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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.


MollyNCharlie said...

PERS estimates that only a small fraction of members planning retirement will request a "verification" but I think *anyone* retiring after this law is in effect would be stupid not to get a verification. While the situations you describe, where there is more chance for a calculation error will probably need this the most, an error can happen anywhere. The only way to have even a partial guarantee is with a "verification." A "benefit estimate" is not worth the paper it is printed on even though it is the best planning tool you can get pre-retirement. I've heard that there were at least 6 other PERS retirees in situations similar to Kay's who would also have liked to file against PERS. Her situation is not unique, she is just the name we know. I urge anyone planning to retire with PERS to protect themselves.

Kolbs said...

I work in IT. You would think that the same code (logic) that is used to prepare the actual PERS benefit is the same code used to prepare the estimate and uses the same data in this new verification report. But, then I suspect the PERS systems may be using very old mainframe code.

After July I will request a date verification. It will be interesting to see the report.

I understand most of the data the verification will point out but I'm curious about using more than 4 weeks sick leave. Why would that impact the PERS benefit?

mrfearless47 said...

@Randy. It isn't just a date verification. It is a verification of ALL the numbers (employment dates, salary information, contribution amounts annually against annual salary, age) directly from the original sources - the employers. The employers will be required to audit their records of your employment and correct any errors that may have crept in over the years. Also, some people have breaks in service, either for illness, or for taking another job. Some of these breaks don't necessitate leaving service, but may involve taking sick leave. With people having hundreds or thousands of hours of sick leave, it is possible to be gone for an entire year without leaving the payroll. This was not possible in the early 80s or late 70s. When people did it back then, they were off the payroll. Those kinds of breaks then were subtracted from service time. Some employers were sloppy in recording the information but with better IT today, that information may suddenly pop up. PERS uses a very modern IT structure but has an off-the-shelf package to structure, capture, and record the data. It has to secure some of the data from an antiquated database that has lots of errors. They try to validate as old data are moved to the new system, but that happens as needed.

Kolbs said...

Thanks. It will be interesting to see the turnaround time on these verifications. Sounds like the employer(s) will have a lot to do and with some very old records.

Dan said...

I hope that there is a special place in Hell for the lawyers who have pursued this on behalf of PERS.