For those of you wondering, Yahoo Newsgroups are down for routine maintenance today. It isn't clear when they will be back up, but rather than waiting, I'm going to try and report the latest news from the Board meeting as well as elsewhere. First off, the good news: As noted in my previous, brief message, the PERB voted today to retain the 8% "assumed rate" so that the "guarantee" will not change anytime in the next two years. That ought to reassure anyone near retirement, but not quite ready for retirement that earnings on Tier 1 account balances will not go down. I wish I could just stop here. It would be time to celebrate.
Unfortunately, along with the good news comes some not-so-good news. My friends at the meeting today report that Mercer and the Board threw a real curveball at both members and employers today when they decided to change the methodology used to construct the mortality tables. To make a long story short (and hopefully simple), the Board adopted the Mercer recommendation to move from "static mortality" to "generational mortality". What this does is to create a separate table for each whole number age (e.g. 60, 62, 67), and is based on the assumption that "anticipates mortality improvements on a generational basis". In other words, the assumption is that each age cohort is expected to live slightly longer than the same age might have lived a few years ago. This is a very tricky assumption, but is used by actuaries around the country. You can read more about this type of construction here and here. Mercer predicts that this will lower Money Match benefits by about 2% (don't know whether this is across the board or tails off by age). This will also increase employer rates as full formula begins to overtake Money Match as the predominant mode of retirement.
In short, PERB seemed to be giving with one hand, and taking away with the other. I have no idea of how this will play out until I see the first set of mortality tables (due for presentation at the November meeting) constructed under this new assumption. It is doubtful that people waiting to retire after January 1, 2010 will benefit from these changes. At the same time, it isn't clear how much impact they will really have. The change in methodology obscures what used to be a fairly simple set of rules.
Finally, in a piece of offbeat news, a correspondent pointed me to a piece in this afternoon's OregonLive. Our favorite judge, Henry Kantor, is on Senator Ron Wyden's short list for two vacancies in the federal judiciary. Also on the short list is current Supreme Court Justice (and friend of PERS members/retirees) Durham. Several others were on the list. Five candidates will be interviewed next month with Senator Wyden passing on his recommendations to the President for his nominations. God help us all if Judge Kantor wins this appointment. He could singlehandedly slow down the Federal Judiciary to an utter crawl - a challenge that few before him have managed to do.
Unless there are updates or clarifications about the Board meeting, I don't anticipate any more posts until after August 1. I'm going out of the country and will have very limited access to email and to the intertubes. While I'm gone, everybody needs to behave.
5 comments:
In discussion at the PERB meeting, a Mercer rep said that the 2% reduction in monthly benefit for someone retiring could be 'made up' if the member would work an extra 2-4 months before actual retirement. Mercer did not have any information at the meeting to back up this point. Some members addressed the Board complaining about a reduction in their benefit so close to retirement. Paul Cleary was quick to point out that the benefit is not being decreased, just paid out over a longer life expectancy. To someone retiring on a tight budget, the distinction may seem irrelevant.
Board comments as well as comments from PERS employer representatives show that this proposed change in calculating mortality tables was a surprise. Several objections were registered even if this is a perfectly fine way to do the calculation. I think Mercer was caught off guard about how upset some people were over this change.
peg
I'm a bit surprised at the surprise. I distinctly recall a comment that Bill Hallmark made at the May meeting about potential changes to the actuarial methodology, and I distinctly remember him saying that a member might have to work an extra two to four months to attain parity. I recall thinking about this after the meeting and wondering what changes were in store. Now we know. But employer reps were there last meeting and no one of them questioned Hallmark at that time.
Marc, you are correct in your recall. Board member Mike Pitman pointed this out to the employer rep that spoke to this point. Mike was a bit heated, wondering where the employers were when this was discussed in May. The rep said it was news to them in the meeting today.
peg
After disseminating this information among our members, one contacted the divorce unit at PERS. A supervisor indicated that it was merely a recommendation, and the likelihood of a change to the new tables was slim at best because it would be too complicated. This directly contradicts the statement on PERS' website, which states "The Board will adopt new AEFs using the updated mortality tables at its November 2009 meeting and they will be effective January 1, 2010."
Your thoughts? Is it possible that it is not a done deal?
Cheryl
This is just my take on this issue, but watching the PERB on July 16th, I'd say it is pretty much a done deal that the Board *will* adjust the mortality tables. As they see it (to the best of my understanding) PERB believes they would be guilty of violating their fiduciary duty if they don't make this change. And, as Paul Cleary stated in the meeting, there is nothing in this proposed action that reduces the member's benefit, just that the same benefit will be paid out over a longer life span. That is how the powers-that-be in PERS see this issue.
peg
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