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Wednesday, April 18, 2012

Do You Think I Really Care?

PERS is notorious for making some totally mystifying decisions.  The latest mystery is why PERS is NOT going to give those retirees already in payback mode, the option of switching to the newer system adopted for later retirees.  Back in 2006, PERS made its original (bad) decision to permit retirees two options for paying back monies owed due to overpayments between 2000 and 2006 from 1999 earnings crediting.  PERS gave retirees the option of either an Actuarial Recovery Method (ARM) or repaying the entire balance in a lump sum.  The ARM took the member's balance due, computed his/her actuarial life expectancy and divided the balance by the number of months the retiree was still expected to live.  This became the ARM amount.  The catch with this method is that there never was a mechanism in place to stop the payments after a member had fully repaid his/her debt.  Thus, the mechanism was designed so that longer-lived retirees (and their beneficiaries) would subsidize the accounts of shorter-lived retirees.  This proved to be immensely unpopular, although the repayment amounts were typically so small that retirees didn't ever bother to complain too much about it.

Once the Supreme Court ruled that PERS could begin collections again, OPRI, the PERS Coalition, I, and many others began to petition PERS to come up with a more reasonable method that would insure that retirees paid no more than they owed.  This led to a higher repayment amount, but over a shorter time period and with the certainty that members would pay what they owed and no more.   I expected, perhaps naively, that PERS would offer the same deal to retirees already under a payment plan using the ARM.  To my surprise, and many retiree's chagrin, PERS does not currently plan to make the new payment plan available to any member already under the ARM.  This is both unfair and also contrary to PERS' objective of recovering the money faster.  It is unfair because it saddles retirees under the ARM with the continuing burden of repayments for an indefinite period of time.  They risk paying significantly more than others, although at a much reduced monthly amount.  I fail to see how this is an equitable treatment of people who, for no other reason than pure bad luck, had the misfortune of being billed before Judge Kantor issued his original restraining order.

PERS' rationale is that they didn't plan for the "extra" work required to (a) turn off the ARM and calculate a retiree's current balance, and (b) turn on the new method that takes a minimum of 2% per month.  I have no idea how many people are affected by this, but I don't imagine it is very many compared to the number of people who will be placed under the current repayment system.  There are 28,000 members affected by the new repayment system.  It is estimated that there were approximately 35,000 "window retirees".  So, assuming all of the ARM'd retirees are still living, or have living beneficiaries, we are looking at no more than 7000 people.  PERS has a brand new computer system and it is hard to imagine (at least for me), that programming their database is that difficult.  Presumably, it is a variant of Oracle or mySQL or something common like that.  A good programmer armed with the structure of PERS' database ought to be able to cobble up the code to make the necessary adjustments in an afternoon and test it out fairly thoroughly the next day.  Even if PERS does the calculations with a spreadsheet, we are not looking at THAT many calculations.

I basically don't buy PERS' current excuse for not offering the new system to members repaying under the ARM.  PERS has asked the legislature for 3 limited duration positions to handle the initial calculations for the affected 28,000 members.  I wonder how much PERS will save by not doing this compared to the cost of defending themselves in litigation complaining about the inequitable treatment of retirees in the same class.  Somehow, I think this falls into the category of "penny wise, pound foolish."

Wednesday, April 11, 2012

Right Down The Line

There are lots of questions about how PERS will implement the recovery of monies owed by "window retirees".  PERS has tried to answer these as best they can in their FAQ posted at the PERS website.  One recurrent theme in the discussions surrounding the repayment is the fact that members want flexibility to repay PERS at higher than the minimum 2% of gross benefit that PERS came up with.  But, in wanting flexibility, window retirees seem to want to have it both ways - flexibility to increase the amount of the payment in good times, and the flexibility to reduce the payment back to the minimum in harder times.  While I know that PERS will consider these arrangements on an individual basis, I think it prudent for those affected by the repayment to consider agreeing on an amount - 2% up to 10% of gross benefit - as permitted by ORS 238.715, and sticking to the payment amount they decide on.  It is not PERS' obligation to permit "window retirees" to constantly change their payment over the life of the debt.  PERS has enough trouble now keeping records straight; it hardly behooves them to introduce a fail-safe mechanism doomed to failure from the outset.  My advice would be to pick an amount, any amount, and stick with it until the debt is fully repaid.  If 2% doesn't pay back fast enough, increase the percent, but don't expect to fall back on the minimum if life deals you a bad hand.  Once you agree to an amount, stick with it unless you want to write a check and pay the balance off at some future date.  Don't put PERS in the position of having to decide whether you are destitute because you made a poor decision at the beginning.

Sunday, April 01, 2012

Easy Money

In a surprise development last Friday, PERS officials received the latest "purchasing power" study from Mercer actuaries.  It shows that with the rise in gas prices over the past few months that the purchasing power of retirees from 2000 on have lost more ground than their counterparts who retired in earlier years.  With COLA increases so limited despite increases in the actual cost of living, PERS announced that it would be suspending efforts to collect from "window retirees" for at least a year, and would petition the state E-Board to declare all PERS recipients eligible for a one time $50 ad hoc benefit increase.  When asked about this, PERS officials stated "…we know the last decade has been brutal on the retirees from the same period.  The combination of uncertainty about the outcome of litigation, the short period when retirees had their COLA frozen, and the repayment of all the litigation costs, we felt that those retirees who had actually managed to survive the decade should be rewarded for their persistence in the face of nearly insurmountable challenges."  Dennis Richardson (R-Gold Hill), a member of the state's e-board, announced that he thought this was a great way to preserve morale amongst PERS retirees, and he thanked all of them for their perseverance in helping to get this decade behind us.  He agreed that the $50 benefit increase was a small price to keep retirees spending their hard-earned dollars to fund the Oregon economy.  OPRI and the PERS Coalition were, for once, speechless.