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Tuesday, March 07, 2017

You Want It Darker

Just a quick post to note that SB 560 (a cornucopia of crap) and SB 913 (another capsule of crap, slightly different from SB 560) will have their first public hearing on Wednesday March 15 at 3 p.m. before the Senate Workforce Committee.  These two bills together contain an obnoxious amount of damage for potential PERS retirees and each strike in a slightly different way.  If SB 560 isn’t to your liking, try SB 913.  Both cover similar turf, although SB 913 contains a really ugly piece that isn’t a part of SB 560.  That ugliness takes the form of a decoupling of the actuarially assumed interest rate (used for valuing the fund, setting employer rates, determining Tier 1 earnings), and the annuity rate, used for setting benefit levels for retirees over a large class of individuals.  It would be good if affected, or potentially affected, individuals showed up for the hearing.  You won’t be able to testify on the 15th because it is invited testimony only from the experts at PERS, State Lawyers, and probably PERS Coalition Lawyers who will try to sort out the probably illegal from the possibly legal aspects of each of these bills.  We already know that the 6% redirection isn’t likely to fly, but I’ve already heard rumors that the bills principal Sponsor, Senator Tim Knopp, has at least half a dozen amendments ready for SB 560, the more “benign” version of the two bills.  It is only benign because it gives members until December 1, 2017 to get out before being affected; SB 913 takes effect on passage, which means that you’d probably need to be out of the system (i.e. retired) by absolutely no later than May 1, 2017 (preferably April 1 to be certain).

In any case, while there is no reason to hit the panic button yet, if you are already thinking about retiring during 2017, you might want to give some thought to how you might manage an April 1 or May 1 retirement.  While I continue to hear rumors that the Ds aren’t willing to support any of the bills dropped by the Rs, the problem remains that there is a $1.6 billion (or $1.7 or $1.8 depending on day of week and who is quoting the figure) shortfall between budget needs and revenue, there is a desperate need for a transportation package, and the Ds don’t have a strong enough majority to pass any revenue increases without buy-in from at least 3 or 4 Rs.  So, there is the dark version of this year’s legislature in a nutshell.

You’ve been warned.  At the very least, be sure to watch the recording of the meeting on March 15.  The Legislature posts the feed shortly after the committee adjourns.  Then you will have more information than I can provide you here. 

This site will go dark next week for a short while as I will be out of town and unable to post.

 

 

28 comments:

tkeasey said...

I have to question if the Governor would really sign a PERS bill without a revenue bill sitting right next to it ready to sign. If I understand correctly, in the last session the Rs backed out of a transportation package when the energy bill was signed. After that fiasco, I have a hard time seeing the Governor sign a PERS bill on a "promise". Wouldn't a revenue bill take much longer to get through than a "feel good" PERS bill. I am not saying it could not happen with all of the crazy wheeling and dealing the legislature does. It would certainly be a "perfect storm".

I already have everything in motion to be retired May 1st. Perhaps this is just my wishful thinking that if something does happen, it will be after May 1st.

mrfearless47 said...

I would tend to agree. Transportation hasnt even really gotten into the mix yet. But remeber that the Governor doesn't have to sign a bill. It can sit on her desk for 20 days, after which it just becomes law. But I don't think the Ds would put her in that position.

treehugger1 said...

Next Monday there is an opportunity for members of the public to propose their own solutions to the PERS "Crisis." This should be a hoot.

https://olis.leg.state.or.us/liz/2017R1/Downloads/CommitteeAgenda/SWF/2017-03-13-15-00?guid=48fa7b8a-7173-3c0a-e054-02082091f14b

mrfearless47 said...

The thought of the Legislature allowing citizen suggestions to "fix" PERS should be quite entertaining. Too bad I won't be around. That would have been worth watching up close and personal. I might watch the replay for pure entertainment value.

ThisOldSpouse said...

I am already scheduled to retire June 30th can this really have that much of an effect on my calculation?

mrfearless47 said...

It could, particularly if you are tetiring under Money Match with or without a beneficiary, or under Full Formula with a beneficiary. If they were to reduce the annuity rate to "market rates", based on current market rates, it would mean a 30-40% reduction in benefits. I dont think this measure has too high a probability of passing, but it would be something you should keep an eye on. I only report on the news and offer opinion. The final decision is up to you, of course. If you knew that Full Formula were your method, tetiring 2 months earlier would make a difference of 1/6 of 1.67% in base benefits.

ThisOldSpouse said...
This comment has been removed by the author.
ThisOldSpouse said...

Given Knopps opening statement it appears that even he is a little leery of 913's longevity.

ThisOldSpouse said...

In reading what Dexter Johnson had to say about the constitutionality of the changes he had the following to say about using market rates to calculate annuities:

"Even if the assumed interest rate were part of the PERS contract, we believe that this change is likely permissible under the standard set forth in Moro because it is entirely prospective. In other words, this proposal does not alter the amount of benefits accrued by a retiring member before the change, but affects only predictions about the growth of those amounts in the future."

If I am reading that correctly the calculations will not effect current benefits, at least before 1/1/2018.

Can you explain?

mrfearless47 said...

I'm currently out of town. Your question will require a bit of research, but the quick answer is that if I recall SB 913 correctly, it does NOT wait until 1/1/18 to strike. It is a bill that would take effect on passage, which could be as soon as mid-May. There may have been amendments to the bill, which is why I need to research it more. Don't be complacent.

mrfearless47 said...

I've had a chance to review developments since I left. While I would be concerned about SB 913 and its "takes effect on passage", I am much more concerned with amendment 3 of SB 560, which moves chunks of SB 913 into a massively rewritten SB 560. The -3 amendment takes the changes to the actuarial equivalency factors, establishes the annuity rate at a fixed 3.5% and applies it to all retirements taking place between the effective date of the bill (on passage) and 1/1/2018. What this means is there would be NO advanced warnng for people to get out. This is just as disastrous as SB 913, but packaged in a friendlier sounding bill. If you want the scurity of a PERS pension, you need to be out by no later than May 1. After that date, anything is possible, especially with Ds needing to make a deal for revenue and a transportation package. This could be the bitter pill they have to swallow to get such a deal.

ThisOldSpouse said...

So, if I read this correctly, those retiring in 2017 after a passing of this bill stand to lose 4% for 2017?
Would that be the WHOLE year?

mrfearless47 said...

I think you are missing a significant point. It isn't a 4% cut; it is a reduction in the annuity rate from 7.5% to 3.5% (about 55%) for life. This is an enormous cut in benefits. If you were going to get, say, $1000 per month in retirement under current rules, you might get only $600 (other matters affect AEF calculations, but the annuity rate is one of the most significant) under the tevised rules. That is why I am making such a big deal. I can't tell you if this will pass, but if I were on the cusp of retirement, I'd be thinking long and hard about what could happen.

mrfearless47 said...

Also, don't confuse the assumed earnings rate with the annuity rate. This isn't about your account balance, which wouldn't be affected by this. This ONLY affects the interest rate they use in determining your benefit. If you choose to receive a benefit monthly, that is what annuitizing means, spreading the money over a period of time using your actuarial life expectancy as the theoretical endpoint. You get that amount for as long as you live, and may, if you choose, to get it over your spouse's life expectancy. If you take a lump sum, they convert the stream of payments into a lump sum that yields a present value roughly equivalent (actuarially equivalent) to what you would receive over your lifetime. Of course, when you take a lump sum, the benefit is figured only based on your actuarial life expectancy, not your actual life. If you live a shorter life, your estate wins; if you live longer, you all lose. But lowering the rate used to annuitize the benefit, or to convert it to a lump sum will lower both the monthly benefit, and the lump sum (except in one very specific circumstance).

So, please do not misunderstand what is happening here.

treehugger1 said...

I continue to believe there is some fear to be found for Tier I interms of 560. I particular, capping salary at $100k for final average salary effects more folks than one would think. For instance, your final average salary will include the 6% employee or emplyer pickup, and 1/2 your final sick leave. For Tier I members with a great deal of saved sick leave over 25-30 years, it is not unusual for final average salary to exceed $100k. I was mid career when the IAP came into being, and I am benefiting from Full Formula as Tier I. The question to be asked might be whether or not past calculation is an accrued benefit. If not, proposed changes in Final salary calculations will have great impact.

mrfearless47 said...

I would absolutely agree. Make no mistake that anyone not retired before the effective date of this bill or SB 913 will be in a world of hurt. The $100K cap is draconian and will harm all actve members, regardless of Tier. Moreover, it will make recruiting for Med School, Dental School, Higher Ed, IT, and all other competitively compensated positions all the more difficult. I think the cap will be very difficult to implement in a way that preserves accrued benefits, and I suspect it will not save that much money, and it may run into a buzz saw at the Supreme Court, and possibly the IRS.

mpguy said...

Isn't the lump sum based on the employee's account balance? When I retired, I had the option of taking 2x my account balance (my share and the employer share). If so, how would it be affected by a change in the annuity calculation rate?

mrfearless47 said...

Because it has to be actuarially equivalent to the stream of Option 1 payments you would receive as an annuity. The annuitization of a money match benefit is affected by actuarial equivalency factors built around mortality data, assumed interest rate, and a COLA of 2% annually, all interwoven in complex ways. The full formula lump sum is different because the benefit isn't based on your account balance, but simply the result of 3 numbers, FAS, Service Time, and the annual service multiplier. To figure the lump sum, they have to build an account balance that would yield that benefit based on a stream of monthly payments over your life insurance xpectancy. To do that, they have to create a pseudo Money March account that uses the known mortality factors to yield a monthly Full Formula benefit equal to your actual computed FF benefit. This is quite expensive because the employers have to pony up the additional cash make the benefit work.

And that lump sum is often much higher than your actual account balance; if it isnt, then Money Match would have been the winning benefit.

Brian said...

Retiring under Police/Fire Tier 1 Full Formula would the reduction in benefits be just for the beneficiary in the event of a members death or would it effect the retiring members monthly pension benefit or both?

mrfearless47 said...

Both, as I a understand it. Benefit becomes based on joint life expectancy, not individual life expectancies.

rc5659 said...

Any news regarding HB3013? I see it has been assigned to business & labor, but no hearings as of yet.

mrfearless47 said...

Nothing. Most of it has been folded into Senate bills so it is unlikely to gain traction.

Native60 said...

Any thoughts on the progress of these bills after the Committee hearing on 5/22/17?
My general observations after watching are that some of the amendments clearly have legal issues or the intent is not clear. But if the Committee decides to "cherry-pick" the amendments to SB560, then Senator Taylor will want a new actuarial analysis of the bill and selected amendments to assess the financial impacts before they vote on the bill. This would slow down the progress, but for how long? Also, given where the bills are at today, and they are not on the agendas for hearings next week, how soon could the committee vote on it. Then for the rest of the process: vote by the Senate, sending it to the House, House Committee hearings, vote by the House, etc. - how soon is it likely to hit the Governor's desk? It seems to be a lot to get done before May 1st. I have never closely watched a bill through the process so I don't have that background to make an assessment.

The Director of PERS also clearly said the 3.5% annuity earnings rate should target Money-Match calculation but not Full Formula, and the Amendment #3 needs to be rewritten to state this if it moves forward.

Finally, Senator Knope seemed distracted today. Possibly because he knows what will be said already, so is he thinking about other things or thinking ahead? Or maybe he is worried (I hope) about the bill surviving?

mrfearless47 said...

I haven't had a chance to review the hearing, but assuming what you took away is accurate, the bill still has a long way to go before getting out of committee, and beyond. One element that doesnt come out in these hearings is that no deal on PERS will be reached without a revenue package and a tansportation package (issues I've only followed tangentially). The Ds control both houses and could derail any PERS vote on a straight party line vote. They are also exquisitely sensitive to passing bills that can survive a legal challenge, can survive a possible referral to the ballot, and to preserve or grow their majorities in 2018. They also want to keep their relationship with the labor unions, which have supported them despite the attempted setbacks on PERS n 2003, 2011, and 2013. So, as I see the dynamic play out on the PERS bills, the Ds seem in no mood to rush anything, especially when there are so many interlocking pieces of the puzzle in play. They especially don't want to get caught out like they did in 2013 with a business-friendly package of tax cuts pushed by the Rs, and a very hostile set of PERS changes put together for a "Grand Nargain". Note that the most damaging PERS cuts were disallowed by the Supreme Cout, while the business tax cuts quietly went on their way, further eroding the budget. I don'Tthink the Ds will let that happen again. Thus, I think the bills will have to be choreographed pretty closely, which will probably take time. I contine to think thatbon the cusp of retirng inactives and actives will be safe until May 1, 2017, but the process really picks up steam in May.. i'd be surprised if these three issues are poised for final vores before Memorial Day, and ready to hit the governors desk before June 1, 2017. Those decisions have to be lcked down before the final puzzle piece can be put into play - the entire state budget, which will occupy most of the final weeks of the Legislature. The wild card, for me anyway, is Kate Brown, who has shown no interest in PERS reform. Moreover, she has to run for reelection again in 2018 because the last election only bought her the remainder of Kitzhaber's second term.

Once I've had a chance to review the hearing audio/video, I may have more to say.

Georgi Farrell said...

You will probably not believe my luck. The joke is on me...April 1, 2017 is my 25 year anniversary date for PERS. May 1, 2017 is my 55th birthday. I am under police & fire and of course Tier One. What a predicament! I had originally thought I would retire at the end of the year but have been having some health problems so decided to go August 1st and purchase 3 months waiting time. Now I'm getting a little frantic.

My husband and I watch the Oregon online Legislature pages everyday and have subscribed to the bills effecting PERS. I also follow your blog closely. Can you suggest anything else I can do to keep myself informed on what is happening?

mrfearless47 said...

You might want to join our PERS Discussion group -- see top link on my blog -- where the news is even fresher, and where discussion from people who attend the Legislative hearings are updated regularly. One oher question. You can buy six wonths waiting time; I dont think you have the option of buying less. May 1 sounds like the best date for you to retire. I'm fairly confident nothing will happen before then, and you could stop panicking. Besides, waiting until August 1 would cause you to miss the July 1 COLA and have to wait a full year for your first COLA.

ProudMommy said...

I have been listening in on the hearings and although I haven't seen or heard anything indicating that they have pulled back on SB913 "taking effect on passage", I have been told by others that the amendments all refer to a January 1, 2018 effective date. I am Tier 1 retiring under Money Match with about 31 years of service (53 years old) and I'm still feeling as though I need to jump ship prior to May 1st to ensure that I don't get sucked into the cuts based on changing the actuarial life expectancy. Have you had a chance to listen to the last two hearing and can you provide any further advice?

mrfearless47 said...

@ProudMommy. Please look up SB 560, Amendment 3. The ugly piece of SB 913 has been moved into SB 560, the only bill that shows any legs so far this session. It is an omnibus bill. But, most important for you is to READ THE AMENDMENT CAREFULLY. You will see that the same "takes effect on passage language" from SB 913, is now present in this particular piece of work in SB 560. Again, I don't give advice, but if uncertainty and worry keeps you up at night, then waiting past May 1, 2017 is probably not good for your health. Please read some of my recent comments here on this blog entry to others, as well as going to the group PERS OREGON DISCUSSION, which is the first link on my BLOG page under LINKS. I think the general consensus is that if you get out by May 1, 2017, you'll be saving yourself a lot of aggravation and worry. Plus, by going then, you become eligible for the full COLA on July 1, 2017 (oh wait, the "blended" COLA, which will be about 1.95% for people in your category).

Hope this helps.

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