Soul of A Man

Our feckless Governor - Mr Ted - is demonstrating once again that he lacks soul and is answerable to no one. The issue is SB 897, the only PERS bill with any teeth to come out of this year's legislature. SB 897 has been watered down from its initial form, but passed in both houses of the Legislature by large votes. SB 897 would, in the main, require PERS to "own" the estimates provided to members when they approach retirement. This bill was inspired by the Kay Bell case and others like it where PERS changed benefits on individuals AFTER they had retired, after they had started receiving benefits, and after they'd given up their longstanding public employment. This bill attempts to remedy the problem by requiring PERS to take special measures to insure accuracy in retirement benefit estimates.

Not surprisingly, the bill is opposed by PERS, which argues against it on the basis of expense - an argument I reject as BS. The unions support it (and they effectively re-elected Gov Ted) and OPRI was one of the bill's sponsors.

It is strongly rumored that the Governor will attempt to veto the bill by ignoring it. This concept of a "pocket veto" arises when the Governor chooses to do nothing about a bill following the adjournment of the Legislature. If the Legislature adjourns before Gov Ted has 10 days to review the bill, it is vetoed automatically without the Governor having to do anything. If the Governor does nothing for 10 days and the Legislature is still in session, the bill automatically becomes law. Since the Legislature passed this bill in the days immediately before sine die it is likely that Kulongoski will let the bill die with the Legislature.

I do not understand the Governor. Why is he a Democrat? Why does he accept union money and then stab them in the back? Why do the unions continue to support him? This bill had bipartisan support and passed by large majorities.

I suppose that the Governor, not being up for reelection and term-limited, no longer gives a damn about public employees, their unions, and all the support they've given him throughout his public career. My fondest wish is for the Governor, who will retire with a PERS benefit, gets hoist on his own petard by PERS' continued penchant for "getting it wrong". That would be the only poetic justice in this case - a soulless reaction to a soulless man.

EDIT: late Tuesday afternoon. The Legislature *has* adjourned and this bill's fate rests entirely with the Governor. He must sign it for it to become law; if he wastes the next 10 days doing nothing, it will be consigned to the dustbin, all the effort to pass it wasted. Please, help us persuade the Governor to sign this bill. WRITE, CALL, EMAIL, FEDEX, UPS, Pony Express, whatever. Just push hard on this man who seems to only talk the talk, but refuses to walk the walk.

For Whom The Bell Tolls

In a surprise ruling, Judge Kantor issued his opinion in the White case on June 11. Judge Kantor ruled against the PERS Coalition on ALL counts - no breach of fiduciary duty, no improper allocation of funds to various reserves, no failure to consult Coalition before settling the City of Eugene. This comes from the OPRI website and thusfar no copies of the legal ruling have been posted anywhere.

It is clear that the PERS Coalition plans to appeal these cases to the Oregon Court of Appeals, and the delay at that level on Arken and Robinson may well be so that White can join them on appeal. I have no doubt that these three cases will become joined at some point and will be ruled on in a single swoop by the Oregon Supreme Court.

The central issue the courts will have to work out is whether there exists any longer a fiduciary duty to members, or whether the settlement of the City of Eugene case coupled with the Legislative reforms of 2003 more or less abolished that responsibility and leaves PERS members and retirees in the uneviable position of have their money held in trust by trustees who no longer owe them their undivided fiduciary responsibility. This is a truly scary consideration and I hope the higher courts will recognize this responsibility and restore the burden to PERS and its Board.

Is That All There Is?

Then I'll keep on dancing. I spent a near wasted two hours this morning in Judge Kantor's courtroom listening to "arguments" in the White case. I heard overpriced Joe Malkin dismiss every single Coalition claim as fundamentally unsound, unsupported, and basically irrelevant. Bill Gary piled on for the employers. Greg Hartman distilled the case down to the central issue: what does "fiduciary duty" mean in the context of an agency like PERS. It seemed that Judge Kantor agreed with this summary and seemed to be uncomfortable with the concept of having to divine the meaning of ORS 238.601 where we first meet "fiduciary responsibility." Hartman argued that the Judge defer to the case PGE v B.O.L.I. for inspiration, while Judge Kantor seems to think that the Uniform Law of Trusts for Oregon.

In any case, much of the argument seems to have taken place in email back and forths between the Judge and the attorneys. I can honestly say that I learned nothing new from this hearing. I still don't understand why Judge Kantor decided he needed to have all parties in the room at the same time.

In any event, I don't sense any urgency in Judge Kantor. He did promise that he would issue a ruling (when?). He then adjourned and we all (about a half dozen PERS retirees also attended) scattered to the wind, puzzled.

One oddity did surface after the hearing. I learned that the lobbying firm working for OPRI now employs none other than the anti-public employee favorite, David Reinhard. Talk about politics making strange bedfellows.

Black Tables

One of my readers just sent me a note linking to a source that reports the IRS will be issuing (or has already issued) new withholding tables to pension plans. The revised withholding tables correct for the "Making Work Pay" credit for which retirees are not entitled, but which have been getting since April 1. I will provide a link in an update to this post since I have to run off now. It isn't at all clear when PERS will adopt these - June 1 - is the obvious date, but perhaps they won't do it until the COLA adjustment is made on the check to be received on August 1. When I update, I hope to have PERS' answer by then. In the meantime, this should help retirees plan more easily for the unanticipated and undeserved (at least according to the IRS and Congress) windfall. Update: the link to the article and a link to the IRS web site can be found here. Update #2: I just heard back from PERS. The "new tables" are not new withholding tables per se but include a supplemental withholding table that helps to get retirees back to near parity. PERS is studying the various options given by the IRS and will post an announcement once they have determined whether the cost of implementing the change versus the benefits gained are actually worthwhile. It is, by no means, a certainty that PERS will adopt these supplemental tables. Stay tuned for more information as it becomes available. In the meantime, you can adjust your withholding to offset the gains from the tax break if you want by filling out a new W-4P. And here you thought retirement would be a bowl of cherries.

The Last Carnival

Begins on Friday June 5 at 9:00 a.m. in the Multnomah County Courthouse. Judge Henry (the slow) Kantor will be holding taking oral arguments (or something like that) in the case captioned "White." This case has been hanging around since mid 2004 and is the last remaining case in a long string of cases emanating from the City of Eugene litigation. White challenges the legal authority of the PERS Board to enter into a "settlement" of the City of Eugene case without notifying, involving, or engaging the PERS Coalition, which was a party in the City of Eugene litigation.

White argues that the PERS Board ignored their fiduciary responsibility to PERS members and retirees by entering into an agreement to settle the City of Eugene case on terms unfavorable to members and retirees. In particular, the Board agreed to the revised mechanism for calculating the employer variable match for Tier 1 retirees, it agreed to the recovery mechanisms that became known as the Strunk/Eugene method, and it agreed to a variety of other measures that were designed to thwart any ruling against the Legislature and PERS in the not-yet-decided Strunk et al cases stemming from the 2003 Legislative reform.

Judge Kantor has resisted any efforts to move this case along, deciding instead to rule on Arken and Robinson before deciding White. The former two cases are now before the Oregon Court of Appeals. White has the potential to undermine both the rulings in Arken and Robinson, especially in the unlikely even that Judge Kantor rules in favor of the White plaintiffs.

While I am not encouraged by Judge Kantor's speed in deciding any case, I am hopeful that we will finally see some movement in White at week's end. There is no way that any decision will be rendered in Court on Friday, but we should be able to judge from the questions and answers whether Kantor is in any way disposed towards the White group. It is yet another chance for us to see the PERS Coalition attorneys, led by Greg Hartman, go up against a very overpaid (by us) California "wideboy", and probably another highly overpaid Stoel, Rives local "wideboy."

I strongly recommend that retirees and actives in the Portland and Salem area plan to be here to see the carnival up close and personal. There is nothing quite like seeing the actors all playing their roles on the stage rather than waiting for someone else to summarize the play through an admittedly biased lens.

The activities begin at 9 a.m. in Room 560 (Kantor's Courtroom) at the Multnomah County Courthouse in downtown Portland. Plan to arrive at least 30 minutes early as security in the Courthouse resembles airport security stations. There are a variety of parking options on Fourth Avenue (the Courthouse entrance side) including Smart Parks where you ought to be able to park for under $5 for a half day. You can also take public transportation into downtown Portland and be less than two blocks from the Courthouse. Please try to make it. The more actual members and retirees present, the harder it is for the Judge to claim disinterest or to suggest that there is no impact on retirees or actives. When you show interest by attending, you send a very powerful message. Let's do that.

Shelter From The Storm

In one of the few upbeat moments of the PERB meeting Friday, there was an official announcement that the 2009 COLA would be 2%. This isn't a surprise and has been known for several months now, although I don't recall it being mentioned at any previous Board meeting. Since the CPI-U for the Portland/Salem Metro area was 3.26% for 2008, an additional 1.26% will go into the COLA bank for future use in those rare instances when the cost-of-living is less than 2%. Unlike Social Security recipients, PERS recipients will be able to draw on this bank in the future. While SS will not be giving any raises for the new two years, in all likelihood, the PERS COLA will be one of the few bright spots in our otherwise dismal economy.

Stay Wide Awake

I spent much of this afternoon attending a long, tedious, and occasionally informative PERS Board meeting. With me were about 8 or 9 POD members, about 20 people I've never seen before, and the usual cast of characters. Attendance was strong and the room required extra chairs by the time the meeting got fully underway.

The agenda was chock-ablock with interesting tidbits, but the star attraction was the set of two presentations by Mercer and Company (PERS' Actuarial Firm) concerning the modelling of assumptions for the 2008 valuation. This modelling forms the prelude to the 2008 system valuation as well as forming the basis for the essential 2009 valuation, which will inform decisions about the employer contribution rates to be effective on July 1, 2011. Rates scheduled to go into effect on July 1, 2009 have been set and employers can expect about a 2% *decrease* for that 2 year period.

Prior to the Mercer Report, there were several other business items to be discussed. Representatives from PEBB reported to the Board on the status of health insurance rates for the 2010 year. It was quite interesting to hear everything that went into the process and retirees should feel assured that PEBB did everything it could to hold insurance rates as low as possible. For most members, the rates will not increase significantly, and for those belonging to Kaiser, the rates remain flat. For those using Clearchoice in Eugene, a late change in their bid reduced their proposed rates dramatically and their increase for Medicare plus Medicare Advantage has been limited to a 4.2% increase. This is down dramatically from the rates listed in the agenda packet that appeared online this past Tuesday. There were many representatives from Health Care firms present at the meeting, and most left once the Board approved the new rates for 2010. This is quite good news for most retirees used to double digit increases annually. One disappointment, but certainly not a surprise, was the fact that BC/BS refused to submit a bid and is not available to anyone enrolled in the PEBB plan. This is consistent with BCBS's stated intent to get out of the Medicare business. Providence Health Plan is making a significant move to be available throughout the state - or at least the entire Willamette Valley and Southern Oregon.

The bulk of the meeting time was spent listening to 2 presentations from Mercer and Company on the economic assumptions surrounding the 2008 Valuation study. These presentations lasted close to 2 hours and were mind-numbing in the amount of numeric detail presented. The PERS website now has digital copies of both presentations available online and we will shortly have these documents up on the PERS Document Library. Rather than repeat the tedium of these reports, I will try to summarize the essence of the message Mercer tried to make. Just to make myself clear, this was a report to the Board, not a call for action. The Board will get a third presentation by Mercer at the July 16 meeting, at which time the Board will have to approve, modify, or reject Mercer's recommendations.

The reports were grim from an economic standpoint. The system took a substantial hit in 2008 and early 2009 and it will take many years to recover from the losses over that 15 month period. While this was a once in 70 year anomaly, its impact still has to be factored into the PERS rate-setting structure and benefit matrix. Mercer modelled three different scenarios. The first was a baseline scenario in which nothing changes in the system. They modelled system growth using Monte Carlo techniques with 1000 replications. They used the median (500th replication) as the baseline and reported out to plus/minus 2 standard deviations. In a word, they can see only a small likelihood that the system will return to 100% funding within the next 20 years. Once the 2008 valuation is done, the system will be 71% funded without side accounts. At the bottom of the 20 year forecasting trough, PERS could drop all the way to a 61% funding level and in a worst case scenario could come close to 50% funding. From that Baseline, they they looked at what would happen if the employers were given 30 years to amortized the UAL (unfunded liability). In short, going from 20 years (now) to 30 years (proposed) would do little to keep employer rates from rising. The key variable is the rate collar, which the Board adopted in 2004 to stem skyrocketing employer rates. The rate collar works to spread the losses from a bad spell to a limited amount. Mercer can predict with certainty that the rate collar mechanism will come into play for the 2011-13 period and 2013-15 period. Employer rates are expected to decrease to 12% (from 14%) for 09-11, then rise to 18% in 11-13, and hit 25% in 13-15. Mercer then modeled the impact of capping employer rates at both 25% and 30%. Both mechanisms have little impact immediately but would magnify the system instability in the outer years of the forecasting period. Primarily this comes about because the effects of bad years are magnified far more than the effects of good years. There is no model of good years that could dig the system out from its position following the past 15 months. Finally, Mercer consider the impact of lowering the assumed interest rate from 8% to 7.5%. When questioned about the 7.5% figure (instead of, say, 7%) the actuaries commented that they have no basis to drop below 7.5% given their own longterm capital market forecasts and the investment policy of the Oregon Investment Council. Not surprisingly, the lowering of the assumed rates would lower benefits for those approaching retirement age, but higher benefits could be recovered by working longer (7 months for a 60 year old wishing to retire now, 11 months for a 55 year old planning to retire at 60, and 17 months for a 50 year old planning to retire at 60, all assuming a Money Match retirement). So while members would receive lower benefits at retirement, the current rate collar would protect employers from any immediate rate increase, but would have the effect of increasing employer rates from between 1% and 2% near the end of the time horizon, on top of any other rate increases they would face.

Until the Oregon Investment Council establishes its revised investment policy at the June meeting, Mercer has no basis to use any figure other than 7.5% as the lower bound on the assumed interest rate.

Of course, the Board and Mercer expected some discussion about the potential for lowering the assumed rate. They got some discussion from an employer, a union representative, and two Tier 1 actives. While the Board tried to reassure all stakeholders that no decision would be made, they did remind everyone that IF changes were made, they would take effect on JANUARY 1, 2010 (7 months from now) when the new Actuarial Equivalency Factors would go into effect.

When I went into the meeting today, I would have handicapped the odds of the Board changing the assumed interest rate at about 80% likely. After today's meeting, I'm no longer so confident that they will change anything on that front. Right now, Mercer's own Capital Markets Projection unit forecasts long-term capital market returns at about 7.75%, while the OIC is expected to forecast their own long term rates at about 8.1%. From the Board's reactions to questions and comments, I got the distinct impression that a small reduction in the assumed interest rate would generate far more sturm und drang than it would generate resources for the system. Mercer reminded the Board and the audience that the MEDIAN assumed rate for public and private sector pension plans remains at 8% and only those systems with significantly greater assumed rates are changing them. I don't think Mercer will push very hard for a change from 8%, but if they do I don't expect the rate change will be very big (50 basis points tops; 25 basis points most likely). PERS has promised that it would post hypothetical impacts as soon as any decision got made, assuming a decision was made to reduce the rates.

So, at this point, the big decisions will get made at the July 16 meeting when Mercer gets the information from the OIC and it finishes its demographic analysis of the PERS membership. From there, the meetings in September and November will finalize the methodology for the 2009 Experience Study that will form the basis for everything taking place in 2011.

If you have a numeric mind, the publications from Mercer detail this much more fully than I can. Read them and you will see what I'm describing here. For now, you can find the reports at the PERS web site, but by tomorrow they should be available through the PERS Document Library (Oregon PERS Document Library) . Enjoy the sunshine. It's Rose Festival and I'm amazed it isn't raining. Have fun while it lasts.

Can't Wait

Until Friday May 29th. At 1 pm. The PERS Board meets. The agenda and packet is posted online at the PERS website. Among the items to be discussed include the Mercer (actuarial firm) presentation on the economic assumptions that will underpin the 2008 experience study. This is the study that determines actuarial factors, employer contribution rates, assumed interest rates and other things of trivial importance to every PERS member and future retiree.

While the Board will not take action on the report at Friday's meeting, the report will pretty well telegraph the direction the Board intends to take at the July meeting. From reading through the minimal information in the Board packet (items C2 and C3 are what I'm talking about), it is clear that this experience study *could be different* from previous studies. In particular, Mercer will be looking at how varying assumptions affect the structure of PERS. Included would be actuarial assumptions, employer contribution assumptions, rate guarantee assumptions. This is a very important Board meeting. I strongly suggest that if you can make it, you try to be there in person. Of course I will post a report, but since the presentation is not available yet (it might be after the meeting), the only way to have this information is to attend the meeting in real time. Parking is free at PERS HQ in Tigard (Haines Street Exit off I-5). The more stakeholders present, the greater the more impact we have as a group.

Please do try to attend. Those of us already retired have nothing to gain or to lose by this meeting, but those of you on the precipice of retirement in the next few years might find yourself with lower benefits if any of these pieces of data change in the economic modelling by the actuaries.

Into The White

Finally, we have a date and time for the hearings on the White case. Plan to be at the Multnomah County Courthouse by 9:00 a.m. on Friday June 5, 2009. At this event both sides will get a chance to present their arguments. Since this case has been in the "mill" so to speak since 2004, it might be entertaining to watch as Judge Kantor tries to understand this case. Apparently he thought it was going to be an easy case for him last year, but decided after canceling the earlier hearings to reschedule them afterall. In a followup post, I will explain the issues involved in White. Suffice it to say right now that White challenges PERS' right to enter into the settlement agreement in the City of Eugene case (remember that one?) without involving one of the parties to be affected by the settlement (the members).

Life Is Hard

The news just keeps coming. The latest is the story of the fellow who retired some years back as a municipal police officer. Seems he went to complain to PERS that his PERS-offered health premiums were too high and wanted to know why. PERS told him that they had gone up because they had audited his account and discovered he was receiving a RHIPA supplement that he wasn't entitled to. For those who don't know, the RHIPA supplement is an agreed-upon health care supplement supplied to retired State of Oregon workers. It isn't much, but every bit helps. In this fellow's case, not only didn't he apply for the RHIPA supplement, he knew he wasn't eligible for one. Therefore, he had no reason to believe or expect he was getting one. And you guessed the punch line in this story. The folks at PERS want him to repay all $9000+ of his supplement he didn't know he was getting, never applied for, and knew he was ineligible for.

You'd think that we members and retirees would have some protection against this kind of gross negligence on PERS' part. You cannot ever sleep comfortably knowing that PERS may eventually uncover some silly mistake it made years ago about which you had no knowledge. This is the inverse of the Kay Bell case. It also makes you concerned that the Legislature is not holding PERS' feet closer to the fire about the accuracy of their calculations and their estimates.

Let the people who make these mistakes pay for them. Why should innocent retirees be body-slammed for something they played no part in? This just sucks.

Beyond Here Lies Nothing

Today's entry is not about PERS. Instead, it is about Social Security. This morning's New York Times has a brief, section A, piece about the decision by the Social Security Administration to NOT award a COLA for recipients in 2010. This is the first time in a very long time that the administration has not awarded a COLA. In 2009, the COLA was 5.8%. Just as I become eligible for Social Security (December), I face the possibility of my first year's benefit without the usual COLA. Thankfully, PERS will be giving out its usual 2% in August, but that is offset by the fact that the 2008 CPI-U for the region was 3.3%. So, while costs of everything seem to be going up, or at least not going down, Social Security has decided we don't get a COLA, and the PERS COLA continues to lag considerably behind the actual cost of living increases.

For those also Medicare eligible, you can expect to see some significant increases in costs for the various supplementary plans that will hurt even more with no SS increase to offset any of the pain.

I'm afraid that for all of us "baby boomers", the collision course has begun. Right now, many of us are fortunate to not be feeling the pain of the current economy, but many others are hurting so badly that it is painful to watch. It is beginning to look as though the poet of our age - Bob Dylan - has hit the nail on the head when he says, beyond here lies nothing. He just may be right.

The Beat Goes On

Just a quick note here to let people know that Judge Kantor granted PERS' motion to stay implementation of the Robinson judgement. This ruling affects only people who were invoiced and either paid or were started on the actuarial reduction plan before Judge Kantor's ruling in June 2007. PERS will not refund any payments received or collections started before that date until all final rulings at the appelate level play out.

Shorty Wanna Be A Thug

Yesterday's Boregonian had its usual Sunday feature - "Short Takes". Our latest winner in the thuggish, misinformation canard contest goes to Paul Wilson of Lake Oswego. This shorty persists in the delusion that State and Federal retirees do not pay Oregon Income taxes. He further suggests that our Governor take a look at this exemption as a way of repatriating funds for the Oregon Treasury.

I hate to destroy people's fantasies, but Oregon public retirees have been paying state income taxes since 1991 and the Federal employees are not exempt either. Both are treated equally in compliance with the Davis v Michigan case decided by the US Supreme Court in 1988, and the Hughes v Oregon case decided by the Oregon Supreme Court in 1991.

It is bad enough that PERS members and retirees get bashed for the structure of the PERS system over which they have no control, but it just turns thuggish when both letter writers and the Oregonian persist in allowing this kind of continuous sloppiness.

Obviously in their zeal to cut staff, the Oregonian lost almost all of its editorial integrity (if it ever had any), Its editorial currency is worthless. Perhaps the only good to come out of this will be another round of cancellations of subscriptions.

Cough Up The Bucks

Just got word today of a hearing scheduled for HB 3304, the OPRI-sponsored bill for an ad hoc COLA increase for certain PERS retirees. Ad hoc increases are permitted by statute when PERS retiree income is reduced by inflation and purchasing power declines significantly. It has been quite a while since the last ad hoc increase was granted. This one targets those who have been retired for quite a while (late '80s and early '90s), before the large stock runup in the late 1990s. In my opinion, this bill has little chance of passing given the current economic state and the public contempt for PERS and retirees.

For those interested, the hearing is scheduled in Room E at 5:30 tonight at the capitol in Salem.

Don't Cut Your Hair

Remember back a few posts ago "Heartless" in which I described the utterly unfathomable amount of time Judge Kantor is taking to render his decision in the White case? Remember how screwy Judge Kantor's behavior was in scheduling hearings and then canceling them. Well, Judge Kantor is at it again. Several sources (AFSCME, Greg Hartman) report that after nearly 6 months of silence after canceling oral arguments in the White case, Judge Kantor has now inexplicably decided that they wouldn't be such a bad idea after all. So, now they've been scheduled for June 2009. I get the distinct feeling that Judge Kantor really, really, really, really (seriously) doesn't want to make a ruling in this case. Maybe he figures if he drags it on long enough that all the retirees will be dead and the question will become moot. I have no idea what his problem is, but concern for the speedy resolution of disputes doesn't seem one of them. Perhaps he's off his meds as well and is confused about all those things he understood so well that he decided he could rule from the bench without the need for those pesky oral arguments. Who knows, but I'm pretty disgusted with the whole thing. How about you?

My Lucky Day

Today is April 1st and is the time for traditional pranks to be played on people. There are some delicious ones out there today, played by our friends at Google, at Yahoo, and many others. One place where there is no joke is at PERS. Today is "payday" for all us retirees, and most may have noticed that the "take home" amount of their PERS Benefit Check increased this month. This isn't a joke. It is a result of the "making work pay" stimulus program from Congress. This results in a refigured federal withholding deduction that credits in $400 annually ($800 for marrieds) to the withholding tables. The result is a lower federal withholding.

That's the good news. Now for the bad news. Retirees aren't entitled to the money. You will have to repay in next April when you file your 2009 income taxes. This quirk arises because PERS must treat your monthly benefit as taxable income for withholding purposes, but the "Making Work Pay" stimulus package specifically excludes pension benefits (except Social Security, which gets its own credit next month). So, if you want to avoid a tax hit for 2009, you might want to think about changing your withholding exemptions (IRS Form W-4) and submit it to PERS. I figured that if you do it for the second half of 2009, you should come out pretty close.

If you don't like this, it isn't PERS' problem. They have to follow the IRS rules, even when they are obviously contradictory as this one is. Enjoy all the other legitimate "jokes" out there. They are legion and fun.

Everything is Broken

And everybody's got different ideas on how to fix. I attended today's PERB meeting in Tigard. The primary purpose of today's meeting was to approve the earnings crediting for 2008. This was done with virtually no discussion. Tier 1 regular gets 8%, Tier 2 get tagged with -27.18%, BIF gets tagged with -27.18% (right from the reserves), IAP accounts will be reduced by -27.75%, the employer accounts will lose -27.30, the OPSRP member pension plan gets hit with a -28.63% loss, while Tier 1 variable accounts will experience a -43.71% loss. All tolled, the 2008 "allocation" cost members and employers about $16.6 billion in lost equity position in their accounts.

The Treasury rep present, Ron Schmitz, outlined the current position of the PERF and indicated that the OIC is currently studying whether to change the asset allocation mix. He noted that through all the various scenarios the OIC had run, the asset mix held up as the most stable over the long run. He also noted that 2008 was one of the worst of three years in the past 160 years of record keeping. He presented 10 year moving averages that showed no other time in stock market history where a year like 2008 repeated itself in the next year. It has never happened before. He's somewhat optimistic that we may be at the market's bottom. He also noted that the fund was down an additional 17% through the end of February, but that the March performance recovered at least half of those losses. He made it clear that the OIC has to take into account the uniqueness of the PERS system in terms of its liability side and its guarantee side and that more stress testing will be done before any decision is made to change the asset mix. But note that it will take a virtual consensus by members of the OIC and its investment partners to change the asset mix. So, while the media have been reporting this as though it were a "done deal", it is anything but. There's a long way to go before the asset mix comes into play and influences other decisions PERS will have to make over the next 4 or 5 months.

The rest of the meeting was given over to discussing the Board's responses to various PERS bills wandering through the Legislative process. Two bills of immediate interest are HB 3304, which OPRI sponsored, to provide ad hoc increases to PERS members. The Board and PERS staff pretty well shredded this bill for its sloppiness, its failure to attend to critical details, and the fact that as written, it would become "baked" into the system. The Board ultimately decided to recommend a "No Pass" on the grounds that this was not an appropriate time for such a bill. The Board was open to the idea of a more targeted bill that had no long term financial implications, more along the lines of a "bonus" or a 13th month payment that expires the minute it is given, or an ad hoc increase that could be taken away if the financials no longer support it. There was virtually no support for the bill but the PERS Legislative Liasison will report back to the Bill's sponsor what form a future bill ought to take. All I can say is "shame on OPRI" for introducing such a poorly thought out bill. I'm all in favor of honoring our long retired public servants, but this bill seemed to me to be embarrassing in its blank spaces. OPRI's lobbyist group should be ashamed of this bill.

The second bill the Board spent considerable time discussing is SB 897, which is the PERS Coalition's Omnibus Bill. This bill tries to do an awful lot: it seeks to raise the membership of the PERS Board from 5 to 7 members. The additional members would be a retired member, and another non-affiliated member.

This element of the bill received considerable attention, and I testified in favor of any configuration that allows for a retired member on the Board. I am ambivalent about the Coalition's Bill. I'm a former manager in Higher Education. I've never seen a committee improved by adding more members. I've seen committee's improved by changing the composition of the group, but the amount of time involved in bringing two additional members into an already complex scheduling problem is not one I'd like to be involved in. I am in favor of either form: amending existing stature to permit the PERS member to be active or retired, or to keeping both representatives on an enlarged Board. The Board agreed with my analysis and was willing to support a modification of the existing structure, but was unwilling to accept the proposal for a seven person Board. Only Tom Grimsley favored the Coalition's proposal in this area.

The second element of SB 897 is aimed at addressing the problem that arises when an employment dispute results in a verdict favoring the employee so that the employee, now retired, would be entitled to additional PERS benefits under the Court-ordered ruling. The idea was to make the person "whole" for the employment dispute resolution. There was no active opposition to this part of the bill.

The third part of the SB 897 involves the issue of "Data Verification" and no doubt derives from the Kay Bell case. The Coalition is asking PERS to provide a process for members nearing retirement to verify certain data that becomes the central component in retirement calculations. PERS Staff recommended, and the Board concurred, that any legislation defined to involve "data verification" be centered around three "core principles": (1) agency data must be valid, accurate, and complete, and the agency (PERS) should have supporting structures, including reports, reviews, and penalties, that secure that result; (2) the agency is obligated to provide data that is clear, consistent and in a transparent manner, but data that is not valid, accurate, or complete should not create an entitlement to a benefit beyond that earned by a member's actual employment history; and (3) All of the retirement system's stakeholders are individually responsible to ensure that data is valid, accurate, and complete, and the agency needs to have adequate resources to provide systems and processes that facilitate the fulfillment of that responsibility.

The PERB concurred with the staff's recommendation and will communicate this back to the the bill's sponsors in the Legislature.

Finally, at the end of the meeting the Board did something unusual. It asked for questions from the audience. Bill Robertson (from the Robertson Federal Case) asked the PERB and Paul Cleary if they could articulate the pieces that come into play to make a decision regarding a change to the assumed actuarial interest rate. The Board and PERS agreed to provide such explicit linkages on the PERS website.

In all it was an interesting meeting. The forward looking calendar holds the greatest interest as it is clear that the first of a number of discussions about the next formal actuarial valuation will take place at the May 29th Board meeting (there is no April meeting). I cannot emphasize too strongly how important this meeting will be to those wanting to know what kinds of moves PERS may be considering in the future. The whole question of actuarial assumptions, including the assumed interest rate, will be up for discussion starting in late May.

Fleet of Hope

For those of you concerned about yesterday's "hit" piece in the Whoregonian, PERS has posted some helpful facts for you today. You can read it here. If you like what you see, go over to PERS Oregon Discussion to discuss.

Second Time Around

In their typical desperate search for news, the Boregonian's Sunday edition (today) has a front page and inside "A" section article on the financial troubles at PERS. It isn't like this is anything new. The paper has had several articles previous to this that say pretty much the same thing. Today's new twist is that they are whining about the potential for a change in the investment mix and effectively claiming that the taxpayers will be on the hook for backfilling PERS if the market doesn't recover. Well duh. In any taxpayer funded system, the taxpayers are always on the hook if the needed revenue doesn't materialize to fulfill contractual obligations. What makes this news? What is different now than before.

The reporter also makes the snarky comment about the actuary recommending that the PERS Board remove the 18-month "rate collar" that protects employers from market vagaries for at least 18 months after they occur. But does the Oregonian report WHY this rate collar exists? Nope. Again, they make it appear that there is some unknown force preventing this from happening. What is preventing it from happening is that the PERS Board exists solely for the benefit of the employERS, who don't want to pay their obligations in a timely manner.

The Oregonian doesn't also consider one of the other possible implications of changing the investment mix. They never mention the possibility that the change of the investment mix *could* also lead to a lowering of the assumed rate, which would make the system solvent more quickly, but at the expense of both employers and employees. They don't mention this because either they are ignorant, or because they don't want to antagonize the employers.

What is clear from the article, and especially looking at the online version where comments can be posted, is that the article has succeeded in fomenting the public's anger about the PERS system and its beneficiaries. Yet again, we will be called upon to defend ourselves and our benefits, just when we thought the flogging would stop for awhile. I've resigned myself to the fact that the Oregonian will never stop beating on the system, and that everytime they do, it will be the fault of public employees and retirees. Get used to it. Believe me, it is not better the second time around.

Gouge Away

Welcome to the world where up is down and black is white. We are, of course, talking about everyone's favorite three letter agency, the IRS. The new tax laws just enacted by Congress have thrown all us retirees a curveball. Pension income, such as what we receive from PERS, is taxed as ordinary income and is subject to the same withholding rules. On the other hand, the new tax rules, "Making Work Pay" or somesuch, treats pension income as ineligible for the new tax treatment. Thus, a paradox. The withholding tables that PERS uses are for ordinary income, but retirees don't work (some do, but their pension income doesn't come from active work). PERS is caught between a rock and a hard place. Because they have to treat pension income as ordinary income, the new withholding tables from the "Making Work Pay" bill includes the adjustments to credit single workers with an extra $400 and married workers with an extra $800. So, the good news is that PERS will be withholding using the new schedules as of April 1. The bad news is that at the end of the year, we'll all find out that PERS has been underwithholding because we are ineligible for the tax breaks. Having fun yet? The only temporary solution is to go online, download a new W-4P withholding form and REDUCE your withholding by one exemption. In this way, you will ensure that the PERS doesn't underwithhold. But changing one exemption will probably end up reducing your monthly benefit by more than what you need to offset the tax break you're not entitled to get. If you are thoroughly confused, thank Congress for this gift. If you understand what is going on, then give yourself a small pat on the back. If my explanation helps you, then give me a small pat on the back. Oh, me. I'm doing nothing.