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Wednesday, December 28, 2005
Wednesday, December 14, 2005
In other news, the discussion of the question of recomputing the "one time variable transfer" for retirees and other eligible members has also vanished from December's agenda. For more information on this, please see the previous two blog entries. Instead, PERS Staff issued a report on the "staging" of the Lipscomb/Strunk adjustments. This report is included in the Board Agenda packet for Friday's (Dec 16) meeting. PERS Staff is asking for Board approval to prioritize the processing so that retirees to whom PERS OWES money will be processed ahead of retirees to whom PERS is OWED money. Moreover, the timing of the recovery will be staged over a several year period and is expected to coincide more closely with the restoration of the COLA. Within the group of retirees who owe money, those who owe a lot will be hit first, while those who owe less will drop in priority. In practical terms, no one knows what this really means except that the actual determination of amounts owed may not occur until very close to the point when COLAs are again due. Finally, in response to a great deal of confusion and contest, PERS has modified the proposed rule concerning the recovery and makes clearer the fact that the "notice", which will come in late March/early April does NOT start the contested case clock; the actual invoice, which may not come until some months, or possibly a year, later is what triggers the clock. It still isn't clear how PERS is in compliance with the 6-year statute of limitations on notification of the error, except that it obviously believes it has the legal upper hand in this matter. The PERS timeline lowers the priority recovery for lump sum recipients not receiving any form of monthly payment -- they still intend to collect, just not immediately -- and also lowers the priority for those cases where research and analysis must be done before determining amounts owed. I presume this means people who retired under the "lookback" and who might now be eligible to retire under a different method after the simultaneous lowering of 1999 and the increases for 2003 and, possibly, 2004.
It appears to me that PERS will continue to shake the tree for every nickel it can find, but seems to be shining everyone on as it uses the "throw it against the wall to see what sticks" method for sorting everything out.
I'll be out of town all next week and I don't expect to post more than once more before Christmas.
Wednesday, December 07, 2005
I've been playing around with numbers and have formed some opinions about who the winners and losers are likely to be. At issue is the 1999 regular earnings crediting. Prior to the "settlement", 1999 had been credited at 20%, while the variable for that year was credited at 28.83% (an 8.83% spread between variable and regular). The variable "test" requires that PERS compare the contributions and earnings on the variable account as if they had been invested solely in the regular account the whole time. If the variable contributions at regular earnings was greater than the variable at variable earnings, the test fails and PERS didn't let you effect the "one-time variable transfer". People who applied in 1999 for 1/1/2000 typically passed the test; people who waited until 2000 for 1/1/2001 *may* have passed the test or not; I haven't encountered many people who successfully got out effective 1/1/2002 or 1/1/2003. My back of the envelope calculations show that no one who already got out of the variable at any time prior to 1/1/2003 could possibly end up with a reversal of fortune under the revised regular calculation. In fact, the people already out would only be further out. For those who failed the test, there is a chance that a recalculation would produce a *winning* result and an increased benefit. At worst, those who failed before might still fail again. The tricky area - where a winner might turn into a loser comes from those people who retired after 4/1/04, when the regular was credited at 0%. Recall that between the settlement and the Strunk ruling, PERS will have to recredit 1999 at 11.33 (down from 20%) and recredit 2003 (and 2004) at 8% (UP from 0%). Both 2003 and 2004 were winning years in the variable and the spread between the actual variable and what PERS credited to regular (0%) was significant. If all of sudden 2003 and 2004 are credited with 8%, there is a measurable probability that the variable at regular will suddenly overtake variable at variable and a "winner" is converted to a "loser". I've run examples here as well and the likelihood isn't as high as it might seem (it reduces the variable - regular spread in 2003 from 34.68% to 26.68%, and the variable - regular spread in 2004 from 13% to 5%). There is a tangible risk of a small number of reversals of fortune, but a higher prospect of more than a few significant winners.
Given this, it is anybody's guess what the PERS Board will do. I can see real litigation risk if the PERS Board doesn't do it since there is real money involved and a statutory requirement and appeal process for challenging the "one time variable transfer test" results (I know this from personal experience). On the other hand, I can't possibly see how PERS could only adjust the benefits of the "winners" while ignoring the "losers". But, since the reform legislation and the settlement are rife with examples of inequitable treatment of different classes of retirees, this places PERS and retirees (and some still-active Tier 1 members) between the proverbial rock and a hard place.