Pensions the lump-sum gamble

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Expect this saga to drag on for awhile, and lead to, possibly, a stalemate that results in the need for a special session after the revenue situation for is sorted out in the latter half of Gambles mowers.

Pensions the lump-sum gamble uk tax gambling winnings

While they are voluminous and difficult to assess globally, I will post them here so that people will be able to see their precise impact. I make an exception for inactives. Just keep in mind that nothing good will come your way by waiting past December 1. It has been nearly two months since I posted the last entry. Truthfully, nothing much of substance has happened, although the various newspapers around the state, the various anti-public employee organizations e.

Even national columnists and investment advisors are writing about the impending doom from a public pension debacle. One certain thing is that States, by the constitution, cannot go bankrupt. As an extension, a public retirement system run by the State cannot go bankrupt. Moreover, the COLA freeze, adopted by the Legislature in , was definitively ruled an illegal breach of contract by the Oregon Supreme Court in So, for instance, going to a 5 year averaging for FAS has the problem that the accrued benefit includes the 3 year average for FAS, and so how do you implement this for anyone reasonably close to retirement?

As long as individuals have access to the 3 year average, it will trump any 5-year average or salary cap for individuals close to retirement. Ditto for sick leave. Inactives are protected from any of these rule changes so long as they accrue no service credit after the effective date of the changes. Tier 4? Sure, go ahead and see how that works recruiting for difficult-to-fill positions now.

There would be no liability but for employers failing to pay bills when they were due. The Board spent very little time debating between the extremes of 7. In the end, the Board went to 7. A few wanted to split the difference at 7. The rest of the Board quickly approved the motion and, in a blaze of light, the meeting was over. After the meeting, I checked with Matt Larrabee, the principal actuary for Milliman, who confirmed for me that the setback would be 4 months for a typical retiree.

This means that if you delay retirement past December 1, , it will take you 4 additional months of working to recover the benefit you would have received if you retired on December 1. The changes to mortality had virtually no impact on the rates, as changes in one element were offset by other changes. Overall, the totality of the economic assumptions other than the assumed rate itself, had a near zero impact on liabilities for the system. The impact to employers on the uncollared rates will be approximately 1.

If nothing positive happens between now and then, we might expect to see some attempts to significantly alter PERS. The Legislative session began with a bang, and goes out with a whimper. Thus, they presented the Rs in the Legislature with the uncomfortable choice between corporate tax reform and PERS reform.

So, the Legislative session will end sometime soon with neither goal accomplished, and the situation even worse when they return in for the short session and in for the long session. Those who hung in and retired before the Legislature did anything bad are now spared the uncertainty for the future, while those who decided to gamble have bought themselves another 6 months or so before PERS itself makes some crucial changes that will exacerbate the problem statewide, although the change is necessary.

Next month July , the PERS Board will make decisions about the economic assumptions necessary for the next system valuation, which is the basis for setting employer rates for the biennium. These assumptions include the assumed interest rate, salary growth, mortality tables and the all-important actuarial equivalency factors that will take effect on January 1, Two of these three assumptions are likely to change significantly.

The assumed rate is likely to go to 7. Full Formula retirees who select Option 1 no beneficiary are NOT affected by changes in mortality or assumed interest rate, as the benefit is simply the product of the formula itself. Those of you who are gambling that you can escape without any further pain are, unfortunately, delusional.

The situation is likely to get worse in the near future, and the next long Legislative session, if not the short session, is likely to include some unavoidable changes to future PERS benefits. But I expect that desperate times may beget some desperate measures, even those with a slim likelihood of getting through the Courts. Court membership changes with each election and one of these days we may get a court that is not so sympathetic to the plight of active workers.

If you are near retirement, I advise you to consider seriously making plans for exiting the system before the Legislature convenes in early February The pressure will be excruciating on that body to do something about escalating PERS costs.

It is naive to think that the PERS problem is going to go away. This year, the Legislature had a chance to do something meaningful, but blew it. This will probably be my last post for awhile. I will have no more information at the end of July than I have now. The bottom line is that no one seems to have the votes to do much of anything and legislative paralysis looks more and more likely. The other special interest groups want the PERS reform, but without the pesky tax increases the Ds and the Unions want.

There are less than 4 weeks left in the Legislative session before the mandatory adjournment date of July 10th rolls around. Without agreement on these issues, the Legislature is doomed to a Special Session in the Fall. There are two other options available, neither particularly appealing to legislators. That, to me, was a catastrophic failure of Measure 5, and the Legislature could remedy that in either of two ways: If that requirement is necessary, why not have the reverse requirement, i.

In in the meantime absolutely nothing of consequence has been achieved by the malingerers in Salem who have been bought by all the special interests lined up in opposition to anything but stasis. What a waste of human capital, and that applies across the aisle. However, as a trained evolutionary biologist, I can state with confidence that long periods of stasis are often followed by explosive adaptive radiations.

These can be good, or bad, kind of like the proposed asteroid that brought about the end of the dinosaur reign near the terminus of the Cretaceous period. We can hope for something that catastrophic to wake up those who are asleep at the wheel in Salem.

As this legislative session has dragged on for what feels like an eternity, we seem no closer to any answers than we had when the session started in February. Obviously, the higher the ask, the harder it is to get agreement from any of the stakeholders. This gridlock would suggest that a Special Session is almost inevitable, but …… wait for it. The unions are floating a trial balloon offering to have active workers those still working in Tier 1, Tier 2, and OPSRP provide some of the funds to offset increasing employer costs.

So, in step the unions offering a compromise deal. The PERS Board would control the fund and would direct resources from the fund if employer normal costs rise due to changing rate structures. I have many problems with this proposal, not least of which is that the unions who represent employees are behind it. Everyone loses the same percentage which seems fair on the surface , but those closer to retirement not only preserve their existing benefits, but suffer from the cut for a shorter period of time.

On the other end, those furthest away from retirement already have the worst of the three retirement plans, yet have the longest period over which to suffer the cut, but also, the longer period over which their redirected money can be captured because of rising employer costs. Worse still, this does nothing to force the employers to come to grips with the fact that their own profligacy is a major contributor to systemic problems.

This approach provides employers with a cushion against their own fiscal mismanagement, and gives the PERS Board a new way to mitigate responsibility for the employers to pay the full cost of the system, something the employers have refused to do since If the unions propose it, you can bet they will not sue the Legislature if they agree to it. For union members and all active members of PERS, this becomes a lose-lose proposition.

I realize that everyone is in a pickle this budget year. To get more revenue, the Ds need a couple of Rs to join in. It is easy for me to criticize all efforts at PERS reform; none of them affect me. But I try to look at this in a more long term perspective.

Does this proposal do anything to address the long-term problem with PERS? The UAL will still be there no matter what happens. Does the proposal offer generational equity? Those with the best benefit structure pay relatively little compared with those who are just starting their careers or are in the first decade of their careers.

Will this help attract the best possible workforce? Every time you take something away from people just coming into the system, it makes it harder to recruit and retain talented and enthusiastic workers. Finally, we have no clue how much this will actually save, and whether it would be enough to stave off further raids on active worker pension promises in the future. So, in the end, active members will get the shaft from two ends - reducing the amount of money going into their IAP, plus lowering the payout structure for annuitized benefits at retirement.

Because of my own confusion about how the revenue forecast s [note the plural] work, I underestimated the power of forecasting to turn two different forecasts into winners for everyone. All this combined reduces the pressure on the Legislature to come up with big revenue enhancements, but the Rs in the Legislature have announced that the budget is good enough for them that NO revenue enhancements are needed, since the shortfall can be covered by program cuts.

For PERS members, this means more wheel-spinning. The Rs are the ones pushing for PERS reform; the Ds are pushing for revenue enhancement, particularly the corporate income tax. These two forces stand in direct opposition to one another; there is no way the Ds will agree to PERS cuts, or many other cuts, without the Rs agreeing to corporate tax reform. Expect this saga to drag on for awhile, and lead to, possibly, a stalemate that results in the need for a special session after the revenue situation for is sorted out in the latter half of August.

This only pushes the problem for PERS members further into the future, staying the date of execution until later. If you wish to help support the ongoing costs of running this blog and you haven't purchased anything through Amazon on this site, please consider a small donation to defray basic costs. It isn't free to me to keep this site current. I have to pay for bandwidth, costs of duplicating documents when they exist only in paper form, and keep printer ink around to read lengthy documents, and the time to do the research.

Marc Feldesman, site owner and publisher. Feldesman c - All Rights Reserved. Posts may NOT be reprinted without prior consent. Saturday, February 02, I Appear Missing. No bill has been assigned to a Committee yet, if ever. This is not a real number, but a number actuarially computed to represent the deficit that would have to be filled if every single PERS member retired today, and would receive the benefits promised. PERS is going to be altered this session.

I have no doubts about it anymore. I expect to see both approaches used. I will remain missing. Posted by mrfearless47 at 1: Posted by mrfearless47 at Until I return - keep it loose, keep it tight. Posted by mrfearless47 at 3: Higher Education has already implemented Janus, effective with July salaries paid on August 1st. This challenges public employee union finances just as they head into the season where political sponsorship and endorsements are critical, and lobbying expenditures during the long legislative session loom large.

I expect a heavy recruiting campaign by the unions to raise employee awareness of the value of union membership. Regardless of their success, this is a major jolt to their finances and is the beginning of a long-known objective of conservatives to seriously diminish the union role in influencing election results in local, state, and national elections. Our only good defense is a good offense.

And the November elections matter more than most. Just remember that your votes for local and statewide offices are critical for your own fiscal well-being, while your votes for national office are critical for your and our psychological, social, physical, and economic well-being. Remember the title of this post and the last. Poor voting choices could turn those titles from hyperbole into reality. Allow me to enumerate: First, a significant fact.

There are more than , PERS retirees and beneficiaries beneficiaries are not listed in the public list cited in the Oregonian. A second fact. While the second is mentioned; the first is not. Put another way, The OHSU President worked there for 38 years as a specialist eye surgeon, generating huge billings and income for OHSU, as well holding a series of administrative positions culminating with him being the President of a nationally recognized health sciences complex Medical School, Dental School, Nursing School, major research center, multiple PhD programs employing over 20,, with a multi-billion dollar budget, and generating large sums of income for OHSU and multiplying that through the entire state.

Again, the endorsement payments were paid to the UO Athletic Department and were presumably run through UO payroll, and with the appropriate pension payments made to PERS on all income. None of this should have come as a surprise to the institutions; nothing was done in secret.

None of this should have surprised the Legislature or PERS, both of which were aware of the details as they were formulated, and as the pension benefits were accruing. If there was anything untoward, there was plenty of time to object during the negotiations and the signing of the employment contracts. Some of the pensions include income that employees earned on the side [see above]. Other retirees benefit from long-ago stock market rallies that inflated the current value of their payouts.

The second time it closed was at the end of , when ALL employee contributions to Tier 1, Tier 2, and the newly created OPSRP plan were directed to a separate account, not subject to employer match, not subject to any rate guarantee, and subject only to the performance of the market in good times and bad.

Most of the cases where new retirees earn far more than their Final Average Salaries are instances where the employee has long been inactive, but not retired. In these cases, the Final Average Salary is frozen at the last known salary when the member worked, while balances continued to grow at the assumed rate until retirement.

Not surprisingly, a large majority of these people end with benefits exceeding their Final Average Salary. Nine of the ten top recipients are Full Formula retirees, while one is a Money Match recipient. So, the article focuses on two Full Formula recipients with unusual but relatively uncommon salary arrangements, and blows smoke about Money Match when only 1 of 10 top recipients receive that benefit.

The article does acknowledge that Full Formula is what most states use. Of all the claims, this one pisses me off the most. But this overlooks several important points: If employers had fulfilled their obligations in real time, the current problem would be negligible. Following the income tax remedy negotiations, the employers were expected to cover the cost of this in their current contributions. Moreover, it took the PERS actuary longer than it should have to recognize that Money Match, not Full Formula, had overtaken the formulae calculations starting in the early s.

By , the tax remedy [see below] and the Money Match problems hit the employers simultaneously, with concomitant and hardly unexpected rate hikes to cover the additional expenses. In addition, they sued to claw back some earnings crediting to members in for , setting up the reforms see above and below , which, in fact, clawed back 8. In short, the employers, the Board, and the Legislature used creative techniques that allowed PERS employers to deliberately underfund their contributions to the system.

This further overlooks another important factor. The budgets of many public agencies are built from small taxpayer contributions, coupled with significant user fees levied on the primary beneficiaries of the service. My local city charges me significant water and sewer usage fees, which covers a significant portion of their operating budget. One school superintendent complains that PERS is the root of all their problems.

He notes: Measure 5 did several things among many others. It limited total property taxes to no more than 1. Measure 5 also provided no funding mechanism for this massive change in school financing, leaving it to the Legislature to reallocate existing funds to cover the school budgets.

Higher Education and Human Resources were massively underfunded to come up with the revenue to cover K funding. The state imposes no restrictions on salary and benefit packages for the school districts; they negotiate within the district with the Superintendent and the locally elected School Boards. Josephine County also has a total effective property tax rate of 0. PERS calculates Final Average Salary based on parameters set by the Legislature, and the elements of those parameters that each agency chooses to participate in.

The sick leave calculation is irrelevant to Money Match retirees. I left over hours of accrued sick leave at the table when I retired. First, all Tier 1 members those hired before , were initially promised at the time of their hire that their PERS pensions would NOT be subject to Oregon state income tax.

In , the US Supreme Court decided a case - Davis v Michigan - that concluded that, for income tax purposes, States could NOT treat resident federal retirees differently than public employee retirees. At the time, Oregon was doing exactly what the Davis v Michigan ruling prohibited.

They were sued for breach of a statutory contract, impairment of a contract, and wage theft. At that point, federal retirees were permitted to deduct from their Oregon Income taxes, the amount of pension income attributable to work prior to October when the Oregon Supreme Court ruling was finalized , while being taxed on that portion of pension income attributable to work performed after October The PERS retirees whose work was completed prior to October received an income tax remedy a pension increase of 9.

For those who continued to work after October , their income tax remedy was a fraction of 9. For me, for example, my work career began in September and I retired in October I received a tax remedy adjustment of 6. The employer is hoping to get long-term liabilities off its books as cheaply as possible.

Yes, some people should take the lump. In either of these cases, direct the money, without touching it, into an IRA. But if you are healthy and 45 or older, you probably should elect the monthly paychecks, even if it means waiting 20 years for them. Bruce Schobel, a consulting actuary in Sunrise, Fla. Once you are settled on taking the annuity, you will at some point have, if you are married, a further choice about what kind of survivorship benefit to get.

For some choices, your spouse has to co-sign. This is where the calculations get complicated. In this situation you have to contemplate not just your own health but that of four other people, if we may call a corporation a person. First comes your spouse. Next, the plan. Are its assets enough, or almost enough, to cover liabilities? A high funding ratio makes your income stream safe. That means future payments should be discounted using interest rates not far above the rates on Treasury securities.

Discount rates matter, because they change the relative values of different payout options. Then, the employer. PBGC has a sickly balance sheet. When it runs out of dough, the U. Treasury might come to the rescue. But might not. Your pension fund has to go bust and your employer has to go bust and PBGC has to go bust and Republicans have to control Congress.

All these numbers! But my calculator does the work for you. You type in ages and genders and the monthly payouts for you and your survivor. If you're single, you have to put in a dummy spouse, age 84, to get the thing to work. You can leave the mortality adjustments where they are—when you open the Excel file, they are set at a number suitable for a nonsmoker in average health—or fiddle with them. A single Treasury rate available at Yahoo Finance is all you need for the discounting formula.

Raise it a notch if you have good reason to be worried about checks bouncing.

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