Your Luck Won't Last

For those wondering about the discontinuance of the income tax remedy for out-of-state residents, PERS has confirmed that the first check affected by the Legislature’s actions will be the February 1, 2014 check.  You may have received a letter about this, but nothing on PERS’ website indicates whether PERS is obliged to send you an individual notification of this reduction BEFORE it hits on 2/1/14.  Do not assume that if you haven’t heard from PERS that you aren’t affected.  You have until mid-December to confirm your tax status to PERS; otherwise PERS can treat you as an out of state resident if you didn’t pay Oregon Income Tax in 2013 for 2012.  If you are an Oregon resident, subject to Oregon Income Taxes (whether you have to pay or not), you are not affected by SB 861 and SB 822, but if you are in ANY doubt, confirm your residency status to PERS using their affidavit.  Otherwise, you might find yourself without the income tax subsidy for 2014 and have to wait until 2015 to get it straightened out.  Forewarned is forearmed.

Peace out all.  This is my final post until I return from Myanmar (Burma) on December 19.  I hope that all will have a relaxing and festive Thanksgiving, and a joyous run up to the Winter Holidays.  

25 To Life

Without much fanfare - actually without any fanfare - PERS quietly posted the new Actuarial Equivalency Factors on its website in (my opinion) a rather obscure location.  After studying the factors and matching them up with a few other sets I have stored away from past years, it does look like the option 1 (base) benefit has declined by somewhere in the vicinity of 2-3.5% depending on retiree age.  By itself, this corresponds to about the three month setback I’ve discussed as rumor in previous posts.  There are a few surprises in the tables, primarily in survivor benefits.  From reports I’ve gotten, both those posted publicly, and in instances where people have reported to me privately, it appears that members with younger spouses seem to get some of the reduction back as the joint survival tables show about a 1% improvement over prior tables.  I’m not sure I fully understand the reason for this, although I know that the PERS member cohort is living slightly longer than in the past, which accounts for the initial reduction (along with the cut in the assumed rate).  But, the add back for beneficiaries is a bit of a surprise, and I can’t totally explain why it should be the case.  Nevertheless, Option 1 is definitely a reduction, while Options 2 and 3 (and their corollaries 2a and 3a), appear to recover a very small about of the Option 1 setback from earlier sets of tables.  

So, I’m hearing stories about a net setback of 1.5% - 2.5% with a spousal or domestic partner beneficiary, slightly more of a setback for Option 1 (no survivor, no refund, maximum) benefit.

For those of you who want a copy of the new tables, they can be found here .  

I will probably have one more post before I leave the country and will be gone for much of December.  Where I’m going, they barely have telephones, much less internet, and cellular service (I was told I can rent a cell phone for $2500 - no thank you).  So you will see nothing from me between November 30 and December 18, while you may see one post before Christmas.  Do not panic.  That is dead time in the PERS world and so the fact that nothing gets posted in that period is not a sign that I’ve lost interest; I am merely seriously out of the country and unreachable.  I hope to have some cool photos when I return.

Dirty Lowdown and Bad

It has come to my attention that a variety of public agencies (school districts, in particular) are trying to scare the bejesus out of Tier 1 members by sending out incomplete or deliberately vague information about changes to PERS benefits coming on retirements taking place after December 1.  In one particularly egregious example, sent to me multiple times by PERS members from a particularly large school district in the south center of the Willamette Valley implied that bad things might happen if eligible employees missed the December 1, 2013 retirement date.  I’m going to shout this by using all caps - THE THINGS HAPPENING AFTER DECEMBER 1 HAVE ALL BEEN KNOWN FOR SOME TIME, ARE NOT NEW, ARE NOT RELATED TO ANYTHING THAT THE LEGISLATURE DID OR DIDN’T DO.  MOREOVER, WHILE THEY WILL PROBABLY HAVE A SLIGHTLY NEGATIVE IMPACT ON YOUR BENEFIT IF YOUR PLANS DON’T CHANGE, THEY ARE IN NO WAY THE IMMINENT DOOM THIS PARTICULARLY NASTY MEMO IMPLIED.

Let me clarify what is going on.  The two things that are going to change are 1) the assumed interest rate decreases from 8.0% to 7.75%.  The PERS Board chose to reduce the interest rate by ONLY 25 basis points to minimize the impact on employers, but the side effect is that Tier 1 members subject to the rate guarantee will be earning at guaranteed rate of 7.75%, a net reduction of about 3% on total earnings.  You can make up that difference by working an additional 3 or 4 months.  The second thing to happen is that the assumed rate is also reflected in the Actuarial Equivalency Factor, which is used to convert the Option 1 Lump Sum Benefit (Total Lump) sum, in a series of other kinds of payments more suitable to be paid out over time.  The idea is that regardless of what payout option you take, they need to all be actuarially equivalent taking into account the same factors.  The AEFs are revised every two years, just like the assumed rate is revisited every two years.  They are done at the same time because they interrelate in all the same calculations.  So, by lowering the assumed interest rate, taking into account changing mortality of both the PERS and general population, changing assumptions about inflation and salary growth, the AEFs are likely to change in a way that will reflect the fact that the typical PERS retiree is likely to live longer than the predictions from the last set of tables.  These mortality factors can’t change too much because humans are reaching the asymptotic plateau of mortality without major changes in the mortality and morbidity of the major killers.  Nevertheless, mortality factors have changed and, coupled with the lowered earnings assumption, make it likely that members approaching retirement age will see benefits reduced by anywhere from 1.5% to 3.5% depending on age at retirement, spouse’s age, if germane, and benefit payout choice.

The actuaries have not released the revised AEFs to the public yet, but they’ve suggested broadly that they will result in a rough 3 month setback.  This means that someone who can choose between December 1, 2013 retirement (under 8% and old mortality tables) and February 1, 2014 would receive approximately the identical benefit.  So, if you were planning to stay until February, but can retire at the end of this month, there is no financial advantage to you (aside from 3 months of additional income and 3 months of additional contributions to the IAP) to wait until February.  But if you can’t retire in December, or don’t want to retire in December, you can neutralize the impact by working roughly 3 months longer.

While the most offensive of these letters does encourage members to scour the PERS website for more information, the vagueness, the absolute failure to reveal the nature of the changes and the fact that they have been known for a fair amount of time is truly one of the most dirty, lowdown, and bad scare tactics I’ve seen in some time.  I should hardly be surprised since this school district comes from one of the most litigious region of Oregon.  That they would try to intimidate by scaring with, at best, misleading information is offensive and odious.  If I were a member of a union in that area, I might be inclined to file an unfair labor practice complaint against the school district.  The district could have been perfectly straightforward and mentioned the changes taking place without detailing exactly what impact they might have.  There is nothing you can be sued for by giving out factual information without offering any interpretation.  The actual notice simply scares workers needlessly without providing an iota of fact, just “beware of the boogeyman”.  Shame on this district.