Blowin' in the Wind

The answer my friends, is blowin in the wind. My email box runneth over. The dogs have been unleashed and all those people who retired around mid-2004 are now discovering just how much of a "do over" PERS got. I've heard from about a dozen post April 1, 2004 retirees of the following scenario. You've gotten your recalculation letter. Your "at retirement" balance is higher AFTER the Strunk/Eugene adjustment than before (in one case, more than $20,000) higher. First, for the good news. The reason your balance is higher is because PERS was forced to pay you 8% for 2003 on both contributions and balance, and a pro-rate of 8% for 2004 on your beginning 2004 account balance. They also reduced your 1999 balance, but the 2003 & 2004 earnings were larger than the 1999 reduction; hence an increased account balance at retirement. Now for the really bad news. If you go back to your original Notice of Entitlement - the one you got when you originally retired, you should see that your benefit was calculated on the basis of the "Lookback" (surely you've forgotten that by now). The "lookback" was created by the Legislature to give you a "floor" under your benefits so that you could still get the benefit of the "old" actuarial factors, but at a price. The price was that your account was frozen at its balance as of June 30, 2003 - nothing else was added. If, when you retired, your frozen benefit on June 30, 2003 was higher than your benefit accounting for all additional earnings and contributions after that date using the NEW (less generous) actuarial tables, you got the higher benefit. So now, four years later, they go back and they are forced to give you additional money. The consequence is that although you left money on the table to get the higher benefit, it no longer works out that way when they add in even more money. They recalculate your benefit and lo and behold, the "lookback" doesn't "win" anymore. Now, your benefit is higher using the new (higher) account balance than it is using the "lookback" in the same comparison. Voila. You get the higher benefit. Unfortunately, the higher benefit is lower than your benefit when you had the lookback because you're under the NEW actuarial tables. Still more unfortunately, PERS is obliged to "give" you the highest benefit. And sadly, the higher benefit is still lower than your previous benefit because you're now using different actuarial tables. Remember that the lookback preserved the "old" tables (the ones usually called the 1978 tables). After the Strunk/Eugene adjustments, you end up, by pure computation, under a set of tables that went into effect on 7/1/03 and are less generous than the 1978 tables.

PERS should have explained this in the letter. It would have saved them a ton of grief. Now, the only thing I can offer is that people appeal their benefit. I'm afraid the appeal won't show much except you'll get the details of the calculation so you can see how this all worked out.

I remember this topic coming up in a PERS Board meeting and the PERS staff cautioning that a complete review of calculations could end up in situations like this. Unfortunately, they underplayed their hand. It looks like it is happening in every single case I've heard about. So far, every single example I have where the "lookback" was the winning procedure originally, it now loses and produces a smaller gross benefit. This is a sick and cruel joke. Appeal the invoice. Make PERS do the extra work to provide you with the explanation. Make sure you thank your legislator. After you've done that, consider a contribution to one of the legal defense funds to help the litigation to stop this dead in its tracks.

P.S. In an answer to an obvious followup question. Why doesn't the "lookback" still work? Because the original lookback was formed on an assumption that is no longer legally correct. PERS calculated your "at retirement" actual account balance assuming 0% earnings for 2003 and 2004. Since the "lookback" used a pro-rate of 8% to simulate the June 30, 2003 balance, the "lookback" balance upon recalculation is actually lower than it was when originally calculated. The original "lookback" continued to "freeze" the 20% for 1999 without the 0% freeze. If you reduce 1999 but not the 2003 earnings rate, the revised "lookback" balance cannot possibly be higher. However, the total account balance is likely to be significantly higher because it was originally formulated with 20% for 1999, 0% for 2003, and 0% for whatever period you worked in 2004. The 1999 adjustment is common to both balances, 2003 had already been adjusted for the "lookback" but not the final account balance, and so there is virtually no way that the actual account balance adjusted for the Strunk/Eugene matter could be anything but significantly higher. And so, the "lookback" has little chance of "winning" against a significantly higher account balance after the recalculation.