Everyone Is Going Mad

The PERS machine just rolls on, running over people with gay abandon. Yesterday I finally laid hands and eyes on a copy of the form PERS is sending out to retirees when they are "invoiced" for the 1999 "overpayment" and the implementation of the Strunk/Eugene remediation. The form looks pretty straightforward and, for the most part, doesn't seem to lack any essential information needed for a mathematically competent record keeper to verify. Here is an example of a straightforward form submitted by a recipient with ALL original numbers from PERS. (Other identifiers have been photographically removed). There is nothing unusual about this form, although some were surprised to see the way PERS phrased the matter of the actuarial recovery amount (note the asterisk and what it attaches to). As a result of this form, I concluded that the PERS forms were probably adequate and that they weren't as awful as had been alleged by a deluge of emails I had received from recent recipients. But that was before I got the next one. This is from a retiree who left the PERS system 3 months outside the "window" and therefore came under a different set of rules. His situation is bizarre, to say the least, as he had been led to expect, not unreasonably, that his benefit would rise because of the decision involving the 8% earnings to be paid on 2003 contributions and on the 2004 balance. Alas, look at this form and its second page. You get bonus points if you can explain how this person has a HIGHER total account balance AFTER the Strunk/Eugene adjustments but a LOWER monthly benefit. Needless to say, this is one extremely unhappy retiree who feels he has been led like a lamb to slaughter in the PERS "play by whatever rules we happen to think of at the moment" game. Comments welcome on my other blog here. For the record, I advised this retiree to contest his invoice as it makes no sense.

Wasted Time

An intrepid "window retiree" finally faxed me a copy of her invoice from PERS. Let me say that after looking the letter over carefully, there is very little missing. PERS has supplied what it said it would supply and a reader armed with a 1999 Member Statement and a Notice of Entitlement could easily check the numbers. The form is pretty transparent. I take back the evil things I wrote yesterday. If you can't calculate whether PERS is correct or not from what they've sent, dig out the two forms, an Excel spreadsheet and calculate. Everything you need in present on those sheets of paper. And BTW, those are the same sheets of paper you need to use my calculator.

Comfortably Numb

I've been stunned by the number of people who have emailed me with questions about how to challenge PERS on the recalculation letters. Back in September 2005, PERS presented its plan to the Board, the stakeholder attorneys, and a fairly large audience of union representatives and plain old affected citizens like me. The "Strunk/Eugene" remediation plan included a phase in which retirees would receive two letters, the first informing them of PERS' intent to adjust their benefits in accordance with the rulings in Strunk/Eugene cases and the "settlement agreement". The second of these letters would *detail* the calculations and lead the retiree to the recalculated amounts. PERS promised that the letter would contain enough information for the retiree to determine how PERS arrived at the recalculated benefit. Although I've not actually laid eyes on a single letter, I have nearly 150 emails telling me that the numbers just aren't there and there is no way for a retiree to reconstruct much of anything from the information provided with the letter. PERS assured us that this wouldn't happen. In fact it is. This borders on criminal contempt. I wrote my Lipscomb calculator to allow retirees to estimate the effect the Strunk/Eugene remediation would have on their benefits, assuming a July 1, 2007 implementation date. From reports I get, my calculator turns out to be pretty good - estimates are frequently within a few pennies of PERS' own calculation. But this is absolutely and positively no excuse for PERS to not supply members with the ability to check the calculations on their own. PERS should be supplying members with a template that walks through the calculations following the same algorithm PERS is using to compute the benefit adjustments. It is the least we can expect. Otherwise, EVERY RETIREE receiving one of these letters, should challenge the adjustment for no other reason than to force PERS to supply ALL the numbers making up the calculation. We cannot afford to be comfortably numb. If we accept PERS' numbers without independently verifying them, we might as well give PERS the gun to shoot ourselves with. They've already got a reputation as a rogue agency, interpreting Supreme Court rulings willy-nilly and making up rules as they go along. We cannot sit back idly and let them continue to shove things down our throats (and other parts of our anatomy). Don't be comfortably numb. Challenge the letter.

The Long Line of Pain

Gertrude Himmelfarb once titled a book "On Looking Into the Abyss". In it she ruminated about the culture wars and how they would play out in the future. Although I don't share any of Himmelfarb's views, nor those of her husband Irving Kristol and son William, I thought she represented the future as presciently as just about anyone else of her generation. Lately, I've been reading and partipating in discussions elsewhere and via email with PERS retirees who've begun to get very tired, irritated, and frustrated by the lack of any movement on any of the Court cases litigating all things related to the PERS Board's "do over" of the 1999 earnings crediting decision. Some people are antsy about the slowness with which PERS is moving; others are angry that the PERS Coalition doesn't show more aggressiveness in pursuing options that they believe will force PERS' hand. Others ruminate and argue over what exactly the Supreme Court meant by its reference to "fixed benefits" and "without errors" in its Strunk Decision. Others are indignant that PERS is acting like the Supreme Court never ruled and seems to be writing its own rulebook. Others (including me) point out the inherent conflict of interest that arises in some of the legal proceedings between the interests of active (or non-retired) PERS members and those who retired during the "window" or thereafter. Some adamantly cling to the quaint notion that "justice delayed is justice denied". I suppose this is all natural, especially when this melodrama has been played out in so many different courtrooms, in the legislature, and in the newspapers since early 2000. And I don't have an answer or advice to give. I can stare into the same abyss everyone else is viewing and all I see is another 2 or 3 years before all legal avenues are exhausted. The current process being used by PERS to implement what they're calling "Strunk/Eugene" remediation, was agreed to by lawyers (and presumably the client groups they represent) for ALL parties in September 2005 [note added 2/22 - it is significant to note that OPRI and plaintiff Sartain did NOT agree to the one touch, but OPRI's attorney was not present at the 9/2005 meeting, and his letter did not make it into the Board packet because of OPRI's indecisiveness about whether to seek legal input on this matter. I definitely stand corrected on this point.] PERS is moving at the pace it said it would move, perhaps a bit more quickly but not a lot faster. The calculations are turning out to be pretty much in accord with what I programmed into my calculator, unfortunately. The "one touch" approach seemed like a good idea back in 2005 when several of the current cases got launched. It still seemed like a good idea when Judge Kantor announced in both Arken and Kantor that he would make decisions relatively quickly. But that was nearly 6 months ago and most people have difficulty understanding that legal time and geological time are close cousins. In geological time, 2 million years is really fast, but humans can't grasp its speed. To lawyers, a year seems like an instant, but clients can't grasp that it is fast. I don't have any magic wand I can wave and make the judicial system move faster. I have no pull with the lawyers that would suddenly make them "see the light" and move for some sort of action that would (a) stop PERS from continuing what it is doing and (b) sequester funds currently being withheld from retirees into a safe account that will be paid out with interest if the retirees ultimately win. All I can say is that if PERS loses, "one touch", will become "two or more touch" and that is PERS' problem, not mine. Obviously PERS is confident that it will win; otherwise it wouldn't be moving the way it is. So my advice is to sit back, grouse all you want, but expect the grousing to fall on deaf ears from the legal and judicial community. They will decide when they decide, and then someone will appeal and the wait will begin anew. And from there, its possible for a final appeal to the Supreme Court, which is where we all expect this to go for "final" (good god I hope so) resolution and clarification. We have no choice but to endure this long line of pain.

Note added 9:14 pm. If you want to discuss this post openly, please go to my other blog site www.orpersinfo.com and post your comments to the entry "Waiting On the World To Change". It is the most current addition to that site.

When The Ball Drops

My last entry motivated a fair number of readers to email me about PERS' schedule for invoicing. "When will I be next?" is the common question. Folks, PERS doesn't keep me posted on their invoicing cycle. The people who've written to me have come from all over the retirement map, from 1999 to 2003, and from all different types of circumstances. As best I can tell -- and I may well be wrong -- PERS still seems to be "testing" their invoicing by sending out invoices to nearly randomly selected individuals to make sure they've gotten all the billing issues straight and all the calculations and explanations correct. There is nothing I've seen or heard that indicates that PERS has begun a regular and systematic billing of retirees. I suspect that will begin in March and continue for several years. It has also been suggested elsewhere that PERS' stringing this out over such a long period of time is deliberate, but not for the reasons they give. The usual reasons cite manpower shortages, desire to restrict the "damage" to any one retiree by waiting for the "crossover" of benefits to occur, etc. That is all plausible, but one wonders if something more deliberate isn't going on. Why is it that so few retirees - compared to the total number affected - are so vocal about the PERS "takeback"? Do you think that maybe PERS wants to bill slowly so that they never bill enough people to gain a critical mass of outrage? Imagine what would happen if 37,000 bills went out all at one time? Now imagine if only 1,000 bills go out each month? Big difference in reaction. Hard to organize opposition when only a few people at a time get notified. And believe me, relatively few people know enough to be worried about the impact. Most are completely clueless and will continue to be until they get that bill. I know because some of the folks being billed are just now becoming aware there is a problem. Favorite comment: "Why is this happening to me?" "What caused this to happen?". My only response is: "What planet have you been living on for the past 5 years?" Slow billing - PERS manpower shortage and PERS desire to "be nice" or PERS strategy for keeping groups of unhappy people small at any given time? Enough to make you wonder.

Pay The Devil

I don't know whether this is good news or bad news, but I've now heard from about half a dozen people who've gotten their invoices from PERS. First, for the good news. It appears that my Lipscomb calculator is providing people with nearly dead accurate estimates of their adjusted benefits from PERS. The bad news is that I figured it out and programmed it correctly. It is always nice for a programmer to know that his work turns out to be good and reasonably accurate. But this was one instance where I had secretly hoped that my calculator would provide worst case scenarios rather than dead accurate predictions. Any inaccuracies found in the calculator versus PERS' actual invoiced amounts are, in all likelihood, the result of the fixed date for implementation built into the calculator, which is different from the actual date of implementation by PERS. But as we get closer and closer to July 1, 2007, the size of the estimates between my calculator and PERS' invoices should decrease. Other possible sources of inaccurancies result from accounts with a variable component remaining at retirement, buy backs of waiting time, and other nuances that just aren't possible for me to program as the rules are too complex for me to distill into a single-purpose calculator. But, for 85% of the "window retirees", my calculator should give results good enough for people to depend on as a fairly reasonable portrayal of their actual tariff to the devil. For whatever that's worth.

Everybody's On the Phone

Now that everyone should have received their PERS benefit for the month of January (on February 1st) my email box and voicemail runneth over. The question: why did my benefit go down (up) on February 1? Did PERS just implement the recovery without bothering to notify me? The unequivocal answer to this question is NO. The only things that changed were the Oregon and Federal Withholding Tables. These tables are adjusted annually for inflation and employers are required to implement withholding changes effective with the first payroll for time worked in January. Since PERS checks are issued "in arrears", the deposit/check received on February 1 was for the period January 1 - January 31. Thus, this is the first payment of the new year and the first payment to which the new withholding tables were applied. So if your benefit went up or down by a few dollars (mine increased by $15.47) it isn't anything sinister up with PERS. It is just your governments changing the amount they accept as prepayment for your obligation to democracy.

P.S. This whole situation has inspired one of my regular readers to question whether or not we can trust PERS anymore or PERS has squandered members' trust along with their money. Please go to my other blog and discuss Peg's thesis there.

Broken Promises

The Boregonian carried a story today about how the Oregon Investment Council is looking for support to begin investing PERS resources into Hedge Funds. Predictibly, this has a lot of people quite rattled as Hedge Funds are considered high risk investments and seem, to me anyway, somewhat inappropriate for individual and employer contributions to a Pension fund that has prided itself on stability and on the incredible ability of the Oregon Investment Council's acumen in placing funds with investment firms that can meet the expectation of an 8% annual return. As unnerving as this is, I'm of the opinion that this is really a game of sleight of hand. I don't, for a moment, think the OIC's real objective is to get Hedge Funds into the mix of the PERS portfolio. Instead, I think this is a strategy designed to get members and employers all weirded out by the prospect of a portfolio partly invested in high risk hedge funds. In the meantime, the real objective is to scare stakeholders into accepting a lowering of the actuarially assumed rate of return - currently 8% - to something in the 5 - 6% range. A number of years ago, I was permitted to read a private report commissioned by Governor Kulongoski that explored the impact of the 8% assumed rate of return on employer rates, member earnings, and the overall health of the PERS fund. The gist of this report - written by a former member of the OIC - was that in order for the OIC to generate a consistent 8% return on investment, the fund was having to take on increasingly greater risk than is prudent for a pension fund. The conclusion was that the PERS Board should lower the rate guarantee from the current 8% to something closer to 5 or 6%. The upside of this recommendation was that PERS members in Tier 1, who are guaranteed no less than the assumed rate of return, would earn less money on their funds, the actuarial tables would require lower payouts to members at retirement, and the fund would be financially healthier and subject to far less volatility than they are now. The down side of this proposal was the fact that the employer contribution rate is tied to the assumed rate of return in an inverse way. The less money the fund is assumed to earn, the more money the employers have to contribute to ensure that sufficient funds are available to pay out benefits in the future. The author concluded that while this might not be attractive to employers in the short run, that once the Tier 1/Tier 2 member ratios reversed, in approximately 5 - 7 years, and the number of Tier 3 members increased, the long term benefits would be to lower employer contributions and that the short term pain would be offset by long term gains. This report did not see the light of day - or so I thought. But now that I see the proposal from the OIC to invest in Hedge Funds, I'm beginning to think that this "secret report" is beginning to take on a life of its own and will form the foundation for the incredible compromise that will be offered to the unions and the employers. Both will be given the option of either agreeing to let Hedge Funds into the investment mix, with their great potential for earnings coupled with the possibilities of disastrous losses, OR, both can agree to take some heat off the OIC by permitting PERS and the PERB to lower the actuarially assumed rate of return. I'd be willing to bet that if the unions and the members were actually faced with this choice, the lowered rate of return would look a lot more attractive than it does right now. This is a cynical game with the title of "Broken Promises", but looks to be the wave of the future. Since the OIC has had exactly zero difficulties earning returns far in excess of 8% without Hedge Funds in their portfolio, it is hard to see why this is suddenly so urgent now. Consider me cynical, but I think Hedge Funds are being used as a stalking horse for an entirely different agenda.