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Sunday, February 17, 2013

Ghosts That We Knew

I had intended for this post to be longer and more complex than it will end up.  For reasons that I prefer not to go into, I'm going to summarize what I had intended to say, and I will decide someday soon whether I need to elaborate on the information presented.

Since 2010, the idea of capping the retiree COLA at some amount other than the retiree's full benefit has been floating around in the weeds.  I think the original idea came from the Portland City Club, but I am not certain of that fact.  Nevertheless, capping the COLA at $24,000, $30,000 and $32,000 indexed or not indexed for inflation has been a ghost for at least three legislative sessions.  Everytime the idea pops up, like whack-a-mole, it gets batted away because virtually everyone who investigates the idea bumps into the reality that the COLA, in its current form, has been part of the retirement "deal" all PERS retirees get since 1973.  And since the Oregon Supreme Court, first in the Hughes decision, then in OPSOA, and finally in Strunk keep referencing the PERS "contract", the idea of modifying the COLA loses steam almost as quickly as it gets proposed.

Any actuary will tell you that the COLA is expensive even if retirees never see more than 2% maximum per year.  The PERS COLA is extremely modest compared with the COLA found in many other state retirement systems.  Many states with higher COLA have successfully lowered, suspended, or eliminated the COLA provisions in their retiree agreements, but none had the contractual force that Oregon's has.  For every example of a successful attempt to alter the retiree COLA, Oregon has already been there, done that, and has found out that the statutes associated with many elements of the retiree agreement are legally interconnect, sound and hard, if not impossible, to change.  Oregon's courts have plumbed the depths of PERS and have found most elements inviolate under contract law. Prior to 1971, whenever the retirees suffered a significant loss of purchasing power, the legislature granted ad hoc increases in benefits.  These might be 10% increases, 25% increases, a 13th (monthly) check.  From the founding of the retirement system in 1946 until 1971, there were many examples of these ad hoc increases.  In 1971, the Legislature sought to reduce the number and the impact of these periodic increases.  Late in the 1971 session, the Senate introduced a bill to provide an annual COLA for retirees.  The COLA would be tied to the Consumer Price Index (the measure of inflation), would never be less than zero (even in years where deflation occurred), and initially was pegged to be 1.5% of the retiree's benefit.  In addition, the Legislation provided that in any year the rate could not exceed 1.5% and any excess inflation would be banked for the future so that in years where the cost-of-living rose less than 1.5%, retirees (PERS) could draw on their "banked" surpluses to bring the annual increase up to 1.5%.  In the same year the COLA was instituted, PERS retirees also received an ad hoc benefit increase of either 12% or 25% depending on the amount of the monthly retirement benefit.  The annual COLA was scheduled to begin on July 1, 1972.  In 1973, the Legislature revisited the COLA proposing that the ad hoc increases be diminished even more and proposed an annual COLA of to 2.5%.  Everything else about the COLA remained unchanged in Senate Bill 411.  There were a number of revisions made to PERS in 1973 and all those provisions seemed to drive up employer costs.  While there was only small opposition to the changes to the COLA, there was enough that at some point near the end of the session, OSEA, which represented state employees, proposed to help diminish the cost increases to employers and suggested a retiree COLA of 2% rather than 2.5%.  This reduced employer normal costs by 0.3% of payroll.  This did the trick.  The Legislature agreed and ORS 237.060 with all its revisions was enacted by a significant majority in both houses and signed by the Governor.  The changes, like the original COLA itself, were set to be retroactive to July 1, 1972.  Aside from editorial changes, mostly later to eliminate the reference to the July 1, 1972 starting date, and numeric changes brought about by expansion of the PERS statutes, the COLA section of the Oregon Statutes (ORS 238.360) has remained unchanged for the past 40 years.  In that time, the COLA has only been challenged legally once.  After the 2003 Legislative reforms of PERS, the Legislature determined that retirees would see their COLA frozen at 0% until the 1999 overcredit was fully recovered.  Martha Sartain and OPRI challenged the Legislature as part of the comprehensive Strunk case.  In 2005, the Oregon Supreme Court ruled that the COLA was part of a retiree's benefit and that the Legislature could not  define a new benefit structure to which no COLA attached and then impose it retroactively and unilateral on retirees who benefited from the overcredit.  

Efforts to cap the retiree COLA at some fixed dollar amount would assuredly be challenged by the same forces that aligned against the 2003 reforms.  The history of the COLA argues against any idea of a dollar cap.  At no point in the history of enacting the COLA did the legislature ever consider setting an arbitrary benefit level beyond which no COLA would apply.  Indeed, such a limit would be arbitrary no matter what level was used.  Moreover, the mere fact of picking an amount would expose the Legislature to charges of economic discrimination.  The court system dislikes legislation that is arbitrary and discriminatory.  When the Legislature enacted the COLA in 1971 and revised it in 1973 there was never talk of any limit on the amount of benefit eligible.  The language of the COLA provision is clear and unambiguous.  The COLA shall be applied to the member's benefit.   Note that it doesn't say the first $24,000, $30,000, $32,000 or any other number.  The only way that a COLA can be fair and non-discriminatory is to pay it on the entire benefit.  Regardless of what anyone may think about the benefit, it is earned, it is what was promised, and the COLA is part of the promise.  The Legislature alters that promise at its peril.

I've been writing about PERS issues for more than 13 years now.  I started out writing for just my PSU colleagues and it has grown into a widely-read blog.  Lest anyone doubt the reach, look at the page view counter on the left side.  I'm not mentioning this to be a braggart, or to suggest that I am more important, more wise, or somehow more connected than anyone else.  I mention this primarily because most all of those people who read my blog seek the same thing I seek.  I'm closing in on being retired for 11 years.  Since retiring in 2002, my benefit has been under attack nearly constantly, having been reduced on three different occasions.  I know of no other group anywhere that has seen the level of abuse that those of us employed in the public sphere have received.  I didn't make a lot of money when I worked in a job that demanded no less than 8 years of college preparation.  I never griped about my salary - perhaps I should have, in retrospect - and my employer, like those of all the rest of you probably communicated the same thing.  We appreciate that your salary is not as high as either we or you think it should be.  Unfortunately, Oregon is not an affluent state and so we must defer some of your compensation until you retire.  OK, I accepted that promise and went on the have a successful and productive career in higher education.  I got large grants, small grants,  I published books and papers, I won teaching awards, taught tens of thousands of students, and I served as one of the longest tenured Department Chairs in the University.  When I retired, my Department threw me a nice retirement party, people thanked me for my years of service, I got a nice pen and pencil set, and I started drawing my PERS benefit 6 months after I relinquished my tenured position at PSU.  And since then, I and many tens of thousands of public employees have been savaged daily, weekly, monthly, and annually by politicians, gadflies, charlatans and crooks.  Political careers have been made and lost over PERS.  The public cannot seem to grasp the fact that our retirement benefits were both promised and earned, contractual and required.  With few exceptions, no one I know has gamed the system (it really isn't possible to tell you the truth), or in any way has taken benefits to which they were not entitled.

So, given this history and my own personal appeal, I think it reasonable to inquire of the Legislature and Legislators - when will I get to enjoy my retirement?  When will you all stop blaming every public catastrophe, every economic meltdown, and every employer failure to actual husband the savings that come from making me pay, on the people drawing PERS benefits?  We did not cause the problems.  PERS makes a convenient scapegoat, but few, if any,  of us had anything to do with the form of the retirement system we were offered (it was non-negotiable).  Furthermore, none of us has done anything wrong, except possibly to be foolish enough to believe the earnest promises from our employers.  Most of us PERS retirees are not young enough to find employment to backfill our income when the citizens of the legislature decide that we are both the problem and the solution, alters our benefits at the same time we find our health insurance premiums, our drugs, and gasoline prices continuing to inflate far beyond the official inflation rate.  We all made our decision to retire based on the promises and contractual elements provided in a document we all received called a Notice of Entitlement. We made our budgets on the promises outlined in the document, and on the details provided by PERS and our Human Resources Departments in their prep sessions for imminent retirees.  I retired expecting to enjoy the fruits of 32 hard and long years of full-time work with a reasonable, but not excessive benefit.  Little did I know that I'd still be fighting to receive what I was promised 11 years ago.   I really would like to spend my final years NOT writing this blog, not attending most PERS Board meetings, not being on a first name basis with a lot of people in PERS, in the media, and the Legislature, not spending time analyzing tedious documents so that I can report that  the emperor wears noclothes.  I'd really like all of the strum und drang of PERS to be behind me, to be a ghost that I knew, not a ghost in the windscreen. Is that really too much to ask?


Unknown said...

Marc, I am a long time fan of your blog. This post does a great job of describing my anger with the way PERS is used as a political football. Like you, I believed what I was told all through my 30 year career in state service, that while underpaid compared to the private sector, I would be compensated with a secure retirement. I've been retired just over 9 years now and I feel like I have spent most of the time fighting to preserve *some* of the retirement I earned. My monthly income has increased during my retirement, by $230/month. That isn't much against rising medical insurance, increasing out of pocket medical expenses, the ever rising cost of gas and food. And I still have to pay for housing, federal and state taxes. Continuing to get the COLA that was in place my whole working life and assured on my retirement seems to be a reasonable expectation.

Unknown said...

Well said Professor. I know that I have maybe upset some of the readers of this blog when I have gone on a rant against those elements and political forces aligned against working men and women in both the public and private sectors. Calling them what they are may not be very "mature" but it should does tell it like it is when the likes of our former Govenor Kulongoski promised to "not balance the budget on the backs of retirees", and then proceeded to stand by and do nothing to protect that so called promise. Now our current leader Kitzhaber proposes to pander to the mob with his own brand of betrayal. As I have thought about these leaders and the actions of others in both the public and private arena, I have concluded that these forces have always lurked in the darkness, but have become embolden by several events over the last 20 yrs. First and formost theirs is a sickness, maybe even a pathological adversion to average men and women workers attaining a decent living and attaining an adequate retirement after years of loyalty and hard work. Those who I have labeled "The Financial Masters of the Universe", the ones who brought Americans the Savings and Loan debacle, job outsourcing to third world countries, the Dot Com Bubble and the Great Recession of 2007. They sit in their various Mac Clubs, Union Clubs, or City Clubs and devise ways to take back those rights and benefits which were "earned" and openly negotiated over 40 yrs. They dont care about "american" jobs, but seek to marginize works rights and return the workforce (public or private) to "At Will" status. No rights, no benefits, no retirement without stree and ruin. They play on the general publics fears and resentment over the economic conditions we have all suffer during the last 20 yrs. So as you point out, who to attack. The Nazi's pointed at the Jews. These fascists point at the benefits and rights of the working men and women of America and say "They have too much, they have it too easy,they are on the public dole, they are sucking the body politic dry. These are sick and perverted forces. You are right to call them out for what they really are...something I will not repeat in polite company nor out of respect for you and those who post and read your Blog. God Bless.

John said...

Right on!

Robert Gorham said...

I read all your posts. Thanks, without them I'm not sure how I'd figure all this out. One thought I think can be added is...I was an involuntary PERS employee. I had no choice as to participation. Money was taken from me and promises were made. I relied on those promises and made retirement plans based on those promises. If the truth is that the government can change those promises as it sees fit, then the promises made are worth nothing. I don't need anyone's permission to sue the State and the individual politicians who break these promises. They are not immune under the law.

mpguy said...

Great post, Marc. It should be required reading for everyone in and out of government--especially certain legislators (and, ahem, Governors)--who think that PERS benefits are some kind of gift to public employees.

If this were a true COLA, it would simply be tied to some cost of living index and could go to zero--or to 20% or more. The fact that it is fixed at 2% should give it a much more substantial legal standing.

I wonder if PERS critics ever think that, if the COLA can be lowered, it can also be RAISED at some point in the future should inflation heat up. I'll bet they'd be livid over that possibility.

groucho said...


Thanks so much for your continued hard work in keeping us retirees in the loop. Your blog is especially important to me as I live in the far eastern reaches of the state which seem to have little or misleading information in other sources of media we see out here.

You mentioned the Notice of Entitlement in your recent post. I retired in July 2010 and received an "estimate" of my retirement benefit in September 2010. I inquired to PERS about the status of my Notice of Entitlement and was told PERS had no time frame in which that amount would become the final actual calculation and once that is done they would be sent my official Notice of Entitlement letter which would start the 240 day time frame to dispute the calculation or not.

My concern is without the final Notice of Entitlement letter from PERS, is it possible my benefit could be adjusted down before I receive the notice, giving me no avenue for challenge as I have yet to received the official notice? Is there any legal time frame PERS must meet to have the Notice of Entitlement letter to its retirees so we have the opportunity to accept or challenge the final amount because it appears the challenge can only made to the amount given in the Notice of Entitlement?


mrfearless47 said...

Since you received an "estimated benefit", not only is it possible, it is likely that your benefit may turn out to be not exactly what the estimate says. It is unlikely that it would be significantly different, but I certainly know of cases where the final benefit calculations yield results that are slightly different from the estimated results. I know a recent case where a relatively small estimated benefit grew by $120 per month once the final benefits were calculated. That's the most extreme example I've heard so far.

Kolbs said...

Groucho should have received that Notice of Entitlement in fall of 2010.

Kolbs said...

As a reference, my retirement date is February 1, 2013 and I received my NOI today on March 1. Incidentally, it was only off by 75 cents/month from the PERS Estimate I received last August.