Privateering

This is a short post aimed primarily at a small group of OUS faculty.  Many of us taught for OUS in the period when OUS created its separate retirement plan called the “Optional Retirement Plan” (ORP) in 1995.  Faculty already in PERS had a one-time, irrevocable option in 1995, to cease further contributions to PERS and join the ORP effective 1/1/1996.  At that point, PERS contributions were frozen, and the account became “inactive”, eligible only for earnings but not additional contributions.  Twenty years later, a few pieces of misinformation seem to be floating around, the original source unknown.  As a service to those who may be paralyzed by the misinformation, this posts attempts to clarify the issue.  Some members of OUS who joined the ORP at that moment in 1995, seem to think that they can “retire” from PERS, while continuing to work in an unchanged status for OUS institutions.  According to a few I’ve heard from, when querying PERS about this, some have been told that this was OK.  IT IS NOT.  In order to retire from PERS while working for a PERS-eligible institution as all OUS schools are, requires that you TERMINATE employment with the OUS institution.  While you may be able to continue to work for an OUS institution, your tenure status, your FTE status, and your benefit status has to meet certain conditions that do not favor you.  Your employer cannot continue to pay into the ORP for you.  Your work must meet the terms of either PERS or the ORP.  Generally, full-time work cannot be performed prior to reaching full, unrestricted Social Security age (66 for my cohort; older for younger faculty).  While ORP might permit you different working condition, your retirement from PERS triggers a different set of requirements that precludes you from receiving contributions from the ORP without jeopardizing your PERS benefit.  In short, those of you out there considering the “retire from PERS by 12/1/15 to lock in the current assumed rate”, are dreaming if you were planning to not terminate from the OUS institution.  It can’t be done; the IRS qualifications for both plans would be jeopardized, and PERS won’t let you do this.  Sorry to rain on your parade, but unless you are really, seriously planning to retire, this is not a workable strategy, and it won’t happen.

Another Brick in the Wall

With some encouragement, PERS has finally posted both an example of the impact of the actuarial changes, and the actual tables spelling out in detail the new Actuarial Equivalency Factors.  These new tables, effective 1/1/16 for all retirements taking place on or after 1/1/16 account for two new changes.  First, they account for a lowering of the assumed rate from 7.75% to 7.5% and, second, they account for an update to mortality tables that show retirees living a bit longer.  In the example used for Money Match members, the setback appears to be approximately 5 months.  That means that the benefit you receive on December 1, 2015 (if you are eligible to retire), won’t be the same again unless you continue working until May 1, 2016.  This is one of the longest setbacks in recent history.  

Many people will wonder what to do.  My answer is that if you were not planning to retire in the next six months, it probably makes no difference.  The only people directly affected by these changes are those who are literally on the cusp of retirement and were actively planning to retire within the window of December 1, 2015 and May 1, 2016.  For those eligible to retire now, but planning on going January 1, 2016, it makes considerable sense to accelerate your retirement by one month, as you will feel the greatest impact of the AEF changes the closer you are to December 1, 2015 but after.

You can find the new tables posted on the PERS web site.  Check the column on the right side for the top two items.