I will continue to post any relevant updates while I'm gone. You can get those by following my Twitter feed @mrfearless47. It is filled with as much snark as I can manage in 140 characters. Sometimes the most snark can be found in the hash tags (#), which provide guidance on the topics you can follow on twitter to get even more information (or not). One useful hash tag is #orpers.
Monday, July 08, 2013
Postcards from Paraguay
The Fearless one is charting course for a brief vacation in the American southwest. Regular blog posts will resume upon my return on July 19. In the meantime, the Oregon Legislature closed up shop today, bidding sine die until next February. The only bad bill to emerge this session is SB 822, which cuts this year's COLA for retirees to a flat 1.5%. In addition, the bill repeals the income tax subsidies embodied in SB 656(1991) and HB 3349(1995) for any PERS retiree not subject to Oregon Income Tax (essentially all retirees no longer living in Oregon). Supposedly PERS is required to contact every retiree fairly soon and get an affidavit of whether the retiree's pension is subject to Oregon Income tax for 2013. Just in case you haven't retired and spun the roulette wheel to decide whether to retire while the legislature was in session, there is more possibly bad news on the horizon. Both the Governor and the Senate President announced that they are going to let legislators rest and then try to revive the grand tax and PERS cuts bargain that eluded legislators in the waning days of this session. If the leaders can get the right number of legislators to commit to voting for the two pieces, they will call a special session (probably in the Fall) to enact additional legislation. It will take more PERS cuts to get the Rs to sign on, but they would also have to agree to Revenue measures the Ds want badly enough to sell out more PERS members and retirees. It is unlikely that a special session will take place before the ongoing labor negotiations conclude.
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9 comments:
I skimmed the court brief challenging SB 822. The arguments seem a little thin but I hope still adequate for a decision in our favor. I thought the court would be sympathetic to arguments regarding the new inequities SB 822introduces. Retirees with higher final salaries or money match accounts are punished more than those with smaller amounts. Also, many of us chose the annuity option over lump sum distribution based on the promises the state made, including the COLA provisions. If those provisions are changing, retirees should be given the opportunity to revisit their earlier choice to forgo the lump sum distribution option. Given the continual uncertainty over what other promises may be broken regarding my annuity, the lump sum choice looks like it was the wiser path.
I agree with your sentiment, but the Strunk Court made it pretty clear that we aren't entitled to a "do over". I'm not sure why, but after having had to battle to keep any COLA in 2003, and having to repay money that was legally credited to my account by a legally constituted agent of the state of Oregon, just because a group of 8 employers (mine not included) complained that they thought the board abused its discretion, makes this next lawsuit about as exciting as a root canal. I, too, would not only like a "do over" but maybe my old job back too. Going after retirees is about as dishonest and disreputable as you can get.
In a previous Fearless post on Money Match, the monthly PERS payment was given the nod over a lump sum payout invested in private annuity. This PERS advantage was because of PERS COLA.
In the above post, a "do over" -- though not possible - seems to be the preference. Does the drop in COLA mandated by SB 822 vaporize the advantage of a PERS monthly payout vis-a-vis lump sum investing? I estimate my overall COLA (for 2014) would be 1.7% if I go the monthly check option.
@Chas. I'm not sure how to answer your question, although it would be theoretical, and moot. In my wife's case, we had no choice but to take a lump sum payout, and her employer's annuity plan used a low assumed interest rate and provided for no COLA whatsoever. We rolled the money into a Fidelity Rollover IRA with their wealth management group. That gave us the option of having their team manage the money based on a percentage of assets under management. The amount of money being managed is significantly more than would have been the case with my PERS lump sum settlement and so it is difficult to draw comparisons. We elected a relatively conservative mix (about 50:50) with a management fee of approximately 0.30% per year. She's been retired for less than 2 years in a period when the stock market has been quite good. So far, we are averaging slightly more than net 14% ROI. At the same time, I have a relatively small 403B I acquired during my time in Higher Education. That is invested 90% in stocks and 10% in bonds. Since retiring, my average return, including 2008, has been slightly more than 13% and my money has more than doubled since making my last contribution in late 2005. We view this account as the COLA basis for the larger lump sum IRA. Our experience suggests that with careful management, some way to mitigate the variability associated with equities and bonds, it is possible to do even better than PERS over a significant period of time. My 403B has withstood the vagaries of the market well, and it is totally passively managed. I haven't touched the asset allocation in the account since about 2003 and I am happy with the mix of mutual funds -- all Fidelity I've acquired. This year alone it is returning close to 30% annualized. I guess my suggestion for people would be to consider carefully the options involved with a lump sum settlement. I would say it is possible to secure your future, but it isn't without some significant risk. For the risk averse, a fixed PERS pension is still better security so long as the state legislature does not start to tamper with the fixed benefit you are receiving. The assault on the COLA is a first step in keeping the benefits flat. Hopefully the Oregon Supreme Court will find this is not a legal approach.
Marc, thank you for the very thoughtful and detailed investing info. It gives me a lot to consider. I had assumed you were on a PERS monthly payout; that your wanting a "do over" meant wanting to go back and take a lump sum. I was confused because an earlier post (copied below) indicated that the PERS annuity was probably better than other options.
mrfearless47 said...
@Bob. The double lump sum is tempting, but perhaps because it is tempting it is USUALLY bad advice to go for it. I know of no annuity that would do as well as PERS, especially with a Cost of Living increase, no matter how diminished. Plus you get the anguish and worry of managing your life's savings in place of the anguish and worry about the legislature. I see the risk of them trying to attach, reduce, or eliminate our benefits once we have retired as extremely small; however, I would worry all the time about running out of money before my natural pull date if all I had was my total lump sum. My opinion, for whatever it is worth.
Thought #2: I called PERS today (no phone wait! but I would have rather waited to talk to either of my earlier PERS helpers than to the brusque woman of today). She said I had about 2 or 3 days to cancel my June 1 retirement application, as I was about to "go into the system." So I faxed a Please Cancel letter. Now I'm wondering how long it takes to convene a special session of the legislature -- i.e. how much warning I'll have before I submit another retirement application. I'd really rather not be involved in these games, but if the Salem gang is on the court it's hard to stay on the sidelines.
There is another consideration that might make the lump sum the more attractive option if PERS COLAs all but disappear. You have the opportunity to time the payouts from your IRA or whatever vehicle into which you roll them over.
This is especially true if the annuity payment under Money Match is fairly substantial ($60K-$70K or more). If you have big medical expenses, including health insurance costs, minimizing the payouts and allowing more of the fund to continue building has the effect of increasing that deduction (and others) on your 1040 and Oregon Form 40.
There are also some AMT (Alternative Minimum Tax) implications if you have some capital gains in your investment portfolio that you want to realize.
As Marc notes, it's a complicated decision. It's not necessarily a given that nothing can be done to provide a "do-over." The legislature has that power. If they're going to reduce the COLAs, they owe it to people to have another chance to assess options in light of changing circumstances. It's actually in their best interests to do so, since getting people--and their "8% money"--out of the system can serve to reduce demands of PERS to generate higher returns on its marginal investments.
A not-so-reassuring pension article from Saturday's Times
http://dealbook.nytimes.com/2013/07/19/detroit-gap-reveals-industry-dispute-on-pension-math/
More BS from a small group of people with evil designs on public employee pension money. Oregon's PERS system is far better funded and is structured far better than the majority of systems in the US. this same argument has been going on for more than 10 years and so far not one system has changed its approach to valuing public employee assets. It's a favorite bogeyman of conservative economists, but it is simply another way to try to cripple public employee unions and, by effect, bankrupt public employees. This is Darwinian economics at its worst.
Talked to someone last month who is friends with Forest Grove school superintendent. The "super" told her that the only thing stopping adequate school funding was PERS. I, of course, called BS on that but fingers went in ears and she started to hum (truth is not always welcome!).
I noted that right after passage of SB 822 FG schools announced they granted the "super" a 7% pay raise.
I wonder how much education that money would have purchased?!?!? Oh yeah, I just got educated in double speak and politics!
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