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Tuesday, July 28, 2015

Just Pleasing You

The rule-making process for implementing the Moro decision (COLA case) is beginning to unfold.  The PERS staff, and hopefully the PERS Board, are trying to make sense of the Legislature’s 2013 cluster-f**k with the COLA.  The PERS staff has been studying ways to implement the second piece of the COLA restoration project - making retirees whole again after the court unraveled the mess made by 2013’s ineptness.  I’m happy to report that staff posted their proposed rule making for this part in today’s PERS Board packet for Friday’s Board meeting.  The staff is proposing to treat SB 822 as though it never happened, since it was amended five months later with SB 861.  The effect of this is that PERS staff, assuming the rule is approved without revision, will treat the period between May 1 and October 1, 2013 as part of the “old rules”, not subject to the mess created by SB 822.  This would settle the question of whether those who retired after May 1, 2013 and before November 1, 2013 would have to be treated somehow different than everyone else, while those retiring after October 1, 2013 would have to be treated a third way.  The proposed rule basically eliminates SB 822 and treats those who retired before November 1, 2013 (last possible retirement date, October 1, 2013) as if they remained under the old COLA rules, while those who retired after October 1, 2013 would be credited with an additional 5 months of time under the “old” COLA rules before their revised COLA enters the blending phase.  This change makes it possible for PERS to program their ORION system (their retirement benefit calculation system) to simply treat new retirees as either under the old system (all work completed by October 1, 2013) and therefore subject to the “old” COLA rules, or under the new system, whereby their work time is segmented in a way similar to the HB 3349 (tax remedy for in state residents) is handled.  Therefore, if you retire(d) after October 1, 2013, your working career will be apportioned by the work time prior to October 1, 2013 as a percent of your total working time.  If you worked 90% of your career prior to October 1, 2013 then 90% of your COLA will derive from the “old” COLA rules, while 10% will come from the rules under SB 861 (1.25% COLA up to $60,000, 0.15% on amount over $60,000).  This will tremendously simplify their work at a small benefit to retirees and a nominal cost to employers.  It is going to be a long time before most employees are away from the old rules, and this solves the fairness problem.  Alternatives might have been an income weighting, an FTE weighting, and all kinds of other grubby calculations.  This route simplifies life for all concerned, although it is almost surely going to agitate someone in the media, somehow.

Speaking of the media, what ever became of a discussion of the “other” part of the Grand Bargain?  You know, the part where the legislature exchanged about a half a billion dollars of PERS benefits for about a half a billion dollars of small business tax cuts.  It is really amusing to watch the media wrap themselves in a ball of fury over the Supreme Court’s ruling (the one every legal adviser to the Legislature suggested would NEVER fly), while conveniently ignoring the other cost driver in their ill-considered effort to steal benefits legally earned by PERS members.  I guess PERS members are just too easy a target for the media, while small businesses (whatever that actually means) just continue to get a pass.  Me?  I’m going to remember the idiots who brought on this mess in 2013 and consider them in my sights in 2016.


Jerry King said...

Thanks for the explanation Marc!
This is getting deep into the weeds, but I wonder if our personal COLAs will get updated each year as a greater share of our benefit exceeds $60,000 annually. It would seem like a lot of computing effort, but would slightly reduce our COLA each year.
Here's my back of the envelope calculation if I retire June 1, 2016:
First 417 months @ 2.00%COLA and last 31 months @ 0.838% COLA = 1.920% weighted COLA.
I arrived at the 0.838% by holding 1.25% for my first $60,000 annually and then 0.15% for the remaining $36,000 benefit. As you can see, after the first year that $36,000 overage will grow and IN THEORY should start to reduce the 0.838%. Do you suspect they will just ignore this? Also, should we be throwing out the annual $150 adjustment that was in the original bill?

mrfearless47 said...

Jerry, you've raised a couple of interesting implementation questions that probably ought to be brought up during the public hearing phase, August 25, 2015 according to PERS. You can also email your questions/observations to PERS before the public hearing so that they will be available to the Board and to staff as the rule evolves. I don't have the court's ruling in hand right at the moment, but I seem to recall a discussion of the $150 payment, which was only to remain through 2018, so whether they include it or not, it would, if included, be prorated in the same way the COLA itself is prorated and would be a nominal sum. Also recall that the $150 was a direct payment, not an add-on to the base benefit so it should have no impact on any COLA calculation even if it were retained. As for your first question, you probably should think about it in terms of how HB 3349 is implemented. The percent of benefit adjustment is fixed at retirement as the proportion of months served prior to October 1991 relative to the total service time at retirement. My own is about 6.7%; yours will be smaller, probably around 4.4%. But, once fixed, the base benefit is set and all adjustments like COLA are applied against the original base benefit, subject to the compounding of annual COLA. The 6.7% never changes and so if I were to move out of state, my benefit would be divided by 1.067 to determine the reduction due to the income tax remedy. That said, if the pre October 2013 COLA were fixed at 2%, I think that the rule would be easy to apply and to understand. But, that isn't the case as the pre-October 2013 COLA is only 2% maximum if some combination of actual CPI plus COLA bank accruals total 2%. The 2% is not fixed like the 1.25% is; the 2% is the COLA-max. In the first stage of your retirement, your COLA bank is small unless inflation in the year of retirement is particularly high. By retiring on June 1, 2016 (as you plan), you get the benefit of the 2016 CPI-based COLA (up to 2%), plus any excess in the CPI over 2% banked for future use. But, if the 2015 CPI (which determines the 2016 COLA) is less than 2%, then without any COLA bank, you'd only have the actual CPI applied to that portion of your benefit subject to the old rules. This makes your question far more interesting since the pre-2013 guarantees only that the given COLA will be between 0-2%, depending on CPI and your personal COLA bank. Thus, how PERS chooses to figure the basis for the blended rate is something that is worth pursuing as the blended rate could change annually depending on actual CPI, the state of the COLA bank for you, and the effects of previous compounding on your benefit. If I were in your situation, this is a question/problem that I would pose to PERS during the public hearing phase of the rule implementation.

Hope this provides some insight.

pgornick said...

Marc, the PERS website FAQs on the COLA restoration indicates the court voided the $150 supplemental payments. Although the FAQ doesn't say, I think the coming October 2015 payment to retroactively correct the COLA will deduct the November 2014 supplemental payment.

mrfearless47 said...

Thanks Paul. The proposed implementation rule clearly indicates that the restoration of benefits will subtract out the November 2014 supplemental payment, which will reduce the gross return of lost benefits, but since the supplemental wasn't part of the base benefit, the restoration should produce an ongoing benefit that is correctly calculated regardless of the supplement.

oregontrailster said...

Hi Marc, Thanks for the update regarding the implementation. Since SB 822 is being worked around, does that mean that the COLA Bank section is also just going to be from SB 861? This would be a small benefit as I retired in July 2013

Steve Barrett

mrfearless47 said...

Steve. I don't have a convincing answer to your question yet. Those are questions that should be directed to PERS during the hearings phase of the rule adoption.


oregontrailster said...

Thanks, I plan to attend the next PERS Board meeting. Perhaps the implementation will be discussed. Hope to see you there.
Steve Barrett

mrfearless47 said...

I don't expect to be at he meeting on Friday. Time for others to pick up that drudge duty. Have fun.

Roger Ritchie said...


Who do I contact about the future of the bogus $500m small business tax give away?


Roger Ritchie

mrfearless47 said...

Roger: Unless the media pick up on it, I doubt no one will bother. I suggest the Oregonian's Ted Sickinger since he is the one with a hard-on against everything PERS. Perhaps he might be willing to admit that the Legislature gave away the farm to get PERS changes that were doomed from the start. Or, perhaps the two "geniuses" who authored parts of the "Grand Bargain" - Senator Richard Devlin (MY frikking Senator) and Rep Peter Buckley (Ashland). Since Kitzrobber is nowhere to be found, he's probably not a good choice. He's busy laughing all the way to the ranch.