Hang Loose

Very tittle is happening in the world of PERS these days.  The election is just two weeks away and many elements of the PERS agenda will be established after we know who will control the Oregon House and the Oregon Senate.  If the Democrats take both houses, the PERS bills are likely to be less draconian than if the Republicans control the Legislature.  Dr. No is still Governor and so a veto of any anti-PERS bill is still possible.  On balance I expect a number of major PERS bills to be introduced into the Legislature but have no idea which will pass and which will not see the light of day.  I'm hard at work gathering information, but I am not in a position to report anything because the election will determine many things about the likelihood of major PERS reform.  There WILL be a change to the assumed rate decided during 2013 for implementation on January 1, 2014.  Both employers and PERS members are likely to oppose this change since it will mean higher employer rates and lower employee benefits.  However, PERS has some latitude to reduce the employer impact, while still socking it to members on the verge of retirement.  The Legislature convenes in late January, with the first bills likely to be passed in late March or early April.  The courts have consistently ruled that the Legislature cannot change PERS retroactively, but the definition of retroactivity has not be firmly defined.

Right now, I am far away from Portland and do not expect to be back until the early part of November, before the elections.  Although I continue to get information, I'm not in a place where it is simple for me to just pick up the phone and gab with people about the perceived impact any particular action might have.

Please stay tuned as once the election is over, the serious business of figuring out what the Legislature might have planned for PERS will become clearer.  The 2013 session is likely to be as volatile as 2003, but the courts have made the boundaries of legislative action more marked.  In actuality, there aren't many bad things that can happen to people on the contingent edge of retiring.  Even a reduction in the assumed rate will have little impact on members retiring through 2013.  But there are other changes that will have direr consequences for members further away from retirement, and several changes that *could* have a significant impact on members already retired.  This is where the definition of "retroactive" becomes crucial and will be, most likely, up to the courts to determine.  The Legislature has an unfortunatete habit of shooting first and worrying about the consequences later.  Happily, if this occurs, every legislative bill on PErS has a clause that directs resolution immediately to the Oregon Supreme Court.  This means that the time between a law passing and the law's legality being determined is typically two years or less.  There are no civil actions extant, and so any litigation that arises to PERS will be of the sort that goes directly to the OSC for immediate resolution.

My advice to those anxious about this is to hang loose until after the election.  You can help the situation out by voting against any candidate twho has expressed any negative opinion of PERS.  If you don't know about your own legislator, write the candidates and ask them their position on PERS.  Most will answer honestly, or at least in a way that clues you in to how they might vote on prospective PERS legislation.  Support those candidates with established records on PERS issues or those who have taken a stand that indicates that they would be inclined to give some leeway to PERS members.  If not, then any negative results are on you, not me.

Keep your eyes and ears open, and seek information wherever you can.  The vote you use may be to your benefit if exercised properly.  I'll be back after the election to handicap the outcome of certain likely PERS bills to appear before the Legislature.

 

 

Slip Sliding Away

I've just run across a PERS horror story that tops almost every single one I've read about.  I now have first hand information from the affected party so I feel confident that I understand what happened.  Doris (a pseudonym) retired from her employer in 2002 on a disability.  The disability was because of a brain injury.  She hadn't been working all that long and I don't know how old she was at retirement.  Nevertheless, the story goes like this.  Doris' initial computed benefit was $3500 per month.  Because Doris was unaware of how PERS really worked, she didn't think anything about the benefit.  Fast forward 5 years to 2007.  Doris gets her repayment/adjustment letter, but doesn't understand it and doesn't ask about it (remember the brain injury?).  PERS discovers that Doris not only had been over credited by $2000 for 1999, but also that they has miscomputed her benefit by more than $2000 per month.  So Doris' benefit is adjusted downward to $1400 per month, leaving a balance due of $59,000 resulting NOT from the 1999 over credit, but from the computational error PERS made in 2002.  PERS decides not to collect starting in 2007; I'm not clear why but they seem to apply the Circuit Court's ruling to ALL collections, not just those due to the 1999 over credit.  Of course, you can guess what has now happened.  If you guessed that PERS wants its $59,000 you would be absolutely correct.  But, PERS has decided, at least initially, to take a hard line and insist that all repayments be recovered in 10 years or less.  There is, to the best of my knowledge, no statutory requirement that PERS collect in 10 years or less.  It is simply a policy that the Board has adopted to collect the 1999 over credit.  However, in its usual inflexible, hidebound system, it has determined that Doris must suffer the additional indignity to repay her "owings" in about 10 years.  They are proposing that her current $1500 monthly benefit be REDUCED BY $500 per MONTH, leaving Doris nearly destitute.  While I have written to PERS about this case and am doing everything I can to help Doris, I'm afraid she has been a victim of a very cruel and cynical ploy by PERS to hew to an inflexible and irrelevant standard.  My reading of ORS 238.715 indicates that PERS must get permission from a beneficiary to reduce benefits by more than 10% due to a recovery action.  This reduction is 33% of Doris' monthly benefit.  Moreover, she suffered an initial 60% reduction in benefit due to PERS original error.  Now to add insult to injury, Doris is expected to repay an unseemly amount to liquidate an overpayment that occurred 10 years ago, and had nothing to do the PERB error in 1999.  PERS' fundamental error here is to confound two different issues and expect a single solution to both for their convenience, without regard to its effect on the payee.  PERS should have begun collecting the mistaken amount (about $57,000) in 2007, rather than let it continue to ride another 5 years.  Now Doris is 10 years older than when she was when she retired.  PERS squandered an opportunity to begin the repayment without court injunction 5 years ago.  While it wouldn't have been any fairer to Doris, PERS wasn't overrun with the idea that payments had to be collected in 10 years or less.  PERS totally misinterpreted the Court's injunction and applied it to a clerical error unrelated to the error under litigation.  Totally screwed up.

I don't understand PERS' inflexibility in this case.  Post your comments and thoughts in the comment section.  I'm sure Doris would appreciate your sentiment, positive or negative.  I hope that PERS gets a heart and a brain and decides to give Doris a much longer payment schedule so that she doesn't risk slip sliding away.    

September

The heat of the summer is winding down a bit, the days are getting shorter, and the nights are cooler.  The Anna's hummingbirds are engaged in aerial acrobatics over our feeders and are getting short tempered with each other.  It is also the month in which many of the retirees from the period 2000 - 2004 are starting to see their bills from PERS for the 1999 overcredit.  PERS retirees have discovered my blog and those who have been regular readers are nearly as startled as the "newbies" that PERS is billing them for something that happened over a decade ago.

Let's review.  In March 2000, the PERS Board, then composed of 12 people, decided to credit 20% earnings (out of 25%) to the Tier 1 Regular accounts for 1999.  Employers, still stinging from being stuck paying for the income tax remedy, were mad at the increasing rates that started right after the tax remedy began.  They decided to challenge the 1999 earnings crediting decision.  In early April 2000, they filed an administrative lawsuit alleging that the PERS Board had abused its discretion in awarding 20% without putting some of the surplus (over 8%) into the various reserves statutorily required.  Right here, at this point in time, the 1999 earnings crediting was suspended, leaving it in limbo until the Marion County Circuit Court (Judge Lipscomb) vacated the 20% in 2002.  Those members and retirees who benefited from the 20% decision were immediately at risk, but PERS failed to tell anyone in an obvious way what this meant.  Of course, years later, we know what it meant.  It meant that we had been overpaid by 8.67% on our Tier 1 regular account balances.  That overpayment continued to compound at 8% per year for every year it wasn't corrected.  Members retired with 20% credits on their records.  Lawsuits were filed, legislative actions taken, and throughout it was clear that PERS would eventually be moved to collect on the overpayments.  

The first phase of the collection effort was to stop the continuing overpayment of benefits, or the continued compounding of the 8.67%.  So, in the period between 2006 and 2008, PERS adjusted the benefits of the retired who received 20% by recalculating their base benefit using 11.33% as the 1999 earnings rate.  This resulted in an immediate drop in the base benefit.  They then added back all the COLA increases that should have been made, but had been withheld pending resolution of the cases, and most retirees barely noticed a change in benefits.  This led to some confusion because many members did not realize that they HAD received the withheld COLA.  PERS didn't do a very good job of explaining why, even after receiving all the withheld COLA increases, that benefits didn't change much.  At the same time, PERS invoiced members for the amount they had already been overpaid - money that was owed.  PERS sent out a lame collection letter, which was followed by a detailed accounting of what was actually owed.  The accounting was done very well and it allowed those interested to verify their own numbers quite easily.  Unfortunately, that letter was ignored by most PERS retirees because the Multnomah County Circuit Court had enjoined PERS from collecting that debt until higher courts could rule on the legality of the original collection letter.  So most people just filed their letters away or, worse, threw them away.  Finally, in early 2012, the Oregon Supreme Court, ruled that the Circuit Court had erred and remanded the case back.  In effect, this pulled the injunction and permitted PERS to move forward again with collections.  By this time, PERS had enough experience and heard enough complaints about the previous method of collection that they changed approaches completely.

Fast forward to today.  On the last Friday of August 2012, the first of the collection letters went out.  Once again, PERS has erred by NOT sending the detailed accounting of the balance due.  Retirees have been presented with just a bill for a dollar amount and are given 30 days to decide which of three methods they want PERS to start using to collect the debt.  People receiving a monthly benefit have been prepared for the collection by quarterly newsletters from PERS, but retirees who took a lump sum and have had no ongoing relationship with PERS haven't been so lucky.  Many of them, according to dozens of emails I've received, claim to have never received the original collection letter back in 2006-2007 when they were sent.  I don't know whether this is true or not, but judging from the number of emails I'd say that at least some of these individuals are correct.  PERS initially wasn't going to provide a copy of the original collection letter, but now I've learned that people who call the special PERS line are receiving what should have been included in the first place.

Now, for the issues that have arisen.  Monthly benefit people haven't complained much except for the lack of documentation.  But those who have and who've received the documentation seem satisfied that PERS' calculations are correct and unchanged from the 2006/2007 letter.  On the other hand, the lump sum people are completely taken aback by the size of their bills.  I've heard from people who received bills for as much as $61,000.  So, in an effort to explain what *might* be going on, I'm going to share some insight into how those numbers are computed.  First, and probably the most important piece, is the original error.  All regular Tier 1 accounts were credited with 20% for 1999.  This is 8.67% higher than amount ultimately authorized.  So, if you have your 1999 member statement (mailed in May 2000), you can compute the original overpayment quite easily in dollars.  Then, for each year you worked after the March 2000 crediting, the 8.67% grew by 8% compounded.  So if you retired in January 2003, your balance grew by 1.0867 x 1.08 x 1.08 x 1.08 = 1.37 (37%).  So, this answers the first part of the question of how much you were actually overpaid.  But, there is a second part that most people forget about.  Since you removed both the employee balance (yours) and the employer match (which is dollar for dollar in regular accounts), you also owe the same amount for the employer match.  Once you compute how much you owe from your own account, you then double that because the employer match was equally affected.  Monthly benefit recipients have already started to repay this because their total benefit (employee and employer match) has been adjusted downward.

So for those lump sum people, the pain is twice as large as you might have figured it to be because you've, undoubtedly, forgotten the employer piece of the equation.  You may also have forgotten about the time value of money.  PERS isn't charging you interest or penalties or anything else.  They are merely charging you for exactly what your overpayment was to the day you retired.  Once you took all your money, you stopped owing any more money, but the amount that you did owe was fixed at that point.

Hopefully this short explanation will help people better understand the balances they find themselves owing PERS.

The High Road

As expected, the item in the PERS Board agenda on the assumed interest rate was in response to Ted Wheeler, State Treasurer, letter to Paul Cleary. In Mr. Cleary's response to Mr. Wheeler, included in the PERS Board packet for next Tuesday's meeting, is a detailed schedule of the NORMAL cycle for considering an adjustment to the assumed interest rate. As predicted, Cleary is simply informing Mr. Wheeler and the Board of what the process is and how the statutes compel compliance. According to the schedule, the rate considerations will take place next Spring with a target date of adopting whatever assumed rate is appropriate at the July 2013 Board meeting. This means, as I predicted, that PERS intends to follow the statutes and any changes in the assumed rate will occur normally and go into effect on January 1, 2014 for members and will make up the new employer rates calculated for the 2015-17 biennium.

Cleary also infers that this would also allow PERS time to figure out how to implement any plan changes that MIGHT be adopted by the Legislature as well.

I think that, for now, this should give members some breathing room to make intelligent decisions about when or if to retire.

Since we don't know what the Legislature is planning to do, that is still an open question and affected members should be watching closely for any changes introduced during the 2013 Legislative session.

P.S. The Board packet is posted on the regular PERS web site under "Board". You can download a copy of the entire packet for your own reading pleasure. It is a 138 page pdf file.

First Taste of Hurt

It has been awhile.  PERS news has been sparse except for the occasional snarky screed by some print media journalists who continue to hammer on the libertarian theme of drowning government in the bathtub.  The local rag continues its rapid descent into irrelevance by continuing to harp on the cost of PERS and ways to reign in the costs.  The usual spate of lies continue - get rid of the 6% pickup and cut the 8% assumed rate.  In the meantime, the IRS just published its new interest rate assumptions for private sector employers on defined benefit plans, that lets them assume a roughly 7.5% rate of return.  Perversely, the rate had been in the 5% region for quite some time.  This means that the private sector employers can assume interest rates of 7.5% and contribute less, while public sector employers will be required to assume lower rates (less than 8%) and pay more.  The media's continue harangue on the 8% assumed rate has pressured PERS into considering when to consider the "assumed rate" at its next Board meeting on August 28th.  This meeting is out of sync in both month and day of week.  PERS cancelled the July meeting, and rescheduled it for August 28th, which happens to be a Tuesday.  Normally Board meetings are on Fridays. There is probably nothing sinister in the change of meeting days and months; summer travel plans interfere with everyone.

The discussion of when to discuss the assumed rate is interesting for its timing.  Normally, assumed rate discussions take place in the spring of odd numbered years as they are part of the overall set of assumptions that go into the biennial system valuation and employer rate setting for the next biennium.   So, routinely PERS would take up this question in March or May of 2013, and the effective date of any changes would be January 1, 2014 for members, and July 1, 2015 for employer rates.   The fact that PERS is raising the timing of the overall decision suggests that there is pressure being brought to bear from somewhere or everywhere.   I think it is fair to say that a change in the assumed rate is inevitable.  The 8% rate has been in effect since 1989, and the past decade has been a particularly volatile period in which the 10 year average return is well-less than the 8% assumption.  So the question really is when PERS will change rate and by how much, not IF they will change the assumption.   Anyone who is at or near retirement needs to keep this fact in mind.   Anyone unconvinced that PERS will change the assumed rate is delusional at this point.  Every public employee retirement system is either considering reductions or already making reductions (CalPERS has reduced twice in the past two years).  The 8% assumption is no longer sustainable for future retirements, for employer rate calculations, or for Tier 1 earnings guarantee.  Some have suggested that PERS drop its assumed rate to 6%.  It is unlikely to go that low, for PERS would be completely out of phase with every retirement system, public and private, in the country.  But I don't think 7% is out of the question.  Just remember that the assumed rate affects not only the Tier 1 earnings rate; it also affects the mortality and annuity factors computed for retirees.  Last year when PERS discussed the assumed rate, the actuary reported that a 50 basis point reduction in the assumed rate (to 7.5%) would result in about a 6 month shift forward in the tables.  Logically, a 100 basis point reduction would likely shift the tables by 12 months.  In other words, this would mean that the difference between an 8% assumption and a 7% assumption would require a retiree to work an additional 12 months to achieve the same benefit of the higher rate.  This is figuring in the reduction in earnings on the Tier 1 corpus, as well as the reduction in the base benefit amount.

I don't want to be a prophet of doom and gloom, but I think it only fair to warn people, especially Tier 1 members, that changes are afoot.  It is no longer likely that 8% will be the guaranteed rate of return.  The only question is whether PERS will succumb to public pressure and accelerate the schedule for changing it, or whether they will hold firm and change it in the timely and orderly manner prescribed in Chapter 238 of the Oregon Revised Statutes.  For many people who are eligible for retirement now, this may be the first taste of the hurt to be delivered from PERS, notwithstanding any changes the Legislature may prescribe as well.  This is no time to be complacent.  If you are even remotely thinking about retiring soon, pay very close attention to what is going on.  I will try to keep people apprised of what PERS decides to do at the August 28th meeting.  I am hoping they will stand their ground against the idiocy of proposing a change in the middle of a biennium and foul up every member's and agency's financial plans.  This is a change that is likely to please no one, except for the crazy print media that is dying rapidly.

Fool To Love You (Long Version)

Our State Treasurer, Ted Wheeler, is reported to have written a letter to the PERS Board urging them to consider lowering the assumed rate from its current 8% to something closer to 6%.  Ted also suggested that retirees share the burden of future cuts to PERS by altering the COLA provisions to apply to only a certain portion of a retiree's benefit.  No amount was given, but a guessing person might be inclined to think that Ted would be happy with something along the range of the mean PERS benefit (roughly $25,000 per year).

Between Ted Wheeler and Knute Buehler, candidate for Secretary of State, PERS members don't need any enemies in the Legislature.  One current office holder, Wheeler (what is it with guys named Ted?), and another candidate for an unrelated office want to take away benefits from existing retirees, and hammer current workers getting close to retirement.  

First, for the assumed rate change.  It is well-known that the PERS Board, along with the independent actuary working with PERS, determine the assumed rate.  The last time this issue arose was in 2011, when the PERS Board and the actuary considered changes from the current 8% to either 7.5% or 7.75%.  The actuary concluded that the long term (30 year) likelihood range of returns on investment would be between 7.75 and 8.25%.  At the time, there seemed to be no compelling reason for PERS to change its assumed rate from 8%, since the middle of the estimates included that very value.  Fast forward a bit more than a year later and public retirement systems across the country are reconsidering their assumed rate profiles and many are lowering their long-term estimates from 8% or more to the mid 7% range.  CalPERS and CalStrs - the two biggest retirement systems in the country - lowered their assumed rate to 7.75% last year, and to 7.5% this year.  There is no doubt that the 8% assumption is probably too high, and there is no doubt that the PERS Board has the authority and responsibility to change it.  Whether it deserves to be dropped all the way down to 6% is an entirely different argument.  I can find no evidence anywhere that public systems are going that low.  The lowest I've seen assumptions from systems in PERS' range is about 7% - most are higher.  A reduction to 6% would have profound effects on future retirees, current Tier 1 members, and employers.

A 200 basis point reduction in the assumed rate would mean that employers would have a substantial increase to their already high contribution rates.  This is because if PERS is assuming a lower rate on investment returns, then the money not raised by the additional 2% would have to be made up by employers.   Ted proposes that PERS could mitigate "some" of the employer increase by lengthening the period of time over which the balance due is amortized.  This would be equivalent to making a 30 year mortgage into a 40 year mortgage.  The payments are lower, but the amount of interest collected is significantly higher.  For active Tier 1 employees, a reduction in the assumed rate would have two effects:  one, it would lower the return on their Tier 1 accounts significantly and would reduce their final account balance at retirement significantly;  and two, it would increase the likelihood that they wouldn't retire under Money Match for much longer.   Remember that PERS has to pay the member the retirement benefit that is the highest of two different calculations - the Money Match calculation or the Full Formula calculation.  For members on the cusp of retirement, the impact would be more immediate.  Assuming that the rate change takes place on a normal schedule (Jan 1, 2014 effective date), any retirements taking place on or after that date would have benefits calculated on the basis of a significantly lower earnings assumption.  Last year when PERS considered lowering the rate to 7.5%, the actuaries reported that the impact would be such that a member would have to work 6 additional months to offset the benefit loss.  If that's the case with a 50 basis point reduction, then the effect of a 200 basis point reduction would extend that to 24 months of additional work just to receive the same benefit as one would receive on December 1, 2013.  For those who can't wait to retire, the immediate effect would be approximately 17% lower benefits (dependent on age of retiree and benefit option chosen).

The second proposal is a change to the COLA provision.  Ted didn't provide any detail here, but other similar proposals have been made.  Assuming that Ted's idea is about the same as the others, the effects are pretty straightforward.  It isn't clear whether Ted is proposing this for current retirees or only future retirees, but it doesn't make a lot of economic sense to propose it only for future retirees.  Legally, however, it probably does make considerable difference.  The current COLA provision was enacted in 1971.  In statute is the requirement that PERS provide a COLA based on the Portland-Salem metropolitan area inflation index.  The requirement is that retirees receive the lesser of 2% or the actual change in the cost-of-living index for the previous year.  In February of every year, the US Bureau of Labor Statistics releases the relevant figure.  If the change from the previous year is more than 2%, retirees receive a 2% cost of living adjustment on July 1 (paid August 1) of each year.  If adjustment is greater than 2%, the difference between 2% and the actual change is "banked" for years in which the cost-of-living adjustment is less than 2%.  Both the amount (2%) and the banking provision are contained in the statute.  In 2003, the legislature enacted a COLA freeze for retirees in the April 1, 2000 to April 1, 2004 retirement cohort to recover alleged over crediting of the 1999 earnings (the City of Eugene case).  The COLA freeze was challenged by Martha Sartain and OPRI, and the Oregon Supreme Court ruled in the consolidated Strunk case (including the Sartain challenge) that PERS could NOT pay a retirement benefit to which no COLA attached.  In other words, the Legislature had altered the contract between retirees and PERS.  The Supreme Court ruled this to be a breach of contract and the COLA freeze was lifted (there were other twists and turns in these cases that made the impact on retirees the same, but that isn't the point here).  So, any attempt to alter the provisions of the existing COLA for current retirees is likely to be met with a strong legal challenge again, and if history is any guide, PERS and/or the Legislature is unlikely to get away with a change that alters the existing contract.  When retirees retired, the agreement in effect at that time was that they would receive a COLA on their entire benefit annually so long as the cost of living increased in the previous year.  Both the amount of the COLA (2%), the benefit to which it applied (all of it), and the banking provision are all spelled out in the Oregon Revised Statutes and have been in effect since 1971.  

The final change Ted proposed was a revisit of the tax remedy payments for out-of-state retirees.  In the 2011 Legislature, legislation was approved and signed into law that prevents PERS from paying any tax remedy payments to Tier 1 members who retire on or after January 1, 2012 (and who were eligible for such payments in the first place).  The original proposal would have removed the payments from ALL out of state retirees, regardless of when they retired.  After hearing from the Legislative Counsel and (probably) the Attorney General, the Legislature wisely decided that applying the rule retroactively to members already living out of state would be challenged legally and that there wasn't a strong case that could be made in favor of the retroactive provision.  Ted is proposing that the Legislature reconsider that proposal and apply it to all PERS retirees who no longer live in Oregon, retroactive or not.

Some PERS retirees have just finished a 12 year period of constant litigation, uncertainty, and anxiety.  Just now, as the dust has settled on the 2000 City of Eugene case, the 2003 Legislative reforms, and the 2004 PERS-City of Eugene settlement agreement, another Ted is proposing another set of changes to PERS that would trigger yet more litigation, more uncertainty, and higher anxiety yet for people who just want to live their retirement in peace.  We all lived up to our end of the bargain - we did our jobs at a high level of competence, we accepted a lower salary in exchange for a reasonably secure retirement, and we retired based on contractual promises made at the time we retired.  We've lived through the last decade always in doubt about when and what shoe would fall next.  Two of the three proposals suggested by another Ted would reinstate the uncertainty and dread that surrounds existing PERS retirees.  The third proposal would take people who are on the verge of retirement and change the rules significantly.  At what point do those of us who did our jobs and who are doing our jobs get to retire with some certainty that our benefits are really secure?  Apparently two people named Ted, both of whom got lots of love from PERS members and retirees in their election campaigns, feel that we don't deserve any peace.  That's a rotten repayment for all those votes.  

So, to both Teds I say, "I was a fool to love you", and all you've done is to increase my cynicism at the whole electoral process.  It just isn't worth squat voting these days, especially for offices in the State of Oregon.  Promises be damned; contracts be damned; statutes be damned.  

 P.S.  See what I mean by "Ted".  Ted Sickinger of the Oregonian is another of the nutso journalists that continue to write screeds against PERS members and retirees and advocates changes to benefits.  Fortunately, I have no friends named "Ted".  If I did, I'd probably want to defined them just because they were named Ted.  I don't trust people named Ted anymore.

P.P.S 8/2/12.  Indiana's PERS just dropped its assumed rate from 7.25% to 6.75%, the lowest I've seen thus far.

Traveling On

I'm always amazed at the strange twists and turns in the PERS fiesta.  The latest irony to hit the street is that the Salem Statesman-Journal's crack PERS and public employee reporter, Dennis Thompson, has been lured from his reporter's job to a job as Public Affairs spokesman for the Oregon Department of Revenue - the people who collect the income taxes, the people who will track down PERS miscreants, and the people who are all members of PERS.  While Dennis was reasonably fair and mostly accurate in his reporting on PERS, he will now find himself to be a beneficiary of PERS' supposed munificence.  I wish him well in his new job.  Instead of criticizing PERS and demanding all the information on every PERS retiree, Dennis can now join the PERS party and find out what it is like on the other side of the fence.

 

 

Lawyers, Guns and Money

For those of you who are concerned that you are just going to get an invoice from PERS, guess what:  "you are correct."  PERS does *not* intend to justify the amount invoiced this time through.  They assert that you were invoiced once in either 2006 or 2007 and you had 60 days to appeal or contest the amount.  Thus, they are not required to either document how they arrived at the amount you owe, or give you any further appeal rights.  

While all of this may be true, it seems bad policy to send an invoice with no explanation for how PERS came to the amount you owe,and claim they notified you 6 (or 5 or 7) years ago of the amount and that you have no right now to ask for an explanation or be able to challenge the amount.

There are many people genuinely concerned about this matter.   They may have been invoiced back in the day, but many are under the impression that when the invoices were enjoined from being collected, they were effectively nullified.  Again, the policy is clear, but the implementation seems a bit heavy handed to me.  Since they have copies of the 2006 or 2007 letter, it would add little to the collection costs to include them again to remind people how they came to the amounts.  This would probably save more money in the long run than cost in the extra postage and printing.  Penny wise, pound foolish.  Also, a chance for more lawyers to get involved.  PERS cannot prove they actually sent the invoices since they weren't sent certified or registered.  People can easily claim they didn't get them.  Ugly and foolish if you ask me.  

The Age of Worry

Not a lot of PERS news to report these days.  We've been quiet here on the Fearless front.  Yours truly did get his 3 seconds of fame being quoted in the July 2012 issue of Kiplinger's Magazine on the repayment to PERS.  The article is about "recoupment" as a new worry for retirees across the country.  Somehow they found this blog, and found me.  I interviewed for about 15 minutes nearly 2 months ago and they managed to find two sentences to use in the one page report.  Fortunately, they spelled my name right and quoted me correctly.  

On the good (I guess) news front.  Anti-PERS crusaders have decided (apparently) not to take a stand at the ballot box.  As far as I can tell, there are no anti-PERS initiatives circulating for the November ballot, and it is now passed the date for new initiatives to be approved for petition circulating.  The November elections present a variety of candidates running on anti-PERS platforms, so I'm sure that next years' legislature will have a variety of anti-PERS bills.  The Salem Statesman-Journal's Dennis Thompson suggests that the two big numbers to keep in focus are the 6% "pickup" and the 8% assumed rate.  

I've been ruminating about those two numbers for quite some time and I'm afraid that I can't see how things will play out.  Stay with me for a moment and I'll clarify as we go along.  First, you need to understand that PERS gets money from three places:  employee contributions (regardless of who pays it), employer contributions, and earnings.  Currently, about 71% (or something close) of PERS' income derives from earnings on the fund.  The rest comes from contributions made by employers and by employees.  Suppose for a moment that the legislature decides to do away with the mandatory 6% employee contribution.  What that means is that no money will be contributed to the fund from employees.  That reduces the income source to two:  employer contributions and earnings.  If the fund doesn't get 6% from employees then its overall cash flow changes, and the unfunded liability rises.  We don't want that, so we might have to increase employer rates to offset the loss of funds from employees.  Now, here's where the second shoe drops.  The fund assumes an 8% return on investment annually.  This is true for employers, is true for employees (Tier 1 anyway), and for all retirees.  If PERS lowers the assumed rate to, say, 6.5% or 7%, then Tier 1 rate guarantee goes down for all future earnings, the actuarial tables are revised for future retirees to reflect lower earnings growth, and the disparity between actual earnings and needed earnings rises.  There is only one place to get that money - from employers.  So, as you can see, both the Legislature and the PERS Board have a real conundrum on their hands.  If you eliminate the employee contribution (and the employer obligation for the "pick up" where it exists), employer rates will go down, but the overall health of the fund declines as well.  Consequently, while employers might see a first pass reduction of 6% in their overall contributions,  PERS will be forced to raise the rates to offset the anticipated unfunded actuarial liability that arises from having less cash flow to the fund.  Then, if they also cut the assumed rate, employers will again be called on to contribute more.  If you're lowering the assumed rate, you're admitting that you can't grow your way out of the problem.  The solution is to get more from the employers, not less.

So, while these two issues should be of concern to everyone, the ones who will really be opposing any change in the assumed rate will be the employers.  So will Tier 1 actives and in actives, but their voices will not count as much as the employers.  As far as the 6% goes, the only way that could change is to make it owned by employees.  That means an effective 6% pay cut for all those employees working for employers providing the pickup (largely State of Oregon).  Many employers today do NOT pick up the 6%.  Way back when this was first raised, employers and the employees and their unions agreed to some compromise that has the employees picking up their 6% and the employers provided some initial boost to base salaries as a partial offset.  The State doesn't have that luxury.  So, what I expect will happen is that this issue will come up during collective bargaining and the legislature will, likely, stay away from it.  On the surface it sounds like a great way to save some money, but the money saved will end up being very expensive for employers in the long run (and in the short run).

I'm not a seer, nor a forecaster, nor even that connected, but logic dictates that the two numbers Thompson suggests are going to become most important are likely to be backed away from by the Legislature when the true nature of the problem is explained to them in financial terms.  Those dogs won't hunt.  

What this means is that we are going to have to be especially alert because when you take away obvious things, the less obvious become more attractive.  Keep your eyes peeled, and ask hard questions to candidates running for legislative office.  Try to expose their real positions and what their objectives might be.  Knowledge is power in the age of worry.

Looking At The World From The Bottom Of A Well

Only in Oregon can we have a state agency(PERS) that has made no provisions for public employees to accelerate their payments to satisfy an obligation created by the PERS Board in 2000.

Back in 2006-2008, PERS finally began to compute what certain retirees owed as a result of the "mistake" made by the 2000 PERS Board to credit regular account balances at 20% instead of 11.33%.  After countless court battles PERS prepares to finally collect all the money owed (about $185 million) by this group of retirees.  Part of the money was recovered in 2006-2007-2008 via adjusting benefits (down) going forward to prevent individuals from receiving more than they were eligible to receive.  However, between April 2000 and April 2005, retirees received larger benefits and PERS intended to collect that money via a method known as "actuarial reduction".  This method took the amount overpaid, divided it by the remaining life expectancy of the retiree and the monthly benefit was reduced by this amount.  In a perfect world, retirees would have paid their obligation completely by the time they reached their anticipated life expectancy.  However, PERS, in its infinite wisdom (stupidity?), decided that the payment would never cease until the retiree and his/her beneficiary ceased to exist.  This would allow longer lived retirees to subsidize shorter-lived retirees, who would not "pay up" under this scheme.  Actuarial reduction was a very unpopular method with retirees who didn't feel they should be obligated to pay more than they owed.   Judge Henry Kantor stopped PERS from collecting from any retirees after June 2007, until higher courts could rule whether PERS had any legal right to collect at all.  So, some unknown number of individuals were trapped in "actuarial reduction" before Kantor's injunction, while others did not have to pay until starting sometime this year, when the Oregon Supreme Court entered a judgement permitting PERS to resume collections.  So,….

PERS heard the complaints of the retirees trapped by actuarial reduction, they heard from OPRI, they heard from the PERS Coalition, and they heard from ME.  People weren't going to go for the "actuarial reduction" because it was inherently unfair.  PERS came up with a more reasonable method which allows affected retirees to repay their "overpayments" over a period of up to 10 years.  This means that virtually all retirees will be paying between 2% and 5% of their gross benefit, pre-tax, until they are paid up, and then ….THE PAYMENT STOPS, ends, terminates.  We all agreed this was a fairer plan.  Moreover, unlike the actuarial reduction, PERS gets its money sooner, retirees have a chance to live part of their retirement without having a recurrent stream of money taken from their benefits.  Perfect…ALMOST.

You would think that the geniuses at PERS would want to allow EVERYONE who owes money resulting from the 1999 over credit to participate in a plan that give PERS its money back SOONER.  BUT NOOOOOO.  Those poor souls on the "actuarial reduction" plan are terminally locked into a plan that PERS itself admits is unfair.

As Ricky Riccardo would say:  "splain this to me".  PERS has computers - a really spiffy system as I understand - installed recently.  They just asked the legislative E-Board for about $3 million for staffing authority to collect this $164 million.  And yet they can't 1) permit "actuarial recovery" persons to shift to the new payment plan and pay their debt off SOONER; 2) tell "actuarial recovery" people how much they owe now, today, this minute, and 3) let "actuarial recovery" people just pay off their remaining balance today, this minute because of 2).

It makes a person wonder whether the people who bid and installed the PERS computer system took their guidance from the Portland Water Bureau or the Oregon DMV.  We (members) spent zillions on PERS' computer system and yet we have all these unfortunate retirees stuck at the bottom of a hole, unable to pay PERS off early by any means.  Talk about looking at the world from the bottom of a well.  All I know is that I regard this as a stupid policy, with no rational explanation, that deprives PERS of essential income earlier, and leaves affected retirees in the unenviable position of paying a bill that never comes to an end.  Just remember, the 1999 over credit was a decision made by the PERS Board, not by the members.  Computers are supposed to make life easier.  PERS has managed to spend a fortune on a bargain basement system that cannot be adjusted to changing circumstances, and are too dumb to realize that they have managed to stab themselves at the same time they've stabbed some retirees.  Nice work PERS (not)!

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.

Do You Think I Really Care?

PERS is notorious for making some totally mystifying decisions.  The latest mystery is why PERS is NOT going to give those retirees already in payback mode, the option of switching to the newer system adopted for later retirees.  Back in 2006, PERS made its original (bad) decision to permit retirees two options for paying back monies owed due to overpayments between 2000 and 2006 from 1999 earnings crediting.  PERS gave retirees the option of either an Actuarial Recovery Method (ARM) or repaying the entire balance in a lump sum.  The ARM took the member's balance due, computed his/her actuarial life expectancy and divided the balance by the number of months the retiree was still expected to live.  This became the ARM amount.  The catch with this method is that there never was a mechanism in place to stop the payments after a member had fully repaid his/her debt.  Thus, the mechanism was designed so that longer-lived retirees (and their beneficiaries) would subsidize the accounts of shorter-lived retirees.  This proved to be immensely unpopular, although the repayment amounts were typically so small that retirees didn't ever bother to complain too much about it.

Once the Supreme Court ruled that PERS could begin collections again, OPRI, the PERS Coalition, I, and many others began to petition PERS to come up with a more reasonable method that would insure that retirees paid no more than they owed.  This led to a higher repayment amount, but over a shorter time period and with the certainty that members would pay what they owed and no more.   I expected, perhaps naively, that PERS would offer the same deal to retirees already under a payment plan using the ARM.  To my surprise, and many retiree's chagrin, PERS does not currently plan to make the new payment plan available to any member already under the ARM.  This is both unfair and also contrary to PERS' objective of recovering the money faster.  It is unfair because it saddles retirees under the ARM with the continuing burden of repayments for an indefinite period of time.  They risk paying significantly more than others, although at a much reduced monthly amount.  I fail to see how this is an equitable treatment of people who, for no other reason than pure bad luck, had the misfortune of being billed before Judge Kantor issued his original restraining order.

PERS' rationale is that they didn't plan for the "extra" work required to (a) turn off the ARM and calculate a retiree's current balance, and (b) turn on the new method that takes a minimum of 2% per month.  I have no idea how many people are affected by this, but I don't imagine it is very many compared to the number of people who will be placed under the current repayment system.  There are 28,000 members affected by the new repayment system.  It is estimated that there were approximately 35,000 "window retirees".  So, assuming all of the ARM'd retirees are still living, or have living beneficiaries, we are looking at no more than 7000 people.  PERS has a brand new computer system and it is hard to imagine (at least for me), that programming their database is that difficult.  Presumably, it is a variant of Oracle or mySQL or something common like that.  A good programmer armed with the structure of PERS' database ought to be able to cobble up the code to make the necessary adjustments in an afternoon and test it out fairly thoroughly the next day.  Even if PERS does the calculations with a spreadsheet, we are not looking at THAT many calculations.

I basically don't buy PERS' current excuse for not offering the new system to members repaying under the ARM.  PERS has asked the legislature for 3 limited duration positions to handle the initial calculations for the affected 28,000 members.  I wonder how much PERS will save by not doing this compared to the cost of defending themselves in litigation complaining about the inequitable treatment of retirees in the same class.  Somehow, I think this falls into the category of "penny wise, pound foolish."

Right Down The Line

There are lots of questions about how PERS will implement the recovery of monies owed by "window retirees".  PERS has tried to answer these as best they can in their FAQ posted at the PERS website.  One recurrent theme in the discussions surrounding the repayment is the fact that members want flexibility to repay PERS at higher than the minimum 2% of gross benefit that PERS came up with.  But, in wanting flexibility, window retirees seem to want to have it both ways - flexibility to increase the amount of the payment in good times, and the flexibility to reduce the payment back to the minimum in harder times.  While I know that PERS will consider these arrangements on an individual basis, I think it prudent for those affected by the repayment to consider agreeing on an amount - 2% up to 10% of gross benefit - as permitted by ORS 238.715, and sticking to the payment amount they decide on.  It is not PERS' obligation to permit "window retirees" to constantly change their payment over the life of the debt.  PERS has enough trouble now keeping records straight; it hardly behooves them to introduce a fail-safe mechanism doomed to failure from the outset.  My advice would be to pick an amount, any amount, and stick with it until the debt is fully repaid.  If 2% doesn't pay back fast enough, increase the percent, but don't expect to fall back on the minimum if life deals you a bad hand.  Once you agree to an amount, stick with it unless you want to write a check and pay the balance off at some future date.  Don't put PERS in the position of having to decide whether you are destitute because you made a poor decision at the beginning.

Easy Money

In a surprise development last Friday, PERS officials received the latest "purchasing power" study from Mercer actuaries.  It shows that with the rise in gas prices over the past few months that the purchasing power of retirees from 2000 on have lost more ground than their counterparts who retired in earlier years.  With COLA increases so limited despite increases in the actual cost of living, PERS announced that it would be suspending efforts to collect from "window retirees" for at least a year, and would petition the state E-Board to declare all PERS recipients eligible for a one time $50 ad hoc benefit increase.  When asked about this, PERS officials stated "…we know the last decade has been brutal on the retirees from the same period.  The combination of uncertainty about the outcome of litigation, the short period when retirees had their COLA frozen, and the repayment of all the litigation costs, we felt that those retirees who had actually managed to survive the decade should be rewarded for their persistence in the face of nearly insurmountable challenges."  Dennis Richardson (R-Gold Hill), a member of the state's e-board, announced that he thought this was a great way to preserve morale amongst PERS retirees, and he thanked all of them for their perseverance in helping to get this decade behind us.  He agreed that the $50 benefit increase was a small price to keep retirees spending their hard-earned dollars to fund the Oregon economy.  OPRI and the PERS Coalition were, for once, speechless.

Splitting The Atom

Now that the PERS Board has decided on the method for implementing the collection of the 1999 overcredit, there are a number of important details that remain to be decided.  Moreover, there exists considerable confusion among those "window retirees" for whom the collection is only a dim memory.  The purpose of this post is to summarize what is known, so far, about the collection effort, what remains to be answered, and to clarify a common misperception about the 2003 effort to freeze the COLA for Tier 1 members charged with an over credit.

There are four groups of people to be subjected to collection efforts.  The first group is the 20,000 or so retirees who were notified in 2006 of their adjusted benefits and were sent an invoice for overpayments, but whose invoices were suspended by Judge Kantor in his initial ruling on the Robinson case.  The second group consists of window retirees who took either a single or double lump sum, who've been invoiced, but collections were also suspended.  Third, are members of the two previous categories who have been invoiced and who started paying via actuarial recovery beginning in about 2006 or early 2007.  Finally, there are beneficiaries and alternate payees who are receiving benefits after the death of a PERS member, or a divorce from a PERS member who have not been invoiced or collected.

The most complicated group will be those retirees who collected their PERS benefit as a double lump sum settlement and have no ongoing business relationship with PERS.  In order to collect what is owed, PERS first has to locate these individuals.  If they remain in Oregon, the Oregon Department of Revenue will locate them.  If they are outside of Oregon, the Revenue Department does not have reach; consequently, PERS will have to contract with collection agencies who will use skip tracers to find these retirees.  (Heck, if they wanted to pay me, I could probably locate about ⅔ of them with a simple web search).  If found, and if these retirees work with PERS, PERS will allow these members to set up a payment plan to recover the lump sum that will span approximately 6 years.  This is a far better deal than before.

For any window retiree, beneficiary, or alternate payee in a current business relationship with PERS - i.e. receiving any sort of monthly benefit - a current address already exists, and PERS has an easy way to notify affected retirees.  The default repayment option is a base 2% reduction in benefits (from the gross benefit) for however long it takes to repay the amount invoiced.  In most cases, overpayments will be recovered in approximately 6.5 years, at which time the reduction will stop and members will have repaid all owed benefits.

Members have the option of repaying the benefit as a lump sum, or they have the option of accelerating the repayment by selecting a repayment amount greater than 2% of the gross benefit.

More details will be forthcoming next week as PERS prepares a "Frequently Asked Questions" document for posting on their website.

One question that has appeared with some frequency in my own mailbox has been the question of whether PERS will "finally" apply the "lost" COLAs for the years 2003, 2004, 2005 and possibly 2006.  The answer to this question is an unequivocal NO.  Regardless of what you think PERS has or hasn't done, PERS has already applied the necessary COLA payments to the revised benefit you're receiving now.  When PERS recalculated your benefit to comply with the court-ordered, legislatively approved and mandated 11.33% for the benefit year 1999, it went back and recalculated the benefit it actually owed you when you retired.  The original benefit was computed with a 20% credit for 1999.  The new benefit was computed with the "correct" credit of 11.33%.  Once they computed the correct benefit, they then applied subsequent COLA for 2003, 2004, 2005, and, if relevant, 2006.  The effect of this was to raise the corrected base benefit to nearly the level (or surpass it) that the un-COLAd benefit was at the time of the adjustment.  Thus, according to PERS, the courts, and the Legislature, there is no additional COLA to which members are entitled.  You may not agree with this, but this is exactly what happened.

I will update information as it becomes available.  Suffice it to say that the re-invoicing will take place sometime beginning this summer, and repayments will follow 30 days after you are re-invoiced and choose or default to the method of payback.  The initial billings are planned so that they coincide with the new 2% COLA for July, payable on August 1.  It will barely hurt.

Better Days

St Pat's Day turned out to be the magic day when this site crossed the 1,000,000 visitor mark.  Thanks to all who have made it possible.  Many eyes keep our legislators on the ball; many eyes keep PERS on the ball; many eyes TRY to keep the media in check.

I have been complaining for some time since the Supreme Court finally overturned the Robinson verdict that PERS was engaging in financial chicanery in calling their "actuarial recovery method" an "interest free" way of repaying money paid to "window retirees" (retired between 4/1/2000 and 3/31/2004) erroneously.  We may disagree with the verdict, but we are stuck with it.  In recognizing that fact, and also recognizing that collections would resume soon, I have been on a tear trying to convince people that the ARM is fiscal "sleight of hand".  Apparently, my words and the pressure brought to bear by OPRI, the PERS Coalition, and others have finally resonated inside PERS.  At their next Board meeting, members of the PERS Board will vote to implement a significantly revised recovery method for the 28,000 "window retirees" who haven't yet started paying, and to presumably revise the terms of repayment for those who began repaying before Judge Kantor enjoined PERS from further collection efforts.

The revised method, to be discussed and/or voted on March 22, 2011, will recover ONLY what an individual owes, not a penny more.  The mechanism for those eligible (monthly benefit recipients or alternate payees or beneficiaries receiving monthly benefits) is to set 2% of the gross benefit as the minimum repayment amount.  If implemented in August, as originally proposed, this would result in the sacrifice of the 2012 COLA until the bill is paid off - approximately 6.5 years for the typical retiree.  Retirees who want to accelerate their repayments can choose a larger amount (say 5%) and shorten the repayment period.  Of course, anyone can still write a check for the whole amount and be done with it.  This method, as far as it goes, satisfies my two requirements for fairness:  1) no interest is charged and 2) retirees obligated to pay ONLY what they owe, not a penny more.

There are some unanswered questions about PERS' proposed methodology.  First, will the deduction be taken pre-tax, as logic and tax fairness dictate it be (otherwise, we are subject to being taxed on money previously taxed).  Second, does the repayment amount remain constant at the initial 2% of the 2012 benefit as of August 1, 2012,or does the amount change every August when a new COLA is granted? Finally, will the 1099-R report this amount as an adjustment to box 2 (taxable amount), reducing further the obligations since the amount repaid has already been taxed?  The analogy here is that for those of us who worked prior to 1979, our PERS contributions came from our own money that was taxed at the time of contribution.  Thus, a small portion of our current retirement benefit is not subject to any taxes.  That amount is the difference between Box 1 and Box 2 on the 1099-R, it is also shown in Box 5 (Employee Contributions) on the same form.  Since we have already paid income tax on the money that we will be repaying, there is no reason why we should have to either (a) be taxed on it a second time, or (b) have to do anything special to try to recover it.

It strikes me that if PERS can clarify and resolve these questions/objections/challenges, those of us facing a large bill for amounts we had no control over will see better days ahead.

I will save my comments about the Sunday Oregonian editorial for another day.  Onwards towards 2,000,000.

 

Memories are Made of This

Eight years and nearly 1,000,000 visitors.  By the end of the coming week, this site will have crossed that magic marker that distinguishes the occasional blogger from the serious blogger.  Thanks to all of you for this honor.  I hope to continue in this vein until my blood becomes blue.

Yee Haw.

 

Shackled and Drawn

Sometime late this afternoon PERS turned over the latest data dump on 117,000 retirees who were listed on PERS' rolls as of December 1, 2011. This increased the number of retirees exposed by almost 12,000 since the last exposure in October. This release was more specific and included information about final salary, length of employment, and current percent of final salary received. Already The Oregonian is carping about all the information PERS didn't release because it wasn't available easily from the newest computer upgrade PERS completed this past year. You would think that the Oregonian believes it has a right to participate in the RFP process for securing a computer system tailored for The Oregonian, rather than PERS. I'm really sorry to let the Oregonian know that computer systems are developed to meet the needs of the agency designing and paying for the system. I'm sure PERS would be more than pleased to accept large cash donations from the Oregonian to assist in developing a computer system that simultaneously meets PERS' and The Oregonians' needs. Unless and until the media wants to contribute to the costs of such a system, they should be damned grateful for the information received and they can go piss up a rope for any information they feel they deserve but didn't get. Information costs money and the Oregonian didn't have to pay a nickel for what they got. They've already posted the new data and those of us exposed feel just a bit more shackled and drawn by the latest financial colonoscopy.

A Thousand Kisses Deep

This blog is going on 9 years old.  In that time we've covered a lot of ground and antagonized a lot of people.  That's OK; that's its purpose.  We are approaching a major milestone and I wanted to use this opportunity to send my valentines and kisses to all those who have faithfully read this site in hopes of gaining some insight into the labyrinthine ways of PERS and the Legislature.  Sometime in early March, we will cross the 1,000,000th visitor mark.  No blog can survive without eyes.  Yours have been the reason I keep going.  While I've threatened to let go soon, there is some magical draw to keep writing.  Maybe it is the thousand ways the legislature, the politicians, and the media find to continue to gang up on all public employees and retirees.  I just can't help myself; we did our part of the bargain.  We worked our collective asses off for, in many instances, sub-standard wages with the promise that the state (or local government or school district) would make up our inequities in retirement.  So, now here we are in retirement, and the assault never stops.  It is relentless and I'm quite bored with it all.  We PERS retirees are taking nothing we weren't promised.  Nobody gamed the system.  The system is ungameable.  So, all those people out there who think we have somehow collected more than we earned need to go back and do some collective reading.  I started working for Oregon in 1970.  I've looked over every contract I got from the Oregon University System.  No matter how I slice and dice the contracts, I seem to be getting exactly what they promised me - not a penny more, not a penny less.  I frankly think that all those people who want to rob me of benefits I've lawfully earned need to take a deep look inside themselves.  Would you willingly submit to the financial colonoscopy that we've all be subjected to?  Probably not.  So, you'll probably not be surprised when I say to them that they can just go "F*ck off" and leave me alone.  In the meantime, for the rest of you out there, I will keep writing this blog until I no longer see it is necessary to defend what I've (and you've) earned.

In the meantime, I want to thank all of you out there who make this blog a regular part of your web day.  If you want to help support the efforts here - this blog isn't cost-free - you can either donate through the link at the top, or purchase stuff through Amazon.  It won't cost you a dime extra and the small commission Amazon pays me helps pay for the cost of running the extra servers needed for uninterrupted access, software needed to keep the  blog current, and bandwidth required (Comcast and Century Link are not charities).

I'm trying to figure out a way to have balloons and fireworks go off once we hit the 1,000,000 mark.  If I figure it out, you'll be able to see it here.  Thanks again.

 

 

El Corrido de Jesse James

Just when you thought it was safe to relax for a few months over possible changes to PERS, the group of 14 robbers in the Oregon Senate have come up with the latest attempt to perform a financial colonoscopy on those Tier 1 members still in the system and Tier 2 members getting close to retirement.  All 14 Republicans in the Oregon Senate have pooled their collective IQ to come up with SB1593.  This bill, if enacted would instantly change the actuarially assumed interest rate used for determining benefits at retirement from 8% to 6% and would reduce benefit payouts for those retiring on or after July 1, 2013 (note the date, it isn't a typo) by about 25%. Disregarding the likelihood of this bill passing and getting through the Supreme Court, note that there are somewhere between 20,000 and 40,000 current Tier 1 members who are both age and/or service eligible to retire now.  If all decided they didn't want to hang around to find out whether this bill passes or not, survives inevitable legal challenges or not, they could really mess with PERS.  Not only does PERS not have the capacity to deal with that vast number of retirements in a short period of time, removing that much money from the system into the BIF would probably destabilize PERS.

If you take the time to read this bill you'll find that it is both simplistic and simple minded.  The actuarially assumed interest rate for retirement benefits does not exist in a vacuum.  It is tied to the actuarially assumed interest rate used to set employer contribution rates; it is tied to the actuarially assumed interest rate used to credit Tier 1 member accounts with the "guarantee"; and finally, the actuarially assumed interest rates are used to determine the mortality table conversion factors that are used to generate benefits at retirement.  These rates are all coupled.  The actuaries determine the rate using the best evidence they have in complete knowledge of the way this single number interacts with the three component parts of the system.  I'm not sure whether it is possible to arbitrarily change the actuarially assumed rate for one part of the system independent of the other parts of the system.  That's the nature of the coupling.  SB1593 makes no mention of the statutes that cover the assumed rate and appear to amend no existing statute of any kind.  It seems to be a blunt force attempt to just uncouple the rates without bothering to mention that they are all interconnected.

If my counting is right, there are about 12 days left in this legislative session.  In order for this bill to pass, it has to get at least two democrats to agree to the bill in the Senate, and then it has to pass in the House, be reconciled if there are any differences of opinion in the House, and then has to be signed by the Governor.  I doubt that there is enough time for this to happen, but if it should make it to the Governor, I don't think our current Governor is afraid to say NO (at least I hope he isn't).

But, I don't think the intent is to pass the bill this session. I think the bill is an attempt to telegraph to eligible PERS members that it WILL be part of a major attempt at PERS reform during the longer 2013 session.  I'm not sure if they are trying to get most of the eligible to just commit and retire, or whether they are trying to see how stiff the headwinds will be for such a bill.  This is a very targeted attempt at a change that affects a modest number of PERS members who are eligible for retirement but haven't made the move.  I don't know how much they expect such a bill will save - it will be nothing if all the eligibles retire before the deadline - and I don't know if they really have any grasp of how all the parts of PERS interact.

Glad to meet all the Jesse James impostors of the world.  This crew definitely deserves some sort of award for sheer chutzpah.

If it affects you, I'd start by writing to your own Senator.  Then you might write to Senator Peter Courtney inquiring why this bill gets a hearing when HB 4033 was declared dead by Courtney before it was even heard in the House.

 

Money For Nothing

The official Bureau of Labor Statistics inflation rate for 2011 was published yesterday.  For the Portland-Salem area, the figures PERS uses for its COLA calculations, the 2011 rate of inflation was 2.86%  This means that for everyone retired by July 1, 2012, the August 1st PERS payment will go up by the statutory maximum of 2%, with 0.86% added to each individual's "COLA Bank".

For those members still on the hook for repaying the "overpaid" benefits during the 2000 - 2004 retirement period, the COLA will probably be used to disguise the fact that repayments will begin at the same time the COLA is paid.  Those opting for the "actuarial reduction" method of repayment will get little to no benefit from this COLA as it will probably be given with one hand and taken away with the other.  This truly meets the description of "money for nothing".

When The Whip Comes Down

Peter Courtney, President of the Oregon Senate, has decreed that HB 4033 will not get heard during this legislative session.  HB 4033 is an OPRI-sponsored and supported bill that would stop PERS from releasing the names along with the information about retirement benefits in the future.  The media (principally the Oregonian and the Statesman Journal) are exerting tremendous pressure on the Legislature over this bill, and it appears that Peter Courtney is not willing to have the bill heard unless he has overwhelming bipartisan support to withstand the onslaught of the newspapers' lobbying and bully pulpit.  I'm hardly surprised by these tactics; I fully expected them.

At this point, I don't know how much help it will be to flood Senator Courtney's office with letters, but I think it wouldn't hurt.  I would also cc my own legislators (House and Senate) to dial up the pressure.  At the very least, the Legislature needs to know that constituents view this as a high priority.  Please make it clear that you are NOT opposed to the information release; you are ONLY opposed to attaching names to the individual pieces of information.

We should not allow one person to determine the fate of more than 100,000 individuals who've already been exposed needlessly by the Oregonian and the Statesman Journal.

You Win Again

After several email exchanges with the good people at PERS, I now have an answer to the question posed in my previous post "Hey, That's No Way To Say Goodbye".  Unfortunately for all the people retiring, the answer isn't the one they had hoped for, and I'm afraid that PERS is well-covered for what they do.  I won't bother with the first of the messages since it is largely unnecessary relative to the followup email.  From David Crosley, PERS' Communication Director:

"The IAP retirement application states: "IAP accounts are subject to earnings or losses. Your IAP disbursement is based on the account balance at the time PERS processes the payment, not the date you select to retire."

Tier One/Tier Two statute (Chapter 238) differs from IAP statute (Chapter 238A) regarding crediting.

For Tier One and Tier Two, Oregon Revised Statutes 238.300 states in part that interest is "credited at the time of retirement."

For the IAP, Oregon Revised Statutes 238A.350 states in part that "adjustments...shall continue until the account is distributed to the member or forfeited." "

Thus, the behavior PERS exhibits with regard to the distribution of the IAP account (however and to whom it is distributed) is entirely in conformance with the statute covering the IAP, written by the Legislature in 2003 and modified slightly in 2005.  If people are unhappy with the way PERS does things, it will require legislative action to change.  Like everything involved with the Legislature it is always wise to be careful what you wish for.  Moreover, PERS cannot be charged with failing to tell people as the application itself contains the key sentence (above) that describes exactly what happens at the time the account is distributed.

 

Hey, That's No Way to Say Goodbye

Some recent PERS retirees have discovered another potentially costly inconsistency with the way that PERS treats the IAP account.  I have numerous reports of members taking a December 1, 2011 retirement and wanting to roll their IAP into other tax-advantaged vehicles.  The problem they are encountering is that PERS has 120 days to effect the rollover, and when PERS does the rollover has a significant effect on the interest credited to the IAP at rollover.  For example, we have a member with a transferred IAP as of early January who received the November 30 earnings credit, another with a later January transfer who received the December 31 earnings credit (nearly a full 100 basis points different), while a third won't have the transfer until 2/8 and will presumably receive the estimated 1/31/12 credit.  This inconsistency is quite costly (or can be).  I suppose that the attitude is that "it all comes out in the wash", but some people would prefer you don't do their laundry<g>.

So how about it PERS.  Can't you establish a consistent administrative rule that gives retirees who roll their IAP's over and fixed interest rate that is effective the date of their retirement (assuming they make the request at retirement).  There is no reason that retirees should be subject to the whims and perfidies of how PERS operates to figure their final crediting on the IAP.

We Take Care of our Own

That used to be the motto of the group known as OPRI - the only group in Oregon dedicated exclusively to the welfare of PERS retirees.  I and many others are lifetime members of this organization.  Now about 28,000 retirees are confronting the issue of repaying benefits once thought to have been legally received, but now apparently are subject to the aggressive collection actions of PERS.  Where is OPRI?  We've heard neither hide nor hair of this organization.  The organization has been turned over to the lobbyists Mark Nelson and David Reinhardt (yes, *that* David Reinhardt) and all communications for OPRI go through the lobbyists offices.  How does a member of OPRI communicate with OPRI *without* going through the lobbyists?  We just want OPRI to take some leadership in directing PERS to offer something besides to ludicrous options they given to repay overpayments.  We don't ask for much.  We just want OPRI to get off their collective asses and actually do something.  For all we know, they may be, but communications are exactly ZERO between the organization and its members.  Jay Osborne, the new OPRI president, doesn't seem to respond to email or to outright pings on the PERS Discussion Group.

If this is the organization that I have to put my faith in to represent my interests, God help me.  I want my money back.  I've gotten nothing for my lifetime membership except an organization that doesn't respond, hides under the cover of a lobbyist, and only acts when it appears that someone on the Board's interests might be at stake.  I miss the late Russ Gregory, a Board member of OPRI who died unexpectedly last month.  Russ was always free with information and we had some idea what was going on.  Now that Russ is deceased, OPRI has gone dark.  OPRI no longer appears to care or to take care of its own.

OPRI WAKE UP AND SMELL THE COFFEE.  YOUR DAYS ARE NUMBERED UNLESS YOU COME OUT OF HIDING AND TAKE SOME AGGRESSIVE ACTION TO PREVENT THIS LATEST PERS TRAVESTY FROM COMING TO PASS.  If you need legal money, why don't you ask for it.  We are all getting tired of waiting, and angry that nothing evident is being done.  Earth to OPRI.  Where are you?

 

Things I Don't Need

This should be treated as an open letter to PERS and to OPRI:

Dear All:

I've been spending a lot of time these past few weeks thinking deeply about the upcoming attempt by PERS to collect overpayments from PERS retirees from the period between April 1, 2000 and April 1, 2004.  Since I retired during that window of time, I am one of the people who will be tagged during the collections for about $14,000 in received overpayments.  And I'm really, really, really angry about the methods that PERS has put in place to recover the money.  One way is a hoax and the other way is an income tax nightmare.

During the recovery period that Judge Kantor stopped back in 2008, PERS offered affected retirees two ways -- and only two ways -- to repay money that was given to them THROUGH NO FAULT OF THE RETIREE.  PERS failed to warn any member considering retirement from April 2000 to mid-2003 that there was ANY possibility or likelihood that their benefit might be subject to change because of a (then) little-known and not-very-well publicized case involving the City of Eugene and other employers versus the PERS Board over the earnings crediting for 1999.  PERS provided estimates and benefits that noted NOTHING about this case, and counselors did nothing to warn retirees that benefits might have to be reduced because the 1999 earnings had been challenged and were not yet final.  So, many members retired in complete and total ignorance of this case, and were stunned in 2003 when the Legislature, following Judge Lipscomb's ruling, codified the earnings as 11.33% instead of 20% and provided mechanisms for collecting the amounts overpaid.

PERS, deciding to be generous, came up with a "friendly" (to whom?) way to repay the benefits.  They created the utter hoax called "actuarial recovery".  In this method, retiree overpayments would be divided by the number of months remaining in their actuarial life, and benefits would be reduced by that amount.  Seems simple, fair, and appealing.  They weren't planning to charge interest - kinda hard to do when the mistake is their fault, not ours anyway - and so this looked like one of the most friendly, least punitive ways to repay the amount owed.  UNFORTUNATELY, this description leaves out one of the unsavory aspects of the method that turns this seemingly user-friendly approach into a financial windfall for PERS.  The catch in all of this is that the payments continue for as long as the retiree and a beneficiary (if there is one) live, not when the bill is fully paid.  Thus, anyone who beats the actuarial odds will be paying considerably more than what he/she owes and PERS gets to keep and invest this bonanza along with all the other funds.  PERS' rationale for this is that not everyone would live as long as their actuarial life expectancy and so the ongoing reductions in benefits are needed to subsidize the benefits not repaid from those who die early.

The alternative to this unappealing choice is to repay PERS in a lump sum, which guarantees that you won't pay a nickel more than what you owe, although there are some tax implications that would require a CPA to untangle for you.

And, when you receive the final invoice, you'll have a grand total of 60 days to decide which poison you want to take.

I am deeply offended that PERS thinks I'm that stupid that I don't see the hidden costs of the actuarial recovery method.  It doesn't charge interest, but it charges payments for money you don't owe if you live long enough.  How is that different from charging interest?  Why can't PERS shut off the payments when the balance is paid in full?  Believe me, as a computer programmer, I know that it isn't difficult to do programmatically unless PERS' computer system is written in Sanskrit or Hebrew.  This is a trivial programming task.  What about the losses from people who die young?  Well, there is a simple answer to that question.  What about all the earnings from the people who decide to pay in a lump sum?  All of that money will be turned in within 60 days of billing and PERS has the rest of our actuarial life to invest that money and more than cover the losses from people who don't make it to fully repay their debt.

Furthermore, why aren't there more repayment options? The actuarial reduction method is a punishment to people who simply lack the funds to pay in a lump sum.   They are subjected to a lifetime reduction in benefits solely because they cannot pay all at once.  For the poorer of our brethren, there is NO choice on how they repay PERS.  This is akin to loan sharking because, as usual, the poor will get stuck paying more and for longer than the more affluent who can afford to pay the lump sum and be done.  Talk about economic discrimination.

PERS has methods on the books now to allow individuals to accelerate their repayments but only for the length of time it takes to repay the bill.  For example, ORS 238.715 offers the possibility that PERS can reduce member benefits by as much as 10% per month to repay a debt.  At this rate, most people would have repaid their debt in 3 or 4 years, rather than 20 or 30.  I suspect some people would take this option if it were available.

What about a 5 year payment plan where individuals who can't afford the lump sum could repay the benefit in 5 equal installments over 5 years (or 60 equal installments over 5 years).

There are many options that would lighten the burden on the less affluent, or encourage some of us to consider a shorter time payment plan than the lump sum.  In any of these cases, PERS would get its money back sooner, be able to invest it in securities that would more than indemnify against any losses due to early death and failure to complete repayment.

The bottom line is that PERS must consider some alternative repayment methods to the ones it offered the first group.  It is clear that if PERS continues to collect payments in perpetuity, it must be in violation of the Fair Credit Standards and Practices in a way that would make a loan shark blush, not to mention invite scrutiny from the same agency.

This whole issue needs careful input from legal advisors and those who are not thinking of taking the easy way out.  It would be nice if OPRI would get off its hind end and take an active role in pursuing alternatives to the ones available now.  When the first round of repayments began, OPRI was nowhere to be found except through the actions of the PERS Coalition in the courtroom trying to prevent repayment at all.  That's all noble and good, but now it is crunch time and most of us will be facing the invoice in a few months.  At this point, we need some legal hardball.  What I don't need is someone telling me how generous PERS has been.  That's bullshit and we all know it.

Money Changes Everything

At the end of last year (2011), the Oregon Supreme Court ruled in its Robinson v PERS opinion that PERS could collect the overpayments that have been outstanding since as early as 2006 when the Strunk/City of Eugene remediation plan was implemented.  To refresh memories, the overpayments were the result of PERS calculating benefits for people who retired between April 2000 and April 2004 on the basis of the challenged 20% earnings crediting for 1999.  When the 2003 Legislature and the PERS/City of Eugene settlement agreement were finalized, the earnings order was vacated and replaced by one crediting only 11.33% for 1999. The overpayments resulted because PERS used the account balances that included the 20% crediting and then subsequently recalculated benefits using 11.33%.  Thus, from the time an individual retired in the specific window mentioned above to the time the benefits were corrected beginning in 2006, individuals were receiving more than they were legally entitled to receive.  (I'm stating facts here, not my individual opinion about the propriety or ethics of collecting on the overpayments).  For almost 20,000 individuals, they were overpaid anywhere from a high three figure amount to some healthy five figures.  PERS began collecting from some members before Judge Kantor ruled that PERS couldn't collect the money and so they are not affected by what PERS does now.

The most common question I receive is "how is PERS planning to collect the money".  Again, a brief history lesson.  When PERS decided to begin collecting the overpayments, it gave retirees two options to pay.  The first option was to repay the money in a lump sum and be done with it.  The second option was to take the balance due, compute the individual's life expectancy, and reduce the benefit an amount deemed to recover the overpayment by the time the retiree reached his or her actuarial life expectancy.  Because PERS intended to charge no interest on the repayments (it wasn't the individuals' fault that they occurred), the plan was to keep on collecting until the individual and his/her beneficiary died.  Of course, for individuals with long life expectancies, they would be paying significantly more than individuals whose life could be foreshortened by illness, or unexpected events.

It is unlikely that PERS will change the methods by which individuals can repay the benefit overpayment, but the time elapsed since the original collection invoice and now has been significant and many of us have had plenty of time to think about this and to come up with important questions about the process that have not been satisfactorily answered.   Yesterday, I sent a list of four questions to PERS.  Predictibly PERS was not ready to answer these questions, but they remain important and will demand answers before PERS starts collecting from anyone else.  For the benefit of all, I post my questions here.  I don't pretend that these are the only questions, but they are ones that have occurred to me and to others as the day of reckoning draws nearer.  People are not going to have a long period to decide what mechanism to choose, and the answers to these questions may go a long way toward helping people make the correct decision.  Of course, these presume that individuals actually have a choice.  For many people, paying in a lump sum simply isn't an option.

My questions are predicated on a simple fact.  The money owed is money we've already received and have already paid federal and, in most cases, state income taxes.  We are going to be required to repay the gross amount, not the after-tax amount.

Herewith are my questions, with an additional one not posed in my email.

1.  Under the actuarial repayment method (ARM), is the payment computed only once and then remains fixed for the duration?  In other words, are there circumstances under which the ARM payment changes (e.g. after a COLA or a pop-up following the death or divorce of a beneficiary)?

2.  Is the ARM payment taken pre-tax (as it should be), or is it taken post-tax, which means it will be taxed twice.

3.  Under a lump sum repayment, will the 1099R for the tax year in which the payment is made (presumably 2012), reflect the amount in box 10, 11, 12, 13, 14, where such non-taxable credits are typically reported?

4.  If the 1099R does not show the amount of the lump sum payment as an income offset for 2012, then will the invoice we receive be detailed enough that the amount of overpayments will be listed by calendar year of overpayment?  This level of detail would be critical should those of us who have sizable overpayments to make decide to file a "right of claim" (section 1341, IRS Code) on the amount as either an itemized deduction or a tax credit (lump sum greater than $3000) against our 2012 Federal and State income tax returns?  This should be mandatory of PERS.  The IRS isn't likely to take kindly to the typically uninformative bills and statements that we've gotten from PERS up to this point.  It is imperative to have complete documentation of what and why we are repaying so that we can take this to the lawyer or accountant of our choosing and file whatever papers we need with the IRS to facilitate a credit for the amount of taxes we've paid on money we're no longer entitled to.  No one is asking PERS for tax advice and no one is asking PERS to do anything extraordinary.

5.  Would it be permissible to pay the lump sum by taking money from an existing tax-advantaged account - IRA, 401K, 403B, 457, SEP - and negotiating a trustee to trustee transfer, thereby not triggering a taxable event?  In this circumstance I don't believe that there is a "right of claim" to be exercised and this might be the easiest method of all for many.

This is not an ordinary event in one's tax life.  Most people don't have to repay amounts that have already been taxed.  PERS should bend over backwards to provide ordinary, but complete, documentation of the when, how, why, and how much so that individuals can avoid the whammy of repaying a pre-tax amount with post-tax dollars.