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Thursday, March 01, 2007

Math Sucks

Even though Jimmy Buffett sings of his despair with math (tough sell for one shrewd moneymaker), the PERS math turns out not to be as hard as people are making, although PERS certainly makes life more difficult for itself by putting in extra filips on its forms that confuse rather than help. If you want the "411" explanation of what is happening, consider the forms published yesterday- particularly the first form - as our example. We have a "Before Recalculation" benefit and an "After Recalculation Benefit". One represents what you are currently getting as a result of the 1999 overcredit. The other represents what you *should be getting* after the recalculation of the 1999 interest at 11.33%. Down at the bottom of the page is a list of the COLAS that need to be applied to the revised benefit. The final number represents what your new revised benefit will be, before actuarial reduction. For the amount labeled "Your initial actuarial reduction", subtract that to get "Your recalculated benefit starting [date, 2007] under the ARM". Consider this your NEW REVISED BENEFIT and forget everything else. Nothing more will be done to you. From that benefit forward - assuming it is computed correctly - you will get COLA adjustments on the NEW REVISED BENEFIT. You should never see another ARM reduction as they've just taken it away from you forever in "one touch". Presto, your account is in PERS harmony and PERS doesn't have to fiddle with anything related to your account again except for those annual COLAS. The ARM amount is a one-time reduction to your permanent benefit. The issue of increased ARM payments is a "red herring" as this is invisible to you. PERS is simply banking your ARM monthly and has to apply the COLA to it in the same way it applies a COLA to your benefit. Unless PERS is looking to needlessly complicate its life, there is no reason for it to do anything else. You'll be repaying for the rest of your life in the form of a permanently reduced benefit. I sincerely hope this helps people understand what is going on.

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