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Tuesday, August 16, 2011

Northern Exit

Considerable confusion still exists about the newly enacted HB 2456.  This bill, just recently signed by Governor Kitzhaber, removes the state income tax subsidy to PERS members who (a) retire on or after 1/1/2012 *and* (b) who had creditable service prior to October 29, 1991.  The confusion stems from a rumor -- absolutely untrue -- that anyone who moves out of state after 1/1/2012 will lose the tax subsidy.  There is no truth to this rumor.  If you retire on 12/1/2011, you will still be able to live out of state without loss of the income tax subsidy no matter when you choose or need to move.  Those of you who are concerned about this can rest assured that a move to Washington or other parts provided you are fully retired before 1/1/2012.

I hope that clarifies.


Puzzled said...

Is there anyway to calculate the difference with and without the tax relief? Wouldn't you have to figure out what your 1991 statement said and cut it by 9% and subtract that from your current statement balance to figure the new lower amount?

LH said...

This is the formula straight from the PERS folks.

For members who had service time before October 1, 1991, the tax remedy
calculation based on House Bill 3349 (1995) is a maximum of 9.8901
percent increase on benefits earned before October 1, 1991. The tax
remedy is calculated as follows:

Divide the number of months of creditable service accrued before
October 1, 1991 by the total number of months of creditable service
during which the pension income was earned, times (x) the Oregon state
tax rate of .098901. This will provide the percent of increase.

mrfearless47 said...

The tax subsidy is a simple calculation. It is the number of months of PERS creditable service prior to 10/91 divided by the total months of PERS creditable service. The quotient is then multiplied by your base (Option 1) benefit and applied to your total benefit. If you want to do it in reverse, the same calculation of the adjustment holds except now you take the quotient and divide it into your calculated benefit to get back to the original computed benefit. Simple if you aren't math challenged. It has nothing to do with balances at the time. It is simply a percent of time. The longer you work, the less significant the tax subsidy becomes. My subsidy, based on 21 years prior to 10/91 and 12 years after worked out to be roughly 6.2% on top of my base.

Randy Holmstrom said...

so if I retire 12/31/2011(effective 01/01/2012) do I get the subsity or give it up?

mrfearless47 said...

@Randy. If you retire on 12/31/11 your effective retirement date is 1/1/12. That is the date at which all retirements eligible for the subsidy will lose the subsidy if either they live out of state or move out of state. If you want to avoid this possible penalty you must work your last day on or before November 30 and retire no later than December FIRST, 2011.

richwb46921 said...

So, I was hired on 08/31/91 and I basically can't retire with a full retirement until 02/28/2017 (I will be 55 08/2016). How will I be affected by HB2456. I'm not sure what's meant regarding the comment "It has no impact on members who began their PERS employment after October 1991." Thanks for your help.

mrfearless47 said...

@Rich. A miniscule portion of your service time (1 month) back in 1991 would have been eligible for a tiny (<0.001%) income tax subsidy because your hire date was before October 1991. Thus, under ordinary circumstances, when you retired you would be receiving this tiny addition to your final benefit if you remain in Oregon. If you retire and do not remain in Oregon, HB 2456 will remove the tiny supplement because the bill disqualifies you from receiving it. If you retire and remain in Oregon you'll get the tiny benefit addition. Nothing more complicated than that. You are the only person I know whose hire date precedes the effective end date of HB 3349 by one month.

Randy Holmstrom said...

Thanks for the HB 2456 effective date information...I now hear under another calculation the tax subsidy still stands and was untouched by recent rule changes? I started 09/16/1980 in a PERS position and now have over 30 years in. I do plan to move to Washington to avoid Oregon tax. Is the "alternate" calculation true?

Randy Holmstrom said...

Thanks for you HB 2456 effective date information! I now hear that under an "alternate" calculation that the subsidy is still available and was untouched by the recent rule change. Is that true? I started 09/16/1980 and have over 30 years into PERS.

mrfearless47 said...

@Andy. I wouldn't risk losing the subsidy depending on something you "heard". Yes, there is another calculation available to "some" retirees but not all. The sb 656 calculation is available to those who retired r to 1991 and to those whose exclusive work is prior to 1991. Otherwise,, you fall under hb 3349, which passed in 1885. Before you make a potentially costly mistake, double and triple check with PERS. otherwise your rumor might cost you a 3.0% hit to your final benefit if you retire after 12/31/11 and move out of Oregon.