Nightmares

With little notice, Governor KitzRobber quietly signed SB 822 into law late last week.  It takes effect immediately, which means that this year's COLA will be 1.5% and the graduated COLA will go into effect with the COLA for 2014, effective July 1, 2014 (payable August 1, 2014).  The legal process is gearing up and the PERS Coalition and, presumably OPRI, will be seeking appropriate plaintiffs for filing litigation.  There hasn't been any litigation filed yet, but it will happen in due course.  I believe the legislation requires that any litigation must be filed within 60 days of the law's passage, which means that any relevant litigation will be filed by very early in July.  The unions and OPRI will put out calls for plaintiffs and they will describe the general category of people who would make good plaintiffs.  Watch this space for further information as soon as it is available.

The original plan was for the budget shortfalls to be made up of savings from SB 822, a further collaring of employer rate increases until 2015-17, and $275 million in revenue increases.  The first two made it through without too much difficulty, but the revenue increases failed to get the required 60% majority in the Oregon House and would have died in the Oregon Senate no matter what.  So, the situation right now is that the budget remains $275 million short of the Co-Chairs approved budget.  This means that addition revenue will have to come from a combination of revenue increases and further PERS cuts that the Republicans and the Governor insist upon.  And it is here where the nightmares begin.

If we assume that further cuts to PERS will come, there are only three places those cuts could come from and have a remotely legal chance of surviving.  The first pertains to the 6% "pickup".  Currently, the law requires that employee contributions shall be 6% of pay per month.  It doesn't matter who pays; it only matters that the employee must contribute 6%.  One option would be to provide some statutory flexibility on how much the employee must contribute, which will, in turn, open the matter up to collective bargaining negotiations and possibly free up some revenue that employers who "pick up" the 6% currently pay (note:  the largest employer "picking up" the 6% is the State of Oregon).  Another possibility is to eliminate the requirement for employees to contribute anything.  This would also permit the subject to be part of collective bargaining with some of the 6% going to employees as possible pay increases and the employees having to pay whatever voluntary contributions they might want to make.  Neither of these approaches actually saves that much money, except possibly for the State of Oregon, because there is no likelihood that the unions would agree to a complete loss of the employee contribution without some compensatory salary increases.  This has proven to be difficult for the actuaries to even figure out because there are so many different scenarios that could alter the savings landscape.  Moreover, the pickup is already part of collective bargaining agreements and so this would have to wait until contracts are negotiated before the actual savings can be calculated.

The second place money might come from is the quiet firestorm that has been building over the benefits being earned by inactive PERS members who worked long ago, became vested in Tier 1, and are starting to retire at astronomical multiples of their final average salaries.  I've heard of cases where retirees of this category are earning as much as 15x their FAS just from the accumulation of earnings over 20 or more years of inactivity in the system.  There are probably a fair number of inactives in this category, and terminating Money Match for them is an area that may be ripe for savings.  But, alas, things are not that simple because Tier 1 members are legally entitled to have the benefit that pays the most be their received benefit.  So, terminating Money Match for some subclass of inactive members would trigger another round of litigation and would probably end up being tossed out of court.

So that leaves the nightmare scenario.  Although comparatively few Tier 1 members are retiring today under Full Formula or Formula plus Annuity, the number is increasing significantly as Money Match ceases to be the "best" method for many after 10 years of no employee contributions.  What is significant about Full Formula and Formula plus Annuity?  The issue for Legislators and the hate mongers in the mainstream media see "pension spiking" as a real issue here.  In Oregon, the "pension spiking" is tied to the use of sick leave, overtime, and accrued vacation time in leveraging up the Final Average Salary.  Many in the Police and Fire realm work mandatory overtime because of staffing shortages and the unpredictability of demand and specific times and days of the week.  In some instances, overtime can increase a member's salary by a substantial about and there is no question that during the final three years of employment, many members will take advantage of covering as much overtime as is available.  Similarly, the employers who permit employees to take advantage of accumulated sick leave in the calculation of Final Average Salary often face literally years worth of accumulated sick leave (I had 15 months' worth of sick leave when I retired, but didn't use it because I am a Money Match retiree).  These longstanding and legal methods of increasing one's final salary at retirement has become a mythological beast in the eyes of the media and some Legislators and the City Club, OSBA, etc.  Somehow, the belief exists that this a major problem that must be addressed to save PERS.  There are probably a fair number of people whose final average salary will be increased by a few thousand dollars annually by the use of these legal methods, but the fear is that unless this is stopped now, PERS will drop into a hole from which there is no return.  The hysteria over pension spiking would be LOL humorous if it weren't an issue in so many people's current plans to retire.

Please pay attention to the following.  The Legislature has been completely, utterly, totally silent on what further actions to take with PERS.  This has more than a few of us concerned that a "Saturday night massacre" may be silently brewing in the Legislature.  This could take one of two forms, although the latter is more likely than the former.  In the first scenario, the Legislature is planning to pass legislation to terminate the use of sick leave, overtime, vacation and comp time in the calculation of final average salary.  I think that is the likely form, but the timing is crucial.  Imagine if the Legislature could organize itself so that between now and Memorial Day they could completely sweep through with legislation that would end up on the Governor's desk before June 1.  If the bill has an emergency clause, the moment the Governor signs it, it becomes law.  So, if this happens, what about people who've been preparing or considering retirement on June 1 with the expectation that the current rules apply?  By how much would someone's FAS change if they were suddenly, literally, unable to utilize all the various factors that make up the Final Average Salary?  For some people I know, this could make a difference of possibly $25-$35,000 per year in benefits.  Talk about a nightmare.  But more likely, the Legislature will not have enough time to draft a bill, get it through all of the committees, both chambers and the Governor's office before June 1 (this is a guess, hardly a certainty).  So that leaves option 2, which is basically the same strategy with two non-trivial exceptions.  First, the effective date would be essentially affect July 1 retirements.  But the sneaker wave, massacre approach would be to maintain the silence for the rest of May, and only introduce the Legislation on or quickly after June 1 for a July 1 implementation.  The scenario thickens if the Legislature agrees to keep the lid on this until after June 1 deliberately to prevent members from being able to jump on the retirement bandwagon for June 1.  If you wait until after June 1, you may have no opportunity to retire before the implementation of this measure.  If this is the case, I see this as callous, unethical, unconscionable, and, hopefully, illegal.  But in the meantime, what would you do?

So, there is a wicked landscape to my nightmares and many others as well.  As one of my friend's put it so ably:  "the silence is deafening."  For people on the cusp of retiring and who know that they will retire under FF or F+A it is time to take serious stock, especially if you are in the category that will benefit from the very things the legislature may be considering removing from retirement factors in calculating Final Average Salary.  The challenge is what to do if the silence continues past about May 20.  You could put in your papers for a June 1 retirement, knowing that you can withdraw the papers if nothing happens during June and sine die.  But, in order to retire, you have to totally separate from your employer.  What if your employer won't hire you back?  Similarly, what do you do during June if nothing happens before May 31?  The one thing to keep in mind clearly is that PERS has repeatedly asked the Legislature not to take actions that would trigger a huge wave of retirements.  If a measure has a date certain for implementation, this is a signal to members that if they want to preserve certain rights, they must retire before that date.  That sets up the avalanche scenario that PERS has been asking the legislature to not do.  So, this leaves the Legislature with only one alternative to avoid that consequence - a swift passage of a measure that does not give enough advanced warning to people to submit retirement applications.  Either of the situations I described above would do exactly that.

Consider yourself informed.  You're on your own to figure out what is best for you.  I don't have any really good or safe advice to give.  Welcome to my nightmares (and I'm already retired).

 

Tumbling Dice

The Legislative crap game hasn't folded its tent yet, unfortunately.  The Governor and the Dems are so desperate for revenue - at least another $275 million - that they are willing to sell our souls for a few Repub votes.   PERS members are still in the crosshairs since SB 822 didn't satisfy the bloodlust of the media, the Rs, and the Governor.  Last week Gov. KitzRobber held a round of meetings with legislative leaders to plead for more revenue.  The only way they see this possible is with more PERS revenue transfer from members into the pockets of employers.  Basically, the Legislature, the Governor, the media have all decided that the entire increase in this year's budget will be funded off the backs of PERS retirees first, and then from future retirees - the actives and in actives.  (Keep in mind that all these changes to PERS replace any changes to the tax structure in Oregon; few, if any, additional tax revenue will be needed if all these PERS' robbing ideas get implemented.)

Ideas currently in circulation include bills to prevent pension "spiking"  (a current non-problem), flexibility on the 6% employee contribution (i.e. taking away part or all of the "pickup"), ending Money Match for inactive members with less than 10 years of service and no service in the past 10 years.  The "spiking" provision would reduce employer contributions by about 0.7% or approximately $660 million (this is a total amount over 20 years; about $66 million per biennium) since it only applies to Tier 1 and Tier 2 members (not OPSRP) who retire under Full Formula or under Formula + Annuity, but not Money Match.   The "pickup" saves a variable amount of money depending on how it is implemented both statewide and locally.  The objective is simply to provide more negotiating room in collective bargaining.  Finally, the issue of inactive members retiring under Money Match came into focus after Paul Cleary's testimony on SB 822.  I have seen no analysis of how much a bill ending Money Match for certain inactive members would save, nor have I seen a bill with that objective.  The other ideas are part of SB 754, introduced by OSBA, and being actively pushed by a group entitled Reform PERS Now.

As I have indicated before, I don't give advice to people who are on the verge of retirement.  But, if you are already considering retirement this year, know that you will retire under Full Formula or Annuity Plus, and don't have a complex situation that will require time to assemble funds or paperwork, I do know that the removal of sick leave, vacation time, and overtime will have a huge impact on a small number of people.  You might want to get your affairs in order and be prepared to submit your retirement papers before May 31 for a June 1 retirement.  I don't think the Legislature can move quickly enough to pass bills to eliminate pension "spiking", which is the major concern for most people, or for eliminating Money Match retirements for those who stopped working for a PERS employer more than 15 years ago.  These bills have a relatively long cycle to get passed and signed, even with an emergency clause.

Both the Legislature and unretired, but eligible PERS members, are both throwing dice in difference craps games.  If this concerns you, there are two actions you can take.  First, start lobbying your own legislators on how unfair this kind of change is just before someone retires, and two, get your retirement affairs in order.  Your only option if things start to go pear-shaped is to get out of the system quickly.

Tears of Rage

Well, the Oregon Legislature done screwed the pooch this time.  It is with rage that I report that the only people targeted to pay for the state's apparent financial difficulties are all current PERS retirees and all future PERS retirees.  Our Democratic supporters abandoned any sense of rationality to impose, on a strict party line vote, a reduction of modest to significant proportions on more than half of current PERS retirees by first reducing the Cost-of-Living Increase, and then completely decoupling the annual COLA from anything that resembles an increase in the cost-of-living.  Not one Democrat had the cajones to oppose this stupidity, not one Democrat asked the obvious question of what happens when the Oregon Supreme Court sends this measure back with a "you can't do that" ruling, and not one Democrat demanded that the money either be lockboxes until the court rules, or demanded any form of accountability from the schools who will harvest this money and use it to seed a bigger administrative structure than they have now.  Lest anyone doubt my predictions, ask in a couple of years for every school district to account for exactly where every penny of the PERS theft money went and how many new teachers, classroom supplies, and teaching materials this blood money bought.  I'm betting that of $400 million (before the OSC says "Nope") will be squandered in unimaginable ways, and few, if any, new teachers will be dotting the rolls of any of the school districts who are part of the OSBA (sponsors of the punitive SB 754).

As if things weren't bad enough, Tina Kotek, Speaker of the Oregon House, declared that she had the needed votes to pass the other piece of legislation required to balance the budget - a $275 million change to the deduction structure for higher income individuals.  When the time came for a vote, her promised two republican votes vanished quicker than $50 bucks in a military poker game.  Tina was played for a fool and ended up being the fool.  Now she's going to find out that she not only can't trust those who supported her, but those who promise to support her.

And, the big news is, of course, that the PERS tithe isn't big enough for those wheelers and dealers at the Oregonian, who continue to demand a more gigantic pound of flesh from future PERS retirees by adopting the draconian plan introduced by the rapists from the OSBA,  and its rapist-in-chief, highly paid lawyer Bill Gary, and his smarmy and unctuous sidekick, bald Jim Green.  I don't know whether there is time for this to get through the process before sine die but you can rest assured that the minority party is going to put the squeeze on the pansy-ass D's in the Legislature to capitulate or get no additional revenue for the school budgets.  The D's have placed themselves in this no-win situation - they have pissed off the unions, all of the union's constituencies, public retirees, the major newspapers, and all of the R's in and out of the current legislature.  That is an ugly place to be.  You want, desperately, to hold on to your majority, but everything you do keeps working to cost you seat after seat.  And you've placed the unions in a very precarious position.  No union official I've talked to wants to support any of the Democratic hacks in the current Legislature, but the alternative, the mean-spirited, ugly mouthed, and vicious Republicans represent an even worse alternative.  Our Governor, a weak-ass, self-absorbed, FORMER ER doc, has no truck with the Legislature and nothing to really hold over anyone's head.  His head is either in the clouds, in the rivers, or in Cynthia's ….."

So, will 2014 become the year that the shit hits the fan?  I think so.  I think that the political battle lines in Oregon are being drawn so starply that if the R's can run a rational and moderate candidate for Gov (no tea- baggers need apply), they could easily defeat whoever the D's run, whether KitzRobber or another poor schmuck with the same tired agenda.  Similarly, only D's in safe districts stand a chance of being reelected.  For them, "safe" is relative and their behavior this session is earning them the undying enmity of a constituency of nearly 325,000 PERS members and retirees.

If you are tired of being the Bank of Oregon, the safe (SAIF) where the only money people think about resides, then how you behave in the next year will determine what the fate of Oregon's PERS will be and how secure our retirements will remain.

I'm just tired of all this.  For all you Democrats out there, especially those in the Legislature, don't come looking to me for support or for understanding.  You've just made me the cash cow for the Oregon budget and I'm spitting mad.  You want money, go ask someone else.  You want to retain control of the Legislature, trying keeping your word.  You want to remain in office, stop drooling every time the Oregonian publishes a naughty editorial excoriating you about your record.  Why not ask the Oregonian what their retirement plan looks like.  Why not suggest that the Oregonian's editors be taxed on their pensions.

My letter to all Legislators this year (pardon my language):  Dear Legislator:  Fuck you.  Strong letter follows.    Excuse me while I go shed more tears of rage.

The Weight

Much confusion, anxiety, anger, and doubt continue to flood the Oregon Capitol as SB 822 passed through the Senate on a strict party line vote of 16-14.  The vote was delayed 2 days because Senator Richard Devlin, one of the Bill's sponsors was in the hospital for chest pains.  (This is probably the signal that Devlin may not run again, something that may energize those on the PERS side who are angry with Devlin for his sponsorship of SB 822).

The issue now is that the entire Co-Chairs' budget depends on savings from SB 822, which include COLA cuts for PERS retirees, removing the income tax subsidy for 19,000 PERS retirees living out of Oregon, and from a delayed billing of employers for $350 million of due and payable PERS payments.  The delay will end up costing employers more than they save because the interest on the obligation will continue to accrue until the money is repaid.  Moreover, the budget also includes approximately $275 million in revenue increases that require a 60% majority in the House to pass.  The D's on the House side are not as enamored with SB 822, but they don't want to cut as deeply as the R's on either House or Senate side.

This has created consternation and anguish and some conflicting rumors emerging out of Salem.  According to one set of rumors, the Ds have lined up enough support from the needed Rs to pass SB 822 as is, as well as to enact the $275 million in revenue measures.  On the other side, there are rumors that the Rs will not agree to the additional $275 million in revenue without more significant cuts to PERS.  

So, at this point in the game, the safest suggestion is to watch closely what goes on in the Legislature and not stop writing legislators.  The game is far from over; indeed, it MAY just be beginning and if that is the case, the weight retirees may carry might get larger.  The next three or four weeks will be critical to the outcome of the session.  Anyone who suggests that the Legislature is "done" with PERS for this session hasn't been paying close attention.

It's Alright Ma (I'm only bleeding)

The freight train you hear outside your window tonight is the one carrying SB 822 to its final resting place, on the Governor's desk, where he will assuredly sign the bill in 6 seconds flat. So much for the democratic process. The first public hearing on the bill was last Thursday, where the rules committee of Ways and Means took testimony for 3 plus hours. There was exactly zero support from the public on the bill either because it was viewed as illegal theft of earned and promised benefits from PERS retirees, or because it didn't solve any problem, but merely created more, or because it didn't go far enough in stealing from retirees or actives. Discussion continued briefly on Friday morning where more opposition was raised. In a typical case of completely ignoring all testimony - a fact yours truly predicted to the committee's faces on Thursday - the bill was rushed out to the Ways and Means Committee for more testimony and a work session tomorrow at 4:30. The final bill, which committee member and House Speaker Tina Kotek has already announced is in its final, unamendable form will come up for a joint Ways and Means full Committee vote on Friday April 5 at 9:00 am. At that point, all that remains is a vote from all the House and Senate members ( where the dumbocrats have a sizeable majority). All this looks like a slam dunk passage of the COLA cut, the elimination of the income tax subsidy for non-resident retirees, and allowing employers to defer about $350 million worth of employer required payments down the road an additional two years.

There are so many problems with this bill that despite Bill Gary's $500 per hour opinions on their legality, the legality is nearly immaterial to the damage they will do to the system, legal or not. First, the problem that motivates this "solution" is an Unfunded actuarial liabily that is $14 billion without employer side accounts, and $8.7 billion with the side accounts. While the savings from reducing the COLA payment obligation the present and future retirees works out to be approximately $400 million per biennium ASSUMING the savings accrue for the next 10 biennia. But the savings don't accrue at all under this bill. Instead, the $4+ billion savings in the next 20 years will be spent every year to keep employer rates artificially low, and at the end of 20 years, the system will be no better funded than it is now, unless the earnings approach Bernie Madoff levels. Second, the funds are supposed to prop up the K-12 budget with the governor insisting (pandering) that the money will be used to put more teachers in the classroom. That would be a noble gesture were it not for the inconvenient truth that nothing in this bill requires the employers to provide an audit trail that proves the money will end up in the classroom hiring new teachers, updating the curriculum with new books and possibly hiring a few teachers aides. I know way too much about how the educational system uses some creative accounting to hide the real purpose or placement of new funds, that without some serious checks and balances, perhaps accompanied by prison time for misuse of these funds, I'd be astonished if the net increase in teachers from this infusion of stolen cash leads to more than 50 genuinely new, full-time teachers.

Finally, we have the legislature buying into a scam previously reserved only for the PERS Board. If the legislature imposes an addition rate collar of $350 million so that money due to pay bills due now is allowed to drift unpaid for another two years, the increased costs just from that deferral alone will add another $60 million in interest costs to the deferred money, which will be added to the employer costs in 2015-17. Pushing the can down the road doesn't relieve employers of these current obligations. It just makes the next bill more expensive because the current costs that are deferred get added to the UAL and make the debt service on the UAL that much more expensive.

So, the logrolling of SB 822 has begun in all seriousness with public employee retirees being subjected to (probably) illegal cuts to their COLA benefit, with none of the savings retiring any portion of the UAL,none of the savings guaranteed via any mechanism to achieve its intended target - the children and their teachers, and accompanied by a deferral of mandatory payments by at least two more years and the UAL not declining, but rising by another nearly half a billion dollars.

If this is intelligent public policy, then I am the densest person on this planet. Don't look now ma, I'm only bleeding, just a little bit more. And the really encouraging piece of news is that after this bill goes into effect, we will all be back here again in two more years for the next round of cuts.

Beast of Burden

Just when you thought things couldn't get much worse, the Oregon Legislature has decided to fast track a PERS bill that will make retirees the beasts of burden to carry the load for funding public schools.  From the beginning, this has been set out as a contest between two conflicting contracts - the PERS contract, and the so-called contract with schools to provide a quality education for our students.  So now, the issue comes down to robbing retirees to pay for "the children".  Not only is this just wrong, wrong, wrong, what lesson does it teach the children.  Leaving aside the question of whether ANY children will benefit from the legislative action, there is the larger question of the lesson that "keeping your word", "honoring a contract", "promises must be kept"  teaches our current-day students in this environment of "they SHALL pay".  I wonder if the Legislature even notices the irony of "its for the children" when weighed against "a small break in the retiree COLA contract".  I guess trust is not a commodity they teach in school today and the students of today need not worry about their future concepts of right and wrong.  The Legislature has just told them that "breaking a contract" is OK if it is "for the children".

My last post outlined part of the terror to be visited on retirees as soon as July 1, 2013, in the form of a reduced COLA (1.5%) in 2013, followed by a graduated COLA based on income level that will be implemented in July of 2014.  I'll spare you the details again since they were in my last post.  But this fiscal sleight of hand takes roughly $45 million in lost COLAs to current retirees and through the magic of compounding, actuarially apply a Betty Crocker recipe, and turning up with a $400 million reduction in PERS employer contribution rates.  This money, or at least the money retained by the schools, will be redeployed to do things "for the children".  Several groups are strongly favoring reductions in retiree COLA (even if not the current proposal), but nothing in the current bill will actually help the situation on the ground.  The public schools have always been a vast wasteland of unnecessary spending, although none of the unnecessary spending has ever been at the classroom level.  So, when I testified before the joint House and Senate Rules committee on Wednesday, I asked exactly how the Legislature planned to insure that every penny of the money stolen from retirees will end up in the classroom where the children live.  How does the Legislature plan to monitor expenditures of this $400 million to insure that my granddaughter's classroom sees every single dime of money that you've taken from her grandpa's retirement fund.  I am a cynical person.  I spent my entire career in education, although higher education instead of K-12.  I remain close to the scene at my former employer.  I get weekly emails telling me the latest goings on.  So while teaching positions are frozen, tuition continues to rise, faculty continue to be paid well-below comparator institutions, the University can find enough money to hire a new "Vice President for Customer Service".  I confess to being flabbergasted by this appointment.  Who are PSU's customers?  What will the VP for Customer Service do?  Assuming that the students are the customers, will the school then adopt the retail adage that the "customer is always right"?  This kind of fungibility of funds in education is what worries me greatly about this latest attempt to steal money from people who have already worked their entire career, have spent 10-12-14 hour days trying to help the good citizens of Oregon and who now not only get to be regularly trashed in all the local media, their own employers conspire against both actives and retirees to take more money so that we can all enjoy the benefits of a "Vice President for Customer Service".

If that isn't enough, the bill currently floating through the legislature at warp speed also includes a provision to end a practice that has been in effect since 1995.  This is a very complicated issue, and on the surface it appears that it should be a slam dunk reduction.  But like all things involved with PERS, there is a long history, a very complicated history that involves multiple cases before the Oregon Supreme Court, changes in the IRS provision nearly immediately after Oregon addressed the problem, and a lot of people who have no idea that their current benefit contains a fractional adjustment to the gross benefit that is the result of Oregon being forced to tax PERS benefits after a US Supreme Court case in 1988.  The problem isn't the solution to the matter - PERS members who live outside Oregon no longer have to pay Oregon income tax on their PERS benefits, although they did until 1996, the real problem is that PERS has never been entirely clear about what the benefit "bump" was for.  Consequently, if you ask the typical retiree living in another state, someone who moved there to be closer to family, to be nearer better medical care, or to help out other family members, few, if any of them, even know that their benefit is in jeopardy.  So SB 822, the latest piece of legislative flypaper catches all retirees with the COLA change, and it affects 19,000 retirees living away from Oregon who receive approximately $55 million in extra benefits every two years as a result of a legal case that occurred early in their working careers.  

Your can write the legislators involved - Senator Richard Devlin and Representative Peter Buckley - or you can write to the Governor to argue that these cuts are ill-advised, possibly illegal, and will wreak havoc on retirees if they pass and won't benefit the schools (or at least a few overpaid administrators) either.  You can also indicate that you think that there is not a small amount of irony in teaching our children that breaking promises is OK if you are the beneficiaries of the broken promises.  Unfortunately, I doubt that our students will see any of the money from this latest raid on the PERS fund.  I'm willing to take bets that less than 20% of $400 million reaches the classroom, while the remainder goes to support the bloated and corrupt bureaucracy of the public schools.

The other piece of delicious irony in SB 822 is that our opposition in the Oregon School Boards Association (OSBA) represented by loudmouth Jim Green from Salem and sleazy and unctuous Bill Gary from Eugene are deeply concerned about the unfunded actuarial liability (UAL).  Their concern would touch me if any of the savings from retirees actually did anything to reduce the UAL.  But, as good representatives of the OSBA they would be remiss if they actually helped reduce that nagging concern, especially if they have to choose between "the children" and the "UAL".  So, the schools get $400 million worth of play money to enjoy as they wish - because there is not any oversight on how they spend it - while the UAL lingers at $14 billion dollars and MIGHT be $11 billion after the schools have ravaged through 10 biennia of $400 million + in savings taken directly from retirees and future retirees.

Oh, and did I mention that this bill also asks the PERS Board to push about half of the employers' required payments down the road until 2015-17.  So, the net effect of all this fiscal chicanery is to generate $400 million in phantom dollars for the schools to spend on executive boondoggles, new offices, maybe one or two new computers, and a new administrative lounge or two, while the employers of all PERS employees get to defer about $400 more million dollars in payments that should be due now, today.

The sad fact in all of this is that while we are Beast of Burden for the 13-15 biennium, I have no expectation that anything will change between now and the next big legislative session in Feburary 2015.  I expect that the money will be squandered, that PERS will be in no better shape, and the rapists will be coming for more contributions from retirees, but will have gathered all the low-hanging fruit out there.  Good luck.  I hope they are in training now, because the next time they try to take money from us, we will be better organized and prepared to walk these clowns out to the end of tiny branches and watch them fall like rocks.

Have a nice Easter.  

Blowing Smoke

Finally, the Senate and House Co-Chairs have provided hints on how their COLA proposal would go for current and future retirees.  Representative Peter Buckley outlined the bare essentials of the proposal in an article published this morning in the Medford papers.  Basically, as I understand the proposal (took me awhile and a couple of others helping to figure out the vague not-yet-final proposal), it would reduce the first year (2013?) COLA for all retirees to 1.5%.  Presumably, this is done to permit PERS time to program their computers for the gigantic cluster foul to follow in later years.  According to Buckley, the proposal would truly begin in the second year (2014?) of the biennium.  Members would be given 2% on the first $20,000 of benefits, 1.5% on the next $20,000 in benefits, 1% on the next $20,000, and 0.25% on everything over $60,000.  

It takes awhile to figure out how any individual might be affected by these proposed changes.  The bottom lines are that (a) PERS is guaranteed to find a way to screw this up (this involves some complex programming for PERS programmers who don't seem to be too talented in this Department) and (b) long term employees will suffer from about a 50% cut in the COLA as it is currently written.  It IS better than the Governor's proposal, and it MAY pass legal muster, but this will surely not incent people to stay in the employ of a public employer for a full career.  This coupled with all the other proposals designed to deprive people of PROMISED benefits (talk about BAIT AND SWITCH) will discourage anyone with one firing neuron from staying in public service for an entire career.  I don't know about other people, but this is a greatly discouraging sign that the state and public employers will promise anything to keep people working and then pull the rug out from underneath them when they near or are at the ends of their career.  Not happy and not feeling responsible for the current state of affairs.  

How come no one is asking about the impact of Ballot Measure 5, Ballot Measure 11, Ballot Measure 47?  How come no one is asking employers what they did with the "savings" from the 2003 cuts to PERS (that are actually working), the emptying of the contingency reserve in 2007 (right before the 2008 crash), and why I have a hard time sympathizing with a bunch of greedy, money grubbing administrators in the public sector.  They aren't being hurt, why should I?  If you want to see excesses, look at the benefits of the current Superintendent of the LO School District and his wife.  Talk about screwing the public.  Why should I pay the price for their excess greed?

The proposal by Buckley and Devlin is disappointing in extremis because it is just blowing smoke out the behinds of the Legislature.  There is no way it will pass in the form it is in.  It is only likely to be worse.  How's that for scary?

 

 

Pressing On A Bruise

Both the Oregon Legislature, the Governor and god knows who else continues to perpetuate a fact that is totally lacking in proper context. The "fact" is that more that half of current PERS retirees earn less than $24000 in PERS benefits annually. They use this fact to claim that a COLA cap will take care of the poorest members of the 110,000 plus PERS retirees. They make the COLA program appear to be an anti-poverty measure for the poorest retirees. Unfortunately, while the fact is true, it lacks a truly important context that dramatically alters how one interprets the earnings figures.

The crucial fact - one that many of us have been claiming for some time - is that the $24,000 figure is (a) drawn from thin air (b) does not accurately capture the truth about PERS employment and (c) punishes the career employees at the expense of short-timers.

Using PERS' own data, submitted to both the Oregonian and the Statesman Journal last year, we find 63611 PERS retirees earning less than $2000 per month and retired with an average of 14.5 years. The remaining PERS retirees, earning more than $2000 per month, average 26.5 years of service and number 53361 retirees. This split in the data confirms the compelling observation that a COLA cap set at $24,000 is both arbitrary and rewards short-time employment, while it is particularly punitive to employees who dedicated their careers to public service. Not only does this send a proverbial message of "f - you" for your lengthy service, it also acts as a strong anti- recruitment message for a career in public service. I truly hope that the Legislature doesn't fall victim to this maximally cynical message. Talk about pressing on a bruise. Ouch!

Making Promises

The current Oregon Legislature has spent an inordinate amount of time figuring out how to screw over PERS retirees already drawing benefits.  From the beginning, starting with Governor Kitzhaber's budget that proposed to cap the retiree COLA at 2% of the first $24,000 of benefit, the legislature has been doing pretzel twists in an effort to second guess what the Oregon Supreme Court might allow as a change to a benefit that has been enshired in statute for more than 40 years with no change.  Both the Legislative Counsel and the AG's office have independently concluded that a dollar cap on the COLA isn't likely to persuade the Supreme Court of its legality.  For the past month, a group of fiscal analysts, the Legislative Counsel(s), and various highly placed politicos have been meeting secretly to find a legal way to reduce the future benefits paid to current retirees.  It is a no brainer legally if they want to go after those who haven't yet retired, but the issue of stealing future benefits from those already retired has been problematic.  The issue the Legislature and the Courts confront is that of ALL the benefits paid to PERS retirees, the COLA is the most clearly articulated, longest standing, and most direct promise made to retirees.  And that promise has existed since the day every retiree retired, if not from the first day they were hired.  So, the Legislature faces the daunting prospect of trying to alter a benefit that has been etched into the annals of the state statutes since 1971, and in its current form since 1973.

After weeks of meetings, the Legislature seems to have hit on their "solution" to the problem.  They will settle for a lesser reduction and lesser savings in exchange for something that will keep PERS' programmers up nights and days trying to figure out how to comply with the typical byzantine rules of the Legislature.  While no one knows exactly what those mental giants in Salem have come up with, it is pretty clear that they've decided that they *might* get away with a graduated COLA.  The idea is that lower benefits would reap the highest (2%) COLA, while the COLA percentage would decline with income.  One can imagine a COLA with 4 cut points - 2%, 1.5%, 1%, and 0.5% depending on the benefit level of the individual.  At the moment no one has a clue about where the cut points might be, but we do know that the savings estimated are around $400 million per biennium, which is half what the Governor's proposal would have raised if it survived (unlikely) a court challenge.  The notion of a inversely regressive COLA will give the Oregon Supreme Court fits, because the court loathes discriminatory statutes.  This one, however it works out, is discriminatory on its face since the statute would, in effect, provide a higher benefit increase (possibly dollars, definitely percent) for people who have worked shorter periods of time.  The career employee (30+ years) probably earns the greatest benefit primarily because he/she chose to make his/her life's work in the public sector.  The short timer (a generalization to be sure, but probably more true than false) will end up with a higher percentage increase in benefits for working  a shorter period of time and, possibly, having multiple retirement accounts to draw upon.  I have no problem with the career employee who draws lower benefits receiving a higher benefit increase, but I object to the discrimination that arises from spending an entire career working for a single public employer that makes me out to be the "bad guy" in the state's current budget woes.

Lest anyone forget, any reasonable examination of the history of PERS for the past 20+ years will find case after case where the employers have complained about rate increases and have gotten the PERS Board to capitulate in ways that, combined with legislative action, resulted in lower benefits than were promised.  No one wants to address the imperative question of where the savings from every previous set of changes to employer rates have gone.  The employers treat this as a zero-sum game.  Rate reductions must require benefit reductions and so every problem that this state faces automatically requires employees, and PERS beneficiaries to give back something that the employers promised in exchange for both salary and lower employer rates.  When is someone going to call "buillshit" on the employers and ask where all the savings from previous rate cuts have gone.  Because saving them seems to be an alien concept.  If one wants to compare greed, lets pit employers and employees and see who has better husbanded money.  I bet employees win every time.  I wouldn't give employers another dime unless someone can PROVE they are spending their resources wisely and saving properly for a rainy day.
For retirees, I suggest that you assume the position and get ready for another screw job brought to you by the "fiscal analysts", the Legislative Counsel, and the "wide boys of Salem".  Bend over and prepare to enjoy it!

Long And Wasted Years

The Republicans in the Oregon Legislature, seeming to do Dr. No's bidding for him, have proposed a series of "reforms" or "clarifications" (to coin Rep Bruce Hanna's moronic term) to the PERS statutes, and  have laid waste to all the years of work done by public employees in Oregon.  There are more than 50 bills now introduced in the Oregon House and the Oregon Senate that would basically trash retirement benefits for near term retirees and those already retired.  This screw job has been brought to you via the trash mouthing of the imbecile Dennis Richardson (whose IQ parallels a box of dirt), Representative Bruce Hanna (who makes Richardson out to be a genius), Tim Knopp (whose IQ is measured on the Richter scale), and Jason Conger (who doesn't even register life on an EKG or EEG).  Of course, the logarithmic IQ of the Oregonian and the Statesman Journal contribute to the trashing.  These Republicans have taken our Governor's proposals (you know, Governor Kitzhaber who is registered as a Democrat, lives with some chick to whom he is not married, and represents the worst and the dumbest of Oregon politicians.  He is reputed to be an Oregon Physician but the only thing he is qualified to do is to use Oregon's Death with Dignity Act on himself) and have converted them into payday for Oregon Public Employers who cannot save a dime if it is put into a savings account for them and no one gives them the password or key.  I am embarrassed to be an Oregonian after looking at this slash and burn approach to retirement benefits in Oregon.  You were expecting your employers' promises to be kept after they denied you raise after raise.  Hah!  You are dumber than I thought you were.  The employers think you should kiss their butts for the privilege of working for them.  You want benefits - call the Aflac duck!

I don't even know where to begin trying to articulate the ridiculous bills introduced into the Legislature.  It is as if a bunch of monkeys got together into a room, were given a slate with all the appropriate catchphrases against PERS, and they randomly assembled a bunch of bills that could inflict the most damage possble on PERS members and retirees.  Law? Pshaw.  Let's just overwhelm the Oregon Supreme Court until they say uncle and overrule themselves from previous cases (Hughes, OSPSOA, Strunk).  The reps and senators have proposed enough bills and enough variants of those bills that it appears that they are playing spaghetti roulette.  How many bills can we throw against the wall until (a) one or two stick in the Legislature and (b) the Oregon Supreme Court rules the bills legal.  The OSBA completed the throw down yesterday with SB 754.  The OSBA represents the school boards of Oregon.  Let's not forget that many members of the OSBA are already PERS members and draw huge salaries (Chris Dudley, $200,000 per year and his doesnt have to hit any free throws).  The OSBA decided to combine all the offensive bills into one - cut PERS retiree COLA to 2% of the first $24K, stop pension spiking by preventing use of sick leave, overtime, and vacation for FAS, reduce Money Match annuity rate from the actuarially assumed interest rate (currently 8%) to the ridiculously outrageous rate of 4%, terminate the IAP and redirect future contributions to paying down the employER cost of the Full Formula retirement, eliminate both the SB 756 and the HB 3349 income tax subsidy for anyone living out of Oregon.  This cluster f**k would nearly halve retirement estimates for near term retirees and would perform a royal flush on retirees.  Never mind that much of this is probably not legal;  it guarantees that current and near-term retirees can continue to live in a state of dread for at least two more years.  Whatever the Supreme Court ultimately rules, it will be years before PERS gets off its collective ass to reinstate whatever the Legislature chooses to take away.  The courts have been loathe to prevent implementation, or to urge PERS to fix things after PERS finds out the approach is patently illegal.

Watch this space for more news on how our duly elected Legislators (liars many; ignorant more) deal with this group of bills designed to insure that no sane person will ever choose public employment, teaching, or service again for the rest of their lives.  They want quality instruction.  Look elsewhere.  I can't imagine anyone with more than two functioning neurons would ever choose teaching again.  The promises are nothing more than lies designed to lure you into a false sense of security.  Get out now!  I've warned you that there is no future in public employment.  Don't blame me.  Blame the Republicans and our Governor.

Ghosts That We Knew

I had intended for this post to be longer and more complex than it will end up.  For reasons that I prefer not to go into, I'm going to summarize what I had intended to say, and I will decide someday soon whether I need to elaborate on the information presented.

Since 2010, the idea of capping the retiree COLA at some amount other than the retiree's full benefit has been floating around in the weeds.  I think the original idea came from the Portland City Club, but I am not certain of that fact.  Nevertheless, capping the COLA at $24,000, $30,000 and $32,000 indexed or not indexed for inflation has been a ghost for at least three legislative sessions.  Everytime the idea pops up, like whack-a-mole, it gets batted away because virtually everyone who investigates the idea bumps into the reality that the COLA, in its current form, has been part of the retirement "deal" all PERS retirees get since 1973.  And since the Oregon Supreme Court, first in the Hughes decision, then in OPSOA, and finally in Strunk keep referencing the PERS "contract", the idea of modifying the COLA loses steam almost as quickly as it gets proposed.

Any actuary will tell you that the COLA is expensive even if retirees never see more than 2% maximum per year.  The PERS COLA is extremely modest compared with the COLA found in many other state retirement systems.  Many states with higher COLA have successfully lowered, suspended, or eliminated the COLA provisions in their retiree agreements, but none had the contractual force that Oregon's has.  For every example of a successful attempt to alter the retiree COLA, Oregon has already been there, done that, and has found out that the statutes associated with many elements of the retiree agreement are legally interconnect, sound and hard, if not impossible, to change.  Oregon's courts have plumbed the depths of PERS and have found most elements inviolate under contract law. Prior to 1971, whenever the retirees suffered a significant loss of purchasing power, the legislature granted ad hoc increases in benefits.  These might be 10% increases, 25% increases, a 13th (monthly) check.  From the founding of the retirement system in 1946 until 1971, there were many examples of these ad hoc increases.  In 1971, the Legislature sought to reduce the number and the impact of these periodic increases.  Late in the 1971 session, the Senate introduced a bill to provide an annual COLA for retirees.  The COLA would be tied to the Consumer Price Index (the measure of inflation), would never be less than zero (even in years where deflation occurred), and initially was pegged to be 1.5% of the retiree's benefit.  In addition, the Legislation provided that in any year the rate could not exceed 1.5% and any excess inflation would be banked for the future so that in years where the cost-of-living rose less than 1.5%, retirees (PERS) could draw on their "banked" surpluses to bring the annual increase up to 1.5%.  In the same year the COLA was instituted, PERS retirees also received an ad hoc benefit increase of either 12% or 25% depending on the amount of the monthly retirement benefit.  The annual COLA was scheduled to begin on July 1, 1972.  In 1973, the Legislature revisited the COLA proposing that the ad hoc increases be diminished even more and proposed an annual COLA of to 2.5%.  Everything else about the COLA remained unchanged in Senate Bill 411.  There were a number of revisions made to PERS in 1973 and all those provisions seemed to drive up employer costs.  While there was only small opposition to the changes to the COLA, there was enough that at some point near the end of the session, OSEA, which represented state employees, proposed to help diminish the cost increases to employers and suggested a retiree COLA of 2% rather than 2.5%.  This reduced employer normal costs by 0.3% of payroll.  This did the trick.  The Legislature agreed and ORS 237.060 with all its revisions was enacted by a significant majority in both houses and signed by the Governor.  The changes, like the original COLA itself, were set to be retroactive to July 1, 1972.  Aside from editorial changes, mostly later to eliminate the reference to the July 1, 1972 starting date, and numeric changes brought about by expansion of the PERS statutes, the COLA section of the Oregon Statutes (ORS 238.360) has remained unchanged for the past 40 years.  In that time, the COLA has only been challenged legally once.  After the 2003 Legislative reforms of PERS, the Legislature determined that retirees would see their COLA frozen at 0% until the 1999 overcredit was fully recovered.  Martha Sartain and OPRI challenged the Legislature as part of the comprehensive Strunk case.  In 2005, the Oregon Supreme Court ruled that the COLA was part of a retiree's benefit and that the Legislature could not  define a new benefit structure to which no COLA attached and then impose it retroactively and unilateral on retirees who benefited from the overcredit.  

Efforts to cap the retiree COLA at some fixed dollar amount would assuredly be challenged by the same forces that aligned against the 2003 reforms.  The history of the COLA argues against any idea of a dollar cap.  At no point in the history of enacting the COLA did the legislature ever consider setting an arbitrary benefit level beyond which no COLA would apply.  Indeed, such a limit would be arbitrary no matter what level was used.  Moreover, the mere fact of picking an amount would expose the Legislature to charges of economic discrimination.  The court system dislikes legislation that is arbitrary and discriminatory.  When the Legislature enacted the COLA in 1971 and revised it in 1973 there was never talk of any limit on the amount of benefit eligible.  The language of the COLA provision is clear and unambiguous.  The COLA shall be applied to the member's benefit.   Note that it doesn't say the first $24,000, $30,000, $32,000 or any other number.  The only way that a COLA can be fair and non-discriminatory is to pay it on the entire benefit.  Regardless of what anyone may think about the benefit, it is earned, it is what was promised, and the COLA is part of the promise.  The Legislature alters that promise at its peril.

I've been writing about PERS issues for more than 13 years now.  I started out writing for just my PSU colleagues and it has grown into a widely-read blog.  Lest anyone doubt the reach, look at the page view counter on the left side.  I'm not mentioning this to be a braggart, or to suggest that I am more important, more wise, or somehow more connected than anyone else.  I mention this primarily because most all of those people who read my blog seek the same thing I seek.  I'm closing in on being retired for 11 years.  Since retiring in 2002, my benefit has been under attack nearly constantly, having been reduced on three different occasions.  I know of no other group anywhere that has seen the level of abuse that those of us employed in the public sphere have received.  I didn't make a lot of money when I worked in a job that demanded no less than 8 years of college preparation.  I never griped about my salary - perhaps I should have, in retrospect - and my employer, like those of all the rest of you probably communicated the same thing.  We appreciate that your salary is not as high as either we or you think it should be.  Unfortunately, Oregon is not an affluent state and so we must defer some of your compensation until you retire.  OK, I accepted that promise and went on the have a successful and productive career in higher education.  I got large grants, small grants,  I published books and papers, I won teaching awards, taught tens of thousands of students, and I served as one of the longest tenured Department Chairs in the University.  When I retired, my Department threw me a nice retirement party, people thanked me for my years of service, I got a nice pen and pencil set, and I started drawing my PERS benefit 6 months after I relinquished my tenured position at PSU.  And since then, I and many tens of thousands of public employees have been savaged daily, weekly, monthly, and annually by politicians, gadflies, charlatans and crooks.  Political careers have been made and lost over PERS.  The public cannot seem to grasp the fact that our retirement benefits were both promised and earned, contractual and required.  With few exceptions, no one I know has gamed the system (it really isn't possible to tell you the truth), or in any way has taken benefits to which they were not entitled.

So, given this history and my own personal appeal, I think it reasonable to inquire of the Legislature and Legislators - when will I get to enjoy my retirement?  When will you all stop blaming every public catastrophe, every economic meltdown, and every employer failure to actual husband the savings that come from making me pay, on the people drawing PERS benefits?  We did not cause the problems.  PERS makes a convenient scapegoat, but few, if any,  of us had anything to do with the form of the retirement system we were offered (it was non-negotiable).  Furthermore, none of us has done anything wrong, except possibly to be foolish enough to believe the earnest promises from our employers.  Most of us PERS retirees are not young enough to find employment to backfill our income when the citizens of the legislature decide that we are both the problem and the solution, alters our benefits at the same time we find our health insurance premiums, our drugs, and gasoline prices continuing to inflate far beyond the official inflation rate.  We all made our decision to retire based on the promises and contractual elements provided in a document we all received called a Notice of Entitlement. We made our budgets on the promises outlined in the document, and on the details provided by PERS and our Human Resources Departments in their prep sessions for imminent retirees.  I retired expecting to enjoy the fruits of 32 hard and long years of full-time work with a reasonable, but not excessive benefit.  Little did I know that I'd still be fighting to receive what I was promised 11 years ago.   I really would like to spend my final years NOT writing this blog, not attending most PERS Board meetings, not being on a first name basis with a lot of people in PERS, in the media, and the Legislature, not spending time analyzing tedious documents so that I can report that  the emperor wears noclothes.  I'd really like all of the strum und drang of PERS to be behind me, to be a ghost that I knew, not a ghost in the windscreen. Is that really too much to ask?

The Divide

The dueling reports on the COLA cap proposal have been issued and reported.  On the one hand, the Governor's office requested a legal analysis from the Attorney General on the COLA cap, while House Speaker Tina Kotek asked for legal advice from the Legislative Counsel on the same general proposal.  (Do keep in mind that at this time, there is no formal bill that I'm aware that has hit the pipeline for this COLA Cap, so all of this is speculation based on the Governor's proposal that the Legislature pass such a cap in the current session).  The documents appear to be contradictory, but, in reality, they are not.  On the one hand, the Governor's office got an analysis of how the AG's office would defend the COLA Cap in the Supreme Court, while the Legislative Counsel provided a legal opinion to the Legislature on the proposal in the first place.  The AG's analysis was that they "could" defend the COLA Cap in court - as if they had a choice - but it would be easier if they changed a few things around.  The Legislative Counsel concluded that he didn't think the COLA Cap would pass contractual muster with the Court.

So, who is right?  Well, it is hard to offer an opinion on how a highly charged issue like PERS will be decided in a legal setting.  Presumably, the Oregon Supreme Court, like all other Supreme Courts, rules on the basis of something called the "rule of law".  They also tend to follow a legal principle called stare decisis, which means that subsequent courts try, so far as possible, to respect earlier rulings by the court.   If these two principles hold, the COLA Cap does not have a prayer, based on the history of rulings the the Oregon Supreme Court has issued in previous PERS cases.  I will discuss this history, and provide a brief overview of the Legislative history of the PERS COLA in another post later in the week.  Unfortunately, our Supreme Court is elected, not appointed, and the fact that all members of the Court are also PERS members means that their opinions are subjected to more than the usual amount of scrutiny by the media and by the public.  

The conflict issue has driven a Bend attorney, Daniel Re, to crusade for empaneling a group of Judges, not in PERS, to hear and rule on all future matters pertaining to PERS.  Re has roped Representative Jason Conger (R, Bend) into sponsoring a bill that would require "outside" judges (outside of what?) to rule on any matters of PERS.   Re acts like this is a problem unique to the Oregon Supreme Court.  In fact, it is not, and another legal principle "the rule of necessity" states that there are some issues that present conflicts of interest to the court.  The presumption under the "rule of necessity" is that sometimes these things happen and that the legal principles trump the conflicts and that judges can put their personal situations aside.  Re talks about assembling a panel of judges who are not PERS members (not in Oregon) to hear the PERS cases and to rule on them.  Where would you find such judges?  How would you deal with the constitutional issues that gives the Oregon Supreme Court final jurisdiction over actions taken by the Legislative and Executive Branch?  What about State's rights, a favored principle of Conservatives used to try to circumvent many inveighs from Washington, DC?  I sincerely doubt that the Conger/Re proposal will get much traction in the Legislature.  Some have suggested that perhaps a Federal Court could rule on PERS issues.  It will be a cold day in hell when the Federal Court System gets involved in problems unique to a particular state.  So, I expect that all PERS issues now and in the future will continue to be resolved in the Oregon Supreme Court.

The Oregon Attorney General offers the Strunk case as an illustration of how the Court chose only to rule on Section 1 of ORS 238.360.  Section 1 deals only with the fact of a COLA for PERS retirees, and the Strunk Court basically said that you cannot offer a PERS retirement benefit to which a COLA does not attach.  Since the issue there was the temporary suspension of the COLA as a method of repayment for the alleged (then) 1999 over crediting, the Court could limit its attention only to the questions at hand.  Therefore, the Court ruled that the Legislature cannot, for any reason, eliminate the COLA in any year to recoup a debt.  To do so would be to define a new benefit form, after the fact, to members who retired before the change.   So, it is true that the Strunk court did not rule on the question of the COLA Cap, or offer any opinion as to future changes to the COLA statutes in the ORS.  But, to be double-dog sure, the AG said that one strategy might be to get the Strunk ruling on the COLA overturned.  If they were to overturn the Strunk ruling on the COLA, then a great deal of mischief might be possible.  The AG also suggested that the concept of a COLA Cap might fly better with the Court if it were applied equally to all members.  Since the Governor's proposal sets an arbitrary cap on the dollar amount subject to the COLA, it affects members unequally and discriminatorily (the AG didn't use those words, but the implication was there).  Courts don't like discriminatory measures.  The AG suggested that the Court might be more favorably disposed to view a cap on the percent paid out.  The existing cap is 2% (indeed, the existing cap has been 2% since 1973, retroactive to 1972).  Limiting the COLA to 1%, for example, would meet the requirement of being non-discriminatory and might pass muster with the Supreme Court.  Of course, the Governor's proposal tried to insulate about 50% of current PERS retirees from the impact of the COLA Cap.  However, given enough time, all of the people unaffected NOW by the cap, would eventually exceed the cap and would then suffer the way the other half suffered.  And, of course, changing the current COLA cap from 2% to 1% might run afoul of another set of rulings, namely the Hughes ruling in 1991.

The Legislative Counsel offered a formal opinion on the legality of the Governor's proposal.  In a short, but concise, legal opinion, the LC wrote that the combined weight of Hughes and Strunk, coupled with several other rulings, as well as the history of the COLA implementation through the Legislature, makes it unlikely that the Court would view the Governor's proposal favorably.  The LC did not offer any opinion on other variants that might meet with the Court's approval.  

So, for now, we leave the question until next week when a concise review of the Legislative history might prove instructive to see how the Legislature viewed the COLA when it first became part of the PERS retiree benefit array.  

Forget Everything

After more than a month, three of us have deconstructed the figures provided by the PERS actuary and have concluded that the "savings" from the Governor's proposal to cap the retiree COLA to the first $24,000 of benefit, is probably close to being correct.  Although annual savings appear to be small at first, the effect of accumulating the benefit savings over 20 years turns out to be quite a large sum of money - in the billions.  What the actuary did was to sum up all the annual savings, which get greater each year as the COLA base rises less than it would otherwise.  Then, if you look at the AVERAGE annual savings, it works out to something close to $400 million per year.  Keep in mind that in order for these savings to materialize, there are MANY assumptions that have to hold, so the actuarial figures are, at the very best, a good faith estimate of how much savings might be realized.  To explain this fully would require a lengthy post, but suffice it so say that I am no longer as suspicious of the actuarial numbers as I was initially.  Rumor has it that Erik Lukens, of the Oregonian Editorial Board, will attempt to explain the numbers in this coming Monday's edition of the Oregonian.  I have little faith that the mathematically challenged staff of the Oregonian will get things right, and I sincerely doubt that a single phone call to Paul Cleary at PERS could possibly have explained the actuarial math simply.  So beware of Lukens' explanation on Monday.  It may be enough for the 70 IQ point readers of the Oregonian, but it probably won't satisfy the smarter folk who read here.  I just wanted people to know that I've been thinking long and hard, and working with two other smart people to sort out what the numbers really meant.  I don't just publish my feelings; I try to back them up with actual analysis.

During the course of my COLA investigations, I had occasion to go back to the Oregon State Archives to find out for myself what the history of the PERS retiree COLA was.  What I found is important enough to repeat here, because at the end of the game, it is the Legislative History that will matter and will form the basis of a decision whether the Legislature goes forward with an attempt to revise the COLA, or decides that unfavorable litigation would result.

Let me start by saying that ALL elements of the current COLA have been in place, in clear and unambiguous language since 1971, with one notable exception.  In 1971, the legislature passed the COLA statute.  It included an annual COLA linked to the US Bureau of Labor Statistics inflation index, it included the banking of COLA in excess of the maximum rate, it indicated that the COLA would be applied to the entire monthly benefit, and the first annual COLA would be awarded effective July 1, 1972.  The initial rate established in 1971 was 1.5%.  In 1973, the Legislature upped the annual maximum to 2% and made it RETROACTIVE to July 1, 1972.  So, in other words, the current COLA - the one in force today, 40 years after finalizing the statute, is exactly the same as it was in 1973.  But, more significantly, the decision to change the COLA amount retroactively in 1973 indicates that the original 1.5% amount was probably done in haste and it was quickly remedied in the following Legislative session.  

Reading the statutory language from 1971, 1973, or 2012, you find that all essential elements of the COLA are structured in mandatory language.  All elements of the COLA "shall be applied" to the member's monthly benefit, not a part of the benefit, not a capped benefit, but the entire monthly benefit.  The word "shall" is important in litigation, for it is a word that means "promissory".  The COLA represents a legal promise to retirees that their benefit SHALL be adjusted annually by the criteria set out in the statute.  Except for renumbering the statutes themselves (1995), changing the initial percent from 1.5% to 2.0% quickly and retroactively after original implementation, and more clearly identifying the Bureau of Labor Statistics Index used to measure inflation, the statutes have remained virtually identical for 40 (or 42) years.  Anyone who doubts the Legislative intent to make this a promissory benefit need only follow the entire Legislative history to see that this is not the case.  Thus, the Legislature and the Governor change this at their peril.  For if they do, and the court strikes down their effort, there will be a lot of money squandered by employers in the first biennium this affects.  And since employers hate to have their rates raised, and will do nearly anything to avoid paying higher rates, including convincing the PERS Board to empty out its reserves back in the mid 2000s, just before the 2008 crash, it would be imprudent to put 4.4% of their payroll back in their greedy hands to spend willy-nilly and then be forced to pay it back.  If you think they are screaming now, just wait if that happens.

Repo Man

Our Governor Retread keeps popping out with ever more ideas to "help" the PERS system, its members, and its retirees.  Although this is not a new proposal, expect the Legislature to take up the issue of "pension spiking", which is getting a lot of coverage over on the blogs at the Oregonian and the Statesman Journal.  I have no idea where people get their information, but it surely isn't coming from PERS or from fact-based accounts of what really goes on when someone retires.

The notion of "pension spiking" comes from another planet, not Oregon.  The idea is that people consciously hold on to sick leave, comp time, overtime, and vacation to spike up their final average salaries.  Let's suppose for a moment that this were the case.  What impact would it have on an individual's retirement.  Let me use myself as an example.  When I retired, I had 2500 hours of sick leave on the books, and 30 days of vacation time.  OUS paid out my vacation time and deposited 6% of the payment into my Tier 1 regular account.  The sick leave, which represented almost 17 months of paid time off was reduced to a dollar amount and half of it was added to my 3-year highest salary total and leveraged up my Final Average Salary by about $3000 per year.  Now, here comes the tricky part.  The ignorant would assume that somehow my PERS benefit was affected by that increase in my Final Average Salary by $3000 per month.  And this seems to be the essence of the bitching and moaning about the spiking (I'm sure that overtime and all those others "perks" may raise the FAS by some finite amount).  Somehow people think that everyone who has these benefits uses them to enhance their PERS benefit.  Unfortunately, what you want to believe isn't what really happens.  In reality, I didn't see a dime of my sick leave in my benefit.  My 30 days' vacation time increased my account balance by about $1500.  My benefit ended up being computed using Money Match, which does not bear any relationship whatsoever to all the "spiking" people claim are being taken advantage of.  In fact, I know virtually no one who benefited from a sick leave infusion.  The ONLY way that "spiking" occurs is when an individual retires under Full Formula or Formula + Annuity.  In these cases, the Final Average Salary plays a role in determining the retirement benefit.  But the large question to be asked is "by how much does the retirement benefit increase by 'spiking' up the FAS by, say, $10,000 per year.  If someone has 30 years of general service, the difference between a $50,000 FAS and a $60,000 FAS is approximately $5000 annually.  In other words, under a 30 year career, the dollar increase in FAS increases the retirement benefit by roughly 50 cents on the dollar.  Major problem, right?   You'd think so, but in plain facts, the number of Full Formula retirements from the mid-1990's until the mid 2000's was less than 15% of all retirements.  Only in the past few years with the 2003 reforms finally kicking in have the number of Formula retirements increased to be significant.  Thus, the major hue and cry against pension "spiking" has no basis in fact.  Perhaps it is occurring with more recent retirements, but the impact cannot be very large since, even now, Money Match retirements are the largest percentage of retirements as recently as 2011.

So what's the beef?  There isn't a shred of evidence (or beef) to support the claim that sick leave, vacation, and other forms of compensatory time have had even minor significance on the benefits received by PERS retirees.  This is just another red herring introduced by the main-stream media to inflame the public's ire against PERS and its retirees, but when you look even minimally at the data, the data do not support the claims.  The data are the facts.  The data are the truth tellers, but apparently there is a really strong snow job going on amongst the politicos and third rate journalist who want to become the "Repo Men" for PERS.  Unfortunately, there is nothing to repossess here.  Move along bozos.  You won't save a nickel from taking away non-existent benefits.  

Happy holidays to all my regular PERS friends.  Bite me to the media which continues to totally make up facts to fit their vision of the world.  Unfortunately, reals facts don't lie, but the media lies all the time.

Math Sux

There is a common joke, begun with Mark Twain (I believe) that there are "Lies, Damned Lies, and Statistics".  Around my house lately the common joke has become "Lies, Damned Lies, and Actuaries".  I have been puzzling over an analysis done by Milliman for PERS.  The document, on PERS' web site, evaluates about 20 different proposals for cutting the cost of the PERS system, and reveals the savings.  It frankly states it does not consider the costs of implementation or the legality of doing so.  It only reports the savings.  What it doesn't report is probably more important than what it does, but what it does puzzles the heck out of me.

I confess that I've never studied Actuarial Sciences, although I am pretty facile with math and especially financial math.  But I am befuddled by a couple of numbers that appear and reappear in various publications and reports, including the savings analysis.  Many, including the Governor, propose some sort of cap on the COLA distributed to PERS retirees.  The current cap is 2% of the benefit received each year, further limited by the actual changes in the CPI for the Portland Metro Area.  Current retirees get the lesser of 2% or the actual CPI change in the previous year.  So, no matter how you calculate this, the maximum savings that could be realized from a COLA cap at 0%, for simplicity, would be 2% of the current retiree payroll.  According to the December 4, 2012 document "PERS By The Numbers", total annual payments to retirees are $3.2 billion.  If we assume that all retirees are eligible for 2% COLA increases, each year PERS' payments would increase by $64 million, or $128 million over the biennium.  Of course, each time the benefits increase, the payroll costs increase, the COLAs go on.  But, while this is going on, members and beneficiaries die, new members are added to the retirement rolls, and so the PERS retiree payroll has probably remained within some reasonable bounds over time.  Thus, assuming a COLA cap of 0% (NOT WHAT IS BEING PROPOSED), the most savings that could be realized in a biennium is about $128 million give or take a couple of million.

According to Milliman's analysis, capping the COLA at 2% of the first $24,000 of annual benefits would yield savings for 2013-15 biennium of $810 million.  If you just read the previous paragraph and asked, "What the heck is going on?", you can join me in the confusion.  The COLA is NOT capped at 0%; the savings cannot be the full $128 million over the biennium.  So, how do you get savings of $811 million from capping a benefit that only costs $128 million every two years?  Interesting math wouldn't you say?  Actuarial math has always been a bit fuzzy to me, and this one leaves me more puzzled than is typical.  I suppose the answers lie in that wonderful concept of "time value of money".  I'm guessing that the actuaries calculated the cost of the COLA out over the full amortization period of cost recovery - 20 years, and then discounted the savings back to a net present value.  If you don't understand this, just think about it as taking all the savings you'd generate over 20 years and then reducing them to a single number that reflects the current cost of buying an annuity that would pay out the benefits in slow dribbles.  I'm sure I'll receive a snippy note from an actuary or from PERS explaining actually how they computed the number, but it all boils down to this.  The savings to PERS proposed by capping the COLA at 2% of the first $24,000 depend on front-loading them to the first year and then hoping all the rest of the assumptions work out over the next 20 years.  If any of the assumptions are seriously wrong, the savings will be far less and we could be back at this same point in another couple of years.  Also, the important assumption is that the cap will NOT BE indexed for inflation.

The short message this silly little exercise should provide is that even if this passes and is ruled constitutional, it is doubtful that either it will achieve the savings projected, or that this would be the end of the retiree tithing to pay for their own benefits a second time.  We paid for them once by working for our careers, and now we get to pay for them again by the Legislature slowly unwinding them over our retired lives.  

Here is another curious number.  The savings to employers from capping the COLA are estimated to be 4.4% of payroll.  So, again, ask yourself how a benefit that costs, at most, 2% of a fraction of the total employer payroll saves them 4.4% of their total payroll.  According to Mercer (Milliman) the total employer payroll for the 2013-15 biennium is estimated at $18.4 billion.  If we take 4.4% of that we get, magically, $810 million.  So again, we are left with the question of how reducing the COLA to 2% of $24,000 could save 4.4% of total PERS employer payroll, when retiree total payments themselves only constitute 18% of total employer payroll, much of which is already safely stored in the Benefits-In-Force reserve, from which retiree benefits come and does not come, in real time, from employers at all.

I write this post not to challenge the savings (actually I do challenge the savings), but to instead point out the curious and fuzzy math used by actuaries and, thence, by legislators to construct budgets built from smoke and mirrors.  

Another number, just for fun.  When the $24,000 first was posted in 2010 as part of a package of legislative concepts for reducing the costs of PERS, the number was announced as an "average" PERS retiree benefit.  While we have taken issue with that number and the derivation in other posts, others seem to be slow to catch on.  In a guest opinion, Tim Nesbitt, a Kitzhaber advisor and former Union honcho, defended the number as reasonable to capture a majority of PERS beneficiaries and prevent them from ever experiencing the cap directly.  When I protested this as inaccurate, Mr. Nesbitt responded to me that the $24,000 was "selected" as an amount that had been determined (by whom?) to be sufficient when combined with Social Security benefits to produce a decent income.  Never mind that on a $24,000 pension the Social Security benefits could vary all over the map.  Never mind that social security benefits can be drawn anywhere from 62 to 70, depending on when a member decides to take the money.  Never mind that it says nothing about how many people have to live on the pension and the social security, and never mind that medical care costs are going up at 4x the rate of inflation.  And never mind that $24,000 covers about 53% of PERS recipients ONLY because it largely excludes anyone who worked more than about 10 years in the system.  It sounds more like the $24,000 figure was selected on the basis of how much savings might result and how loudly they think that PERS recipients are likely to scream.  It is a calculated gamble that says, if we stay away from more than 50% of PERS beneficiaries, the remainder will have a hard time organizing and, even if they do, they'll just sound like a bunch of greedy pigs.

I think what I resent the most about this cynical ploy to deprive career civil servants and public employees - teachers, fireman, policemen, sanitation workers, road workers, and hundreds of other job classifications - of benefits earned, accrued, and promised for a lifetime of work, is the fact that the silly math games are rarely challenged and everyone takes them as an article of faith.  While I don't believe the actuaries are liars, I do believe that actuaries massage numbers to produce results yielding the most confusion, and are unlikely to be challenged.  I watch the PERS Board every other month just accept these numbers as given from God, rarely questioning how they are arrived at and whether they make any sense at all.  This all reminds me of the offensive Barbie doll that announced when you pulled her string:  "Math is hard.  Let's go to the mall."

The Boy In The Bubble (LONG)

Seems to have peeked out of the bubble for a moment.  Groundhog Day?  Or Governor Kitzhaber checking in with the world 6 days after the election handed him complete control over the Legislature.  Oddly, on Saturday, House Majority Leader Tina Kotek announced that the majority would not introduce any PERS legislation that would fall to litigation.  Moreover, Rep. Kotek announced that the priorities in this session would be jobs and education, not PERS.  This was pleasant news coming from the newly appointed leader of the majority caucus.  Imagine their surprise when their titular leader, the Governor gave a speech to the Oregon School Board Association in which he highlighted PERS as one of his major items for the 2013 Legislature.  HELLO?  ANYONE HOME?  Kitz has always been accused of being aloof and standoffish.  This must set a new record for pure lack of ANY communication.

So, what should we do?  Who should we believe?  I can assure my readers that there is not much likelihood that PERS won't be considered this session.  Moreover, Governor Kitzhaber has spelled out the areas that many of us have feared for some time - retiree COLA cap, jettisoning the 6% pickup, and discontinuing the out-of-state income tax remedy for all eligible retirees (not just those retiring after 1/1/12).  So in today's musings we shall review a bit of history and assess the likelihood that Governor Kitzhaber's agenda will meet Representative Kotek's requirements.  Short answer:  unlikely.

Much has been written about the 6% "pickup" so that little review is required.  The very short version is that the 6% pickup was Governor Victor Atiyeh's suggestion of a way out of a salary impasse back in 1979 when inflation was nearing 10% annually.  Prior to 1979, PERS members paid their own contributions to PERS in AFTER TAX dollars.  When the various unions negotiating the contract back in 1979 asked for and fully expected raises that would keep up with inflation - in the vicinity of 10-12%, the state balked and argued that it didn't have that kind of money.  Governor Atiyeh, following on a suggestion from Bob Straub proposed that in lieu of a salary increase, the state would "pickup" (i.e. pay for) the employee's contribution to PERS.  It would still be regarded as the employee's money and would count towards salary at the time of retirement.  After running the numbers, the unions as well as the unrepresented members decided that this was a reasonable trade that would effectively cover the needs of members at the time.  This was not offered as a temporary solution; it was offered as new benefit for all employees.  That subsequent contracts included sizable pay increases did not mitigate the previous replacement of benefits in lieu of salary increases.  Whether this is contractual or not remains to be determined.  It is clear that this is part of collective bargaining and not legislative tampering.

The big ticket item in Kitz's quiver is the retiree cost of living increase.  The retiree COLA provision was enacted in statute in 1971 (before collective bargaining was prominent).  The statute stated that retirees would receive the lesser of 2% or the actual CPI-W (Portland/Salem Metropolitan Cost of Living Adjustment).  The 2% would be applied to the received benefit.  In the event the CPI-W exceeded 2%, the overage would be "banked" and the bank drawn on in years when the CPI-W was less than 2%.  There is nothing in statute that says the COLA will be applied to only part of the benefit, as Kitzhaber would like to have happen.   The idea of that cutting the Cost of Living to retirees is acceptable to retirees is simply hogwash.  Retirees did NOT create the funding problem and so it is questionable that the lion's share of any savings.  Let's analyze the math.  Presumably, capping the COLA at $24,000 (an amount that we shall question later) will save about $1.1 billion over the biennium.  This will save employers about 4.4% of payroll if estimates are to be believed.  But let's stop for a minute and examine the $24,000 figure.  Where did it come from?  It originated in 2010 with the Portland City Club's report suggesting that the PERS average salary, which was then about $24,000, be used as the cap.  Today, the average PERS benefit is $25,500, not hugely higher.  But let's look at who gets it.  PERS publishes a document entitled PERS BY THE NUMBERS twice annually.  The latest came out on 9/20/2012 - two months ago.  If you look closely at the document, you will observe that approximately 33% of all PERS retirees receive a benefit of $25,500 or less.  This is nowhere near the 50% that Ted Sickinger wrote about in his latest series of hit pieces on PERS published this past weekend in the Oregonian.  The fact is that examining the same tables that accompany the number Ted doesn't use show that about half of PERS retirees receive benefits below $40,000 and half above.  The problem with using the average or mean benefit level is that it is unduly influenced by part-time employees and a rather large number of retirees who worked between 5 and 10 years prior to retirement.  It is typically not possible to accumulate a reasonable benefit in that period of time unless you start out in a very high paying position and retire under the formula.  That isn't the case for most people and so we have a left-skew to the distribution (it isn't a normal distribution) in which 67% of benefit recipients are to the right of the average benefit.  Consequently, picking any number to the left of the 50th percentile will insure that far more people are hit by the cap than would be hit if this distribution were normal.  Career employees average closer to $48,000 in benefits, not $24,000.  So any plan proposed by the legislature to cap the COLA immediately puts far more people in jeopardy than one that truly affects "about half" of PERS retirees.  Finally, we should note that the Washington judiciary has just turned down the Washington Legislature's attempt to eliminate their COLA for certain groups of retirees (they have 7 different retirement systems for public employees so it is a bit harder to compare theirs with ours, but the principle still holds).  In Washington, the decision is only at the Circuit Court level and has a long way to go before it is final and our brethren in Washington see their COLA reinstated, but the decision should give our Legislature some pause before it launches into its apparent plans.

Lastly, we have the income tax subsidy for residents of states other than Oregon.  This issue is much more tricky than it appears on first blush.  The subsidy traces to a US Supreme Court decision rendered in 1988.  The case, Davis v Michigan, centered on the question of whether Michigan could give its state retirees tax treatments it did not offer those Federal retirees living in Michigan.  The Supreme Court held that Michigan was wrong and had to treat both groups of retirees identically - either tax both or tax neither.  Federal retirees followed suit in Oregon, objecting to the fact that they were subject to Oregon tax while PERS retirees were not.  Their suit, Hughes v Oregon, prevailed in the Oregon Supreme Court in 1991.  In 1989, the Oregon Legislature passed legislation to start taxing PERS retirees rather than remove the tax on Federal retirees.  By 1991, the Oregon Supreme Court ruled on the Legislature's decision in Hughes, explaining that Oregon had to comply with Federal law and thus were correct in their decision to tax PERS retirees, but then they explained that the income tax exclusion for PERS retirees was part of the PERS Contract; therefore, the state had to come up with a remedy for the breach of PERS' contract.  Eventually, this resulted in two different Legislative solutions in different sessions.  The 1991 Legislative session passed a small subsidy to offset the taxation.  This remedy was SB 750.  This turned out to be insufficient and another bill eventually made it through the Legislature in 1995.  This bill, captioned HB 3349, attempted to remedy the shortcomings of SB 750.  Principally, SB 750, did not fully remedy for the breach and didn't satisfy the Oregon Supreme Court's original ruling in Hughes.  Instead of repealing SB 750, however, the Legislature adopted HB 3349 with implementation on January 1997.  At the same time the Legislature passed HB 3349, it adopted many other changes to the PERS system, including terminating Tier 1 with its guaranteed rate of return.  It created Tier 2 with language that stated that their benefits were explicitly NOT CONTRACTUAL.  Moreover HB 3349 passed with language stating that it, too, was not a contractual right.  Sometime during the early 1990s another Federal law changed stating that retirement income would be taxed in the state of residence, not from the source state if the two were different.  Prior to this change, all PERS income was subject to Oregon Income tax no matter where retirees lived.  Because of this, the earlier SB 750 had been part of the PERS contract, but by 1995 PERS income was only subject to Oregon Income Tax if the retiree lived in Oregon, not elsewhere.  When HB 3349 was considered, the issue of residency came up in the discussions.  Both PERS and the Oregon Department of Revenue objected strenuously to having to check residence of recipients and so the Legislature decided to pass HB 3349 without a residency requirement.  HB 3349 applies ONLY TO TIER 1 MEMBERS WHO WORKED ANY PART OF THEIR CAREER BEFORE OCTOBER 1, 1991.  The benefit was computed by determining the amount of time worked prior to 10/1/1991 as a percentage of total work time.  The resulting fraction was multiplied by 9.9% and the result determine what income tax subsidy an employee was eligible for.  As an example, I began my career in 1970 and retired completely in 2002.  Thus, in simple math, I worked roughly 67% of my career before 1991 and my tax subsidy is roughly 6.2% of my benefit.  

Nearly every year since about 2001 one or more legislators introduced a bill trying to clarify HB 3349 to indicate that it was only intended for retirees living in Oregon.  And from 2001 to 2010 the bills died without a hearing.  In 2011, the Legislature got more serious about PERS and again introduced a bill to limit the tax subsidy only to Oregon residents.  This time the bill got traction and after ferocious lobbying ended up passing.  However, the revised bill was not the bonanza anyone expected because it only applied to members retiring on or after 1/1/2012.  The mainstream media were livid because the whole point of the bill was to recapture revenue that escaped Oregon for, in their opinion, no good reason.  Because the Legislative Counsel was concerned about the legality of the move, the Legislature backed off on going after all out of state residents receiving the tax subsidy.  This year, however, the calls for repatriating that income have gotten louder and more shrill.  Moreover, because the HB 3349 language explicitly states that this isn't a contract right, it is unlikely that the Legislature will avoid trying to recapture the subsidy from members living out of state.  This would not be a retroactive capture; it would be simply cutting off that portion of the benefit in the future.  For out of state retirees, this would result in an approximately 5-10% benefit reduction; however still looming is the fate of SB 750 which was passed before the state started inserting "no contract right" provisions into changes to PERS.  Moreover, SB 750 passed before the source tax was eliminated.  So it is far from clear what impact a change to HB 3349 would have on out of state retirees, especially if SB 750 is viewed as a contract right.

Needless to say, these are but a few of the possible changes to PERS to look for in the 2013 Legislature.  I expect an attempt to put new PERS employees in a pure 401K type plan (a Tier 4 if you will).   No doubt other changes will be sought, including a change to the way retiree benefits are computed - an attempt to decouple the actuarial assumed interest rate from the assumed earnings rate on the fund.  

This is the year where PERS members near retirement and all retirees need to become politically active.  Truly draconian bills are unlikely, but draconian is still in the eyes of the beholder.  It is time to write your legislator, starting with your House representative and then to your Senate representative.   Silence is not golden.  Make your letters or emails short and to the point.  For the COLA, it is a CONTRACTUAL MATTER with more than 40 years of documented history, no caps, and already ruled on once by the Oregon Supreme Court.  If you were a union member during your working career, make sure you contact your union and ask how you can contribute to their political action fund.  The PERS Coalition is a group of unions that handles legal, political, and lobbying duties for the member unions.  If your group is a member of the PERS Coalition, emphasize to them how important some or all of these issues are to you personally.  Offer to help in any way you can.  If help isn't needed, send money.  This is going to be an expensive battle both politically and legally.  It is your (and my) retirement income at stake.  

If In Money We Trust

But not necessarily PERS.  The PERS Strunk/Eugene recovery is in full swing now.  I got my repayment letter while I was gone on vacation.  Both the amount owed and the repayment amount were correct (good news), but that's not the story with many people I've heard from.  We have instances of people being asked to repay more than the law compels (10%), and people asked to repay amounts they claim not to owe.  I trust that PERS will get these issues sorted out.

Unfortunately, a much larger problem remains.  The new method compels retirees to repay ONLY what they owe, not a penny more.  Since the payment amount adjusts annually with any COLA, there is no simple way for individuals to track their cumulative payments as PERS does not send out monthly statements.  Consequently, there is no easy way for an individual to determine how much he/she has repaid, much less what the remaining balance is.  Retirees have asked PERS if this information will show on the 1099R - nope; on the irregular statements - not really.  This means that although we have an obligation to repay a specific amount, PERS does not feel any obligation to provide us with a periodic statement of our residual balance.  For many people this is very disquieting.  PERS has not been a paragon of accuracy over the years, yet they expect us to believe them that they will stop the payments when all our required payments have been made.  It seems to me that PERS should be sending out annual statements of balances remaining.  It isn't as if this information isn't available.  PERS is calculating it in real time, every month, and there is no reason except the small financial hit required to send out an extra piece of paper - possibly with the 1099R - at the beginning of each year.  Supposedly, there are 20,000 retirees paying back amounts monthly under the current plan.  Suppose that the cost of adding one piece of paper to the envelope that already includes the 1099R is 20 cents (that's probably an overestimate, but), we are talking an additional $4000 per year.  Contrast that with the $164 million that PERS is supposed to be collecting.  If everyone pays up in 10 years, PERS will spend an additional $40,000 in ten years to recover $164 million.  That represents 0.002% of the amount collected.  How would that compare with a single piece of litigation to challenge PERS if an individual thinks PERS has miscollected, misapplied payments, or overcharged an individual?  This strikes me as penny wise and pound foolish.

If you think PERS should be required to send you an annual statement of the amount you've repaid and what you still owe for a mistake YOU DIDN'T MAKE, please let them know.  

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.