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Thursday, February 23, 2012

El Corrido de Jesse James

Just when you thought it was safe to relax for a few months over possible changes to PERS, the group of 14 robbers in the Oregon Senate have come up with the latest attempt to perform a financial colonoscopy on those Tier 1 members still in the system and Tier 2 members getting close to retirement.  All 14 Republicans in the Oregon Senate have pooled their collective IQ to come up with SB1593.  This bill, if enacted would instantly change the actuarially assumed interest rate used for determining benefits at retirement from 8% to 6% and would reduce benefit payouts for those retiring on or after July 1, 2013 (note the date, it isn't a typo) by about 25%. Disregarding the likelihood of this bill passing and getting through the Supreme Court, note that there are somewhere between 20,000 and 40,000 current Tier 1 members who are both age and/or service eligible to retire now.  If all decided they didn't want to hang around to find out whether this bill passes or not, survives inevitable legal challenges or not, they could really mess with PERS.  Not only does PERS not have the capacity to deal with that vast number of retirements in a short period of time, removing that much money from the system into the BIF would probably destabilize PERS.

If you take the time to read this bill you'll find that it is both simplistic and simple minded.  The actuarially assumed interest rate for retirement benefits does not exist in a vacuum.  It is tied to the actuarially assumed interest rate used to set employer contribution rates; it is tied to the actuarially assumed interest rate used to credit Tier 1 member accounts with the "guarantee"; and finally, the actuarially assumed interest rates are used to determine the mortality table conversion factors that are used to generate benefits at retirement.  These rates are all coupled.  The actuaries determine the rate using the best evidence they have in complete knowledge of the way this single number interacts with the three component parts of the system.  I'm not sure whether it is possible to arbitrarily change the actuarially assumed rate for one part of the system independent of the other parts of the system.  That's the nature of the coupling.  SB1593 makes no mention of the statutes that cover the assumed rate and appear to amend no existing statute of any kind.  It seems to be a blunt force attempt to just uncouple the rates without bothering to mention that they are all interconnected.

If my counting is right, there are about 12 days left in this legislative session.  In order for this bill to pass, it has to get at least two democrats to agree to the bill in the Senate, and then it has to pass in the House, be reconciled if there are any differences of opinion in the House, and then has to be signed by the Governor.  I doubt that there is enough time for this to happen, but if it should make it to the Governor, I don't think our current Governor is afraid to say NO (at least I hope he isn't).

But, I don't think the intent is to pass the bill this session. I think the bill is an attempt to telegraph to eligible PERS members that it WILL be part of a major attempt at PERS reform during the longer 2013 session.  I'm not sure if they are trying to get most of the eligible to just commit and retire, or whether they are trying to see how stiff the headwinds will be for such a bill.  This is a very targeted attempt at a change that affects a modest number of PERS members who are eligible for retirement but haven't made the move.  I don't know how much they expect such a bill will save - it will be nothing if all the eligibles retire before the deadline - and I don't know if they really have any grasp of how all the parts of PERS interact.

Glad to meet all the Jesse James impostors of the world.  This crew definitely deserves some sort of award for sheer chutzpah.

If it affects you, I'd start by writing to your own Senator.  Then you might write to Senator Peter Courtney inquiring why this bill gets a hearing when HB 4033 was declared dead by Courtney before it was even heard in the House.

 

4 comments:

mpguy said...

You mention that the large numbers of people who might retire at one time could destabilize PERS.

I wonder if this isn't part of the Republicans' strategy?

mrfearless47 said...

Could be, but I don't see how this solves anything. the cost of terminating PERS is staggering, and the financial this would create would have to be filled by increasing employer rates even higher. How does this help the republicans?

Unknown said...

Might you be giving the Rs too much credit? Few people understand PERS as you do. Is it possible they have NOT thought through the consequences of their 'simple' bill?
peg

mpguy said...

That was my thought, Peg. If the Republicans really understood the system, they wouldn't propose half of the changes they do.

Their lack of understanding is what concerns me. I think that they focus so much on the politics (and the hatred of PERS and public employees in general that they've worked so hard to create over the years) that they think only in terms of the short run.

Creating a financial mess, even if it is detrimental to public employers and the state in general, gives them another great platform to create confusion and anger among the masses. They can put PERS "on trial" during the upcoming campaign.

Nobody ever said that Oregon's Republicans were either smart or truly interested in the state's best interests.