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Wednesday, September 18, 2013

Not Gonna Beg

The clown of Mahonia Hall is at it again, running around with all the little people trying to figure out a way to stab us PERS members (actives, inactives, retired) in a variety of evil ways.  More than that, it isn't enough to beat up on retirees, they want to take away the $183 personal exemption for individuals earning more than $100,000 per year, or families earning more than $200,000.  And just when you thought it couldn't get any worse, discussion is circling around the "senior" medical deduction, setting the benefits only for those over 67.  All you PERS retirees between 62 and 67 can just bite the little man's weenie.

The latest "leak" from Mahonia Hall  is that retirees will see yet another smack to the COLA before the next one is awarded in 2014.  The "plan" is to set the COLA at 1.25% for everyone, and then for those earning more than $60,000 per year, the benefit would drop at the margin to 0.15% of the amount over $60K.  There is a very tricky legal definition floating in the sewer the legislators are swimming in.  The word COLA stands for "Cost of Living Adjustment".  The legal question is how can a fixed and invarying amount be considered a "Cost of Living Adjustment".  The COLA is an amount determined annually by the bureau of labor statistics to measure the increase or decrease in a market basket of goods and services that the average consumer must buy.  Perforce, the amount varies from year to year, and prior to SB 822, there was a cap on the size of the COLA increase, but the amount over the COLA would be banked and drawn on in years when the actual COLA was less than the 2% cap.  Since the 2013 legislature, the concept of a COLA has been shredded. They have unlinked the COLA from the annual BLS market basket change (a true measure of COL), they have removed the "bank", and so the "cost-of-living" has become a gratuitous 1.25% benefit increase annually without any regard to inflation.  Just think, when inflation roars back to 8% or 9% and seniors can no longer afford their medicine, expect to see them applying for food stamps at Mahonia Hall.   Left in the mess, is the question that the legal beagles will have to sort out:  when is a COLA not a COLA, because the Strunk court mandated that PERS cannot pay a benefit to which a COLA does not attach.  So, if what is changing is ruled a gratuity, not a COLA, then the Legislature will lose again on this spawn of satan.

Buried inside a sentence discussing the changes to COLA, is another time bomb intended to hit inactive PERS members who haven't yet retired.  Although not specific, the general consensus seems to be that the inactives who are eligible to retire under Money Match will see their annuity rate decrease from 8% (7.75% after December 31) to something in the vicinity of 3.5%.  This will cut the prospective benefit by about 37%.  Many inactives are all over the country.  They vested in PERS, PERS would not let them take all their accrued benefits out (including the employer match), and so they've been stuck in PERS all these years, expecting that they would retire and have a decent pension for the time they worked in PERS and compensating them for the time value of their money kept in trust for them because they had no other way out.  Now that there are quite a few of these people out there, it is time to retroactively change the rules.  Sure, you can still retire under the different benefit arrays, but you will no longer receive the benefit you thought you were going to get.

Related to the inactive issue is another, far more perverse and cynical.  These are people still working for public agencies in Oregon full time.  In 1995, just before Tier 2 began, OUS offered its faculty the option of moving to their own (OUS) retirement system, called the Optional Retirement System.  Members were allowed to join up into the new system, advertised as equal to or better than PERS, and have all future contributions directed to the ORP.  Members electing this were assured in person and in writing that their PERS benefits would remain as they were and that accounts would continue to grow as the money is being held in trust for them.  The new ORP works more like a 401-K and many are discovering that it is anything but equal to or better than PERS.  Nonetheless, people accept the choices they made, but now they've come to discover that they are classed as "inactive" PERS members and will fall into the same morass that all other truly "inactive" members will be.  So despite the fact they were promised their PERS benefits as contracted, the Legislature is now trying to take away about 37% of their benefits earned while they fell victim to the OUS' bait and switch routine.  

As the title says, "not gonna beg", but you can bet your life that these issues - ALL OF THEM - will be played out in full Shakespearean drama before the Oregon Supreme Court.  And when all the various questions are asked and answered, it would not shock me to see the PERS member side win a few for the hipper.

One thing is also fairly certain.  This blog will not support a single member of the Legislature who votes in favor of this bill.  It doesn't matter what party, what else he/she may have done.  The buck stops right here.  If you are a legislator and you are reading this, I promise you I will use this space to campaign for every one of your primary rivals in May.


Befuddled said...

A question and two points

If the annuity rate is changed, does the earnings rate of (now) 7.75 prior to retirement?

For most individuals, a 3.5% annuity rate is a sucker's bet. You'll be better off taking the lump sum, rolling it into an IRA, and managing for a 3.5-4.0% payout while preserving your equity.

Interesting observation: I went through all of the documentation for the ORP (which I chose) and nowhere does it mention that you would become inactive by taking this option. BUT, there it is on the election form: "I understand...I will be considered an inactive Oregon PERS participant..." Pretty easy to project dark motives on the part of OSSHE, when the sneak that into the final form with absolutely no mention of it previously.

mrfearless47 said...

The annuity rate and the earnings rate would have to be decoupled for this to happen. The earnings on the money would remain at 8% for the rest of this year and then drop to 7.75% after. Only when you retire would the annuity rate then change to 3.5% (the number I've heard has been anywhere between 3 and 4). I agree 100% on your observation about the lump sum. There you at least get the full match and you should be able to match the 3.5% or 4% earnings by throwing darts.

As for OSSHE, you remember that I, too, was a member of that august body. From about the mid 1990's (funny how things like that happen) until I retired, and continuing afterwards, the motives of the Chancellor's Office have been suspect. I didn't trust them at the switch (which is why I didn't take it), but also because I made no financial sense to me only 6-7 years out from retirement. Why buy a pig in a poke when you can be stuck in the eye by one you know.

Now, for the possible good news. As of about 11:30 this morning, I've been hearing that the "inactive" piece of the PERS bill has been removed because the Dems are having a hard time getting the needed votes for this - lots of pushback from Higher Ed faculty - and too many worries about the legal liability. There is too little money involved (about $41 million) for the size of the potential legal liability. So, we may not have to worry about this, but I'd certainly not lose sight of it come February. HtH.

Befuddled said...

Thanks, Mr Fearless--

Yes, we'll have to fight tooth and nail for all that's been promised to us.

Now, if we had some assurance that the earnings rate would not change going forward, what rational people would do is run through their ORP money first, and sometime well after their actual retirement, retire from the PERS system.

But of course there is no assurance! If the state experiences a couple of wins in court, there will be a push to try to grab yet more from retirees.

In any case, I appreciate the help.

befuddled said...

Maybe you can help me understand all this. I am 59 1/2, inactive and watching. I am on the edge of deciding to retire from PERS by Dec. 1. If I do that,I believe that I can use Money Match and also have the 8% locked in for my the rest of my retirement. I can't get anyone at PERS to counsel me as they refuse to do anything more than go over your retirement paperwork and make sure it is filled out correctly.Is my understanding of this correct or am I understanding that the legislature can change the rate later on my monthly amount?

This is so nerve racking as I really didn't want to "retire" (meaning take this PERS money) for at least 2 more years but will do so now if it is the best option.

Thanks for giving me your read on this situation.

mrfearless47 said...

Assuming no special session surprises, and assuming that your best method is money match - something you should verify with the online calculator - you can retire no later than December 1, 2013 preserving the 8% earnings rate on your account balance! keeping the 8% annuitization rate in perpetuity. Once you are retired, your account conditions are locked in place. They can't change anything except, so far, the COLA, which is being litigated. Everything else is safe. Hope this helps.

KP said...

A comment for Befuddled: I don't know where or if you are currently working, but you should check to be sure your working hours won't be limited if you retire from PERS. I work at OHSU and am an inactive Tier 1 PERS member. I was told by our HR department that if I retire from PERS and continue to work, my hours will be restricted to the under 1400 hrs/year limit because I work for a "PERS-covered employer."

Neal Dietz said...

KP, unless you made a typo, you should double check the 1400 hours number given to you by HR. It should be 1040 if retired and still working for a PERS employer. With that said, I do know that not all employers count hours the same way. Whatever the case, make sure you are rock solid informed before you go down that road.

mrfearless47 said...

Neal and KP. The limit is officially in statute at 1039 hours. So if you really want to be a stickler, you can't afford a single extra hour. Ask your employer EXACTLY how they count hours, especially for academic employees. No two schools count them the same way, as my own experience proves.

Unknown said...

Also, when working in PERS retirement for a PERS covered employer be very careful how any sick or vacations hours are counted toward the total hours worked. PERS has been re-checking theses accounts recently and aggressively going after anything that violates the letter of the law.

Good luck and best wishes,


RKS said...

I recall from my "under 1 year" PERS class that if you exceed the 1039 hour you "un-retire". That means you must submit retirement papers again and fall under current provisions when your second retirement is processed.
Suffice it to say that they strongly advised against that!
They said you should double check hours and how they are recorded for PERS purposes.

KP said...

Thanks everyone. I did mean to say "under 1040 hours." (In the class I went to, they said they changed it from 1039 to allow for fractional hours above that amount.). I did not consider retiring and continuing to work until the talk started about inactive members. I had a 20-year "break in service" and money match is the best option for me by far. So I've been reading this blog and the news with great interest! The news and explanations have been exceedingly helpful!

Unknown said...

I'd rather be befuddled. He can choose to retire with full benefits and no reduction. I, at 56, have to choose between the two: whether to take the cash & higher annuity or forego access to health benefits. What a devil's bargain.

Beaver51 said...

My understanding right now is that the reduction in the rate for inactives will not be on the table during the special session on September 30. But the reason I have been given is that it is because there may be legal issues will singling out the inactives---in other words, it would have to be done to everyone for it to pass legal scrutiny. That is the fear for the rest of us who have to try and guess what the legislature will do in February.

I encourage everyone to tell their legislators that if they do pass PERS cuts on September 30, that they also pledge NOT to do anything further to PERS in the February session.