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Thursday, May 26, 2011

Goodnight Old World

If ever there has been a crazy week, this must be it.  I won't bother with the screwy things going on in my life just before Memorial Day, but for people who follow PERS news, the week borders on bizarre.  Of course, we have the news reported on Monday about the Ways and Means Committee possibly abandoning the revised HB 2456 and reverting consideration to the grossly illegal version original proposed.  By now that's old news, but it hasn't happened yet and there is still time to write members of the Ways and Means to object to any action except passing the REVISED bill.

Everyone who has been sentient for the past week or so is aware that the Portland City Club put out their long-overdue report on PERS, in which it concludes that the sky is falling again and trots out a whole bunch of bogus reasons why the stock market isn't going to recover the unfunded actuarial liability, ever.  They then propose a package of novel - to them - changes that will save $2 billion nearly instanteously.  As you can imagine, none of these savings will come by charging employers more or making employers pay their bills when they are due.  No, this must always come from the members of PERS to reduce benefits measurably.  There are lots of useless bits of detritus in this bill - noise akin to earwax and toejam - but my personal favorite recommendation is to end the IAP account for Tier 1 (and Tier 2?) members and redirect the employee contribution into lowering the UAL.  In effect, this is tantamount to shutting down Money Match except for a small number of Tier 1 members whose balances are high enough when the accounts were closed in 2003 that they would continue to get a pension benefit large enough from the Tier 1 account balance.  For everyone else, this would mean that they would take a 6% pay cut to cover the UAL and get no benefits whatsoever from the money.  They would retire under Full Formula.  Oh, and there is that small matter of cutting the Full Formula factors from 1.5% per year to something around 1%.  The objective is to produce a benefit of about 45% at retirement that, coupled with Social Security, would be about 80% of pre-retirement salary.  From my quick survey of PERS retirees on Social Security, I haven't met a single one whose Social Security Benefit approaches the 35% that the City Club assumes.  My Social Security benefit is about 16% of my PERS pension.  Even if I had waited until I was 65, my Social Security wouldn't ever be more than 20% of my pension.  I guess the genuises at the Portland City Club just picked a number out of the air, assumed no one would check it, and came up with an average social security amount.  And for this, we waited nearly a year to get the report.   I hope this report dies a slow and painful death, as the research is sloppy, the facts barely supported by evidence, and the questions asked led to the conclusions they wanted.

And, if that weren't enough, I discovered another Legislative "game" that can be played late in the session.  It used to be that "gut and stuff" was the game of choice of legislators.  They would wait until late in the session after a bill had gotten a hearing but was heading no where, and they would gut the contents of the bill and stuff in new language remotely related (in principle only) to the original topic and present the bill as "not" a new bill.  People have gotten wise to that trick and so a new trick was used this year (I'm sure it has been done before, but I never paid much attention).  Representative Jason Conger (R, Bend) apparently "reserved" his right to introduce one bill late in the session.  This appears to be a courtesy extended to a few people every year.  So, on Monday, while all eyes here were diverted to the possible calamity in the Ways and Means Committee over HB 2456, and the editors of major newspapers were chin-wagging over the City Club Report, Conger introduced an 8 point "School Survival Act" (don't quote me on the name of the act).  The first two elements of the act would (a) kill the 6% pickup in its present form and make employees choose between keeping it or using it to prevent layoffs and furloughs or to lower cost of health care premiums; and (2) brings back the limitation on the retiree COLA to no more than the average of PERS benefits, $2000 per month.  So, active employees would get to choose which poison they'd like to use on themselves, and retirees would get no COLA on amounts above the average PERS benefit.

Then, we have the delicious news that the Mercer Experience Study presented today at the PERS Board Meeting (I won't be there, doctor's appointment, see paragraph 1 for other craziness), is leaning towards a reduction in the assumed interest rate to 7.5% from 8.0%.  This isn't a done deal and Mercer itself recommends more time to study and get input from stakeholders, but this decision will be made at the July meeting.  If PERS adopts the change, it would take effect on January 1, 2012 and would affect all actives then and anyone who retires on or after that date.

Without any of this going on, with no changes actually approved, PERS is on track for another record year of retirements.  They estimate 11,000 for 2011, but this is before any of these things described above could possibly happen.  If any or all of the things described above were to take place, it is important to remember that there are, according to the latest numbers from PERS (Monday May 23, Board Meeting Packet), 70,000 members currently eligible to retire today by age or service or both.  I'm guessing that if the Board reduces the assumed rate from 8.0% to 7.5%, the retirement numbers will swell to well over 20,000 by 12/1/11.  I can tell you that if it were me, and I had put in my time, I'd be gone in a microsecond if that were the case.

Finally, there must be a special hell reserved for my colleagues in the Oregon University System who decided way back in 1996 to accept the OUS' one-time offer to withdraw from PERS and join the OUS' "Optional Retirement System".  Money deposited into PERS remained in PERS but future money went into a variety of accounts managed by the system.  The system has always been part of the Oregon State Government and paychecks have always come from the State of Oregon.  But this doesn't seem to matter at retirement, as some at PERS have decided that the period between 1996 and retirement, IF YOU ARE IN THE ORP, do not count as state service for the purpose of eligibility for the RHIPA pre-retirement health care subsidy, which is only available to "state" employees based on years of service.  For reasons totally opaque to anyone, they are fighting counting the period post-1996 as service to the state.  All I can say is that for those of you in that system, watch out for this diamond back.  It will hit you at the worst possible time, and it seems to be the result of an bureaucratic and arbitrary decision by someone in that Department at PERS.  Hopefully, as I write, this will be straightened out.  Retired people shouldn't have to fight these kinds of battles over healthcare.

As you can see, it is only Thursday and the week is jam-packed with fun news to contemplate and to cogitate.  And here you thought your retirement days were going to be like swinging in the hammock in the backyard.  Who knew you'd have to train for ultimate fighter just to retain what you earned.

Have a nice Memorial Day Weekend.  Use it to remember the old days, because the new days are looking different everyday.



MollyNCharlie said...

Is this a week of 'dumping the trash when hopefully nobody is watching'? There is a tendency for hard-to-sell news to come out late on Fridays when most are focused on the weekend or, in this case, just before the first big weekend of Summer. Just one possible reason why this week is a perfect storm of bad PERS news.


TruthSeeker said...

I always believed that HB 2456 would be a tasty morsel for the legislature to appease the ravenous appetite of all the Public Employee Haters in Oregon. It's an easy kill because out-of-staters have no representation in the legislature and they are no ones consituents.So screw 'em! Who cares?

Andrew said...

@TruthSeeker: While your point is well taken, the fact is that the bill does impact in-staters insofar as they have an interest in being able to move out of state without losing benefits. Some may not feel they can afford to give up those benefits, in which case the bill would effectively undermine the freedom of movement of many current in-state retirees.

TruthSeeker said...

Andrew...I absolutely agree with you.

Andrew said...

As far as Conger's effort to limit the COLA, note the Oregon Legislative Counsel's analysis of such proposals: "The Strunk Court found that there is a contract right to the COLA. We are of the opinion that attempts to reduce the COLA . . . would be found in violation of the contract rights of members . . . [T]his is particularly true for retired members, since there can be little question that the COLA is a fully accrued benefit for a member who has retired."

While Legislative Counsel is a bit more equivocal about the legality of 2456, it is clear in this case that the proposed legislation is in blatant disregard of the law. It's clever to package it as the "Saving the Schools" bill. But Conger apparently doesn't care about the kind of lesson he is teaching about respect for the constitutional rights of citizens.

Jackie said...

Miss "Slow" here. I don't feel I understand all that is being proposed by City Club, and others, but I understand enought to ask 2 questions:
1. Why does eliminating the 6% pickup shut down Money Match.

2. When the assumed rate is reduced to 7.5% - that can't be retroactive, can it? I think that will start January, 2012 and going forward, the assumed rate will be 7.5%. Right?

As always, thank you for your patience,