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Saturday, June 22, 2013

The Beat Goes On

I don't like to be publishing a post just for the sake of saying something.  Nevertheless, this post falls into that category.  There are lots and lots of rumors about what may still happen as the Legislature gets closer and closer to its mandatory sine die date of July 13, 2013, but so far there has been no real action on any of the rumors.  There seems to be a lot of miscommunication even between members of the same committee.  At a Town Hall on Tuesday night, Richard Devlin, co-Chair of the Joint Ways and Means Committee told an audience that adjournment would be sometime between July 3 and July 10.  The next night at another Town Hall, Peter Buckley, the other Co-Chair of the Joint Ways and Means Committee told a different crowd that adjournment is still scheduled for June 28.  If Buckley is right, next week is going to be extremely busy.  I rather doubt Buckley is right.  In the meantime, the significant budget - K-12 - has been delayed and delayed with the next vote scheduled for June 26.  The Hospital Provider tax still has not been scheduled for a vote, unless I've missed its schedule.  Somewhere in this maze may be one or two more bills related to PERS - one to reduce further the COLA for retirees, and another (or included with the COLA modifications) to reduce the annuitization rate for inactive members who retire under Money Match.  Neither bill has a chance unless the Ds in the Legislature get commitment from a number of Rs (greater than 2) to vote for the proposed $200 million more in increased taxes.  So, there is still a great deal to accomplish in what is a very diminishing time period. One clue about potential PERS changes lies in the bill to appoint an Interim Committtee on PERS that would be tasked with reviewing ways to change PERS benefits (to future retirees) that would survive legal challenges.  The task force has a vague charge, but is designed to report to the interim leadership of the Legislature just before the 2015 session and disband and sunset before the actual convening of the 2015 session.  The bill has a number but I don't know what the schedule for hearings is, or whether it even needs hearings.  I'm pretty sure the Legislature can appoint a task force by mutual consent of the party leadership.  Do recall that a similar task force existed prior to the 2003 session, and virtually all the bills, adopted and rejected, originated from that task force.  The fact that such a task force is being contemplated again suggests that the Legislature may be uncomfortable going forward with much more (if any) changes to the benefit structure without a detailed legal, political, and economic analysis.  I'm agnostic on the appointment of such a committee.  Indeed, if they were seeking representation from a retiree, I would certainly volunteer to participate.  But, I'm pretty sure no one wants me on their committee <g> for pretty obvious reasons.  Deep thinking does not seem to be a qualification that is desirable in such a setting.  But, stranger things have happened.  

Anyway, that's the news for this week.  Another week or two of agony for retirees, and another week or two of agony for inactive PERS members eligible to retire.  Just remember that anything enacted with an emergency clause takes effect the day the Governor signs the bill.  Again, you've been so advised.  Take from that whatever you want to take.


janedoe said...

Thanks for this update Marc, cause we seem to be in one of those news blackout tunnels again, with little info to be found anywhere else. I hope we all escape this long, miserable session without further damage. More COLA cuts would be utterly infuriating. Question: You mentioned that PERS is subject to wide swings in funded status. What exactly could that mean for retirees?

mrfearless47 said...

Currently, the wide swings in funded status have had no practical effect on retirees other than these periodic attempts to reduce some element of the benefit structure. But PERS' current reserving strategy is beneficial because it is designed to insulate against the radical volatility. When the Supreme Court ruled in Strunk that PERS was obligated to pay the assumed rate for Tier 1 members, it also noted that hey weren't obliged to pay out MORE than the assumed rate in fat years. That finally provided he PERS Board with the legal cover to reserve excess earnings in the various reserves that are designed to buffer against this volatility. In fact, if the 2007 PERS Board had not been bullied by the local employers to spend the Contingency Reserve to lower high employer rates for 2009-11, the fund would have been far better able to weather the 2008 downturn. You don't notice any politician or local employer making that point, for obvious, but infuriating, reasons. Unless we have another black swan like 2008, preceded by the theft of the contingency reserve in the preceding year, I wouldn't be too concerned about the volatility as a retiree. As an active member, you are much more vulnerable to the political pressure. This year is unique in that the legislature is taking their last whack at retirees. After this, there is nothing else they can do,

Becki Robinson said...

If the Supreme Court rules that the COLA can be reduced as set forth in SB 822, why couldn't the legislature in some future session reduce the COLA to .01 on all PERS benefits? Essentially take the COLA to just above zero.

mrfearless47 said...

That's the very concern everyone has. Once you open that door, there is no way to put the genie back in the bottle. The only thing the Strunk Ruling required was that PERS must pay a COLA on the entire benefit. They didn't address the amount of the COLA since that wasn't an issue in 2003. But, in 2013, it will definitely be an issue, which is why I think that people shouldn't worry too much about what changes the legislature might make in addition to the SB 822 COLA adjustments. Because, the legal issue doesn't change just because the amount of the COLA is reduced further. So, it will boil down to whether the COLA is legally fixed at a maximum of 2% or the CPI, whichever is less, or whether the ceiling can be arbitrarily reduced to anything the legislature wants so long as the ceiling isn't zero and the COLA can't be negative.

Cascade Smith said...

I have been following the recent PERS debacle and find the tactics of misinformation and off-the-wall proposals a form a harassment. I left State employment after being forced out and the federal court concurred with my contention and the federal judge suggested I leave my retirement in PERS at that time. I did and have been inactive for 14 years and recently exited PERS on June 1st and must say that I did so under duress.

About 2 years ago, I was contacted by the State to help them resolve a 25-year old issue. I did and came up with the procuring method to resolve the issue, which was clear and fair and after 6 months of my involvement the Governor signed a settlement for $140 million.

So first there is a big misunderstanding that all inactives never further help or support the State. Next, do you know if I can file a notice of duress with PERS or the State?
Or perhaps you have another suggestion? Finally, if you were an inactive any other advice you might suggest? Thanks..

mrfearless47 said...

Did the state compensate you for your assistance in the $140 million settlement? I know of no such duress claim you can file. I believe you should contact an attorney about a duress claim; it is a civil matter. I'm guessing that by "leaving PERS" you mean you retired, or did you mean that you took your account balance and rolled it out of PERS? If the former, there isn't much else you can do. If the latter, then it sounds like you left the employer match sitting on the table, in which case a legal action against PERS and/or the state for effectively harassing you into sacrificing 50% of your potential pension nest egg might be in order. This would be a matter for an attorney, not an experienced PERS blogger.

Kluane said...

I am new to your blog..What do you mean by inactive retiree?

mrfearless47 said...

Kluane: somehow your comment vanished. I promise I didn't delete it. I do have your question and I want to answer it. I haven't yet found where I use the term "inactive retiree". If I did and I find it, I will change it if I can. The fact is, here is no such beast. What I meant to write, on the assumption that you correctly identified this egregious typo, is "inactive PERS member" - a person vested in the PERS system who, by reason of age or choice or both, maintains membership in the PERS system but does not currently work for a PERS employer and has not retired. Sorry for any confusion.

Kluane said...

You are correct...inactive PERS member...thanks for clarifying

CW NP Trip said...

Marc, I cannot imagine a better person to represent PERS retirees on such an interim committee than you. Your grasp and articulation of the PERS issues is equaled by no one else, IMHO. But you're probably not the person or opinion they would want, unfortunately.

IPS said...

1) Is eliminating the match entirely for Tier 1 inactive PERS members on the table right now.

2) Is there a place to read concisely and/or official documents indicating what reforms are being considered?

Thank you so much for you blog. It is a terrific resource.

I am an inactive Tier 1, eligible to retire now with reduced benefits.

mrfearless47 said...

@IPS. 1. No. Reducing the annuity rate may be, but eliminating it entirely is off the table.

2) No, unfortunately, which is why this blog exists. Occasionally PERS' web site will have an analysis of everything that has been or might be proposed, but that isn't the same as what you are looking for. The legislature does not provide a resource, and bills concerning PERS can pop up in several different committees in each of the House and the Senate. This year the action is in the Senate Finance and Revenue Committee. In 2003, it was in the House Committee on PERS, and the House Business Affairs Committee.

mrfearless47 said...

@CW NP. Thanks for your compliment. I agree that they would never have me on such a committee for more reasons than I could possibly enumerate. However, the committee being proposed doesn't even look like it will have any "civilian" on it.

IPS said...

Mark, Thanks for your answers.

1) Am I correct that reducing the annuity rate would only affect those taking an annuity distribution (and not lump sum).

2) What is the annuity rate now and what revisions to the rate are proposed.

mrfearless47 said...

@IPS. 1. I believe that is correct. The lump sum is the lump sum and Money Match still requires the "match". The annuity methods convert the lump sum into a stream a monthly payments based on an assumed interest rate.

2. The annuity rate is currently 8% until December 31, 2013. The PERS Board is considering a reduction in that rate from 8% to either 7.5% or 7.75%. They will make that decision at their July 28 Board meeting. However, that isn't what the legislature is discussing. While there is NO formal proposal to discuss, the number being proposed for those members who are inactive and would retire eventually or soon under Money Match would be 4%. This act, should it occur and being approved by the Oregon Supreme Court, would lower projected benefits by up to 37% depending age and account balance at the time of retirement.

Bear in mind that the Legislature has not so far even considered any bill containing the proposed decoupling of the annuity rate from the assumed rate, but it has been offered by the Governor as part of more PERS changes to entice (persuade) the Rs in the Legislature to vote positively on some tax increases the Ds want. The Rs have been pretty reluctant to go along with the tax increases and the Ds hold a majority in both houses and the Governorship. So, this late in a legislative session it is hard to know whether all the pieces can be put together in time for this to happen, especially when there are so many inherent problems in even defining what an "inactive member" is (e.g. a working employee on deployment to Afghanistan as part of the Oregon National Guard. This service member is off the payroll, not getting PERS benefits contributed meets all the requirements of being "technically" inactive. There are a dozen more examples I can come up with. Each of these has to be either excluded from the bill, which makes the bill very complex and subject to lots of errors, or they are not excluded and the legal issues compound rapidly). So, I'm not exactly sure this boat will float in the end.

IPS said...

You wrote "The lump sum is the lump sum and Money Match still requires the "match".

I am not sure what the second part of your statement (above) is trying to convey.

Is Money Match different from the match?

My understanding is that for Tier 1 employees, like the annuity distribution, the lump sum is also matched by an amount equal to the account balance at time of retirement (e.g. balance doubled).

You have told me the match itself is not on the table (just the annuity rate which may go to 7.75 or 7.5 or even as low as 4% for inactives who retire).

Thank you for your patience and information. I think this was my last question/ clarification.

mrfearless47 said...

@IPS. No the Money Match involves the employer matching the regular account balance and partly (or wholly, depending on circumstances of gain or loss relative to regular) the variable. All I was trying to say is that regardless of the annuitization rate, PERS still requires the employer match computed and made available to the retiree as a lump sum. The annuity rate used to convert that lump sum into annuity payments is vulnerable, but not the lump sum. Hope that clarifies.

IPS said...

Thank you. That is very clear.

Your answers are so helpful for me (and I hope others that I can't resist another).

If I understand correctly: 1) the current legislative session ends July 13 and 2)typically PERS is evaluated every 2 years. 3) But you have also discussed that a special session could be adjourned at any time, if the legislature deems there is extraordinary work to perform. Is it then correct that in additional to PERS reforms on or before July 13, 2013, there could be additional changes ANYTIME after 7/13/2013 and before 2 years from now?

mrfearless47 said...

@IPS. This is getting fun . The mandatory sine die for this year's legislative session is July 13. There is some indication that the session may not go all the way to July 13. Your second question is more complicated than it first appears as I am not sure what question you are really asking. PERS is evaluated constantly, but typically the Legislature does not consider PERS-related bills except in the odd numbered year legislative session. But don't forget that Oregon now has annual legislative sessions with the even-numbered session much shorter and usually limited to budget adjustments mid-biennium. But there is nothing preventing legislators from introducing a PERS reform bill in an even-numbered year session beginning sometime in Feb 2014. Now, there is a second possible interpretation of your question, which relies on the fact that PERS does a biennial valuation study at the end of odd-numbered years, presented and finished in even numbered years, and which determines things like assumed rate, employer rates, etc. This is happening now as PERS and the Actuary set in motion the assumptions that will be used to conduct the system valuation as of 12/31/13. That valuation determines employer rates for the following (2015-17) biennium, and it determines the system's funded status for reporting purposes. So there are multiple places where changes can be made. PERS' role is more limited in that they can't make systemic changes; that is limited to the Legislature, but they are required to look at the assumed rates, the mortality tables, and all the other factors that determine the system's funded status.

In a roundabout and lengthy way, the answer to your questions are that YES, there could be a special session, there will be a 2014 short legislative session, and PERS has its own set of timetables in use where things may change.

Anything else?

janedoe said...

Marc, the previous post reminded me of some lingering and nagging questions I have.
1) Do you think the anti-spiking bill is likely to gain traction in the February 2014 short session?
2) How soon before February would we know this?
3) I presume it would be safe to retire February 1 before the session got started?

Although I'd really prefer to wait until July 2014 to leave, I'm also determined not to go through the kind of agony I've been in for the past five months...ever again. If I can help it, that is.

I did have the impression that the short session were not times they made sweeping changes, but I guess I was wrong?

Thanks in advance for your response!