Ain't That a Kick in the Head

The PERS Recovery effort has gotten under way, although no formal, official collection letters have gone out yet.  PERS is still waiting for a decision on their budget request to the Legislative Emergency Board.  

In the meantime, the little, niggling things I mentioned in my last post are starting to clarify, and the little people are finding that PERS has a variety of groups that are suddenly discovering that they owe PERS money even though they either retired before the 1999 earnings crediting, or after the so-called adjustment.  In other words, there are far more people affected by the recovery than just the so-called "window retirees".  We've encountered people from the Police and Fire group who retired after the recrediting action, but who purchased Police and Fire units while the 20% crediting was still in force.  Those units were not adjusted at the same time that the Tier 1 regular account recrediting took place, and thus were surprised to receive a collection letter.  There are approximately 1300 retirees affected by this untimely notice.  People who took the partial lump sum (retired prior to 2004) in the late 1990s and decided to have PERS distribute it in some (up to 5) annual payments.  The money remaining in PERS after electing the partial lump sum was also credited for 1999 earnings at 20% and so many of those people found themselves receiving an ugly surprise letter from PERS last month.  The original default repayment amount started out at 2% and was, unthinkingly and uncritically, selected by PERS staff without any analysis of the actual impact on the timing of repayments.  While most people would retire their obligation in under 10 years, a significant number wouldn't.  Some extreme outliers wouldn't be recovered in under 40 years.  Thus, PERS has had to revisit the minimum payment and revise it to between 2% and 5%. The people most likely to be affected by the higher percentages, some as high as 10%, are people who took partial lump sums.

We've also heard from people who asserted that they had no obligation to PERS yet they received letters.  The largest percentage of instances were people who retired in May, June, and July 2005, supposedly after all the account adjustments were made and before they could possibly have received a single overpaid monthly benefit.  PERS initially denied that there were any confirmed errors, but I now know of at least three cases in which PERS has acknowledged erroneously sending the letter.   I'm pretty confident that there will be more.  I have heard from no one who did not receive a letter who believed he/she should have.  At this point it is probably safe to assume that if you haven't received a letter, you probably won't receive a letter.  However, some of the cases are so complicated and involve so many issues that there may be a few stray letters yet to come along.

The most common question I'm getting is:  "when will we actually see the invoice and have to start repaying?"  The answer depends on whether the Legislative E-Board approves PERS' request for additional spending authority.  If they get the approval, I would expect invoices to start going out in August and probably take about a year to complete.  I have no idea how PERS will stage the invoicing, although if I were doing it, I would go after all the low-hanging fruit first (i.e. retirees receiving a monthly benefit).  These make up about 75% of the total, so the low-hanging fruit also yields the greatest return for the least expense.  There will probably be a much more protracted effort to contact all the people in the other categories, especially if PERS does not have an ongoing relationship with them.   If PERS does not get the additional budget, the process will take much longer.  I have a hard time imagining that PERS won't get the money since the benefit to cost ratio is so extremely high.  

Meanwhile, the silly season is in full tilt, the structure of next year's Legislature is in doubt until November, and early returns suggest that a few well-known players want to revisit PERS yet again in February.  The cockier Legislators, or legislative wannabes seem to think there is still legal low-hanging fruit to be harvested from PERS, but I'm doubtful that the bigger pieces will withstand legal review.  Nevertheless, we've been kicked in the head so many times in the past decade, that I'm not willing to let up on my scrutiny of the big (or small) picture.  A new Attorney General might let up a bit on the privacy matters, but that may be a small victory if we attain it.  The price of a PERS retirement now seems to be eternal vigilance, something none of us anticipated when we retired. 

 

Swallowed Up

Little niggling things continue to concern me about the latest campaign PERS has organized to collect from "window retirees" for the overpayments we were paid.  Part of my concern was raised in yesterday's post, and will be elaborated on in today's post.  However, another issue has bubbled to the surface as well.  I've been hearing from more and more PERS retirees from  2004, 2005, and 2006 (outside of the "window") who also received the pre-collection letter.  Since these members did not, to the best of my knowledge, receive any documented "overpayments" (their accounts were completely debited for the entire over crediting from 1999 after the settlement agreement was executed in January 2004).  Thus, they received no overpayments, yet are receiving a letter charging them with receiving overpayments.  One went so far as to call PERS and received the unwelcome news that there is a group of about 2000 post-window retirees whose accounts are being reviewed for possible overpayments.  It is hard to figure out how these retirees could have been overpaid, and the idea that PERS is using the cover of the Strunk/Eugene remediation to go after possible mistakes long after the statute of limitations has expired is more than a trifle worrisome.

Now, back to the 2%-5% issue.  While I now know the reason why PERS had to revise the minimum payment, I still cannot understand two things about it:  1) why wasn't this obvious to PERS when they first proposed the 2% default payback; and 2) how they are going to determine who is going to have to pay more than the 2% minimum.   If PERS stuck to the 2% repayment plan, some individuals would be in payback status for as long as 40 years; most are not anywhere near that long.  About 80% of "window retirees" receiving a monthly full benefit (i.e. did not take any lump sum) will be able to repay their entire obligation in 10 years or less.  PERS has decided, unilaterally I might note, that the collection process should not run for longer than that.  About 18% of regular monthly recipients would require longer than 10 years to repay their debt and these are the people PERS will tag with higher monthly reductions (up to 5%).  For the rest of the people - about 2% of regular monthly benefit recipients, and a large proportion of people who took a single lump sum payout - the reduction required to liquidate their "overpayment" in 10 years or less will be substantially higher than 2%, possibly as high as 10%.  PERS will be in contact with this group of individuals to arrange for some additional payment commitments to ensure repayment is complete in 10 years.

One question does not yet have a clear and unambiguous answer.  I serve as a perfect example of the problem.  My "overpayment" is in the mid 5 figure range.  If I take 2% of my current benefit and divide it into the amount I owe, it will take approximately 10 years and 4 months to repay the debt.  However, that calculation does not take into account cost-of-living increases I will receive along the way that will leverage up my benefit and my repayment amount (it is always set to be 2% of whatever my gross benefit happens to be at the time).  So, if I figure on getting a 2% COLA annually until my debt is repaid, it will be less than 9 years of actual repayment.  So, my question of PERS is this:  how is it determined whether an individual will need to pay the minimum 2% or something greater?  If the amount owed is divided by 2% of the current base benefit, I fall into the "more than 2%" category; however, if the amount owed is divided by 2% of the average expected benefit over the next ten years, I fall into a completely different category.  PERS would be wise to answer this question because I know an awful lot of people who will be swallowed up by this piece of arithmetic sleight of hand.  

Again, I remind all that WE DID NOT CAUSE THIS ERROR TO BE MADE.  Therefore, PERS' obligation is to be reasonable and not arbitrary.  The process started out to be quite reasonable and most people I've communicated with thought it was fair and equitable.  If now, every time we turn around, PERS starts changing the rules and making exceptions to the simple approach initially proposed, there are going to be a lot of people very angry, and a more vocal and intimidating group will start showing up at Board meetings to express their displeasure.

 

Nasty Letter

Most of the "window retirees" probably have received the initial letter from PERS concerning the beginning of the "payback" of the 1999 over credit of interest to Tier 1 regular accounts.  While this should not be news to most "window retirees", I'm sure that a large percentage of the 29,000 recipients were probably shocked to learn that they still owed PERS money, and that PERS was going to start collecting it sometime over the next year.  The letter was relatively simple to understand, although a fair number of people I know who have already repaid their "overpayment" back to PERS received the letter.  This will, no doubt, trigger some anxious and anguished phone calls to the PERS Customer Service group.  This group already has the reputation of being not very helpful, and occasionally downright obstreperous.  This will mean more work for the second level support people.

In January and March of 2012, the PERS Board meetings revealed the method that PERS was going to use to collect the overpayments.  Out is the actuarial recovery method (ARM) that some people were trapped in before Judge Kantor ruled in June 2007 that PERS could NOT collect overpayments.  Since the case was appealed, PERS simply stopped billing those not yet repaying, but left the payments in tact for those already in repayment status.  Based on discussions and conversations with PERS staff, OPRI, the PERS Coalition, and many others, PERS decided (wisely) to discontinue the ARM for new payees, and instead come up with a mechanism that is both fair and enables retirees to repay only what they owe - no more, no less.  This mechanism set 2% of the gross benefit as the default amount to repay.  Thus, a member receiving $1000 per month (before taxes), would see $20 per month deducted from the gross benefit and assigned to the repayment.  Under typical circumstances, window retirees would see their benefit reduced for about 6.5 years, after which the benefit would become the current gross benefit without the reduction for the Strunk/City of Eugene repayment.  Alternatively, members could write a check for a lump sum to repay in a single payment.  Members who wanted to accelerate their repayment could choose any amount in excess of 2% and repay sooner.

This method is both fair and reasonable, so what is nasty about it?  There is nothing nasty about what is described above.  It is exactly what the Board authorized at its March 2012 meeting.  To many people, the letter yesterday contained a very rude, very unexpected, and, if true, very nasty surprise.  The 2% minimum payment seems to have evolved into a less specific "2% to 5%" minimum payment.  In other words, we no longer know for certain that the default minimum will be 2% of gross monthly benefit.  Now, the minimum could be as much as 5% of gross monthly benefit, making what was a very reasonable minimum now become a much harsher minimum.  Who will be stuck with the larger payments?  Dunno.  There was a buried hint in the letter yesterday.  There was a reference to a 10 year period.  What has possibly occurred is that PERS' actuaries ran analyses using the actual cohort of eligible retirees and found that under a 2% minimum, some people might be paying for a really long time, possibly 10 - 20 years.  At this point, I'm just guessing because PERS hasn't gotten back to me to answer my question about the unexpected change.

In the meantime, even though PERS has discouraged phone calls about the repayment plan, I think that if you are concerned enough about this, you ought to email PERS and ask for an explanation.  This is a badly FUBARED public relations nightmare, not to mention an unexpected fiscal surprise for a group of people just coming to grips with the 2% reduction in benefits.  To confront a possible 5% reduction may be the tipping point for many retirees.  PERS ought to stick to their word.  The agreement they reached with the stakeholders was for a 2%, with the OPTION for individuals to increase the size of their repayment if they desired.  With this move, PERS has taken away another degree of freedom.  Just remember:  the overpayment was PERS' fault, not ours.  Anything that penalizes retirees is going to make a lot of people angrier than they already are.

Time for PERS to feel some of that wrath.