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Please don't post your comments more than once. I moderate all comments and a delay between posting and appearing is part of the drill here. I get to all comments in due time. Please don't continually repost the same comment. Only one will be posted. Also, due to the volume of email I'm getting right now, I am unable to guarantee that I will respond to all personal emails sent to my email address. I am being buried alive under an avalanche of email. Please go to the PERS Oregon Discussion (POD) Group, linked below (left) under LINKS to post your question and get a variety of answers. Thank you.

Tuesday, September 25, 2012

Slip Sliding Away

I've just run across a PERS horror story that tops almost every single one I've read about.  I now have first hand information from the affected party so I feel confident that I understand what happened.  Doris (a pseudonym) retired from her employer in 2002 on a disability.  The disability was because of a brain injury.  She hadn't been working all that long and I don't know how old she was at retirement.  Nevertheless, the story goes like this.  Doris' initial computed benefit was $3500 per month.  Because Doris was unaware of how PERS really worked, she didn't think anything about the benefit.  Fast forward 5 years to 2007.  Doris gets her repayment/adjustment letter, but doesn't understand it and doesn't ask about it (remember the brain injury?).  PERS discovers that Doris not only had been over credited by $2000 for 1999, but also that they has miscomputed her benefit by more than $2000 per month.  So Doris' benefit is adjusted downward to $1400 per month, leaving a balance due of $59,000 resulting NOT from the 1999 over credit, but from the computational error PERS made in 2002.  PERS decides not to collect starting in 2007; I'm not clear why but they seem to apply the Circuit Court's ruling to ALL collections, not just those due to the 1999 over credit.  Of course, you can guess what has now happened.  If you guessed that PERS wants its $59,000 you would be absolutely correct.  But, PERS has decided, at least initially, to take a hard line and insist that all repayments be recovered in 10 years or less.  There is, to the best of my knowledge, no statutory requirement that PERS collect in 10 years or less.  It is simply a policy that the Board has adopted to collect the 1999 over credit.  However, in its usual inflexible, hidebound system, it has determined that Doris must suffer the additional indignity to repay her "owings" in about 10 years.  They are proposing that her current $1500 monthly benefit be REDUCED BY $500 per MONTH, leaving Doris nearly destitute.  While I have written to PERS about this case and am doing everything I can to help Doris, I'm afraid she has been a victim of a very cruel and cynical ploy by PERS to hew to an inflexible and irrelevant standard.  My reading of ORS 238.715 indicates that PERS must get permission from a beneficiary to reduce benefits by more than 10% due to a recovery action.  This reduction is 33% of Doris' monthly benefit.  Moreover, she suffered an initial 60% reduction in benefit due to PERS original error.  Now to add insult to injury, Doris is expected to repay an unseemly amount to liquidate an overpayment that occurred 10 years ago, and had nothing to do the PERB error in 1999.  PERS' fundamental error here is to confound two different issues and expect a single solution to both for their convenience, without regard to its effect on the payee.  PERS should have begun collecting the mistaken amount (about $57,000) in 2007, rather than let it continue to ride another 5 years.  Now Doris is 10 years older than when she was when she retired.  PERS squandered an opportunity to begin the repayment without court injunction 5 years ago.  While it wouldn't have been any fairer to Doris, PERS wasn't overrun with the idea that payments had to be collected in 10 years or less.  PERS totally misinterpreted the Court's injunction and applied it to a clerical error unrelated to the error under litigation.  Totally screwed up.

I don't understand PERS' inflexibility in this case.  Post your comments and thoughts in the comment section.  I'm sure Doris would appreciate your sentiment, positive or negative.  I hope that PERS gets a heart and a brain and decides to give Doris a much longer payment schedule so that she doesn't risk slip sliding away.    

Sunday, September 02, 2012

September

The heat of the summer is winding down a bit, the days are getting shorter, and the nights are cooler.  The Anna's hummingbirds are engaged in aerial acrobatics over our feeders and are getting short tempered with each other.  It is also the month in which many of the retirees from the period 2000 - 2004 are starting to see their bills from PERS for the 1999 overcredit.  PERS retirees have discovered my blog and those who have been regular readers are nearly as startled as the "newbies" that PERS is billing them for something that happened over a decade ago.

Let's review.  In March 2000, the PERS Board, then composed of 12 people, decided to credit 20% earnings (out of 25%) to the Tier 1 Regular accounts for 1999.  Employers, still stinging from being stuck paying for the income tax remedy, were mad at the increasing rates that started right after the tax remedy began.  They decided to challenge the 1999 earnings crediting decision.  In early April 2000, they filed an administrative lawsuit alleging that the PERS Board had abused its discretion in awarding 20% without putting some of the surplus (over 8%) into the various reserves statutorily required.  Right here, at this point in time, the 1999 earnings crediting was suspended, leaving it in limbo until the Marion County Circuit Court (Judge Lipscomb) vacated the 20% in 2002.  Those members and retirees who benefited from the 20% decision were immediately at risk, but PERS failed to tell anyone in an obvious way what this meant.  Of course, years later, we know what it meant.  It meant that we had been overpaid by 8.67% on our Tier 1 regular account balances.  That overpayment continued to compound at 8% per year for every year it wasn't corrected.  Members retired with 20% credits on their records.  Lawsuits were filed, legislative actions taken, and throughout it was clear that PERS would eventually be moved to collect on the overpayments.  

The first phase of the collection effort was to stop the continuing overpayment of benefits, or the continued compounding of the 8.67%.  So, in the period between 2006 and 2008, PERS adjusted the benefits of the retired who received 20% by recalculating their base benefit using 11.33% as the 1999 earnings rate.  This resulted in an immediate drop in the base benefit.  They then added back all the COLA increases that should have been made, but had been withheld pending resolution of the cases, and most retirees barely noticed a change in benefits.  This led to some confusion because many members did not realize that they HAD received the withheld COLA.  PERS didn't do a very good job of explaining why, even after receiving all the withheld COLA increases, that benefits didn't change much.  At the same time, PERS invoiced members for the amount they had already been overpaid - money that was owed.  PERS sent out a lame collection letter, which was followed by a detailed accounting of what was actually owed.  The accounting was done very well and it allowed those interested to verify their own numbers quite easily.  Unfortunately, that letter was ignored by most PERS retirees because the Multnomah County Circuit Court had enjoined PERS from collecting that debt until higher courts could rule on the legality of the original collection letter.  So most people just filed their letters away or, worse, threw them away.  Finally, in early 2012, the Oregon Supreme Court, ruled that the Circuit Court had erred and remanded the case back.  In effect, this pulled the injunction and permitted PERS to move forward again with collections.  By this time, PERS had enough experience and heard enough complaints about the previous method of collection that they changed approaches completely.

Fast forward to today.  On the last Friday of August 2012, the first of the collection letters went out.  Once again, PERS has erred by NOT sending the detailed accounting of the balance due.  Retirees have been presented with just a bill for a dollar amount and are given 30 days to decide which of three methods they want PERS to start using to collect the debt.  People receiving a monthly benefit have been prepared for the collection by quarterly newsletters from PERS, but retirees who took a lump sum and have had no ongoing relationship with PERS haven't been so lucky.  Many of them, according to dozens of emails I've received, claim to have never received the original collection letter back in 2006-2007 when they were sent.  I don't know whether this is true or not, but judging from the number of emails I'd say that at least some of these individuals are correct.  PERS initially wasn't going to provide a copy of the original collection letter, but now I've learned that people who call the special PERS line are receiving what should have been included in the first place.

Now, for the issues that have arisen.  Monthly benefit people haven't complained much except for the lack of documentation.  But those who have and who've received the documentation seem satisfied that PERS' calculations are correct and unchanged from the 2006/2007 letter.  On the other hand, the lump sum people are completely taken aback by the size of their bills.  I've heard from people who received bills for as much as $61,000.  So, in an effort to explain what *might* be going on, I'm going to share some insight into how those numbers are computed.  First, and probably the most important piece, is the original error.  All regular Tier 1 accounts were credited with 20% for 1999.  This is 8.67% higher than amount ultimately authorized.  So, if you have your 1999 member statement (mailed in May 2000), you can compute the original overpayment quite easily in dollars.  Then, for each year you worked after the March 2000 crediting, the 8.67% grew by 8% compounded.  So if you retired in January 2003, your balance grew by 1.0867 x 1.08 x 1.08 x 1.08 = 1.37 (37%).  So, this answers the first part of the question of how much you were actually overpaid.  But, there is a second part that most people forget about.  Since you removed both the employee balance (yours) and the employer match (which is dollar for dollar in regular accounts), you also owe the same amount for the employer match.  Once you compute how much you owe from your own account, you then double that because the employer match was equally affected.  Monthly benefit recipients have already started to repay this because their total benefit (employee and employer match) has been adjusted downward.

So for those lump sum people, the pain is twice as large as you might have figured it to be because you've, undoubtedly, forgotten the employer piece of the equation.  You may also have forgotten about the time value of money.  PERS isn't charging you interest or penalties or anything else.  They are merely charging you for exactly what your overpayment was to the day you retired.  Once you took all your money, you stopped owing any more money, but the amount that you did owe was fixed at that point.

Hopefully this short explanation will help people better understand the balances they find themselves owing PERS.