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Sunday, August 07, 2016

Set Fire To The Rain (LONG POST)

It’s that time of year again when the Oregonian and other newspapers around the state start the “hair on fire” routine about PERS.  It seems this is a biennial event occurring with remarkable regularity in even-numbered years prior to the November elections and the upcoming biennial legislative slugfest that takes place in odd numbered years.  We skated by 2014 because the Oregon Supreme Court was mulling the legality of the 2013 Legislative grab at the COLA for retirees.  As you recall, the Court ruled 8-0 (unanimously) AGAINST the Legislature and its agent PERS.  That decision didn’t get announced until the Legislature was well in session in 2015 and it was too late to really start anything and build a rally for it.

So, here we are in 2016, a major election coming on, not soon enough for me, in November.  The chicken littles of the Legislature and the various news agencies around the state are screaming that the sky is falling, and are proposing yet another set of “reforms” for PERS to be considered in the 2017 Legislative session.  I had heard rumors of two ballot initiatives that failed to get enough signatures for the November ballot; thus, all seem to be pinning hopes on the 2017 Legislature to do something, anything, to bail out the poor, impoverished public schools and local governments before they implode.  Bear in mind the following as we go through the published proposal point by point.  When the legislature passed the 2013 COLA bills, they front-loaded the savings to be gained onto the 2013-15 biennial budget of the public schools, local governments and state agencies.  At no time were they the least bit concerned that virtually all of their advisers had told them that the COLA reduction would not be likely to pass muster with the Supreme Court.  And, worse still, all the agencies that had the extra monies, built on an flimsy legal framework, gladly incorporated all this money into their budgets and promptly spent it like drunken sailors at liberty in a port city.  It did not remotely occur to any of these geniuses to perhaps escrow the money until the court had ruled.  Finally, the actions of the legislature resulted in spending approximately 10x more in anticipated savings in the first two years, than the COLA cut actually saved in real dollars in those same two years.  Thus, it comes as no surprise that PERS finds itself short about $21 billion dollars in the Unfunded Actuarial Liability (UAL).  Bear in mind that the UAL is the amount of money needed to fund every present and FUTURE beneficiary in the system for the rest of their lives.  It is, to some extent, a “paper number” based on a whole slew of assumptions that could change in a heartbeat.

Against that background, we can now consider Ted Ferrioli’s piece published in the Salem Statesman Journal about a month ago that would, in theory, wipe away about $6+ billion of that UAL by, once again, attempting to trim future benefits of current active and inactive members of PERS.  The Supreme Court pretty much ruled out any further attempts to change the terms of benefits of those members already retired.  Ferrioli proposes three broad areas for considerations, all of which he claims have a legal basis behind them.

The first of these proposals is an attempt to remediate a problem created by the 2003 Legislature (remember back that far?).  In 2003, the Legislature closed off the Tier 1 and Tier 2 member accounts to all future member contributions.  Thus, the contribution and earnings balance was frozen at 12/31/2003 levels and only earnings were added to the corpus thereafter.  At the same time, they redirected the Member contribution to a separate IAP account where contributions would grow (or decline) at market earnings and would be available to the member as mostly a lump sum at retirement.  The employer contribution continued to pay for the actual pension or annuity received in retirement, which was either Money Match or Full Formula for most members.  What the 2003 Legislature did not anticipate is that by removing the member contribution from the PERS Fund (PERF), it no longer contributed to the overall bottom line of the PERF, including the UAL.  The money was held in trust for the member, but contributed nothing towards the overall health of the fund.  So now, Ferriolli’s plan (also echoed in Tim Knopp’s screw all the actives proposal) is to somehow redirect the redirected funds into the PERF, which would have the effect of taking away all the member’s individual contributions going forward (recall that the Court won’t let them take away existing balances in the IAP) and including them in the PERF.  This is equivalent to adding another 6% to the employER contribution without any compensating benefit for the individual member.  I suspect that the rationale for this is a long-forgotten piece of HB 2003, the main PERS legislation in the 2003 Legislature) that made the 2003 changes to the PERS system explicitly non-contractual.  This overlooks another part the PERS statutes that makes the employee contribution of 6% (regardless of who pays it) mandatory for the benefit of the individual.  I can already envision both the ferocious lobbying that will take place in the legislature and the legal arguments that will materialize if this gets enacted.  I’ll let the court settle this dispute because you can rest assured that if the 2017 Legislature attempts this, it will be “Litigation ‘R Us” in the Supreme Court shortly thereafter.  I can also see some difficult contract negotiations resulting all over the state as public employees argue that this represents a 6% compensation cut, and will assert that they are due some compensatory benefit in exchange.  Supposedly, if this were to pass, it would save about $4 billion over a 20 year period.

A second proposal is to limit the maximum pension to $100,000.  This one is a non-starter to me.  Since the pensions of Tier 1 and Tier 2 individuals are derived from the account balances of individuals, total years of service, final average salary, and, in the case of Full Formula, a multiplier of 1.67% per year of creditable service, there is nothing in the pre-2003 laws that give the Legislature license to change the maximum benefit.  The pre-2003 statutes still form the basis for Tier 1 and Tier 2 retirements, and the Legislature would be breaching the contract of those workers whose earnings on account balances, or their total service time generate more than $100,000 per year in income.  While there aren’t all that many people in the system who earn sizable 6-figure salaries - administrators of agencies, physicians at OHSU and the State Hospital, a fair number of Professors in OUS - the Legislature cannot suddenly say to them that at a certain point, there is nothing they can do to increase retirement benefits beyond $100,000 per year.  In the case of Money Match, it takes a combined employer/employee account balance of more than $1,000,000 to generate an annuity paying more than $100,000 per year.  Under current statutes, the employee is entitled to whatever the highest benefit is under the system of Tier 1 or Tier 2 rules in force.  Since these are likely to be long term employees, a change such as this would be tantamount to stealing a portion of the person’s earned benefit and redirecting it to the system.  This goes against statute as well as against the rule of fiduciaries.  Similarly, a member earning say $250,000 per year after 33 years of service would be entitled to a Tier 1, Option 1 benefit of no less than $135,000 per year under Full Formula.  There is no way you can finesse the law to say that person cannot get the benefit promised him/her at the time of hire.  No law has ever redefined the maximum benefit that can be received, and even if it were only prospective, it couldn’t apply to any Tier 1 or Tier 2 member.  Thus, the anticipated savings from this would never materialize because the court would never allow it to become law.  It might be applicable to those members who started on or after 8/29/2003 - about half the system now - since their system, OPSRP, has no contract provisions associated with it.  But, as Mr. Carlson said on the comedy “WKRP in Cincinnati”  “…I swear to god I thought turkeys could fly”. This would be good advice for the Rs in the Legislature who want to propose this “fix”.

The third proposal is the trickiest to deal with.  Ferriolli proposes to “…use a market rate for Money Match annuities, instead of the assumed rate that is currently double the market rate”.   First, consider that since the 2003 reforms went into effect, the percentage of members retiring under Money Match has been steadily decreasing from the high point of about 85% of retirees to less than 15% of retirees today.  Thus, relatively little money would be saved in either the short or long run, while the contractual elements of the current assumed rate on account balances seems pretty well established.  What Ferriolli and others are proposing is to “decouple” the annuity rate of return for Money Match retirements from the actuarially assumed rate set every two years for the fund.  The basis of the actuarially assumed interest rate is from market research done by the actuaries and the resulting rate is used to value the fund, determine the UAL, set employer contribution rates, and to establish the Actuarial Equivalency Factors for all modes of retirement.  The key words here are “actuarial equivalency”.  When PERS does its calculations for a person’s retirement benefit, it is required to award the individual the highest benefit based on the results from examining Money Match, Full Formula and, in a small number of instances, Formula + Annuity.  PERS must compare these “…on the same actuarial basis”.  It is no longer a fair comparison if PERS suddenly were to be forced to use some amorphous “market rate” (based on some unknown “market” bogey) for Money Match retirements, and the actuarially assumed interest rate (based on a totally different “market” bogey) for Full Formula retirements.  It would be shocking to discover in this world where the Money Match benefit could ever exceed a Full Formula benefit, because the comparison would be like comparing a fruit fly to a hippopotamus.  Moreover, the structure of Money Match would be corrupted in a way not permissible by current statutes.  Tier 1 member benefits receive a guaranteed rate of return on money invested.  The current rate is 7.5%, likely to go down in the not-too-distant future.  To suddenly claim that the employers get to assume earnings growth at 7.5%, members get to assume growth at 7.5%, but retirees under Money Match only get to use a considerably lesser rate of return to annuitize their account balances is absurd logic.  The assumed interest rate has been linked or coupled together for Tier 1 member balances, actuarial equivalency tables, employer contributions, and overall fund valuation since the very late 1960s.  I think the Oregon Supreme Court would have a hard time making a compelling argument that “actuarial equivalency” doesn’t really have to mean “actuarially equivalent” (based on the same set of assumptions).  The only way I can see that the Legislature’s goal could be achieved would be to lower the “actuarially assumed interest rate” to something considerably lower than it is today.  But to do that would mean that employer contributions would skyrocket, which is exactly the opposite of what anyone wants.  Employer rates move opposite to the assumed interest rate.  Higher rates mean that the fund assumes more money from earnings and less from contributions, while the lower earnings rate means more from contributions.  I’m afraid that any attempt to solve the interest rate problem would involve some messy litigation, and lots of unhappy campers, not least of whom are the loudmouth public employers.

In Ferriolli’s letter to his constituents and in his Op Ed to the Statesman Journal. he claimed these three measures would be found to be constitutional by the Oregon Supreme Court.  While I don’t doubt Mr. Ferriolli’s sincerity in his beliefs, my experience in observing the Court over the past 20 years or so has been that the Court will probably take a dim view of any of these measures, dimmer with some than with others, but, in the end, rejecting all as suitable remedies for the current ills. But, I have a recommendation for anyone proposing Legislation like this in the 2017 Legislature.  Before you set fire to the rain, put in a clause staying the implementation of any of these features until after the Court rules on their legality, and do not appropriate the funds anticipated from these measures until after you are certain that the measures will actually pass muster with the Court.  I also recommend that you listen closely to those voices yelling in your ears that these measures won’t fly with the Court.  They’ve been right too many times for you to ignore.  Don’t fall victim to the same stupidity that the 2013 Legislature fell for.  Although the good news for 2017 is that the Ds are likely to retain control of the Governor’s Office, the Senate, and the House, but that is no reason to be smug.  Both the 2003 reforms and the 2013 reforms were brought to us by D Governors and supported by D Legislative bodies.  The Rs didn’t go along in 2013 only because the COLA cuts weren’t drastic enough, so for them to claim the moral high ground over 2013’s disaster is disingenuous at best.

 

 

 

31 comments:

Unknown said...

Only you, Marc, could do such a complete job of deconstructing the current proposals, showing them to not be anywhere near as well thought out as those proposing them claim. And while doing it, slip in an accurate reference to one of my all time favorite comedy bits from WKRP. Well reasoned and well written. Thank you.
peg

capeman said...

I wonder if anyone is thinking of trying to rob the "inactive" pers members including many OUS faculty who switched to the Optional Retirement Plan when offered that about 20 years ago, with the understanding that their old PERS accounts would remain intact.

This was bandied about last time around, but the idea was dropped. It strikes me as totally illegal, but I wouldn't be surprised if someone would want to try it again.

mrfearless47 said...

From the latest news reports, the Rs are trying to pick everyone's pockets in PERS, but the Ds are holding firm in their efforts to hang onto the hope that Measure 97 passes. If it doesn't, then anything is possible.

Befuddled said...

I would also advise that any bill that includes giveaways to moneyed interests used to get votes for PERS clawbacks be null and void if the PERS changes are found unconstitutional. Last time, in order to get a "Grand Bargain," the Democrats foolishly accepted legislation that gave huge benefits to owners of S Corporations (including a key proponent of the bill). When the PERS changes were shot down, the tax decrease remained in force. And now, we need a 2/3 vote to roll it back.

Honestly, how absolutely stupid of Tina Kotek and her crowd not to protect the state treasury against such a gratuitous giveaway to the wealthy!

M&S said...

mrfearless47, thanks for this long and thorough piece on what a piece the Legis has been ..... hope will not be next full session. all they have to do is discover some sense, instead of no common sense at all. (reminds me of a John Prine song, lyrics for your next piece.)
You probably have explained this in the past but.... what is the extra significance, if any, to the bold printed parts in your writings? Other than the obvious use of bold to provide extra emphasis/importance. I was guessing that bold could be your addition to or updating of your piece, after its initial publication on your blog. Just this curious mime, errrr mind that wants to know.
Thanks, igjeup(Michael)

mrfearless47 said...

The bolded pieces are to make a point more obvious. If I make any significant edits to a post, it will usually be noted with an edit date contained in the text. Aside for correcting typos, this post is unchanged from the original.

mpguy said...

How much of the urgency in the current situation is due to the 2006 federal pension reforms, which require 20-year amortization of liabilities for both public and private pension systems?

It seems that our Congress critters ought to be working to stretch the period for public systems (which operate under stricter controls and are governed more tightly by the IRS) to a more reasonable 30, 35, or 40 years. That would require lower contributions to meet the standards for amortizing existing future liabilities. This would ease the burden on budgets.

mrfearless47 said...

I doubt that's the reason. The urgency seems to stem from the sharply increased UAL that rose from effectively 0 at the 2014 system valuation, to 21 bn as of now. Of course, the situation was made worse by employers who insisted on spending savings from the COLA cut long before they had accrued, from the fact that few government entities even considered sequestering the savings until the court had ruled, the substandard returns for the past several years, the accelerated pace of Tier 1 retirements in the last couple of years, and excessive hubris of the Legislature, and really piss-poor legal advice from TG he AGs office. I could go on, but the 20 year amortization schedule has been aroundvPERS for longer than the FEDS have required it, and reducing the amount of payments by extending the amortization schedule, in my opinion, just legitimizes more irresponsibility.

Unknown said...

Great analysis that I just wish every legislator and newspaper editor would read. My only disagreement is I still have hope that voters understand Oregon is sinking under the weight of bad partisan bills and boot Brown as far out of office as possible.

mrfearless47 said...

Thanks for the props. I just wonder how you think booting Kate Brown will solve anything? Who ya gonna call?

capeman said...

A question for you about Tier 1 people. I am wondering about the "employer" benefit that they get post-2003, the inception of Tier 3 (or is it post-1996, the inception of Tier 2?)

You seem to imply that all the employer contribution does is cover their Money Match or Full Formula benefits, post 2003. But their "employee" account is no longer getting any contributions, since their 6% personal contribution is now going into the IPAP 401-k type account, disconnected from the old PERS.

So does that mean that if they end up with Money Match, they have in essence lost out on years of employer contributions? That seems like a really bad deal to me. Or do they all end up on Full Formula now, because of this degrading of Money Match?

(Tier 1 people who opted for ORP seem in contrast to be getting a great deal.)

Any further clarity you can bring to this much appreciated. It is pretty arcane stuff.

mrfearless47 said...

The employee account post 2003 continues to grow by ether the guarantee (Tier 1) or the actual earnings (Tier 2 and variable). When a Tier 1 member retires the final account balance is matched by the employer, whose obligations grows by the guarantee for each year of service past 2003. Ditto for full formula since that is dependent on years of service, the 1.67% multiplier and final average salary. In the meantime, the diverted employee 6% (no matter who pays it) grows at market rates. Those Tier 1's who opted for ORP *may" be better off, bit that probably isn't a given in any circumstances Im aware of yet. The further out from 1996 people get in their working career, the greater the likelihood that hey are getting a better deal. However, if the Legislature redirects the employee 6% to a future find that underwrites the PERS UAL, you can expect ORP to change since they have tried to maintain contribution parity in every way with PERS and the employee side of the equation. (I am in Ecuador writing this, and I will try to clarify further when I return later in he week).

Newport Carl said...

Just found this blog and found it fascinating....Real life question...the wife has an untouched , vested, PERS account with the guaranteed 8% (?) return, fixed. She has had this since she left service in 1999.
The financial advisor says 'take the money (doubled?) and run to an annuity he sells before the PERS account is 'readjusted', confiscated, or loses the doubling factor she was promised. What is your take on the odds that she won't be able to retire, full benefits, as promised?
Either PERS or the annuity-issuing insurance company could go belly up. Who do you bet on?
.

mrfearless47 said...

Newport Carl: If your wife is old enough to retire (>55) from PERS, you have a couple of choices to make. The money is continuing to earn 7.5%, but may not be doing so for much longer. While the rate guarantee may decrease, it still will earn whatever the assumed rate is. It is very likely that your wife would be a Money Match retiree. The amount is only doubled IF your wife isn't in the variable program. If she is, the calculation is a bit more complicated and it doesn't always work out to doubling. I would ran as fast as I could from ANY financial advisor who has a vested financial interest in the decision you make. Yours clearly does and so he automatically has no way he can give you unbiased advice. There are a lot of things that can happen once the Legislature goes into session in February, and whether they end up being legal or not, will tie PERS and people in your position in knots for several years. My advice would be to get a benefit estimate from PERS, which you can do online, figure out what your options are, and then seek out a financial adviser who charges ONLY for his/her time and has no product to sell. You don't have to invest in an annuity. If the amount is large enough, you can get one of the large mutual fund companies (Fidelity, Vanguard, TIAA-CREF) to manage the funds for you and turn a tidy profit over the years. I would counsel that your wife needs to make a decision to exit PERS no later than February 1, 2017. But exiting PERS doesn't mean leaving the system. PERS isn't going to go bankrupt; I cannot say that about annuity companies, especially insurance companies. Hope this helps.

Teresa Chadwell said...

Is your Feb 1st recommendation to Newport Carl based on a particular reason other than that is when the Legs Committee may declare action(s) to take? I ask because my Tier One target date for retirement is December 1, 2017 when I will have 25 yrs, and will have achieved the no-penalty age of 58 and I hope for full use of VL & SL for FAS calculation. I know you don't have a crystal ball, but based on your knowledge of legislative action, would you think I will be safe? I'm hoping any changes will not implement until Jan. 2018.

mrfearless47 said...

Teresa. If history is any guide, I would say you are NOT safe from the 2017 Legislature. In every session where negative consequences have befallen PERS members close to retirement, the Legislature has chosen to use the Emergency clause to have them take effect upon the Governor's signature. They do that to avoid the "mad rush to the door" syndrome. Go back and read the original post for things the Legislature might do. One of the things being floating now is to prevent the use of VT and SL for FAS calculations - what they (some Legislators see as "pension spiking". As far as changes that PERS makes, you are safe since they will change the assumed rate and mortality schedules on a predictible cycle that takes effect on January 1, 2018. Unfortunately, the Legislature doesn't have the sense to do something like that because they want the savings from PERS cuts factored into 2017-19 bienniel budgets that take effect 7/1/2017. I wish I could be more optimistic for you, but 2003, 2005, and 2013 all contained changes that took place the moment the Legislature passed the bills and the Governor(s) signed them. Your only hope is that the Ds don't sell out consituents this time the way they did in 2003 and 2013. Otherwise, you may lose your ability to use your SL and VT to leverage up your FAS.

capeman said...

What do you think are likely attacks on "inactive" members, i.e. people who are no longer making contributions to PERS, either because they quit public employment, or in the special case of many faculty, because they went into the "optional retirement plan" (ORP) in 1996?

Last time around there was talk of eliminating the Money Match option for them in computing their pension. This would essentially in many cases have confiscated most of their pension, because their pensions would have been based on highest salary at an old i.e. much lower rate. Do you think the legislature is likely to try to pull something as boneheaded and manifestly illegal as this?

What about the notion of using a lower annuity rate for future retirees on Money Match? i.e. the possibility you mentioned of using one assumed rate in calculating PERS returns, and another, lower rate in calculating pensions? Thereby reducing pensions of future retirees, by my crude reckoning, by something like a third.

Are they likely to try to pull this? Again, probably illegal, but less clearly so (in my opinion) than the first possibility I described.

And how long before it all gets straightened out in court, if they do try to pull any fast moves?

If one does have to sign up for a quick retirement, how much time in advance should one leave to sign the papers and get them processed?

And how quickly can one deal with Medicare supplement issues?

Thanks for any speculation, prediction, and information you can provide.

capeman said...

What do you think are likely attacks on "inactive" members, i.e. people who are no longer making contributions to PERS, either because they quit public employment, or in the special case of many faculty, because they went into the "optional retirement plan" (ORP) in 1996?

Last time around there was talk of eliminating the Money Match option for them in computing their pension. This would essentially in many cases have confiscated most of their pension, because their pensions would have been based on highest salary at an old i.e. much lower rate. Do you think the legislature is likely to try to pull something as boneheaded and manifestly illegal as this?

What about the notion of using a lower annuity rate for future retirees on Money Match? i.e. the possibility you mentioned of using one assumed rate in calculating PERS returns, and another, lower rate in calculating pensions? Thereby reducing pensions of future retirees, by my crude reckoning, by something like a third.

Are they likely to try to pull this? Again, probably illegal, but less clearly so (in my opinion) than the first possibility I described.

And how long before it all gets straightened out in court, if they do try to pull any fast moves?

If one does have to sign up for a quick retirement, how much time in advance should one leave to sign the papers and get them processed?

And how quickly can one deal with Medicare supplement issues?

Thanks for any speculation, prediction, and information you can provide.

mrfearless47 said...

Capeman:. The last time any serious thought was given to inactives was 2003. At the time, the AG and LC advised against singling them out for special treatment. In the end, he Legislature offered a one-time opportunity for them to withdraw from the system a walk away with 150% of their account balance. Few took them up because it was a bad deal. I don't expect the Legislature to try anything that exposes inactives to special maltreatment as this probably would be viewed by the court unfavorably. That said, that may not stop the Rs in the Legislature from throwing against the wall to see if it sticks.

As for lowering the annuity rate for money match retirements, I stand by what Ibwrote in my post. I don't see how they get around the actuarial equivalency issue with respect to full formula and the rare formula plus annuity. You can't calculate the "best of" if the playing field isn't level.

Historically speaking, anything the Legislature passes will take a full two years to get sorted out by the Oregon Supreme Court. That is assuming the Legislature includes a fast-track clause to expedite the review. If they don't, it could take as long as four years to sort.

Since the court has ruled that retroactive changes are not legal, getting out by Febtuary 1, 2017 beats the Legislature. It doesn't really matter after that. Once the papers are signed and notarized and received by PERS, they can't touch you. PERS has 92 days from the effective date of retirement to get you your first check. And you have 60 days from your first check to change or revoke your retirement if nothing untoward happens. Of course, revoking your retirement might be too late if your old job is no longer open. If you are in higher education, you can probably arrange to finish he academic year on a 1039 contract.

As far as Medicare is concerned, if you are eligible, you can apply 90 days in advance of eligibility. They use your last know Federal Income tax return to determine Medicare B rates.

Hope that helps.

capeman said...

So, what happens with PERS now that M97 has failed?

I imagine a new piece on that would be welcome to many people.

mrfearless47 said...

Capeman: I don't have any clear sense yet of where things are going in the wake of the unsurprising defeat of M97. I'm sure many would like to hear or read my take, but at the moment the tea leaves are in a muddle in the bottom of the cup. Be patient, butterfly.

IPS said...


To Newport Carl, you wrote: “I would counsel that your wife needs to make a decision to exit PERS no later than February 1, 2017”.

To Teresa, you wrote “In every session where negative consequences have befallen PERS members close to retirement, the Legislature has chosen to use the Emergency clause to have them take effect upon the Governor's signature. They do that to avoid the "mad rush to the door" syndrome.

I understand the 2017 Legislature starts Feb 1, 2017. What is the earliest that 2017 Legislature changes could be retroactive to under an emergency clause. Would submitting paperwork in late January 2017 (retirement effective Feb 1) protect against such potential 2017 Legislative action (with emergency clause) or would we still be at risk?

(I am Tier 1, inactive, out-of-state, eligible to retire).

Any other new developments?

Many thanks.

Paul (1/2/2017)

IPS said...

Marc,

One other question. Are non-retired at risk during the whole two year term of this legislature or is just this odd (first) year. Is the reason that the odd year is susceptible because the legislature wants to get any savings into their state budget for June of their current new term?

Thanks,

-p

mrfearless47 said...

Paul: the legislature cannot pass laws that are retroactive. That was one of the key rulings in the COLA decision released in April 2015. The objective of retiring either before the Legislature convenes or before it can get organized is to avoid them dropping a bill with an emergency clause that would take effect on the Governor's signature. If you are retired (or have your paperwork in for a date preceding the passage of a bill, your retirement will be calculated under current rules. To avoid a quick strike by the legislature, I recommend getting out no later than March 1, 2017. I don't believe it possible, given the way the legislature works, that any bill affecting PERS members or inactive could get through before mid-April, and historically not until May. Remember that the charge this year is being pushed principally by the Rs, minorities in both Chambers, and actively opposed by a D governor. Those facts make it hard to see how PERS reform actually survives this session, but I wouldn't make that assumption and be lulled into a false sense of security.

ViceGrips said...

The R's are running some of the reforms you've commented on up the flagpole. See 2017-19 pre-session filing SB-559: (changes FAS calculation from 3 years to 5 years); also seeks to limit accrued vacation leave considered in FAS to the maximum allowed for classified employees. SB-560: Re-directs IAP contribution from member accounts back into PERS fund; limits FAS calculation to a maximum of $100K.

mrfearless47 said...

Yes. I am aware of these bills. Once the Legislature convenes, I will have some comments about these bills here on the blog.

capeman said...

I don't see how it would be legal, under federal pension and probably state law as well, to direct the member 6% contribution to anything but that member's own welfare. But the goal is to redirect that money to help pay for the legacy debt, mostly of already-retired Tier 1 people, rather than use the money to benefit current employees. (How else would it help relieve PERS costs?) So, that possibility seems very likely to be illegal under state, and even federal pension law.

Limiting the FAS calculation retroactively or even prospectively to $100K strikes me as a patent violation of contract, unless limited to new employees (who are already in the relatively benign Tier 3 category and/or limited in pension benefits already, to some extent, by federal law). How can you promise for years to a PERS member that his pension will be based on, say, his $300,000 salary, and then arbitrarily say that no, it's limited to the first $100K of salary.

I doubt that the Governor and even the Legislature will be dumb enough to try to pull either of these stunts, but if they do, look for another defeat in court, leading to much weeping and gnashing down the line when all that money has to be repaid to the people it belongs to.

mrfearless47 said...

I don't think the Legislature can touch 1) accrued IAP contributions, but they may be able to claim they are redirecting future contributions to pay for the defined benefit portion of all three tiers of unretired workers. 2) I don't believe they can restrict FAS calculations of current Tier 1 and Tier 2 members except to the Federal Maximum (currently $265,000) allowed for employers to be able to claim tax exemptions on their contributions. OPSRP members have no contractual protections like those of Tier 1 and Tier 2 members, so they are, unfortunately, fair game for the Legislature.

Plutodog said...

What happened to Marc?

mrfearless47 said...

I'm still here. A new update will be coming early next week. Nothing much to add until now.

IPS said...

Very much looking forward to you new installment and all that discussion that WILL follow. Thanks!!

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