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Monday, March 11, 2013

Pressing On A Bruise

Both the Oregon Legislature, the Governor and god knows who else continues to perpetuate a fact that is totally lacking in proper context. The "fact" is that more that half of current PERS retirees earn less than $24000 in PERS benefits annually. They use this fact to claim that a COLA cap will take care of the poorest members of the 110,000 plus PERS retirees. They make the COLA program appear to be an anti-poverty measure for the poorest retirees. Unfortunately, while the fact is true, it lacks a truly important context that dramatically alters how one interprets the earnings figures.

The crucial fact - one that many of us have been claiming for some time - is that the $24,000 figure is (a) drawn from thin air (b) does not accurately capture the truth about PERS employment and (c) punishes the career employees at the expense of short-timers.

Using PERS' own data, submitted to both the Oregonian and the Statesman Journal last year, we find 63611 PERS retirees earning less than $2000 per month and retired with an average of 14.5 years. The remaining PERS retirees, earning more than $2000 per month, average 26.5 years of service and number 53361 retirees. This split in the data confirms the compelling observation that a COLA cap set at $24,000 is both arbitrary and rewards short-time employment, while it is particularly punitive to employees who dedicated their careers to public service. Not only does this send a proverbial message of "f - you" for your lengthy service, it also acts as a strong anti- recruitment message for a career in public service. I truly hope that the Legislature doesn't fall victim to this maximally cynical message. Talk about pressing on a bruise. Ouch!

14 comments:

tom&beth said...

Spoken like a true fat cat.

mrfearless47 said...

Do the facts offend you? What makes you think I'm a "fat cat?"

mrfearless47 said...

Do the facts offend you? What makes you think I'm a "fat cat?"

Unknown said...

Thanks for the clarity of your blog post, Marc. As a 30 year state employee, I will be severely penalized if this proposal passes. It is unfair that long time public workers should be set up to be penalized while those who often use public service as a 2nd career to supplement earlier jobs with retirement plans in addition to PERS. Such multi-career are not double dippers in my book as they earned both retirements. Still I see no reason they should be rewarded while folks like me are punished because of a completely arbitrary and false limit gets set on how much monthly benefit will be allowed a 2% COLA.

peg

mpguy said...

T&A;b . . . The COLA isn't a gift from the state. It also isn't a form of welfare, intended for those with lower incomes.

It's part of the contract (you do know what one of those is, don't you?) public employees have with the public employers. When those of us who have retired did so, we looked at the accrued benefit, based on the rules, over which we had no control. The annual COLA rules are part of that contract. We looked at those increases as part of the series of payments we would receive and made our decision accordingly.

If the Oregon Supreme Court allows such a change, it will have decided to act politically (since it clearly cannot justify changes to the COLA based on any known contract law).

At the very least, it needs to understand the numbers Marc is pointing out and the very clear arguments he mades when it considers this case.

Why this would upset you is beyond me.

Andrew said...

The anti-poverty rhetoric around capping the COLA is meant to give the proposal the air of moral high ground. Here is an actual case that illustrates what a crock that is: Retirees A and B spent roughly 30 years in the same kind of public service careers. A spent half his career in California and half in Oregon. He receives approximately $22,000/yr from Oregon PERS and $24,000/yr from Cal PERS. He gets a 2% COLA from both. B spent her entire career in Oregon and receives about $42,000. Under the $24,000 cap, B would lose the COLA on over 40% of her income, while A would retain it on 100% of his. Yet, A receives more retirement income than B! Thus, far from functioning as an anti-poverty measure, the COLA cap proposal can actually benefit those who are better-off.

I doubt this is an anomalous case. I suspect a good number of PERS retirees earning under $24,000 receive retirement income from other pension sources, in many cases in higher total amounts than the average career Oregon PERS retiree. And even where $24,000 or less represents a retiree's entire pension income, that individual will in many cases have other sources of income and wealth - e.g., inheritance or a well-off spouse. Moreover, inasmuch as total pension income below $24,000 typically results from fewer years of employment, it will in many cases reflect a preference for leisure, raising kids, or some other non-income producing activity - perfectly fine choices for some, but not ones that should be rewarded with special treatment at the expense of career employees. The higher moral ground claimed by proponents of the COLA
cap thus collapses.

exmonk said...

Thank you for this post and all others. It is heartening to see my anger - neither shared nor understood by family and friends ("Why can't you be grateful that you have a pension at all?") - reflected in your blog. Here's what Evelyn Waugh had to day about it in Brideshead Revisited: "A blow expected, repeated, falling on a bruise, with no smart or shock of surprise, only a dull sickening sensation and the doubt that another like it could be born."

Rod said...

Marc,

Have you seen SB 663. They want to increase the pers retirement age to 67.

mrfearless47 said...

@Rod. I had seen it. Good luck getting that one through the courts for anyone already hired and with specific Tiers. Talk about retroactive changes.

Rod said...

Hi Marc,

I am working on a spreadsheet to estimate how long it will take to recoup my losses if they decrease the assumed rate for money match. For example, if they decrease the annuity payout rate to 7%, will they also decrease the rate at which my fixed account grows by to 7% as well, or will they leave it at 8%. It makes a big difference on how much longer I would have to work.

Also, what would be your best guess as to what they will lower the interest rate to? It really upset me when I saw a bill to lower the rate to 4%. Do you think that is really possible?

Thanks.

Rod

mrfearless47 said...

@Rod. There are two separate issues involved in your question. The first part of the question pertains to the "actuarially assumed interest rate". This is the rate set by the actuary to value assets in the system, project and set employer rates, the guaranteed earnings rate to Tier 1 members, AND the rate used to set up the stream of payments in retirement as indicated by the mortality tables. The actuarially assumed interest rate setting is the job of the PERS Board, in conjunction with the PERS Actuary (Mercer & Company). They will start the process during the March PERB meeting (later in the month) and conclude the process with final determination of rates at the July PERB meeting. There is some talk that the rate setting could be delayed until September, though I haven't heard exactly why. The best guessing for now is that the Board will reduce the rate to 7.5%, which is pretty consistent with what other public systems about PERS' size and larger are doing.

The second part of your question pertains to what the Legislature MIGHT do to decouple (peel off) the rate used to determine the income stream for the pension(annuity). Several bills (including SB 754) have proposed 4%, while the other uses the figure of 4%-6%.

We know the first will happen. I would assume 7.5% unless I hear something at the next meeting that convinces me that they will either go lower or stay at 8%. If they change the rate, it will take effect on January 1, 2014 and will affect not only the rate guarantee - what you earn on your Tier 1 account balance - but also the size of your pension (the income stream drawn from the combination of your account balance and employer match). Figure this is GOING to happen, but you have the remainder of the year to deal with the 8% figure.

As for the Legislature, I can't begin to predict what will happen. The Democrats surely will not support the decoupling of the annuity rate from the rest of the rates, but it will take only two Ds for any bill to get to the floor and be voted on. I consider the likelihood of this happening to be small, but not zero. I wouldn't have a clue on how to advise you here, but if you want to figure the worst, I'd bet on 6%. Don't hold me to this because I don't think it will happen. Stranger things HAVE happened, but this one is a lawsuit in a box.

mrf

janedoe said...

how likely do you think it is that they will eliminate use of vacation/sick hours for final average salary for tier one full formula folks? really need to know because if passes july 1 i'd be better off leavining june 1. although i really don't want to and had not planned on it. so hard to have to make snap decisions on a guess, very stressful.

Robert Gorham said...

http://www.osba.org/~/media/Files/Resources/Legislative/SB754_Gary_Letter-3-11-13.pdf

Here is the school boards attorney weighing in on the pers cut legislation.

Cletus Clovis said...

The governor and the legislature has lost their minds. One way to help with the budget if schools are so concerned is to cap ALL administrator salaries to $100,000 and to set a good example, their retirement will not exceed 50 percent of their final salary IF they work at least 35 years and they relinquish their COLAS. They need to share the pain. Additionally, they will not be able to draw their retirement until age 67. Do you think they are willing to set examples? I doubt it the stupid ignorant greedy rascals. All legislators and the governor should submit to a psychological evaluation before taking the job. They are obviously stupid.