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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.


janedoe said...

Now I'm really confused. Are you saying that if I did NOT retire until after the spiking law passed, I could still use the sick and vacation leave I accumulated BEFORE the law passed to calculate my future final average salary? OR, are your comments just aimed towards those already retired who may be worried that their past sick/vacation would be deducted from their current benefit, which of course it could not, makes no sense. Another question about the anti-spiking bill: If one cashes out vacation all along the way before retirement, would this still be allowable to increase final average salary as long as it is not cashed out at the very end? This is such an excruciating time for so many of us. Thanks in advance for your response.

mrfearless47 said...

The ruling in OSPOA (Measure 8) explicitly states that with regard to sick leave that what you have already accumulated cannot be taken away. Thus if you accumulated the sick leave under rules that permit you to take it to enhance your FAS at retirement, that benefit cannot be taken away from you retroactively. It was promised to you, you earned, and you shall be permitted to use all sick leave accumulated PRIOR TO the implementation of any law intended to prevent the future accrual of sick leave. It only has bearing on people who haven't retired. Hope this is clearer. It also doesn't mean that the Legislature won't try some end run, but with four legal cases all saying the same thing, it is unlikely that the current Supreme Court would overturn four previous rulings about accrued benefits.

janedoe said...

OMG THANK YOU! best news i've heard for months in this miserable process. OK my other question...If anti-spiking bill passes, does it prohibit use of vacation cash outs during employment (as opposed to unused vacation at retirement)to calculate FAS? sorry for double posting, wasn't sure if other post made it to you. FINALLY, in light of court cases, what is your current opinion of likihood of anti-spiking bill passing?

mrfearless47 said...

Your vacation is an accrued benefit. If you were to use it during your working career they would pay you your regular salary during the period you were off using vacation time. It follows logically that this is part of your compensation however it is paid. There have been no legal cases that I'm aware of that address the specific question of cash payouts of accrued vacation, but it is logical to assume that it meets the same criteria as any other accrued benefit.

As for an anti-spiking bill being passed, I would rate it as 50-50 right now. There still may be money to save by stopping future accruals, especially since everything is trending towards full formula. My post yesterday did scare some crows out of the nest and I'm hearing a few things that suggest that the PERS target, if there still is one, is shifting to the long inactive members.

Bob Smith said...

I'm glad you found my previous comment helpful. However I truly did mean to pose it as a question. There have been several bills introduced this year that would eliminate various factors from FAS calculations. Most of these bills have received nearly unanimous support from the R party. It just doesn't seem possible that that many legislators would choose to simply disregard previous court decisions and attempt to enact legislation that has, so far, been determined illegal. Maybe I'm giving them more credit for intelligence and ethical behavior than they deserve, but maybe they believe that there is another argument to be made.

All capitol insiders (6) I've spoken with over the past couple of weeks confirm that "pension spiking" along with calculations for inactives are the two most likely targets for change.

I don't know how this will turn out, but my plan was to retire early next year. I would take a financial hit for early retirement, but a bigger hit if they disallow sick and vacationleave in the FAS. My papers are filled out and I still will be running, not walking, them to the PERS office if there is time to get out before a bill is passed or a new law goes into effect.

Two years is a long time to wait for a Supreme Court decision.

janedoe said...

Thanks mrfearless. i can't believe how stressful it has been watching this thing unfold. i think that crows were scared out of the nest, also, by the news blackout for the past week, it felt very ominous. but i've also heard that proceedings are on hold due to the recovery of one demoncratic senator who can't physically be there to vote yet. i've been following this thing closely for months and i know i'm not alone in wishing it were over with. i can't BELIEVE that legislators refuse to tax the wealthy, but instead think it's fine to penalize the hard-working middle class. anyway thanks for keeping us up to date.

mrfearless47 said...

@Bob. I still think that pension spiking will be an issue but there may only be one way they can do it, which is to make it prospective. The OSPOA decision is crystal clear so I really doubt that the OSC would overturn OSPOA, Strunk, Hughes, and Taylor.

Again, I don't want to create a false sense of security; I merely try to tell things as I know them. In the end people have to base decisions on what is most comfortable for them..

As I recall, OSPOA enjoined PERS from implanting any of he parts until the OSC ruled.

janedoe said...

SO, are you saying that if spiking bill passed and was litigated (which it would be), does that mean that sick and vacation accrued up until OSC ruling would be allowable for final average salary?

Bob Smith said...

I'll endure the nightmares at least until I see what the legislature proposes. Again, thanks for all of your efforts.

mrfearless47 said...

@janedoe. No. The accrual period would end on the effective date of the bill unless the OSC wer to overturn the statute, at which point things would return to the status they were in before the law was passed.

janedoe said...

so then WHY are people rushing to retire now--if their accumulated sick and vacation leave, as of this date, would not go down the drain even if spiking bill passed? i do know there HAS been a steady stream of people rushing out the door so to speak. but if their current leave balances will still count for future FAS no matter what, they will be no worse off for staying will they? i am struggling to understand this.

mrfearless47 said...

@jane. The issue that people are uncertain that there are more changes ahead, and unwilling to consider the legal issues as a "done deal". There have been some unfavorable legal surprises in the past decade; thus people who are afraid these surprises might continue want to take the bird in hand rather than worry about the one in the bush. I can only report what I know and will not give people advice what to do. Retirement is a very personal decision and I will not take responsibility for people making a decision they may regret later. I report what I know and what I hear from reliable sources, but there will always be conflicting information. You have to do what you feel comfortable doing, not what I may suggest or not.