If you wish to help support the ongoing costs of running this blog and you haven't purchased anything through Amazon on this site, please consider a small donation to defray basic costs. Thank you. Marc Feldesman.

Oregon PERS Information is Copyright Marc R. Feldesman (c) 2003 - 2016 All Rights Reserved. Posts may not be reprinted without prior consent.

Please don't post your comments more than once. I moderate all comments and a delay between posting and appearing is part of the drill here. I get to all comments in due time. Please don't continually repost the same comment. Only one will be posted.

Sunday, August 07, 2016

Set Fire To The Rain (LONG POST)

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

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

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

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

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

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

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




Sunday, July 03, 2016

What's New?

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

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

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

Enjoy your summer.

Monday, March 28, 2016

Always Strive and Prosper

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

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

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

Sunday, March 06, 2016

Thank You

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


Again, my many thanks for your support.

Saturday, February 27, 2016

Over and Over

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


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

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


Friday, February 05, 2016

Ride The Wild Wind

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

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

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

Monday, January 11, 2016


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

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

Wednesday, December 02, 2015

For the Legislature and the Boregonian at This Holiday

- Posted using BlogPress from my iPad

Monday, November 23, 2015


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

Monday, November 02, 2015

Another Brick in the Wall

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

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

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

Monday, October 12, 2015

The Cost of Living

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

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

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

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

Thursday, September 17, 2015

Sticky Fingers

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

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

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.

Clicky Web Analytics