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Friday, April 29, 2011

This Sad Song

Last week or so, the Oregon Supreme Court refused to hear the appeal from Kay Bell.  Most of my readers are not familiar with Kay so let me tell (briefly) her story.  In a nutshell, Kay sought retirement estimates from PERS repeatedly as she neared the end of her teaching career.  As the estimates would come in, Kay noted that they contained a significant error.  She regularly and repeatedly pointed this error out to PERS, hoping that they would fix the problem so she could get an accurate estimate of her benefits before she retired.  Alas, PERS repeatedly assured her that there was no error in the estimates.  After hearing this numerous times, Kay decided to retire.  PERS propagated the error in computing her retirement benefit and she started out with benefits significantly higher than she thought she should be getting (of course, had Kay gotten confirmation of the error, she would have worked two additional years rather than retiring when she did).  You can all write the next part of the script.  About 8 months after she retired PERS (surprise, surprise) discovered the error that Kay had been pointing out repeatedly.  They notified Kay that they were immediately reducing her benefit by approximately 25% and they invoiced her for the overpayment they were giving her for 8 months (or so).


Kay sued in a civil case in Marion County and won under a jury trial. The court awarded her both damages and civil penalties. The amount of damages was exactly the amount she allegedly owed PERS and the penalty to PERS was an additional $200,000. PERS appealed both verdicts. The penalty was cut to $100,000 after PERS argued that the liability cap in cases like this involving a state agency was only $100,000. Ultimately, the case went to the Oregon Court of Appeals, which invalidated both verdicts. That left Kay and her attorneys with only one option, to appeal to the Supreme Court. And very recently, the Oregon Supreme Court rejected the appeal, leaving the OCA ruling in tact. Kay won nothing and will have to repay all the overpayments from her now more meager pension.

One side effect of this case was SB 897, originally introduced in the 2009 Legislature. It required PERS to validate and to certify as correct estimates requested as part of "validation" legislation that passed unanimously (89 - 0) in the Legislature. Unfortunately, then Gov Kulongski vetoed the bill on the very last day, leaving the Legislature with no way to immediately override his veto. Subsequently, the 2010 special session of the Legislature overrode the Governor's veto by a closer margin - 67-23, and SB 897 became law. The effective date of the validations is July 1, 2011.  PERS has repeatedly tried to defang the validation process but to no avail.  This year's effort to remove the "guarantee" from the law never got a hearing in the House Business and Labor Committee.  Occasionally, retirees and near-term get cut a break.  This year, we got one.  We owe Kay big-time for that.

So, once that process is activated, any future retiree is URGED (that isn't a strong enough term) to seek a validation of all information relevant to retirement at least one year and preferably 2 years before retiring. This is especially important if (a) you've worked for multiple PERS employers; (b) have had any break in service for any reason; (c) have taken sick leave or disability leave for a period longer than one month; (d) all of the above. This, at least,
puts the burden on PERS to gather up all your records and make sure that all service time is properly credited, all employer payments have been made, all employee contributions have been made and both properly recorded. If there are ANY discrepancies, the burden is on YOU to make sure that the necessary legwork is done to ensure that PERS corrects any errors. Once the validation is settled, this locks both parties into the benefits that result. If you
knowingly allow an error to stand, PERS is not obligated to pay you a higher benefit than you've earned, but the whole process is set up to insure that you get what you are entitled to and can make the retirement decision more secure that no "mistakes" will suddenly appear 8 months (or later) after you retire.

While I feel terrible for Kay since she had to be the stalking horse for this bill and ended up with nothing but legal bills for her efforts, she lives in my heart for taking her situation and converting it to something that benefits all future retirees. We all owe Kay an enormous debt of gratitude (similar to the debt we owed Martha Sartain) for exposing her whole financial and work life to the court system.

Wednesday, April 20, 2011

Idle Minds

The House Business and Labor Committee today suspended its rules and passed out HB 2456 unanimously and sent it on to the Ways and Means Committee with a "do pass" recommendation.  The suspension of rules took place because the Legislative Fiscal Office still did not have the "fiscal impact statement" done for this bill.  It doesn't take a genius to figure out why the LFO hasn't got the analysis.  The simple fact is that HB 2456-7 saves virtually no money after all the costs of enforcement and collection are factored in.  The House Business and Labor Committee spent a fair amount of time to get the bill into its current form and effectively wasted more valuable time on a bill that, in the end, saves the state almost no money - probably barely enough to print the changes to the Oregon Revised Statutes.  It affects future retires eligible for the tax subsidy (only those with service time before October 1991) who do not live in Oregon and pay Oregon Income taxes.  It is hard to estimate how many will move out of state, especially with this looming over their heads, and the mechanisms set up to enforce the bill are cumbersome at best.  All I can say is that I hope that Ways and Means sees the stupidity of this bill and decides that it isn't worth the paper it is printed on.  And they say that "idle minds are a terrible thing to waste".  This proves the wisdom of that axiom.

Monday, April 18, 2011

Chump Change

As things are going right now, the only negative PERS bill to gain any traction in this legislative session is the ill-advised HB 2456 (see below for several posts and a lot of comments about this bill).  The bill is now up to a dash 7 revision.  As modified, it will now affect any PERS member eligible for the income tax subsidy who retires after 12/31/2011.  If you don't live outside Oregon and don't plan to live outside Oregon once you retire, the bill has no impact.  But if you live outside Oregon and plan to stay outside Oregon, the bill could cost you anywhere from about 1-3% of your final gross pension benefit.  Members eligible for the income tax subsidy have worked some or possibly all of their eligible time prior to October, 1991.  There is, of course, one more dire possibility for certain inactives.  If you worked for a PERS employer only prior to October 1991, then you will lose 9.89% of your gross benefit.  Few fit this profile, so it probably isn't worth worrying about.

The revisions involve notification to potentially affected members, as well as a mechanism to switch the subsidy back on if a retiree moves back to Oregon, and off if an Oregon resident leaves Oregon for domicile elsewhere.

This bill, which has generated a tremendous amount of hostility, misinformation, and ill-will (see again my commentary in the posts below), has been scheduled for another work session and probable referral to the House Ways and Means Committee on Wednesday.  The sad thing here is that this pissant bill will probably save the state pennies, not real money.  The Legislative Fiscal Office will have it's financial impact statement on Wednesday, when we will probably discover that the bill will net the state all of about $10 million (if even that) over the biennium  This is truly chump change, given the amount of work involved in enforcing it.  Add more to the PERS and Revenue workloads with no money to pay for the decreased efficiency of both agencies that results.  Pathetic!

Monday, April 11, 2011

How To Become Clairvoyant

What a strange trip this past week has been. I suppose I owe OPRI an apology for the drubbing I gave them on Friday following the hearings on the PERS bills in the House Business and Labor Committee - specifically, HB 2456. I fell into a semantic cesspool with Mike Schaufler's chief of staff over the fate of HB 2456. I had written to Representative Schaufler, as I had done with all of the members of that committee earlier the previous week about the fate of HB 2456. I had made some suggestions about the bill, concluding with the assertion that the bill generates so little cash that it hardly seemed worthwhile given the amount of ill-will and litigation that might result. On Tuesday, April 5, I received an email from Representative Schaufler's Chief of State telling me, in effect, that HB 2456 was not likely to move forward to a work session. That was true, but exceedingly misleading. After perusing the "history" of HB 2456 on the Legislative website, it was clear that the bill was scheduled for a hearing on April 8, which I already knew, but that no amendments had been posted as of that date. I concluded, both properly and improperly at the same time, that the Chief of Staff's words should be taken literally - HB 2456 was dead. Unfortunately, I don't have time to peruse every website on the planet so I wouldn't have seen OPRI's amended version of the bill to trade future retirees for present retirees. Thus, I scolded OPRI harshly for, what appears to have been, something they didn't do. They did not revive a dead bill. They provided an option to a bill that was dead in its original form, and gave the committee a way out of the legal dilemma they had created with the unamended version of the bill.

So, OPRI is owed an apology for my scolding. It was premature. They didn't revive a dead bill. They provided an amendment that protected those currently living out of state and those already retired, while offering up future retirees to the gallows. Future retirees remaining in Oregon will continue to get the tax benefit, but those who either already live out of state, or those who plan to move out of state, will not.

I have been called out on this by David Reinhardt, lobbyist (and former Oregonian columnist), and by Representative Schaufler's Chief of Staff. I suppose I should be more contrite, but at the moment I'm mostly pissed. I feel like Representative Schaufler's office deliberately misled me or steered me away from what was really going on (it's just me folks and I can't be in twenty places at one time). I stuck my neck on the line and I, deservedly, got it chopped off.

Nevertheless, my point about OPRI remains. This is NOT a good recruitment strategy. You need new members, desperately. Your membership is aging in place and there has to be a way to encourage new retirees to join. Again, for those retiring after 2011, what exactly will OPRI's claim to fame be?

I wish I could be clairvoyant and read through people's words. But when someone takes time to write me a personal email, I don't typically think I'm being burned, misled, or even deceived. Live and learn.

Thankfully, I'm going away from this mess for about a week. This will probably be my last post for this week. I'm going to enjoy a week in the Florida sunshine with John D. MacDonald and friends in Cedar Key, FL.

Friday, April 08, 2011

Cup of Sorrow

Today was "PERS Day" at the Oregon House.  As expected, only five bills were considered.  Two were disposed of quickly (HB 2113 and HB 2114) by referring them on to the House Ways and Means Committee without discussion.  These two bills were "housekeeping" bills introduced by PERS and don't seem to make a lot of difference to most people.  Mostly they were intended to keep PERS legal with changes to the IRS code made over the past two years.  Two more bills, those dealing with eliminating the requirement for the 6% employee contribution to PERS, and a bill that would alter the requirements for the 1039 hire back were considered.  Since the 6% "pickup" is a centerpiece of the Governor's negotiations with state employees, no action was taken on this bill.  Similarly, the 1039 rule changes received tepid support and it is believed that this bill will die without further issue.

The surprise was the introduction of multiple amendments to HB 2456, the bill pertaining to the tax subsidy for out of state retirees.  In its original form, the bill would have changed benefits retroactively for retirees currently living out of state, and had the unintended consequence of placing in state retirees whose income is so low that they don't currently have to pay Oregon Income taxes.  The key amendment was introduced by OPRI, which would make the bill apply ONLY to retirees who retire on or after January 1, 2012 and who subsequently move out of state.  While this eases the burden somewhat in that no current retiree would be affected by this punitive bill, it appears that both OPRI and the PERS Coalition sold out future retirees to stave off litigation costs.  I fail to understand why this compromise was introduced when the original bill was effectively DOA.

What puzzles me is that now HB 2456-3 will get a work session, which is the necessary prelude to moving the bill out of committee and onto the House floor for a vote.  The original bill was estimated to have saved employers $72 million dollars.  However, because of the language of SB 656, passed in the 1991 Legislature, less than 2/3 of the $72 million would actually be saved.  A better figure was about $48 million.  Then, there would be administrative and enforcement costs expected to cost about half of what the savings were.  This left only about $24 million in actual savings from the bill.  The majority of the savings would have come from current retirees.  By eliminating them from the mix, the net savings from this bill are probably more like $3-$5 million.  In a budget with a $3.5 billion shortfall, saving $3-$5 million dollars is hardly enough to keep the lights on for one day across the state.

I'm also disappointed in OPRI and the PERS Coalition for their complicity in making a dead bill come back to life.  Maybe I don't understand the calculus of politics in the Legislature, but it strikes me that the long term ill will of this eats at OPRI's future seed corn.  This is an organization that needs to grow to stay relevant.  The older generation decreases with time and you want new retirees to form the backbone of your membership.  By taking this position and resurrecting a bill that was probably dead, they have sold out a whole generation of retirees who were actually qualified for this benefit by virtue of the two main settlements that put the package together.  While it is true that future retirees will continue to get the benefit IF they remain in Oregon and IF they had work prior to 1991, it still seems like a bad political decision to anger and constrain future membership growth by taking actions that explicitly harm future members.  Maybe I'm naive, but I think that OPRI may have bought itself a cup of sorrow with this decision.  OPRI may have calculated that this would affect only a small number of future retirees, but the truth is that you never know when circumstances might force you to move from Oregon when you hadn't planned on doing so.  If I were planning to retire after 12/1/2011, I would be really pissed at OPRI for removing a degree of freedom in my retirement planning.  Even if I weren't planning on moving, stuff happens and I wouldn't want to have my benefit at risk for any cut just because I moved out of state.

I'm hoping that OPRI understands the damage they may have inflicted on future membership.  You have a hard sell when it is known that you willingly and complicitly aided in the "take away" of any benefit.

Finally, it needs to be understood that there are somewhere in the vicinity of 58,000 currently active or inactive PERS members who are age and/or service eligible to retire.  I know many of the inactives live out of state.  If I were one of them, I'd be planning to retire before December 1, 2011.  Otherwise, the mere fact of living out of state could cost you a couple of percent of your retirement benefit.


Monday, April 04, 2011

Take It Out On Me

Finally, at last, "PERS Day" at the Oregon Legislature.  After waiting until the last possible moment, the House Business and Labor Committee has revealed the PERS agenda for this year's legislature.  On Friday, the Committee will hear the following bills - HB 2113, HB 2114, HB 2456, HB 3218, HB 2989, and HB 3116.  Since Friday 4/8 is the last day to hear such bills, we can presume that no more surprises await PERS members and retirees.  HB 2113 and 2114 are "housecleaning" bills introduced by PERS.  HB 2113 pertains to legislative members of PERS and prohibits them from participating in PERS or any PERS-administered 457 plan (see also, HB 2989).  HB 2114 pertains to inactive OPSRP (Tier 3) members and primarily involves the IAP withdrawals of those members who become reemployed in a PERS-covered position again.  HB 2456 is the bill that prohibits PERS from paying the tax subsidy to retirees residing outside of Oregon (This bill has to go to House Ways and Means Committee after clearing Business and Labor).  HB 3218 proposes to reduce the PERS "pickup" from 6% to 3% maximum.  Finally, HB 3116 prohibits a public employer from re-employing a retired member of the system for one year after retirement.

To be frank, none of these bills is a surprise.  What will be a surprise is if any of them make a pass through the House Business and Labor Committee, the House Ways and Means Committee, the entire House, then the Senate, and finally the Governor.

While members and retirees now know what to worry about, it is a long way from here to passage.  HB 2456 is probably the cruelest of bills, but it isn't clear what the actual form of the current bill is.  It may have been modified from its initial proposal, as may have been all the various other bills.  If you are interested in testifying on any of these bills, You must be present in Hearing Room E, Legislative Building, at 8:00 a.m. on Friday April 8, 2011.  If you have any electronic testimony you are asked to have it to the committee 24 hours in advance (mailto:  theresa.vanwinkle@state.or.us) .  Persons wanting to testify and make either video, DVD, powerpoint or overhead projection presentations should contact committee staff at least 24 hours ahead of the meeting.  If you need ADA accomodations, you should phone the Capitol and ask to speak to Karen Hupp or Juliene Popinga at 1-800-332-2313 at least 72 hours in advance.


Friday, April 01, 2011

The Beat Goes On

In a bizarre twist of fate, the rumors have started to fly out of PERS headquarters, that the PERB and Mercer have agreed that the assumed interest rate - the one that determines employer contributions, Tier 1 minimum guarantees, and the actuarial factors, should be increased to no less than 8.1%, which is in line with Mercer's estimates of the next 20 years' returns.  This will improve the funded status since the assumption will allow valuations to rise, while not costing an arm and a leg.  After years of rumors that PERS would drop the assumed rate, the latest employer rate analysis led Mercer to suggest to staff that a small rise in the assumption would allow employer rates to drop slightly going forward without breaking the bank.  This topic will be on the agenda in the May Board meeting and will be finalized in July.

PERS sources say that this is the only way the Board can get the employers and the members "off their backs" and reduce the number of whiny phone calls they have been getting ever since rumors started to fly that the Board might lower the rate.  "If we could stop all the whining, sniveling, and complaining about the assumed rate, we can get our work done in a timely manner" said a PERS representative.   "We spend so much time holding members' hands and reassuring them that we aren't mean, nasty, and devious, that we could recover at least 3 FTE to deal with the latest cow pies the Legislature is about to hand us, not to mention doing all of the ridiculous 'validations' required by law since the beginning of 2010."