Another Round of Blues

Over the past few posts (except my April Fool's post), we've been exploring the plight of a narrow group of retirees whose benefit was calculated on the basis of the "lookback" - a legislatively designed method to ensure IRS compliance when the new actuarial tables went into effect on July 1, 2003 (HB 2004, 2003 Legislature). You can review previous entries to see how this particular calculation has led to some perverse outcomes for retirees subject to the Strunk/Eugene remediation efforts. The short version is that when the Strunk/Eugene adjustments are made, the "lookback" no longer gives the best retirement estimate. Instead, retirees are finding that they have significantly higher at-retirement account balances and are re-retiring under a straight Money Match calculation using the higher balance. While at first blush this might seem to be very good news (and most people in that situation thought that would be the case), the fact is that the higher account balances don't translate into higher retirement benefits. Instead, the higher balances become subject to the new mortality tables, which are considerably less generous than the tables they replaced. Consequently, retirees who find themselves in this situation are faced with benefits lower than they were receiving under the original "lookback". In some cases, the benefit cut is significant - several hundred dollars per month. When a spate of these started showing up in my mailbox, I walked through the calculations in the instances where I had all the relevant data. Alas, there is nothing wrong with PERS' calculations. I suggested that affected individuals contact the PERS Coalition through its attorney, Greg Hartman. Several did and this resulted in the PERS Coalition publishing a brief response on the AFSCME web site. The short answer is that while these cases are unfortunate, they do not appear to be litigable, or at least the PERS Coalition isn't going to litigate them. I don't know how many retirees are in this boat. I heard from 16 individuals. In the time period where this effect could possibly occur, there were a total of about 5000 retirements. Based on my own experience and communications, I would say about half those retirements were "lookback." Of those, I'd guess that approximately half will experience what my correspondents have experienced. The key factors will be age at retirement, retirement option, and percentage of account in variable. Younger individuals are less likely to experience this than retirees 60 and over. This is because the mortality factor changes are more evident for older retirees than the younger ones.

On an unrelated topic, I want to alert everyone to another "quiet" period for this blog. I'm leaving on April 21st for London and returning April 30. I will have my laptop with me, but I don't know how easy it will be for me to have wireless access. Our friends don't have it, so I may have to depend on finding a handy Starbucks or equivalent. Given the current exchange rate, I'll probably ration my time online. So, don't expect too much news from this source during that time period.