Free Bird

This is my public announcement that I have posted by final content on this blog with the two entries below (Dancing in the Dark, and Another One Bites The Dust). I've been writing this blog about PERS in one form or another since 2000. It began as a short newsy email to some of my age and service peers at PSU in 2000. By 2002, it had grown larger than I had expected, had become a newsletter, and by 2005 a full-fledged blog. Over those years, my blog has touched many people - PERS members, Legislators, PERS administration, PERS employees, multiple Governors - and have helped more people than I can count make informed decisions about their retirements, or helped Legislators direct constituents to an informed source about PERS happenings. I've lost count of the number of good friends I've made because of my writing. I maintain close ties with many, years and years after this blog helped them. I treasure those friendships. Even PERS adversaries in the public and in Legislative circles have offered me a measure of respect for my attempts to report the "truth" about what was going on. 

But all things must come to an end. As the pandemic winds down (I hope), and PERS has reached a point where people's hair doesn't seem to be on fire as much as in the past, it seems logical for me to celebrate this moment, and wrap this up while there is no crisis. Crises will come and go, as we've seen over the past 25 years with PERS. But, for right now, while PERS isn't completely out of the woods and certainly not out of the headlines, things are stable. And so today, with thanks to the nearly 2.5 million visitors to this site, I announce that I am a "free bird". This site will remain active as an historical record of the past 16 years of my writing. I will still keep track of PERS in my increasingly rare "free time", but I won't be writing about it here. If you want to keep track of PERS or engage in illuminating discussions, please feel free to participate in the PERS Oregon Discussion Group (see link on left), where I still stop in now and then. 

My final wish to all who have contributed to the success of this blog is simple: "May you outlive your actuarial expectancy". 

 With all best wishes, Marc Feldesman

Dancing In The Dark

On June 4, 2021, the PERS Board will receive Milliman (the actuary) recommendations about various economic assumptions for the 2022-2023 calendar years. Among the critical recommendations will be assumptions about salary growth, inflation, and the assumed interest rate. In reading the Milliman report (details of which are found in the PERS Board packet for the 6/4/2021 meeting), they are recommending slightly lower salary growth assumptions, slightly lower inflation assumptions, and slightly more substantial reduction in the assumed rate (ceiling at 7% with a recommendation to go down as far as 6.8%). These assumptions have no bearing on members who are already retired, or who will retire no later than December 1, 2021. But for all active and inactive members not yet retired, this portends some noticeable changes that may have an effect on benefits when retirement actually occurs.

Salary growth, inflation, the assumed interest rate, and mortality factors all combine together to produce the Actuarial Equivalency Factors PERS uses to calculate benefits for Money Match retirements in Tier 1 (not many of these left, except among inactive members), and for Full Formula and Formula + Annuity retirements in certain circumstances. Let me be clear that Full Formula retirements are not directly affected by any of these changes, provided that the member retires under Option 1. For members who select a Full Formula benefit with survivor options (e.g. 2, 2A, 3, 3A and others), the Actuarial Equivalency Factors come into play because PERS must account for "joint mortality" of the member and beneficiary. Depending on the age differences between member and beneficiary, this can lead to reductions from the formula benefit by as much as 15%, unless the beneficiary is substantially younger than the member.

Final decisions on the exact economic assumptions won't take place until the PERS Board Meeting on July 24, 2021, but consider this a head's up if you are eligible for and contemplating retirement now or in the near future. This is not a trivial consideration, and I encourage people to think carefully before making a decision one way or another. If you retire earlier than you would like, you may gain a higher benefit, but may lose that advantage from loss of salary, having to deal with health insurance earlier than expected. On the other hand, waiting may net you a higher percentage of salary based on the formula, but lose the advantage because AEF changes reduce the fraction because of your beneficiary's age. There are lots of considerations. The usual calculation involves something called "break even analysis", where you cost out each of two alternative decisions and figure out how long it will take for the two decisions to converge. This is not too different from considering when to take Social Security. I took my SS at 63. I made the decision because after considering what I would get if I waited until 65 or 70 (both options for me to get full or enhanced SSB), considering the time value of money, inflation, and potential investment returns on my SS money, I figured I would not break even by waiting until I was at least 80. For me, it made sense to go early and use the money as leverage. Others may not have that option, but the analysis is the same regardless. There are a few more variables involved in the retirement decision (including SS), but if you walk through it slowly and carefully, you can usually anticipate most of the necessary inputs to make an informed decision.

Just remember one crucial detail. If you decide to retire to avoid any of the future changes to the variables described above, you MUST have all your paperwork physically at PERS by no later than November 30, 2021 with a retirement date of December 1, 2021.

Another One Bites The Dust

In my previous post "Wouldn't It Be Nice", I identified a bill introduced with bipartisan support (HB 2867), which would resolve the longstanding issue of residency mistakes introduced by the way PERS defaults to determining whether a retiree is eligible for the Income Tax Remedy. The bill had, as I noted, bipartisan support, would have no direct costs to PERS or to employers. For reasons only loony legislators can possibly understand, the bill has been stalled in committee for more than a month, and at this point is unlikely to make it to the finish line. Color me perplexed.

Note added 6/4/2021. It appears that elements of the old HB 2867 have been incorporated into HB 2875. This bill addresses some of the issues raised in HB 2867 and provides a fair bit more latitude to members who are disqualified from the Tax Remedy but don't learn of it until the first check of the new year (on or immediately after 1/1/20xx). The later bill provides a 3.5 month window in which an incorrectly removed Tax Remedy can be fixed. With the appropriate documentation, a retiree may have the tax remedy restored within 2 months of notifying PERS of the error and supplying the needed documents. Unlike HB 2867, HB 2875 does NOT provide for a retroactive restoration. This bill is moving through the normal legislative process and is much more likely to pass.