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Saturday, November 26, 2005

Cannonball

For those of you who don't follow every sinuous move of the PERS Board, here is an update on the "plan" to recover overpayments from retirees in the "window". As you probably know, the PERS Board instructed the PERS Staff to take suggestions and questions from stakeholders about implementing their plan. PERS opened the comment period via a link on their website and both retirees and others asked implementation questions and for consideration of alternatives to the recovery mechanism. It appears that the PERS Staff and PERS Board have disposed of all but three issues, which will be taken up at the December Board meeting. For now, we know that PERS is NOT going to allow any repayment schedule other than the options initially presented - one lump sum payment, or the actuarial reduction method over the retiree and (if applicable) beneficiary lifetime. We also know that PERS will NOT stop repayment once the member or beneficiary has repaid the amount owed. Moreover, PERS will NOT offer tax advice or even assistance to members who choose to repay in a lump sum. For those with lump sum bills in excess of $3,000, the tax ramifications are quite significant and non-trivial. Unless you're really skilled at doing your own taxes, a repayment of a lump sum in excess of $3,000 will send you on your merry way recomputing your taxes for EVERY YEAR since you retired. PERS will NOT permit a retiree already receiving "correct" benefits (i.e. not *estimated* benefits) to change the payment option once the repayment is triggered. There will be NO revised Notice of Entitlement for members who've already received their initial NOE. Furthermore, there will be no option for retirees to purchase additional service credit that may have been declined at initial retirement.

What remains to be answered are several fairly significant -- to many anyway -- issues. The first is the question of whether PERS will recompute the "test" for the "one-time variable transfer" for retirees who attempted this before retirement and "failed" the test. It is quite likely that many people who failed when 1999 was figured at 20%, would "pass" the test once 1999 is refigured at 11.33%. For many people, like me for example, being stuck in variable for a year longer than I wanted to be cost me significant money. If that action could be reversed, my repayment amount would be significantly reduced by the earlier transfer of my variable account balance to my regular account. The second important matter affects a smaller, but still significant, number of people who took a lump sum settlement of some sort and rolled the money into some tax-advantaged investment (e.g. an IRA). The question is whether PERS will *facilitate* (with the member's permission, of course) the direct recovery of the overpayment from the IRA-holding company so that no taxable event is triggered.

Given the cannonballs dropping from the sky lately, I'm not real optimistic that PERS will do anything that might actually benefit retirees, but the recalculation of the variable test is probably one area where they'll have to tread carefully. This has significant litigation potential. I doubt they'll do much else to make life easier, cheaper, or better for the people whose money they hold in TRUST.

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