I know, I'm on a CCR kick this week. Can't help it. The bad news just keeps coming. Yesterday - a day when I was out of pocket nearly the whole day - PERS posted a FAQ on their web site following yesterday's meeting, which I was unable to attend. The FAQ pertains to the Assumed Interest Rate change, which we've been assuming, based on past history, to take place on 1/1/14. Apparently, the statutes give PERS the authority to change the assumed rate any time other than just the timing of the annual valuation and the boys and girls in Tigard have been busy trying to figure out how to avoid a landslide of business on 12/1/2013. So, they are proposing a new Administrative Rule that gives them some cover to initiate calculations using the new assumed rate in the month following the adoption of the rate change, if any. So, what that means is that instead of having a leisurely wait until November 30, 2013 to retire effective December 1, 2013, the Board and PERS appear to be trying to avoid all of that hassle by letting the assumed rate take effect as early as August 1, following adoption at the July 26, 2013. This, in turn means, that if you wish to avoid the double whammy of revised actuarial factors and a lowered earnings crediting, you'll have to be out of the system no later than July 1 - a new drop date.
There is a small sliver of hope here. From reports I got from the meeting, the Board and PERS may not have the appetite to go all the way to 7.5% in a single pass. They may, instead, adopt a slightly higher assumption at 7.75% to ease the transition, primarily for employers, but secondarily benefiting members. The earnings cut would then be relatively insignificant in the larger scheme of things, but there is increasing evidence that longer longevity in the PERS pool may force the actuary to increase mortality factors at the same time they lower the assumed rate. This would result in a more notable decrease in benefits than would be suggested by the lower assumed rate all by itself. Since the 7.75% rate only showed up yesterday, the Board instructed the actuary to come back with projections of how this would affect new retirement benefits and employer contribution rates for 2015-17. The Board is taking the unusual step of adding a second public hearing on the rule change (see PERS website for the Assumed Rate FAQ and new rule), because they know it will be controversial (and certainly a surprise to me!). The second hearing will be in the Salem office, and I will post the dates as soon as I know them.
Obviously there is enormous political pressure coming from everywhere for the Board and PERS to do something quickly. I think this rule change, which appears to be allowed by statute, was something the wide boys at PERS thought up over lunch one day when they were thinking about how to avoid the retirement stampede. Obviously the best way to do it is to move up the effective date from its expected date to 4 days after you approve a brand new rule. This is, of course, when there are no guidelines or clear policies in place since the last change nearly three decades ago.
A couple of other things. Two employers complained publicly to the Board about what we've all known for many, many years. They complained about the Legislative action to push back part of the rate increases into 2015-17. They argued, what I've been complaining about publicly and privately in every forum I have been allowed to speak, that the reason employer rates are rising is because the employers have never been required to pay their full share. Most have just been content to push the ball down the road until another day, until that day comes and then they go screaming to places like the OSBA, OBA, and other titans of industry who act like they care (but are in it for purely selfish reasons) that the sky is falling. Congratulations to the Cities of Roseburg and Corvallis for telling it like it is. Unfortunately, as the snarky and fairly nasty new Chair of the PERB said, "we can only do what the Legislature instructs us to do". By the way, if you are looking for a really ugly description of the qualifications of the new PERS Board chair, you might wander over to a site I enjoy a great deal, www.uomatters.com , written by a UO colleague Bill Harbaugh. Harbaugh minces words even less than I do. The remark about the PERS Board Chair is in a comment to a Harbaugh post, not from Harbaugh himself and it is pretty savage and at least nominally accurate.
The other takeaway is that IF (and right now, that's a big if) the rate change goes to 7.75% for now, it is destined to go down further, but the Board is considering doing the reductions in stages and letting the market forces inform changes beyond the immediate term.
If you weren't paying attention to the rest of this, the important message is that to avoid any impact by rate changes, the new retirement date would have to be July 1, 2013. Don't say you weren't informed.