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PERS Retirees Wait to See How Much They Owe
By Bennett Hall, The Democrat Herald
November 29, 2005
At the beginning of 2003, Irma Delson had her retirement figured out to the last nickel. Now, like thousands of other former public employees around the state, she's being forced to revise those calculations."I was going to retire at 62," the Corvallis resident recalled. "I would've had my mortgage paid off at that time, and I was going to start drawing Social Security. It was a very tidy package."
At age 55, Delson was earning $50,000 a year as director of graduate programs for the College of Oceanic and Atmospheric Sciences at Oregon State University. But suddenly her pension from the Oregon Public Employees Retirement System, the linchpin of her retirement plan, was under attack in the courts and the Legislature amid claims of excessive payouts, predictions of the retirement fund's collapse and public demands for reform.
To lock in her pension benefits, Delson retired in February 2003, seven years ahead of schedule. Today, 58 and still waiting for Social Security to kick in, she's living on $1,980 a month from PERS, with a third of that amount going to health insurance. Now those benefits are about to go down as PERS factors in the impact of several court decisions and legislative actions. But retirees such as Delson still have months to wait before they'll know just how much their monthly checks will shrink.
Delson, always such a meticulous planner, doesn't know how to prepare. "I haven't made any actual plans because I don't know what I'm planning for," she said. "The whole thing has been disconcerting."
Untangling the string
The problem dates back to 1999, when the PERS board credited retirement accounts with a 20 percent return on their pension fund investments for the year, the fruits of an overheated stock market. The multibillion-dollar payout resulted in increased matching payments to the system by public employers, and several (including the city of Eugene) filed suit claiming the charges were excessive.
In 2002, Marion County Circuit Judge Paul Lipscomb ruled the board had indeed overpaid the retirement accounts at the expense of the fund's reserves. In early 2004, the board reached a settlement agreement with the plaintiffs in the Eugene lawsuit that called for recovering the overpayments. In the meantime, the 2003 Legislature took up the matter, spurred by public outcry over reports of government workers making more in retirement than they earned on the job. Lawmakers enacted a package of reforms designed to reduce the burden on public employers (and taxpayers).
The reforms, which included a freeze on annual cost-of-living adjustments, were appealed, and this March a court ruling in the so-called Strunk case overturned the COLA freeze. The Lipscomb decision was also appealed, but on Aug. 11 the Oregon Supreme Court held that the settlement agreement and the Strunk ruling had rendered that appeal moot, clearing the way for the PERS Board to move ahead with plans to recoup the 1999 overpayments.
It is a massive undertaking.
According to a plan presented to the board Nov. 18 by Craig Stroud, administrator of the system's benefits payments division, well over 200,000 current and former state workers are impacted in some way by these decisions, and reconciling the books will require from 12 to 30 financial adjustments per account. Stroud's department projects it will need at least 25 and as many as 70 extra staffers to get the job done. Retirees face months of uncertainty before they'll know just how much their payments will be reduced. "We're hoping to start the recalculations around April of 2006," said David Crosley, a PERS spokesman.
Paying till you die
The biggest impact will fall on some 27,000 former public workers who retired between April 2000 and April 2004, the so-called "window retirees" who had too much money credited to their accounts in 1999. At its Sept. 23 meeting, the PERS board announced the retirees would have to pay back $75 million in excess benefits and would lose $800 million in pension payments over their lifetimes.
Another 5,000 or so will get larger checks as a result of the Strunk ruling, which threw out the Legislature's decision to freeze annual cost-of-living adjustments and hold back PERS earnings from some members in 2003 and 2004.Retirees who were overpaid, Crosley said, face individual benefit reductions in the range of 2 percent to 9 percent. The exact amount depends on numerous factors, including retirement date and specific retirement plan option.
While workers will have the option of paying off their debts to PERS by writing a check for the full amount, most are expected to choose what's called the actuarial reduction method. Based on the actuarial tables used by the life insurance industry, this method involves predicting when each retiree is likely to die, then reducing monthly benefits just enough to recover the overpayments.
The method introduces an Orwellian wrinkle: Retirees who die earlier than expected will pay back less than the amount they were overpaid, while those who outlive their expected demise will pay back more. "The actuary's determination is based on average mortality," noted a staff report presented at the board's Nov. 18 meeting. "The reduction is therefore predicated on the member living the estimated life span; no longer and no shorter."
Living with the new math
The news is not all bad. Crosley, for instance, suggests that restoring cost-of-living adjustments will take some of the sting out of benefit reductions."On August 1st of 2006, retirees will receive another COLA increase," Crosley noted. "We're hoping those COLAs will catch people up pretty fast." But for many retired public employees, that argument doesn't wash. The way they see it, they're giving back retirement benefits they earned over many years of public service to make up for a mistake that wasn't theirs - if it could even be called a mistake at all. Delson calls it a breach of faith. While she understands the reasoning behind the settlement agreement, she still thinks the state has reneged on a contractual obligation to pay the benefits promised to retirees. Part of the problem, Delson said, is a public misperception that many ex-government workers are collecting obscenely fat pension checks.
"When I read about all those PERS retirees who are banqueting at the public trough - I don't know anybody in that position," she said.That characterization, she added, certainly doesn't apply to her or her fiance, a former high school physics teacher and fellow window retiree who expects his benefits to shrink under the settlement agreement as well."That 'two can live as cheaply as one' thesis," Delson said, "is one we'll be testing out."
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