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Monday, April 17, 2017

The Gilded Palace of Sin

I have to confess that the title of this Flying Burrito Brothers album jumped into my head after seeing a color news photo of the Capitol Building in Salem with its gilded statue on top.  It also reminded me of the line from an old Gilbert and Sullivan operetta “nothing is ever as it seems”, or its modern incarnation as “objects in mirror are closer than they appear.”  So what is this all about?  I am not a believer in conspiracy theories, blind and willful ignorance, or plain incompetence (I do occasionally make exceptions).  I’m also not one to panic, for myself, or for others.  But, I have to confess that actions in the past week have given me new respect for the power of mean-spirited people, being pursued by an angry and worried crowd, to come up with magician’s tricks to fool people into thinking they’ve won a small (or large) victory, when they have, in fact, won nothing.

Since you all know that I write only about PERS (and recently only about the Legislature and its long history of trying to take benefits away from workers), I have been following the discussion (and contributing to it) regarding the Senate Workforce Committee and its unwillingness to confront PERS in more than a desultory way (I mean that; I take nothing from all the informational meetings except a complete unwillingness to do anything for or against PERS bills except to pick two bills and send them up, with all their attached amendment and without any recommendation, so that the Black Hole known as the Joint Ways and Means Committee can do their bidding in the absence of light).  I think this is a cowardly and unprincipled position, and I suspect there are some deeply hidden agendas being played out by leaders of both parties, the Unions, and a variety of other organizations who want money and don’t really care all that much how they get it.

That’s the background, but what’s new?  In the final analysis, after all the stürm und drang over PERS, two bills seem to have survived and will be forwarded without recommendation (the cowardly act) to the Joint Ways and Means Committee, where the action is done is less-than-public view.  The two bills, well-discussed in previous posts are SB 559 (unamended) and SB 560 (unamended, plus 10 [or possibly only 9, see below] amendments) that will be forwarded without any further discussion.

Last Wednesday, the Workforce Committee held its only public hearing where the public was actually permitted to testify on these two bills.  The primary objection was to the presence of an Emergency Clause in both bills, but especially in Senate Bill 560.  Unfortunately, the magician’s trick worked.  Eyes were distracted from the true problem, and like magicians working an audience, the members of the Workforce Committee promised to amend the bill (SB 560) to remove the Emergency Clause.  And they did in a single amendment numbered dash-15.  But like all magicians, the amendment removed the Emergency Clause from the original bill, as introduced, without touching the Emergency Clause in any of the 9 amendments in which it is replicated.  Worse still, either through willful deception, magician’s tricks, or distraction, the Committee did not grasp (again naivete is not an excuse for this experienced group of legislators), that the REAL problem was not the Emergency Clause (in fact, the Emergency Clause is actually necessary for reasons illuminated in multiple previous posts), but the lack of a date certain in the dash-3 amendment, and the section on the bottom of pages 24-25 of the Dash-10 amendment pertaining to the decoupling of the Money Match annuity rate from the system’s actuarially assumed interest rate.  In both amendments, this particular change is fomenting all the fear, uncertainty, and doubt, not to mention causing untold anxiety for near-term Money Match pre-retirees and leading to a mass exodus of people since the beginning of the year.  In both sections of these amendments, these changes, but NO OTHERS, are targeted to “…take effect on passage”.  All other provisions take effect on January 1, 2018.  With the emergency clause in, the “takes effect on passage” means that the section in question would become law the moment the bill is signed into law (i.e. anywhere from late May to Early July).  Removing the Emergency Clause changes nothing about those sections because the courts would have to decide exactly when the bill took effect.  

The problem could be solved simply by omitting the passage “…takes effect on passage” and inserting “…takes effect with retirements on or after January 1, 2018”.  So far, the situation is made even more complicated because the Chief Legislative Counsel, Dexter Johnson, issued a memo to the Senate Workforce Committee pointing out why taking the emergency clause out is a bad idea.  The reasons are virtually identical to those articulated here in multiple previous posts, in responses to individual emails, and in posts over on PERS Oregon Discussion (see link to left).  Without the Emergency Clause, PERS is prohibited from recalculating employer rates until on or after January 1, 2018, and litigants are unable to begin the legal process of contesting any element of this bill before January 1, 2018.  There are other reasons as well, but the long and the short of this is that the Emergency Clause is necessary so that the legal status of any of these changes can be largely settled by about this same time in 2019, while the Legislature is undoubtedly dealing with other budget issues.  So, after everything that happened last Wednesday, it is likely that the dash-15 amendment will die, the Emergency Clause will remain, and PERS members trying to sort through their options will be left in the same position they were in last Wednesday before the promise “…not to create a crisis or chaos”.  No one can convince me that members of the Senate Workforce Committee were so ignorant, so naive, and so patronizing that they didn’t know exactly what they were doing.  I’m sure they deliberately agreed to removing the Emergency Clause, knowing full-well that it would be put back for the reasons enunciated here, there, and everywhere.

I don’t think I have ever seen a more concerted campaign to distract attention away from the real problem with any bill as I’ve seen in the Senate Workforce Committee.  In the past, legislators were downright nasty to one another over bills as harmful as these; this year, I’m nearly in a diabetic coma from the sweetness of members on this committee who have polar opposite viewpoints on issues pertaining to budgets, PERS, and workforce.  This all suggests to me that Dems, Repubs, Unions, Employers, Oregon Business Council, organizations like OPRI, the PERS Coalition are all involved in many backroom, off-the-grid discussions of how to balance the budget, partly on the backs of PERS members both near and far from retirement.  And this all leads me to brand the Legislature of 2017, meeting under that gilded dome, the Gilded Palace of Sin.

Believe nothing you hear from a Legislator or a Union at this point in time.  Only when you see something in writing, in the form of a bill, an amendment to a bill, or a complete revision of a bill should you take words seriously.  Written words matter; talk is cheap.  So far, nothing said and certainly nothing written offers any assurance that what is proposed to happen will happen in any other way.  Let those words guide your actions.  Make no assumptions, accept no assurances.  It is time for all these people who have been offering vague assurances to put their words on legal paper rather than in in tweets, emails, or E-lerts.  Only when those words make it to bills that matter do any of those stupid assurances have any meaning.  Beware of Emergency Clauses, but beware even more of clauses that have no certain date in them, or bills being forwarded into a Black Hole with blanks where numbers should be.  If you take those assurances at face value, then you are a sucker, and you are playing right into the hands of the charlatans of the Gilded Palace of Sin.

Note added later:  As predicted, the Senate Workforce Committee punted both SB 559 and SB 560 to the Joint Ways and Means Committee.  The votes were both 3-2 in favor of referring without a recommendation.  Senators Gelser and Monnes-Anderson opposed sending either measure forward.  But, in a seriously bizarre twist, perhaps influenced by this blog, perhaps by the sheer number of panicked members, there were three new amendments sent up along with the original SB 560 and the already extant 10 amendments (including the one to eliminate the Emergency Clause).  Of the three new amendments, only Dash-11 and Dash-12 merit note.  While these amendments seem to be variations on the same theme, there are three elements of note in each:  (1) the elimination of the decoupling of the Money Match annuity rate from the system’s actuarially assumed interest rate (the whole section has just vanished); (2) the inclusion of a clear implementation date for all remaining provisions of the bill at 1/1/2018; and, as predicted (3) the restoration of the Emergency Clause.  It would be nice to claim victory or to offer assurances, but this isn’t the way life works.  The effect of this is simply to add more permutations and more combinations of ways in which Joint Ways and Means can choose to implement changes to PERS going forward.  As I noted elsewhere, it appears that we are nearly back a ground zero, with a new group of people to consider changes to PERS not necessarily based on policy considerations, but solely on the basis of how well the changes help balance the 2017-19 budget.  Since the Senate Workforce Committee made no choices, made no recommendations, Joint Ways and Means now has a Chinese menu of options from which they can select one from Column A, one from Column B, and give current and inactive workers an egg roll and a misfortune cookie.  Sadly, this offers those in the position of trying to time retirements to avoid the impact of these changes no guidance whatsoever.  Not only has nothing been clarified, now people are faced with nearly the same list of options proposed long ago by the Portland City Club (except the COLA change is now off the table).  The list of amendments reads like a recitation of that list of changes, coupled with the spaghetti theory of jurisprudence attached - we magicians of the Gilded Palace of Sin do hereby resolve to throw anything we perceive as legal up against the Supreme Court’s wall, and we will take whatever sticks.  It probably isn’t that bad, but it sure feels that way.  [This will be my last post before the end of April; nothing is happening and I’m leaving town.  I’ll be back before anything worth commenting on takes place].

Thursday, April 13, 2017

You Want It Darker (Part 2)

This post is not likely to make very many people happy with me.  But, I have to say that after watching yesterday’s public hearing on SB 560, I can say that PERS members (except two) did themselves in.  They allowed themselves to become victims by total apathy and disinterest.  The blame is shared with others, but I reserve most of my scorn for the members who will be directly affected by anything and everything in SB 560, in whatever form it becomes law — and it WILL become law, mark my words.  Only two active members testified yesterday.  Both were Tier 1 Money Match on-the-edge of retirement.  Both commented about the harm from the annuity rate reductions and made vague references to its timing from the dash-3 amendment and the dash-10, without either actually pointing out the language of the bill that is precipitating their angst.  (we’ll come back to this point in a minute).  There should have been 5, 10, or 20 people signed up to testify, and the room should have been packed with affected members.  Neither happened.  Inside the room, which was anything but full, were about 2/3 professional lobbyists, and the remaining third a mixed bag of people who may or may not have been affected by any of this legislation.  SEIU testified, and basically sold members down the river by urging the committee to move the dash-10 amendment forward.  League of Oregon Cities testified urging moving the dash-10 amendment forward.  AFSCME didn’t testify and may not have even had a rep in the room; OPRI was nowhere in evidence either.  The PERS Coalition certainly didn’t testify and I didn’t recognize the backs of any of their reps heads.  OEA was absent from testimony, OSPOA was absent, the Firefighters were absent.  In short, the testimony was insipid, basically useless, and certainly ineffective.

The one issue raised during discussion was the presence of the “emergency clauses”, and the committee agreed that “…it didn’t want to precipitate a crisis” and would consider removing the emergency clauses before sending the bills up to Joint Ways and Means on Monday.  But, the committee seemed oblivious to the function of the emergency clauses, and unaware that removing them is going to delay the process of resolving these matters before the Supreme Court and prevent the 2019 Legislature from cleaning up after any mess made by all of this (if there is any mess).  It was painfully obvious that no member of the Committee had bothered to read the dash-10 amendment, which we learned from commentary was NOT a Tim Knopp-originated bill, but was a product of a group of luminaries called the Oregon Business Council (which counts among its sponsors the four big Universities - UO, PSU, OSU, and OHSU - as well as my wife’s former private employer, and every major large corporation in Oregon).  This seemed to lend the dash-10 amendment a caché that brooked no criticism and near awe from members of the Committee and certainly the agencies and Union testimony. (Edit:  more than one person has suggested that they detect the fingerprints of former Labor Leader, Kulongoski staffer, Kitzhaber staffer, and Oregonian occasional columnist, Tim Nesbitt on the OBC dash-10 amendment.  I have no evidence one way or the other, but it is an interesting rumor about a labor traitor).

All that said, the Committee announced (in effect) that it was throwing up its hands on PERS, that it could come to no consensus on the bills or amendments, and that it would forward both SB 559 and SB 560 and ALL NINE amendments to the Joint Ways and Means Committee with no recommendation.  Only Senator Laurie Monnes-Anderson objected to this approach, feeling that the Committee was abdicating its responsibility for recommending policy to Joint Ways and Means - a budget committee that normally does not make policy.  This drew agreement from Senators Taylor and Gelser, but no change to strategy.  The form of what goes up remains to be seen on Monday.  Editorial amendments were promised, like taking out the emergency clauses, but a date with Legislative Counsel may change that when they realize what removing those clauses does to the legislation.  Again, they seem completely oblivious to the language pertaining to the decoupling of the assumed rate and the annuitization rate for Money Match retirements (and since dash-3 is still in play, other retirement forms as well if they involve a beneficiary or alternative payee or disability).  They seemed to want to provide a date certain (like 1/1/18) for the effective date of the changes and think that removing the emergency clause would do that, but I don’t see it that way unless either the dash-3 amendment is changed significantly, or somebody actually reads the language related to the same issue in the dash-10 amendment.  Again, the Committee seems to think the Emergency Clause itself is the issue, but that’s a red herring (read my previous post for an explanation of why the emergency clause is there).

So what makes this darker?  First, no effective representation of member interests in the ONLY meeting in which you would have been directly allowed to testify.  That signals apathy, and encourages malice (it sends a message of resignation to Legislators that PERS members are resigned to being screwed over some more).  Second, a complete abdication by the the Senate Workforce Committee whose function was to recommend policy changes, and it punted to Joint Ways and Means.  This empowers Ways and Means to literally do whatever they feel is necessary to make the budget balance, and PERS is a large component of their thinking about ways of balancing the budget.  No more likely public hearings; virtually everything in Joint Ways and Means will be done in closed session except possibly final votes or invited testimony.  The voice of critics has effectively been silenced, and control has passed from a policy committee that didn’t recommend policy to a budget committee concerned only with budgets but being given the opportunity to choose from a cafeteria menu of many expensive (to members) options without any constraint on committee members.  Oh, I encourage you to write to members of the Joint Ways and Means Committee to express your concerns, but I don’t expect those letters, emails, or phone calls to have much impact.

Anything that happens from this point forward will probably come as a surprise to all members.  While I had hoped that members would have something specific to target for Ways and Means, the complete refusal of the Senate Workforce Committee to take a principled stand on these measures, and the complete apathy of affected members have left the door open for any and all of the possible concepts introduced in SB 559 and SB 560 (and all its many and varied amendments) to become reality.

Moreover, there seems to be a cavalier attitude among many of either of two views:  (1) the Supreme Court will invalidate most or all of these; or (2) I can’t do anything about this because I’m not close enough to retirement to matter; I’m generally screwed.  With the possible exception of the $100,000 FAS cap (still there mind you), I see virtually all of the changes meeting the prospective test of the Moro Court.  So, depending on what ultimately comes out of Ways and Means, there is a high probability that much will be upheld as meeting the Moro standard of prospective.  As for those who say, I’m screwed, let me remind you that the graveyard of history is filled with victims who never raised their voice against the injustices perpetrated again them.  I’m not blaming the victim here, yet, but I do have to remind you that there has been an opportunity presented and then squandered.  From here on out, it becomes much harder to make the kinds of changes that might have happened in Workforce if there had been a more concerted effort to get out and actually protest the changes in real time.

So, the original “You Want It Darker” post a couple of weeks ago, has now become “You’ve got it darker”.  Remember, I’m only the messenger.

NB.  Even if the Senate Workforce Committee successfully removes the Emergency Clauses from everywhere in the two bills, there is nothing to stop the Joint Ways and Means Committee from adding them back if it means revenue sooner, or litigation resolved sooner.  In fact, I expect this would happen to facilitate getting the litigation started immediately.  Second, by making no recommendations, not only does Ways and Means have a cafeteria menu of choices, they could also gut and stuff either SB 559 or SB 560 or both to do whatever they wanted to PERS members.  Finally, and this may not be obvious, but from Monday forward, we will be in a nearly complete information blackout with Joint Ways and Means operating largely in the dark, leaving all members in the dark, leaving me in the dark except for the few inside contacts I may have.  Not only does this NOT REDUCE STRESS, it may actually INCREASE STRESS because now we will have little to no advance warning what is coming, and only the projected close date of the legislature of June 23 or the mandatory close date of July 8 to guide us.  As I’ve tried to say, you’ve now got the worst of all worlds while trying to make your decisions.  Tim Knopp’s assurances that “…we don’t want to precipitate a crisis” is meaningless.  Just remember that Betsy Johnson (DINO in chief) is a significant player in Ways and Means, and she was Knopp’s partner in crime in the pre-session PERS Workgroup with a particular animus towards inactive members (of which Dash-10 makes all dual ORP-PERS members the newest victims of Betsy’s animus).  (EDIT:  The dash-15 amendment, introduced 4/14 removes the emergency clause from the original bill, but retains it all of the amendments.  You are left to your own devices to figure out what that scam is about).

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.

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.

 

Wednesday, April 05, 2017

Flowers In Your Hair

It was time.  Today I changed the theme of the blog to a more modern look.  I’m still tinkering, trying to get all the various widgets where I’d like them.  So far as I can tell, everything that is supposed to be here is here, but it may take people awhile to get used to the new format.  Let me know in the comments what you like, what you dislike.  I can’t promise I’ll change it, but I plan to move some things around.  Plus ça change; plus la meme chose.

Saturday, April 01, 2017

Ain't Gonna Do It No More

Just a quick bit of news today.  In a tersely worded email to members of the Senate Workforce Committee, PERS Executive Director Steve Rodeman and PERS Consulting Actuary Matt Larrabee told the Committee that they were "sick and tired of answering the same questions over and over again from ill-prepared Committee members.”  They further noted that “… if the members would simply bother to read the Statutes and Administrative Rules, the answers to their questions would be self-evident and would save PERS time and money sending two highly compensated individuals to waste time with people who obviously don’t have the time and interest to do the job they’re getting PERS benefits to do”.  They concluded with the admonition to “…find your own flunkies to do your work.  We’re so done."

Sunday, March 26, 2017

Hey, That's No Way to Say Goodbye

Well, here we are two full months into the legislative session with not a single PERS bill having gotten a committee work session.  Most of the action is taking place in the Senate Workforce Committee, where Senator Kathleen Taylor has been running a very tight ship.  There have been four or five information sessions on various PERS bills with various experts and attorneys, but no work session scheduled on any bill through agendas posted for as late as April 3.  While it is too early to write these bills off, it certainly appears that few will survive this year’s legislature.  However, the most likely candidate is Senate Bill 560, which has already been substantially changed by gutting pages 2-16 of the original bill, and with 7 amendments replacing the gutted part.  The 6% pickup diversion is unlikely to fly, not because of constitutional issues, but because of union issues.  We learned from testimony on March 22, that SEIU has had language going back to the origin of the pickup (1979) calling for a salary increase to offset any requirement that the employee pay his/her own 6% from salary.  SEIU negotiated a contract in 2016 that has members paying their own 6% pickup, while the state gave a 6% raise to offset it, plus another 0.95% in cost-of-living increases.  We don’t know the status of other contracts, especially for local bargaining units, but likely has similar language in their contracts, or unions will use SEIU’s leverage to obtain a similar deal.  That leaves the FAS cap of $100,000, the five-year FAS computation (instead of 3), the totally confused idea to cap the annuity rate on retirement (I say confused because the clear intent of this is to limit the annuity rate for future Money Match retires, which are fewer and fewer in number, but the bill isn’t worded that way).  That drew a rebuke from Steve Rodeman, Executive Director of PERS, who cautioned the committee that they really didn’t want to go where the bill was heading, simply because annuity rates figure in all sorts of calculations.  He urged the Committee to work with him and Legislative Counsel to get the wording right; otherwise, the bill is courting difficulty.  Other pieces of the bill would cut the statutory formula rate (currently 1.67% for Tier 1 regular; 2% for P&F; ditto for Tier 2; lower for OPSRP) from its current level to 1.0% for general service, and 1.2% for P&F.  These are serious cuts, but would apply only to service performed on or after 1/1/2018.

 The theoretical “drop dead” date for bills to get a hearing is April 18, 2017.  Of course, there are a variety of parliamentary maneuvers that can extend the deadline all the way to sine die on July 8, 2017.  So, there is no reason to become complacent about the April date, although it may give some breathing room to those inclined to anxiety disorders.

People continue to ask me about “best” dates to retire.  I wish I could give a definite answer, but every situation is unique.  The only piece of SB 560 that doesn’t take effect on January 1, 2018, is the decoupling of the Money Match annuity rate from the assumed interest rate.  That piece is currently structured to take effect on passage, which could be anytime after May 1, 2017.  But that particular piece requires redrafting to remove the complex language that Rodeman warned against; that will require time.  Taylor and Knopp (committee vice-Chair) have agreed that they have to make decisions about bills to move to work sessions within the “…next three weeks”.  But complicating (or not, depending on your viewpoint) their decisions are some hard political realities.  After 2013, the Democrats don’t want to be tarred with another failed attempt to reform PERS.  In 2013, they sold their souls to the devils, Kitzhaber and the Rs in the Legislature, to achieve two different objectives - reforming PERS and providing small business tax cuts.  The Ds favored the former; the Rs the latter.  The “Grand Bargain” was struck when those two pieces secured enough opposition votes to pass both.  Unfortunately, the PERS cuts were largely overturned by the Supreme Court, while the latter quietly got lost in the shuffle and now add to the state’s growing deficit.  The Ds learned their lesson from that experience, and aren’t likely to agree to more PERS cuts without the Rs coming along with them on measures to raise revenue (some sort of Corporate tax), and also a transportation package to fix Oregon’s crumbling roads and highways.   The PERS bills are all R bills this time; they can’t pass without a couple of Ds going along.  To get out of committee, SB 560 needs all Rs and at least one D.  To pass in the House, all the Rs have to go along, and at least 4 (or 5) Ds have to go along, as well as the Governor.  But, those votes won’t come without R cooperation on the two big D objectives this session.  There will be a lot of back room deals being cut.  The reason for this extended sojourn into the political theatre, is to underscore how hard it will be to handicap the likelihood of PERS reform passing in the absence of these other pieces.  Thus, if you think you are going to retire under Money Match (remember, this isn’t YOUR choice; PERS chooses the best outcome for you), you may want to give serious consideration about going no later than May 1, 2017 (right now potential FF retirees aren’t protected under the current version of the 560-3 amendment, but we are optimistic this will change once Rodeman and LC get involved with the committee) because of the possibility that SB 560 will pass into law between May 1 and July 8 (no predictions offered there; you are on your own).  If you KNOW you aren’t going to retire under Money Match, then it is probably safe to wait until after the Legislature adjourns but not any longer than December 1, 2017.  If you are in doubt, be sure to do, at least, the PERS online estimator.  You might be surprised.  (It goes without saying that the PERS Coalition intends to litigate any changes; but this will present somewhat of a generational conflict, since many of the changes will affect younger OPSRP workers much harder than the “lame duck” Tier 1 and Tier 2 members).

To cap this epistle, I recall a line uttered by Senator Laurie Monnes Anderson (D) when she remarked that “…I guess the best thing would be for Tier 1's to die”.  She regretted it the moment it came out, but it is an unspoken truth, so those of you who are Tier 1 (retired or otherwise) now know how the Legislature really feels about you.  And I say, longevity and health are the best revenge.  Or in the words of Chris Smither, “hey, that’s no way to say goodbye”.

 

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.

 

 

Thursday, March 02, 2017

Rough God Goes Riding

This is just a quick note to alert affected PERS members that SB 913 has dropped.  This bill, introduced by one of the dynamic trio (Moe, Curly, and Larry)  of Central and Eastern Oregon legislators, attempts to throw just about everything against the wall to see what sticks.  In addition to duplicating HB 3013 on the assumed interest rate, this bill goes after issues related to vesting and inactive membership, and just to put the icing on the cake, makes some changes to OUS Optional Retirement Plan that makes sure that the pain is shared amongst all eligible public employees.  I haven’t had time to analyze this bill closely.  I’ve read it briefly, and the Warren Zevon line:  “…send lawyers, guns and money, the shit has hit the fan” is apt once again.  Warren anticipated just about every circumstance (except for Send in the Freaks, which is a Was/Was Not epistle).  All I can say to people is that most of the cards are out on the table.  If you stay voluntarily past April 1, 2017, you are taking a chance.  Don’t say you haven’t been warned.  The Rs in the Legislature are doing a full-court press on the Ds, and the Ds don’t have the votes to override a Governor’s veto.  So, be afraid, very afraid. (There is some confusion over this statement.  Consider this primarily in the context that the Ds also don’t have enough votes to pass any revenue measure without Republican support, and the quid pro quo for that support might be support for a or some PERS measures.  Hence, the problem with a Governor veto).  For those of you stuck past April 1, 2017, you have my sympathy, and hope that you will work really hard to help the Legislature understand that Ballot Measure 5 (1990) is the REAL ENEMY here, having given citizens one of the highest personal income taxes in the nation, a mediocre property tax, and businesses a nearly 30-year holiday against paying their own way in this state.  I’m hoping that our rough god does his work on Don McIntire (already deceased) and Bill Sizemore (one can hope), for gifting this state with the biggest, smelliest turd ever.  I pray nightly that their souls will burn in hell for eternity.  They’ve given Oregon the gift that keeps on taking and taking and taking.

Wednesday, March 01, 2017

Gentle On My Mind

There seems to be some confusion about the recent spate of posts about proposed changes to PERS.  To gentle the minds of those already retired, none of these bills propose to do anything to anyone already retired, or to anyone retiring before any of these bills are enacted (if at all).  So those of you already retired can spare your anguish, and return to your (hopefully) relaxing retirement.  All these bills target those still working and those not working for a PERS agency, but not yet retired.  While I think that targeting the next generation to pay for our retirements, it really is no different than Social Security.  It isn’t fair, but it is life.  I oppose it on principle, and will fight like hell to keep any of these obnoxious bills from taking effect, but the reality is that there is no other way to pay for PERS without a general tax increase aimed at businesses that have gotten away with tax murder since the passage of Ballot Measure 5 in 1990.  As far as I can tell, payback for those businesses is a bitch, but it is necessary.

Tuesday, February 28, 2017

Lawyers, Guns, and Money 2

Warren Zevon always had an excellent ear for music, irony, and social commentary.  Zevon’s observation fits perfectly with today’s referral of House Bill 3013 to the House Business and Labor Committee, which motivates this post.  Much of the content has already been included in emails to the bill's chief sponsor, Rep Gene Whisnant, one of a trio of ALEC-supported,   Bend area legislators responsible for the spew of anti-PERS member legislation sclerosing the Legislative pipeline this year.  HB 3013 is a deceptively simple bill that effectively decouples the interest rate used for valuing the fund, setting earnings on investments for Tier 1 members and Employers, from the annuity rate used in actuarial tables to compute benefits for retiring members.  In short, the annuity rate would be approximately halved relative to the assumed rate, which would have the effect of severely reducing money match benefits, and all beneficiary forms of Full Formula and Formula plus Annuity.  There is but one exception to this bill left unstated, and it is to that exception that the rest of this post is devoted.

 

My major worry over previous suggestions to decouple the assumed rate from the pension earnings rate was that it would target only Money Match members.  I knew that this method would violate contract provisions, state statutes, Oregon Administrative rules, and very possibly the Internal Revenue Service's basis for qualifying the plan. Because PERS gives Tier 1 and Tier 2 members the "best of" comparison in determining their method of retirement (Money Match, Full Formula, and Formula + Annuity for the small number of members still eligible), those benefit comparisons must be based on "Actuarial Equivalency".  To change the annuity earnings rate only for Money Match would destroy the basis of actuarial equivalency, which would violate the contract, state statutes, and IRC code.  It appears that HB 3013 attempts to evade this problem by changing the annuity earnings rate for ALL forms of retirement methods (Money Match, Full Formula, Formula Plus Annuity).  That MAY take care of the statutory, contractual and IRC problems, but reveals a fatal flaw in the bill that would be exposed if the Actuaries were ASKED to consider employer savings for any range of scenarios instead of using only past behavior of PERS retirees.  Let me explain below.

 

Taking the bill's assumptions, its effects would be to virtually eliminate the Money Match comparison for all but a few PERS retirees (mostly the long inactive).  In effect, this bill would push the vast majority of future Tier 1 and Tier 2 retirees to the Full Formula.  This won't be by choice, of course; it is a natural consequence of devaluing the Money Match benefit compared to Full Formula.  And this is where the complication emerges.  The calculation of Full Formula depends on only 2 variables and 1 constant:  Final Average Salary (however it is computed), years of service, and a multiplier depending on class of service (General Service 1.67% per year; Police, Fire, and Legislature and Judges - 2.0% per year service).  What this calculation yields is the Option 1 benefit (no survivor option).  This is the highest Full Formula benefit any member can receive; any optional benefit forms all derive from this base benefit.  Notice that no mortality figures into this calculation, no interest rate, no assumed rate, no annuity formula.  Thus, nothing external to this Formula can change this, except for changes to the calculation of FAS and possibly the multiplier, but those can only be prospective while the previous rates are locked in statute.  For anyone retiring in the next year or so, the changes to the multiplier and computation of FAS will have minimal effect.  

 

So what you might say.  Weigh that against the stark reality that there are more than 70,000 active and inactive members currently eligible to retire.  What this proposal does not anticipate, and the actuaries probably haven't seriously considered is that human behavior can play a considerable role in tilting the odds against some or most of the possible savings of this bill.  Recall the Option 1 benefit (no survivor option).  The reasons most people don't choose this option are twofold:  1) they don't want their spouse to lose access to their benefit should they die; 2) keeping the annuity rate the same as the assumed rate provides reasonably priced "insurance" for the surviving spouse.  Decouple the two rates, reducing the annuity rate relative to the assumed rate, will increase the cost of the "insurance" for adding the beneficiary.  This can already be seen as an effect of lowering the assumed rate twice in the past four years, with another reduction probable for January 1, 2018.  So, what are current retirees doing?  I'm encountering more and more retirees choosing the Option 1 benefit and purchasing a relatively inexpensive term insurance policy on themselves to cover themselves against early death so the spouse is taken care of through an insurance or annuity program that is cheaper to finance than taking out the "insurance" on an Option 2, 2a, 3, 3a, 4 settlement.  Here's the rub.  If you decouple the annuity rate from the assumed rate, I anticipate that more and more people will consider taking Option 1 instead of the actuarially-affected and tested versions of Option 2, 2a, 3, 3a, 4.  Thus, instead of saving employers money, every employee who selects a Full Formula Option 1 benefit is unaffected by changes in the annuity rate or the mortality tables.  But, to the employers, this is the most costly option for an employee to take because PERS will require the employer to deposit cash to cover the cost of making up that employee's Option 1 benefit but using a lower earnings rate on which to base the contribution.  Thus, instead of saving employers' money, this will cost them even more, as if no disconnection occurred at all.  If large numbers of members start taking this Option, it will show up quickly in PERS' experience data, and downstream, employer rates will start to rise in direct proportion to the degree of disconnect between the actuarial rate and the assumed rate.  This is, of course, the exact opposite of what this bill hopes to achieve. I expect that any savings this bill might create will be ephemeral, and be totally negated by employees discovering the potential value of the Option 1 benefit.

 

A corollary problem exists with the Lump Sum Settlement.  Again, a Full Formula lump sum consists of employee contributions to Tier 1 or Tier 2 accounts plus a an amount required to generate the present value of the monthly benefit taken over the expected life of the member.  But the low earnings rates that gets factored into the employee lump sum means that the expected contribution from the employer has to be considered to be what it would take to generate the monthly Option 1 benefit, but under decreased earnings assumptions.  Thus, the cost to employers for Full Formula Lump Sum settlements will be higher under the reduced annuity rate than they would if the annuity rate and the assumed interest remained coupled.  The logic here is exactly the same as why a lowering in the assumed interest rate requires employers to contribute more to the system.

 

I welcome your thoughts on this matter.  I think you will find that if you ask PERS or ask its actuary to consider a scenario where increasing numbers of members choose the Option 1 Full Formula benefit, or the Total Lump Sum Settlement under Full Formula, that they will concede my points.  Obviously, these scenarios would not follow the current pattern of PERS retirees, but we are no longer living in obvious times.  When stressed, humans have an extraordinary capacity to adapt, and one significant adaptation would be to choose a different payout method for receiving their PERS benefit.

 

There are certainly some flaws in my argument.  The most obvious one is that some members will not be able to get affordable term insurance to offset the beneficiary concern.  Second, a no-beneficiary option requires spousal consent, which may be uncomfortable for some.  Nevertheless, I think this bill will expose some real flaws in the logic and estimates behind the bill's formulation.

 

 Bottom line though is this is a very BAD bill that could be far more harmful to far more people than anything otherwise proposed so far.  To quote the full context of the late Warren Zevon's borrowed title: "...send lawyers, guns, and money, the shit has hit the fan."  Indeed!   (Oh yes, one more turd-blossom in this offensive piece of legislation.  It would take effect on passage, so anyone not yet retired on the date this bill were to be passed, assuming the Governor would sign it - a slim likelihood, would be trapped by it.  This bill has a long way to go, but if you were thinking about retiring, my advice would be sooner rather than later with this bill now in the pipeline.)

Friday, February 17, 2017

Stranded

Leave it to the Rs in the Oregon Legislature to come up with a do nothing, save nothing bill concerning PERS.  In a particularly mean mood, SB 791 was introduced yesterday.  The bill effectively ends the current 1039 hour per calendar year post-retirement work limit for PERS retirees.  Instead, the bill requires an employee to be fully retired from the employer for 6 months before he or she can be hired back in a part-time capacity.  While this is the SOP for private employer pension plans, it hasn’t been a feature of public employer plans.  I presume the reason for this bill is to “end” what some see as “double dipping” - a misnomer if there ever was one.  In fact, I can’t see employers happy with this bill because it may well cost them more money rather than less.  In common cases, an employee who is hired into a 1039-hour position after retirement possesses some unique skill that either isn’t easy to recruit for, or isn’t easy to train a new person into.  The role of the retiree is to help train a new employee assume the duties of a retiree who possesses a unique skill set.  Under the 1039-hour rule, no benefits are paid, no contributions made to PERS, and usually (though not always) no health care benefits. If employers are required to wait 6 months before they can hire a retiree back, how then are they to train someone is a hard-to-fill, hard-to-learn position that is essential.  Obviously this isn’t always the case; indeed, it may describe only half the cases.  Instead, what is going to happen is that employers are going to have to hire replacements before the essential employee leaves, and do the training simultaneously.  This results in double salary and benefits, certainly not a savings but an added expense.

To add insult to injury, this bill does not have a date certain for a starting date, instead stating that it covers any employee still active after the bill is signed into law.  So, while you’re being distracted by the effects of SB 559 and SB 560, which both would take effect on January 1, 2018, you can end up being stranded by this bill, which serves to prevent you from moving out of an agreed upon retirement plan into a brief period of part time employment with no interruption in payroll.  

The worrisome aspect of this bill is that it appears innocuous on the surface, will have broad public support as appearing to do something that it doesn’t really do, it has a possibility of slipping through the cracks and passing since it is targeted primarily at a relatively small sample of those on the cusp of retirement.   Since it obviously does not prevent reemployment of retirees, just puts a significant delay in their path, the bill will neither save money or will it do anything to address whatever ails  PERS.

One final, curious, note.  This bill completely removes the hour limitations on work for a public employer after retirement, provided that three conditions are met:  1) the employee must have spent a minimum of 6 months retired and off the payroll of any public employer; 2) if you are receiving Social Security prior to reaching normal Social Security age (i.e. between 62 and 66), the earnings limit is constrained by Social Security earnings rule (lesson:  if you plan to go back to work after retirement, don’t start drawing Social Security until you’ve fully stopped working); 3) if you are at least normal Social Security age (i.e. 66 or 67 depending on birth year), you can work as much as you want without any earnings limitation.  The only real change is with 1) as the other limits have been more or less in effect since the 80s.  What this bill does is to remove all of the exceptions now in the statutes that permit certain people to work more than 1039 hours if they live in places with certain demographic characteristics.  But then see 1) above for the important caveat.  The rule does not envision exceptions to 1), which happen to be the reason the original set of exceptions were introduced.

Thursday, February 09, 2017

Walking the DINOsaur

Leave it to the group Was/Was_Not to write my blog title for me today.    Today, my post is about Senator Betsy Johnson’s(DINO, Scappoose) fixation and preoccupation with “inactive” PERS members.  In several hearings before the Senate Workforce Committee, where Johnson has insinuated herself as a non-voting, but vocal, member she has asked both Steve Rodeman and attorneys Greg Hartman and Bill Gary about why “inactives” can’t be paid, what sounds like, zero interest on their “inactive” balances.  Bill Gary wrote an op-ed on something along these lines in the Eugene Register Guard about two years ago.  In Gary’s telling, he was flabbergasted that a 5-year UO Professor who moved on to another position, and then at retirement some 25 or so years later, ended up with a higher benefit than a public school teacher working for 30 years.  In effect, that’s our DINO question, but put more bluntly.  Why do we have to keep paying earnings on these people’s money when they aren’t doing anything to earn it?  Folks, the answer to this question revolves around the concepts of “vesting” and “accrued benefits”.  To understand what these mean, let us compare the circumstances of an “inactive” member with that of a member who didn’t work long enough to be vested.  Currently, and for as long as I can remember, one has to work for 5 years at more than 600 hours per year to be considered vested.  (I don’t know if years are prorated based on time worked during the year; for simplicity, we are going to assume 5 full time years).  An employee who terminates employment (or is terminated) before vesting has NO (zero, none nada, zilch) options about what to do with employee contributions and earnings to PERS.  They cannot keep the money in PERS and they are entitled to no benefits.  The money can be cashed out, subject to a significant tax hit, or rolled over into another qualified plan, including a rollover IRA.  The employee has neither the expectation of, or entitlement to, any employER contributions.  So, at the magic 5 year vesting point, an employee becomes a vested member in the Public Employees Retirement System (PERS).  That vesting entitles them to leave their employee account open, continue to draw earnings on it (because PERS is using the money, and there is a price for that), and to receive benefits that include the employer contribution matched in whatever way the vested Tier requires.  This is a really important concept to grasp.  In order to secure the “accrued benefit”, the member must have a PERS account at the time of retirement.  At retirement age or after, that member is entitled to receive a retirement benefit based on all the contributions in and earnings from his/her account, PLUS the employer contribution that produces the highest legal benefit for that employee.  PERS does not allow an inactive member to “cash out both employee and employer contribution", EXCEPT AT RETIREMENT.  Were this allowed, we wouldn’t be having this discussion.  But Senator Johnson MUST understand that “vesting”, “inactive” and “accrued benefits” are tied together in a neat little Gordian knot that can’t be untied without making some major changes to the plan.  And, the only change that could be made would be to give “inactives” the opportunity to cash out of the system at the FULL VALUE of their benefit at the time of withdrawal (that means the equivalent of a total lump sum settlement that can be rolled into another retirement vehicle and annuitized using whatever rate the individual can secure).  This would have to be optional, not mandatory.  This, folks, is not rocket science but the “accrued benefit” is fully defined in terms of the existing PERS Contract, “vesting” is defined, and the conditions required of an “inactive member” have all been defined in statute.  The only option is to change the statute to allow the full cash out for inactive members at a time of their choosing, or to allow them to continue to accrue earnings on their investment until they decide to retire.  

In 2003, the Legislature tried to incentivize “inactives” to withdraw from the system.  What was offered was a pittance - 150% of their individual account balance.  The offer was open for, at most, 18 months and very few people took advantage of it.  The reason should be obvious.  Why would you willingly sacrifice 50% of your employer match when you could leave the funds in the system and get 100% of the match earning, at that time, 8%?  This tactic was a failure.  Nothing short of a total lump sum settlement would ever satisfy a vested, “inactive”, Tier 1 member, nor is it likely to satisfy a vested, “inactive” Tier 2 member.  Moreover, even if Senator Johnson could suddenly figure out a legal way to implement a rate cut (to zero) for inactives, the savings to the system would be minuscule.  Why?  Because virtually all remaining Tier 1 inactives are probably at or very near retirement age, and they could simply pull the plug before implementation.

So, here’s my message, if it isn’t obvious.  Senator Johnson:  “there is no way to get there from here.”  Walk away from this idea before you look really silly.  Losing in court would be an expensive proposition for the State, and the savings absolutely trivial in the process.  Take this DINOsaur and walk it straight to bed.

Monday, February 06, 2017

The Show Must Go On (and on and on, Long Post)

Rumors of my demise, my death, my apathy have been greatly exaggerated since my last update in August 2016.  Fact is, nothing I said in August was ever superseded by later or more informative news, and so I’ve had little to say publicly about PERS (I’ve said lots on the private forum, Pers Oregon Discussion, see link on left).  Now that the political circus is back in town, the tents set up, and all the clowns are meeting with their clown faces on, we have something to discuss.

On Wednesday February 1, the 2017 Oregon Legislature convened for its long session in which thorny issues like the state budget, transportation, health, and, of course, PERS are on the agenda for their needs and for their contribution to the State’s apparent $1.8 billion budget shortfall.  This year, most of the action will take place in the Senate’s Workforce  Committee, chaired by freshman Senator Kathleen Taylor(D, Milwaukee), and vice-Chair, the estimably malign Senator Tim Knopp (R Bend), who is back for is second swing at the piñata, after contributing to the 2003 wreckage.  The Committee is also ably “assisted” by Senator Betsy Johnson (DINO, St Helens), who is not even a member of the committee.  In the opening salvo, the Committee heard a very long presentation from Steve Rodeman, Executive Director of PERS, on the financing of PERS, as well as the demography of its current membership.  At the end of his presentation, Rodeman presciently noted that “…The PERS situation is driven by math; as an agency director, there’s little margin in having an opinion about math”.  Indeed!!!

Prior to convening the Legislature, Senators Tim Knopp and Betsy Johnson convened a “Working Group on PERS”.  Ostensibly it was convened to flesh out ways in which the existing $21 billion unfunded actuarial liability (UAL) might legally be reduced.  The committee, composed of experts and interested volunteers, had two meetings - one in September and one in December.  Members of the group thought that their input would be sought when legal issues and all of the corollary issues related to reforming PERS (“race to the door”, loss of institutional memory, effects on agency recruiting, etc, as well as the actual budget impact)) would be hashed out.  In fact, nothing of the sort occurred, and after the December meeting, Tim Knopp and most of the Republican Senate caucus dropped two bills on the Legislature to be introduced at the beginning of the session.  Those bills, SB 559 and SB 560, cover a fair bit of ground and relate to some, though not all, of the ideas I discussed in my previous post in August.  Let’s go through them seriatim.

SB 559 covers the period of time used to compute the Final Average Salary (FAS) that is the benchmark for Full Formula (FF) retirement.  The bill has an emergency clause* and is set to begin on 1/1/18.   FAS is also the measure against which the Money Match (MM) retirements are compared.  This is the metric used by those hysterical newspaper headlines shrieking about those relatively few members who were able to retire at more than 100% of their final salary.  Currently, FAS is based on the highest three years of a member’s final ten years covered employment.  Usually, but not always, those are the last three years in a member’s career.  SB 559 proposes to change the time period from the  three years to the FIVE years.   It is estimated that this would reduce the UAL by about $700 million and reduce employer rates by about 65 basis points in 2017-19.  This is a tricky proposal.   Its purpose is to dilute the FAS used to calculate the benefit under Full Formula (Tiers 1 and 2, OPSRP).  Recall that the formula involves total years of service, a multiplier for each year of service (1.67% of FAS for Tier 1 and 2; 1.5% for OPSRP), and FAS.  Option 1 (the highest benefit possible without a beneficiary) is the starting point for these calculations.  Thus, a 30 year, Tier 1 member can earn 50% of FAS.  So anything that reduces the FAS will have the attendant effect of reducing the benefit since FAS is the only variable in the equation - years of service being measurable and constant for any individual and the multiplier being set in statute.  Of course, FAS is also influenced by other variables besides how many years the average is computed over.  Adding to FAS for Tier 1 and Tier 2 is accrued sick leave (for participating employers) and the value of accrued vacation time.  Another factor that can drive up FAS is the acquisition of overtime pay for those eligible.  SB 559 ONLY deals with the time period for the multiplier; SB 560 has other interrelated effects.  The bottom line is that spreading the salary over five years has a tendency to lower the FAS since the actuary uses a 3.5% salary multiplier to calculate expected salary.    An example will illustrate.   Suppose a member is earning $50,000 in calendar 2014 and can retire with 30 years at the end of 2018.  Salary in 2015 is $51,750; 2016, $53561; 2017, $55436; 2018, $57376.  Leaving aside other additions to the totals, the basic FAS under the current rules would be based on the sum of the last three years: ( $53561+$55436+$57376)/3 = $55458, with a benefit of $27729 (with rounding).  Under SB 559, note the change.  FAS = ($50,000 + $51750 + $ 53561 + $55436 + $57376)/5 = $53625/2 = $26812.   So by taking the average out over 5 years, the simple FAS is reduced by almost $2000 and the benefit reduced by nearly $1000.   Since the average state and school district employee salary is $56,028 (Rodeman’s presentation on 2/1/17), our example isn’t very far off the mark.  Assuming the salary growth assumptions are correct, this gives a pretty good idea of how much of an impact this could have on all employees retiring under FF and Formula + Annuity (although the effect would be halved for these).  I once thought the salary assumption was way off until I calculated my own average rate of salary growth.  While it didn’t increase linearly with time, the difference between my starting salary and my retirement FAS followed an average 3.5% growth trajectory per year.  However, my final three years’ salary were nearly identical, which illustrates how off this set of assumptions can be if you focus only on a specific group of years.  Many employees reach salary plateaus near the end of their careers and the growth trajectory ceases to follow the normal pattern.  I’d be surprised if the savings from this change are as much as the actuary projects.

SB 560 is much deeper, more harmful, and worth more detail.  The essence of SB 560 is to redirect employee contributions (the 6% paid currently into the IAP) into a another fund (a second IAP-like fund?) dedicated to the pension costs for the employee (the FF, MM, or F+A) beginning January 1, 2018.  It also forbids employers from paying the “pick up” on or after 1/1/18.  The second piece of SB 560 is to place a cap on salary used to compute FAS at $100,000 beginning 1/1/2018 (see SB 559 also on how this impacts).  This bill also has an emergency clause* that takes effect upon passage.  Both bills are referred directly to the Oregon Supreme Court for adjudication.  

On the face of SB 560, the redirect appears to be “wage theft”, clearly illegal.  On closer inspection, however, the structure of the second “individual” account is such that it still belongs to the employee. If the employee ceases service for a PERS-covered employer before reaching retirement age, the member can go inactive until retirement age and the second “individual” account (the redirected 6% plus earnings and/or losses) will be used to offset the pension costs (i.e. FF or F+A, or conceivably MM in the case of Tier 1 or Tier 2).  The current IAP will be frozen as of 12/31/17 and will only accrue earnings from here on out.  If a member chooses to withdraw completely from the PERS system before retiring, they would be entitled to the balance in their Tier 1 or Tier 2 account, the IAP, and the second individual account.  No employer contribution is made in this case.   In the case of OPSRP members, there is no “member account” in the same sense of there being a Tier 1 or Tier 2 account.  The OPSRP member would have two individual accounts - the IAP (which is supplemental to the pension), and the post 1/1/18 individual account that would be applied toward the cost of the pension portion of the Defined Benefit of OPSRP (a formula-based pension).

The wild card in this portion of SB 560 is the prohibition, beginning 1/1/18, of employers “picking up” the member contribution.  While this certainly could be a negotiating tactic, the “pick-up” itself is a subject of collective bargaining and cannot simply be turned off by legislative fiat.  I presume that the intent of the bill, although this is nowhere clearly stated, is that this becomes the mandatory condition as collective bargaining contracts expire after 1/1/18.  Regardless of its interpretation, the only way this ends up saving employers any money is if all the money contributed is diverted to offset pension costs in the future, and that the employers do not incur offsetting expenses in exchange for having to discontinue the pickup.  To be completely revenue neutral to the member, the 6% member contribution currently paid for by employers would have to be added to the base salary of the member and then deducted, pre-tax, from the employee’s check.  That would be the only way this would not be “wage theft” as far as I can tell.  Of course, my legal opinion is worth what you pay for it - bupkis, nada, nothing - as I am not a lawyer.

The $100,000 cap on FAS beginning on 1/1/18 will end up saving money only for those employees who are slightly over the $100,000 FAS near retirement.  Those who are significantly over the $100,000 FAS after 1/1/18 still have either the 3 highest or 5 highest (see SB 559) years to use in computing their FAS.  The bill only says that the FAS will be limited to $100,000 for years beginning on or after 1/1/18, so members in the higher salary brackets will simply end up using other years for their FAS calculations.  Once out beyond 5 years or so from 1/1/2018, this bill will start to have a serious impact.  It will have an immediate impact on recruiting high-salaried professional into management positions, into Professorial and Administrative ranks in Higher Education, and in recruiting for positions at OHSU’s Medical School and Dental School.  Worse still, however, is that $100,000 is an unrealistically low threshold with neither an inflation adjustment, nor a recognition that the current average salary in the PERS system is approximately $56,000 per year.  Since the actuary uses a 3.5% per year salary multiplier, it would take the average member who receives no other adjustment other than the multiplier per year, less than 18 years for the average salary to be over $100,000.  This comports with Steve Rodeman’s testimony on 2/6/16 to the Senate Workforce Committee that a potential “unintended consequence” of this legislation, for example, would be to push the average salary over $100,000 in 20-25 years.  

Needless to say, both of these bills contain plenty to piss active members off.  Public testimony opens on these bills on February 13, 2017, and I expect there to be considerable argument both for and against them. I urge readers who can attend to do so.  Testimony on real impacts of these bills would also help. [Added 2/7].

One other feature of these pieces of legislation.  While both refer any legal challenges directly to the Oregon Supreme Court, which makes the resolution doable in about two years rather than four, both bills prohibit the Supreme Court from awarding legal fees to the winner.  This is a direct fiscal challenge to the PERS Coalition and any individuals seeking to challenge separately.  In the past, attorney fees have been awarded to the winners (i.e. PERS Coalition through Bennett, Hartman, Morris and Kaplan LLC).  This served to offset legal expenses of the PERS Coalition acting on behalf of all of its participant members.  Under these new wrinkles in the bill’s initial language, win or lose, the expenses will be borne by each party to the case, with no chance of recovering them in the event of a win.  This is both diabolical, and probably (at least in my opinion) illegal.

As more information about these and other proposals emerge, I will update this post, or post a new one.

 

*Emergency Clause does not affect the implementation date of either bill.  That is firmly established at 1/1/2018.  However, by making the bill effective on passage, the legal process or sorting out whether the bill(s) violate contracts, the Oregon Constitution, or the US Constitution, as well as collective bargaining agreements (???), can start immediately after the bill is effective, not on its implementation date.  

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.