Not a lot of PERS news to report these days. We've been quiet here on the Fearless front. Yours truly did get his 3 seconds of fame being quoted in the July 2012 issue of Kiplinger's Magazine on the repayment to PERS. The article is about "recoupment" as a new worry for retirees across the country. Somehow they found this blog, and found me. I interviewed for about 15 minutes nearly 2 months ago and they managed to find two sentences to use in the one page report. Fortunately, they spelled my name right and quoted me correctly.
On the good (I guess) news front. Anti-PERS crusaders have decided (apparently) not to take a stand at the ballot box. As far as I can tell, there are no anti-PERS initiatives circulating for the November ballot, and it is now passed the date for new initiatives to be approved for petition circulating. The November elections present a variety of candidates running on anti-PERS platforms, so I'm sure that next years' legislature will have a variety of anti-PERS bills. The Salem Statesman-Journal's Dennis Thompson suggests that the two big numbers to keep in focus are the 6% "pickup" and the 8% assumed rate.
I've been ruminating about those two numbers for quite some time and I'm afraid that I can't see how things will play out. Stay with me for a moment and I'll clarify as we go along. First, you need to understand that PERS gets money from three places: employee contributions (regardless of who pays it), employer contributions, and earnings. Currently, about 71% (or something close) of PERS' income derives from earnings on the fund. The rest comes from contributions made by employers and by employees. Suppose for a moment that the legislature decides to do away with the mandatory 6% employee contribution. What that means is that no money will be contributed to the fund from employees. That reduces the income source to two: employer contributions and earnings. If the fund doesn't get 6% from employees then its overall cash flow changes, and the unfunded liability rises. We don't want that, so we might have to increase employer rates to offset the loss of funds from employees. Now, here's where the second shoe drops. The fund assumes an 8% return on investment annually. This is true for employers, is true for employees (Tier 1 anyway), and for all retirees. If PERS lowers the assumed rate to, say, 6.5% or 7%, then Tier 1 rate guarantee goes down for all future earnings, the actuarial tables are revised for future retirees to reflect lower earnings growth, and the disparity between actual earnings and needed earnings rises. There is only one place to get that money - from employers. So, as you can see, both the Legislature and the PERS Board have a real conundrum on their hands. If you eliminate the employee contribution (and the employer obligation for the "pick up" where it exists), employer rates will go down, but the overall health of the fund declines as well. Consequently, while employers might see a first pass reduction of 6% in their overall contributions, PERS will be forced to raise the rates to offset the anticipated unfunded actuarial liability that arises from having less cash flow to the fund. Then, if they also cut the assumed rate, employers will again be called on to contribute more. If you're lowering the assumed rate, you're admitting that you can't grow your way out of the problem. The solution is to get more from the employers, not less.
So, while these two issues should be of concern to everyone, the ones who will really be opposing any change in the assumed rate will be the employers. So will Tier 1 actives and in actives, but their voices will not count as much as the employers. As far as the 6% goes, the only way that could change is to make it owned by employees. That means an effective 6% pay cut for all those employees working for employers providing the pickup (largely State of Oregon). Many employers today do NOT pick up the 6%. Way back when this was first raised, employers and the employees and their unions agreed to some compromise that has the employees picking up their 6% and the employers provided some initial boost to base salaries as a partial offset. The State doesn't have that luxury. So, what I expect will happen is that this issue will come up during collective bargaining and the legislature will, likely, stay away from it. On the surface it sounds like a great way to save some money, but the money saved will end up being very expensive for employers in the long run (and in the short run).
I'm not a seer, nor a forecaster, nor even that connected, but logic dictates that the two numbers Thompson suggests are going to become most important are likely to be backed away from by the Legislature when the true nature of the problem is explained to them in financial terms. Those dogs won't hunt.
What this means is that we are going to have to be especially alert because when you take away obvious things, the less obvious become more attractive. Keep your eyes peeled, and ask hard questions to candidates running for legislative office. Try to expose their real positions and what their objectives might be. Knowledge is power in the age of worry.