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Friday, April 11, 2014

Tumbling Dice

The Special Master hearings in the Moro et al consolidated cases (SB 822 and SB 861) are due to conclude today, if they haven’t already.  As a result of circumstances beyond my control (taxes, travel, crises), I wasn’t able to attend any of the hearings; however all of the pleadings, briefs, and responses are posted on the web page of the Bennett, Hartman PERS site (here).  There is a remarkable deja vu about the pleadings, especially those concerning the COLA changes incorporated in SB 822 and SB 861.  Besides the historical argument, new to the briefs this time around, there is an extensive discussion of what the court actually concluded in its 2005 Strunk decision on the Legislative reforms of 2003.  The state’s response is also predictable, denying certain facts as facts, arguing that the plaintiffs are trying to present as facts, legal conclusions.  The back and forth between the parties is so much like the Special Master hearings in 2004 that just reading the different parties arguments makes me feel like I’ve been teleported back to 2004.

The arguments over the income tax subsidies for out of state retirees is all new.  The crux of the argument revolves around the Hughes case (1991), the adoption of HB 3349, and what the legislative intent of SB 651 (1991) was.  This could be a trickier legal battle than I thought it might have been in the past.

The Special Master will digest all this material and present his report to the Oregon Supreme Court on or before April 30, 2014.  Once the report is available, I will provide a link to it from here.  Do recall that the Special Master report is simply another piece of evidence used by the Supreme Court in formulating its rulings.  The justices are not obligated to use any or all of the report; they may reject some findings, accept others, and completely ignore still others.  

Stay tuned as we play out this craps game on the legal felt in Portland and Salem.

Monday, March 24, 2014

Throw Back the Little Ones (long)

In the past 6 months, conservative think tanks have been filling the inter webs with studies of public employee pensions.  These studies, intended to inflame legislators and the public, have had varying effects.  One group, the Arnold Foundation, has funded research and funded documentaries on PBS, has attacked the very foundation of public employee pensions and have advocated for a reduction in public employee benefits.  Another group, the American Enterprise Institute, has followed suit in trying to point out that public employee pensions are so generous to defy rationality.  These sensational studies have taken hold with the public and with state legislatures.  =

Today, I want to share with you a critique of the latest study published by the American Enterprise Institute.  I don’t usually do “guest posts” here, but I wanted you all to read this first here so that you can have ready ammunition to undermine the dubious statistics used by the AEI to attack public employee pensions,  My colleague, Val Burris, Professor Emeritus at the University of Oregon, has generously shared his critique of the latest AEI study of public employee pensions.  Val shows that everything about the study is “cherry picked” and that the conclusions do NOT follow logically from the data.   The next time someone throws these data in your face, you can throw them back because the AEI’s study does not follow logically from any data published.  Neither Val nor I can speak to other pension systems, but when it comes to Oregon’s PERS, the AEI document is badly flawed and misleading.  This does not bode well for interpretations of other states.  What follows is Val’s analysis of the latest screed from the AEI.  

Not So Honest: The AEI’s Latest Attack on Public Employee Pensions

 

Val Burris, Professor Emeritus, University of Oregon 

 

This month the American Enterprise Institute (AEI) published a report titled “Not So Modest: Pension Benefits for State Government Employees.” The AEI is a conservative think tank in Washington DC that is financed mainly by large corporations, too-big-to-fail banks, and assorted right-wingers within the American plutocracy.  Andrew G. Biggs, the author of the report, is a public policy huckster who has spent most of his career in the employ of right-wing think tanks like AEI and the even more far right Cato Institute, spreading disinformation in the interest of big business and the super rich.  For several years he also served as a low-level official in the George W. Bush administration promoting the privatization of Social Security.  The AEI study is representative of the kind of the ideologically-driven, pseudo-scientific analysis that spews forth from the well-financed network of right-wing think tanks – promoting tax breaks for the rich, cuts in public services, deregulation of corporate malfeasance, and climate change denial. The study presents comparative data on public employee pension benefits in all 50 states, but my focus in this comment will be specifically on the findings presented for Oregon PERS retiree benefits in each of the report’s four main figures.

 

Figure 1.  In this figure the author uses data from Comprehensive Annual Financial Reports (CAFRs) of various states to estimate pension benefits of full-career retirees.  The crucial issue here is what counts as a “full-career” retiree.  As we shall see, the author’s definition is both arbitrary and bears little resemblance to the data he presents. On page one the author specifies a full-career retiree as someone retiring “after 30-34 years on the job.”  However, there is considerable variability in how this definition is applied across states.  A few states report benefits for a specific category of retirees with 30-34 years of service, but more often they collapse retirees into broader categories like 30+ years of service, or 31+ years of service.  Such categories typically include a quarter to a half of retirees who have put in 35 or 40 or even 45 years on the job.  Therefore, in many if not most cases, the data in Figure 1 do not correspond to the definition of a “full-career” retiree that is stated in the text.  Moreover, as one might expect, retirees with 35 or 40 years of service typically receive higher pensions than those with lesser service.  If this is true, then the average benefit reported for many states will be considerably higher than the benefit of a worker retiring with 30-34 years of service, which is the only definition of a “full-career” retiree that the author provides anywhere in the report.  

 

As I have just explained, data for different states are not comparable because states do not report the years of service of their most senior retirees in the same categories.  For Oregon the highest category reported is 31+ years of service, which is the category that the author actually used in his report.  Therefore, despite what one might be led to believe, when the author computed his estimates of retiree benefits shown in Figure 1, an Oregon public employee retiring with 30 years of service was not counted as a full-career retiree, whereas an employee retiring with 35 or 40 years of service was counted.  By comparison, for New York State, which reports its data in more detailed categories (and which the author disingenuously uses to illustrate what the data supposedly mean and how they were assembled), a retiree with 30 years of service was counted as a full-career retiree, but one with 35 or 40 years was not.  Hence, the author is mixing apples and oranges, and it would be unwise to rely on his data for comparing one state with another.  

 

Returning to the New York State example will give us a clearer sense of just how non-comparable the data for different states may be.  In Figure 1 the author cites an annual benefit of $43,020 for a full-career New York State government retiree.  This figure refers only to those retirees with 30-34 years of service – nothing higher.  The first thing to note is that these retirees account for less than half of New York State retirees in 2012 with 30 or more years of service.  Second, if the author had followed a method more closely corresponding to that applied to Oregon (but never mentioned in the text) and counted all of those with 30+ years of service, the average annual benefit would have been $51,291, or nearly 20% higher than reported.  

 

The annual benefit of a full-career Oregon PERS retiree reported in Figure 1 is $58,188, which corresponds to the figure for retirees with 31+ years of service in the 2012 CAFR.  But I suspect many readers might think that someone with only 30 years of service should also be placed in the “full-career” category (or 28 years of service or maybe 26).  According to the Oregon CAFR, PERS members retiring in 2012 with 26-30 years of service received an annual benefit of $42,096.  If we were to define full-career retirees as those with 26 years of service or greater, the average annual benefit (combining the 26-30 and 31+ categories) would be $48,712, or roughly $10,000 less than the figure reported for Oregon PERS full-career retirees.  So, once again, one’s findings are highly sensitive to differences in how terms are defined and how data are assembled.

 

Apart from comparing apples and oranges, the author of the AEI report is also cherry picking to exaggerate public employee pensions by focusing on a limited number of cases.  Oregon PERS members retiring in 2012 with 31+ years of service account for only one-eighth of those retiring that year and slightly more than one-quarter of total benefits that were initiated that year.

 

Figure 2.  In this figure the author uses data from state CAFRs and the BLS Survey of Occupational Employment Statistics to compute what he calls the “total retirement income” of state government retirees.  This involves combining the questionable estimates of the pension benefits of public employees from Figure 1 with equally questionable estimates of their Social Security benefits.  The sum is then reported as a percentile of the yearly earnings of full-time, full year workers in the same state.  

 

How exactly does the author estimate Social Security benefits of retired public employees?  On page 3 he says that Social Security benefits were calculated on the basis of a retiree’s final salary at the time of their retirement.  This suggests that final salary accurately reflects the average annual income that retirees received over the entire 35 years that were used in calculating their Social Security benefits.  This is obviously an absurd assumption, especially in the case of full-career employees who can be expected to have started at a relatively low salary and then moved up in rank and salary over the decades.  

 

A more realistic assumption would be that an entry level public employee might begin working at roughly half of their final salary (in real dollar terms) and move up gradually over the course of their career.  Most employees also have a number of low income years, either before they entered into a steady career or because of breaks in employment.  So the idea that full-career employees have always earned the same salary they received at the time of retirement exaggerates their Social Security contributions and subsequent benefits by a considerable margin. Using my own case as an example, my average salary for purposes of calculating Social Security benefits was 74% of my final salary; hence, using my final salary to predict my Social Security benefits would grossly exaggerate the amount of those benefits. 

 

Also troubling is the fact that the Social Security benefits calculator used by the author appears to report monthly benefits at the age of “full retirement” (age 66), whereas most people begin collecting Social Security at an earlier age where they receive up to 25% less than the full retirement benefit.  Moreover, the youngest age at which one can receive Social Security benefits is 62, whereas the author, elsewhere in his analysis, assumes that full-career public employees are retiring at an age of 60 when Social Security is not even available to them.  I will have more to say on this later.

 

Working backward, it is possible to calculate that the author estimated Social Security benefits for the average full-career Oregon PERS retiree to be $24,302 per year.  More realistically, if we were to define full-career retirees as those with 26 or more years of service, estimate that the average salary for their top 35 income-earning years was 75% of their final salary, and assume an average age of 64 for beginning Social Security benefits (the national average is 63.8 years), our full-career Oregon PERS retiree would receive Social Security annual benefits of $19,322 beginning at age 64 – or less than 80% of the estimate in the AEI report.

 

The author purports to measure total retirement income of public employees as a percentile of the income of “full-time, full-year” workers in their state using the BLS Survey of Occupational Employment Statistics.  There are two problems here.  First, the BLS survey does not distinguish between full-time and part-time employees; the two are combined in its salary estimates.  According to the 2012 Current Population Survey, roughly one-quarter of Oregon employees worked part-time on a regular basis, so the author of the AEI study is comparing PERS pensions to the salaries of a large number of part-time workers.  Second, the BLS survey is conducted in a single month and cannot say whether workers will continue to receive comparable salaries throughout the year, especially in a time of recession and high unemployment.  For both of these reasons, the earnings of workers in the BLS survey are certain to be lower than those of genuine “full-time, full-year” employees and the percentile ranking of PERS retiree pensions will therefore appear higher than is actually the case.  

 

Based on the multiple fudge factors enumerated above, the author of the AEI study reports that a full-career Oregon PERS member retiring in 2012 received a total income (pension plus Social Security) that ranked at the 90th percentile of Oregon’s current full-time, full-year employees.  With more accurate measures of pension and Social Security benefits, as well as a very rough adjustment for the presence of part-time employees in the comparison group of current workers, I estimate that a full-career PERS retiree in 2012 would have earned slightly above the median (50th percentile) based on their pension alone and somewhere between the 70th and 75th percentile based on pension plus Social Security income (if indeed they were of sufficient age to draw Social Security benefits).  These results should be treated with caution because of the difficulty of estimating the distribution of salaries of full-time workers from data that conflate both full-time and part-time workers.  But, without question, they are more accurate than the figures presented in the AEI report.

 

Figure 3.  This figure purports to represent the current value of lifetime pension benefits of full-career state government employees using some creative assumptions and methods of analysis.  First note that this analysis incorporates all of the questionable data and measures encountered in the previous two figures.  In addition, the figure raises several additional problems.  As noted at the bottom of Figure 3, the analysis “assumes retirement at 60, survival to 85, 2.5 percent COLAs, and 3.5 percent discount rate.”  Let us address each of these as they apply to the estimate of lifetime pension benefits of an Oregon PERS retiree.

 

The assumption of retirement at age 60 is not too far out of line with the average reported by Oregon PERS, but it is at variance with the assumptions of the previous two figures, which focus exclusively on public employees with relatively extended years of service and who are eligible to draw on Social Security (available only at age 62) at the same time they begin to receive their pensions.  Clearly, the author is altering his assumptions about age of retirement to fit whatever biased message he wishes to promote in each individual figure.

 

According to the Social Security Administration, the life expectancy of a 60-year-old retiree is 81 for males and 84 for females, so by assuming a life expectancy of 85 the author is trying to sneak in a few extra years of expected benefits to boost his predetermined conclusions.  Further, the COLA for Oregon PERS retirees is nowhere near 2.5 percent as a result of recent legislation.  It is currently 1.25 percent for the average full-career PERS retiree.  The assumption of a 3.5 percent discount rate also exaggerates the present value of public employee pensions.  Oregon PERS pensions (and those of most other states) assume a long-term market return of between 7 and 8 percent.  By using a discount rate of half or less of this value the author is guaranteeing a highly inflated estimate of the present value of a given pension income stream.  

 

The author of the AEI study claims that the average full-career Oregon PERS retiree in 2012 received a pension with a current value of $1,204,776, making them an example of what he calls “pension millionaires.”  What happens when we make more realistic assumptions of (i) defining full-career public employees as those who have 26 or more years of service at retirement, (ii) who retire at age 63 (the average PERS retiree in 2012 was age 61 with 22 years of service, so 63 years of age seems like a reasonable estimate for those retiring with 26+ years of service), (iii) whose life expectancy is 83 years, (iv) who receive a 1.25 percent COLA, and (v) where the discount rate is 7.5 percent?  Under those assumptions, the average current value of a full-career PERS retiree’s pension is roughly $560,500 – much less than half of the AEI study’s estimate and considerably less than a million dollars.

 

Figure 4.  In this figure the author introduces his own method for computing replacement rates for public employee pensions by returning to the ploy of juicing pension benefits with inflated estimates of Social Security income to make the case that public employee pensions are excessive.  By this method the author estimates that “total retirement income” replacement rates are 105% of final salary for full-career Oregon PERS retirees.  Compare this with the statement in PERS By the Numbers which says that pension benefits for PERS members retiring in 2012 with 30 or more years of service equaled 70% of final salary.  The 2012 Oregon PERS CAFR reports roughly the same replacement ratio for employees retiring with 26 or more years of service.  

 

Even though I consider it illegitimate to conflate pension income with Social Security income, I replicated the author’s method using more realistic estimates of pension and Social Security benefits of full-career PERS retirees and came up with an average replacement rate of 97 percent of final salary for pension and Social Security combined.  It is important to remember that this replacement rate applies only to a small minority of PERS retirees with the longest years of service.  The comparable replacement rate for the more typical PERS retiree with 21-25 years of service is only 46 percent of final salary for pension alone and roughly 70 percent for pension plus Social Security (although the latter figure could easily be exaggerated because of the somewhat generous assumptions I made about these employees’ pre-PERS or non-PERS income for purposes of estimating Social Security benefits).  

 

Concluding Remarks.  There are two more sweeping problems with the AEI study.  The first is that it ignores the very different mix of occupations among state and private sector workers and their required skills and qualifications.  For example, 52 percent of state or local government employees have a college degree compared with 35 percent in the private sector.  Second, and more egregious, is the complete failure to examine, or even consider, the issue of total compensation (salary plus benefits) as the appropriate standard by which to assess economic returns to careers in public service and the relative benefits accruing to public versus private sector workers.  As many studies have shown, public employees tend to accept lower salaries in exchange for some degree of job security and the promise of an adequate pension.  This is a topic about which right-wing think tanks have also generated a deluge of disinformation.  But, according to what is arguably the most reliable and methodologically rigorous study of this question from the nonpartisan Center for Retirement Research at Boston College, state and local public employees experience a wage or salary penalty of 9.5 percent versus comparable private sector employees; whereas, they make up roughly 5.5 percent in terms of more generous pensions, health insurance, and other benefits.  This results in a net deficit of 4.0 percent in total compensation for state and local government employees.  To focus on the magnitude of public employee pensions in isolation of the wage and salary penalty experienced by public employees (and hence their greater difficulty of accumulating private savings for retirement) is an extraordinary omission of the sort that only an ideologically blinded spokesperson of a politically motivated organization would ever consider reasonable.

Thursday, March 20, 2014

Take Your Hands Off It

I ran across this report the other day.  I thought I’d share it as it outlines how two groups have gotten into the public employee pension scrum across the country and they are trying to undo all of the progress made in gaining decent pensions for all public employees.  Don’t be foolish enough to charge the author with bias.  All reporting is biased to a degree, including that by the foundations the author is taking to task.  When in doubt, check the references at the end of the report to decide for yourself whether the bias is relevant or not.  Here is the link to the foundation report.

Monday, February 17, 2014

Whipping Boy

The news on PERS these days is pretty spare.  Things will heat up again next month when the special master starts taking the written briefs and arguments from the plaintiffs and the responses from the defendants.  These will be posted on the Bennett-Hartman website as they are received and processed.  When the first of these links go up, I will post a clickable link to them.  The Legislature “seems” to be in session, although nothing related to PERS has been posted.  There was a brief kerfuffle when a legislator from the southern valley tried to help one of his “friends” (a PERS member) gain a benefit that few of us can access - an exception to the 1039 hour rule that would have allowed certain designated members (sheriffs, police chiefs, fire captains, etc) to retire, but continue to work full time because they were in a hard-to-replace position in a small community.  The present law allows this for communities under 75,000, but the amendment (which died after getting publicly trashed by the media) would have raised the threshold to 110,000.  It never ceases to amaze me how much chutzpah legislators have when it comes to PERS.  Trash the ordinary member who has worked a full career in public service, but create special exceptions for their friends.  Bah, humbug, and worse.

Trashing and beating public employees continues to be a national sport.  The John and Laura Arnold Foundation continues to fund efforts across the country to get states, municipalities, school districts and the like to take away benefits for future retirees, and to reign the existing benefits in for current retirees.  The COLA reduction movement is a specific area the Arnold Foundation has funded in many states across the country.  Last fall, PBS (including OPB), ran the first of a number of programs on “Pension Peril”, which followed the Arnold script fairly closely.  In a scathing article published on Pando, former Washington Post columnist David Sirota, wrote an article entitled “The Wolf of Sesame Street” exposing the role the Arnold Foundation played in funding the series for WNET, the NYC public broadcasting affiliate.  It turns out that WNET had actually solicited the money from the Arnold Foundation, and the Arnold Foundation happily donated the $3.5 million needed to finance the program.  Sirota documented the violations of the Public Broadcasting Charter in pretty significant and damning detail.  After a week of backtracking, double-speaking, denials, and plain B.S., WNET finally decided to return the $3.5 million to the Arnold Foundation and effectively terminate any further development of the series.  As I said elsewhere, it will be hard to measure the damage done by the early installment of the series (I did not watch it), but it is a small victory for public outcry and for David Sirota’s activism that WNET realized what a public relations disaster this was and did the only thing it could do to stem the further erosion of its public image.  Despite this, public employees still seem to be everyones’ “whipping boy” for the foreseeable future.

I’m done with my fall/winter traveling after logging 33,000 miles between late October and today.  We are taking a break from long stints on crowded airplanes, eating out, sleeping in unfamiliar and often uncomfortable beds.  I will be around for all the public hearings on the SB 822/SB 861 lawsuits.

Stay tuned.

Monday, January 20, 2014

Time Without Consequences

The Oregon Supreme Court has published its schedule for the Special Master hearings and for the oral arguments in the cases involving SB 822 and SB 861.  These cases pertain to the PERS retiree COLA and the legislation involving the out-of-state subsidy for Oregon Income Tax.  To make things as clear as possible, there is no litigation that I am aware of involving HB 3349, the 1995 legislation that provided retirees with a direct income tax subsidy for Oregon income taxes for work performed prior to October 1991.  The only litigation involves SB 656, passed in 1991, which provided a boost in PERS benefits to retirees based on length of service, not income and tax obligation.  

The Special Master’s status conferences were and will be held on January 10, February 14, and March 14, 2014.  The Special Master will take testimony from April 1 to April 11 on the evidence.  The Special Master’s report is due to the Supreme Court on April 30, 2014.  

Subsequently, the Supreme Court will begin Oral Arguments on the combined cases involving SB 822 and SB 861 in September 2014.

The final decision, as predicted, will occur sometime between 12 and 14 months from now.  This follows the pattern established by the 2005 Strunk Court in its ruling on the 2003 Legislative reforms.  Again, without an appellate court history, the Special Master’s role is to create a legal framework that the Supreme Court may use in its deliberations to reach a final decision on the constitutionality and legality of legislative actions taken in SB 822 and SB 861.  As I anticipated, the final decisions will be available to the 2015 Legislature, although it is unlikely that a decision will be available by the time the Legislature convenes.  Gov John Kitzrobber has claimed he will not put PERS issues back on the Legislative calendar regardless of the outcome of the consolidated Moro et al cases.  That, of course, depends on whether Gov Kitzrobber is reelected, a prediction that isn’t entirely certain at this point.  I certainly am not anticipating voting for him, but I won’t vote for his presumptive opponent either.

Sorry for the long delay between postings.  Between being far out of town, and attending to various family emergencies, I haven’t been paying as close attention to PERS issues as usual.  Things should improve as the legal machinations get moving.

Monday, December 23, 2013

Your Luck Didn't Last

While I was away in Myanmar (Burma), PERS sent out letters to those people it thinks are not eligible for continuance of the income tax subsidy.  Predictibly, a few long-time Oregonians were caught in the dragnet and they are busily trying to get PERS to undo their mistake.  Worse, in my last message before leaving for Myanmar, I had specifically emailed PERS to clarify what the effective date of the change would be.  I posted, based on PERS’ response, that the first check to be affected by the change would be the check received on February 1, 2014 (for January 2014).  However, the same letters out-of-staters received while I was gone tell retirees that the effective date will be the check received on January 1 (or 2nd), 2014.  So, I must apologize if the information I provided in my last post misled anyone.  I am trying to get clarification from PERS now, and I will update this post if I hear anything that either supports my original post or contradicts it.  In the meantime, I am profoundly sorry that my post might have been misleading.  I thought I had the information correct (and I confirmed it by rereading the email PERS sent me).

 

UPDATE:  I just heard back from PERS.  The official start date for the reduction in benefits due to loss of the Income Tax subsidies (SB 656 or HB 3349) is for the check to be received on JANUARY 1, 2014.  The original date I posted did NOT come to me via a direct communication with PERS.  I should have followed my usual course of action to “trust, but verify”, but in this case I relied on information gleaned from a usually reliable source who had posed this question to three different PERS Customer Service representatives.  In my haste of getting ready for my trip, I did not follow this up with a clarifying or confirming email to PERS.  I accept total responsibility for my failure to verify and apologize profusely to anyone seriously misled by this information.  It did not come from an “official” PERS source, but I do believe that this information came from PERS representatives who were not looped in on the conversation.  Again, my apologies.

Tuesday, November 26, 2013

Your Luck Won't Last

For those wondering about the discontinuance of the income tax remedy for out-of-state residents, PERS has confirmed that the first check affected by the Legislature’s actions will be the February 1, 2014 check.  You may have received a letter about this, but nothing on PERS’ website indicates whether PERS is obliged to send you an individual notification of this reduction BEFORE it hits on 2/1/14.  Do not assume that if you haven’t heard from PERS that you aren’t affected.  You have until mid-December to confirm your tax status to PERS; otherwise PERS can treat you as an out of state resident if you didn’t pay Oregon Income Tax in 2013 for 2012.  If you are an Oregon resident, subject to Oregon Income Taxes (whether you have to pay or not), you are not affected by SB 861 and SB 822, but if you are in ANY doubt, confirm your residency status to PERS using their affidavit.  Otherwise, you might find yourself without the income tax subsidy for 2014 and have to wait until 2015 to get it straightened out.  Forewarned is forearmed.

Peace out all.  This is my final post until I return from Myanmar (Burma) on December 19.  I hope that all will have a relaxing and festive Thanksgiving, and a joyous run up to the Winter Holidays.  

Thursday, November 21, 2013

25 To Life

Without much fanfare - actually without any fanfare - PERS quietly posted the new Actuarial Equivalency Factors on its website in (my opinion) a rather obscure location.  After studying the factors and matching them up with a few other sets I have stored away from past years, it does look like the option 1 (base) benefit has declined by somewhere in the vicinity of 2-3.5% depending on retiree age.  By itself, this corresponds to about the three month setback I’ve discussed as rumor in previous posts.  There are a few surprises in the tables, primarily in survivor benefits.  From reports I’ve gotten, both those posted publicly, and in instances where people have reported to me privately, it appears that members with younger spouses seem to get some of the reduction back as the joint survival tables show about a 1% improvement over prior tables.  I’m not sure I fully understand the reason for this, although I know that the PERS member cohort is living slightly longer than in the past, which accounts for the initial reduction (along with the cut in the assumed rate).  But, the add back for beneficiaries is a bit of a surprise, and I can’t totally explain why it should be the case.  Nevertheless, Option 1 is definitely a reduction, while Options 2 and 3 (and their corollaries 2a and 3a), appear to recover a very small about of the Option 1 setback from earlier sets of tables.  

So, I’m hearing stories about a net setback of 1.5% - 2.5% with a spousal or domestic partner beneficiary, slightly more of a setback for Option 1 (no survivor, no refund, maximum) benefit.

For those of you who want a copy of the new tables, they can be found here .  

I will probably have one more post before I leave the country and will be gone for much of December.  Where I’m going, they barely have telephones, much less internet, and cellular service (I was told I can rent a cell phone for $2500 - no thank you).  So you will see nothing from me between November 30 and December 18, while you may see one post before Christmas.  Do not panic.  That is dead time in the PERS world and so the fact that nothing gets posted in that period is not a sign that I’ve lost interest; I am merely seriously out of the country and unreachable.  I hope to have some cool photos when I return.

Friday, November 01, 2013

Dirty Lowdown and Bad

It has come to my attention that a variety of public agencies (school districts, in particular) are trying to scare the bejesus out of Tier 1 members by sending out incomplete or deliberately vague information about changes to PERS benefits coming on retirements taking place after December 1.  In one particularly egregious example, sent to me multiple times by PERS members from a particularly large school district in the south center of the Willamette Valley implied that bad things might happen if eligible employees missed the December 1, 2013 retirement date.  I’m going to shout this by using all caps - THE THINGS HAPPENING AFTER DECEMBER 1 HAVE ALL BEEN KNOWN FOR SOME TIME, ARE NOT NEW, ARE NOT RELATED TO ANYTHING THAT THE LEGISLATURE DID OR DIDN’T DO.  MOREOVER, WHILE THEY WILL PROBABLY HAVE A SLIGHTLY NEGATIVE IMPACT ON YOUR BENEFIT IF YOUR PLANS DON’T CHANGE, THEY ARE IN NO WAY THE IMMINENT DOOM THIS PARTICULARLY NASTY MEMO IMPLIED.

Let me clarify what is going on.  The two things that are going to change are 1) the assumed interest rate decreases from 8.0% to 7.75%.  The PERS Board chose to reduce the interest rate by ONLY 25 basis points to minimize the impact on employers, but the side effect is that Tier 1 members subject to the rate guarantee will be earning at guaranteed rate of 7.75%, a net reduction of about 3% on total earnings.  You can make up that difference by working an additional 3 or 4 months.  The second thing to happen is that the assumed rate is also reflected in the Actuarial Equivalency Factor, which is used to convert the Option 1 Lump Sum Benefit (Total Lump) sum, in a series of other kinds of payments more suitable to be paid out over time.  The idea is that regardless of what payout option you take, they need to all be actuarially equivalent taking into account the same factors.  The AEFs are revised every two years, just like the assumed rate is revisited every two years.  They are done at the same time because they interrelate in all the same calculations.  So, by lowering the assumed interest rate, taking into account changing mortality of both the PERS and general population, changing assumptions about inflation and salary growth, the AEFs are likely to change in a way that will reflect the fact that the typical PERS retiree is likely to live longer than the predictions from the last set of tables.  These mortality factors can’t change too much because humans are reaching the asymptotic plateau of mortality without major changes in the mortality and morbidity of the major killers.  Nevertheless, mortality factors have changed and, coupled with the lowered earnings assumption, make it likely that members approaching retirement age will see benefits reduced by anywhere from 1.5% to 3.5% depending on age at retirement, spouse’s age, if germane, and benefit payout choice.

The actuaries have not released the revised AEFs to the public yet, but they’ve suggested broadly that they will result in a rough 3 month setback.  This means that someone who can choose between December 1, 2013 retirement (under 8% and old mortality tables) and February 1, 2014 would receive approximately the identical benefit.  So, if you were planning to stay until February, but can retire at the end of this month, there is no financial advantage to you (aside from 3 months of additional income and 3 months of additional contributions to the IAP) to wait until February.  But if you can’t retire in December, or don’t want to retire in December, you can neutralize the impact by working roughly 3 months longer.

While the most offensive of these letters does encourage members to scour the PERS website for more information, the vagueness, the absolute failure to reveal the nature of the changes and the fact that they have been known for a fair amount of time is truly one of the most dirty, lowdown, and bad scare tactics I’ve seen in some time.  I should hardly be surprised since this school district comes from one of the most litigious region of Oregon.  That they would try to intimidate by scaring with, at best, misleading information is offensive and odious.  If I were a member of a union in that area, I might be inclined to file an unfair labor practice complaint against the school district.  The district could have been perfectly straightforward and mentioned the changes taking place without detailing exactly what impact they might have.  There is nothing you can be sued for by giving out factual information without offering any interpretation.  The actual notice simply scares workers needlessly without providing an iota of fact, just “beware of the boogeyman”.  Shame on this district.

 

 

 

Monday, October 21, 2013

Where's Waldo?

I've been getting a fair number of emails about the absence of new posts on the blog.  There is nothing afoot; the blog remains active.  There is just nothing of note to report right now, and we do much of our traveling for long periods of time in the fall for this very (partial) reason.  Things will pick up again after the PERS Board meeting in November, when the new actuarial tables are reported out by the actuary for implementation on January 1.  From what little I know, the new tables will alter the current tables so that benefit calculations will be between 1.5% and 3.5% lower than they would under the current tables.  Part of this is due to the lowering of the assumed rate from 8% to 7.75%; the rest is due to changing mortality rates - people are, in general, living a bit longer except for the problematic low income group.  So figure that between the lowering of the assumed rate and the changing mortality, you'd have to work about 3 months longer under the new tables to get the same benefit you'd receive under the current tables.

Finally, in one other note, the Oregon Supreme Court, has rejected the Central Oregon Irrigation District's petition for appointing pro tem judges to hear the SB 822 and (probably) the SB 861 cases.  The court argued that the Legislature commanded the OSC to hear the cases and that the "rule of necessity" requires that they do so, even though they may have a perceived conflict of interest.  

Waldo will write again when something of the moment arises.  In the meantime, enjoy this utterly glorious Fall weather.  It is intoxicatingly beautiful.  The PERS cases won't be heard until next year at the earliest (possibly October 2014), with a Special Master still a remote possibility.

Saturday, September 28, 2013

Your Gold Teeth

Sometimes I feel as though PERS retirees are to the Legislature and Governor as gold teeth were to the Nazis in Germany (if this is offensive to some, I'm sorry.  The metaphor seems entirely appropriate).  We represent the gold teeth the Legislature, PERS, and the Governor get to pluck before we are sent off to our "just rewards".  Yesterday, the PERS Board approved the reduction in the assumed rate used for Tier 1 rate guarantee, mortality tables, and for employer contribution rates.  The new rate, effective 1/1/14 will be 7.75%.  For most caught on the cusp, the difference between 8% and 7.75% is relatively minor.  Longer term, however, the effect is significant.  The mortality tables will be adjusted accordingly, but I haven't seen the new ones yet as the PERB is waiting on the Legislature to do its thing on Monday.  Speaking of Monday, the sop for the poor seems to be a 0.25% one-time payment at PERS' discretion to make them feel like they really got a 1.5% COLA increase.  Of course, it isn't the same.  It is simply a one-time payment, not added to the salary base for compounding on future benefits.  Those in the range between $20,000 and $60,000 *might* get one of these too, depending on finances.  This is entirely at the discretion of the PERB.  It also would be a non-compounding payment.    The only good news in all of this is that the employers will have increased payments resulting from the lowering of the assumed rate.  This will assure the continued employer whining, sniveling, and complaints come 2015, so we should never be complacent that the teeth pullers will ever be through.

Speaking of gold teeth, the amount of money spent on education just continues to amaze me.  That malodorous group called Fix PERS Now and its financial sugar daddies, OSBA, COSA, Oregon Business Alliance, Chamber of Commerce and others, don't seem to be the least concerned about how much money is wasted on the administrative infrastructure in education.  They don't seem to be even slightly concerned about the existence of 987 local school districts, superintendents, transportation systems, negotiators with teachers' unions.  Worse still, they don't seem to be unsettled with the salaries of the people selected to replace one elective position valued at $72,000 per year, with two appointed people earning, respectively $180,000 (Robb Saxton, Head, Department of Education and Deputy Superintendent), $225,000 (Nancy Golden) [both sources from articles in the Oregonian].  That's a lot of gold teeth that no one crying for more money "for the children" seems to be disturbed by melting down.

Right now, my mouth hurts like hell, and after Monday the pain will get greater.  And, like almost everything else in this state, the Dems will allow the rich to get richer off our gold teeth, while the libertarians at the Oregonian slaver for more.

 

Wednesday, September 25, 2013

Train of Fools

The circus train has left the station and the lead clown, our own Governor Kitzrobber, is sitting like Captain Kangaroo to lead the merry band of fools on another journey to rape and pillage the pensions of PERS retirees (and future retirees).  It wasn't bad enough that SB 822 put the kibosh on over half the cost-of-living increases for about half of PERS retirees, but the latest feast day for fools (September 30th, this year), will now go after the other half of the PERS retirees - the poor ones.  

During the entire discussion of SB 822, the objective was to protect the poorest retirees from any cuts, and subject those who weren't the very poorest to a progressively lower COLA as benefits rose.  Thus, for the nearly 40% of PERS retirees making less than $20,000 per year, they could continue to get the measly 2% COLA spelled out in statute.  Once the benefit exceeded $20,000, brackets at $20,000, $40,000, and $60,000 per year kicked in and progressively lowered the marginal COLA received on each dollar in excess of the last bracket.  So, for people earning between $20,000 and $40,000, the COLA would be 2% on the first $20,000 and 1.5% on the amount over $20,000 and less than $40,000.  Basically, a worker at the top of the second margin, earning $40,000 per year would receive a 1.75% COLA until the benefit exceeded $40,000.  With each bracket the marginal COLA declined so that the marginal bracket at $60,000 would drop to 0.25% on excesses above $60,000.

On the surface, the original cuts from SB 822 look pretty small, but the compound effects of the cuts become dramatically larger the greater the amount of time.  The cumulative losses to retirees become staggeringly large at about 20 years post-retrement, with inflation adjusted benefits being reduced by nearly half at one's most vulnerable point in life.

All of that was draconian, but the newest proposal shephered by the Bhutanese Cowboy would make SB 822 look positively generous.  No longer does he even  pretend to protect the poorest PERS retirees.  Now, he's just slavering for money, however he can get it.  The new proposal, to be voted on next Monday (Feast Day For Fools), simply takes the existing SB 822 proposal and cuts it essentially in half.  Now, there is no modicum of protection for the poorest (see next paragraph); the first $60,000 gets 1.25% COLA, period.  After $60,000, the marginal rate drops to 0.15%.  In viewing spreadsheets comparing the impact of SB 822 (described in the previous two paragraphs), and the new proposal, the 20 year inflation adjusted benefit has been reduced by nearly 70%, with the hardest hits accruing to the lowest paid members.  This is not only greedy; it is downright cruel.  It is money-grubbing at its worst, and SAIF-like as its best.  PERS members and PERS retirees have now been fully trotted out, skinned, skewered, and stuck on a spit to roast for every sin ever committed by public education in this state.  

To mollify the poorest, the head legislative clowns, chief among them, Peter Buckley have offered the possibility of an adjustment - roughly equivalent to a tiny one-time payment - as a sop to the poorest.  The bad news is that it will be really tiny; the worse news is that it won't increase the benefit base.  That's cynical and evil as far as I am concerned.

I've been a life-long Democrat and have donated thousands of dollars to support various legislators in their election and re-election campaign.  But now, that support no longer exists.  Thus far, every House Democrat and every Senate Democrat supported SB 822.  There are a couple of really easy, low-hanging fruits in that basket and I can promise them - Devlin, Kotek, Buckley - not a penny of support, but active support for any Democratic opponent regardless of philosophy.  I don't really care any more.  The incumbents disgust me.  They cynically took money from labor and then turned around and stabbed organized labor and all public employees in the back, without a moment's regret.  They have completely lost our trust in their ability to protect working class, labor, and middle class families.  As for the Governor, the leader of the clown brigade and architect of this "grand bargain", he's done as far as I'm concerned.  To be honest, and not the least hyperbolic, I'd sooner vote for Dennis Richardson than John Kitzhaber.  Why?  Because Richardson doesn't even try to hide his contempt for public employees.  He's so disgusting that he could be more easily neutralized than the country-bumpkin from Roseburg.  Dr. John needs to go back to fishing, hunting, and seeking spiritual awakening in Bhutan.

Once more I will say to the critics of PERS.  You've been lied to, you've been misled.  Little that you read about PERS stands up to any critical scrutiny.  PERS has been incredibly transparent, more so than many of us wish, and the result of that transparency has been for the shrill critics to cherry pick facts and figures that describe very few people I know (and I probably know more PERS members than the average PERS member or Legislator).  PERS members and retirees did absolutely nothing wrong.  We entered into agreements with our employers to perform certain tasks in exchange for salary, benefits, and the deferred compensation of the pension system we had no choice in.  The number of ways the system can be gamed are few and far between and very few people even have a clue how to do it; it also requires the complicity of the employer to get away with (think about that for a minute).  Most of the stories involving people with very high incomes are of people who (a) had high paying jobs, (b) worked for very long periods of time, and (c ) took advantage of the variable annuity program where they were willing to forgo a guaranteed rate of return in exchange for market rates for as much as 75% of their portfolio.  There's no gaming there.  Those people could just as easily lost their shirts.  That they were willing to risk their own money completely should be rewarded, not criticized.  As for the COLA, it has been a promissory part of the PERS contract (yes, contract) since 1973.  It isn't anything new.  The COLA has NEVER been guaranteed to be paid out annually at 2%.  That was the ceiling on the COLA.  Many of us started our retirements in the early aughts and received either no COLA or a minimal COLA.  That's because the cost-of-living increase in the years we retired was minimal.  The new way guarantees a minimal payment regardless of the cost-of-living increases or decreases.  It completely decouples the thing called a COLA in statute with the statutory meaning of the word COLA.  

Legislators who vote for this latest attempt to blame PERS members for problems of the public schools will pay a heavy price for that vote.  I predict that some 150,000 or more PERS members and retirees might decide to either sit on their hands in 2014 and let the chips fall where they may, or may actively support opposition candidates.  This is an ugly place for the Ds to be.  Just remember that we already know what to expect from the Rs, so having them would produce no surprises.  What surprises us is the Ds contempt for its natural constituency.  It begs labor for endorsements and, more importantly, cash.  Now that they've spit in the eye of organized labor, I expect that money will be a little harder to come by.  What's worse, I expect, is that after all of this, the court is likely to overturn the legislation concerning the "COLA".  And so, you will have expended all of your political capital and then some, only to be hoist on your own petards when the court gets through with you.  Think about this simple question:  when does a COLA cease to be a COLA, by definition?  And, then, "PERS shall not pay a benefit to which a COLA does not attach", Strunk, 2005.  Good bye, and good luck.  You deserve your own fate.

 

 

Wednesday, September 18, 2013

Not Gonna Beg

The clown of Mahonia Hall is at it again, running around with all the little people trying to figure out a way to stab us PERS members (actives, inactives, retired) in a variety of evil ways.  More than that, it isn't enough to beat up on retirees, they want to take away the $183 personal exemption for individuals earning more than $100,000 per year, or families earning more than $200,000.  And just when you thought it couldn't get any worse, discussion is circling around the "senior" medical deduction, setting the benefits only for those over 67.  All you PERS retirees between 62 and 67 can just bite the little man's weenie.

The latest "leak" from Mahonia Hall  is that retirees will see yet another smack to the COLA before the next one is awarded in 2014.  The "plan" is to set the COLA at 1.25% for everyone, and then for those earning more than $60,000 per year, the benefit would drop at the margin to 0.15% of the amount over $60K.  There is a very tricky legal definition floating in the sewer the legislators are swimming in.  The word COLA stands for "Cost of Living Adjustment".  The legal question is how can a fixed and invarying amount be considered a "Cost of Living Adjustment".  The COLA is an amount determined annually by the bureau of labor statistics to measure the increase or decrease in a market basket of goods and services that the average consumer must buy.  Perforce, the amount varies from year to year, and prior to SB 822, there was a cap on the size of the COLA increase, but the amount over the COLA would be banked and drawn on in years when the actual COLA was less than the 2% cap.  Since the 2013 legislature, the concept of a COLA has been shredded. They have unlinked the COLA from the annual BLS market basket change (a true measure of COL), they have removed the "bank", and so the "cost-of-living" has become a gratuitous 1.25% benefit increase annually without any regard to inflation.  Just think, when inflation roars back to 8% or 9% and seniors can no longer afford their medicine, expect to see them applying for food stamps at Mahonia Hall.   Left in the mess, is the question that the legal beagles will have to sort out:  when is a COLA not a COLA, because the Strunk court mandated that PERS cannot pay a benefit to which a COLA does not attach.  So, if what is changing is ruled a gratuity, not a COLA, then the Legislature will lose again on this spawn of satan.

Buried inside a sentence discussing the changes to COLA, is another time bomb intended to hit inactive PERS members who haven't yet retired.  Although not specific, the general consensus seems to be that the inactives who are eligible to retire under Money Match will see their annuity rate decrease from 8% (7.75% after December 31) to something in the vicinity of 3.5%.  This will cut the prospective benefit by about 37%.  Many inactives are all over the country.  They vested in PERS, PERS would not let them take all their accrued benefits out (including the employer match), and so they've been stuck in PERS all these years, expecting that they would retire and have a decent pension for the time they worked in PERS and compensating them for the time value of their money kept in trust for them because they had no other way out.  Now that there are quite a few of these people out there, it is time to retroactively change the rules.  Sure, you can still retire under the different benefit arrays, but you will no longer receive the benefit you thought you were going to get.

Related to the inactive issue is another, far more perverse and cynical.  These are people still working for public agencies in Oregon full time.  In 1995, just before Tier 2 began, OUS offered its faculty the option of moving to their own (OUS) retirement system, called the Optional Retirement System.  Members were allowed to join up into the new system, advertised as equal to or better than PERS, and have all future contributions directed to the ORP.  Members electing this were assured in person and in writing that their PERS benefits would remain as they were and that accounts would continue to grow as the money is being held in trust for them.  The new ORP works more like a 401-K and many are discovering that it is anything but equal to or better than PERS.  Nonetheless, people accept the choices they made, but now they've come to discover that they are classed as "inactive" PERS members and will fall into the same morass that all other truly "inactive" members will be.  So despite the fact they were promised their PERS benefits as contracted, the Legislature is now trying to take away about 37% of their benefits earned while they fell victim to the OUS' bait and switch routine.  

As the title says, "not gonna beg", but you can bet your life that these issues - ALL OF THEM - will be played out in full Shakespearean drama before the Oregon Supreme Court.  And when all the various questions are asked and answered, it would not shock me to see the PERS member side win a few for the hipper.

One thing is also fairly certain.  This blog will not support a single member of the Legislature who votes in favor of this bill.  It doesn't matter what party, what else he/she may have done.  The buck stops right here.  If you are a legislator and you are reading this, I promise you I will use this space to campaign for every one of your primary rivals in May.

Friday, September 06, 2013

50 Ways To Leave Your Lover

In this case, it only takes one, but the decision has been forced upon us by the continued saga with Yahoo Groups.  As of today, we are no longer accepting messages posted to Yahoo Groups and are actively encouraging users to join us at the new site of our PERS Oregon Discussion Group located on Google.  You can get there easily https://groups.google.com/d/forum/persoregondiscussion .  You will need to register.  If you run into difficulty, contact one of the group moderators back channel (via email) and we can assist.  You do not need Google Mail to participate.  You merely have to register and provide the same information that you are required to provide the first time you try to use a closed group at Yahoo.  There are still clean-up efforts going on and we will keep the Yahoo site open for members indefinitely as the archives of nearly 6 years of posts are there.  Until we can figure out a way to capture that archive for use elsewhere, we feel obligated to maintain the Yahoo Group at a minimal level so that the archives are available.  Please keep in mind that to access the archives, you have to remain a member of the Yahoo Group, which is why we discourage users from necessarily closing their Yahoo accounts or resigning from the group.  You may, if you wish, but should you ever want to access those archives, like looking up something said two years ago about a particular issue that is reoccurring today, this would be the way to do it.

The new Google Group has a lot to like about it.  There are some operational differences, but none very complicated that users will find the interface very different from the old Yahoo.  If you have any problems, all of the moderators are around and with access to the Internet to help you out.  We are trying to make this transition as seamless as possible under the circumstances.  So, if you point your browser at the address hyperlinked above, or go to the left side of this blog and look for the very top link under Links, it will take you to the new group.  The link to Yahoo is gone and it isn't coming back.  As of early today, we had already gotten 375 users to move over. There are still slightly less than 500 members not accounted for.  If you are one of those, and you are still interested in the real-time discussion of PERS issues, PERS Oregon Discussion on Google is the place to be.

It is probably going to require some expensive software to try to capture the archives at Yahoo.  If you want to help out with that project, you can feel free to use the donate button here to help out.  No matter what we do, this move has been extremely time consuming, the fight with Yahoo tiring, and all of the moderators are pretty worn out from the recurring and unrelenting battle against spam.  We won, but as they say, it was a pyrrhic victory.  Our win came at the cost of the group and shutting down all posting without moderation.

I, along with the group moderators, look forward to seeing you over at Google (which also hosts this blog) Groups.  I think you will like the format, and some of the options we have that we didn't at Yahoo.  Again, any difficulty accessing the group, check with one of the moderators - addresses still posted on the Yahoo Groups site.

Monday, September 02, 2013

Movin' on Up

Not to the eastside but to Google.  We owners and moderators of POD (PERS Oregon Discussion) have not made a formal decision to leave Yahoo Groups, but things are going disastrously bad since Yahoo rolled out the update called NEO.  It is happening to random people right now, but all but one of our moderators have been affected (infected) by the NEOization of Yahoo Groups.  In short, NEO is a disaster.  It prevents the most basic control, it destroys the formatting of messages and replies, it opened the floodgates to spam (more than 100 in the past three days), and it makes management a nightmare.  To prevent some of the worst issues (the spam), I've shut the group down to any unmoderated content.  It keeps out the chaff, but it is a pain for moderators and the members trying to post legitimate questions and add content.  While we plan to give Yahoo until the end of September to sort itself out, I'm not optimistic.  To prevent the complete destruction of the group, I have already created a new POD on Google.  To get to the site go to https://groups.google.com/d/forum/persoregondiscussion .  You will have to join the site, but we are starting to take legitimate, unmoderated, PERS-related questions from all members there.  You must be a member to read and to post.  Things work similarly to the way the old Yahoo worked.  There are a few differences and as we note them and implement them we will post a document (a FAQ) comparing the old functions in Yahoo with the new way to do things in Google.  Most of the 125 or so members of the Google group seem to like it so far, so I would encourage anyone interested in keeping up with PERS information in real time to join the new group.  I'm going to remove the link to the Yahoo group from here, principally because I don't want new members to join there; I want them to join Google.  You can join Yahoo easily enough if we end up keeping the old group, but the actions and behavior so far make it highly unlikely that is going to happen.  This last week of NEO has been the biggest time-sink of my life, having wasted no less than 50 hours trying to work around, avoid, undermine, seek help, going outside of Yahoo, and creating the new group, all to maintain continuity for all members and other interested parties.

Please join the Google group.  It has some wonderful search features that simply don't exist on the Yahoo side.  I wish the move didn't have to happen - and in the end in might not - but being prepared is the only way I know to being able to Move on Up.

Again, thats https://groups.google.com/d/forum/persoregondiscussion

Thanks

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