Right now, the action on PERS seems to be a combination of the PERS Board finalizing the new assumed interest rate (7.75%), the effective date for new rates and new mortality tables (January 1, 2014), and approving the final set of assumptions for the 2013 experience study that will determine employer rates for 2015-17.
The only area where no real hints are available is in the construction of the new mortality and AEFs. The new tables go into effect of 1/1/14 and I've received conflicting information on how those tables might affect individuals who retire on or after January 1, 2014. Early information suggested greater longevity for the PERS population, which would lead to actuarial equivalency factors that result in lower monthly benefits to members. This would happen anyway since the assumed rate will have been lowered, but the information initially received suggested that the PERS member experience was unusual and that the tables would have a far greater impact on benefits than expected. Lately, however, I'm getting a completely different set of rumors. While it may be true that the PERS experience data indicate longer life expectancies, the general population data show exactly the opposite. Actuaries and epidemiologists have been noting this effect since mid-2012 and the overall population numbers suggest that mortality rates are declining by several years. They've correlated this impact with education attainment and have noted that those with either less than a high school education or only a high school education have mortality reduced by more than 4 years over the rest of the population. This results in general population mortality figures that are shorter than in the past. If this is true, and the data certainly seem to support the claim, then what may happen is that PERS' actuaries will have to revise the mortality tables downward and report lower life expectancies. Ironically, this will have exactly the opposite effect for members. In the main, it would probably return the mortality tables back to the point where they would have been in the mid-1980s, slightly better than the 1978 tables, but worse than the 2003 revision. If this happens, the lower interest rate will be offset by lower mortality and member benefits would be higher than expected because they aren't expected to live as long. I see no resolution of this issue until the new tables are reported out, possibly at the September 27, 2013 Board meeting.
In the meantime, our illustrious Governor Kitzrobber is pacing the state trying to build support for more PERS cuts and higher taxes to support the public schools. The Governor has hinted at what he wants as part of the "grand bargain", which seems to be similar to Senate Bill 857. Recall that SB 857 had two parts: further cutting the retiree COLA (amending SB 822 from 4 tiers to 2 more punitive steps), and cutting the annuitization rate for inactive members seeking to retire at some point in the future. SB 857 died when the House failed to pass HB 2456, which would have increased taxes for several different groups of people. The net effect of these two bills would have been to increase revenue in the state by about $250 million per biennium and further reduce employer costs by lowering the unfunded actuarial liability of the PERS fund.
The issue now is that the possibility of enacting a cut to inactive members retirement benefits shook the tree pretty heavily. Recall that during his testimony on SB 822, Paul Cleary, PERS Executive Director, noted that 4% of the inactive members were responsible for 40% of the liability of all the inactives (not ALL PERS members). From various sources I've concluded that many of those people retired June 1, July 1, or August 1, thereby reducing the amount of money that would be available to recapture by cutting the annuitization rate for the remaining inactives. Thus, any bill including the inactives would probably generate about half the savings as before, and possibly less if the Legislature gives inactives a free-pass for a few months before implementing the rule. Since the AG warned the Legislature that passing a bill that provided essentially no notice, or trapped people with no option to get out before the effect date, would be viewed negatively by the Supreme Court. So, it appears that the inactive cut would not be very lucrative for the employers or PERS, and would force the burden back on retirees, again.
I have no sense of whether a Special Session will be called or not. I know that the Governor wants to call the session in September, if at all. I've heard that some legislators are balky at the idea of more cuts to retirees, while the Rs are balky at the prospect of tax increases without some tax cuts to help small businesses. I do not regard the special session as a done deal by any stretch of the imagination, but if the Gov can keep all the Ds together, he needs only 2 Rs to pass everything he wants. The bar is not high, but it still will require some hard sales pitches. In the meantime, keep those cards and letters going to your legislators. They need to know what you think of these ideas.
13 comments:
I'll bet the Republicans would be really thrilled to trade PERS COLA cuts for higher taxes, only to find out within a few months that the COLA cuts are unconstitutional--giving them exactly nothing in return for their concessions.
The Rs aren't going to be satisfied with just more COLA cuts. They want everything in SB 754, which is a laundry list of every possible cut they can think of that might be legal. It is the throw it against the wall to see what sticks theory of governance. In a scenario like that, something will stick and it will bleed.
Very interesting blog posting. But I'm confused about the actuaries/epidemiologists findings. What does it mean that the "mortality RATES are declining by several years"? I've seen rates measured in deaths/1000 in a given year, so am not sure what this means in terms of life expectancy. Does this imply the general population's life expectancy has declined several years since mid-2012? Sounds nearly implausible.
Do PERS actuaries have a choice of basing mortalities on either the general population or on the more specific PERS population? Was past practice using the entire population? (or perhaps on native Oregonians or blue-eyed cowboys?)
Poor wording. There is a detailed discussion of the increasing mortality rates at younger ages in a new york times article on 9/21/12. Actually the correct phrase should have been declining longevity paradox. It isnt that longevity has been declining since 2012, but it has been declining for the past decade for the less educated, while the more educated are not experiencing increased longevity. The net result is declining population longevity.
As for what milliman does, they use a standard weighting between PERS retirees and the general population, based on the percentage of PERS retirees relative to the entire PERS population. With additions, deaths, and retirements is approximate equilibrium, the mix has been the same for the past decade. Judging from the latest PERS FAQ, posted yesterday, it appears that the longevity data has blunted the impact of the cut to the assumed rate, with benefit reductions estimated to be only 2.3% to 1.9% lower than current rates. That has to indicate decreased longevity since a combination of a lower assumed rate and increased longevity would have resulted in a bigger reduction to benefits. We will have to wait until Milliman publishes tge full set of tables, and describes the method used to compute them.
Thank you. That helps a lot.
That was a great article in the Times. Most amazing factoid: life expectancy for non-Hispanic white women w/o high school diploma decreased FIVE years since between 1990 and 2008. http://www.nytimes.com/2012/09/21/us/life-expectancy-for-less-educated-whites-in-us-is-shrinking.html?pagewanted=all&_r=0
It would be expected that decades of erosion of the buying power of the rank and file not to mention the effects of a severe recession would cause a marked rise in the anxiety of the more marginally employed with an increase in instability negatively affecting health. Mortality table life expectancy would go down. And some people thought the dangers of unions running their lives with their ability to put the brakes on the money accumulation at the top was the problem.
Does the possible change to the annuitization rate for inactives affect only those on money match or also affect those would go out on full formula?
@rkgernhart. To the best of my knowledge, the change to the annuitization rate, should it happen, would only affect full-formula recipients if they have a beneficiary to whom the benefit would go if the recipient died before the beneficiary.
Is anyone surprised at declining longevity in this country...given soaring health costs and continually declining wages. Will we ever get a clue from the rest of the industrialized world about health care for all? Or are we so locked in antiquated free market capitalism that we will continue the spiral of the rich getting richer and the poor dying early.
TS. Article in today's Sunday times of London about a similar problem the the uk and the declining standards of health under the NHS. It isn't peaches and cream under other healt models either. We may have reached the end of our ability for technology and other life saving and life extending measures. This may be the end of technological abilities to extend life and we are regressing toward mean life expectancy.
It's just that the mortality tables look a lot better in most of those countries with single payer or National Health Service programs.
http://www.whale.to/b/US-Death-Rate1may07a.gif
Chart
@TruthSeeker. Linking U.S. health care and its soaring costs to the free market system may be problematic. Steven Brill and others contend our health care system is anything but free market.
http://www.uta.edu/faculty/story/2311/Misc/2013,2,26,MedicalCostsDemandAndGreed.pdf
http://www.thedailyshow.com/extended-interviews/424076/playlist_tds_extended_steven_brill/424058
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