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Tuesday, November 16, 2010

Tiny Apocalypse

This coming Friday (November 19) PERS Board meeting contains some juicy tidbits about what ideas are floating around for reforming PERS. For those who want to see them in their raw form, check the PERS website and look for the information packet posted yesterday for Friday's meeting. The item of interest is labeled D.2.c under new business. For those who don't want to see this, I summarize here.

We have speculated for some time about what *might* happen during the 2011 legislative session. Based on all the ideas floating around, PERS has assembled the most plausible ones and has analyzed them for costs (to members, retirees, employees), costs to PERS to administer, and the net savings from making the changes.

Three of the items pertain to the 6% IAP contribution. One eliminates it; one allows partial "pickup" of member contributions, and the third eliminates in statute the requirement to contribute. This is no surprise; we've seen it discussed repeatedly. In any form, this is a salary cut.

The next raft of potential cuts include those affecting already retired, and retiring members. This is, in fact, the longest list. It includes: 10% across the Board benefit reduction for all retirees (this hits everyone hard and saves a ton of money as you might expect). The second proposal establishes a maximum annual benefit cap as a percent of FAS. This would directly affect members getting ready to retire. The next would be to change the interest rate used to calculate money match benefits for new retirees. PERS estimates that going from 8% to 6% would reduce benefits for a 60 year old by 16%; for a 55 year old by 25%. Next, there is floating the idea to change the factors used to compute FAS, eliminating vacation time, sick leave, overtime, and others that inflate FAS from what the base salary rate is. Next, they have considered the impact of requiring members to have worked at least 10 years before retiring to be eligible for a COLA. Another would eliminate the tax adjustment for out of staters. Two more variants include eliminating the COLA for one biennium (2 years), or setting COLA eligibility to the first $24,000 of annual benefit. Next, we have the predictible proposal for a 4th tier for new members - yet another defined benefit plan - or a 4th Tier consisting of a defined contribution plan

Finally, there are the usual arrays of accounting tricks to benefit employers in the short or long term. One is to increase the UAL amortization period to 30 years from 20 years; next is to reduce assumed earnings rate to 7.5% (note, this is different from reducing the Money Match earnings rate from 8% to 6%), and finally, to limit net employer rate increases to 3% of payroll. Both the first and third changes would simply push the deficit further down the road, forcing future generations to deal with the problem.

Before anyone panics, these are simply analyses done because one or another or all of these ideas have been floated by someone, somewhere, and relatively recently. PERS decided to analyze these for costs and benefits without any regard to the legality of any of them. Virtually all of the cuts to existing retiree benefits (and there are surprisingly more than I thought), would be challenged immediately and probably would not stand court muster (I hope). But this doesn't mean that we can remain blithe about these and ignore what is going on. We should be ramping up to oppose any adjustment to benefits we are already receiving, including the COLA. Most of us have already given as a result of the 2003 legislation; I'm not planning on giving more.

Study these closely. Read the agenda and look at the amount of money that would be saved. Examine the amount of the budget shortfall for 2011-13 and see which of these changes would do the most to reduce that shortfall while also limiting legal exposure and potential loss in the courts.

The time to get active is NOW. The time to be conversing with your legislators is NOW. For actives, the damage potential is severe; for retirees, the impacts could be catastrophic since we're not working and have no way to make up the lost income (I suppose we could become greeters at WalMart). Also not analyzed is the loss to Oregon in tax revenue from any benefit cuts for future retirees or current ones.

I'm sure there are other ideas floating around, but this list represents the most complete elucidation of areas for potential cuts that I've seen in one place for some time. We are looking at an array of potential changes that are nothing short of apocalyptic. If this list doesn't energize you to do something, I don't know what will.

Time for all of us to get off our complacent rears and start writing letters. This stuff makes my head spin.


2 comments:

TruthSeeker said...

Marc,
Would regular contributions to the OPRI Legal Defense Fund be a worthwhile strategy for us?

mrfearless47 said...

There arena extant cases. Wait until something gets filed beforecontibuting. Then contribute a bunch.