Do You Think I Really Care?

PERS is notorious for making some totally mystifying decisions.  The latest mystery is why PERS is NOT going to give those retirees already in payback mode, the option of switching to the newer system adopted for later retirees.  Back in 2006, PERS made its original (bad) decision to permit retirees two options for paying back monies owed due to overpayments between 2000 and 2006 from 1999 earnings crediting.  PERS gave retirees the option of either an Actuarial Recovery Method (ARM) or repaying the entire balance in a lump sum.  The ARM took the member's balance due, computed his/her actuarial life expectancy and divided the balance by the number of months the retiree was still expected to live.  This became the ARM amount.  The catch with this method is that there never was a mechanism in place to stop the payments after a member had fully repaid his/her debt.  Thus, the mechanism was designed so that longer-lived retirees (and their beneficiaries) would subsidize the accounts of shorter-lived retirees.  This proved to be immensely unpopular, although the repayment amounts were typically so small that retirees didn't ever bother to complain too much about it.

Once the Supreme Court ruled that PERS could begin collections again, OPRI, the PERS Coalition, I, and many others began to petition PERS to come up with a more reasonable method that would insure that retirees paid no more than they owed.  This led to a higher repayment amount, but over a shorter time period and with the certainty that members would pay what they owed and no more.   I expected, perhaps naively, that PERS would offer the same deal to retirees already under a payment plan using the ARM.  To my surprise, and many retiree's chagrin, PERS does not currently plan to make the new payment plan available to any member already under the ARM.  This is both unfair and also contrary to PERS' objective of recovering the money faster.  It is unfair because it saddles retirees under the ARM with the continuing burden of repayments for an indefinite period of time.  They risk paying significantly more than others, although at a much reduced monthly amount.  I fail to see how this is an equitable treatment of people who, for no other reason than pure bad luck, had the misfortune of being billed before Judge Kantor issued his original restraining order.

PERS' rationale is that they didn't plan for the "extra" work required to (a) turn off the ARM and calculate a retiree's current balance, and (b) turn on the new method that takes a minimum of 2% per month.  I have no idea how many people are affected by this, but I don't imagine it is very many compared to the number of people who will be placed under the current repayment system.  There are 28,000 members affected by the new repayment system.  It is estimated that there were approximately 35,000 "window retirees".  So, assuming all of the ARM'd retirees are still living, or have living beneficiaries, we are looking at no more than 7000 people.  PERS has a brand new computer system and it is hard to imagine (at least for me), that programming their database is that difficult.  Presumably, it is a variant of Oracle or mySQL or something common like that.  A good programmer armed with the structure of PERS' database ought to be able to cobble up the code to make the necessary adjustments in an afternoon and test it out fairly thoroughly the next day.  Even if PERS does the calculations with a spreadsheet, we are not looking at THAT many calculations.

I basically don't buy PERS' current excuse for not offering the new system to members repaying under the ARM.  PERS has asked the legislature for 3 limited duration positions to handle the initial calculations for the affected 28,000 members.  I wonder how much PERS will save by not doing this compared to the cost of defending themselves in litigation complaining about the inequitable treatment of retirees in the same class.  Somehow, I think this falls into the category of "penny wise, pound foolish."

Right Down The Line

There are lots of questions about how PERS will implement the recovery of monies owed by "window retirees".  PERS has tried to answer these as best they can in their FAQ posted at the PERS website.  One recurrent theme in the discussions surrounding the repayment is the fact that members want flexibility to repay PERS at higher than the minimum 2% of gross benefit that PERS came up with.  But, in wanting flexibility, window retirees seem to want to have it both ways - flexibility to increase the amount of the payment in good times, and the flexibility to reduce the payment back to the minimum in harder times.  While I know that PERS will consider these arrangements on an individual basis, I think it prudent for those affected by the repayment to consider agreeing on an amount - 2% up to 10% of gross benefit - as permitted by ORS 238.715, and sticking to the payment amount they decide on.  It is not PERS' obligation to permit "window retirees" to constantly change their payment over the life of the debt.  PERS has enough trouble now keeping records straight; it hardly behooves them to introduce a fail-safe mechanism doomed to failure from the outset.  My advice would be to pick an amount, any amount, and stick with it until the debt is fully repaid.  If 2% doesn't pay back fast enough, increase the percent, but don't expect to fall back on the minimum if life deals you a bad hand.  Once you agree to an amount, stick with it unless you want to write a check and pay the balance off at some future date.  Don't put PERS in the position of having to decide whether you are destitute because you made a poor decision at the beginning.

Easy Money

In a surprise development last Friday, PERS officials received the latest "purchasing power" study from Mercer actuaries.  It shows that with the rise in gas prices over the past few months that the purchasing power of retirees from 2000 on have lost more ground than their counterparts who retired in earlier years.  With COLA increases so limited despite increases in the actual cost of living, PERS announced that it would be suspending efforts to collect from "window retirees" for at least a year, and would petition the state E-Board to declare all PERS recipients eligible for a one time $50 ad hoc benefit increase.  When asked about this, PERS officials stated "…we know the last decade has been brutal on the retirees from the same period.  The combination of uncertainty about the outcome of litigation, the short period when retirees had their COLA frozen, and the repayment of all the litigation costs, we felt that those retirees who had actually managed to survive the decade should be rewarded for their persistence in the face of nearly insurmountable challenges."  Dennis Richardson (R-Gold Hill), a member of the state's e-board, announced that he thought this was a great way to preserve morale amongst PERS retirees, and he thanked all of them for their perseverance in helping to get this decade behind us.  He agreed that the $50 benefit increase was a small price to keep retirees spending their hard-earned dollars to fund the Oregon economy.  OPRI and the PERS Coalition were, for once, speechless.

Splitting The Atom

Now that the PERS Board has decided on the method for implementing the collection of the 1999 overcredit, there are a number of important details that remain to be decided.  Moreover, there exists considerable confusion among those "window retirees" for whom the collection is only a dim memory.  The purpose of this post is to summarize what is known, so far, about the collection effort, what remains to be answered, and to clarify a common misperception about the 2003 effort to freeze the COLA for Tier 1 members charged with an over credit.

There are four groups of people to be subjected to collection efforts.  The first group is the 20,000 or so retirees who were notified in 2006 of their adjusted benefits and were sent an invoice for overpayments, but whose invoices were suspended by Judge Kantor in his initial ruling on the Robinson case.  The second group consists of window retirees who took either a single or double lump sum, who've been invoiced, but collections were also suspended.  Third, are members of the two previous categories who have been invoiced and who started paying via actuarial recovery beginning in about 2006 or early 2007.  Finally, there are beneficiaries and alternate payees who are receiving benefits after the death of a PERS member, or a divorce from a PERS member who have not been invoiced or collected.

The most complicated group will be those retirees who collected their PERS benefit as a double lump sum settlement and have no ongoing business relationship with PERS.  In order to collect what is owed, PERS first has to locate these individuals.  If they remain in Oregon, the Oregon Department of Revenue will locate them.  If they are outside of Oregon, the Revenue Department does not have reach; consequently, PERS will have to contract with collection agencies who will use skip tracers to find these retirees.  (Heck, if they wanted to pay me, I could probably locate about ⅔ of them with a simple web search).  If found, and if these retirees work with PERS, PERS will allow these members to set up a payment plan to recover the lump sum that will span approximately 6 years.  This is a far better deal than before.

For any window retiree, beneficiary, or alternate payee in a current business relationship with PERS - i.e. receiving any sort of monthly benefit - a current address already exists, and PERS has an easy way to notify affected retirees.  The default repayment option is a base 2% reduction in benefits (from the gross benefit) for however long it takes to repay the amount invoiced.  In most cases, overpayments will be recovered in approximately 6.5 years, at which time the reduction will stop and members will have repaid all owed benefits.

Members have the option of repaying the benefit as a lump sum, or they have the option of accelerating the repayment by selecting a repayment amount greater than 2% of the gross benefit.

More details will be forthcoming next week as PERS prepares a "Frequently Asked Questions" document for posting on their website.

One question that has appeared with some frequency in my own mailbox has been the question of whether PERS will "finally" apply the "lost" COLAs for the years 2003, 2004, 2005 and possibly 2006.  The answer to this question is an unequivocal NO.  Regardless of what you think PERS has or hasn't done, PERS has already applied the necessary COLA payments to the revised benefit you're receiving now.  When PERS recalculated your benefit to comply with the court-ordered, legislatively approved and mandated 11.33% for the benefit year 1999, it went back and recalculated the benefit it actually owed you when you retired.  The original benefit was computed with a 20% credit for 1999.  The new benefit was computed with the "correct" credit of 11.33%.  Once they computed the correct benefit, they then applied subsequent COLA for 2003, 2004, 2005, and, if relevant, 2006.  The effect of this was to raise the corrected base benefit to nearly the level (or surpass it) that the un-COLAd benefit was at the time of the adjustment.  Thus, according to PERS, the courts, and the Legislature, there is no additional COLA to which members are entitled.  You may not agree with this, but this is exactly what happened.

I will update information as it becomes available.  Suffice it to say that the re-invoicing will take place sometime beginning this summer, and repayments will follow 30 days after you are re-invoiced and choose or default to the method of payback.  The initial billings are planned so that they coincide with the new 2% COLA for July, payable on August 1.  It will barely hurt.

Better Days

St Pat's Day turned out to be the magic day when this site crossed the 1,000,000 visitor mark.  Thanks to all who have made it possible.  Many eyes keep our legislators on the ball; many eyes keep PERS on the ball; many eyes TRY to keep the media in check.

I have been complaining for some time since the Supreme Court finally overturned the Robinson verdict that PERS was engaging in financial chicanery in calling their "actuarial recovery method" an "interest free" way of repaying money paid to "window retirees" (retired between 4/1/2000 and 3/31/2004) erroneously.  We may disagree with the verdict, but we are stuck with it.  In recognizing that fact, and also recognizing that collections would resume soon, I have been on a tear trying to convince people that the ARM is fiscal "sleight of hand".  Apparently, my words and the pressure brought to bear by OPRI, the PERS Coalition, and others have finally resonated inside PERS.  At their next Board meeting, members of the PERS Board will vote to implement a significantly revised recovery method for the 28,000 "window retirees" who haven't yet started paying, and to presumably revise the terms of repayment for those who began repaying before Judge Kantor enjoined PERS from further collection efforts.

The revised method, to be discussed and/or voted on March 22, 2011, will recover ONLY what an individual owes, not a penny more.  The mechanism for those eligible (monthly benefit recipients or alternate payees or beneficiaries receiving monthly benefits) is to set 2% of the gross benefit as the minimum repayment amount.  If implemented in August, as originally proposed, this would result in the sacrifice of the 2012 COLA until the bill is paid off - approximately 6.5 years for the typical retiree.  Retirees who want to accelerate their repayments can choose a larger amount (say 5%) and shorten the repayment period.  Of course, anyone can still write a check for the whole amount and be done with it.  This method, as far as it goes, satisfies my two requirements for fairness:  1) no interest is charged and 2) retirees obligated to pay ONLY what they owe, not a penny more.

There are some unanswered questions about PERS' proposed methodology.  First, will the deduction be taken pre-tax, as logic and tax fairness dictate it be (otherwise, we are subject to being taxed on money previously taxed).  Second, does the repayment amount remain constant at the initial 2% of the 2012 benefit as of August 1, 2012,or does the amount change every August when a new COLA is granted? Finally, will the 1099-R report this amount as an adjustment to box 2 (taxable amount), reducing further the obligations since the amount repaid has already been taxed?  The analogy here is that for those of us who worked prior to 1979, our PERS contributions came from our own money that was taxed at the time of contribution.  Thus, a small portion of our current retirement benefit is not subject to any taxes.  That amount is the difference between Box 1 and Box 2 on the 1099-R, it is also shown in Box 5 (Employee Contributions) on the same form.  Since we have already paid income tax on the money that we will be repaying, there is no reason why we should have to either (a) be taxed on it a second time, or (b) have to do anything special to try to recover it.

It strikes me that if PERS can clarify and resolve these questions/objections/challenges, those of us facing a large bill for amounts we had no control over will see better days ahead.

I will save my comments about the Sunday Oregonian editorial for another day.  Onwards towards 2,000,000.

 

Memories are Made of This

Eight years and nearly 1,000,000 visitors.  By the end of the coming week, this site will have crossed that magic marker that distinguishes the occasional blogger from the serious blogger.  Thanks to all of you for this honor.  I hope to continue in this vein until my blood becomes blue.

Yee Haw.

 

Shackled and Drawn

Sometime late this afternoon PERS turned over the latest data dump on 117,000 retirees who were listed on PERS' rolls as of December 1, 2011. This increased the number of retirees exposed by almost 12,000 since the last exposure in October. This release was more specific and included information about final salary, length of employment, and current percent of final salary received. Already The Oregonian is carping about all the information PERS didn't release because it wasn't available easily from the newest computer upgrade PERS completed this past year. You would think that the Oregonian believes it has a right to participate in the RFP process for securing a computer system tailored for The Oregonian, rather than PERS. I'm really sorry to let the Oregonian know that computer systems are developed to meet the needs of the agency designing and paying for the system. I'm sure PERS would be more than pleased to accept large cash donations from the Oregonian to assist in developing a computer system that simultaneously meets PERS' and The Oregonians' needs. Unless and until the media wants to contribute to the costs of such a system, they should be damned grateful for the information received and they can go piss up a rope for any information they feel they deserve but didn't get. Information costs money and the Oregonian didn't have to pay a nickel for what they got. They've already posted the new data and those of us exposed feel just a bit more shackled and drawn by the latest financial colonoscopy.

A Thousand Kisses Deep

This blog is going on 9 years old.  In that time we've covered a lot of ground and antagonized a lot of people.  That's OK; that's its purpose.  We are approaching a major milestone and I wanted to use this opportunity to send my valentines and kisses to all those who have faithfully read this site in hopes of gaining some insight into the labyrinthine ways of PERS and the Legislature.  Sometime in early March, we will cross the 1,000,000th visitor mark.  No blog can survive without eyes.  Yours have been the reason I keep going.  While I've threatened to let go soon, there is some magical draw to keep writing.  Maybe it is the thousand ways the legislature, the politicians, and the media find to continue to gang up on all public employees and retirees.  I just can't help myself; we did our part of the bargain.  We worked our collective asses off for, in many instances, sub-standard wages with the promise that the state (or local government or school district) would make up our inequities in retirement.  So, now here we are in retirement, and the assault never stops.  It is relentless and I'm quite bored with it all.  We PERS retirees are taking nothing we weren't promised.  Nobody gamed the system.  The system is ungameable.  So, all those people out there who think we have somehow collected more than we earned need to go back and do some collective reading.  I started working for Oregon in 1970.  I've looked over every contract I got from the Oregon University System.  No matter how I slice and dice the contracts, I seem to be getting exactly what they promised me - not a penny more, not a penny less.  I frankly think that all those people who want to rob me of benefits I've lawfully earned need to take a deep look inside themselves.  Would you willingly submit to the financial colonoscopy that we've all be subjected to?  Probably not.  So, you'll probably not be surprised when I say to them that they can just go "F*ck off" and leave me alone.  In the meantime, for the rest of you out there, I will keep writing this blog until I no longer see it is necessary to defend what I've (and you've) earned.

In the meantime, I want to thank all of you out there who make this blog a regular part of your web day.  If you want to help support the efforts here - this blog isn't cost-free - you can either donate through the link at the top, or purchase stuff through Amazon.  It won't cost you a dime extra and the small commission Amazon pays me helps pay for the cost of running the extra servers needed for uninterrupted access, software needed to keep the  blog current, and bandwidth required (Comcast and Century Link are not charities).

I'm trying to figure out a way to have balloons and fireworks go off once we hit the 1,000,000 mark.  If I figure it out, you'll be able to see it here.  Thanks again.

 

 

El Corrido de Jesse James

Just when you thought it was safe to relax for a few months over possible changes to PERS, the group of 14 robbers in the Oregon Senate have come up with the latest attempt to perform a financial colonoscopy on those Tier 1 members still in the system and Tier 2 members getting close to retirement.  All 14 Republicans in the Oregon Senate have pooled their collective IQ to come up with SB1593.  This bill, if enacted would instantly change the actuarially assumed interest rate used for determining benefits at retirement from 8% to 6% and would reduce benefit payouts for those retiring on or after July 1, 2013 (note the date, it isn't a typo) by about 25%. Disregarding the likelihood of this bill passing and getting through the Supreme Court, note that there are somewhere between 20,000 and 40,000 current Tier 1 members who are both age and/or service eligible to retire now.  If all decided they didn't want to hang around to find out whether this bill passes or not, survives inevitable legal challenges or not, they could really mess with PERS.  Not only does PERS not have the capacity to deal with that vast number of retirements in a short period of time, removing that much money from the system into the BIF would probably destabilize PERS.

If you take the time to read this bill you'll find that it is both simplistic and simple minded.  The actuarially assumed interest rate for retirement benefits does not exist in a vacuum.  It is tied to the actuarially assumed interest rate used to set employer contribution rates; it is tied to the actuarially assumed interest rate used to credit Tier 1 member accounts with the "guarantee"; and finally, the actuarially assumed interest rates are used to determine the mortality table conversion factors that are used to generate benefits at retirement.  These rates are all coupled.  The actuaries determine the rate using the best evidence they have in complete knowledge of the way this single number interacts with the three component parts of the system.  I'm not sure whether it is possible to arbitrarily change the actuarially assumed rate for one part of the system independent of the other parts of the system.  That's the nature of the coupling.  SB1593 makes no mention of the statutes that cover the assumed rate and appear to amend no existing statute of any kind.  It seems to be a blunt force attempt to just uncouple the rates without bothering to mention that they are all interconnected.

If my counting is right, there are about 12 days left in this legislative session.  In order for this bill to pass, it has to get at least two democrats to agree to the bill in the Senate, and then it has to pass in the House, be reconciled if there are any differences of opinion in the House, and then has to be signed by the Governor.  I doubt that there is enough time for this to happen, but if it should make it to the Governor, I don't think our current Governor is afraid to say NO (at least I hope he isn't).

But, I don't think the intent is to pass the bill this session. I think the bill is an attempt to telegraph to eligible PERS members that it WILL be part of a major attempt at PERS reform during the longer 2013 session.  I'm not sure if they are trying to get most of the eligible to just commit and retire, or whether they are trying to see how stiff the headwinds will be for such a bill.  This is a very targeted attempt at a change that affects a modest number of PERS members who are eligible for retirement but haven't made the move.  I don't know how much they expect such a bill will save - it will be nothing if all the eligibles retire before the deadline - and I don't know if they really have any grasp of how all the parts of PERS interact.

Glad to meet all the Jesse James impostors of the world.  This crew definitely deserves some sort of award for sheer chutzpah.

If it affects you, I'd start by writing to your own Senator.  Then you might write to Senator Peter Courtney inquiring why this bill gets a hearing when HB 4033 was declared dead by Courtney before it was even heard in the House.

 

Money For Nothing

The official Bureau of Labor Statistics inflation rate for 2011 was published yesterday.  For the Portland-Salem area, the figures PERS uses for its COLA calculations, the 2011 rate of inflation was 2.86%  This means that for everyone retired by July 1, 2012, the August 1st PERS payment will go up by the statutory maximum of 2%, with 0.86% added to each individual's "COLA Bank".

For those members still on the hook for repaying the "overpaid" benefits during the 2000 - 2004 retirement period, the COLA will probably be used to disguise the fact that repayments will begin at the same time the COLA is paid.  Those opting for the "actuarial reduction" method of repayment will get little to no benefit from this COLA as it will probably be given with one hand and taken away with the other.  This truly meets the description of "money for nothing".

When The Whip Comes Down

Peter Courtney, President of the Oregon Senate, has decreed that HB 4033 will not get heard during this legislative session.  HB 4033 is an OPRI-sponsored and supported bill that would stop PERS from releasing the names along with the information about retirement benefits in the future.  The media (principally the Oregonian and the Statesman Journal) are exerting tremendous pressure on the Legislature over this bill, and it appears that Peter Courtney is not willing to have the bill heard unless he has overwhelming bipartisan support to withstand the onslaught of the newspapers' lobbying and bully pulpit.  I'm hardly surprised by these tactics; I fully expected them.

At this point, I don't know how much help it will be to flood Senator Courtney's office with letters, but I think it wouldn't hurt.  I would also cc my own legislators (House and Senate) to dial up the pressure.  At the very least, the Legislature needs to know that constituents view this as a high priority.  Please make it clear that you are NOT opposed to the information release; you are ONLY opposed to attaching names to the individual pieces of information.

We should not allow one person to determine the fate of more than 100,000 individuals who've already been exposed needlessly by the Oregonian and the Statesman Journal.

You Win Again

After several email exchanges with the good people at PERS, I now have an answer to the question posed in my previous post "Hey, That's No Way To Say Goodbye".  Unfortunately for all the people retiring, the answer isn't the one they had hoped for, and I'm afraid that PERS is well-covered for what they do.  I won't bother with the first of the messages since it is largely unnecessary relative to the followup email.  From David Crosley, PERS' Communication Director:

"The IAP retirement application states: "IAP accounts are subject to earnings or losses. Your IAP disbursement is based on the account balance at the time PERS processes the payment, not the date you select to retire."

Tier One/Tier Two statute (Chapter 238) differs from IAP statute (Chapter 238A) regarding crediting.

For Tier One and Tier Two, Oregon Revised Statutes 238.300 states in part that interest is "credited at the time of retirement."

For the IAP, Oregon Revised Statutes 238A.350 states in part that "adjustments...shall continue until the account is distributed to the member or forfeited." "

Thus, the behavior PERS exhibits with regard to the distribution of the IAP account (however and to whom it is distributed) is entirely in conformance with the statute covering the IAP, written by the Legislature in 2003 and modified slightly in 2005.  If people are unhappy with the way PERS does things, it will require legislative action to change.  Like everything involved with the Legislature it is always wise to be careful what you wish for.  Moreover, PERS cannot be charged with failing to tell people as the application itself contains the key sentence (above) that describes exactly what happens at the time the account is distributed.

 

Hey, That's No Way to Say Goodbye

Some recent PERS retirees have discovered another potentially costly inconsistency with the way that PERS treats the IAP account.  I have numerous reports of members taking a December 1, 2011 retirement and wanting to roll their IAP into other tax-advantaged vehicles.  The problem they are encountering is that PERS has 120 days to effect the rollover, and when PERS does the rollover has a significant effect on the interest credited to the IAP at rollover.  For example, we have a member with a transferred IAP as of early January who received the November 30 earnings credit, another with a later January transfer who received the December 31 earnings credit (nearly a full 100 basis points different), while a third won't have the transfer until 2/8 and will presumably receive the estimated 1/31/12 credit.  This inconsistency is quite costly (or can be).  I suppose that the attitude is that "it all comes out in the wash", but some people would prefer you don't do their laundry<g>.

So how about it PERS.  Can't you establish a consistent administrative rule that gives retirees who roll their IAP's over and fixed interest rate that is effective the date of their retirement (assuming they make the request at retirement).  There is no reason that retirees should be subject to the whims and perfidies of how PERS operates to figure their final crediting on the IAP.

We Take Care of our Own

That used to be the motto of the group known as OPRI - the only group in Oregon dedicated exclusively to the welfare of PERS retirees.  I and many others are lifetime members of this organization.  Now about 28,000 retirees are confronting the issue of repaying benefits once thought to have been legally received, but now apparently are subject to the aggressive collection actions of PERS.  Where is OPRI?  We've heard neither hide nor hair of this organization.  The organization has been turned over to the lobbyists Mark Nelson and David Reinhardt (yes, *that* David Reinhardt) and all communications for OPRI go through the lobbyists offices.  How does a member of OPRI communicate with OPRI *without* going through the lobbyists?  We just want OPRI to take some leadership in directing PERS to offer something besides to ludicrous options they given to repay overpayments.  We don't ask for much.  We just want OPRI to get off their collective asses and actually do something.  For all we know, they may be, but communications are exactly ZERO between the organization and its members.  Jay Osborne, the new OPRI president, doesn't seem to respond to email or to outright pings on the PERS Discussion Group.

If this is the organization that I have to put my faith in to represent my interests, God help me.  I want my money back.  I've gotten nothing for my lifetime membership except an organization that doesn't respond, hides under the cover of a lobbyist, and only acts when it appears that someone on the Board's interests might be at stake.  I miss the late Russ Gregory, a Board member of OPRI who died unexpectedly last month.  Russ was always free with information and we had some idea what was going on.  Now that Russ is deceased, OPRI has gone dark.  OPRI no longer appears to care or to take care of its own.

OPRI WAKE UP AND SMELL THE COFFEE.  YOUR DAYS ARE NUMBERED UNLESS YOU COME OUT OF HIDING AND TAKE SOME AGGRESSIVE ACTION TO PREVENT THIS LATEST PERS TRAVESTY FROM COMING TO PASS.  If you need legal money, why don't you ask for it.  We are all getting tired of waiting, and angry that nothing evident is being done.  Earth to OPRI.  Where are you?

 

Things I Don't Need

This should be treated as an open letter to PERS and to OPRI:

Dear All:

I've been spending a lot of time these past few weeks thinking deeply about the upcoming attempt by PERS to collect overpayments from PERS retirees from the period between April 1, 2000 and April 1, 2004.  Since I retired during that window of time, I am one of the people who will be tagged during the collections for about $14,000 in received overpayments.  And I'm really, really, really angry about the methods that PERS has put in place to recover the money.  One way is a hoax and the other way is an income tax nightmare.

During the recovery period that Judge Kantor stopped back in 2008, PERS offered affected retirees two ways -- and only two ways -- to repay money that was given to them THROUGH NO FAULT OF THE RETIREE.  PERS failed to warn any member considering retirement from April 2000 to mid-2003 that there was ANY possibility or likelihood that their benefit might be subject to change because of a (then) little-known and not-very-well publicized case involving the City of Eugene and other employers versus the PERS Board over the earnings crediting for 1999.  PERS provided estimates and benefits that noted NOTHING about this case, and counselors did nothing to warn retirees that benefits might have to be reduced because the 1999 earnings had been challenged and were not yet final.  So, many members retired in complete and total ignorance of this case, and were stunned in 2003 when the Legislature, following Judge Lipscomb's ruling, codified the earnings as 11.33% instead of 20% and provided mechanisms for collecting the amounts overpaid.

PERS, deciding to be generous, came up with a "friendly" (to whom?) way to repay the benefits.  They created the utter hoax called "actuarial recovery".  In this method, retiree overpayments would be divided by the number of months remaining in their actuarial life, and benefits would be reduced by that amount.  Seems simple, fair, and appealing.  They weren't planning to charge interest - kinda hard to do when the mistake is their fault, not ours anyway - and so this looked like one of the most friendly, least punitive ways to repay the amount owed.  UNFORTUNATELY, this description leaves out one of the unsavory aspects of the method that turns this seemingly user-friendly approach into a financial windfall for PERS.  The catch in all of this is that the payments continue for as long as the retiree and a beneficiary (if there is one) live, not when the bill is fully paid.  Thus, anyone who beats the actuarial odds will be paying considerably more than what he/she owes and PERS gets to keep and invest this bonanza along with all the other funds.  PERS' rationale for this is that not everyone would live as long as their actuarial life expectancy and so the ongoing reductions in benefits are needed to subsidize the benefits not repaid from those who die early.

The alternative to this unappealing choice is to repay PERS in a lump sum, which guarantees that you won't pay a nickel more than what you owe, although there are some tax implications that would require a CPA to untangle for you.

And, when you receive the final invoice, you'll have a grand total of 60 days to decide which poison you want to take.

I am deeply offended that PERS thinks I'm that stupid that I don't see the hidden costs of the actuarial recovery method.  It doesn't charge interest, but it charges payments for money you don't owe if you live long enough.  How is that different from charging interest?  Why can't PERS shut off the payments when the balance is paid in full?  Believe me, as a computer programmer, I know that it isn't difficult to do programmatically unless PERS' computer system is written in Sanskrit or Hebrew.  This is a trivial programming task.  What about the losses from people who die young?  Well, there is a simple answer to that question.  What about all the earnings from the people who decide to pay in a lump sum?  All of that money will be turned in within 60 days of billing and PERS has the rest of our actuarial life to invest that money and more than cover the losses from people who don't make it to fully repay their debt.

Furthermore, why aren't there more repayment options? The actuarial reduction method is a punishment to people who simply lack the funds to pay in a lump sum.   They are subjected to a lifetime reduction in benefits solely because they cannot pay all at once.  For the poorer of our brethren, there is NO choice on how they repay PERS.  This is akin to loan sharking because, as usual, the poor will get stuck paying more and for longer than the more affluent who can afford to pay the lump sum and be done.  Talk about economic discrimination.

PERS has methods on the books now to allow individuals to accelerate their repayments but only for the length of time it takes to repay the bill.  For example, ORS 238.715 offers the possibility that PERS can reduce member benefits by as much as 10% per month to repay a debt.  At this rate, most people would have repaid their debt in 3 or 4 years, rather than 20 or 30.  I suspect some people would take this option if it were available.

What about a 5 year payment plan where individuals who can't afford the lump sum could repay the benefit in 5 equal installments over 5 years (or 60 equal installments over 5 years).

There are many options that would lighten the burden on the less affluent, or encourage some of us to consider a shorter time payment plan than the lump sum.  In any of these cases, PERS would get its money back sooner, be able to invest it in securities that would more than indemnify against any losses due to early death and failure to complete repayment.

The bottom line is that PERS must consider some alternative repayment methods to the ones it offered the first group.  It is clear that if PERS continues to collect payments in perpetuity, it must be in violation of the Fair Credit Standards and Practices in a way that would make a loan shark blush, not to mention invite scrutiny from the same agency.

This whole issue needs careful input from legal advisors and those who are not thinking of taking the easy way out.  It would be nice if OPRI would get off its hind end and take an active role in pursuing alternatives to the ones available now.  When the first round of repayments began, OPRI was nowhere to be found except through the actions of the PERS Coalition in the courtroom trying to prevent repayment at all.  That's all noble and good, but now it is crunch time and most of us will be facing the invoice in a few months.  At this point, we need some legal hardball.  What I don't need is someone telling me how generous PERS has been.  That's bullshit and we all know it.

Money Changes Everything

At the end of last year (2011), the Oregon Supreme Court ruled in its Robinson v PERS opinion that PERS could collect the overpayments that have been outstanding since as early as 2006 when the Strunk/City of Eugene remediation plan was implemented.  To refresh memories, the overpayments were the result of PERS calculating benefits for people who retired between April 2000 and April 2004 on the basis of the challenged 20% earnings crediting for 1999.  When the 2003 Legislature and the PERS/City of Eugene settlement agreement were finalized, the earnings order was vacated and replaced by one crediting only 11.33% for 1999. The overpayments resulted because PERS used the account balances that included the 20% crediting and then subsequently recalculated benefits using 11.33%.  Thus, from the time an individual retired in the specific window mentioned above to the time the benefits were corrected beginning in 2006, individuals were receiving more than they were legally entitled to receive.  (I'm stating facts here, not my individual opinion about the propriety or ethics of collecting on the overpayments).  For almost 20,000 individuals, they were overpaid anywhere from a high three figure amount to some healthy five figures.  PERS began collecting from some members before Judge Kantor ruled that PERS couldn't collect the money and so they are not affected by what PERS does now.

The most common question I receive is "how is PERS planning to collect the money".  Again, a brief history lesson.  When PERS decided to begin collecting the overpayments, it gave retirees two options to pay.  The first option was to repay the money in a lump sum and be done with it.  The second option was to take the balance due, compute the individual's life expectancy, and reduce the benefit an amount deemed to recover the overpayment by the time the retiree reached his or her actuarial life expectancy.  Because PERS intended to charge no interest on the repayments (it wasn't the individuals' fault that they occurred), the plan was to keep on collecting until the individual and his/her beneficiary died.  Of course, for individuals with long life expectancies, they would be paying significantly more than individuals whose life could be foreshortened by illness, or unexpected events.

It is unlikely that PERS will change the methods by which individuals can repay the benefit overpayment, but the time elapsed since the original collection invoice and now has been significant and many of us have had plenty of time to think about this and to come up with important questions about the process that have not been satisfactorily answered.   Yesterday, I sent a list of four questions to PERS.  Predictibly PERS was not ready to answer these questions, but they remain important and will demand answers before PERS starts collecting from anyone else.  For the benefit of all, I post my questions here.  I don't pretend that these are the only questions, but they are ones that have occurred to me and to others as the day of reckoning draws nearer.  People are not going to have a long period to decide what mechanism to choose, and the answers to these questions may go a long way toward helping people make the correct decision.  Of course, these presume that individuals actually have a choice.  For many people, paying in a lump sum simply isn't an option.

My questions are predicated on a simple fact.  The money owed is money we've already received and have already paid federal and, in most cases, state income taxes.  We are going to be required to repay the gross amount, not the after-tax amount.

Herewith are my questions, with an additional one not posed in my email.

1.  Under the actuarial repayment method (ARM), is the payment computed only once and then remains fixed for the duration?  In other words, are there circumstances under which the ARM payment changes (e.g. after a COLA or a pop-up following the death or divorce of a beneficiary)?

2.  Is the ARM payment taken pre-tax (as it should be), or is it taken post-tax, which means it will be taxed twice.

3.  Under a lump sum repayment, will the 1099R for the tax year in which the payment is made (presumably 2012), reflect the amount in box 10, 11, 12, 13, 14, where such non-taxable credits are typically reported?

4.  If the 1099R does not show the amount of the lump sum payment as an income offset for 2012, then will the invoice we receive be detailed enough that the amount of overpayments will be listed by calendar year of overpayment?  This level of detail would be critical should those of us who have sizable overpayments to make decide to file a "right of claim" (section 1341, IRS Code) on the amount as either an itemized deduction or a tax credit (lump sum greater than $3000) against our 2012 Federal and State income tax returns?  This should be mandatory of PERS.  The IRS isn't likely to take kindly to the typically uninformative bills and statements that we've gotten from PERS up to this point.  It is imperative to have complete documentation of what and why we are repaying so that we can take this to the lawyer or accountant of our choosing and file whatever papers we need with the IRS to facilitate a credit for the amount of taxes we've paid on money we're no longer entitled to.  No one is asking PERS for tax advice and no one is asking PERS to do anything extraordinary.

5.  Would it be permissible to pay the lump sum by taking money from an existing tax-advantaged account - IRA, 401K, 403B, 457, SEP - and negotiating a trustee to trustee transfer, thereby not triggering a taxable event?  In this circumstance I don't believe that there is a "right of claim" to be exercised and this might be the easiest method of all for many.

This is not an ordinary event in one's tax life.  Most people don't have to repay amounts that have already been taxed.  PERS should bend over backwards to provide ordinary, but complete, documentation of the when, how, why, and how much so that individuals can avoid the whammy of repaying a pre-tax amount with post-tax dollars.

The Thrill Is Gone

Yesterday marked the final business day of 2011.  Ever since 2000, PERS retirees and future retirees have been watching and waiting for the courts to unravel, untangle, and to clarify a variety of situations that threatened the hard-earned pensions of public employees in Oregon.  Starting with the City of Eugene case, filed in early April of 2000 up until December 30, 2011 - nearly 11 full years - retirees have lived in a state of perpetual anxiety that some component of their pensions would disappear either before they had a chance to retire, or even afterwards.  The final gavel on all the litigation surrounding the City of Eugene case, the Legislative reforms of 2003, the "infamous" settlement agreement between the City of Eugene plaintiffs and PERS, and PERS' hamfisted attempt to collect "overpayments" from those members who retired between April 2000 and April 2004 ("window retirees") came down yesterday.  The Oregon Supreme Court rejected the review of its own verdict in the "Robinson" case -upholding its own verdict - and it closed the door on all but a small piece of "White" case - that which charged PERS with a breach of its fiduciary responsibility in signing the settlement agreement.  The string has run out; the collection efforts for the remaining "overpayments" from the 1999 "over credit" will be permitted to go forth, and by Spring of 2012, "window retirees" will either need to write PERS a check to clear their accounts, or begin to see their monthly benefit reduced by some small, but unknown, amount in perpetuity.  I haven't decided what I am going to do.  It grates me no end to have to see my benefit reduced for my life and the life of my beneficiary; on the other hand, I'm in no mood to hand over a large sum of money to a bunch of people who simply don't deserve the money.  I did nothing wrong and I submit there was no error in my benefits regardless of what politics and the courts have said.

The only heartening thing about the Supreme Court's ruling in the White case is that the court remanded back to Judge Kantor the matter of PERS' transfer of $61 million from the contingency reserve into the accounts of the 8 employers responsible for the City of Eugene case.  The Supreme Court ruled that this was not a condition of the settlement agreement and that the amount bore no relationship to the amount the employers may have been overcharged as a result of retirements that occurred from the 8 employers during the period in question.  The Supremes ordered that the amount be actually computed, not just estimated, and this will likely result in higher employer rates for the employers who benefited from this arbitrary transfer of money.  This means that, hopefully, the City of Eugene plaintiffs will finally get hoist on their own petards in all of this.  While it was a small victory for members - one that won't make any difference to any individual - it at least punishes PERS and the City of Eugene plaintiffs for what appears to me to be a form of collusion.  Too bad there isn't any worse punishment.  But, I'll take a victory in any form at this point.

The last decade's worth of litigation has been extremely costly to all parties and PERS has played both sides of the street for too long now.  The time has come for this gamesmanship to cease and desist.  PERS must decide NOW whether it is a trust for the benefit of its members, or a slush fund that benefits employers.  We may all be stakeholders in the system, but the legislative mandate for PERS is clear.  It exists solely and exclusively for the benefit of members of the system.  The moment it ceases to exist for that purpose alone, it makes a mockery of trust law, and makes the notion of a fiduciary responsibility to the members a joke.  Finally, it is absolutely clear that PERS has become so heavily influenced by politics that it is impossible to get any sort of a fair hearing in Oregon.

From the very beginning of the decade, starting with the City of Eugene case, it has been clear that politics and economics would take priority over statutory duties.  The courts have been influenced by the ravings of the media, the media has pounced on any small or large PERS story with the gusto of a ravenous coyote.  And the citizens of Oregon, who have eaten up the mainstream media's reports like the starving in Ethiopia, have no interest in the truth of how PERS came into being, what its functions are, and who it is supposed to serve.  The public has swilled up the big lie that "…all money in PERS belongs to them, the taxpayers" and not to the people who actually earned and saved that money.  I hope that the 2012 Legislature will put an end to this bloodlust by passing a bill that declares retiree personal information, including benefits, is completely off limits.  There is no compelling need to know much of anything except the amounts of benefits, not the specifics of who gets them.

This is my last post for 2011.  While I wish I could have ended the year with cheerier news, I guess the "good" news is that 11 years of litigation have finally come to an end.  Now, let's hope the Legislature has the good sense to leave the PERS system alone for awhile and let it recover from these debacles.

I wish for all to have a safe, happy, and prosperous New Years.  I say that without irony.  I hope that the financial markets stabilize and people can get back to enjoying their retirements.  Some of us have wasted nearly 11 years hoping to get some closure on the crap of the past decade.  At last we have it; it is time to enjoy what time we have left.

 

 

 

Fruitcakes

OK. A bit of an inside joke for those who know Jimmy Buffett music.  Mea culpa, mea culpa mea maxima culpa.  In my last blog post, "Dark Side of the Moon", I made an error that Ted Sickinger of the Oregonian took the time to point out.  In the case of the "true up" of Mike Bellotti's final PERS benefit, the mismatch between his account balance plus the employer match is made up by the Employers' Rate Reserve fund, which is charged to all employers in the rate class, not just the University of Oregon. This means that, in Bellotti's case, the way the University of Oregon computed his salary (including all the top ups from outside sources) ended up strongly underestimating what his final pension benefit would be.  Thus, when Bellotti retired the bill for that underestimate is shared amongst all the employers in the State pool regardless of the source of the money.  This leads to a whole series of interesting questions about how things like taxes were handled on this income when it was being earned and how the University of Oregon and PERS could have been so off the mark in funding his benefits.  After all, if Bellotti's endorsement income and Nike income all passed through the University and some of it on to Bellotti, wouldn't the University have paid PERS premiums on the money at the time it was earned.  Or does this count as income and Bellotti is expected to pay his own taxes on it, but at the end the University of Oregon saddles other employers with part of the bill?

I stand by the rest of my piece, but the "true up" was most definitely wrong.  Because the University of Oregon only bore a small part of the bill for Bellotti's retirement, there is a scandal there.  But the scandal belongs at the feet of the University of Oregon, not PERS.  PERS just administers the system it is given and has to pass through the rules as they are applied.  I don't know when individual employers were let off the hook for these types of errors and omissions, but it had to be after 2002.

One thing I find quite curious in this whole matter.  The IRS limitation on pension income passed in 1994.  It applied to all working people regardless of when they were hired.  I know this personally because my wife, who was hired in the same year as Mike Bellotti by a private employer, was hit by this and continues to be affected by it until she retires.  There was a limit in existence prior to 1994, but at the time it exceeded my wife's salary.  The change in 1994 set the limit back to $150,000 and increased by $10,000 chunks until it was at $200,000.  At that point, the limit went up in $5000 chunks where it rests at $245,000 today and will be $250,000 next year.  What I don't understand is how anyone who retired after 1994 could have escaped that limit, as Bellotti and all PERS retirees hired prior to 1994 seem to have been.  Call it envy or call it curiosity.  What IRS ruling did PERS get that permitted Bellotti to draw a pension of $500,000 on salaries that weren't eligible beyond $245,000.

I leave that for the investigative reporters in the group to figure out.

Dark Side of the Moon

Apologies to Floyd.  As we predicted, the folks at the Whoregonian could not wait to start their muckraking about individual PERS recipients within weeks of the first data release.  While the object of their rectal examination is former University of Oregon coach and Athletic Director Mike Bellotti, the reporters have not been satisfied to wait until the second data release (March 9, 2012) to start pursuing their charges of some sort of fiscal shenanigans with Bellotti's outside benefit.  You'll get no argument from me that Bellotti's benefit needs some scrutiny, but many of the answers could have been obtained with the second release of data.  Moreover, it proves the point that the analysis could have been done without exposing the names of any individuals since the reportwhores were bound to make information requests anyway.  If I had seen a $41,000 per month benefit showing up at the top of the list, more than $10,000 higher than the number 2 on the list, I'd probably start asking some specific questions about who that individual was.  And so they would have found out anyway with a special information request.  And in my world, a special information request for a name would have been a far better solution than the shotgun, throw every name against the wall to see what sticks, approach.

So what have we learned.  Well, we've learned that there are lots of unusual benefits that got to be counted as salary for PERS benefits than any of us could have imagined or any of us have access to.  It is nice to know that the use of a car, a country club membership, and certain kinds of endorsements can be run through the University and then be valued for salary purposes and included in final salary calculations.  What we don't know is exactly who paid for those benefits during Bellotti's career.  Duck boosters (no tax money), Phil Knight (no tax money), Duck Athletic fund (ticket sales and sales of merchandise, no tax money).  So, to the best of our knowledge, only a small amount of public money was used to pay Bellotti's salary while he was working.

To get to the final retirement benefit we run into another problem.  There is no question that Bellotti's actual salary did not generate the kinds of income to PERS to have covered a combination of a $2.5 million account balance and a $2.5 million employer match to fund the Full Formula benefit.  According to PERS, the money needed to fund Bellotti's stream of retirement payments amounts to $5 million dollars throwing off 8% interest for Bellotti's life.  Any mismatch between Bellotti's actual account balance (maybe $600,000 at retirement) and the employer match (another $600,000 give or take), would have to be made up by the employer at retirement so that Bellotti's working balance would make it to the initial $5,000,000.  This raises another question:  WHO actually paid the the "true up" to PERS?  We know it was the University of Oregon, but we don't know where the money came from.  I can guarantee that it DIDN'T come from taxpayer dollars.  I'm willing to bet that a donor (Phil Knight? again) or the Duck Athletic Fund (more donors) ponied up additional contributions to the DAF so that Phil's true-up payment could be made.  Thus, we have it likely the bulk of the money used as the corpus for Bellotti's pension DID NOT come from taxpayer money.  We don't know this for certain because the folks at the local rag didn't bother to ask where the money came from.  A straightforward question:  did any of the money required for the Bellotti "true up" payment come directly from taxpayer sources?  would have answered the question.

The only question I have is the curious and slightly unsavory appearance of the ex-Mrs Bellotti picking up nearly $50,000 per year as the result of a divorce degree with Mr. Bellotti, and then continuing to draw that money even after she and Mr. Bellotti remarried sometime later.  It does have a slightly funny smell to it.

But the thrust of the O's article is that the whole matter of Bellotti's pension smells funny and, by implication, there must be a bunch of other smelly cases too.  I'd hazard a guess that Mr. Bellotti's case is unique as all the other coaches and AD in the system were hired after the IRS salary limitation came into play.

So I say to the Oregonian.  Hope you enjoyed your trip to the dark side of the moon.  You probably won't find too many other cases like Bellotti's, if you find any at all.  When you scramble back into the light, I expect that you'll be left with only this story to tell.  The rest of us don't have tricks like these employed.  So, you've left 105,362 of us exposed just so you could tell the (non) story of Mike Bellotti.  And I am willing to bet that the Mike Bellotti story will result in a bunch of unnecessary sturm und drang at the next Legislature that will end up hurting a bunch of innocent people unnecessarily.  Virtually none of us have guardian angels like Uncle Phil.

One of Us Cannot Be Wrong

OPB is going for a second helping from the PERS trough on Tuesday December 13, 2011.  It is a follow on show to the December 5 episode featuring Dennis Thompson of the Salem-Statesman Journal.  Paul Cleary, Executive Director of PERS, yours truly, and one other former PERS member will be "guests".  Cleary will be in the studio, while the two of us commentors will be in the peanut gallery from the phone lines.  I won't have to call in.  They will call me and give me my 15 seconds of fame (or not).  Paul will, no doubt, be talking about the facts of PERS; hopefully those illuminated by the semi-annual publication called "PERS By The Numbers", which the Statesman Journal editor, Dick Hughes, seems to have just discovered although this publication has appeared twice annually since 2005.  It is really worrisome when the MSM cannot discover a document that would have answered virtually ALL questions since it first came into existence.  No wonder most of us have little or no respect for the MSM.

This follow on show on OPB and "Think Out Loud" is the result, I'd like to think, of the loud protests evident on the OPB web site about having Thompson on before any facts were presented about the PERS system.  While I am optimistic that Cleary and I can present facts that will allow the public to understand better how benefits come into existence in the PERS system, I am pessimistic because my experience has shown that most people who have an ax to grind with the PERS system don't understand a whit about it and are, to steal words from my wife, "invincibly ignorant".

My counterpart on the show will be someone who can't understand why his friends or neighbors, teachers, can possibly get or deserve their $72,000 annual benefit.  I make considerably more as the nosy among you have probably figured out, but my benefit can be explained away easily.  My "opponent" on the show is wrong and I hope to be able to show him why.  Of course, "history is obdurate" so I may not be successful in convincing him or anyone else who simply refuses to know.  A friend from a past life used to say "people would rather believe than know".  I think truer words have not been spoken.

Tune in for yourself on OPB radio to Think Out Loud Tuesday December 13, 2011 at 9:00 a.m.  The PERS segment is scheduled to be at the top of the hour.