Somewhere There Is A Someone

Who waits eagerly to get his/her hands on the names and benefit amounts of PERS retirees.  It may be an identity thief who, with a few keystrokes, could easily access the rest of the information needed to pull off a rather simple theft of identity.  It may be someone who hates PERS retirees and their benefits who simply wants to do harm to someone doing better than he/she.  Same ease of gathering the needed information.  Or perhaps an ex-spouse or a child would just love to know how much the "old man" is bringing home in retirement.  Maybe we could just confuse him and get him to sign over some of that "unneeded" money to a worthy (not) cause.

 

These are just a few of the scenarios both the Oregonian and the Statesman Journal will face if they release the information that PERS seems to be obligated to turn over to them in two installments.  If nothing changes between now and November 21, the first wave of information will hit the desks at both newspapers.  It will include the full name of the retiree and the amount of the current benefit, uncorrected for any court rulings that have recently taken place.  In short, for 38,000 of the retirees who retired between 2000 and 2004, their information will be overstated.  On March 8, 2012, the remainder of the information will be turned over.  This will include FAS, method of retirement (Money Match, Full Formula, Formula plus Annuity), initial benefit.  It won't include any additional "personal" information as if this weren't enough.

 

Fortunately, the PERS Coalition is taking this matter quite seriously.  Earlier this month the members of the Coalition voted to seek a temporary restraining order to prevent the initial release of the information on privacy grounds relating to some (and more) of the issues raised in my first paragraph.  The Coalition is collecting names of potential plaintiffs and a filing will take place in sufficient time for a court to rule on the restraining order before November 21.  I think the objective is to prevent any release of this information until the Legislature, which convenes before the next data dump would be scheduled to clarify its legal intent of the current records law.

 

As I get more information, I will post it forthwith.  I suspect that the Coalition might seek some contributions from retirees.  I'm all in with whatever I can afford to contribute.  This is a really, really, really important issue.  Whether you believe in open government or not, I have NO problem with the release of benefits individually provided no names are attached to the particular benefits.  It provides nothing significant and furthers only one agenda - harassment of retirees - which is not the intent of the open records law. There is no public "need to know" any of our names.  They are welcome to my benefit amount so long as they don't know whose specific benefit it is.

No Banker Left Behind

The Oregon Supreme Court delivered its final body blow to any semblance of contract law in Oregon today.  It ruled in favor of PERS and the employers in the Arken case, and it ruled in favor of PERS in the Robinson case, overturning the lower court's ruling in the latter.  Basically the court gave window retirees the middle finger when it wrote that, in effect, we were stupid if we believed our Notices of Entitlement since the City of Eugene case was so public, so prominent that we couldn't possibly have not known that the 1999 earnings were not final.  While this might have been true for anyone retiring after the early part of 2003, those who retired prior to the City of Eugene case ruling coming (i.e. before October 8, 2002) wouldn't have had any reason to expect that the 20% earnings crediting in 2000, for 1999, was in jeopardy.  Based on my lengthy experience with PERS retirees, very few people paid (or pay) attention to the minutiae of PERS court cases or the minor changes that affect people in a myriad of different ways.  If nothing else, the rulings in these cases should tell people that their PERS benefits are subject to the whims of the legislature and the courts.

People may wonder about the ruling in the White case - the PERS Coalition challenge to the settlement agreement between PERS and the 8 employers in the City of Eugene case.  The arguments in the White case took place some time after the arguments in Arken/Robinson, and the ruling will probably be handed down next month if the spread holds.  However, anyone holding out the slimmest of hopes for an affirmative ruling in White need only read today's decisions to realize that there is no possible way that this court will overturn the settlement agreement.  Today's decisions relied almost entirely on the fact of that agreement.

I am not going to bother to summarize the rulings today.  They are 71 pages long, and the ruling in Robinson is so infuriating that my blood boils just thinking about it.  The court essentially agrees with the plaintiffs legal arguments, but dismisses them in favor of an argument that wasn't actually made, and uses that reasoning to overturn the trial court's ruling (Kantor).  Both cases have been remanded back to Kantor for final implementation.

What does this all mean.  Arken was a long shot.  Losing it doesn't do anything to change the status quo.  Robinson, on the other hand, is the case that argued PERS had no authority to try to collect the "overpayments" we received before the Strunk decision was finally implemented in 2006.  If you can scrape your memory banks and go back to 2006, you will recall that you received a bill from PERS telling you that you owed them money - in my case, about $14,000 -which could be paid in either a lump sum or via a method called actuarial reduction at zero interest.  Assuming that offer remains, anyone who received one of those bills will now be obligated upon notification by PERS to begin the repayment process, either by writing PERS a check, or by accepting a small reduction in your monthly benefit.  Of course, we are all about 6 years older since those bills came out so that the actuarial reduction payments will be larger than they would have been had they started in 2006.

It is clear that the days of the PERS Coalition's success in fighting against changes in the PERS system are over.  It is clear that the Court is no longer persuaded by the stunning logic of the legal argument, but instead seems to bend over backwards further and further to rule in favor of PERS and the employers.  The more you read the Court's arguments, the more convoluted they appear, and the hidden forces behind them all are politics and economics.  Contracts aren't worth the paper they are printed on.  To me, this says that PERS and the employers are no different today than are the bankers and Wall Street firms who have skated by.  The new motto is "No PERS retiree gets ahead", or "No Banker Left Behind".

 

P.S.  If I weren't feeling crappy enough about the erosion of contract rights in these rulings, Steve Jobs' death hasn't left me in a better frame of mind.

 

We Get To Feel It All

Tomorrow morning (October 6), the Oregon Supreme Court will release its written opinion in the Arken case (and perhaps the Robinson case as well).  I have no further information (such as the decision).  The decision will be posted on the OSC's web site at around 8 a.m. or close thereto.  Perhaps some of the agony of waiting will finally be over.  At this point, any opinion is likely to be melodramatic.

Midnight in the City of Destruction

Just sitting around contemplating the potential end of summer.  I've received a number of thoughtful emails about the impending release of retirees' names and monthly benefit amounts.  These emails provoke some interesting notions.  I thought I'd run a few up the flagpole and see what holds.  Bear in mind that these aren't all my thoughts, but are the thoughts of some others that I've shamelessly borrowed because they deserve an airing.

• There are three cases awaiting final rulings before the Oregon Supreme Court.  These are Arken, Robinson, and White.  Decisions should be forthcoming in all these cases sometime before the end of the year, and there is no reason to expect that they might not come down in the next few weeks.  [This is a statement of fact.  Implications and questions follow]
• Assuming the decisions come down before November, will PERS be able to adjust the benefit levels to reflect the court's judgements and orders?  If the court holds for Arken, Robinson, and White, the benefit levels of retirees affected by those cases would rise.  On the contrary, if the court rules against Arken and White, but upholds Robinson, the current figures are accurate.  If the court rules against Arken, White, and Robinson, all Window retiree benefits will be reduced by the amount necessary for the "overpayment" of benefits based on the 1999 earnings.  Has PERS anticipated how to factor in these variables?
• The Robinson case holds that the amount still owed by Window retirees can't be collected.  If we lose the Robinson case, will PERS adjust our benefits downward BEFORE reporting to the Oregonian and Statesman Journal.  If not, will they inform both papers that all Window retirees have a significant debt to repay?
• Similarly, if the decisions don't come down before the first release of information, but come down before the second release, will PERS update the first set of information and inform the papers that they (they papers) are using incorrect information?  Similarly, will they adjust the benefits upward if we win the lottery between the first and second information dumps?
• Are the newspapers getting only the information on individuals receiving a monthly benefit, or will the information on single and double lump-sum also be released.
• Which benefit amount will be released?  The Option 1 benefit, or the actual benefit, which includes survivor options (in most cases)?

 

These are just a few of the questions that wander through my mailbox and through the corridors of my brain.  There are so many wildcards out there that I am completely baffled how PERS and the newspapers can expect the information to be completely accurate and up-to-date.  I expect the whole release process to be a cluster f**k for retirees as no matter what PERS releases, it is likely to be partially or totally inaccurate.  I don't understand why the parties couldn't wait for the court cases now pending before the OSC to be finally decided and the rulings implemented.

I Can't Take It No More

I've put together a brief survey to give OUR organization some idea about what we think of the new release of data.  Please take a few minutes to read and take the survey located at:http://www.surveymonkey.com/s/P9WMVN5 .  It will be your chance to provide valuable information.

Thanks.

The Garden of Gethsemane

Both the Oregonian and the Register-Guard are whooping it up that they finally "won" a victory over PERS.  Their victory includes the release of names and amounts of PERS pensions paid out by November 2011.  Later in March 2012, the same newspapers will receive additional information on those same retirees (ALL OF THEM) including employer, final salary before retirement, method of retirement calculation (like we had a choice), and years of service.  The argument used by the newspapers to get this information is that PERS is a public agency, bound by open records, and that PERS recipients are being paid with taxpayer dollars and their information is not private.  Let's examine these claims:

• All retirees are paid with taxpayer money.  FALSE.  There are 900 agencies contributing to PERS.  Some of these agencies are small, some are huge.  Many agencies - Higher Education and SAIF, for example - receive relatively little money from the state and its taxpayers.  The money to fund those agencies largely comes from fees, tuition, grants, contracts, foundations.  In Higher Education, the agency I'm most familiar with, tuition money alone covers virtually all of the costs of faculty and staff.  All salary and benefits are paid from the tuition and fees the students voluntarily pay to receive services from the University faculty.  The same is true of the Community Colleges.  The state money that comes to these agencies is used largely for upkeep and maintenance.  So, the money that passes through the hands of the students (perhaps from their parents, perhaps not), ends up in the hands of the faculty and staff.  We are public employees only in the sense that the agency we work for is a "public agency", but our salary and benefits do NOT come from public funds.  There are many, many agencies whose funding comes entirely or nearly entirely from user fees, not taxpayer money.  None of these employees should have their records exposed.
• The Oregonian and Register Guard "won" a victory.  FALSE again.  The newspapers bludgeoned a settlement out of PERS.  There is no legal jurisdiction that has ruled on the legality of this release.  The judge who received the consolidated cases merely signed off on the settlement because that was the only way the cases could be dismissed.  A true "victory" would have required that a court registered a legal decision on this release of information and told PERS (or the newspapers) exactly what the law requires.  PERS decided to cave in because they were going to lose a PR war, having already spent $140,000 in legal fees to fight the order to release the information.  Although that amounts to about $1.20 per retiree, the Statesman Journal was already on their case over the money spent on outside counsel.  PERS was placed in a no-win situation in the public relations battle.
• Finally, what started as a request for retirees making more than $100,000 per year in retirement, has now turned into a witch hunt for all retirees.  The retirees making more than $100,000 per year could be predicted quite easily.  There are probably 500-600 public employees in positions that pay salaries higher than this.  Most of them who have been career employees probably receive retirement benefits over the 6 figure amount.  Big deal.  The way PERS was set up, this was inevitable and I'd be shocked to find that there are more than 70 or 80 retirees earning more than $100,000 per year who weren't making that amount in their working days.  They receive those pensions because they took considerable risk with their PERS portfolios during their working days and happened to benefit from the OIC's fantastic investment success.  They could have lost most of their pension as well, but they didn't.
• Finally, the concern for public employees, especially those elderly members who get victimized by family, investment counselors, and other not nice people, is especially insensitive.  Retired members are generally pretty conservative with their money.  They don't advertise their benefits because older people generally don't do this.  It has nothing to do with their status as retired public employees.  I don't want people bugging me about my benefits and how I earned them or getting advice about how I can double my money in 30 days or less.  Moreover, the older we are, the more susceptible we are to financial fraud.  I fear for my older colleagues who do not have the energy, wherewithal, or endurance to withstand the kind of potential financial abuse to which they will assuredly be subjected.  My financial business is between my banker, my broker, my wife, and me.  No one else needs to know.  I will reveal this much.  I retired in 2002 and received about 90% of my final average salary.  When I started receiving Social Security, my total benefit exceeds 6 figures.  I never earned 6 figures in my career and I still don't except if you include Social Security.  Including Social Security, my total benefit is about 105% of my final average salary.

I truly do not know what the public expects to learn from a data dump of the retirement benefits of roughly 110,000 individuals.   They are going to learn that there are a small number, probably less than 4% of the total, who receive significantly large benefits and their stories will vary all over the map.  As far as I'm concerned, if any news media calls you and asks you to comment on your benefits and how they were earned, answer with a firm "NO COMMENT". Do NOT assist the media in any way to figure out how your benefits were earned.  They started this fight, but we don't have to help them with their own job.  Without information from you, all they can do is guess how you got to your benefit level.  I would tell them nothing.  In the meantime, if you suffer any form of financial harassment AFTER this information is published, by all means seek legal counsel.  You have a legal right not to be abused, and the newspapers might as well be forewarned that you reap what you sow.

Right now I feel like I am waiting in the garden of gethsemane praying for tomorrow not to come.

 

 

Scream, Aim, Fire

This probably describes the way many PERS retirees feel today after learning that PERS caved in on the various public record requests to release a fair amount of information to the media about current retirees.  While PERS got some concessions of what would be released and won a reprieve to allow notification of retirees about what information will be released, we basically got sold down the river.

This coming November, the local media (Whoregonian, Stateless Journal, Eugene Register Hard) will be getting a list of all current retirees along with their current retirement benefit amount.  What the media does with this information is anyone's guess, but it is hard to imagine anything useful coming from it.  I expect to be harassed unmercifully by those people who think public employees are worth "shit" and all are overpaid at work and in retirement.  I'm not looking forward to this information being released.  On the other hand, perhaps all of those idiots out there who are convinced we are bringing home at least 6 figures will be shocked to discover that few of our fellow retirees actually get 6 figures and, moreover, those that do could have been predicted by my pet roach.

Things get uglier next March (2012) when PERS will be compelled to release year of retirement, final average salary, agency, and job classification at retirement.  PERS has been able to limit the damage to this information and will not have to compile all of the other information requested, and this information alone will not be enough to generate identify theft ---- at least that's what everyone thinks.  The reality is that there is enough information that will be released that any intelligent identity thief could put together a credible dossier of information and financially rape almost any of us.  The good news /sarcasm on/ is that PERS will notify us before they release this information /sarcasm off/.  I'm so relieved that I can prepare to be screwed just knowing it is going to happen.  Perhaps it will be time to file a name change with the courts.  Maybe I'll call myself Prince.

For what it is worth, the PERS Coalition is examining the settlement to see whether there is any way to seek an injunction or file litigation to stop the release of any of this information.  I personally don't think there is any way to stop this crass invasion of privacy.  They are not releasing addresses, phone numbers, beneficiaries, social security numbers, employee ID numbers, or historical work data.  It doesn't look terribly likely that the Coalition will be able to do much about this, and I can't imagine the public employee unions spending the money to stop this.

All I can say is that you've been notified and warned.  The next time you see your name somewhere in print, it just might be in the Metro section of the Whoregonian.  Maybe Steve Duin will bake a column just for us.  Or maybe Elizabeth Hovde will write one of her classically snarky, unfriendly, and public-employee bashing columns about all of us piggies (and now she'll have names) slopping at the public trough.  The next sound you may hear from public employees may be the scream, followed by aim and fire.

Northern Exit

Considerable confusion still exists about the newly enacted HB 2456.  This bill, just recently signed by Governor Kitzhaber, removes the state income tax subsidy to PERS members who (a) retire on or after 1/1/2012 *and* (b) who had creditable service prior to October 29, 1991.  The confusion stems from a rumor -- absolutely untrue -- that anyone who moves out of state after 1/1/2012 will lose the tax subsidy.  There is no truth to this rumor.  If you retire on 12/1/2011, you will still be able to live out of state without loss of the income tax subsidy no matter when you choose or need to move.  Those of you who are concerned about this can rest assured that a move to Washington or other parts provided you are fully retired before 1/1/2012.

I hope that clarifies.

Hard Bargain

As most people know, the PERS Board voted yesterday (July 29) to keep the assumed rate at 8%.  The local media seemed surprised by this decision and focused on a random comment made by one of the Board members that he didn't think the 8% was sustainable, but that he respected the wisdom and judgement of the Mercer actuaries.

Most reports didn't discuss some of the issues raised in the actuary report.  One issue is that the mean, median, and modal assumed rate across the public employee pension plans typically surveyed (about 120) sat right at 8%.  A few of the higher assumptions (8.5%) had been dropped to 8%, but over all public plans surveyed, 8% remains the prevailing assumption.  Mercer also makes its own analysis and its capital markets survey forecast that over the next 20 years, the likely rate of return using the asset mix similar to the PERS portfolio is 7.88%, while another actuarial firm, SIS, using the same data predicts returns of 8.16%.  As you can see, the central value between these two highly respected firms is about 8%.

The Board discussed other rates including 7.50% and 7.75%, but were confronted with the conundrum that by lowering the assumed rate, the employers (and hence the taxpayers) would be on the hook for even higher contributions.  The Board attempted to balance the need for long-term stability in rates against the short-term shock that lowering rates would result in.  In the end, the Board voted 4-1 to retain the 8% rate.

Many argue that the Board is foolish, is a tool of the unions, and a variety of other things.  In fact, 4 of the 5 Board members are from outside the system and work for large or small private companies with their own pension plans.  The public would have you believe that the last 5 years have been harsh and that returns are well below 8%.  This is true but misleading.  Only 2008 had the strongly negative returns of -27% that skew results significantly lower.  Leaving out 2008, PERS returns have been well above 8%, and the 7 year average return - the closest to the actuarial prediction range is 7.6%.  So, while 8% might seem high against the average, the average includes -27%, surrounded by years of 13% and 20%, and 15%.  The long-term PERS average continues to bump close to the 8% mark.  I suspect if I were on the Board, I might have pushed for an assumption of 7.75%, but that would have been reevaluated in two years anyway.  I know most people would have been unhappy with me for doing so, but I think it would have struck a fine balance between the need to have stability and the need to keep employer rates stable.

On the whole, I think the PERS Board did the only rational thing it could do given the information available.  Each PERS member owes the Board a thank you and I would encourage each of you to write to a Board member (or two or five) and thank them for their vote to retain the 8%.  It was a hard bargain and the Board made a sensible decision, deciding not to throw members to the wolves of the public and the media.

 

 

Back To Black

While I was gone the Oregon Supreme Court issued an order joining the Arken and Robinson cases for the purposes of issuing a final opinion.  While the cases are different, they cover enough similar ground that the Court apparently feels it can issue a "one size fits all" decision.  Greg Hartman doesn't know whether this is good news or bad news, but he opines that it probably means that they are closer to a final decision than he would have expected at this point.

This coming Friday, the PERS Board holds its bi-monthly meeting.  The agenda is long and there are many issues to be discussed.  For members approaching retirement in 2011 or 2012, the most significant item will be the Mercer presentation and recommendation of demographic and actuarial assumptions for the 2010 and 2011 system valuations.  For members, the critical assumption will be the assumed earnings rate going forward.  While Mercer's previous studies have shown that the current 8% is within the range of variation in their simulation studies, there is considerable pressure being brought to bear by many sources to lower the assumed rate to around 7.5%.  If this action were taken, it would take effect on January 1, 2012 and would affect future Tier 1 regular earnings (the "rate guarantee"), and, more significantly, will change the mortality factors used to calculate benefits in retirement.  The impact will be negative to members and post 1/1/2012 retirees alike.  However, the wild card in this discussion is that the assumed rate also affects the expectation of contributions from employers.  There is an inverse relationship between the assumed rate and employer contribution rate.  If PERS lowers the assumed rate by 50 basis points, employer rates would be expected to rise to offset the loss of revenue from a lower assumption.  Whether PERS will try to "decouple" the employer assumed rate and the Tier 1 assumed rate is an unknown right now.  If they don't, the employers will try to fight the reduction just as hard as the Tier 1 members.  The meeting packet is posted on the PERS website right now, but there is no hint of which way Mercer is likely to go.  They hinted at a slightly lower assumption in May, but it wasn't transparent.  This time around they will have to go out on the limb and make a recommendation.  They will be damned if they lower the rate and damned if they don't lower the rate.  Expect some lively discussion.

So, there is lots of black clouds still looming over the PERS horizon.  One of those clouds will either be lifted on Friday (no change in the assumed rate), or the deluge will begin (it gets lowered).  The other cloud awaits us at the Oregon Supreme Court, where a decision in the Arken and Robinson cases will probably come before summer's end.

Miles To Go

On Thursday, the Oregon Legislature bid sine die and all went home for the remainder of the year.  PERS members and retirees escaped from any significant harm, although HB 2546B did finally pass and so our fellow members who retire on or after January 1, 2012 and who live out of Oregon and who accumulated PERS credit for work performed before October 1, 1991 will see that the income tax subsidy they were entitled to disappear.  The Legislature wisely avoided the potential legal pitfalls associated with trying to take this subsidy away from those members already retired.  In all, this was the sum and substance of the Legislative "tinkering" with PERS for this session.  Beware, however, that a lot of people are still unhappy with the Legislature and, more especially, with Public Employee Unions.  Now that we have annual sessions of the Legislature, it is possible that more harmful bills will be researched and proposed during the shorter Legislative session beginning next February.

Now that the Legislature has been removed from the current equation, the next hill to climb is with the PERS Board.  On July 28, 2011, the Board will consider whether to change the assumed earnings rate from its current 8% to a lower amount.  The most likely lower amount will be either 7.5% or 7.75%, although neither is a certainty.  Mercer, the actuarial firm in charge of PERS' mortality tables, has to decide whether to formally recommend lowering the rate.  To do so has profound consequences for all active and inactive members as well as employers.  While all earnings under the 8% rate are protected, a lowering of the rate for future earnings would mean two things for members.  First, all subsequent earnings will be reported at the lower guaranteed rate.  In the short run, this has little immediate effect on members; in the longer term it does.  Because the mortality tables are built from a set of assumptions, chief among them is the assumed rate of return on investments, lowering the assumed rate will mean that the actuarial tables will change and the benefits paid out will be lower because the expectation is for lower earnings.  On the employer side, interest rate assumptions are inversely related to employer contribution rates.  If PERS lowers the assumed rate of return, the employers will be expected to contribute more to insure that the "true-up" when a person retires is as small as possible.  With all the various "accomodations" employers have been given to pay for their increasing rates, the short-term effect on the employers would be to raise their contribution rate.  In this particular instance, employer and employee interests are aligned, at least for the first few years.  I'm sure that the PERS Board will find some way to lessen the burden on the employers, but all this means is that the "unfunded" portion of the PERS fund will grow.  So, if you are interested in commenting on this possible change, having input on not changing the rates, you would be extremely wise to plan on attending the PERS Board Meeting on July 28, 2011 at the PERS HQ in Tigard.

Finally, as the icing on the cake, the benefit payments that retirees receive on the first of every month got a bit FUBARed on Friday July 1, 2011.  As reported on the PERS Web Site, there was some sort of coding error that resulted in one of several possible things happening with the July 1 check.  First, as many of us discovered, the check got deposited in our savings account rather than our checking account.  This is a known problem at OnPoint, Advantis, and several other credit unions here and elsewhere, including out of state banks.  The second thing is that some deposits were simply rejected because there was no savings account to put the deposit in.  The people in this situation are the worst off because of the holiday weekend.  It will be mid-week next week before all this can be straightened out.  Finally, some of you may have noticed your check went to the same old place.  You were lucky.   If you have any issue with this, you are asked to call PERS on Tuesday morning July 5 so they can help get this sorted out for you.  PERS assures us that this programming issue will be resolved before we receive our August 1, 2011 checks.

I hope you all are planning to be involved in safe activities over this long weekend.  Don't get too much sun, drink plenty of fluids, practice safe fireworks, do not drink and boat or drive.  In other words, behave normally.  If you are crossworder, practice safe lex.  Above all, be thankful we live here and not in some of the other less friendly places on the planet.

Dimming of the Day

Sine die will probably be pronounced sometime tomorrow towards the end of the day. At this moment, only two PERS bills survived the grueling process that is the Legislature. HB 2113 was a PERS housekeeping measure that reconciled some inconsistencies in the language of the OPSRP and the rest of the Chapter 238a. The other bill to pass was HB 2456B. This was (and remains) a very controversial bill. In its original form, it would have taken away the income tax subsidy received by every Tier 1 retiree who served in some capacity prior to October 1991, provided they lived outside of Oregon now. Under the threat of legal action, the Legislature chose to accept the amended bill proposed by OPRI that would affect only those individuals who retire on or after 1/1/2012. While this is a vast improvement over the punitive original version, HB 2456B doesn't reason save any money and will be used simply to illustrate to constituents that the Legislature, faced with 20+ bills to scale back PERS benefits, acted responsibly to only pass those bills that had a reasonable chance of surviving a court challenge.

So, what does HB 2456B do. First, it applies ONLY to members who have worked for a PERS employer longer than 22 years. It has no impact on members who began their PERS employment after October 1991. Those members were no eligible for the income tax subsidy anyway. Members who have 22 years or more of service, or who served in a PERS position prior to October 1991, will be affected by this bill ONLY if they plan to live outside Oregon. If you have more than 22 years of service, live in Oregon, and have no plans to move, the bill doesn't affect you at all.

Out of the 70,000 or so members eligible to retire now or before January 1, 2012 there are probably only a few thousand that meet the requirements to be hit by the bill. Most, will have short stints prior to October 1991 and most will lost, at most, 2% or slightly more, of their final benefit.

The calculus of this bill is bizarre. PERS estimates that it will cost approximately $600,000 to reprogram all their systems to pick out retirees ineligible for the income tax subsidy, while the Department of Revenue estimates another $100,000 to provide the information PERS needs to verify its information. PERS estimates that they will recover approximately $10,000 to $15,000 per month of unpaid income tax subsidies. This means that during the first biennium the cost of implementing HB 2456B will be approximately $700,000, which will be offset by approximately $300,000 in revenue from not paying the benefit to ineligible retirees. Thus, after two years, the state will be in the hole $400,000. In subsequent years, the state will continue to recover approximately $300,000 per biennium; this leaves 2013-15 at minus $100,000 net. So four years after this bill has been in force, the state will not have even broken even. Finally sometime in 2015-17, the state will reach the crossover point and savings will exceed costs.

This is one of those bills that leaves you scratching your head and saying: "...and this benefits the state and taxpayers, how?".

Although I am not optimistic, I continue to hope that Dr. No will apply his veto pen to this ridiculous bill. This bill offers no benefits to anyone, and simply ends up being a mean-spirited attempt to punish "someone" for the supposed (but non-existent) PERS "fiasco". Note to taxpayers: there is no PERS fiasco. Oregon PERS is one of the best run public employee pension systems in the US. End of story. If left alone, it will right itself as it has done in the past 8 years. Leave it alone.

Hold On, Hold On

The Oregon Legislature is approaching sine die with considerable dispatch. For PERS members, this is good news so long as the Legislature doesn't make any wrong turns along the way. To date, not a single PERS bill has passed and has been sent on to the Governor. There are a number of bills that could take flight almost any day, but the majority of bills have already died a death by a thousand ignores. Those that remain in one form or another are the two bills pertaining to revoking the tax subsidy for out of state retirees - HB 2456 and SB 656 576. The former would remove the subsidy from future retirees; the latter from all retirees living out of state. Odds are that neither has the votes for passage. There are several PERS-originated bills that are designated as "housekeeping" - HB 2113 and HB 2114 - that should have passed easily, but remain tied up in the Ways and Means Committee. Finally, there is a single bill that could make the 6% employee contribution and associated pick up strictly voluntary. So far, Republican attempts to bring the bill to the floor without a Committee recommendation have failed. This bill is also likely to die without further issue. Despite the repeated, relentless, and strident calls from the media to do something about PERS, the Legislature has steadfastly resisted efforts to inflict further "reform". As the leaders of both parties stated at the beginning of the session, they did not want to pass out any legislation that wouldn't stand up to critical review by the Oregon Supreme Court. So, despite all the pressure, we have finally found a group of Legislative Leaders who possess a spine and a willingness to buck the media, the Portland City Club, and Phil Keisling, to resist measures that have little chance of surviving a Supreme Court challenge. Although it may be premature, I want to offer kudos to the leadership in the Legislature for showing, um......., leadership.

Goodnight Old World

If ever there has been a crazy week, this must be it.  I won't bother with the screwy things going on in my life just before Memorial Day, but for people who follow PERS news, the week borders on bizarre.  Of course, we have the news reported on Monday about the Ways and Means Committee possibly abandoning the revised HB 2456 and reverting consideration to the grossly illegal version original proposed.  By now that's old news, but it hasn't happened yet and there is still time to write members of the Ways and Means to object to any action except passing the REVISED bill.

Everyone who has been sentient for the past week or so is aware that the Portland City Club put out their long-overdue report on PERS, in which it concludes that the sky is falling again and trots out a whole bunch of bogus reasons why the stock market isn't going to recover the unfunded actuarial liability, ever.  They then propose a package of novel - to them - changes that will save $2 billion nearly instanteously.  As you can imagine, none of these savings will come by charging employers more or making employers pay their bills when they are due.  No, this must always come from the members of PERS to reduce benefits measurably.  There are lots of useless bits of detritus in this bill - noise akin to earwax and toejam - but my personal favorite recommendation is to end the IAP account for Tier 1 (and Tier 2?) members and redirect the employee contribution into lowering the UAL.  In effect, this is tantamount to shutting down Money Match except for a small number of Tier 1 members whose balances are high enough when the accounts were closed in 2003 that they would continue to get a pension benefit large enough from the Tier 1 account balance.  For everyone else, this would mean that they would take a 6% pay cut to cover the UAL and get no benefits whatsoever from the money.  They would retire under Full Formula.  Oh, and there is that small matter of cutting the Full Formula factors from 1.5% per year to something around 1%.  The objective is to produce a benefit of about 45% at retirement that, coupled with Social Security, would be about 80% of pre-retirement salary.  From my quick survey of PERS retirees on Social Security, I haven't met a single one whose Social Security Benefit approaches the 35% that the City Club assumes.  My Social Security benefit is about 16% of my PERS pension.  Even if I had waited until I was 65, my Social Security wouldn't ever be more than 20% of my pension.  I guess the genuises at the Portland City Club just picked a number out of the air, assumed no one would check it, and came up with an average social security amount.  And for this, we waited nearly a year to get the report.   I hope this report dies a slow and painful death, as the research is sloppy, the facts barely supported by evidence, and the questions asked led to the conclusions they wanted.

And, if that weren't enough, I discovered another Legislative "game" that can be played late in the session.  It used to be that "gut and stuff" was the game of choice of legislators.  They would wait until late in the session after a bill had gotten a hearing but was heading no where, and they would gut the contents of the bill and stuff in new language remotely related (in principle only) to the original topic and present the bill as "not" a new bill.  People have gotten wise to that trick and so a new trick was used this year (I'm sure it has been done before, but I never paid much attention).  Representative Jason Conger (R, Bend) apparently "reserved" his right to introduce one bill late in the session.  This appears to be a courtesy extended to a few people every year.  So, on Monday, while all eyes here were diverted to the possible calamity in the Ways and Means Committee over HB 2456, and the editors of major newspapers were chin-wagging over the City Club Report, Conger introduced an 8 point "School Survival Act" (don't quote me on the name of the act).  The first two elements of the act would (a) kill the 6% pickup in its present form and make employees choose between keeping it or using it to prevent layoffs and furloughs or to lower cost of health care premiums; and (2) brings back the limitation on the retiree COLA to no more than the average of PERS benefits, $2000 per month.  So, active employees would get to choose which poison they'd like to use on themselves, and retirees would get no COLA on amounts above the average PERS benefit.

Then, we have the delicious news that the Mercer Experience Study presented today at the PERS Board Meeting (I won't be there, doctor's appointment, see paragraph 1 for other craziness), is leaning towards a reduction in the assumed interest rate to 7.5% from 8.0%.  This isn't a done deal and Mercer itself recommends more time to study and get input from stakeholders, but this decision will be made at the July meeting.  If PERS adopts the change, it would take effect on January 1, 2012 and would affect all actives then and anyone who retires on or after that date.

Without any of this going on, with no changes actually approved, PERS is on track for another record year of retirements.  They estimate 11,000 for 2011, but this is before any of these things described above could possibly happen.  If any or all of the things described above were to take place, it is important to remember that there are, according to the latest numbers from PERS (Monday May 23, Board Meeting Packet), 70,000 members currently eligible to retire today by age or service or both.  I'm guessing that if the Board reduces the assumed rate from 8.0% to 7.5%, the retirement numbers will swell to well over 20,000 by 12/1/11.  I can tell you that if it were me, and I had put in my time, I'd be gone in a microsecond if that were the case.

Finally, there must be a special hell reserved for my colleagues in the Oregon University System who decided way back in 1996 to accept the OUS' one-time offer to withdraw from PERS and join the OUS' "Optional Retirement System".  Money deposited into PERS remained in PERS but future money went into a variety of accounts managed by the system.  The system has always been part of the Oregon State Government and paychecks have always come from the State of Oregon.  But this doesn't seem to matter at retirement, as some at PERS have decided that the period between 1996 and retirement, IF YOU ARE IN THE ORP, do not count as state service for the purpose of eligibility for the RHIPA pre-retirement health care subsidy, which is only available to "state" employees based on years of service.  For reasons totally opaque to anyone, they are fighting counting the period post-1996 as service to the state.  All I can say is that for those of you in that system, watch out for this diamond back.  It will hit you at the worst possible time, and it seems to be the result of an bureaucratic and arbitrary decision by someone in that Department at PERS.  Hopefully, as I write, this will be straightened out.  Retired people shouldn't have to fight these kinds of battles over healthcare.

As you can see, it is only Thursday and the week is jam-packed with fun news to contemplate and to cogitate.  And here you thought your retirement days were going to be like swinging in the hammock in the backyard.  Who knew you'd have to train for ultimate fighter just to retain what you earned.

Have a nice Memorial Day Weekend.  Use it to remember the old days, because the new days are looking different everyday.

 

Caught By The Light

A firestorm is brewing in the Legislature and elsewhere over HB 2456.  The story goes like this:  the originally proposed bill would have removed the income tax subsidy from PERS current and future retirees who live in states other than Oregon and who pay no Oregon Income Tax.  Before the bill came up for review in the House Business and Labor Committee, OPRI decided that the original bill was unacceptable, and quite probably illegal.  Nevertheless, the bill original bill seemed to be getting traction, and OPRI decided to introduce an amended bill that would make the punitive and illegal parts of the original HB 2456 go away.  Their changes, encapsulated in what was known as the dash 7 amendments,  made the bill prospective only and would apply to those PERS members who retired on or after 12/31/11 and who did not reside in Oregon when they received monthly benefits.  After reading the Legislative Counsel's thoughts on the legality of the original HB 2456, the House Business and Labor Committee voted HB 2456-7 (the OPRI version) out unanimously.  The bill then went to the Ways and Means Committee (since it involves money), where it has sat for some time now as more pressing bills were considered.  Since the dash-7 bill has arrived at the Ways and Means Committee, several things have happened.   The most significant change was the Portland City Club's long-gestating report on the state of PERS.  This was followed today by the Oregonian's scathing editorial calling out the Legislature and the Governor to do something about PERS before the session ended.  Given where everything is in the Legislature and with less than a month before the Legislature calls sine die, the pressure is ratcheting up to do something to get a handle on PERS.

I will have a separate post identifying all the factual errors, distortions, and faulty assumptions in the belated City Club Report, but I want to focus on one element that is suddenly regaining traction.  The City Club report (and this was repeated in the Oregonian) still cites the $72 million savings that would occur if the income tax subsidy were eliminated for all PERS retirees, not just those retiring after 12/31/11.  Notwithstanding the legal analyses that show the post facto application to existing retirees to be a breach of contract, the more significant point is that the bill in its original form will not save anything close to $72 million.  That figure was from PERS who simply estimated the savings from not paying the subsidy to anyone living out of state as of a date certain.  That figure did not include implementation costs, enforcement costs, administrative overhead, and the difficulties of turning the subsidy on and off again for members who pass back and forth through Oregon residence.  If we are lucky, the net savings on a heavily reprogrammed HB2456 will be about 25% of the amount estimated by PERS - about $18 million - before taking into account the legal expenses involved to defend the breach of contract.  While this might be viewed as being better than a "hit in the head", it is far cry from the amount reported by the City Club and repeated by the Oregonian.  It is really disturbing when numbers get repeated uncritically from one source to another all because researchers and writers fail to ask the right questions.

The real problem with the original HB 2456 is a legal one.  Given the tests typically applied by the Oregon Supreme Court to whether a change is permissible or not, the set of guidelines used comes from none other than the Hughes case, which involved the income tax subsidy in the first place. It would be ironic, to say the least, that PERS and the Legislature find itself back in court trying to undermine part of the agreement put into place following the Hughes decision regarding the income tax subsidy.  The Legislative Counsel has already weighed in on this and concluded that HB 2456, as originally written, would be a retroactive change to a PERS agreement and would, therefore, be considered a breach of contract.  The reason the revised bill was introduced in the first place was to avoid that very trap of passing a sweeping bill that would be overturned by the Oregon Supreme Court as a breach of a retiree's contract.  Once a retiree starts to receive the tax subsidy, which is backed up by a piece of paper called a Notice of Entitlement, PERS is on the hook to continue to pay the subsidy.  Nothing in existing law gives PERS or the Legislature the right to turn off the subsidy in the future.

The dash 7 version of HB 2456 is before the Ways and Means Committee.  The belated City Club Report and the bashing by the Oregonian have gotten members of the Ways and Means Committee stirred up and, according to rumor, members want to revise the bill again back to what it was before the Dash 7 amendment was passed unanimously.  While the dash 7 amendment doesn't save a lot of money in the near term, there is probably a considerably windfall over time.  More importantly, the dash 7 amendment doesn't have the critical legal flaws that the original HB 2456 bill had.

Most people don't ask my advice (OK, some do), but I'm going to offer the Legislature some advice here.  Stay far away from the original HB 2456 or any revisions of the dash 7 version that try to put back provisions that were taken out.  It has been almost 10 years since mistakes from the 2003 Legislature are finally being sorted out because of all the litigation spawned.  The Legislative Leadership promised that the 2011 Legislature would not pass out any bills that would lead to the kind of legal limbo that a great deal of the 2003 Legislation ended up with.  An original version of HB 2456 would flat out contradict that promise and would lead back to the legal chaos that has dominated the last decade.  If you must pass a bill, the dash 7 version of HB 2456 is legally the safest way to go and, while it won't save much in the short run, the long run savings may be more than you think.  On the other hand, passage of the unrevised HB 2456 would lead immediately to legal stasis and would continue to mess with retirees'  heads and tie up the courts for years.  The original HB 2456 is bad and probably illegal public policy.

 

 

 

Hard Times

Google has been a bit problematic the past several weeks and so I've had to hold back some comments I had intended to post.  Two posts went astray and I've yet to see them appear here.  So, I'll try to reconstruct one of the two, and will have a new one tomorrow.

It has been awhile since we chatted about HB 2456.  As you recall, this bill was heavily amended to affect only members retiring after 12/31/11.  It will remove the income tax subsidy that some of those retirees are entitled to.  The bill passed out of the House Business and Labor Committee unanimously without the required Fiscal Impact Statement. Apparently, the committee didn't feel it needed to know whether this bill would save any money or not.  Those of us with knowledge of the system and how the tax subsidy works knew that it couldn't possibly save much money.  Now, the Fiscal Impact Statement is out and has received virtually no coverage.  It is hysterical to read as it demonstrates the silliness and meanness of HB 2456.  In the 2011-13 biennium, the bill will cost almost $200,000 more to administer than the system will recover.  A new Legislative miracle - negative savings.  Even after 2011-13 when most of the sinking costs are over with, the estimates of savings are virtually nominal.  The estimates indicate net savings of about $100,000 per biennium - a true genius measure that barely recovers any money at all.

The bill sits before the House/Senate Ways and Means Committee where it will be considered any day now.  I know that members of the Legislature read this site.  Here's hoping that this bill - as badly botched a bill as can possibly be put together and that ends up being simply mean-spirited and nothing else - will be dispatched with the same haste as Osama bin Laden.  Man and woman guys of the Ways and Means Committee.  Pretend you are Seal Team 6 out to save the State of Oregon from stupidity.  I know times are hard, but surely not so hard that you would pass a bill to spend more than you save.  As a policeman on a snowy mountain pass once said to an idiot driver trying to pass a line of traffic going uphill - "get some intelligence".

 

This Sad Song

Last week or so, the Oregon Supreme Court refused to hear the appeal from Kay Bell.  Most of my readers are not familiar with Kay so let me tell (briefly) her story.  In a nutshell, Kay sought retirement estimates from PERS repeatedly as she neared the end of her teaching career.  As the estimates would come in, Kay noted that they contained a significant error.  She regularly and repeatedly pointed this error out to PERS, hoping that they would fix the problem so she could get an accurate estimate of her benefits before she retired.  Alas, PERS repeatedly assured her that there was no error in the estimates.  After hearing this numerous times, Kay decided to retire.  PERS propagated the error in computing her retirement benefit and she started out with benefits significantly higher than she thought she should be getting (of course, had Kay gotten confirmation of the error, she would have worked two additional years rather than retiring when she did).  You can all write the next part of the script.  About 8 months after she retired PERS (surprise, surprise) discovered the error that Kay had been pointing out repeatedly.  They notified Kay that they were immediately reducing her benefit by approximately 25% and they invoiced her for the overpayment they were giving her for 8 months (or so).

 

Kay sued in a civil case in Marion County and won under a jury trial. The court awarded her both damages and civil penalties. The amount of damages was exactly the amount she allegedly owed PERS and the penalty to PERS was an additional $200,000. PERS appealed both verdicts. The penalty was cut to $100,000 after PERS argued that the liability cap in cases like this involving a state agency was only $100,000. Ultimately, the case went to the Oregon Court of Appeals, which invalidated both verdicts. That left Kay and her attorneys with only one option, to appeal to the Supreme Court. And very recently, the Oregon Supreme Court rejected the appeal, leaving the OCA ruling in tact. Kay won nothing and will have to repay all the overpayments from her now more meager pension.

One side effect of this case was SB 897, originally introduced in the 2009 Legislature. It required PERS to validate and to certify as correct estimates requested as part of "validation" legislation that passed unanimously (89 - 0) in the Legislature. Unfortunately, then Gov Kulongski vetoed the bill on the very last day, leaving the Legislature with no way to immediately override his veto. Subsequently, the 2010 special session of the Legislature overrode the Governor's veto by a closer margin - 67-23, and SB 897 became law. The effective date of the validations is July 1, 2011.  PERS has repeatedly tried to defang the validation process but to no avail.  This year's effort to remove the "guarantee" from the law never got a hearing in the House Business and Labor Committee.  Occasionally, retirees and near-term get cut a break.  This year, we got one.  We owe Kay big-time for that.

So, once that process is activated, any future retiree is URGED (that isn't a strong enough term) to seek a validation of all information relevant to retirement at least one year and preferably 2 years before retiring. This is especially important if (a) you've worked for multiple PERS employers; (b) have had any break in service for any reason; (c) have taken sick leave or disability leave for a period longer than one month; (d) all of the above. This, at least,
puts the burden on PERS to gather up all your records and make sure that all service time is properly credited, all employer payments have been made, all employee contributions have been made and both properly recorded. If there are ANY discrepancies, the burden is on YOU to make sure that the necessary legwork is done to ensure that PERS corrects any errors. Once the validation is settled, this locks both parties into the benefits that result. If you
knowingly allow an error to stand, PERS is not obligated to pay you a higher benefit than you've earned, but the whole process is set up to insure that you get what you are entitled to and can make the retirement decision more secure that no "mistakes" will suddenly appear 8 months (or later) after you retire.

While I feel terrible for Kay since she had to be the stalking horse for this bill and ended up with nothing but legal bills for her efforts, she lives in my heart for taking her situation and converting it to something that benefits all future retirees. We all owe Kay an enormous debt of gratitude (similar to the debt we owed Martha Sartain) for exposing her whole financial and work life to the court system.

Idle Minds

The House Business and Labor Committee today suspended its rules and passed out HB 2456 unanimously and sent it on to the Ways and Means Committee with a "do pass" recommendation.  The suspension of rules took place because the Legislative Fiscal Office still did not have the "fiscal impact statement" done for this bill.  It doesn't take a genius to figure out why the LFO hasn't got the analysis.  The simple fact is that HB 2456-7 saves virtually no money after all the costs of enforcement and collection are factored in.  The House Business and Labor Committee spent a fair amount of time to get the bill into its current form and effectively wasted more valuable time on a bill that, in the end, saves the state almost no money - probably barely enough to print the changes to the Oregon Revised Statutes.  It affects future retires eligible for the tax subsidy (only those with service time before October 1991) who do not live in Oregon and pay Oregon Income taxes.  It is hard to estimate how many will move out of state, especially with this looming over their heads, and the mechanisms set up to enforce the bill are cumbersome at best.  All I can say is that I hope that Ways and Means sees the stupidity of this bill and decides that it isn't worth the paper it is printed on.  And they say that "idle minds are a terrible thing to waste".  This proves the wisdom of that axiom.

Chump Change

As things are going right now, the only negative PERS bill to gain any traction in this legislative session is the ill-advised HB 2456 (see below for several posts and a lot of comments about this bill).  The bill is now up to a dash 7 revision.  As modified, it will now affect any PERS member eligible for the income tax subsidy who retires after 12/31/2011.  If you don't live outside Oregon and don't plan to live outside Oregon once you retire, the bill has no impact.  But if you live outside Oregon and plan to stay outside Oregon, the bill could cost you anywhere from about 1-3% of your final gross pension benefit.  Members eligible for the income tax subsidy have worked some or possibly all of their eligible time prior to October, 1991.  There is, of course, one more dire possibility for certain inactives.  If you worked for a PERS employer only prior to October 1991, then you will lose 9.89% of your gross benefit.  Few fit this profile, so it probably isn't worth worrying about.

The revisions involve notification to potentially affected members, as well as a mechanism to switch the subsidy back on if a retiree moves back to Oregon, and off if an Oregon resident leaves Oregon for domicile elsewhere.

This bill, which has generated a tremendous amount of hostility, misinformation, and ill-will (see again my commentary in the posts below), has been scheduled for another work session and probable referral to the House Ways and Means Committee on Wednesday.  The sad thing here is that this pissant bill will probably save the state pennies, not real money.  The Legislative Fiscal Office will have it's financial impact statement on Wednesday, when we will probably discover that the bill will net the state all of about $10 million (if even that) over the biennium  This is truly chump change, given the amount of work involved in enforcing it.  Add more to the PERS and Revenue workloads with no money to pay for the decreased efficiency of both agencies that results.  Pathetic!

How To Become Clairvoyant

What a strange trip this past week has been. I suppose I owe OPRI an apology for the drubbing I gave them on Friday following the hearings on the PERS bills in the House Business and Labor Committee - specifically, HB 2456. I fell into a semantic cesspool with Mike Schaufler's chief of staff over the fate of HB 2456. I had written to Representative Schaufler, as I had done with all of the members of that committee earlier the previous week about the fate of HB 2456. I had made some suggestions about the bill, concluding with the assertion that the bill generates so little cash that it hardly seemed worthwhile given the amount of ill-will and litigation that might result. On Tuesday, April 5, I received an email from Representative Schaufler's Chief of State telling me, in effect, that HB 2456 was not likely to move forward to a work session. That was true, but exceedingly misleading. After perusing the "history" of HB 2456 on the Legislative website, it was clear that the bill was scheduled for a hearing on April 8, which I already knew, but that no amendments had been posted as of that date. I concluded, both properly and improperly at the same time, that the Chief of Staff's words should be taken literally - HB 2456 was dead. Unfortunately, I don't have time to peruse every website on the planet so I wouldn't have seen OPRI's amended version of the bill to trade future retirees for present retirees. Thus, I scolded OPRI harshly for, what appears to have been, something they didn't do. They did not revive a dead bill. They provided an option to a bill that was dead in its original form, and gave the committee a way out of the legal dilemma they had created with the unamended version of the bill.

So, OPRI is owed an apology for my scolding. It was premature. They didn't revive a dead bill. They provided an amendment that protected those currently living out of state and those already retired, while offering up future retirees to the gallows. Future retirees remaining in Oregon will continue to get the tax benefit, but those who either already live out of state, or those who plan to move out of state, will not.

I have been called out on this by David Reinhardt, lobbyist (and former Oregonian columnist), and by Representative Schaufler's Chief of Staff. I suppose I should be more contrite, but at the moment I'm mostly pissed. I feel like Representative Schaufler's office deliberately misled me or steered me away from what was really going on (it's just me folks and I can't be in twenty places at one time). I stuck my neck on the line and I, deservedly, got it chopped off.

Nevertheless, my point about OPRI remains. This is NOT a good recruitment strategy. You need new members, desperately. Your membership is aging in place and there has to be a way to encourage new retirees to join. Again, for those retiring after 2011, what exactly will OPRI's claim to fame be?

I wish I could be clairvoyant and read through people's words. But when someone takes time to write me a personal email, I don't typically think I'm being burned, misled, or even deceived. Live and learn.

Thankfully, I'm going away from this mess for about a week. This will probably be my last post for this week. I'm going to enjoy a week in the Florida sunshine with John D. MacDonald and friends in Cedar Key, FL.