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Sunday, June 06, 2010

Watching and Waiting

The old email bag is overflowing with questions from (mostly) Tier 1 members eligible for retirement. The theme of most of the questions is "should I retire before the Legislature convenes near the end of January 2011".

This is not an uncommon question for me and so I've given this a lot of thought. I generally don't offer advice on when people should retire as there are so many individual variables involved. That said I can share my own thought process on this matter. Before doing that I always raise a crucial question that bears on what you do. My question is this: in an ideal world when would you retire? If the answer lies beyond 2011, then you should stop reading right now. Go on with your life. Retiring earlier makes no sense and the financial risk is greater in retirement than in not retiring. The rest of this essay is for people already eligible for retirement and planning to retire during 2011.

Retiring in 2011 carries with it a lot of uncertainty. This uncertainty arises principally from the fact that this is a legislative year. There is tremendous pressure on the legislature to "fix" PERS again. This pressure is coming from the media (Oregonian, Statesman-Journal, Register-Guard, Corvallis Gazette, Bend Bulletin), from private citizens on both sides of the political spectrum (E.g. Phil Keisling, Gary Coe), from public employers frothing at the prospect of another rate increase, from hundreds of concerned citizens throughout the state who write nasty anti-PERS letters to the editors of the above-mentioned newspapers, and both legislators(e.g Dennis Richardson) and legislative candidates alike. The political environment right now is made more complex by a very unfavorable economic climate and a prolonged recession, making additional PERS reform an extremely large target. I think it is fair to speculate that PERS will be reformed yet again in 2011.

I've discussed the likelihood of reform in certain ways in previous posts, especially my public response to Gary Coe (previous post) and to Phil Keisling this past fall. While the unions will fight like hell against any changes to current benefits, they are more or less helpless to defend against changes that apply prospectively, I.e. to benefits accrued after the effective change date. Retroactive changes are risky and the Oregon Supreme Court has taken a pretty firm stand against such changes so far. But the stakes are even higher in 2011 than they were in 2003. The economic climate is much worse this time around and the legislature may be willing to take more risks than in 2003. The unions are less powerful now than they've been in the past, and many see labor unions as the cause of our economic woes rather than the haven from them. With budgets being cut right and left, with more layoffs, furloughs, and wage freezes or cuts looming, the unions coffers are not as full as before. They will have to spend their money wisely this fall and in their lobbying efforts in the legislature. All of this points to a rocky session ahead for PERS members and prospective retirees.

So the bottom line for members thinking about retiring in 2011 after the legislature convenes is this: what might you be risking by waiting the legislature out versus getting out ahead a bit and retiring sooner? It is A very tough decision, but one where an earlier decision might end up being more beneficial than gambling. It is certainly something you ought to put in your analytical engine and reflect upon carefully.