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Wednesday, May 02, 2012

Nasty Letter

Most of the "window retirees" probably have received the initial letter from PERS concerning the beginning of the "payback" of the 1999 over credit of interest to Tier 1 regular accounts.  While this should not be news to most "window retirees", I'm sure that a large percentage of the 29,000 recipients were probably shocked to learn that they still owed PERS money, and that PERS was going to start collecting it sometime over the next year.  The letter was relatively simple to understand, although a fair number of people I know who have already repaid their "overpayment" back to PERS received the letter.  This will, no doubt, trigger some anxious and anguished phone calls to the PERS Customer Service group.  This group already has the reputation of being not very helpful, and occasionally downright obstreperous.  This will mean more work for the second level support people.

In January and March of 2012, the PERS Board meetings revealed the method that PERS was going to use to collect the overpayments.  Out is the actuarial recovery method (ARM) that some people were trapped in before Judge Kantor ruled in June 2007 that PERS could NOT collect overpayments.  Since the case was appealed, PERS simply stopped billing those not yet repaying, but left the payments in tact for those already in repayment status.  Based on discussions and conversations with PERS staff, OPRI, the PERS Coalition, and many others, PERS decided (wisely) to discontinue the ARM for new payees, and instead come up with a mechanism that is both fair and enables retirees to repay only what they owe - no more, no less.  This mechanism set 2% of the gross benefit as the default amount to repay.  Thus, a member receiving $1000 per month (before taxes), would see $20 per month deducted from the gross benefit and assigned to the repayment.  Under typical circumstances, window retirees would see their benefit reduced for about 6.5 years, after which the benefit would become the current gross benefit without the reduction for the Strunk/City of Eugene repayment.  Alternatively, members could write a check for a lump sum to repay in a single payment.  Members who wanted to accelerate their repayment could choose any amount in excess of 2% and repay sooner.

This method is both fair and reasonable, so what is nasty about it?  There is nothing nasty about what is described above.  It is exactly what the Board authorized at its March 2012 meeting.  To many people, the letter yesterday contained a very rude, very unexpected, and, if true, very nasty surprise.  The 2% minimum payment seems to have evolved into a less specific "2% to 5%" minimum payment.  In other words, we no longer know for certain that the default minimum will be 2% of gross monthly benefit.  Now, the minimum could be as much as 5% of gross monthly benefit, making what was a very reasonable minimum now become a much harsher minimum.  Who will be stuck with the larger payments?  Dunno.  There was a buried hint in the letter yesterday.  There was a reference to a 10 year period.  What has possibly occurred is that PERS' actuaries ran analyses using the actual cohort of eligible retirees and found that under a 2% minimum, some people might be paying for a really long time, possibly 10 - 20 years.  At this point, I'm just guessing because PERS hasn't gotten back to me to answer my question about the unexpected change.

In the meantime, even though PERS has discouraged phone calls about the repayment plan, I think that if you are concerned enough about this, you ought to email PERS and ask for an explanation.  This is a badly FUBARED public relations nightmare, not to mention an unexpected fiscal surprise for a group of people just coming to grips with the 2% reduction in benefits.  To confront a possible 5% reduction may be the tipping point for many retirees.  PERS ought to stick to their word.  The agreement they reached with the stakeholders was for a 2%, with the OPTION for individuals to increase the size of their repayment if they desired.  With this move, PERS has taken away another degree of freedom.  Just remember:  the overpayment was PERS' fault, not ours.  Anything that penalizes retirees is going to make a lot of people angrier than they already are.

Time for PERS to feel some of that wrath.


Unknown said...

I am a window retiree Some of my benefits are from my variable account when I retired. I kept the variable as part of my benefit. I never get a statement separating the two accounts fixed and the variable. So how will I know PERS is being accurate with how much I owe?

mrfearless47 said...

I don't know. The only way I can think to do this is to ask PERS for an itemized statement of your accounts at the time your benefit was adjusted for the Strunk / city of Eugene settlement. That way you will know by how much you have been overpaid and by how much your benefit is affected by your decision to retain a variable account in retirement. If anything doesnt look correct, you have the ability to contest the amount and require PERS to lay it out for you.

Unknown said...

Yesterday I received a notice from PERS that I have an overpayment due to improper 20% crediting to my account in 1999. I am not a window retiree. I retired May 1, 2005 after PERS announced that they were recalculating accounts with 11.33% credited for 1999 for retirements beginning April 1, 2005. This notice from 2005 is still available for viewing on their website. In December 2005 I received a notice of entitlement with a letter from PERS which stated that the court cases had been resolved as anticipated, so my benefit was correct and would not change. When I called PERS about the overpayment letter, I thought I would simply point out my retirement date and the above information and be told the letter was a mistake. Wrong. A manager told me I was in a group of about 2,000 retirees whose benefits are to be reviewed. Then she said she did not know why the review was being done or when and she did not know why I got this letter. She also did not have any idea when anyone at PERS would have the answers. I am just to wait for another letter at some future time and she hopes my benefit will be correct. Have you heard of this? Any advice? Can they really do this seven years later? Why? Thanks for any insight you have.

Sheila said...

Just wondering about the taxes we paid on the overpayments we received. How will that be addressed? Tax credits? Deductions?