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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.

11 comments:

Unknown said...

The lowering of the assumed rate along with the actuarial factors could only happen on 1 January 14 ? Unless the Clowns mandate an earlier date to use the tables? Are these the same tables that are updated every two years and will be on 2014?

I will continue to roll the dice if this it. I will stay the course of my plan when I QUIT in 09 after 27 years. My goal is to start both the pension and Social Security at 62 so that combined, I can receive 90% of my final average salary when I worked.

All that said, the forms are filled out and ready to go at a drop of the axe.

SINE DIE

mrfearless47 said...

Yes, jan 1, 2014, and yes, the every-two year system valuation that leads to new mortality factors based on the (new, old, same) assumed rate. Unlikely the leg will intervene in that process, but the could order the rates decoupled. That is the major concern now.

janedoe said...

question 1:
if this 6 percent pick up thing happens, will it result in more, less, or the same amount of $ that will be calculated for the PERS benefit in terms of final average salary or IAP contributions?

question 2:
do you THINK the 6 percent thing is likely to happen?

question 3:
please clarify what it would mean to future retirees if the assumed rate is "decoupled. aren't the assumed rate and the mortality actuarial tables two different things? i know you think the assumed rate will change, but do you also think the actuarial table will change too?

thanks marc, i so appreciate your timely and irreverant analysis of this continuing fiasco.

mrfearless47 said...

@janedoe

1. The proposal regarding the 6% pickup is the opening salvo in negotiations between state employee unions and the state. So far I can only speculate on what/how this would work. If all other things are equal, the state's offer appears to result in identical contributions to PERS, to the IAP, and to the determination of FAS.

2. I have no insight or intelligence on the unions positions right now. They are wise to be skeptical, but if this is revenue neutral to employees they might go for it. Too early to know.

3. Right now the assumed rate established by the actuary functions as the rate for the tier 1 rate guarantee, the employer assumed rate, and for establishing the actuarial factors used at retirement. They are coupled for convenience and in administrative rule, but nothing in statute currently requires them to be linked. The legislature could explicitly decouple the rates.

janedoe said...

if assumed rate and actuary were decoupled, what would that do to benefits? i guess part of it depends on if life expectancies are longer. i've heard that perhaps with all the disease, perhaps expectancies might even be shorter. but if so, it's thanks to the damn stress things like this cause!

anyway, do you think decoupling will happen?

mrfearless47 said...

The decoupling is by no means a certainty as especially if it is only for inactives. If it were proposed for both actives and inactives I suspect PERS would testify against it, and the DOJ opinion is, at best, lukewarm to the idea surviving a court challenge. This is a difficult reprogramming effort, and it doesn't really reduce the liability all that much for the havoc it would cause. I think that the decoupling will eventually be tried, but not in this session. The Ds would not go for this if it hits actives, and the legal risk is too great to single out inactives. This is why I don't think we've seen any movement on this during the current legislature.

CW NP Trip said...

Marc, I will apologize in advance if you have already answered my question, but here goes. Regarding the PERS board recommendation to lower the assumed interest rate from 8% to 7.5% effective 1-1-14, my wife is retiring effective July 1st: will her annuity be "locked in" at the current 8% assumed interest rate (assuming the legislature doesn't start whacking "Bobo" again before end of session), and current actuarial factors will remain unchanged throughout the lifetime of her annuity payments? Or, put another way, under the current laws, her PERS annuity will remain the same without change other than COLA (again, unless further Bobo whacking)? Thanks so much for your tireless efforts in keeping us all informed and answering our questions.

Bob Frazier said...

Re: "If you are inactive and 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."

What has age 55 got to do with it?

I understood 30 years credit and out was all I needed? My plan is to quit July 1 at age 52, go inactive and wait and see what the legislature does.

It sounds as if I'm missing something obvious?

mrfearless47 said...

@Bob Frazier. The rule for Tier 1 is still 30 years and out and it is not age dependent. However, few inactives have anywhere near that and I was trying to clarify the misperception that you can't get out until you are 58 if you don't have 30 years.

You're not missing anything. Your plan is sound. It was what I attempted to achieve but couldn't because of the changes inflicted by the City of Eugene, the 2003 Legislature, and the City of Eugene settlement agreement. I had planned to wait a year or more until the initial verdict came out in 2002. When I saw that I knew that time would be much shorter than 1 year before changes were made. I could have waited had I known what I know now, but I didn't and just got out.

mrfearless47 said...

!@CP. If your wife retires 7/1/13, the changes to the assumed rate (by PERS) would not apply. Once you are retired the assumed rate is locked into your benefit, as are the actuarial factors. I am cautious in the way that I say this because there is a tiny, miniscule possibility that the Legislature could attempt something truly underhanded to take effect on July 1, which would alter the landscape for your wife's retirement. I consider this to be unlikely and don't mean to concern you. But I would be less than honest if I didn't tell you that the future (the next 6 weeks) are not without risk for non-retireds.

CW NP Trip said...

Marc, thanks for your honesty and cautionary note. We too will remain cautious and hold our breath until July 1 passes. IF the legislature were to do something very underhanded effective July 1, we would be lining up with others to testify before whatever court to protest such a chicken s--t move perpetrated upon some one that had already resigned their job and turned in their retirement papers to PERS. Such an act would so extremely punitive and unfair I can't imagine a court would allow it. That's our thinking, at least.