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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.

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Anonymous said...
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mrfearless47 said...

The difference in benefit is.too small for the amount of risk. While it is true that the Gov has removed himself from the equation, the Rs are still there foaming and fuming as they seek ways to take credit for any part of the PERS reductions. They are currently holding the hospital tax hostage for more PERS cuts and their refusal to go along with this tax - something that had been agreed to earlier in the session. If they bail on the tax now, it could blow another $1.3 billion hole in the budget. If you can afford to go on June 1, your benefit might be $75 a month less or possibly less. It you decide to wait until September, you could lose as much as half your benefit. To me this seems like a no brainier.

CW NP Trip said...

Would the PERS board reduction in assumed rate be just for this year or permanent? What authority do they have for reducing the rate, and how low are they allowed to reduce the rate?

mrfearless47 said...

The PERS Board and the actuary are charged with evaluating the assumed interest rate every two years and for changing it when long term market analyses by three indecent analyst groups all agree in general with actuaries recommended corridor of outlooks.

Because the assumed rate moves inversely with employer rates, there is pressure on the board from employers and from members to keep the rates high. The numbers that have come in this year are in the 7.25-7.75 rate for the long term (40 year horizon). My best guess still centers around 7.5%, which would affect retirement benefits for boy yet retired members by 4-5%, depending on age at retirement, but would raise employer rates by at least 1-2%,

mrfearless47 said...

And the rate adjustment is permanent until circumstances require it to change.

janedoe said...

sorry for double posting, computer seemed to not submit last one.

question 1:
if this three-ring-circus legislative session does end and truly NOT pass the spiking bill, WHICH MONTHS in 2014 should i plan my exit to avoid the risk with the next legislative session? because come what may, i refuse to go through this hell a second time.
question 2:
if a person plans to retire in a year from now, would different actuarial rates make that much difference in benefit? in other words, are past savings lost or is the rate just different going forward?

thanks Marc!

mrfearless47 said...

1. The next Legislative session begins on or about February 1. That would make a January 1 exit the only safe place. That said, the agenda for the even-year Legislature is usually spelled out well in advance so there are few surprises.

2. This is a trickier question to answer. The rate change would be going forward from 1/1/2014 onwards. For account earnings and account balance, the interest rate moves forward so that future earnings will be slightly lower than previous earnings. However, on retirements, there can only be one interest rate used in the calculations for your monthly benefit or for your lump sum settlement. That rate is the rate current at the time you retire. Thus, retiring on January 1 would expose your entire portfolio to the lower rate when PERS figures your benefits. If you went December 1, PERS would still be using the 8% rate. Estimates are that the difference in rates from 8->7.5% are roughly equivalent to having to work about 4-6 months longer. If you want to maximize your monthly or lump sum income, stay out of the Legislative window, a December 1 retirement would prove advantageous.

john hunot said...

Marc, have to tell you I have a gifted friend whom I asked to scan and give me a reading on the Oregon Legislature, his reply "Wow, it smells like manure. There's lots of infighting and 'grease palming' and lots of them are afraid of losing their jobs".

I'm 59 with 13yrs service ending in 1989 and another 7 years of service ending in 2006. With much gut wrenching, stages of grief and gun to head am preparing to jump June 1st 2013, but would love to hold out until at least Dec 1st 2013. Your best thoughts, Marc?

mrfearless47 said...

What do you think you would gain benefit wise to stay another 6months. If you are going out under money match, the monthly benefit difference is probably small for the 6 months at your age. If you can't come up with a compelling argument to counter the risk that still exists in Salem, why wouldn't you go June 1 and give yourself some piece of mind? Just my thoughts.

Hold the Mayo said...

As luck would have it, I don't turn the early magic age until December so my first opportunity to start drawing is January. The rules and the law do not protect public pensions in this state anymore. In the right moment of budgetary crisis, it would not surprise me if the state found a way to reduce or suspend ongoing benefits. The Governor's unthinkable act this past week in trundling out a lame and incredibly equivocal legal opinion in a desperate justification for a raid on the retirement of inactives has made me realize that the state officials really do think our money is their money to spend. Head to the nearest exit you can and don't look back.

rikester said...

As an out-of-stater who retired in 2002 and moved in 06, I and my spouse are destined to get the axe on Jan 1, 2014 for around 6%. Any word on legal status (lawsuits, filings, etc) surrounding SB822? BTW, keep up the good work. I will donate again soon.

mrfearless47 said...

The lawsuit(s) is in process and will be filed before the statutory deadline of July 5. The timing of the case will depend in large part on whether the Supreme Court opts to appoint a special Master (as they did in 2003) so that there is an evidentiary record upon which to rule. The worst case is that the case will take around 18-20 months to resolve.

tledouxpdx said...

I'm an inactive PERS member and am 58 yo. I recently submitted a form to find out the costs of purchasing my waiting time. However, I'm afraid to wait for the estimate before retiring, and the waiting time must be purchased within 90 days prior to retirement.

Question: if I take PERS using Money Match, will purchasing the waiting period matter anyway, or does it really only apply if using Full Formula? The online estimate for waiting time is: Self--$461; Employer: $993 for a total of $1454. The waiting period was in 1990.

I received a newsletter today (5/19/13) from my legislator (Greenlick), and I wonder if the Dems may knuckle under to MM cuts for inactive members plus some additional revenue, in hopes of restoring some cuts made since the economic downturn. Here's an excerpt:

"The June revenue forecast exacerbated the debate to an exquisite point. Before the forecast, which predicted $272 million more in revenue for the 2013-2015 budget, the Governor was pushing for a deal that would cut several hundred million dollars more in PERS costs and add $250 million more in revenue. That revenue was needed to provide a minimum balanced budget. The revenue forecast produced enough to get that balanced budget. But if the Governor’s proposed deal is approved the extra revenue could be used to restore some of the $4 billion in service cuts we have made since the economic down turn. It could provide some extra funds for K-12, for higher education, for social services, and for public safety. So the negotiations continue. But the path to a balanced budget is much clearer now."

Second question: any guess as to the likelihood that any PERS changes would take effect prior to 6/1/2013, even after litigation--worst case scenario? Risk mitigation seems to dictate that I apply for retirement benefits effective 6/1/2013.

mrfearless47 said...

Please check my answers to other comments. As you will see, if you retire under money match you might be better with the additional benefit that the waiting time purchase will net, but then again maybe not. You don't need the official estimate of costs to get your retirement papers in. Personally, I'd take the bird in the hand rather than worrying about the one in the bush. I don't think anything is going to happen before June 1 no matter what, so getting out safely should be a priority now.

Douglas Cook said...

The IAP payout was up to 14.1 percent 2012. Isn't that an indication that the investment value of PERS is marching back up from 2008 and the employer payout amount should settle back down?
No adjustment should be necessary.

The legislature really bought Oregon a big headache if the result of the lawsuits are negative.
I really am getting tired of being sniped at by people who don't have the what it takes to show up for a job for a long period to build up pension benefits or who keep accepting the poor benefits they do get and expect everyone else to fall in line.

mrfearless47 said...

Doug: couldn't agree more. However, the bogey being set is not a shorterm rate; it is a 30-40 year rate. All the pros say we are near the end of a bull market, which is now 4+ years long. Thus, while I'm not a big fannofvrate changes, the board and the actuary would be criminally negligent if they didn't at least investigate. And there are few experts who think 8% ban hold up over the next 30 years.

Unknown said...

Marc, I've heard from other retirees that they are getting phone calls from PERS PAC seeking funds for litigation. Know anything about this?


mrfearless47 said...

I know nothing about the PERS PAC phone calls other than what I've read about on POD. If this is OPRI they need to get a handle on their vendor and straighten this out. By law, a PAC cannot be used for collecting funds for litigation so I'd advise caution until this is straightened out.

scapegoat said...

Will the PERS board reduction in assumed rate be effective Jan.01, 2014? The PERS helpdesk states they do not know and will not know till the board informs them - hmm... Thanks for all you do Marc!

mrfearless47 said...

As I have been told by PERS people in high places, IF there is a change to the assumed rate, it will be effective for anyone who retires on or after January 1, 2014; however, the assumed rate pops up in some other places that I've been unaware of, so there will be some staging to arrange once the Board decision is finalized in Late July. Remember that this will be the first change since 1989 so most of us haven't been through this before.

I hope this helps.