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Friday, May 31, 2013

Bad Moon Rising - Part II

I wish I had waited an extra couple of hours yesterday before posting my brief message.  By mid-afternoon the Bad Moon had already risen.  The Oregon Republicans in the Legislature used a lazy Thursday afternoon, very late in the month of May to announce their newest "compromise" proposal on PERS Reform.  I'm not going to bore you with too many details; you can read the proposal for yourself here http://oregonpers.info/Library/Download.aspx?docid=1542 .  What's notable about the proposal is that it contains every element of the former SB 754, with just a few of them scaled back in their extent.  From here on out, I will refer to the new proposal as "SB 754 sorta lite".  The hands behind this bill are principally the Oregon School Boards Association (OSBA) and its umbrella group "Fix PERS Now" (see yesterday's post).

The bill is audacious in its scope, revisiting the retiree COLA even more punitively than before, it goes after inactives by proposing a cut to the Money Match annuity rate from the current 8% to 4% (the PERS Board will take up the assumed rate at today's Board meeting and will undoubtedly cut it to 7.5% in July, to be effective for all retirements after December 1, 2013), "fixes" the Judges pension (how isn't clear), ends pension spiking without completely eliminating sick leave (I guess you can have 40 hours) and vacation time, it redirects 1% of the IAP to the PERS fund your own retirement, offers flexibility to employers to renegotiate the 6% pickup, removes Legislators and other statewide elected officials from PERS, and creatively goes after OPSRP members (Tier 3) by reducing the accrual rates by 25 basis points going forward.  It also raises the retirement age for OPSRP by 2 years.

There are a number of things in this bill that are very deeply concerning, not only for their scope, but their sheer chutzpah.  While all of the savings for non-state employers (local governments, school districts, etc) will be sent back to those employers in the form of money they aren't required to spend, the state's share of the "savings" are redirected to pay down the UAL.  In other words, if you state employees thought that somehow this might result in some salary relief for you, a better contract, more employees hired, whatever, fuggetaboutit.  The money state agencies would get is going to PERS to pay down the UAL.  

The second issue is something that isn't there.  Everyone assumes that the Dems will blithely dismiss this as more posturing by the Repubs and relax their guard.  Unfortunately the Rs didn't include the "or else" in their proposal.  It is easy to think that the Rs would cave in to reality that the Dems have the votes to close up and go home.  Actually, the Dems don't.  While they have a majority, they lack two needed votes in the Senate to pass the renewal of the Hospital Provider tax ($1.3 billion and change).  The bill passed in the House 54-5 about two weeks ago, but two additional R votes are needed in the Senate for the bill to pass and go to the Governor for signature.  That's assuming the bill isn't amended and sent back to the House where the Rs would get a chance to revote.  So, there is a very large piece of the 2013-15 budget that needs R approval to finish up.  And the Rs have already said earlier that they were inclined to hold those two votes hostage for more PERS reform.  So, if you think you are out of the woods yet, think again.

The legal issues with the proposal aren't much different than they've been before. The COLA reductions are already approved, so piling on doesn't really change the legal arguments.  The Dems aren't likely to go along, but their is no assurance they won't.

The reduction in the Money Match annuitization rate for inactives probably won't fly legally, but that leaves the Rs with the delicious possibility of trading the retiree COLA (or something else) for adding the actives into the mix.  If you are going to go to court anyway, my motto is "in for a penny, in for a pound."

The anti-spiking measures appear to written to mollify legal concerns by not completely eliminating sick-leave, just reducing its ability to affect FAS by more than a week's worth of salary.  The court may find that satisfies the intent, but hardly the spirit of the law.  Sick leave accruals have already been tested in the Supreme Court, and the court said you can't take them away.  Why the Rs think the court will overrule itself this time is beyond my thinking capacities.

The cuts to OPRSP are a nice touch.  No flies on those Rs.  Everybody gets taken for a fleece.

In the final analysis, this proposal is a calculated bargaining chip in an escalating game of high stakes poker.  The Rs know they can't get everything they want, but they want something significant to crow to their constituents and business patrons and lords.  If they just gave in on the hospital tax and everyone went home, they'd have nothing to say except "we really tried hard but those nasty Dems are beholden to the crooks in the unions and all public employees continue to be greedy, freeloaders".  Where would the fun be in getting to claim the moral high ground?

The timing is spectacular.  Today is the last day for anyone hoping to escape any further Legislative tampering to get completely out of the system effective June 1.  Any additional changes to PERS, if they are going to occur, will happen between now and July 1 (or maybe July 13).  The Dems are anxious to get the budget settled and move on.  The OSBA isn't satisfied with anything less than the total annihilation of PERS.  Between those two extremes someone will find the Rosetta Stone that interprets all the differences and bring on sine die.  If not, there's always the possibility the Governor can call the members back for a Special Session about a week after the main session ends.  Or there is next February, or just about anytime in between.  The Rs have not said whether they want an emergency clause, but it would be the icing on the cake by trapping everyone who didn't retire by today between the proverbial rock and a seriously hard place.  It would probably totally trash many people's retirement plans, and it would put a serious damper on contract negotiations.  

This is going to be the first time that Dr. Kitzrobber (aka Dr. No) hasn't gotten his way.

Thursday, May 30, 2013

Bad Moon Rising

A few of my new readers have asked where I come by my snarky titles for the posts I write.  I suppose I should keep it a secret, but the conceit of the titles will be obvious if you go back through about a year of them because you will almost assuredly recognize many of the titles as "song titles".  I love music from all genres and have more than 10,000 cuts of music on my nearly full iPod Classic.  While I listen to it all, I don't necessarily love each piece of the music, but I've been known to invest money in a song just for its title, and I know that I will eventually use it in a post.  The clowns are everywhere, the "silly season" is now 24/7, and this creates a nearly endless list of possible topics upon which to write.  Sometimes I will just write a post to use a song title.  It is never an empty post, but I could probably reduce my posts by one-third and still manage to communicate effectively.  But, the allure of great song titles is captivating and so the writing continues at its current pace.

Thank you all for your continued reading and your continued support of my site.  I wish I could just pack up and freeze the site today for posterity, but it doesn't look like that is going to happen anytime soon.  The dark knights of the business community are out there poised to reign in our pensions, followed then by a reign of terror in their own businesses.  Lest you doubt what I am saying, you only need to look at the group called "Fix PERS Now".  While you won't learn too much from their web site, it is informative to look at the groups supporting "Fix PERS Now".  Dig deeply and see how many big, publicly traded, and privately held Oregon-based corporations are on the list.  You can be certain that by lending their support (and money) to this effort, that pensions, as we know them, are soon going to be as common as the dodo bird.  

Wednesday, May 29, 2013

Semi-Interesting Week

The Legislature grinds on with the R's and D's seemingly stalemated on further PERS reform.  At this point, any sort of grand bargain is unlikely and the session will probably come to sine die without any further damage to PERS benefits.  This is not to say that people are off-the-hook.  Au contraire, there are many things going on that will affect PERS members, actives and inactives.  While the Legislature continues to try and find common ground, contract negotiations with State employee unions are ongoing as are meetings of the PERS Board.  This Friday, for example, the PERS Board will receive the actuary's recommendation that the assumed interest rate be reduced from 8% to 7.5%.  While this is no surprise, it still will affect PERS members and inactives by reducing the Tier 1 rate guarantee and by reducing the actuarial factors used to determine payouts for member benefits.  Not incidentally, it will raise employer rates by about 3%, which will undoubtedly set off more howls of protest by employers for further rate reductions to be borne entirely by PERS members and retirees.  (This is the reason why it pays to pay attention to the Legislature at the same time because one way the Legislature could "help" employers is to decouple the "assumed interest rate" from the actuarial calculations used to determine Money Match payouts).  Simultaneously, the state's offer to the unions includes the elimination of the 6% "pickup".  On the surface, this seems to be a straight trade where the state increases the salary of every eligible employee by 6% and then removes 6% of the salary to send to PERS each month as a pre-tax deduction.  This is not cost-neutral for either employees or employers because the pre-tax does not mean "tax-free".  While pre-tax means that no income tax is withheld, payroll taxes (social security and medicare) are still withheld on the base salary, not on the salary after the PERS payment is made.  But, for employees, the reduction in income taxes is probably offset by increases in payroll taxes and the employee, in the near term comes out whole.  For the state, there are $28 million in additional payroll taxes, which raises the question of why the state would propose something like this when it is a net loss for them.  I can think of a number of reasons why, but I'm going to think about them more before posting.

So, for a week coming off the holidays things remain fertile, but news is trickling out about other aspects that we've been distracted from by watching the Legislature.  If anything breaks, you'll know about it here.  In the meantime, it is certain that inactive PERS members remain in the crosshairs.  If you are inactive (edit: do not have 30 years in) and are at least 55 and know for certain that your retirement from PERS will be under Money Match, the door is open and you can get out.  The age of 58 is only a barrier if you were expecting to retire under Full Formula.  Remember, you don't get to choose the method of retirement.  PERS chooses that based on which gives you the highest benefit.  Don't say you weren't informed.

Saturday, May 25, 2013

Send In The Clowns

Wow! A whole week has gone by without any murmurations or pronouncements from our boys and girls in the State Legislature.  But have no fear, the clowns are being sent in for another attempt to batter us little "Bobos"  (for those not old enough to remember, a "bobo doll" was an inflatable toy, about human height, with a weighted bottom that you could punch as often as you wanted, but the weighted doll never fell over.  It may have gone by other names but in California, they were called "Bobo Dolls").  To be sure, the DOJ opinion offered little substantive support for the notion to declare open-season on "inactive" PERS members yet to retire.  As you recall, the plan had been to eliminate or trim back Money Match for these people, many of whom have no idea what is going on because they've moved elsewhere and have lost touch with events going on.  But the DOJ did offer a suggestion, veiled as support for the proposed cuts to Money Match for inactives.  It would, said the DOJ, be more defensible if, instead of going after inactives any changes to Money Match would apply to ALL unretired PERS members.  And, from the R point of view, it would generate over twice the savings that going after just the inactives would provide.  And, even more, the defense would not have to deal with the problem of discrimination.

So, as of yesterday, the idea of decoupling the Money Match annuitization rate from the other assumed rate has been given new life.  Whether this late in the session it can gain any traction remains to be seen, but a reduction from 8% to 4% is still the number floated.  The idea, as it was floated then and now, is to force many more people into Full Formula retirements, or to significantly reduce the cost of Money Match retirements (to the employer).  

The arguments against this are numerous and would present difficult challenges for the State to defend no matter what, but a bill reducing Money Match annuitization that hits everyone from a certain day forward removes one of the more challenging pieces that the AG's office would have to defend.  Another warning is also buried in the Attorney General's opinion - the issue of timely notice.  A bill passing with an emergency clause and becoming effective on the day it is signed would run headlong into a basic issue of fairness, especially if the bill did not permit anyone to retire before the effective date.  The court looks askance at such legislation, but we've seen that rulings over the past decade have scarcely been concerned with niceties and proprieties.

Will this happen?  Impossible to know.  The legislature has 7 weeks until mandatory sine die in mid-July, plenty of time to mount this kind of attack.  Could they back door the legislation?  If, by back door, you mean that the Legislature could provide PERS with the statutory authority and responsibility to decouple the rates without specifying the rates, I'm pretty sure they could do that.  Were that to happen, PERS would probably just fold this into part of the formal valuation process.  But I'm not about to make predictions that anything of the sort is going to happen; only that it could happen.

All I know is that just when we thought it might be safe to poke our heads up, the clowns with the baseball bats are winding up to try to knock us down again.  Send it the clowns!

Friday, May 17, 2013


From the looks of things, the Legislature may finally be done with PERS for this session.  The official May revenue forecast for the 2013-15 biennium came yesterday and, as expected, will bring an additional $275 million in tax and other revenue to the state coffers.  Since this makes up the difference between the savings already anticipated from SB 822 and the revenue increases needed to balance the budget that Republicans have been unwilling to support, there is no need for the additional revenue.  The Governor gave Senate and House leaders until 5 p.m. yesterday to find a compromise on additional revenue to begin "rebuilding" school funds.  They couldn't find a compromise even though our "friends" on the D side would have tossed inactive PERS members into the trough in exchange for additional taxes. That didn't happen and the Governor issued a press release yesterday releasing the parties from any further obligation to seek compromises and told them to finalize budgets with the money expected to be available from the revenue forecasts.

Thus, at least for the time being, there may be a weekend to relax and possibly we can be done with this whole fiasco for another Legislative session.  I intend to continue to follow this closely because, as they say, it ain't over until Leonard Cohen sings "Hallelujah" upon sine die.  

Do keep in mind, especially for those of you away from Oregon, that the Legislature now meets annually, although the even year sessions are limited to 60 days and deal mostly with budget issues.   Since PERS is a budget issue it is entirely possible that many of these same proposals could reappear in 2014.  It is also possible that the Rs may try something very sneaky before the end of this session (e.g. Hospital tax), that could throw the budget completely out of whack and bring back the PERS monster even more ferociously.

So, stay tuned, as always.  PERS is in the news continuously.  The PERS Board will meet at the end of May to consider next steps in the Assumed Interest Rate discussion and the odds are that a reduction to 7.5% (or possibly 7.25%) will be on the table.  The rate will be adopted at the July meeting.

In the meantime, keep using the Amazon link to support the site.  It sends a few pennies this way for every purchase you make though the link here.  It costs you no more; it is simply Amazon's way of advertising.  If you don't use Amazon and would like to help keep the expenses to this site to a minimum for me, there is always the "Donate" button above.  If you've purchased through the Amazon link, you're family, and if you've donated you're family.  Thanks for all your support.  It takes time and money to keep the information on this blog current and (hopefully) accurate.

Wednesday, May 15, 2013

A Train Robbery

This is really a post for all of you out there who read this blog and who have been INACTIVE members of PERS for some time (I'm not sure this includes my colleagues in higher education, who withdrew from further participation in PERS back in 1996 when the Oregon University System offered the one-time option to switch to the Optional Retirement Plan -- if I were you, I'd be very concerned and start querying the AOF and other organizations to start lobbying for you).  Anyhow, if you are not an active member of PERS but haven't retired, this message is for you, so start reading carefully from here on out.

Today (May 15, 2013), Oregon's Governor John Kitzhaber threw down the gauntlet for Oregon's Legislature to finish its budget negotiations, pass the additional revenue measures and finish reforming PERS.  Guess who is now in the line of fire?  Yep, inactive members of PERS, especially Tier 1 and Tier 2 members who have been receiving earnings on their money since leaving the system are now at special risk for losing access to Money Match as a means of retiring.  This is far from a done deal.  Indeed, there isn't even a bill proposing to do this yet.  But, now that this is out in the open you can bet that it won't be long before active discussions start.  Even the Oregon Attorney General has checked to indicate that removing Money Match for inactives is defensible. 

If you are already 58 (Tier 1) or 60 (Tier 2), you might want to give serious thought to putting in your PERS retirement papers soon, before they have a chance to hold you up for as much as is already in YOUR account.  That's right.  They could be proposing to take away your right to the employer contribution when you finally retire.  If you manage to retire before this law were to go into effect you could preserve all your accrued benefits and not have to wait for a lawsuit that might save you.  

If you know other inactive members of PERS, pass this message on.  If you are thinking that you can wait until whenever and just retire at your leisure, think again.  Even if the Legislature doesn't get around to this during this session, the problem isn't going to go away.  It is now an open problem, identified in a public testimony as something contributing to the current imbalance in the PERS system.  You are now a sitting duck, waiting to be blown away by a high caliber weapon aimed straight at half your earned retirement benefits (the employer match, not your own money).  Until I see a bill, I can't predict how punitive it will be, but if I were in your situation, I would be thinking very seriously of trying any way possible to start protecting whatever benefits you are entitled to.

If you have any questions, please feel free to post them here.  I have some thoughts about strategies.

Tuesday, May 14, 2013

Hotel California

One of my all time favorite songs has the following as its final stanza:  "We are programmed to receive.
You can check-out any time you like, But you can never leave! "   My mailbox has lately filled with stories that make Hotel California less apocryphal and more predictive.  Welcome to Hotel California.

In the last two months I have received countless letters, emails, and phone calls from people whose parent or parents were long-deceased, long off the PERS roles, long after estates were closed, settled, finished.  Despite the fact that PERS received notifications in every case of the deaths of these people, the collection machine at PERS continues to work at a high rate of speed trying to intimidate and badger people who have no connection with PERS to pay back "overpayments" from 1999.  I'd like to think this is a mistake, as PERS has no legal basis to collect anything once an estate has passed through probate, all necessary taxes paid, creditors of record paid, and the estate closed.

The latest of these stories borders on comical.  Consider, a family of married PERS members, one of whom succumbs in 2002 after being retired less than a year, and the spouse succumbs in 2007 after retiring in 2006.    For whatever reason, the spouses waited until they were each ill to retire and did not take their benefits in a way that would permit any heir to receive a nickel of their earned PERS money.  Thus, when the second spouse passed away, PERS neatly scooped up residual account balances (just employee money alone) totaling about $180,000 for free.  Imagine how disturbed the children were when a letter from PERS shows up in one of their mailboxes addressed to the "Estates of John and Jane Doe" and explaining that the estates owe roughly $7500 for "overpayments" for Mrs. Doe, who retired in 2001, and for Mr. Doe who retired in 2006.  Unfortunately, Mrs. Doe's estate closed in 2003 and Mr. Doe's estate closed completely in 2008.  PERS was notified immediately in both cases of Mrs. Doe's decease and Mr. Doe's decease.  So the question of the day is, why is PERS sending these letters out?  I can't imagine how much time each of these letters takes, or how much each costs to process and send.  Moreover, I can't quite imagine why Mr. Doe got one of these letters at all.  Since he retired in 2006, the total amount of money he owed from 1999 had been swept out of his account prior to his retiring in 2006, following the ruling in Strunk.  

It is difficult to advise these people because the letters appear so threatening, and it makes me wonder how many unsuspecting families have received one of these letters and have just paid the amount due even though the members are long deceased, there was no PERS beneficiarydom passing to the children, and the estates are long closed?  People! If you aren't a PERS member, aren't a beneficiary, and don't happen to be handling an OPEN estate, there is nothing to owe, nothing to collect, no one to collect from.  Estates can't be reopened willy-nilly except in cases of fraud, within a year.  PERS had the opportunity to notify the estate of the potential obligation.  They didn't and the estate closed more than 5 years ago.  In addition to swilling up $180,000 in member cash, don't be so greedy as to think you are entitled to get more from a stone marker in a graveyard.

PERS lately reminds me extensively of the Hotel California:  "you can check out anytime you like, but you can never leave".  Oy.

Any others with similar tales of woe?

Saturday, May 11, 2013

Nightmares (Update)

I wanted to take this opportunity to update my post from yesterday.  At least with regards to sick leave accruals and their use in calculating Final Average Salary, I had completely forgotten that this issue has already been litigated and resolved by the Oregon Supreme Court in the Ballot Measure 8 cases (collectively captioned OSPOA v State of Oregon, 1996).  Ballot Measure 8, a citizen's initiative, passed by a close margin in 1994.  Its objective was to eliminate the 6% pickup, prevent PERS from guaranteeing any rate of return to Tier 1 members (recall there were only Tier 1 members in 1994), and to prevent employers from allowing the accumulation of sick leave to be used as a way of raising the Final Average Salary in retirement calculations.  The measure was struck down in its entirety by the Oregon Supreme Court.  On some issues, the court was unanimous; on others, there was dissent.  However, there was unanimous agreement that accrued benefits (all amounts already paid by employers for the employees, all earnings to date, and all accumulated sick leave) could not be taken away retroactively.  The court did allow for the possibility that these benefits could be removed prospectively, but accrued benefits remained in the status they were in prior to any changes.

The conclusion here is that there have now been at least 4 Oregon Supreme Court decisions (Taylor, Hughes, OSPOA, and Strunk) that have held it permissible to change benefits going forward, but that accrued benefits must remain and cannot be removed retroactively.  Thus, if the Legislature wants to enact a bill that tries to take away the use of sick leave retroactively, they will run smack into the buzz saw that is Taylor, Hughes, OSPOA, and Strunk.  So, those worried about the potential loss of benefits they've already accumulated, the worry is probably misplaced.  This does not mean that the Oregon Legislature will not try to force an end run around these rulings, but the likelihood of any legislation getting around these four rulings is pretty slim.  

So, the legislative silence may be less a conspiracy than coming to the realization that bills that would attempt to change something retroactively won't fly, and that changing the rules prospectively won't save all that much money.  

I still would caution anyone in the peri-retirement period to be observant, careful, and prepared to move quickly in the event that any negative decision emanates from the Oregon Legislature.  Even a prospective change to something like sick leave, overtime, vacation time, etc has the potential to have significant consequences the longer you wait to retire.  Once any law preventing their future use were to take effect would mark the beginning of a point in which future accumulated sick leave would not count, future overtime wouldn't count, and possibly future vacation accruals wouldn't make any difference.

I thank Bob Smith for reminding me that OSPOA included the sick leave removal as well as the 6% and the 8% provisions.  The sick leave issue got lost in the shuffle.

Friday, May 10, 2013


With little notice, Governor KitzRobber quietly signed SB 822 into law late last week.  It takes effect immediately, which means that this year's COLA will be 1.5% and the graduated COLA will go into effect with the COLA for 2014, effective July 1, 2014 (payable August 1, 2014).  The legal process is gearing up and the PERS Coalition and, presumably OPRI, will be seeking appropriate plaintiffs for filing litigation.  There hasn't been any litigation filed yet, but it will happen in due course.  I believe the legislation requires that any litigation must be filed within 60 days of the law's passage, which means that any relevant litigation will be filed by very early in July.  The unions and OPRI will put out calls for plaintiffs and they will describe the general category of people who would make good plaintiffs.  Watch this space for further information as soon as it is available.

The original plan was for the budget shortfalls to be made up of savings from SB 822, a further collaring of employer rate increases until 2015-17, and $275 million in revenue increases.  The first two made it through without too much difficulty, but the revenue increases failed to get the required 60% majority in the Oregon House and would have died in the Oregon Senate no matter what.  So, the situation right now is that the budget remains $275 million short of the Co-Chairs approved budget.  This means that addition revenue will have to come from a combination of revenue increases and further PERS cuts that the Republicans and the Governor insist upon.  And it is here where the nightmares begin.

If we assume that further cuts to PERS will come, there are only three places those cuts could come from and have a remotely legal chance of surviving.  The first pertains to the 6% "pickup".  Currently, the law requires that employee contributions shall be 6% of pay per month.  It doesn't matter who pays; it only matters that the employee must contribute 6%.  One option would be to provide some statutory flexibility on how much the employee must contribute, which will, in turn, open the matter up to collective bargaining negotiations and possibly free up some revenue that employers who "pick up" the 6% currently pay (note:  the largest employer "picking up" the 6% is the State of Oregon).  Another possibility is to eliminate the requirement for employees to contribute anything.  This would also permit the subject to be part of collective bargaining with some of the 6% going to employees as possible pay increases and the employees having to pay whatever voluntary contributions they might want to make.  Neither of these approaches actually saves that much money, except possibly for the State of Oregon, because there is no likelihood that the unions would agree to a complete loss of the employee contribution without some compensatory salary increases.  This has proven to be difficult for the actuaries to even figure out because there are so many different scenarios that could alter the savings landscape.  Moreover, the pickup is already part of collective bargaining agreements and so this would have to wait until contracts are negotiated before the actual savings can be calculated.

The second place money might come from is the quiet firestorm that has been building over the benefits being earned by inactive PERS members who worked long ago, became vested in Tier 1, and are starting to retire at astronomical multiples of their final average salaries.  I've heard of cases where retirees of this category are earning as much as 15x their FAS just from the accumulation of earnings over 20 or more years of inactivity in the system.  There are probably a fair number of inactives in this category, and terminating Money Match for them is an area that may be ripe for savings.  But, alas, things are not that simple because Tier 1 members are legally entitled to have the benefit that pays the most be their received benefit.  So, terminating Money Match for some subclass of inactive members would trigger another round of litigation and would probably end up being tossed out of court.

So that leaves the nightmare scenario.  Although comparatively few Tier 1 members are retiring today under Full Formula or Formula plus Annuity, the number is increasing significantly as Money Match ceases to be the "best" method for many after 10 years of no employee contributions.  What is significant about Full Formula and Formula plus Annuity?  The issue for Legislators and the hate mongers in the mainstream media see "pension spiking" as a real issue here.  In Oregon, the "pension spiking" is tied to the use of sick leave, overtime, and accrued vacation time in leveraging up the Final Average Salary.  Many in the Police and Fire realm work mandatory overtime because of staffing shortages and the unpredictability of demand and specific times and days of the week.  In some instances, overtime can increase a member's salary by a substantial about and there is no question that during the final three years of employment, many members will take advantage of covering as much overtime as is available.  Similarly, the employers who permit employees to take advantage of accumulated sick leave in the calculation of Final Average Salary often face literally years worth of accumulated sick leave (I had 15 months' worth of sick leave when I retired, but didn't use it because I am a Money Match retiree).  These longstanding and legal methods of increasing one's final salary at retirement has become a mythological beast in the eyes of the media and some Legislators and the City Club, OSBA, etc.  Somehow, the belief exists that this a major problem that must be addressed to save PERS.  There are probably a fair number of people whose final average salary will be increased by a few thousand dollars annually by the use of these legal methods, but the fear is that unless this is stopped now, PERS will drop into a hole from which there is no return.  The hysteria over pension spiking would be LOL humorous if it weren't an issue in so many people's current plans to retire.

Please pay attention to the following.  The Legislature has been completely, utterly, totally silent on what further actions to take with PERS.  This has more than a few of us concerned that a "Saturday night massacre" may be silently brewing in the Legislature.  This could take one of two forms, although the latter is more likely than the former.  In the first scenario, the Legislature is planning to pass legislation to terminate the use of sick leave, overtime, vacation and comp time in the calculation of final average salary.  I think that is the likely form, but the timing is crucial.  Imagine if the Legislature could organize itself so that between now and Memorial Day they could completely sweep through with legislation that would end up on the Governor's desk before June 1.  If the bill has an emergency clause, the moment the Governor signs it, it becomes law.  So, if this happens, what about people who've been preparing or considering retirement on June 1 with the expectation that the current rules apply?  By how much would someone's FAS change if they were suddenly, literally, unable to utilize all the various factors that make up the Final Average Salary?  For some people I know, this could make a difference of possibly $25-$35,000 per year in benefits.  Talk about a nightmare.  But more likely, the Legislature will not have enough time to draft a bill, get it through all of the committees, both chambers and the Governor's office before June 1 (this is a guess, hardly a certainty).  So that leaves option 2, which is basically the same strategy with two non-trivial exceptions.  First, the effective date would be essentially affect July 1 retirements.  But the sneaker wave, massacre approach would be to maintain the silence for the rest of May, and only introduce the Legislation on or quickly after June 1 for a July 1 implementation.  The scenario thickens if the Legislature agrees to keep the lid on this until after June 1 deliberately to prevent members from being able to jump on the retirement bandwagon for June 1.  If you wait until after June 1, you may have no opportunity to retire before the implementation of this measure.  If this is the case, I see this as callous, unethical, unconscionable, and, hopefully, illegal.  But in the meantime, what would you do?

So, there is a wicked landscape to my nightmares and many others as well.  As one of my friend's put it so ably:  "the silence is deafening."  For people on the cusp of retiring and who know that they will retire under FF or F+A it is time to take serious stock, especially if you are in the category that will benefit from the very things the legislature may be considering removing from retirement factors in calculating Final Average Salary.  The challenge is what to do if the silence continues past about May 20.  You could put in your papers for a June 1 retirement, knowing that you can withdraw the papers if nothing happens during June and sine die.  But, in order to retire, you have to totally separate from your employer.  What if your employer won't hire you back?  Similarly, what do you do during June if nothing happens before May 31?  The one thing to keep in mind clearly is that PERS has repeatedly asked the Legislature not to take actions that would trigger a huge wave of retirements.  If a measure has a date certain for implementation, this is a signal to members that if they want to preserve certain rights, they must retire before that date.  That sets up the avalanche scenario that PERS has been asking the legislature to not do.  So, this leaves the Legislature with only one alternative to avoid that consequence - a swift passage of a measure that does not give enough advanced warning to people to submit retirement applications.  Either of the situations I described above would do exactly that.

Consider yourself informed.  You're on your own to figure out what is best for you.  I don't have any really good or safe advice to give.  Welcome to my nightmares (and I'm already retired).


Saturday, May 04, 2013

Tumbling Dice

The Legislative crap game hasn't folded its tent yet, unfortunately.  The Governor and the Dems are so desperate for revenue - at least another $275 million - that they are willing to sell our souls for a few Repub votes.   PERS members are still in the crosshairs since SB 822 didn't satisfy the bloodlust of the media, the Rs, and the Governor.  Last week Gov. KitzRobber held a round of meetings with legislative leaders to plead for more revenue.  The only way they see this possible is with more PERS revenue transfer from members into the pockets of employers.  Basically, the Legislature, the Governor, the media have all decided that the entire increase in this year's budget will be funded off the backs of PERS retirees first, and then from future retirees - the actives and in actives.  (Keep in mind that all these changes to PERS replace any changes to the tax structure in Oregon; few, if any, additional tax revenue will be needed if all these PERS' robbing ideas get implemented.)

Ideas currently in circulation include bills to prevent pension "spiking"  (a current non-problem), flexibility on the 6% employee contribution (i.e. taking away part or all of the "pickup"), ending Money Match for inactive members with less than 10 years of service and no service in the past 10 years.  The "spiking" provision would reduce employer contributions by about 0.7% or approximately $660 million (this is a total amount over 20 years; about $66 million per biennium) since it only applies to Tier 1 and Tier 2 members (not OPSRP) who retire under Full Formula or under Formula + Annuity, but not Money Match.   The "pickup" saves a variable amount of money depending on how it is implemented both statewide and locally.  The objective is simply to provide more negotiating room in collective bargaining.  Finally, the issue of inactive members retiring under Money Match came into focus after Paul Cleary's testimony on SB 822.  I have seen no analysis of how much a bill ending Money Match for certain inactive members would save, nor have I seen a bill with that objective.  The other ideas are part of SB 754, introduced by OSBA, and being actively pushed by a group entitled Reform PERS Now.

As I have indicated before, I don't give advice to people who are on the verge of retirement.  But, if you are already considering retirement this year, know that you will retire under Full Formula or Annuity Plus, and don't have a complex situation that will require time to assemble funds or paperwork, I do know that the removal of sick leave, vacation time, and overtime will have a huge impact on a small number of people.  You might want to get your affairs in order and be prepared to submit your retirement papers before May 31 for a June 1 retirement.  I don't think the Legislature can move quickly enough to pass bills to eliminate pension "spiking", which is the major concern for most people, or for eliminating Money Match retirements for those who stopped working for a PERS employer more than 15 years ago.  These bills have a relatively long cycle to get passed and signed, even with an emergency clause.

Both the Legislature and unretired, but eligible PERS members, are both throwing dice in difference craps games.  If this concerns you, there are two actions you can take.  First, start lobbying your own legislators on how unfair this kind of change is just before someone retires, and two, get your retirement affairs in order.  Your only option if things start to go pear-shaped is to get out of the system quickly.