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Tuesday, April 11, 2017

The Bottomless Lake (Again, A Long Post)

Did you ever feel like you are falling into an abyss with no bottom?  If you haven’t, then you aren’t a still-not-retired PERS member.  Today brought the latest salvo from a malign, myopic, and malignant group of Republican frat boys in the Senate  who have wet dreams just thinking about ways to screw all PERS members not yet retired.  It came in the form of a 52 page amendment to Senate Bill 560, that seems to consolidate the various features of the 8 previous amendments to the bill, while adding a few new bits drawn from other bills (SB 559, SB 913, HB 3103), and sparing no one not yet retired from the mercenary greed of employers who simply don’t want to pay for the retirement benefits they promised when you started work.  Of course, they will  state piously that accrued benefits won’t be touched, but that is laughable after reading this bill.  Of course, it might just be true, but would require PERS to do mathematical gymnastics that would make Stephen Hawkings’ symptoms 10 times worse just thinking about the math.   In short, I know no other less-offensive way of saying this, but SB560-10 is a royal clusterfuck to anyone still drawing a breath but not PERS benefits.  Oh, and there is advance notice, sort of.  I’ll explain below.

First, for a possibly good piece of news.  The dash 10 amendment conspicuously removes the egregious FAS salary cap of $100,000 previously proposed in an earlier amendment.  Just to douse your good feelings, do be aware that all of the 9 amendments remain in play, so this might be one of those magician’s tricks to get you looking at the big object, while they busily perform sleight of hand to distract you from the smaller object.   Don’t get excited yet.  Remember the axiom:  objects in mirror are closer than they appear.

Now for the elements of the bill, made necessarily brief to keep this post readable.  They are in order of my memory, not the order they appear in the amendment:

1.  5 year average instead of 3 for Final Average Salary (this is actually from SB 559, but seemingly greatly elaborated here).

2.  Lowering the Full Formula service multipliers from their current 1.67% and 2.0% for Tiers 1 and 2, and from 1.5% and 1.8% for OPSRP to some UNKNOWN amount.  This version removes the specific 1.0% and 1.2% multipliers and literally replaces them with blanks, to be filled in at some point so you can be surprised.  I’m guessing that the numbers will be higher than the 1.0% and 1.2%, but still significantly lower than they are now.  This might be their way of waiting until the end to fill the “right” numbers to make the budget balance.  Beware of blank spaces on forms.

3.  Redirecting the employee contribution from the IAP to a individual pension account that basically serves to offset some employer liability for paying out its part of your pension.  This isn’t new, but what is new is that the statutory requirement for employee contributions has been amended from its current mandatory 6% to a vague series of blanks ranging from a low of ___% to a high of ___%.  Again, because of the labor contracts, it is likely that employers will have to offset elimination of the pickup with a salary increase for many employees, but what is diabolical is that by changing the mandatory contribution from 6% to some range, I can envision the employee contribution being made artificially low so that the employers will only have to offset a small part of your salary.  The rub here, of course, is that it requires PERS reevaluate member (employee) contributions every two years and recommend lowering or raising them to meet whatever targets are set for the employee to contribute to his/her own retirement.  Of course, that won’t require a salary offset because the contracts will have negotiated out the replacement for the pickup and will have no language to anticipate this potential time bomb (unless Unions are smart enough to see this coming). It kind of makes you wonder whether members will get the same benefits as employers when employee contribution rates are calculated.  Will there be smoothing?  Will there be rate collars and all the other ways that the PERB and employers have come up with to lead us down the path we find ourselves in today.  Employer greed knows no bounds.

4.  Cutting the annuity rate for Money Match retirements.  This was confusing and confused in the dash-3 amendment.  The current revision is clearer now, but you have to search very hard through the existing statutes to reassure yourself that it only affects annuities for Money Match retirements.  Instead of committing to a fixed rate of 3.5%, they have instead substituted a reference to the annuity rate recommended by the Pension Benefit Guarantee Corporation, an entity that governs private sector pension insurance and sets minimum interest rates on annuities from private pension plans.  This rate is variable and changes periodically, up or down, with the economy.  Rest assured that the current figure sits around 3.5% or possibly a bit lower (I really didn’t bother to look).  The most important fact here is that this change is the ONLY change that does NOT take effect on January 1, 2018.  This piece takes effect on passage of the bill and its signature by the Governor, if this piece of the bill survives that far.  Thus, if you are not willing to gamble, if you know you’ll be retiring under Money Match (a few very long term Tier 1s still working, plus a boatload of inactive Tier 1s) you might want to give serious thought to a May 1, 2017 exit.  I’ve noted elsewhere and in comments that because of the process involved in getting this bill to “YES” is going to take awhile, it is likely you could wait until June 1, 2017.  But, trust me, waiting an additional month isn’t going to make a noticeable difference in your pension, so I still advise May 1, 2017 to play it safe.  But again, ONLY if you are 100% certain that Money Match is going to be your mode of retirement.  If not, then you can wait until December 1, 2017 to retire without feeling the effects of any of the above changes, and this one is irrelevant to Full Formula retirements).  Please also note that the biggest victims will be those people, inactives primarily, who aren’t paying attention.

5.  Elimination of further accruals of sick leave and vacation time AFTER 12/31/17 that apply to FAS.  All existing accruals will be honored through 12/31/17.  After then, you can still accrue sick leave and vacation time as before; they just won’t add anything to the calculation of your FAS at retirement.  This piece, plus the longer averaging period, combine to lower FAS in most cases by possibly as much as 10%.  Add the fact that the statutory 6% contribution will likely be lowered, and the salary offset equally lowered, will also serve to diminish FAS going forward.  For long term employees with lots of accrued sick leave and vacation time, this probably won’t have a huge effect in the near term after January 1, 2018.  But for younger employees, the effect could be more noticeable.  (Edit:  One additional question does arise in all this.  I wonder how use of sick leave post-January 1, 2018 will be charged. Is it FIFO - first in, first out, which would be a real downer - or LIFO - last in, first out, which would be the desired outcome.  If you are in a union, this is something you might want to ask because it WILL make a difference if you need to use sick leave Edit Later:  I just discovered that Tim Knopp introduced a dry run of this particular concept in the 2016 short session that explicitly states that the implementation is to be FIFO, which confirms my worst fear about this piece of the bill.  Far from being a benign freezing of benefits already accrued, you’d be going backwards to withdraw from your accrued sick leave if you used any after 1/1/18.  This makes this malignant instead of benign).

6.  Declares Oregon University System members who left PERS in 1996 to join the ORP to be officially inactive PERS members.  Allows ORP members in this situation to move PERS funds (employee accounts only, not employer match) to ORP and sever all relationship with PERS.  Under the current scenario, this would be foolish to do because the employer match is worth nearly as much (if not slightly more) than the member account balance in the inactive PERS Tier 1 account.  Why would any sane person sacrifice half their benefit?  It also permits Community Colleges to form their own ORP for existing and new employees.  There are some other provisions here, which seem to let those who chose to remain in PERS rather than ORP, transfer membership again to the ORP but without the employer contributions tagging along.  This is only sensible for a new member just realizing the disaster that they’ve signed up for.

7.  Eliminates some forms of buyback of service time for employees who leave the system before retirement and withdraw the member account balance.  To be more specific, it limits the ability of members who withdrew from the system and they rehired back into the system from buying back the service time they cashed out when leaving the first time.

8.  Orders immediate recalculation of employer rates to reflect savings from these changes.  What a ginormous, bigly surprise.  Let’s spend the money again before the court rules on the legality of some or all of the changes.  That’s the same mistake made in 2013; these idiots never learn.

9.  Declares an emergency and establishes the bill as effective on passage.  Aside from 4 and 8 above, none of the other features actually take effect until 1/1/18, as clearly stated in the bills various parts.  The real purpose of the emergency clause in this case is to start the clock rolling for the Supreme Court case.  If the bill were to take effect on 1/1/18 and not on passage, any litigation would be viewed as “not ripe” until the bill actually took effect.  This would, in turn, make it unlikely that a court decision would be rendered until it is too late in the 2019 Legislative session, delaying any budget adjustments until at least 2020.  This way, the legal ball can start rolling the minute the bill is signed into law.  The clock is very short.  Litigation against any part of this bill has to be filed with the Supreme Court within 60 days of the bill’s effective date; hence the emergency clause.

As is evident from the above, the frat boys put a lot of effort into making sure that all categories of PERS members from all Tiers, of all ages, and from all retirement forms get hammered pretty good by this obnoxious piece of legislation.  Not only do they force you to stare into the bottomless lake, they are also dosing you with Sarin gas while you are looking.  I sense two things are going to happen regardless of how this all plays out ultimately.  There are 70,000+ PERS members eligible to retire today.  The previous record for most retirements in one year came back in 2003, when nearly 19,000 PERS members retired.  I’m guessing that this year the number will break that record by at least a factor of 2.  My private betting is on 40,000, which creates a monstrous problem for PERS itself.  Not only do they not have the resources to manage a retirement load of this size, they have begged the Legislature not to do anything that would inspire a “race to the door”.  This bill virtually guarantees the very thing that PERS warned against.  If this happens, and the court does not uphold many of these proposed changes, the PERS UAL will increase again, employer rates will rise through the roof, and we’ll be back (I won’t, but maybe someone else will) circling the same drain in 2019.  At the moment, I think our Bend frat boys ought to be on the front lines battling Bashar Al-Assad rather than pushing PERS members into the bottomless lake.

The BIG day for all this is tomorrow, April 12, in Salem.  The Senate Workforce Committee is scheduled for a public hearing (which means you can testify if you get there early enough to sign up) on how this bill, or the individual amendments -2 to -9, plus SB 559 (which seems irrelevant in the context of this bill, but never underestimate the strategy of our frat boy pranksters from Bend) directly affects you and your family.  The meeting is at the Capitol at 3:00 p.m. in Hearing Room A.  The room isn’t huge, but I would love to see it packed inside and outside with hundreds of PERS members affected by this (these) bill (s), and as many people testifying as possible.  Keep your testimony short and too the point.  I can be cavalier, nasty,  and accuse them of malice and stupidity.  I wouldn’t counsel YOU to do that to their faces.  But, to many of these people, PERS is simply a math problem or a financial problem, it doesn’t really involve people’s lives, often into their 90s or beyond.  Your job should be to remind them of the human cost of their decisions.

23 comments:

ThisOldSpouse said...

Wow, the ol' switcheroo.
This should ping pong around committee for at least a few weeks....

mrfearless47 said...

I doubt it will ping pong anywhere. I suspect this bersion of the bill is already a fait accompli out of Workforce. What happens in Ways and Means is another story, but I expect it will sit there and languish until the revenue package gets worked out. Only then will the blanks get filled in with numbers that will make the budget balance.

JB said...

I think you're right Marc. And I would guess that the revenue package won't get worked out until sometime after the revenue forecast which comes out in late May. That's the one that the Legislature has to balance to for the 17-19 biennium. There's very little chance that the D's will agree to a revenue number until they see just how big their hole is.

Newport Carl said...

This article represents a tremendous amount of work on your part. Thank you !

Newport Carl said...

This article represents a tremendous amount of work on your part. Thank you !

Scott Cater said...
This comment has been removed by the author.
Scott Cater said...

Bless and thank you Marc!

Big-Al said...

Just read the SB 560-Amendment 10 document in Section 2. I was previously planning on retiring May 1st due to concerns with the language over actuarial equivalency factor tables potentially being used for calculating my retirement benefits between passage of the bill and January 1,2018. I am full formula method for PERS benefits computation. Is it safe to say with the SB 560 amendment 10 language that I can work to December 1, 2017 without being impacted by the reduced benefits?

Thanks for helping those of us that don't fully understand all of this.

Big-Al said...

Just read the SB 560-Amendment 10 document in Section 2. I was previously planning on retiring May 1st due to concerns with the language over actuarial equivalency factor tables potentially being used for calculating my retirement benefits between passage of the bill and January 1,2018. I am full formula method for PERS benefits computation. Is it safe to say with the SB 560 amendment 10 language that I can work to December 1, 2017 without being impacted by the reduced benefits?

Thanks for helping those of us that don't fully understand all of this.

mrfearless47 said...

Big-Al. I think the answer is yes, because PERS has been closely involved in getting that section straightened out clarify that it is targeted at Money Match retirees only. I wouldn't completely relax and I'd have a set of paperwork filled out for a May 1 date, just in case, but you will know for certain after the April 17 meeting, which will determine which amendment or amendments go forward to Ways and Means. If the amendment described in this post goes forward, you will be good until December 1. Hope that provides soom small piece of mind.

Oldgraymare55 said...

Once again, many thanks for your expertise and effort Marc! I sometimes feel like I am in the twilight zone. You help us try to stay sane! I am surprised your website hasn't exploded from so many hits! I look forward to your post tomorrow evening. You are awesome!

mrfearless47 said...

Thank you. I try hard to keep people informed. It can be a challenge.

LastOfTheBabyBoomers said...

What ever happened to SB 791 , the 1039 hours bill ?

mrfearless47 said...

Apparently it has followed the Monty Python "Dead Parrot" into oblivion. "Dead, pushing up daisies, bought the farm, taking a dirt nap, tits up, etc".

Dennis said...

This information is so valuable. Thank you for putting in all of this hard work.

I turn 55 in early June, was planning on keeping my dollars in PERS and then doing MM at age 62.

I no longer work for the State, and I am wondering if you think its best to take the hit at early retirement at age 55 and get locked in now . . . or something else.

I realize you can't give individual advise, but I know there are a lot of middle 50 year olds out there.

thoughts?

mrfearless47 said...

Dennis. The hit from point 4 is far greater than any benefit you might accrue by age 62. Problematic is your age. You can't retire under MM until 55 unless you have 30 years of service credit wthout an IRS penalty. If you can get out by June 1 you will probably miss the debacle of point 4 if is included. If you actually have to be 55 before you retire (unlike Social Security where they only care about month of birth), you might be stuck retiring July 1, which might be too late. I suggest calling PERS tomorrow and ask whether you can retire on the first of the month in which you turn 55, or whether you have to wait until the first of the month following your 55th birthday. Let us know and then I can offer further suggestions.

ViceGrips said...

Marc, I just left a monetary donation on this website as a gesture of appreciation for the valuable insight you provide those of us still vulnerable to legislative fiat. I'm almost 60, and eligible to retire Full Formula at year end if I choose to. I also have an alternate payee account, money match. The member (ex spouse) is retired so I could activate it anytime I choose. I am trying to get a better understanding how the SB-560 disconnection between the 7.5% assumed rate and a lower annuity rate would impact the benefit amount prospectively. Plan A was to access it in 2023. If I pull the pin on it April 30th this year, it is worth about $1600/mo. How can I roughly compute what the benefit would be worth in 2023 under the proposed rule change if I chose to wait? If the measure is not supposed to touch accrued benefits, then I would expect the current benefit of $1600/m in six years would be no less than what it is now, but less than what it would be if SB-560 made it into law. But I just get the feeling a legislative sleight of hand is underway here. Also, I understand the rate decoupling takes effect on passage, not at year end. I just want to make an informed decision. Thanks

mrfearless47 said...

@ViceGrips. I answered your question in an email. It is too complicated for an answer here. If necessary, I can answer in a separate blog post, but I would need some different information to make all of this public.

mrfearless47 said...

If you aren't at today's hearings, you can go to the State Legislature's web site and get a video feed of the hearing shortly after it adjourns at 5 p.m. or close thereto. That's how I plan to view it.

ProudMommy said...

Just got back from testifying at the hearing today. Senators Knopp and Taylor both have stated that they will request to remove the "Emergency Clause" from SB559 and SB560 before it goes to Ways and Means on Monday, and that they support having an actual effective date attached (probably January 1, 2018) to whatever bill (if any) that moves forward. They stated that they were all concerned about employees jumping ship prematurely or causing mass panic. Not sure if I have any relief at this point...As Tier 1 MM, I am curious how everyone else is taking their comments after viewing the hearing. I have my application completed and notarized with a May 1st effective date and based on this hearing I am not sure about turning it in yet.

Unknown said...

Considering the potential impact of these measures on PERS members not yet retired, it was seriously disturbing to see the hearing room today, 2/3 filled with professional lobbyists and maybe, generously about 1/3 filled with PERS members, only 2 of who had the courage to testify about how this bill will decimate their retirement.

peg

mrfearless47 said...

ProudMommy. Thank you for testifying today. You did a great job; however neither you nor Mr. Erickson state the speciific concern you have about the bill - namely that the proposed change to the Money Match annuitization rate change (either in dash-3 or dash 10) is the one and only part of the bill xplicitly lacking a date certain, and which takes effect on passage - the real reason for the panic. And I was appalled that NO ONE on the committee even pointed this out and offered specific reassurances that THIS piece, which does not have an emergency clause but simply takes effect on passage, while every other changeis specifically tied to a 1/1/2018 date. Removing the emergency clause in dash-10 would not, in and of itself, change anything and would still leave you in limbo, albeit for a bit longer. Sending up a chinese menu of options for Ways and Means to sort through is both lazy and irresponsible because that shifts the burden of decision making up the food chain with no guidance.

So, unfortunately, you are still in a bind until you see what actually gets amended from the bills and their amendments.

Unknown said...

ProudMommy, you did a great job testifying and I applaud your courage and your willingness to remind these elected officials of the human face, the reality, of the damage these bills and amendments will create in the lives of public employees. As to how much to trust the assurances that emergency clauses will be removed. Marc has said it well in his reply to you. I add my own opinion that the assurance isn't worth much. Clearly this committee is passing the whole PERS mess on to the Joint Ways And Means committee with no decisions made and no recommendations. JWAM is then free to make *any* changes and/or decisions about the content of the bill(s)/amendments that they want to. Their goal is to get to a balanced budget. One place Legislators are clearly looking to make up the large budget deficit is with further cuts to PERS. If an emergency clause might speed up the savings, or even if they just suspect it might, I'd expect to see an emergency clause as part of the final bill. Sorry, I know this adds tension; but I encourage you to continue to be vigilant.

peg