Saturday, November 21, 2009
Strange Days
One of the more surprising and unusual proposals to show up at yesterday's Board meeting emerged out of a meeting of Stakeholders with the Legislative Advisory Committee (LAC). Astonishingly, one idea is to end the IAP for Tier 1 and Tier 2 members and repatriate the money into the respective Tiers. This has no bearing whatsoever on ideas floating to eliminate the 6% pickup or end the 6% mandate. The issue created by the IAP - an unanticipated consequence one might say - is that employee money is no longer going into the PERS Fund and does not contribute to the financial health (or illness) of the system. Somehow the employers seem to feel (it was suggested by an employer) that if the IAP money from Tier 1 and Tier 2 members were to be drawn back in to the PERB fund, the system's health might improve. Of course, the actuaries haven't weighed in on this and the PERS Board isn't likely to request such a study from their operating budget. But to have this floated scarcely 5 years after the IAP began shows just how many bad ideas emerged out of the 2003 Legislature. We live in strange times.
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And, this isn't likely to happen. Imagine the consternation that arises if this were to take place. Does this mean that IAP members who are Tier 1 would get a 36% increase in their 2008 earnings (-28% loss to an 8% gain), while at the same time losing all the gains in 2004, 2005, 2006, and 2007 because the fund was credited with more than 8%. Somehow I don't think this will happen. Or, what about the people who retired with IAP funds in tact expecting to get nothing else. How would they be treated? Somehow I expect if this happened there would be litigation galore.
While this proposal was floated as an "idea", I don't think it has legs. It is just another dumb idea from the employers to see if they can figure out how to make the shortfall of current budgets belong to someone else.
Even though I think the IAP was an incredibly stupid idea in 2003 - and still think so in 2009 - I would not place a nickel's wager on it changing now or in the future. The legislature hates to admit it is wrong, and a change like this would be one of the dumbest and most expensive changes they could possibly make. The legislature has a lot of dumb people, but they aren't this dumb.
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