A bit of good news to report. PERS posted the COLA for 2010 today. The CPI for 2010 was 1.25%, which means that anyone who retired prior to 2008 will get a full 2% COLA this August 1. Members who retired after July 1, 2008 and before August 1, 2011 will get 1.25%. Bills to reduce, change, or eliminate elements of the COLA for retirees have made it nowhere so far in 6 weeks of the Legislature. It is reasonable to assert that if we haven't seen any action by early April that the combination of the Governor and the divided leadership in the Oregon House will have scuttled any attempt to further "reform" PERS.
Do not be seduced into complacency by this news. There are still two places where change can occur outside of the Legislature. First, collective bargaining discussions have just gotten underway. The Governor has proposed that the unions agree to having members pay up to 15% of their health insurance costs, while also contributing 6% to their PERS IAP plan. I don't think it likely that the unions will agree to exactly this, the unions understand that they will have to entertain and accept some givebacks this year to help Oregon through the current fiscal crisis. The second place is PERS itself. This is the year that the PERS Board will revisit the actuarial assumptions that underlie the PERS plans. At issue will be the "assumed interest rate". There is considerable pressure to reduce the assumed rate from 8% to something lower. Do understand that neither the employers nor the employees want this to happen. In the employers case lowering the assumed rate means that employer contributions will increase, while lowering the rate for employees means both lower guaranteed earnings for Tier 1 members and also lower pension benefits for all members. Both the negotiations and the considerations by the PERS Board will take place publicly and in full daylight. Members will have an opportunity to testify in any hearings regarding the assumed rate before PERS Board, while members will be polled extensively on terms of the Union contracts.
The good news in all of this is that we are unlikely to see a situation like exists in Wisconsin. Fortunately for Oregon and for Public Employees, the unions play an important role in developing and electing political leaders and they, in turn, don't want to alienate one of their clear bases of support. Governor Kitzhaber told the unions this to their face earlier this week
So the little lambs roar as spring comes in. Hopefully we won't see them slaughtered as Spring gives way to Summer.
27 comments:
I was going to retire Sept. 1, 11
but with HB 2455 looming over my head and not knowing how the bill would effect my monthly benefit, I
should probably bail now. I'm
looking for more information on how this bill will effect monthly
benefits.
Well it is pretty clear that the intent of the bill is to limit retirement benefits to no more than 100% of final average salary. If you have a recent estimate you can tell exactly how this bill would work. Take your estimated benefit and reduce it to 100% of FAS. You are done. The rest of your money is gone. Done. Of course this will eventually be ruled illegal but those of us who retired in 2002 or 2003 have discover that it is much easier to keep a benefit you have than to recover for one taken away. Were still waiting nearly 10 years later..
Changing the assumed 8% rate wouldn't affect those who have already retired by that time, would it?
No. Changing the assumed rate would only affect actives and retirees who leave after the effective date of the change.
If the assumed rate were to be lowered, when would the change be effective - retroactive to 1/1/11, the date of the vote, or beginning with 1/1/12?
When would any Assumed Rate change take place. My understanding is that it takes place January 1of the next calendar year after all the actuarial factors have been determined and approved by the PERS Board. Is that correct?
If the PERB decides to lower the assumed rate, it would take effect with the revision of the actuarial tables on 1/1/2012 unless they change their own rules. They are required to revise the actuarial tables every two years. Originally they did so in odd numbered years but a few years back they passed an Administrative Rule to modify the actuarial tables for even numbered year to be concordant with the year in which formal actuarial evaluations are implemented. Thus, we expect to see the 2010 actuarial evaluation to be completed by sometime in mid-2011 with implementation by 1/1/2012. In 2012, the new employer rates will be developed for 2013-15 and it will be based on the latest actuarial study.
If they lower the Assumed Rate I predict mass retirements on 12/1/2011.
PERS and the Actuary are well-aware that there are approximately 58,000 active and inactive PERS members eligible to retire today. If they make that decision they will do so in full knowledge of the implications for their workload. So far, I've seen no indication that they *will* change the Assumed Rate; however, they follow their actuary pretty closely. The actuary has been pretty inconclusive regarding future growth rate. The only people pushing for lower rates are people who don't really understand the complex interactions between employer costs, eligible members, PERS workloads, etc. I'm sure the necessary knowledge has been delivered to the power brokers in the Legislature.
Given that PERS' regular accounts have returned an average of almost 11% annually for the past 40 years, why would there be any great push to lower the rate to less than 8%?
Isn't the income tax subsidy for out-of-state retirees still quite vulnerable, given that eliminating it has always seemed the politically least risky legislation to support?
Here's a long story about a narrow issue I'm hoping to get some input on. Chapter 1: I'm 61 now. My retirement target's been mid 2012 for a number of years, however I did ramp things up in preparation for an emergency bail out this year if it were to come to that. Doesn't look like it will, but we shall see. Chapter 2: Going into this I did some sideways analysis to reflect a couple of PERS Bd assumed rate scenarios, thinking that if the Legislature didn't so anything dramatic, maybe the PERB action would be reason to go before the end of the year. In that I used the Mercer guidance indicating that someone my age could expect to work an additional 7 months per half point reduction in the assumed rate to get back to the same benefit level. Who wants that, right? Chapter 3: Well, as I jumped into specifics, doing my best to value and sort all the variables, it turns out the big one for me isn't a half point assumed rate reduction, it's health insurance. (I should say that I'm focused primarily on getting through the next five years without overrelying on savings). I have good coverage through work, and with three kids, two with seven years to go to 26, I'd like to keep the family coverage I have. This will cost $13-1400 a month, only, for now, to continue, as I understand it. I haven't looked seriously at alternatives. My intuition tells me that with 5 of us, I'd not be keen on jumping into the HSA+catastrophic care coverage mode at this point. Any of you veterans of retirement that dealt with pre-medicare coverage costs have any thoughts?
@mpguy. The fact that Pers has averaged 11% ROI for the past 40 years is irrelevant. the rate is significantly lower for the period 2001-2010' about 5.5%. It is in that period and that the actuaries are focusing as it reflects a newer reality than the previous 30 m
why are death bennefits not being addressed by PERS? currently the law states they are based on an account balance that no longer has dollars being contributed to it other than interest earningings.
The death bennefit seems to be an area within PERS that should be addresed to reflect the changes that took place in 2003 and account for years of service to become an option if it exceeds the account balance calculation for a bennefit. what gives?
Why is nothing being done in this area?
One legislator commented that they are going to combine and pass 3 of the bills: one to eliminate the use of unused sick and vacation time, one dealing with Oregon workers who live in Washington, which an inside source tells me Wa State is planning to sue Oregon over, and one I cant remember. The Ot one effects me, I work mass overtime, so I'm leaving and I wont be able to afford insurance for my family, I have children 9 and 11. I have 27 years in.
To all, thanks for your comments. I have no idea about death benefits or the particular issue pertaining to this. Elaboration please.
As to combining the bills into three, I've heard vague rumblings of the same thing. They can eliminate Sick Leave and Vacation and I predict a mass sick-out and a lot of vacation being used before retirement. Focusing only on WA residents to the exclusion of all other states that don't have income taxes will probably be struck down by some court as discriminatory. As far as anything else, I don't see what else they could even consider passing that won't run into contractual problems. Maybe a Tier 4 is the other thing that wouldn't run into contract problems. Everything else violates contracts.
@mpguy. Remember the investing axiom: past performance is no guarantee of future performance. I think the seers are looking out into the future and don't see as rosy a scenario long-term as historically. PERS is really invested in a lot of risky ventures to make the 8%. If the market goes to hell, PERS will be hit very hard. I'm not defending lowering the assumed rate, I'm merely saying that the actuaries don't agree with the past performance guiding future estimates of system behavior. Many other systems are lowering their rates so PERS would hardly be alone if they decided to go to a lower assumed rate. Only in Oregon, however, will it hit the employers as hard as the employees, at least for the first 5-7 years until the payback starts for employers.
I've seen no mention of 2447, this one pertains to people like me who work a lot of overtime, Has anyone heard any rumblings pertaining to this one
Interesting points being raised. I'm watching closely. I have my 30+ years in, but haven't wanted to retire--also don't want to be stupid and lose pension benefits.
On another note:
I sent a letter to the Oregonian about the seven legis. who "opted out" of the IAP to "prevent a conflict of interest" and mentioned to the paper that those seven actually opted into a much better deal by going with OSGP, where a person can have some control over the funds invested in.
Does anyone have current info on the 3 bills relating to elimination of the sick leave and the vacation time in FAS calculation?
@jon. To date, no PERS bill has received any hearing whatsoever. There are rumors floating around about which bills might likely get traction, but nothing has happened so far.
I am concerned about the bill limiting your pension to 100% of Final Average Salary. Can some one define FAS (Final Average Salary) for me. I understand they will not count your vacation or sick time, but what about overtime. I earn about 20% above my base pay in overtime. Will overtime be counted as part of your FAS?
I am concerned about the bill limiting your pension to 100% of Final Average Salary. Can some one define FAS (Final Average Salary) for me. I understand they will not count your vacation or sick time, but what about overtime. I earn about 20% above my base pay in overtime. Will overtime be counted as part of your FAS?
I am concerned about the bill limiting your pension to 100% of Final Average Salary. Can some one define FAS (Final Average Salary) for me. I understand they will not count your vacation or sick time, but what about overtime. I earn about 20% above my base pay in overtime. Will overtime be counted as part of your FAS?
I am concerned about the bill limiting your pension to 100% of Final Average Salary. Can some one define FAS (Final Average Salary) for me. I understand they will not count your vacation or sick time, but what about overtime. I earn about 20% above my base pay in overtime. Will overtime be counted as part of your FAS?
I was going to retire on Aug. 31st 2011 but after reading this blog it seems smarter for me to retire on July 31 2011 (I will recieve full benefits) due to the COLA. From this post it seems after Aug.1st 2011 I would not recieve it, Am I thinking correctly?
Thanks
@Heike. Unfortunately for you, to get the current 1.25% COLA you will need to be retired on or before July 1, 2011. The new COLA is payable for the July benefit check. PERS pays in arrears and so the July benefit check is on August 1. You have to be retired as of July 1 to get the extra added to your check.
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