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Sunday, February 11, 2018

Soul Suckers

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

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

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

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

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

Friday, December 22, 2017

The Far Side of The World

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


"Far Side Of The World"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



Happy Holidays To All

Tuesday, November 21, 2017

Tin Foil Hat

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

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

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

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

Friday, October 13, 2017

Rattle That Lock

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

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

Monday, September 18, 2017

Long Time Gone

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

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

Friday, July 28, 2017

It Could Be Worse

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

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

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

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

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

Wednesday, June 28, 2017

Another One Bites The Dust

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

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

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

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

Sunday, June 11, 2017

Big Balls in Cowtown

All the big players in Cowtown have weighed in on what is necessary to reach sine die this legislative session.  The outside players - the unions, the various business alliances, the school boards associations, lobbyists for tobacco, liquor, forest fairies, poisonous mushrooms, mountain oysters, etc - have made their wishes (or their demands) known and what we have is, as they say, a “failure to communicate”.  The Dems in the House, the Senate, and possibly the Governor’s office are sort of on the same page, while the Rs seem to be on a different page in a different book, and the external players have each offered their input on which books are acceptable to them.  The bottom line is that no one seems to have the votes to do much of anything and legislative paralysis looks more and more likely.  The unions claim they don’t support SH 1068 - the PERS changes brokered by. of all people, the unions, UNLESS they get revenue reform that includes changes to the ways that corporations are taxed.  The other special interest groups want the PERS reform, but without the pesky tax increases the Ds and the Unions want.  There are less than 4 weeks left in the Legislative session before the mandatory adjournment date of July 10th rolls around.  Without agreement on these issues, the Legislature is doomed to a Special Session in the Fall.

I’m not advocating for PERS reform, but the problem isn’t going to go away without two things happening:  1) more revenue; and 2) some legal fixes to PERS.  There are two other options available, neither particularly appealing to legislators.  First, there is the problem created by Ballot Measure 5, which probably less than 50% of the current voters were either here for or alive at that time.  This problem is the result of saddling the State of Oregon with the responsibility for funding about 80% of public school operating costs, but leaving the control of the schools local.  That, to me, was a catastrophic failure of Measure 5, and the Legislature could remedy that in either of two ways:  a) taking over complete control of the schools, including hiring, firing, negotiating contracts, and establishing benefit levels; or b) returning total control back to the school districts by removing the obligation for supporting the schools from Measure 5.  The first would give what the original intent of Measure 5 was; the second, would destroy Measure 5, but from people I’ve talked to, most don’t even understand the first thing about how schools are funded.  The second area of mitigation would be to eliminate the “kicker”, which was created to stave off Measure 5-like effects before Measure 5 was even a gleam in the eyes of its proponents.  This wouldn’t solve the funding crisis, but it would eliminate a persistent nuisance in a growing economy.  Why should the state be forced to give back money legally collected for income taxes just because the state economist is unable to forecast the final expenditures in a biennium two full years before that biennium’s end?  If that requirement is necessary, why not have the reverse requirement, i.e. if the state economist overestimates end of biennium revenue, and the state comes up short, why not impose a tax increase?  You can’t expect a tax refund because of an underestimate, while not expecting a tax increase because of an overestimate.  My point is that the whole “kicker” is a monumentally stupid way of running a state.

I’m guessing that the status quo is what many want, although I suspect the only people who really are really happy are the swinging dicks with the big balls in cowtown (OBI, OSBA, SEIU, AFSCME, and all the other lobbying groups) who have played the game of fomenting paralysis as a high art form.  In in the meantime absolutely nothing of consequence has been achieved by the malingerers in Salem who have been bought by all the special interests lined up in opposition to anything but stasis.  What a waste of human capital, and that applies across the aisle.  However, as a trained evolutionary biologist, I can state with confidence that long periods of stasis are often followed by explosive adaptive radiations.  These can be good, or bad, kind of like the proposed asteroid that brought about the end of the dinosaur reign near the terminus of the Cretaceous period.  We can hope for something that catastrophic to wake up those who are asleep at the wheel in Salem.

Wednesday, May 24, 2017

So Long, So Wrong

As this legislative session has dragged on for what feels like an eternity, we seem no closer to any answers than we had when the session started in February.  The words I’m hearing from Salem suggest that the Ds and the Rs are at an impasse over revenue measures,  with the Ds proposing a gross receipts tax that House Dems want to raise about $2.2 billion, while the Senate Dems want to raise about $800 million.  While the Ds are in general agreement over the need for the gross receipts tax, the the Ds can’t even agree amongst themselves about the amount of revenue that should be raised from this tax.  Obviously, the higher the ask, the harder it is to get agreement from any of the stakeholders.  Similarly, the PERS bills (SB 559 and SB 560) seem to be dead with the Rs pushing for them and the Ds resisting.  This gridlock would suggest that a Special Session is almost inevitable, but …… wait for it.

In the midst of this power vacuum in Salem seems to have stepped some of the unions, so I’ve been told by multiple sources.  The term “cost sharing” is being bandied as a partial panacea by various people without bothering to define what that means.  Here’s what it means.  The unions are floating a trial balloon offering to have active workers (those still working in Tier 1, Tier 2, and OPSRP) provide some of the funds to offset increasing employer costs.  Mind you, this is not to cover the UAL, but employer “normal cost”.  I’ve heard several versions, and parts of SB 560 spell out what the Rs would consider a reasonable deal - to completely capture the employee contribution currently going into the IAP and use it to offset employer costs.  That won’t fly because it probably isn’t legal, regardless of how it would be implemented.  So, in step the unions offering a compromise deal.  As the deal is presently structured, employees will have 4% (of the 6% go into the IAP); however, the remaining 2% would be redirected not to the employers (directly), but to a “risk mitigation” account, which would be reserved to keep employer “normal costs” at a relatively constant rate.  The PERS Board would control the fund and would direct resources from the fund if employer normal costs rise due to changing rate structures.  If employer rates don’t rise before an individual retires, then one presumes that the 2% captured from the employee would be returned to the employee’s IAP (plus interest, one would hope).  While nothing about this is fixed, the floating idea is that it would be phased in over several years, so employees don’t take the hit to their IAP all at once.  

I have many problems with this proposal, not least of which is that the unions (who represent employees) are behind it.  Another critical reason I’m opposed to this is because it penalizes all Tiers equally, even though the retirement benefit structure in the three tiers is different.  Everyone loses the same percentage (which seems fair on the surface), but those closer to retirement not only preserve their existing benefits, but suffer from the cut for a shorter period of time.  On the other end, those furthest away from retirement already have the worst of the three retirement plans, yet have the longest period over which to suffer the cut, but also, the longer period over which their redirected money can be captured because of rising employer costs.  Worse still, this does nothing to force the employers to come to grips with the fact that their own profligacy is a major contributor to systemic problems.  This approach provides employers with a cushion against their own fiscal mismanagement, and gives the PERS Board a new way to mitigate responsibility for the employers to pay the full cost of the system, something the employers have refused to do since 1997.  What is floating also does not address the question of the “pick up” itself (i.e. who pays the employee contribution).  Finally, this approach has another “feature” going for it.  If the unions propose it, you can bet they will not sue the Legislature if they agree to it.  For union members and all active members of PERS, this becomes a lose-lose proposition.  

I realize that everyone is in a pickle this budget year.  It is clear that the state needs more revenue, especially as long as we have the “kicker” still in place.  To get more revenue, the Ds need a couple of Rs to join in.  To “buy” those Rs, the Ds are going to have to give on something, and the Rs want PERS reform.  The union’s proposal may be the least bad of a lot of bad options, but I think that the Unions coming to the Legislature’s rescue won’t gain much respect for labor, and may antagonize members.

It is easy for me to criticize all efforts at PERS reform; none of them affect me.  But I try to look at this in a more long term perspective.  Does this proposal do anything to address the long-term problem with PERS?  Nope.  The UAL will still be there no matter what happens.  Does the proposal offer generational equity?  Nope.  Those with the best benefit structure pay relatively little compared with those who are just starting their careers or are in the first decade of their careers.  Will this help attract the best possible workforce?  Nope.  Every time you take something away from people just coming into the system, it makes it harder to recruit and retain talented and enthusiastic workers.  Finally, we have no clue how much this will actually save, and whether it would be enough to stave off further raids on active worker pension promises in the future.  It seems to me that the primary purpose of this proposal is to insulate employers from the inevitable lowering of the actuarially assumed interest rate by the PERS Board effective January 1, 2018, which will have the effect of raising the employer’s normal cost for the employee’s retirement.  So, in the end, active members will get the shaft from two ends - reducing the amount of money going into their IAP, plus lowering the payout structure for annuitized benefits at retirement.  And, we still don’t know how this affects or doesn’t affect the “pick up” itself.  Logic dictates that it shouldn’t affect the “pick up”, but nothing logical has emerged during this session yet.

As this saga continues well into the beginning of summer, it is beginning to look like a case of “so long, so wrong”.  

Wednesday, May 17, 2017

Waiting in the Weeds

While last week’s post was a bit dour, this week’s is less so.  Tuesday’s revenue forecast contained mostly good news, but not quite in the way I expected it.  Because of my own confusion about how the revenue forecast(s) [note the plural] work, I underestimated the power of forecasting to turn two different forecasts into winners for everyone.  The forecast for the 2017-19 budget is up by about $200 million over the previous forecast, dropping the shortfall from the last guesstimate of $1.6 billion, to $1.4 billion.  At the same time, the forecast for the 2015-17 biennium ending balance is up by $400 million, which will trigger the “kicker” if the forecast turns to reality when the final budgets are closed out by late August.  If the revenue drops significantly below the $400 million threshold, then the “kicker” won’t be triggered and the excess can be rolled up into the 2017-19 budget to offset the shortfall even further.  In addition, corporate tax revenues for 2015-17 are up, which means the possibility that the corporate “kicker” can be rolled into K-12 budgets on top of any other revenue they might get.

All this combined reduces the pressure on the Legislature to come up with big revenue enhancements, but the Rs in the Legislature have announced that the budget is good enough for them that NO revenue enhancements are needed, since the shortfall can be covered by program cuts.  For PERS members, this means more wheel-spinning.  The Rs are the ones pushing for PERS reform; the Ds are pushing for revenue enhancement, particularly the corporate income tax.  These two forces stand in direct opposition to one another; there is no way the Ds will agree to PERS cuts, or many other cuts, without the Rs agreeing to corporate tax reform.  So, while more draconian PERS cuts *might* be off the table, PERS cuts, in general, remain so long as there is a possibility that the Rs might agree to some revenue increasing measures.

Expect this saga to drag on for awhile, and lead to, possibly, a stalemate that results in the need for a special session after the revenue situation for 2015-17 is sorted out in the latter half of August.  This only pushes the problem for PERS members further into the future, staying the date of execution until later.  There may be some movement before sine die in late June or early July, but I’m growing discouraged that anything will be settled by then.

I wish I could offer something more informative, but, like you, I’m still waiting in the weeds.

Wednesday, May 10, 2017

Way Down In The Hole

PERS members are coming down to the Wire (bad pun for some) to make final retirement decisions.  Nothing of substance has moved in Joint Ways and Means, but broad hints have been dropped about what might await those members near and far from retirement.  The two main areas are for members to pay more for their retirement benefits (redirecting the 6%) and getting less for their money (spreading out the FAS calculation over 5 years instead of 3, disallowing sick leave accrued after 1/1/18, using a first-in-first out method for charging sick leave after 1/1/18).  Not much chatter about all the other “features” of SB 559 and 560 (the $100,000 FAS cap seems to ebb and flow, but its implementation seems problematic, and it doesn’t really save as much money as people thought it might because of its delayed implementation to preserve accrued benefits).  It also seems fairly likely, at this point in time, that June 1 is still a safe date to retire and avoid any possible impact from the legislative changes.  Of course, if none of the changes take effect until January 1, 2018, one could wait to retire as late as the last working of November for a December 1 retirement.  The calculus of choosing that date over June 1 or possibly July 1 is complicated however.  If you are still working for a PERS employer, waiting until a Dec 1, 2017 may make sense because you will continue to get your full salary until November 30, you’ll be 5 or 6 months older in the actuarial tables (this isn’t as significant for younger workers as it is for older workers), and your IAP balance will continue to grow by 6% of your gross salary each additional month you work.  If you are inactive, the calculus is different, especially for Tier 1 members.  While your Tier 1 account balance continues to grow by 7.5% annually (0.625% monthly), and your actuarial factors will be somewhat larger on December 1 as opposed to June 1 or July 1, the former date deprives you of a 2% COLA on your initial benefit that you would get if you retired on either of the latter dates.  In addition, retiring June 1 or July 1 (as well as May 1 or April 1) makes you eligible for the July 1, 2017 2% (assuming you have been inactive since BEFORE October 1, 2013), you also will get 0.14% deposited in your COLA bank to be used in the future if the COLA is less than 2% (remember that the maximum COLA is 2%; it is not a guaranteed rate).  So, when you combine these details for an inactive member, adding in the angst and worry over what the Legislature might still do, you are probably at a near wash between the earlier two dates and the later date.  You have to run your own numbers to see how this works for you (this is why financial calculators and spreadsheets were invented).  [edit 5/12:  I’ve heard an unconfirmed rumor that the PERS bills in Joint Ways and Means are DOA because the Gov doesn’t want litigation uncertainty hanging over budgets for the next two years.  I suspect this is a bit of hyperbole; the real reason may be something more pedestrian like the the two parties can’t come to any agreement over Revenue measures, so PERS cuts are off the table.  What this means is that IF this is a proper rumor with some substantiation [something I’ve not been able to confirm so far], a Special Session is likely to be called once the final revenue information is available in the latter part of summer, long after the Legislature adjourns.  I continue to try to verify the legitimacy of the rumor with multiple sources.]

Next Tuesday, May 16, 2017, at 8:30 a.m., the State Economist will release the final revenue forecast that the Legislature will base its 2017-19 budget allocations on.  This event signals the final push to wrap up budgets, bills that affect the budget, and to enter the glide path towards a desired June 23, 2017 adjournment of the Legislature.  The revenue forecast holds out the prospect of good news, very good news, or good news so good that it turns into bad news.  Everyone knows the economy is up, which thus perplexes people trying to figure out how the state’s revenue is inadequate for the budget needs of agencies in a growing economy.  At last news, the potential budget shortfall ranges between $1.6 and $1.8 billion, depending on who you ask, and what day of the week it is.  The source of the shortfall is unrelated to the economy.  It is result of Legislative stupidity back in 2013 (the COLA legislation that was overturned by the Supreme Court) when the Legislature allocated about ten times more money from the longterm COLA savings, than the short-term savings justified ($60 million in savings vs $885 million allocated).  The court decision didn’t come until late in the 2015-17 Legislature, so the impact of the Court’s ruling was delayed until the 2017-19 session and PERS employer rates rose significantly (because, of course, the employers spent their allocations like drunken sailors on shore leave) for the 2017-19 biennium.  This adds about $400 million or more to the shortfall.  The second factor has to do with the way Medicaid reimbursements changed under the ACA and were reduced under the early days of the current administration.  This is probably about $650 million of the shortfall.  The remainder of the shortfall is largely attributable to inflation that has occurred since the last biennium (about 3.5%) just to maintain current service levels (which should happen minimally in a growing economy).  This accounts for about $500 million or so.  So that explains most of the projected shortfall.  So, in an economy near full employment, with wages and salaries up slightly and tax revenues increasing, what could possibly go wrong?

What, indeed, could go wrong with a growing economy?  Well, for those with short memories, or those who haven’t lived here all that long, a Legislature long ago (1981) passed a monumentally stupid budgeting law.  It is enshrined in the Oregon Constitution as the “kicker” (as in “kick back”).  At a time when property taxes were rising rapidly, Oregon decided it wanted to head off a property tax measure (like Prop 13 in California, passed in 1979-80).  So they created this rule that says, in effect, if the revenue at the end of a biennium exceeds the State Economist’s most recent revenue forecast by more than 2% (e.g. 2.0001%) the ENTIRE surplus revenue is refunded to the taxpayers after the books are closed on the previous biennium (ours will end June 30, 2017).  How this refund occurs has varied over the years, but for at least the past 16 years or so, it has been treated as a tax credit for the following year’s taxes and is based on some fixed percentage of taxes paid in the previous tax year (I would get a huge kicker, but I don’t want it).  So, how does this affect PERS and all the other things mentioned above.  The 2% threshold for 2015-2017 is $336 million.  At the end of the first quarter (Jan-March), the excess in collected revenue over forecast was $206 million.  That leaves, April, May, and June to fill out the remainder of the biennium, and there is an extremely high likelihood that the May forecast (next Tuesday remember) will be forecasting final 2015-17 revenue surplus (and therefore the starting budget for 2017-19) at greater than $336 million.  Of course, the final number won’t be known until all the books are closed on 2015-17 after June 30, 2017 (usually it is late August before all the final accounting and auditing is finished and the budget can be officially closed; this is also the time when the Treasury decides whether the conditions for the “kicker” have been met).  So, if the revenue forecast comes in at $330 million above predictions, the Legislature gets to budget the extra $330 million, which will reduce the amount of shortfall that has to be backfilled, and agencies, and possibly near-term PERS retirees-to-be can breathe a slight sigh of relief because the PERS legislation will be closed out by the time the Legislature adjourns between June 23 and the mandatory July 8, 2017.  But, suppose the revenue forecast comes in at, say, $450 million above final projections.  That ought to be great news but, unfortunately, that’s where the “kicker” comes into play, and the ENTIRE $450 million would have to be refunded (“kicked back”) to income tax payers when they file their 2017 taxes in 2018.  That would mean that the growth of revenue would NOT be available to Legislators to appropriate towards the existing shortfalls.  That could produce an even bigger budget hole, and possibly lead to budget standoffs between the parties who want revenue reform and transportation improvement (the Ds) and the parties that want PERS reform and transportation improvement.  Everything hinges on what kind of deal the parties can make over the contested ground (Ds - revision of corporate taxes; Rs PERS reform).  With less money available, the stress will be greater, and this leads to the possible scenario where neither party wants to budge, and the parties agree to a compromise, temporary budget to start the new biennium, but come back either in a Special Session in the Fall after the final revenue figures are in, or they wait until the even-year session to settle budget details.  Regardless of how they do it, if this happens, it extends the period of uncertainty for PERS members on the cusp of retirement, and with it the anxiety that drives PERS members insane during a legislative year like this.

And, if this isn’t enough to drive people even deeper down in the hole, there is the fact that the PERS Board (very independent of the Legislature) is currently conducting its biennial review of the economic assumptions that underpin the formal system valuation that will occur next year.  This process (required in statute) means that the assumed rate gets revisited, mortality rates get revisited, and after the PERS Board hears from the actuaries and other experts, it will decide to lower the system assumed rate, update mortality tables, and both of those figure into the Actuarial Equivalency Factors (AEF) that convert account balances into streams of payments for retirees and beneficiaries.  The experts have already weighed in on the assumed rate (with forecasts ranging from the high 5% range to slightly below the current 7.5% rate), while the IRS is in the process of updating its recommended mortality tables that are partly incorporated into PERS’ final mortality figures and AEF.  If you look at all the expert opinions, you have to be willing to consider that PERS could drop its assumed rate to 7%, and extend out mortality tables beyond what might have been done in the past.  The bottom line is that if you are Money Match retiree, or a Full Formula retiree with a beneficiary, your monthly benefit will be lower beginning January 1, 2018 even if the Legislature does nothing.  (Do note, that this only applies to people who retire on or after 1/1/18; nothing changes if you are retired before then).

So, there you have the most current update of what is going on now.  There are an incredible number of variables in play, and no clear schedule (except PERS’ own timetable) for when major decisions will be made.  If you thought “you wanted it darker” was dark, now you are way down in a hole, where only math, personal considerations, and external life events can possibly help you with your decision.  Your only question happens to be the title of another song “should I stay or should I go?”.  



Monday, April 17, 2017

The Gilded Palace of Sin

I have to confess that the title of this Flying Burrito Brothers album jumped into my head after seeing a color news photo of the Capitol Building in Salem with its gilded statue on top.  It also reminded me of the line from an old Gilbert and Sullivan operetta “nothing is ever as it seems”, or its modern incarnation as “objects in mirror are closer than they appear.”  So what is this all about?  I am not a believer in conspiracy theories, blind and willful ignorance, or plain incompetence (I do occasionally make exceptions).  I’m also not one to panic, for myself, or for others.  But, I have to confess that actions in the past week have given me new respect for the power of mean-spirited people, being pursued by an angry and worried crowd, to come up with magician’s tricks to fool people into thinking they’ve won a small (or large) victory, when they have, in fact, won nothing.

Since you all know that I write only about PERS (and recently only about the Legislature and its long history of trying to take benefits away from workers), I have been following the discussion (and contributing to it) regarding the Senate Workforce Committee and its unwillingness to confront PERS in more than a desultory way (I mean that; I take nothing from all the informational meetings except a complete unwillingness to do anything for or against PERS bills except to pick two bills and send them up, with all their attached amendment and without any recommendation, so that the Black Hole known as the Joint Ways and Means Committee can do their bidding in the absence of light).  I think this is a cowardly and unprincipled position, and I suspect there are some deeply hidden agendas being played out by leaders of both parties, the Unions, and a variety of other organizations who want money and don’t really care all that much how they get it.

That’s the background, but what’s new?  In the final analysis, after all the stürm und drang over PERS, two bills seem to have survived and will be forwarded without recommendation (the cowardly act) to the Joint Ways and Means Committee, where the action is done is less-than-public view.  The two bills, well-discussed in previous posts are SB 559 (unamended) and SB 560 (unamended, plus 10 [or possibly only 9, see below] amendments) that will be forwarded without any further discussion.

Last Wednesday, the Workforce Committee held its only public hearing where the public was actually permitted to testify on these two bills.  The primary objection was to the presence of an Emergency Clause in both bills, but especially in Senate Bill 560.  Unfortunately, the magician’s trick worked.  Eyes were distracted from the true problem, and like magicians working an audience, the members of the Workforce Committee promised to amend the bill (SB 560) to remove the Emergency Clause.  And they did in a single amendment numbered dash-15.  But like all magicians, the amendment removed the Emergency Clause from the original bill, as introduced, without touching the Emergency Clause in any of the 9 amendments in which it is replicated.  Worse still, either through willful deception, magician’s tricks, or distraction, the Committee did not grasp (again naivete is not an excuse for this experienced group of legislators), that the REAL problem was not the Emergency Clause (in fact, the Emergency Clause is actually necessary for reasons illuminated in multiple previous posts), but the lack of a date certain in the dash-3 amendment, and the section on the bottom of pages 24-25 of the Dash-10 amendment pertaining to the decoupling of the Money Match annuity rate from the system’s actuarially assumed interest rate.  In both amendments, this particular change is fomenting all the fear, uncertainty, and doubt, not to mention causing untold anxiety for near-term Money Match pre-retirees and leading to a mass exodus of people since the beginning of the year.  In both sections of these amendments, these changes, but NO OTHERS, are targeted to “…take effect on passage”.  All other provisions take effect on January 1, 2018.  With the emergency clause in, the “takes effect on passage” means that the section in question would become law the moment the bill is signed into law (i.e. anywhere from late May to Early July).  Removing the Emergency Clause changes nothing about those sections because the courts would have to decide exactly when the bill took effect.  

The problem could be solved simply by omitting the passage “…takes effect on passage” and inserting “…takes effect with retirements on or after January 1, 2018”.  So far, the situation is made even more complicated because the Chief Legislative Counsel, Dexter Johnson, issued a memo to the Senate Workforce Committee pointing out why taking the emergency clause out is a bad idea.  The reasons are virtually identical to those articulated here in multiple previous posts, in responses to individual emails, and in posts over on PERS Oregon Discussion (see link to left).  Without the Emergency Clause, PERS is prohibited from recalculating employer rates until on or after January 1, 2018, and litigants are unable to begin the legal process of contesting any element of this bill before January 1, 2018.  There are other reasons as well, but the long and the short of this is that the Emergency Clause is necessary so that the legal status of any of these changes can be largely settled by about this same time in 2019, while the Legislature is undoubtedly dealing with other budget issues.  So, after everything that happened last Wednesday, it is likely that the dash-15 amendment will die, the Emergency Clause will remain, and PERS members trying to sort through their options will be left in the same position they were in last Wednesday before the promise “…not to create a crisis or chaos”.  No one can convince me that members of the Senate Workforce Committee were so ignorant, so naive, and so patronizing that they didn’t know exactly what they were doing.  I’m sure they deliberately agreed to removing the Emergency Clause, knowing full-well that it would be put back for the reasons enunciated here, there, and everywhere.

I don’t think I have ever seen a more concerted campaign to distract attention away from the real problem with any bill as I’ve seen in the Senate Workforce Committee.  In the past, legislators were downright nasty to one another over bills as harmful as these; this year, I’m nearly in a diabetic coma from the sweetness of members on this committee who have polar opposite viewpoints on issues pertaining to budgets, PERS, and workforce.  This all suggests to me that Dems, Repubs, Unions, Employers, Oregon Business Council, organizations like OPRI, the PERS Coalition are all involved in many backroom, off-the-grid discussions of how to balance the budget, partly on the backs of PERS members both near and far from retirement.  And this all leads me to brand the Legislature of 2017, meeting under that gilded dome, the Gilded Palace of Sin.

Believe nothing you hear from a Legislator or a Union at this point in time.  Only when you see something in writing, in the form of a bill, an amendment to a bill, or a complete revision of a bill should you take words seriously.  Written words matter; talk is cheap.  So far, nothing said and certainly nothing written offers any assurance that what is proposed to happen will happen in any other way.  Let those words guide your actions.  Make no assumptions, accept no assurances.  It is time for all these people who have been offering vague assurances to put their words on legal paper rather than in in tweets, emails, or E-lerts.  Only when those words make it to bills that matter do any of those stupid assurances have any meaning.  Beware of Emergency Clauses, but beware even more of clauses that have no certain date in them, or bills being forwarded into a Black Hole with blanks where numbers should be.  If you take those assurances at face value, then you are a sucker, and you are playing right into the hands of the charlatans of the Gilded Palace of Sin.

Note added later:  As predicted, the Senate Workforce Committee punted both SB 559 and SB 560 to the Joint Ways and Means Committee.  The votes were both 3-2 in favor of referring without a recommendation.  Senators Gelser and Monnes-Anderson opposed sending either measure forward.  But, in a seriously bizarre twist, perhaps influenced by this blog, perhaps by the sheer number of panicked members, there were three new amendments sent up along with the original SB 560 and the already extant 10 amendments (including the one to eliminate the Emergency Clause).  Of the three new amendments, only Dash-11 and Dash-12 merit note.  While these amendments seem to be variations on the same theme, there are three elements of note in each:  (1) the elimination of the decoupling of the Money Match annuity rate from the system’s actuarially assumed interest rate (the whole section has just vanished); (2) the inclusion of a clear implementation date for all remaining provisions of the bill at 1/1/2018; and, as predicted (3) the restoration of the Emergency Clause.  It would be nice to claim victory or to offer assurances, but this isn’t the way life works.  The effect of this is simply to add more permutations and more combinations of ways in which Joint Ways and Means can choose to implement changes to PERS going forward.  As I noted elsewhere, it appears that we are nearly back a ground zero, with a new group of people to consider changes to PERS not necessarily based on policy considerations, but solely on the basis of how well the changes help balance the 2017-19 budget.  Since the Senate Workforce Committee made no choices, made no recommendations, Joint Ways and Means now has a Chinese menu of options from which they can select one from Column A, one from Column B, and give current and inactive workers an egg roll and a misfortune cookie.  Sadly, this offers those in the position of trying to time retirements to avoid the impact of these changes no guidance whatsoever.  Not only has nothing been clarified, now people are faced with nearly the same list of options proposed long ago by the Portland City Club (except the COLA change is now off the table).  The list of amendments reads like a recitation of that list of changes, coupled with the spaghetti theory of jurisprudence attached - we magicians of the Gilded Palace of Sin do hereby resolve to throw anything we perceive as legal up against the Supreme Court’s wall, and we will take whatever sticks.  It probably isn’t that bad, but it sure feels that way.  [This will be my last post before the end of April; nothing is happening and I’m leaving town.  I’ll be back before anything worth commenting on takes place].

Thursday, April 13, 2017

You Want It Darker (Part 2)

This post is not likely to make very many people happy with me.  But, I have to say that after watching yesterday’s public hearing on SB 560, I can say that PERS members (except two) did themselves in.  They allowed themselves to become victims by total apathy and disinterest.  The blame is shared with others, but I reserve most of my scorn for the members who will be directly affected by anything and everything in SB 560, in whatever form it becomes law — and it WILL become law, mark my words.  Only two active members testified yesterday.  Both were Tier 1 Money Match on-the-edge of retirement.  Both commented about the harm from the annuity rate reductions and made vague references to its timing from the dash-3 amendment and the dash-10, without either actually pointing out the language of the bill that is precipitating their angst.  (we’ll come back to this point in a minute).  There should have been 5, 10, or 20 people signed up to testify, and the room should have been packed with affected members.  Neither happened.  Inside the room, which was anything but full, were about 2/3 professional lobbyists, and the remaining third a mixed bag of people who may or may not have been affected by any of this legislation.  SEIU testified, and basically sold members down the river by urging the committee to move the dash-10 amendment forward.  League of Oregon Cities testified urging moving the dash-10 amendment forward.  AFSCME didn’t testify and may not have even had a rep in the room; OPRI was nowhere in evidence either.  The PERS Coalition certainly didn’t testify and I didn’t recognize the backs of any of their reps heads.  OEA was absent from testimony, OSPOA was absent, the Firefighters were absent.  In short, the testimony was insipid, basically useless, and certainly ineffective.

The one issue raised during discussion was the presence of the “emergency clauses”, and the committee agreed that “…it didn’t want to precipitate a crisis” and would consider removing the emergency clauses before sending the bills up to Joint Ways and Means on Monday.  But, the committee seemed oblivious to the function of the emergency clauses, and unaware that removing them is going to delay the process of resolving these matters before the Supreme Court and prevent the 2019 Legislature from cleaning up after any mess made by all of this (if there is any mess).  It was painfully obvious that no member of the Committee had bothered to read the dash-10 amendment, which we learned from commentary was NOT a Tim Knopp-originated bill, but was a product of a group of luminaries called the Oregon Business Council (which counts among its sponsors the four big Universities - UO, PSU, OSU, and OHSU - as well as my wife’s former private employer, and every major large corporation in Oregon).  This seemed to lend the dash-10 amendment a caché that brooked no criticism and near awe from members of the Committee and certainly the agencies and Union testimony. (Edit:  more than one person has suggested that they detect the fingerprints of former Labor Leader, Kulongoski staffer, Kitzhaber staffer, and Oregonian occasional columnist, Tim Nesbitt on the OBC dash-10 amendment.  I have no evidence one way or the other, but it is an interesting rumor about a labor traitor).

All that said, the Committee announced (in effect) that it was throwing up its hands on PERS, that it could come to no consensus on the bills or amendments, and that it would forward both SB 559 and SB 560 and ALL NINE amendments to the Joint Ways and Means Committee with no recommendation.  Only Senator Laurie Monnes-Anderson objected to this approach, feeling that the Committee was abdicating its responsibility for recommending policy to Joint Ways and Means - a budget committee that normally does not make policy.  This drew agreement from Senators Taylor and Gelser, but no change to strategy.  The form of what goes up remains to be seen on Monday.  Editorial amendments were promised, like taking out the emergency clauses, but a date with Legislative Counsel may change that when they realize what removing those clauses does to the legislation.  Again, they seem completely oblivious to the language pertaining to the decoupling of the assumed rate and the annuitization rate for Money Match retirements (and since dash-3 is still in play, other retirement forms as well if they involve a beneficiary or alternative payee or disability).  They seemed to want to provide a date certain (like 1/1/18) for the effective date of the changes and think that removing the emergency clause would do that, but I don’t see it that way unless either the dash-3 amendment is changed significantly, or somebody actually reads the language related to the same issue in the dash-10 amendment.  Again, the Committee seems to think the Emergency Clause itself is the issue, but that’s a red herring (read my previous post for an explanation of why the emergency clause is there).

So what makes this darker?  First, no effective representation of member interests in the ONLY meeting in which you would have been directly allowed to testify.  That signals apathy, and encourages malice (it sends a message of resignation to Legislators that PERS members are resigned to being screwed over some more).  Second, a complete abdication by the the Senate Workforce Committee whose function was to recommend policy changes, and it punted to Joint Ways and Means.  This empowers Ways and Means to literally do whatever they feel is necessary to make the budget balance, and PERS is a large component of their thinking about ways of balancing the budget.  No more likely public hearings; virtually everything in Joint Ways and Means will be done in closed session except possibly final votes or invited testimony.  The voice of critics has effectively been silenced, and control has passed from a policy committee that didn’t recommend policy to a budget committee concerned only with budgets but being given the opportunity to choose from a cafeteria menu of many expensive (to members) options without any constraint on committee members.  Oh, I encourage you to write to members of the Joint Ways and Means Committee to express your concerns, but I don’t expect those letters, emails, or phone calls to have much impact.

Anything that happens from this point forward will probably come as a surprise to all members.  While I had hoped that members would have something specific to target for Ways and Means, the complete refusal of the Senate Workforce Committee to take a principled stand on these measures, and the complete apathy of affected members have left the door open for any and all of the possible concepts introduced in SB 559 and SB 560 (and all its many and varied amendments) to become reality.

Moreover, there seems to be a cavalier attitude among many of either of two views:  (1) the Supreme Court will invalidate most or all of these; or (2) I can’t do anything about this because I’m not close enough to retirement to matter; I’m generally screwed.  With the possible exception of the $100,000 FAS cap (still there mind you), I see virtually all of the changes meeting the prospective test of the Moro Court.  So, depending on what ultimately comes out of Ways and Means, there is a high probability that much will be upheld as meeting the Moro standard of prospective.  As for those who say, I’m screwed, let me remind you that the graveyard of history is filled with victims who never raised their voice against the injustices perpetrated again them.  I’m not blaming the victim here, yet, but I do have to remind you that there has been an opportunity presented and then squandered.  From here on out, it becomes much harder to make the kinds of changes that might have happened in Workforce if there had been a more concerted effort to get out and actually protest the changes in real time.

So, the original “You Want It Darker” post a couple of weeks ago, has now become “You’ve got it darker”.  Remember, I’m only the messenger.

NB.  Even if the Senate Workforce Committee successfully removes the Emergency Clauses from everywhere in the two bills, there is nothing to stop the Joint Ways and Means Committee from adding them back if it means revenue sooner, or litigation resolved sooner.  In fact, I expect this would happen to facilitate getting the litigation started immediately.  Second, by making no recommendations, not only does Ways and Means have a cafeteria menu of choices, they could also gut and stuff either SB 559 or SB 560 or both to do whatever they wanted to PERS members.  Finally, and this may not be obvious, but from Monday forward, we will be in a nearly complete information blackout with Joint Ways and Means operating largely in the dark, leaving all members in the dark, leaving me in the dark except for the few inside contacts I may have.  Not only does this NOT REDUCE STRESS, it may actually INCREASE STRESS because now we will have little to no advance warning what is coming, and only the projected close date of the legislature of June 23 or the mandatory close date of July 8 to guide us.  As I’ve tried to say, you’ve now got the worst of all worlds while trying to make your decisions.  Tim Knopp’s assurances that “…we don’t want to precipitate a crisis” is meaningless.  Just remember that Betsy Johnson (DINO in chief) is a significant player in Ways and Means, and she was Knopp’s partner in crime in the pre-session PERS Workgroup with a particular animus towards inactive members (of which Dash-10 makes all dual ORP-PERS members the newest victims of Betsy’s animus).  (EDIT:  The dash-15 amendment, introduced 4/14 removes the emergency clause from the original bill, but retains it all of the amendments.  You are left to your own devices to figure out what that scam is about).

Tuesday, April 11, 2017

The Bottomless Lake (Again, A Long Post)

Did you ever feel like you are falling into an abyss with no bottom?  If you haven’t, then you aren’t a still-not-retired PERS member.  Today brought the latest salvo from a malign, myopic, and malignant group of Republican frat boys in the Senate  who have wet dreams just thinking about ways to screw all PERS members not yet retired.  It came in the form of a 52 page amendment to Senate Bill 560, that seems to consolidate the various features of the 8 previous amendments to the bill, while adding a few new bits drawn from other bills (SB 559, SB 913, HB 3103), and sparing no one not yet retired from the mercenary greed of employers who simply don’t want to pay for the retirement benefits they promised when you started work.  Of course, they will  state piously that accrued benefits won’t be touched, but that is laughable after reading this bill.  Of course, it might just be true, but would require PERS to do mathematical gymnastics that would make Stephen Hawkings’ symptoms 10 times worse just thinking about the math.   In short, I know no other less-offensive way of saying this, but SB560-10 is a royal clusterfuck to anyone still drawing a breath but not PERS benefits.  Oh, and there is advance notice, sort of.  I’ll explain below.

First, for a possibly good piece of news.  The dash 10 amendment conspicuously removes the egregious FAS salary cap of $100,000 previously proposed in an earlier amendment.  Just to douse your good feelings, do be aware that all of the 9 amendments remain in play, so this might be one of those magician’s tricks to get you looking at the big object, while they busily perform sleight of hand to distract you from the smaller object.   Don’t get excited yet.  Remember the axiom:  objects in mirror are closer than they appear.

Now for the elements of the bill, made necessarily brief to keep this post readable.  They are in order of my memory, not the order they appear in the amendment:

1.  5 year average instead of 3 for Final Average Salary (this is actually from SB 559, but seemingly greatly elaborated here).

2.  Lowering the Full Formula service multipliers from their current 1.67% and 2.0% for Tiers 1 and 2, and from 1.5% and 1.8% for OPSRP to some UNKNOWN amount.  This version removes the specific 1.0% and 1.2% multipliers and literally replaces them with blanks, to be filled in at some point so you can be surprised.  I’m guessing that the numbers will be higher than the 1.0% and 1.2%, but still significantly lower than they are now.  This might be their way of waiting until the end to fill the “right” numbers to make the budget balance.  Beware of blank spaces on forms.

3.  Redirecting the employee contribution from the IAP to a individual pension account that basically serves to offset some employer liability for paying out its part of your pension.  This isn’t new, but what is new is that the statutory requirement for employee contributions has been amended from its current mandatory 6% to a vague series of blanks ranging from a low of ___% to a high of ___%.  Again, because of the labor contracts, it is likely that employers will have to offset elimination of the pickup with a salary increase for many employees, but what is diabolical is that by changing the mandatory contribution from 6% to some range, I can envision the employee contribution being made artificially low so that the employers will only have to offset a small part of your salary.  The rub here, of course, is that it requires PERS reevaluate member (employee) contributions every two years and recommend lowering or raising them to meet whatever targets are set for the employee to contribute to his/her own retirement.  Of course, that won’t require a salary offset because the contracts will have negotiated out the replacement for the pickup and will have no language to anticipate this potential time bomb (unless Unions are smart enough to see this coming). It kind of makes you wonder whether members will get the same benefits as employers when employee contribution rates are calculated.  Will there be smoothing?  Will there be rate collars and all the other ways that the PERB and employers have come up with to lead us down the path we find ourselves in today.  Employer greed knows no bounds.

4.  Cutting the annuity rate for Money Match retirements.  This was confusing and confused in the dash-3 amendment.  The current revision is clearer now, but you have to search very hard through the existing statutes to reassure yourself that it only affects annuities for Money Match retirements.  Instead of committing to a fixed rate of 3.5%, they have instead substituted a reference to the annuity rate recommended by the Pension Benefit Guarantee Corporation, an entity that governs private sector pension insurance and sets minimum interest rates on annuities from private pension plans.  This rate is variable and changes periodically, up or down, with the economy.  Rest assured that the current figure sits around 3.5% or possibly a bit lower (I really didn’t bother to look).  The most important fact here is that this change is the ONLY change that does NOT take effect on January 1, 2018.  This piece takes effect on passage of the bill and its signature by the Governor, if this piece of the bill survives that far.  Thus, if you are not willing to gamble, if you know you’ll be retiring under Money Match (a few very long term Tier 1s still working, plus a boatload of inactive Tier 1s) you might want to give serious thought to a May 1, 2017 exit.  I’ve noted elsewhere and in comments that because of the process involved in getting this bill to “YES” is going to take awhile, it is likely you could wait until June 1, 2017.  But, trust me, waiting an additional month isn’t going to make a noticeable difference in your pension, so I still advise May 1, 2017 to play it safe.  But again, ONLY if you are 100% certain that Money Match is going to be your mode of retirement.  If not, then you can wait until December 1, 2017 to retire without feeling the effects of any of the above changes, and this one is irrelevant to Full Formula retirements).  Please also note that the biggest victims will be those people, inactives primarily, who aren’t paying attention.

5.  Elimination of further accruals of sick leave and vacation time AFTER 12/31/17 that apply to FAS.  All existing accruals will be honored through 12/31/17.  After then, you can still accrue sick leave and vacation time as before; they just won’t add anything to the calculation of your FAS at retirement.  This piece, plus the longer averaging period, combine to lower FAS in most cases by possibly as much as 10%.  Add the fact that the statutory 6% contribution will likely be lowered, and the salary offset equally lowered, will also serve to diminish FAS going forward.  For long term employees with lots of accrued sick leave and vacation time, this probably won’t have a huge effect in the near term after January 1, 2018.  But for younger employees, the effect could be more noticeable.  (Edit:  One additional question does arise in all this.  I wonder how use of sick leave post-January 1, 2018 will be charged. Is it FIFO - first in, first out, which would be a real downer - or LIFO - last in, first out, which would be the desired outcome.  If you are in a union, this is something you might want to ask because it WILL make a difference if you need to use sick leave Edit Later:  I just discovered that Tim Knopp introduced a dry run of this particular concept in the 2016 short session that explicitly states that the implementation is to be FIFO, which confirms my worst fear about this piece of the bill.  Far from being a benign freezing of benefits already accrued, you’d be going backwards to withdraw from your accrued sick leave if you used any after 1/1/18.  This makes this malignant instead of benign).

6.  Declares Oregon University System members who left PERS in 1996 to join the ORP to be officially inactive PERS members.  Allows ORP members in this situation to move PERS funds (employee accounts only, not employer match) to ORP and sever all relationship with PERS.  Under the current scenario, this would be foolish to do because the employer match is worth nearly as much (if not slightly more) than the member account balance in the inactive PERS Tier 1 account.  Why would any sane person sacrifice half their benefit?  It also permits Community Colleges to form their own ORP for existing and new employees.  There are some other provisions here, which seem to let those who chose to remain in PERS rather than ORP, transfer membership again to the ORP but without the employer contributions tagging along.  This is only sensible for a new member just realizing the disaster that they’ve signed up for.

7.  Eliminates some forms of buyback of service time for employees who leave the system before retirement and withdraw the member account balance.  To be more specific, it limits the ability of members who withdrew from the system and they rehired back into the system from buying back the service time they cashed out when leaving the first time.

8.  Orders immediate recalculation of employer rates to reflect savings from these changes.  What a ginormous, bigly surprise.  Let’s spend the money again before the court rules on the legality of some or all of the changes.  That’s the same mistake made in 2013; these idiots never learn.

9.  Declares an emergency and establishes the bill as effective on passage.  Aside from 4 and 8 above, none of the other features actually take effect until 1/1/18, as clearly stated in the bills various parts.  The real purpose of the emergency clause in this case is to start the clock rolling for the Supreme Court case.  If the bill were to take effect on 1/1/18 and not on passage, any litigation would be viewed as “not ripe” until the bill actually took effect.  This would, in turn, make it unlikely that a court decision would be rendered until it is too late in the 2019 Legislative session, delaying any budget adjustments until at least 2020.  This way, the legal ball can start rolling the minute the bill is signed into law.  The clock is very short.  Litigation against any part of this bill has to be filed with the Supreme Court within 60 days of the bill’s effective date; hence the emergency clause.

As is evident from the above, the frat boys put a lot of effort into making sure that all categories of PERS members from all Tiers, of all ages, and from all retirement forms get hammered pretty good by this obnoxious piece of legislation.  Not only do they force you to stare into the bottomless lake, they are also dosing you with Sarin gas while you are looking.  I sense two things are going to happen regardless of how this all plays out ultimately.  There are 70,000+ PERS members eligible to retire today.  The previous record for most retirements in one year came back in 2003, when nearly 19,000 PERS members retired.  I’m guessing that this year the number will break that record by at least a factor of 2.  My private betting is on 40,000, which creates a monstrous problem for PERS itself.  Not only do they not have the resources to manage a retirement load of this size, they have begged the Legislature not to do anything that would inspire a “race to the door”.  This bill virtually guarantees the very thing that PERS warned against.  If this happens, and the court does not uphold many of these proposed changes, the PERS UAL will increase again, employer rates will rise through the roof, and we’ll be back (I won’t, but maybe someone else will) circling the same drain in 2019.  At the moment, I think our Bend frat boys ought to be on the front lines battling Bashar Al-Assad rather than pushing PERS members into the bottomless lake.

The BIG day for all this is tomorrow, April 12, in Salem.  The Senate Workforce Committee is scheduled for a public hearing (which means you can testify if you get there early enough to sign up) on how this bill, or the individual amendments -2 to -9, plus SB 559 (which seems irrelevant in the context of this bill, but never underestimate the strategy of our frat boy pranksters from Bend) directly affects you and your family.  The meeting is at the Capitol at 3:00 p.m. in Hearing Room A.  The room isn’t huge, but I would love to see it packed inside and outside with hundreds of PERS members affected by this (these) bill (s), and as many people testifying as possible.  Keep your testimony short and too the point.  I can be cavalier, nasty,  and accuse them of malice and stupidity.  I wouldn’t counsel YOU to do that to their faces.  But, to many of these people, PERS is simply a math problem or a financial problem, it doesn’t really involve people’s lives, often into their 90s or beyond.  Your job should be to remind them of the human cost of their decisions.

Friday, April 07, 2017

The Revolution Starts Now

After more than 10 weeks in session, two PERS bills are scheduled for Work Sessions.  These bills are SB 559 and SB 560, both of which have been discussed a number of times in the posts below.  SB 559 is a relatively straightforward bill that attempts to stretch the computational period for Final Average Salary (FAS) from 3 years to 5 years.  The rationale is simple.  If your salary is averaged over 60 months instead of 36, there is a strong chance that your FAS will be lower than if it had been calculated based only on a 36 month average.    It’s effect is unclear on those still working and who are Tier 1, or even Tier 2.  Because the Legislature has to preserve accrued benefits, it can be argued that the 36 month average is a benefit you accrued while working and that the worst anyone could do would be to blend your service periods and use a 3 year average for your pre 2018 work, and a 5 year average for the post-2017 work, producing some obscure and hard-to-calculate weighted average.  I don’t envy PERS if this passes.

SB 560 is a far more harsh bill, although the amendments (not accepted yet; that has to happen in a work session) strip some of its obnoxiousness and replaces it with other obnoxious stuff.  Taken as a package - the original bill, and the 8 amendments - the bill would redirect the employee 6% pickup to some account that would no longer be accessible to the individual like the IAP is today.  It would also cap FAS at $100,000 max, but again the mechanics of this are uncertain and will cause havoc for everyone trying to figure out (especially for Tier 1s) how to implement a bill that preserves the current “no limit” on FAS,while permitting the arbitrary $100,000 FAS.  It is going to be a mess to calculate, and you can expect some ugly litigation over this one.  Moreover, the bill stops further accruals of sick leave and vacation time for FAS purposes (but permits use of accruals prior to 1/1/2018), it changes the vesting length for PERS membership from 5 years to 10 years, alters the statutory accrual factors for Tiers 1, 2, and OPSRP from their current (general service, P&F) 1.67 (Tier 1 & 2), 2.0 (P&F Tier 1 and 2), and OPSRP (1.5 and 1.8), to a flat 1.0% for general service (all tiers) and 1.2% for Police and Fire (all Tiers).  The bill also tries to decouple the existing assumed rate, currently used by PERS for all calculations pertaining to the time value of money, from the pension annuity rate (usually the same as the assumed rate).  The bill proposes to use a pension annuity rate of 3.5%. 

All features of SB 559 and SB 560 are scheduled to take effect on 1/1/2018 EXCEPT for the last item listed - the decoupling of the assumed rate from the pension annuity rate.  That change takes effect on passage, although the language in the bill is a bit confusing in requiring PERS to start using the new factors on 7/1/17. 

These work sessions are both schedule in the Senate Workforce Committee on April 17, 2017 at 3 p.m.  (Hearing Room A, I believe).  There is also another public hearing on SB 560 on April 12 in the same place at the same time.  The ONLY way you can have any impact on this is to show that you care enough to try to attend these work sessions.  They are often tedious and technical, but you can learn a lot by going.  If you don’t go, you are also sending a message that you aren’t concerned, even though there might be perfectly legitimate reasons for not going.  I assure you that Legislators do notice your presence.  Also keep in mind that the Senate Workforce Committee has 3 D’s and 2 R’s meaning that the bill can’t move until a D crosses over and votes it out of committee with the 2 Rs, or all 3 Ds decide it is worthy of a whole Senate discussion and vote.   

I can’t tell you what to do.  I know what I’d do if any of this affected me.  I would mark my calendar and figure out a way to get to Salem, early is better, and try to buttonhole a couple of the committee members before the meeting and let them know just how strongly you feel against these bills.  Both bills are bad; SB 560 is decidedly worse.  If ever it was time, the revolution starts now.