording from the PERS website is below.  Hope this clears up the confusion.

  1. Calculate the amount owed to those benefit recipients (~119,000) who retired on or before May 1, 2013, and are not affected by the legislation. Our goal is to pay that group by October 30, 2015. The method of payment would be consistent with that currently selected by each benefit recipient (automatic deposit or paper check). We will also be resetting each benefit recipient’s compounded COLA and current year COLA so the benefit payment received beginning November 1, 2015 will be correct. 

Wednesday, May 13, 2015

Laughs and Jokes and Drinks and (non)Smokes

A stellar team of POD regulars have put together a grand lunch buffet on Thursday June 18 to celebrate our great victory at the Oregon Supreme Court. Celebrants are welcome to come early and stay late. Tickets for the buffet will be $26.15 plus the opportunity to buy tickets for prepaid beer and wine . There also will be a no-host bar where, yours truly, will decamp and collect on all those drinks owed him from bets long uncollected. This looks to be a truly fun event where all the various names can finally connect with the faces behind the scenes. I've threatened to collect the titles of all my blog posts - song titles all - and assemble them into a giant playlist that will run continuously through the event.

The initial invitations went out to those who had committed to pay early so that the room could be secured. Once we've secured the needed down payment, we are opening the event up to others who have participated in this process in many ways inside and outside of POD as plaintiffs, lawyers, advocates, sources, media advocates and anyone else who should be included. We'd love to count you among the celebrants. We request that if you are a member of the Legislature, or are any of the media who have fomented the PERS-hate in the media, please don’t  bother to attend. For all of the rest, please email the chief organizer and bottle washer, at podjive@gmail.com, which is in charge of arranging the event, head counting, money collecting, and leg-breaking, should that become necessary to secure your ticket dollars. Spouses, significant others, and potential beneficiaries are welcome to join. We ask only that if this event interests you, that you get your information to the organizers at the above address before May 19, so that we can finalize the menu and the head count. The chefs like to know how many they are cooking for.

For more information about the event, please send your email to podjive@gmail.com.  There is an urgency about this.  We need to sign the contract for the event on May 19th so if you can come and are willing to buy a ticket, please let us know real soon now.

We hope you can make it. We are looking forward to celebrating our most significant victory and the end of future attacks on current PERS retiree benefits.

Monday, May 11, 2015

Peaceful, Easy Feeling

There is considerable debate about what PERS is going to do, might do, or absolutely will not do when the COLA comes due this July 1, 2015.  Rest assured, my friends, that nothing is set yet.  We know that PERS will pay 2% COLA to all retirees, but it is not yet known, and won’t be known for a few weeks whether the 2% will be on our current (unadjusted) benefit, or on a revised benefit that reflects the compounding effects of readjusting the current benefit for 2% COLAs in 2013 and 2014.  One thing is almost certain.  Whatever PERS does on July 1, it probably will not include any restitution for previously withheld COLA.  That is a more complex proposition.  I did learn today from knowledgeable sources within PERS that on May 29, 2015, the PERS Board will meet in their bimonthly setting, and PERS Staff will outline the plan for rectifying the COLA for all retirees.  So, for now, take a chill pill, relax, and know that within a few weeks, we will all know the timetable for restoring the lost COLAs, and for receiving any back benefits with interest we are owed.  I am willing to bet that everything will be resolved before the 2016 COLA comes due.  I’m heartened by PERS’ quick response to the Court ruling, and its desire to move forward as quickly as feasible.

Friday, May 01, 2015

Hold On

Lots and lots of questions, both relevant and irrelevant, about how the Supreme Court’s decision will be implemented by PERS and when.  Let me say that the ink is barely dry on the decision and so it is a bit premature to begin to speculate with too much specificity how the ruling will be implemented, and when.  We do know that the 2015 COLA will be 2%, as stated yesterday by PERS head Steve Rodeman.  The court used a bit of confusing terminology when it described the effects of its ruling as a “blended COLA”.  Blending has turned out to be a confusing word for people.  I think what the Court should have said is that the COLA will be segmented into as many as three pieces depending on the proportion of work performed prior to May 6, 2013 (May 1 for practical purposes), work performed between May 6 (May 1) and October 8, 2013, and work performed after October 8, 2013.  Each of those dates is associated with a different COLA.  Prior to May 6, the old COLA was in effect (that’s the 2% maximum COLA, accrual of a COLA bank, and the use of the Portland CPI as the inflation measure; the second time period reduced the COLA max to 1.5% but left other features in place, while the third segment reduced the COLA to a flat 1.25% without reference to a CPI or a COLA bank.  So, if nothing changes (see below) your revised COLA will be a combination of up to three segments of your working career with the COLA weighted in each segment by the length of time spent in that segment.  For most people, even those retiring today, the dominant piece of the COLA will still be determined by the pre-May 6, 2013 rules (the OLD rules).  The changes the legislature made that are prospective to your working life will dilute the final COLA by some unknown amount from the maximum of 2%.  How this will be implemented remains to be seen.  For people who worked their entire careers prior to May 6, 2013, the old rules govern your COLA, period.  That is probably 85-90% of all current retirees.

There is, of course, a possibility that the Legislature can get involved now or in the 2016 short session and clean up the mess the 2013 Legislature created.  There are lots of ways to do this, but the simplest (though not necessarily the most cost-conscious), would be to say “screw it”, completely repeal all portions of SB 822 and SB 861 relating to the COLA, and just re-do the COLA provision to be effective, say, July 1, 2015 or August 1, 2016 since 2015 is a settled issue from PERS’ standpoint.  Imagine they just decide to start over and revised the COLA to the October 2013 rates and eliminate any reference to the May revision.  This would become effective for only future retirees.  The COLA would still be segmented for those retiring after the effective date of a revised law, but computationally it would make PERS’ life immensely easier by only having to deal with two segments, but would allow them to make a clean adjustment for all current retirees.  Of course, doing this would be slightly more expensive than the present situation, but the extra cost would probably be offset in administrative and clerical savings from having the re-do.

I’m not predicting the above will happen; it is mere speculation that has been tossed around amongst some of us who think about these sorts of things.  I expect the Legislature to do nothing, because that would require them to use less energy than they normally use for coming up with these preposterous plans.  I don’t know if there is enough brain glucose to power the legislature through deep-think right now.

In the meantime, come to our PERS discussion group (see top link on this page), join up, and be welcomed into the discussion.  There are a few of us gas-bags who enjoy speculating and playing armchair (or jailhouse) lawyers.

In the meantime, I wish PERS godspeed as they deal with this hot, steaming turd left in their laps by a group of greedy legislators, even greedier school board officials, and local government officials.  They were warned this wouldn’t fly, and by god the court confirmed that turkeys can’t fly (with apologies to WKRP in Cincinnati).

Peace for another day.

Thursday, April 30, 2015

Days of Wines and Roses

In a unanimous decision, written by Chief Justice Balmer, the Oregon Supreme Court today declared the COLA modifications embodied in SB 822 and SB 861 of the 2013 Legislature UNCONSTITUTIONAL for worked performed prior to May 6, 2013 and October 9, 2013.  This means that if you retired on May 1, 2013 or anytime earlier, the older 2%, COLA bank, and CPI provisions still apply to you as part of your PERS Contract.  For work completed after either or both of those dates, the COLA will be a blend of the pre-2013 and post-2013 rates.  Hopefully, the July 1, 2015 COLA will return to 2% for all eligible retirees, and the previous two COLAs for 2013 and 2014 will be adjusted accordingly in due time.

As for the income tax remedy, the Court ruled that the changes were permissible and are not contractual and were never intended to be contractual.  The only remedy available to those out-of-state retirees who still feel aggrieved would be to reopen the class action lawsuit that led to the Chess settlement in 1997.

While I have only skimmed the lengthy and well-written ruling once, several things popped out.  First, the court basically eviscerated the respondents' (State, et al) arguments about the non-contractual nature of the COLA, the poor-pitiful Pearl argument, the “it’s for the children” arguments and pretty much every argument the respondents made to justify their modification of the COLA retrospectively.  The court also rejected the opportunity to re-visit their decision in the Strunk case (specifically, the Sartain case on the COLA in 2003), asserting that they got it exactly right in 2003.

All in all, I’d say that today was a good day for all PERS retirees and for most actives. The only people who will be fully affected by today’s ruling are those employees who started after May 6, 2013, but they aren’t generally the people who read this blog.  So, while it will take some time to sort out the victory, today is a day that we can clearly celebrate.  There was nothing that I saw that was ambiguous, filled with weasel words.  The decision was clear and decisive.

One final observation.   The Court spent a great deal of time explaining what constitutes a contractual element of PERS.  It left very little wiggle room for future Legislatures to make any changes for retired members.  It also did a great deal to make common sense of the words prospective and retrospective.  It will give great pause to future Legislative assemblies on what might be permissible and what isn’t permissible changes to PERS as we knew it prior to May 6, 2013.   Clearly, prospective changes are OK; any retroactive change to a contractual element is unconstitutional, and they basically said that in no uncertain terms.

I will follow this up as I have more time to read and digest the opinion.  If you want to read it yourself, you can go to http://www.publications.ojd.state.or.us/docs/S061452A.pdf

This just in.  Steve Rodeman, Executive Director of PERS, told Ted Sickinger from the Oregonian that the 2015 COLA will be 2%.  PERS will then spend the next year sorting out all the complex calculations imposed by the Court’s decision for 2013 and 2014, and will try to have them remedied by 2016 COLA time.  Good news.

Wednesday, April 29, 2015

Watch This Space

According to the Department of Justice website, the Oregon Supreme Court will release its decision in the Moro et al v. State of Oregon case tomorrow at 10 a.m..  For those who don’t pay attention to court titles, that is the case we’ve all been waiting to hear about.  This is the case pertaining to the Legislative modification of the PERS COLA and elimination of the income tax subsidy for those not residing in Oregon.  This has been one of the longer-awaited opinions.

So, watch this space tomorrow for a quick posting about the decision and for possibly a longer analysis of what the opinion means.  Unless the case is an outright slam dunk for the defendants (State of Oregon and others), the implications will probably take some time to figure out.  

Stay tuned.

Thursday, April 02, 2015

Future People

Not a heck of lot going on in PERSland, but I thought I’d write a brief post to do two things:  to let people know I’m still alive, and to let future retirees know that the PERS Board has tipped its hand that the assumed interest rate may be changing again.  At the most recent Board meeting (3/30/15), the actuarial assumptions going forward were briefly discussed.  The actuaries will present their study of the PERS system for the next system valuation at the May meeting.  In the meantime, two numbers were whispered about.  The assumed interest rate (currently 7.75%) is expected to drop again on 1/1/16 to 7.5% or 7.25%.  Bear in mind that the PERS fund did NOT make the assumed rate in 2014, coming in with earnings at 7.3%.  While the Board did not have to dip into the gain/loss reserve to fund the 45 basis point discrepancy, it is clear that neither the Oregon Investment Council nor the PERS Board/Actuaries think the higher 7.75% is sustainable.  So, be prepared for another drop in the assumed rate.  If you want to know how this might affect you, just remember that the earnings on Tier 1 accounts, as well as the mortality factors to determine retirement benefits are negatively affected by a lowering of the assumed rate.  For each 25 basis point drop, it takes working about 3 months longer to make up the difference.  So, between the previous 25 basis point drop (from 8 to 7.75%), and the anticipated drop, Tier 1 members remaining in the system will have to work 6 months to possibly 9 months longer to earn the same benefit that would have been received if the assumed rate had remained at 8%.
If things like this worry you, plan on attending the May and July Board meeting where these issues will be discussed.
Here’s hoping the Oregon Supreme Court will finally release its decision in the Moro et al cases (COLA and tax remedy) this month.  We cross the 6 month boundary since the hearings in about 10 days.

Friday, January 02, 2015

On The Outside Looking In

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

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

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

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

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

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