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Friday, April 07, 2017

The Revolution Starts Now

After more than 10 weeks in session, two PERS bills are scheduled for Work Sessions.  These bills are SB 559 and SB 560, both of which have been discussed a number of times in the posts below.  SB 559 is a relatively straightforward bill that attempts to stretch the computational period for Final Average Salary (FAS) from 3 years to 5 years.  The rationale is simple.  If your salary is averaged over 60 months instead of 36, there is a strong chance that your FAS will be lower than if it had been calculated based only on a 36 month average.    It’s effect is unclear on those still working and who are Tier 1, or even Tier 2.  Because the Legislature has to preserve accrued benefits, it can be argued that the 36 month average is a benefit you accrued while working and that the worst anyone could do would be to blend your service periods and use a 3 year average for your pre 2018 work, and a 5 year average for the post-2017 work, producing some obscure and hard-to-calculate weighted average.  I don’t envy PERS if this passes.

SB 560 is a far more harsh bill, although the amendments (not accepted yet; that has to happen in a work session) strip some of its obnoxiousness and replaces it with other obnoxious stuff.  Taken as a package - the original bill, and the 8 amendments - the bill would redirect the employee 6% pickup to some account that would no longer be accessible to the individual like the IAP is today.  It would also cap FAS at $100,000 max, but again the mechanics of this are uncertain and will cause havoc for everyone trying to figure out (especially for Tier 1s) how to implement a bill that preserves the current “no limit” on FAS,while permitting the arbitrary $100,000 FAS.  It is going to be a mess to calculate, and you can expect some ugly litigation over this one.  Moreover, the bill stops further accruals of sick leave and vacation time for FAS purposes (but permits use of accruals prior to 1/1/2018), it changes the vesting length for PERS membership from 5 years to 10 years, alters the statutory accrual factors for Tiers 1, 2, and OPSRP from their current (general service, P&F) 1.67 (Tier 1 & 2), 2.0 (P&F Tier 1 and 2), and OPSRP (1.5 and 1.8), to a flat 1.0% for general service (all tiers) and 1.2% for Police and Fire (all Tiers).  The bill also tries to decouple the existing assumed rate, currently used by PERS for all calculations pertaining to the time value of money, from the pension annuity rate (usually the same as the assumed rate).  The bill proposes to use a pension annuity rate of 3.5%. 

All features of SB 559 and SB 560 are scheduled to take effect on 1/1/2018 EXCEPT for the last item listed - the decoupling of the assumed rate from the pension annuity rate.  That change takes effect on passage, although the language in the bill is a bit confusing in requiring PERS to start using the new factors on 7/1/17. 

These work sessions are both schedule in the Senate Workforce Committee on April 17, 2017 at 3 p.m.  (Hearing Room A, I believe).  There is also another public hearing on SB 560 on April 12 in the same place at the same time.  The ONLY way you can have any impact on this is to show that you care enough to try to attend these work sessions.  They are often tedious and technical, but you can learn a lot by going.  If you don’t go, you are also sending a message that you aren’t concerned, even though there might be perfectly legitimate reasons for not going.  I assure you that Legislators do notice your presence.  Also keep in mind that the Senate Workforce Committee has 3 D’s and 2 R’s meaning that the bill can’t move until a D crosses over and votes it out of committee with the 2 Rs, or all 3 Ds decide it is worthy of a whole Senate discussion and vote.   

I can’t tell you what to do.  I know what I’d do if any of this affected me.  I would mark my calendar and figure out a way to get to Salem, early is better, and try to buttonhole a couple of the committee members before the meeting and let them know just how strongly you feel against these bills.  Both bills are bad; SB 560 is decidedly worse.  If ever it was time, the revolution starts now.

 

30 comments:

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

The work sessions for SB 559 and SB 560 are scheduled solely for the purpose of sending them back to the Senate President's Office for referral to the Joint Committee on Ways and Means.

Work Session
SB 559 Changes calculation of final average salary for purposes of Public Employees Retirement System to use five years of salary instead of three years, for salary paid on and after January 1, 2018.
SB 560 Redirects employee contributions made by member of system from individual account program to account to be used to pay for member's pension or other retirement benefits accrued on or after January 1, 2018.
That is copied from OLIS
What is the best bet to do now?

mrfearless47 said...

SB 559 has no amendments. SB 560 has 8 amendments that each gut the original bill and stuff different new sections in. There has to be a work session to decide the fate of the amendments because they can't send the bill in its current incomprehensible form anywhere. So somewhere theyvare going to take actions that will completely redefine the bill. The redirect isn't even a part of the amendments.

MHender said...

Is the process: Public Hearing, Work Session, Senate, House, Governor? Once the bill leaves the work session portion, how quickly could it be passed?

I have my 58th birthday in December. I am a Tier 1 and my retirement has a full formula calculation. However, I have an Alternate Payee that is my bread and butter and I can't afford to lose any of it as this is what will allow me to have any kind of stable retirement. If I activate May 1 and not Dec. 1, then that means a couple hundred dollars a month less. That makes a big difference for me, but at the same time I don't want to be foolish and lose a whole lot more.

Thanks for spending the time to provide your blog to PERS people like me.

Mad dog said...

Do either of these bills violate the accured benefit principal
Mad dog

mrfearless47 said...

@MHender. That would be the normal progression, but these bills are heading to the Joint Ways and Means Committee first, which adds another step in the process. If your 58Th birthday is in December, then the earliest you can retire without some penalty would be Jan 1, which happens to be the effective date of everything except the piece I mentioned in the blog post itself. Since I don't think that has a fis chance of passing, you might want to consider a Dec 1 retirement. I'm sure you will lose less that way than you would waiting until January. Even if the Legislature makes no changes, the PERS Board will be making changes to the assumed rate and mortality tables that would have a significant impact on your benefit.

mrfearless47 said...

@maddog. The devil is in the details of implementation. On their face, it can be argued that they don't affect accrued benefits. But those details would have to be sorted out by PERS, in their implementation, and by the Supreme Court in their legal analysis. I can see ways for them to be implemented without violating accrued benefits, but it will be one hot, stinky mess for PERS to calculate, and will take some time xpensive programming and testing to sort out.

oregontrailster said...

@MHender> Do you have 30 years of service? It can make a difference in retirement age.

ThedudeinOPSRP said...

I'm kinda lost I apologize. Would it still be recommended that PERS employees attend the April 12th workforce committee or will it be more of an informal meeting and just refer these bills to Senate President's Office for referral to the Joint Committee on Ways and Means. Then if you have a moment how does the Joint Committee on Ways and Means work?

Boomer said...

I remember when I was working for the State Police our captain told us that the legislature was trying again to go after our retirement. That was way back in the early 70s. This struggle has been going on a long time.

mrfearless47 said...

@dude. The April 12 meeting is probably more important since it is there, I assume, that they are going to have to do something about the original bill, which is largely gutted by the 8 amendments and those are more poisonous in the aggregate. Get there earlyvand sign up to testify on how these bills would affect your retirement.

As for Joint Ways and Means, that is really a committee that deals with major budget matters. It is a much larger committee with the majority being Ds from both chambers. Whatever gets recommended there still has to go back to each chamber for discussion, possible amendments, reconciliation by both chambers and formal approval by both before anything gets sent to the governor. This will slow the process down, and virtually stall it if SB560 doesnt get sent to JWM in a coherent form.

DOC PO said...

I apologize for sounding confused....because I am. I am T1, P&F, 52 yoa, close to 29 years in. I have 75% in variable. The upcoming crap in Salem concerns me greatly. I want opinions from those who understand what is going on to give their opinion if I should retire and when? And why would be greatly appreciated. I do not have hundreds of hours of sick or vacation time. Any and ALL advice is greatly appreciated.

mrfearless47 said...

DOC. Since you have your 25 in, you are currently eligible to retire without any penalty other than your age. At this point it is impossible to guess what or when or even if the Legislature will do anything. However, PERS will be changing assumed interest rate and the actuarial tables on 1/1/18, so as long as the legislature does nothing with the annuity rate, you'll be safe until 12/1/17. After that, regardless of what the Leg does, the changes PERS makes will be more costly to a MM retiree.

Unknown said...

So to recap for myself. I have almost 28 years in and am 65 years old. My estimation is full formula so the annuity part of the bill should not affect me. Is this correct?

mrfearless47 said...

@Unknown. It depends on whether you expect to have a beneficiary. There is no impact to the Full Formula, Option 1 benefit. However, if you have a beneficiary, that changes the calculus a bit. In the CURRENT version of the dash-3 amendment to SB 560, the draft is both confused and confusing. Reading it quite literally would require PERS to change annuity factors for ALL benefit forms except for FF Option 1 (i.e. a beneficiary could really change things because annuity factors come into play). THAT SAID, it is well-known that PERS has testified against the present wording of the dash-3 amendments because it has some very ugly unintended consequences for their administration of the plan. Hopefully, that gets straightened out and the impact is only as it is intended - Money Match. Even more hopefully, they will kill this amendmet altogether, in which case no one has to worry.

MHender said...

oregontrailster

I don't know if I am responding correctly...these are the first two experiences that I have had in posting to a blog.

I do not have 30 years in PERS. I am a teacher and we are eligible to retire at 30 years experience or the age of 58. The alternate payee that I have I can activate at anytime since my ex has already retired. The alternate payee is money match, but my PERS Tier 1 retirement as a teacher is Full Formula.

I appreciate the questions posed on this blog site and the responses by those of you that are so informed and who have a much better understanding that people like me. Thank you!

DOC PO said...

@mfearless. Because I am P&F I am eligible to retire at 50 because I have my 25 years in. I have co-workers who are scrambling to retire May 1 2017 because it is their understanding that the MM part of the bill will be retroactive back to May 2017. Why are people thinking they need to get out immediately?

So I can stop scrambling to get my PERS application done tonight. You are saying that the earliest I might be effected will be 01-01-18? So if I plan to go I should go 12-01-17?

By the way, you have no idea how much I appreciate your knowledge about these issues. It has calmed me.

Thank you!!

mrfearless47 said...

Doc. The MM portion of the bill hasn't even gotten to the point where anyone has considered it. April 12th is the date for the public testimony/hearing in the Senate Workforce Committee. On April 17, the Senate Workforce Committee will refer something (we don't know what yet) to the Joint Ways and Means Committee, which usually doesn't take up these kind of bills (because they involve fiscal policy) until near the end of the Legislative session (June 23 is the desired end, but July 8 is the statutory end).

As far as what and when to do it, I suggest waiting until at least 4/17 until you can see exactly what is referred to the Ways and Means Committee. I find it extremely unlikely that the MM annuity rate change will get referred forward, at least not in the form it is currently in. It is a very unpopular amendment with Senate Ds, who are in the majority and control the fate of an amendment like this. Moreover, the Moro case ruled that the Legislature cannot change rules retroactively, period. So, the point of the May 1 date was the fact that under the most pessimistic scenario, there is no earthly way the Legislature could enact a bill of anykind involving PERS before May 1. Reading through the amendment closely, it requires PERS to adopt new mortality factors and annuity rates by July 1, 2017, but PERS can't do that if the bill isn't even passed.

So, here is my counsel. Relax a bit for a few days. If you can make it to the Salem Legislature on April 12, it might be worth doing as a show of force. If you are garrulous, get there early and sign up to testify. That would really bring the matter home.

If this amendment dies, which seems somewhat likely from the rumors I'm hearing, then you will be safe until December 1. Watch this space as I will be reporting on the outcome of the 4/12 and 4/17 meetings the same evening the meetings occur. I'll be able to get two posts up before I leave town for a week.

Relax for a few days, take deep cleansing breaths, and just wait to see. I think you will be pleasantly surprised at the outcome -- that's me being optimistic for you.

ThisOldSpouse said...

Do you have any clue as to the, "assumed interest rate changes" as of the 1st of '18?
Is PERS giving up any info? I will be out (yeehaw) but my wife's PERS sits until she is of legal age ;) She's got a few years yet..

alittlesmokage said...

mrfearless47
First of all ...Thanks for all the hard work and looking out for us.

I see the 5 year averaging vs 3 year as an attempt to reduce the effect of sick leave and vacation on FAS. (even thou these are earned benefits). This could represent a significant hit on us.
The 100K limitation will certain earn it's place in the supreme court for those of us that has worked ungodly hours and made it above that thresh hold.
If any of these pass, the cost of litigation will far exceed the theoretical benefit.

And have the new AEF's (assuming no legislature changes)been published that would start 1/1/18?

Thanks
Alittlesmokage

mrfearless47 said...

Neither the assumed rate nor the AEFs associated with the rate change have been published because no formal decision has been made. In July, the Board will discuss and finalize the 1/1/18 assumed rate based on studies and recommendations from the Board's actuaries n May. This is all normal timing. While there are no official rumors, the whisper number can be inferred from California PERS recent decision to lower its assumed rate to 7%, a belweather that usually foreshadows what Oregon's PERS rate changes. That 50 basis point cut, assuming there are no mortality changes, would generally translate to having to work an additional 6 months to receive the same benefit.

As far as the AEF Tables, they don't get posted until late November, but usually at the September meeting, the actuary provises a series of different xamples that will allow one to infer how they will affect your situation generally.

As far as the legality of these changes, and the cost to litigate them, the first is up to the Supreme Court, and the second is not as much as you think because the direct referral to the Supreme Court eliminates a huge portion of legal expenses incurred during the initial litigation and the appelate phase. The Moro case awarded the PERS Coalition attorneys slightly less than $1 million in legal expenses. Assuming roughly equal expenses for the state and local employers, we are only talking about a couple of million dollars in legal expenses, compared to the hundreds of million, or even billions if many or all of these changes survive legal challenge.

I have opinions about the legality of these changes, but because I am not a lawyer, and each time cases like these hit the Supreme Court, at least a third of the justices have changed, it isn't easy to draw the kinds of conclusions at this early stage when nothing has even left committee, and no formal legal analysis has been published anywhere.

I hope what I've said is helpful, and what I've left unsaid isn't too exasperating. There is far more uncertainty this time than ever in the past. There are too many moving parts to make more than an informed guess about what is likely to pass and in what form to be speculating about the legal likelihood of any of this ending up the way my early predictions have suggested.

mrfearless47 said...

@alittlesmoakage. Keep in mind that there are also anti-spiking provisions being discussed that would terminate further accruals of sick leave and vacation time for use in FAS calculations. You could continue to accrue the benefit of the sick leave and vacation time, and use them as you currently can, except that for FAS purposes they are proposing to freeze those amounts at their 12/31/2017 level for use in calculating FAS. This one is likely to be litigated too, if it passes, although it would save very little money in the short run, but a ton of money in the long run as the vast majority of retirees are now going out under Full Formula, where FAS matters. It doesn't matter a whit for Money Match retirees. When I retired, I left 2700 hours of accumulated sick leave on the table, and took every minute of my vacation time just before I retired.

sick and tired said...

My T2, option 2 (beneficiary) estimate for 7/1/17 is calculated at 7.5% assumed rate. Full formula. When I pass will the monthly payment to my beneficiary stay the same or be subject to recalculation per AEF.

mrfearless47 said...

Nothing I've seen suggests that your beneficiary would receive any less than what you will be getting.

sick and tired said...

Thank you for the info. I was confused with the assumed rate vs the AEF.

"Crash" said...

I am a P&F tier 1 member with 27.5 years of service in. I turned 50 this last January. A lot of my fellow co-workers and friends in the business are pulling the plug now due to what is happening. I planned on completing 30 years before I retired. I have three kids that created a hefty college loan debt for me and i really wanted to get rid of that before i hung it up. With pers and IAP split up, I will certainly have to find another job with benefits in order to survive. It appears going 12/1/17 is a safe choice but my question is how will I know if I need to go sooner without getting crushed by the reform, will I have time to get out? And will these cuts be so significant that i just shouldn't stay and do my 30? I have heard ridiculous comments like 40% cut in my benefit, that cant be correct can it?

Thank you for your help

mrfearless47 said...

I think I answered your question of the PERS Discussion group. I refer others interested in my answer to see the discussion. You can join through the first link under LINKS on the upper left side of the blog page.

ThisOldSpouse said...

@Crash. If you do the math you will see that mrfearless47 has done his. Simply put if SB560 passes containing the #3 amendment in it's current form(unlikely) it would reduce the annuity rate from 7.5% to 3.5%. To quote mrfearless47, "This is an enormous cut in benefits"
Here is the reason: The annuity rate is the magic number that takes your relatively small (if you're like me) total dollar amount or Full Formula figure and makes it magically stretch until the day you die (which we hope is a long long time, therefore making lots and lots of money)
The oversimplified way it works: PERS calculates your final salary (over three top years TODAY), sick and vacation time, your life expectancy and future cola and multiplies that by 7.5% (TODAY) vs. 3.5% if it passes as is..

Not a rocket science here; 3.5% vs. 7.5% or roughly 55%, again "enormous cut in benefits"
I miss anything mfearless47?

mkw said...

As you write . . ."The bill also tries to decouple the existing assumed rate, currently used by PERS for all calculations pertaining to the time value of money, from the pension annuity rate (usually the same as the assumed rate). The bill proposes to use a pension annuity rate of 3.5%."

So, is a Money Match (long inactive) retiree to assume that their monthly pension amount would be cut in half if this legislation is passed? Dropping the assumed/pension annuity rate from 7.5% to 3.5% makes me thinks so.

mrfearless47 said...

It isn't quite as straighforward as that. The way the annuity rate is factored in is through the Actuarial Equivalency Factors, which also include a significant weighting for life expectancy as well as the assumed earnings rate. Thus, the best estimates I can get from people "in the know" is a roughly 35-40% reduction, which reflects possibly a higher weighting to mortality than to the interest rate itself. Also, be aware that the dash-10 amendment, introduced for the first time on 4/12 changes the decoupled annuity rate from a specific 3.5% to an amount recommended by the Pension Benefit Guarantee Corporation. Since PBGC publishes a whole bunch of different rates, it isn't clear which one this would be keyed to, but the highest rate for the month of April is 4.0%.