Wednesday, December 02, 2015

For the Legislature and the Boregonian at This Holiday




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10 comments:

mrfearless47 said...

Photo credit to Pando.

Unknown said...

Perfect! Well done!

timberbeast said...

I have been following the latest PERS coverage in the O and was just wondering if they, or anyone else, had ever done an analysis of the impact of removing the 6% pick-up from PERS and putting it in the IAP? This 2003 decision simply removed a very large amount of money from PERS, and the contributions and earnings have to contribute significantly to the PERS "deficit". It probably was done to reduce Money Match retirement amounts, but the unintended consequence is to remove a huge amount of money in the form of employee contributions. I retired in May 2013 and even though I had a significant amount in my IAP I would have rather had it in my PERS account for Money Match calculations. One possible help to the financial position of PERS would be to resume putting the 6% back into the fund, rather than IAP. I'm sure this would not be popular....but I don't think I have ever seen this offered as a proposal. Just wondering.

mrfearless47 said...

No one has done the first analysis, but the idea of "taking" the employee 6% and using it to reduce the UAL has been floated for awhile. In fact, it might be a major factor in the 2017 legislature. However, if the 6% employee contribution is used to retire the UAL rather than for employee benefits, this is tantamount to a 8% paycut (since the 6% is pretax), and the unions won't stand for it. I'd expect it to be an item on the bargaining table if the Legislature goes that way. They'd also have to change the current law to allow that to happen. The 6% employee contribution is statutorily mandatory, regardless of who makes it. Moreover, if I understand what you're suggesting, it seems that you are reopening Tier 1 and Tier 2 to employee contributions, which won't happen. Instead, the proposal I'm seeing suggests that the employees fund the UAL with their 6% contribution - no direct benefit to employees, but the benefit accrues to employers and the fund by lowering the amount employers have to pay and by reducing the stress on the OIC to keep flogging to generate the higher returns.

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capeman said...

There has been talk of sharply increased PERS employer rates in the next three biennia. By 4% of salary in 2017, if I understand correctly. Is there then another 4% increase in 2019 and another 4% in 2021, e.g. from 16% --> 20% --> 24% --> 28%? That would indeed seem horrendous, I don't see how it will be tolerated, one way or another an explosion (figurative, of course) will happen.

capeman said...

There has been talk of sharply increased PERS employer rates in the next three biennia. By 4% of salary in 2017, if I understand correctly. Is there then another 4% increase in 2019 and another 4% in 2021, e.g. from 16% --> 20% --> 24% --> 28%? That would indeed seem horrendous, I don't see how it will be tolerated, one way or another an explosion (figurative, of course) will happen.

mrfearless47 said...

You are correct, but of course all the articles fail to consider the real cause of this problem - greedy school boards and the Legislature willing to do anything, even when told what they were doing was fully illegal - that resulting in the budget allocations for 2013-15, and 2015-2017, that were $1.1 billion higher than the savings netted by the cuts that were ruled illegal. So where do employers and the Legislature justify spending $1.1 billion on the come, when only slightly more than $140 million in savings actually resulted. When you figure that answer out, you will understand why I have zero sympathy for this particular problem. It was self-inflicted by the employers and the Legislature. Poor returns didn't help, but they are far from the root of the problem.

Unknown said...

In a January 9, 2016 opinion in the Oregonian, Tim Nesbitt recommends taking payments from a second supplemental retirement plan and redirecting it to reduce the PERS unfunded liability. Is this referring to the PERS pickup? In the DAS master contract, page 129, the PERS pickup will be paid by employees beginning November - December 2016 in exchange for a 6.95 percent salary increase.

Unknown said...

In a January 9, 2016 opinion in the Oregonian, Tim Nesbitt recommends taking payments from a second supplemental retirement plan and redirecting it to reduce the PERS unfunded liability. Is this referring to the PERS pickup? In the DAS master contract, page 129, the PERS pickup will be paid by employees beginning November - December 2016 in exchange for a 6.95 percent salary increase.

mrfearless47 said...

What Nesbitt is talking about is the IAP, which happens to be funded by employee contributions (regardless of who pays it). It isn't clear from his op-Ed whether the employee contribution would somehow end up in the employee Tier 1 or Tier 2 Regular Account (which would benefit members who retire under Money Match or Formula Plus Annuity), or whether it would simply end up in the overall PERS Fund as a line item targeted to retire the Unfunded Actuarial Liability with directly benefitting the employees who contribute it. One thing is certain, however. The geniuses who created the IAP in 2003 made another huge mistake when the IAP was set as not being considered part of PERS funds and therefore didn't count as part of the total asset base that could offset and fund liabilities. Instead of helping to solve one funding issue, it created another very large hole. In effect, it pulled all employee contributions (6% of payroll), from the triad of sources contributing to the "fund". Assets = employer contributions + employee contributions + investment earnings. Thus, by removing one of those elements, it created the circumstance where if investment earnings did not make up the difference, employer contributions had to rise to cover the shortfall. A booming stock market covered most of the shortfall through the 00s, but when 2008 struck, the reserves were inadequate to cover the difference. Ditto again for the current period, and the result is rising employer rates to backfill the earnings shortfall. Nesbitt's proposal is hardly new or original; it is how it is implemented that will determine whether this is even remotely reasonable for active members.

Finally, the 6.95% salary increase in exchange for the employee paying the pre-tax 6% PERS contribution is still a net salary decrease for affected members. The 6% comes off before taxes, but the 6.95% is subject to income tax, social security tax, Medicare tax, and any other earned income-based taxes. The net is probably a 3% decrease in take home pay.