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Wednesday, August 13, 2008

Skandalouz

A recent post on the PERS Oregon Discussion group raises an interesting question about the behavior of PERS towards active members in collecting from them for Attorney Fees this past April. Recall that the Oregon Supreme Court ruled that the PERS Coalition was entitled to Attorney Fees under the "common fund" provision. This provision allows that attorney fees be collected from the winners of a civil suit in some proportion to the gains they made by the ruling. In the case of active Tier 1 PERS members - who are entitled to the 8% rate guarantee - PERB ruled that 0.03% of the guaranteed earnings for 2007 be withheld one time only at the time the earnings were payable. This is to compensate attorney fees for the nearly $400,000,000 returned to Tier 1 members by virtue of the Strunk ruling that the guarantee is in fact the minimum rate that can be paid to Tier 1 members under any circumstances. For most Tier 1 members, the 0.03% "hit" represented a relatively small sum of money - about $60 or so for the typical member. What no one really worked out was how much this really will cost Tier 1 members over the long haul. Using some simple math, we can figure that the average member is losing not only $60, but the compounding effect of the loss of that money for the rest of his/her career. In a matter of 9 years, the $60 "hit" has doubled to $120 at 8% interest. The attorneys got paid in fixed 2008 dollars in one lump sum. PERS appears to have taken enough money from active members to cover their assessment towards the attorney bill. But what becomes of the money that PERS no longer has to pay towards retirees' retirement - the money that is no longer earning 8%? By my back of the envelope calculations, there is a considerable amount of money at stake here - probably much more than the attorney fees themselves. Who gets *that* money? No provision is made for that to go back into employee accounts. It seems to me that PERS deduction takes out far more than it needs to cover the one time attorney fees.

In the larger scheme of things, PERS probably had no alternative to deducting the money. Billing active members would have met with mixed results and driven up collection costs. But it seems to me that PERS could have discounted the attorney fee assessment so that over a period of say 5 years, the compounded amount would have covered the attorney fees. In short, I think some accounts must have been padded as a result of this one time fee. By any criterion I can think of, this is hardly a one-time hit for active members? Perhaps PERS will tell me where I'm wrong, but I don't see how any alternative explanation can obtain here.

P.S. I'll be off the grid for a few days as I recover from minor surgery on Friday. Regular programming should return next week.

1 comment:

James said...

That particular person's account is going to be .03% smaller at retirement and his/her monthly check will be correspondingly smaller for the rest of his/her life. So this supposed one time hit of .03%, will affect pension and COLA's and everything else for the life of the retiree, making things a tad bit smaller at the start of retirement and compoundingly smaller forever.