Times continue to get tougher for PERS members, especially those within a couple of years of retirement. First, the change to the COLA for work past October 1, 2013. The next shoe dropped last Friday with the cut to the assumed rate. The new rate, effective January 1, 2016 will be 7.5%. This affects Tier 1 members, active or inactive, because it lowers the rate of return on account balances after December 31, 2015 (the 2015 crediting will be at 7.75%). This will not matter if you retire under Full Formula and choose Option 1, but it will matter if you choose any other payout option. Why? Because the reduction in the assumed rate also affects the Actuarial Equivalency Factors, which are used to price your benefit. A lower assumed rate of return means that in order to stretch your benefit out to your actuarial life expectancy, the fund is assuming that you will earn less on your investment and will have to reduce your payout accordingly. The actuaries expect that to earn the same benefit as you would have earned on December 1, 2015 (if you were able to retire), you’ll have to work 3 months longer. If that weren’t enough, the actuaries also are recommending an adjustment to the life expectancy factors that take into account longer life spans, on average, for most people. This means that your money will not only earn less, but will have to last longer. The new factors for calculating your expected benefit will not be available until late November, which means that trying to plan for retirement between December 1, 2015 (the last date upon which the existing interest rate and mortality factors will be in effect) and later, especially in the first half of 2016, just got more challenging.
If all of this makes you feel like you are seeing the leading edge of a depression, the title is intended to evoke that spirit. There is no ghost of Tom Joad. For PERS members, he is alive and experiencing deja vu all over again.