Attorneys Bill Gary and Greg Hartman explain PERS law to legislators

I’m posting this for my own notes, since faculty union bargaining starts in less than 12 months.

Bill Gary is the Harrang, Long, Gary and Rudnick attorney who, along with Sharon Rudnick, represented the State’s side in the Moro case in the Oregon Supreme Court, over Kitzhaber’s attempt to roll back PERS benefits. Gary does a great job explaining just how badly they lost this case: “With respect to benefits that have already been earned, the court has ruled that you can’t touch them.”

Greg Hartman was the attorney for the state employees and unions, who won Moro. Hartman does a great job explaining how the Moro decision means that current employees at state agencies – and UO –  will now be paid lower wages, because of the need to pay the PERS bill for retired workers such as Mike Bellotti.

Of course taxpayers will also take a hit, as will those who depend on state services.

Video here, links to the committee’s agenda and documents here. For more on PERS read the always cantankerous Mr. Fearless, here.

OHSU neurosurgeon boots Duck’s Bellotti from top PERS spot

Saul Hubbard has the sad news in the RG here, along with a list of the current top 100.

Ted Sickinger’s amazing 2011 story on how the people of Oregon came to be paying former Duck football coach Mike Bellotti $500K a year in pension benefits is here. In essence, Bellotti’s PERS payout was based on a calculation that included all the money he got in bonuses and Nike deals, even though UO never paid anything from those payments into PERS. (This on top of the buyout deal he got after former UO GC Melinda Grier neglected to get a written contract for him, and then assistant GC Doug Park helped hide that from reporters.)

As Sickinger explained, a large part of the amount that state agencies (and UO) must pay for PERS isn’t going into investments that will support retirement costs for current workers, it’s going to pay current retirees, because the state agencies didn’t put in enough back when those retirees were working.

This situation has gotten worse. The PERS by the Numbers report for April 2016 notes that 40% of PERS costs now go to make up that deficit:

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And this is despite the fact that PERS reforms have cut the amount of money that new retirees get to sensible levels:

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But that’s not enough to put the system in balance, given the high payouts to earlier retirees. PERS is now only 71% funded, and the expectation is for a large new increase in how much UO and other state agencies will have to contribute. As Hubbard notes:

The latest calculations by the PERS actuary, released last week, showed that Oregon public agencies will have to shoulder an additional $885 million in pension costs in the 2017-19 biennium, a 44 percent increase.

Part of that increase was expected after the Oregon Supreme Court threw out some cost-curbing PERS changes in mid-2015. Those changes included a reduction in PERS cost-of-living increases, particularly on large pensions.

Just don’t make the mistake of counting those costs as a benefit to current workers, as VPFA Jamie Moffitt does.

PERS updates your predicted death date

After HLGR’s Sharon Rudnick and William F. Gary lost the Oregon Supreme Court case case defending Kitzhaber’s PERS reforms – just *how* much did they bill? – this was one of the few remaining cost-savings measures possible. FORTRAN programmer Mr. Fearless does the math for potential retirees on his excellent Persinfo blog, here:

In the example used for Money Match members, the setback appears to be approximately 5 months.  That means that the benefit you receive on December 1, 2015 (if you are eligible to retire), won’t be the same again unless you continue working until May 1, 2016.  This is one of the longest setbacks in recent history. Many people will wonder what to do.  My answer is that if you were not planning to retire in the next six months, it probably makes no difference.

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UO will pay higher PERS costs, employees will get lower benefits

Ted Sickinger has the report in the Oregonian, here. This will start in 2017. I’m no actuary, but the combination of lower assumed earnings and longer assumed life expectancies will mean a decrease in the monthly payout from the PERS annuity you get when you retire. At the same time lower assumed earnings will mean that employers will need to pay in more to keep the PERS books balanced, and longer assumed life expectancies will mean employers will have to pay in more to cover the expected costs of the annuities of past retirees.

Will VPFA Jamie Moffitt and “Around the 0” spin this increase in the cost of UO retirement benefits as an increase in the total compensation of UO faculty and staff, during the current union bargaining. Maybe something like

“Look! Your already generous benefit package will get even more generous in 2017! You don’t need a pay raise!”

A statement like this would be transparently false, but given that there’s still no retraction of the most recent “Around the O” post on benefits and the UO Senate White Paper goals, it would be in keeping with past UO statements.

One way that UO might consider saving money would be to revise the current Tenure Reduction Program, to encourage higher paid senior faculty to retire, so they can be replaced with cheaper, younger ones. The current TRP is not a very good deal for faculty, and since it is not aimed at faculty on the margin of retiring or continuing to work, it is not an effective program from the cost side either.

Don’t cry for Mike Bellotti – PERS decision boosts his take back up to $13M

Ted Sickinger’s amazing 2011 story on how the people of Oregon came to be paying former Duck coach Mike Bellotti $500K a year in pension benefits is here. In essence, Bellotti PERS payout is based on all the money he got in bonuses and Nike deals, even though the state never withheld anything for PERS. This on top of the buyout deal he got after former UO GC Melinda Grier neglected to get a written contract for him, and then assistant GC Doug Park helped keep that from reporters.

As Sickinger’s story explains, a good chunk of state PERS costs go to fund past deals like these – not to accumulate reserves for the retirement of current workers. And the UO administration bargaining team will soon use these costs to argue that they can’t afford raises for the faculty and staff.

Bellotti was one of the big losers from the 2013 reforms, which cut COLA increases from 2% a year on the full pension payment to 1.25% on the first $60K plus only 0.15% for amounts over that. So he’s a big winner from the recent Oregon Supreme Court ruling that restored the 2% rate. Regular retirees will benefit a little – but people like Bellotti with big PERS checks are the big winners.

The Gain columns are per year – e.g. Bellotti’s payout for 2015 will be $109,147  higher after this court decision, a more typical state worker will get $6,290 more.

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Note: Everything is in future values – i.e. not discounted back to reflect the time value of money. These calculations are back of the envelope and don’t consider all the twists in the law, including some retroactive payments that PERS will now have to make, e.g. for 2014.

HLGR’s William F. Gary and Sharon Rudnick lose another big one

No I don’t meet another zip drive of public records. I mean the Oregon Supreme Court case on the 2013 PERS reforms. Laura Gunderson of the Oregonian has the details on today’s OSC ruling here:

The Oregon Supreme Court issued a ruling on Thursday harkening back to a basic playground rule: If you make a promise, you can’t take it back.

In a decision that will affect every public agency budget in the state, the court ruled that it wasn’t fair to go back on promises the state made years ago to its workers. The ruling reverses two controversial changes lawmakers made to the Public Employees Retirement System two years ago.

In 2013, lawmakers aimed to stop what they saw as a drain on the state’s budget by reworking the contracts of 100,000 retirees. The change cut annual cost-of-living increases promised as part of the workers’ pension benefits.

That change, along with a few others, was set to save the state about $1 billion in the 2015-17 budget. Today’s ruling means a big hole has opened up that agencies and local governments across the state will have to fill. …

Gary and Rudnick argued that the reforms were legal. They lost – although presumably they succeeded bringing in a lot of billable hours for HLGR, paid for with taxpayer money. The winning side was represented by longtime labor lawyer Greg Hartman, among others. Full decision here:

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Duck Coach Aliotti to get Frohnmayeresque PERS payout

4/18/2014: Ted Sickinger has the story in the Oregonian:

Aliotti is 59 years old. If he lives another 26.5 years, as PERS’ actuarial tables predict, the state pension system will pay him about $6.6 million in retirement, plus cost of living increases.

Where will that $6.6M come from? As Sickinger explained in his earlier story below, these payouts are so high because UO pulled a scam with how it treated the Nike money that is part of the coach’s compensation. So UO and OUS didn’t pay enough into PERS for to cover these payouts, and now the rest of the money will have to come by diverting payments from current UO/OUS employees.

And then the university will claim that, when they count the cost of faculty benefits, faculty are overpaid. Got it?

4/10/2012: Bellotti, Frohnmayer top PERS payouts

It took a long legal struggle, but the Oregonian has been getting data on PERS payouts from the state, bit by bit. The Ted Sickinger story on how Mike Bellotti managed to pull off his $500K pension scam is pretty amazing. It will cost taxpayers $5 million.

And here’s a bit on how Bellotti took UO for another $2.3 million, plus this. He tried to get $7 million. And now the curious/jealous/outraged/smug can now check up on their friends and colleagues retirement benefits on the Oregonian website:

 

Good PERS returns to reduce faculty subsidy for Bellotti’s pension?

Good news on PERS. High investment earnings and Kitzhaber’s cuts mean that it’s now 87% funded. I think that’s the best of any state pension fund. Ted Sickinger has the report, here.

But let’s face it, no one reads this blog for the good news. And the bad news is that UO is still on the hook for the unfunded pension liability of people like former football coach Mike Bellotti. Sickinger’s investigative piece on how UO’s decision to funnel Bellotti’s Nike money through UO boosted the pension for him and his wife former wife wife to ~$500K a year, and how we have to pay for it, is here.

The other good news? If you are pre-1995 Tier 1 faculty and opted into the ORP plan in 1996, (typically TIAA-CREF) UO’s contribution rate to your account is determined in part by the need to pay PERS the unfunded liability for the payouts to Bellotti and his ilk. The more Bellotti gets, the more UO has to pay PERS, and the more they have to pay into your retirement account. And if you are not Tier 1, or stayed in PERS, you don’t need to worry much about further cuts.

The bad? The S&P 500 was up 30% last year, so Treasurer Ted Wheeler 16% PERS earnings are not very impressive, even after a healthy risk adjustment. He would have done much better for the State by simply buying the basket, and furloughing his expensive stock-pickers. Also bad: If you went into the ORP, it’s now even more likely you could have done better staying in PERS. Even if you didn’t get a sweetheart deal from former UO General Counsel Melinda Grier, like Bellotti’s:

The ugly? UO’s PERS costs are set for the next 2 years, and VPFA Jamie Moffitt will likely use the fact that UO still has to pay for Bellotti in the next round of union negotiations – which will start in December – to argue that faculty are overpaid and that UO can’t afford more merit and equity money, just as she did last time. The probability that these rates will soon fall has increased, but I’m guessing if the union presses that point, Moffitt will choke and leave the room, just as she did last time.

UO promotes Don Pellum to defense coach

Update: No word on pay and perqs or Aliotti’s buy out deal, if any. Aliotti was getting $420K, see below.

“The well is dry” for external equity raises for faculty, but it’s flowing freely over at Rob Mullen’s football operations offices, thanks in no part to the millions in subsidies he gets from the academic budget. There will be a report from the Senate ad hoc committee on ending athletic department subsidies at the meeting Wednesday (Full dislosure: I’m the chair). A vote is currently scheduled for the Feb 12 meeting, unless the ad hoc committee can work out a compromise with President Gottfredson before then. Things don’t look particularly optimistic at the moment. VP for Budgeting Brad Shelton refused to let me attend the Senate Budget Committee meeting on the athletic budget on Dec 11, a week after President Gottfredson gave his support for the ad hoc committee.

12/28/2013: UO starts national affirmative-action compliant search – for football job: While the UO business school dean Kees De Kluyver just appointed the chronically underperforming Jim Bean as associate dean without any sort of search, Duck AD Rob Mullens has considerably higher standards, and is conducting a national affirmative-action compliant and transparent search for Nick Aliotti’s replacement as defensive co-ordinator. Job ad here. The top internal candidate, assistant football coach Don Pellum, currently makes $300K:

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12/27/2013: Nike payments to inflate Aliotti’s PERS pension too?

UO helped Mike Bellotti exploit a PERS loophole to collect retirement income on payments from Nike, even though no (or vastly inadequate) PERS contributions had been taken out. He’s now getting more than $500K a year, and the unfunded liability for PERS is about $5M. Payments from regular OUS employees, and Kitzhaber’s cuts to their benefits, pay for this. It looks like Aliotti is also PERS Tier 1, and will be eligible for the same sort of pork. Ted Sickinger’s amazing 2011 Oregonian expose on the Bellotti scam is here. Aliotti’s retirement announcement is on goducks.com, here. UO is paying Alliotti $420K a year, I believe that includes his Nike supplement:

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Early PERS retirees avoided 2% hit to pensions

That’s the take from OPB reporter Steve Law, in the RG:

For those affected, it’s roughly a 2 percent hit. The PERS actuary calculated that a typical 55-year-old retiring Dec. 1 on Money Match would avert a 1.9 percent reduction in his or her pension that takes effect starting with 2014 retirees. A 65-year-old in the same boat would avert a 2.3 percent reduction. But those employees could make up much or all of those losses merely by working several months longer.

The legislature had considered, but did not implement, changes that could have let to huge hits for “in-active” members such as the faculty who switched from PERS to the ORP in 1996. That uncertainly led to a least a few early UO retirements. These much smaller cuts are due to small changes in the death-tables and a cut in the assumed earnings rate for annuities.

Sickinger on PERS COLA cuts

10/8/2013: Ted Sickinger is an investigative reporter for the Oregonian. His piece on Mike Bellotti’s PERS scam was a classic.

At retirement, Bellotti’s post divorce account balance was only $300,000. The university made its own contributions over the 21 years he was employed. But combined, they won’t come close to covering the $5 million benefit reserve that PERS established to cover his payments.

Carefully documented with public records, obtained only after a long and expensive public records battle which led to the publishing of all Oregon PERS payments online:

He’s just published an excellent piece on the politics and finances behind Kitzhaber’s deal to cut the PERS COLA, and the chances the unions will be able to get it declared illegal:

… Then there’s the legal question. 

Senate Bill 861 establishes a fixed annual adjustment starting in 2014 of 1.25 percent on PERS benefit amounts up to $60,000, and 0.15 percent on benefits above that amount. That would supercede the tiered COLA limits that were passed last spring. And it would replace the adjustment in place since 1973, which was based on the cost of living index for the Portland metropolitan area and limited to 2 percent per year — applied to all benefits. …

Worth reading it all. 

Kitzhaber’s "Grande Compromesso"

10/4/2013: I confess I’m not following this or the government shutdown as much as I should. I’m in Italy for a few more days – a country with a relatively stable and responsible political system.

But now it’s over, Christian Gaston has the wrap up in the Oregonian:

“What is the message that this Legislature is sending when we cut my taxes 20 percent?,” asked Rep. Brent Barton, D-Oregon City, a lawyer in private practice. “We cut taxes on thousands of lawyers, doctors, lobbyists, accountants on the same day that we cut benefits for retirees? What message does that send?” 

Rep. Jules Bailey, D-Portland, likened the tax cuts to the Business Energy Tax Credit. The cost of that program grew so quickly that it became a political embarrassment and the Legislature has worked to rein it in.

So, the biggest beneficiaries will be people like noted tobacco company lawyers Sharon Rudnick and Dave Frohnmayer? Kitzhaber got advice on the legality of the cuts from Bill Gary at HLGR. So maybe he’ll now make the DOJ hire HLGR, who lost Strunk, to try to defend this? Frohnmayer’s PERS COLA will take a big hit if it sticks in court, so he’ll have to balance that against his usual $550 an hour motivation. Keep an eye on the persinfo blog for commentary and analysis.

Kitz to gut PERS, get tax increases?

9/19/2013: Christian Gaston has an excellent piece in the Oregonian on the deal and the politics. As usual Marc Feldesman has some biting commentary on his PERSINFO blog. I suggest reading all of both pieces, because the consequences for your lifetime income stream are likely to be significant. You might want to put that goat bonus into stocks. Uncle Bernie, you got any tips for us?

9/20/2013: Uncle Bernie’s very helpful digest, from the comments:

From the news articles, it appears that they dropped the attack on PERS “inactives” i.e. ORP faculty. The plan was to reduce the annuity rate on their pensions to 4% or less, which would have reduced their pensions by 30 – 37% or so. The plan is so manifestly illegal, especially as regards ORP faculty, that they apparently decided to drop it and avoid a big lawsuit.

Anyhow, if they had gone through with that plan, ORP and other inactives would probably have taken the “double lump sum” option, removing their money from PERS altogether, so it’s not clear the state would save any money. Uncle Bernie knows of ORP people who are planning to do the lump sum anyway.

Everyone should be somewhat more motivated to do that than before, because the current proposal in Salem has rather sharp cuts in the COLA adjustments to PERS. They are 2% annually, and will be reduced quite significantly, especially for those with a relatively large pension, I believe it is $60K, above which the COLA will nearly disappear; below that, the COLA is reduced to 1.25%.

I have no opinion about whether this will be deemed legal or not by the Oregon supreme court. There is is reason to think from the Strunk opinion of about 10 years back that it won’t, but the statute is written so vaguely that it’s really hard to predict what the court will do.

The COLA caps will apply to past and future retirees alike, by my understanding, so no need as far as I can tell to consider acting precipitously i.e. retire right away. (There is a drop in the annuity rate from 8.0% to 7.75% that is going into effect in a few months, that might be reason to get your retirement papers in if you’re planning to retire soon, since it will affect the size of your pension, as well as the return on your PERS account.)

Bottom line: PERS under attack, Uncle Bernie happier than ever to have gone ORP in 1996. Leaning toward taking lump sum out of my prior PERS account when retirement comes, be done with the state of Oregon, the people out to get public employee members for their pensions, the whole public pension mess. Unclear whether the PERS cuts will stand up in court, but want to be done with Oregon regardless.

It’s all pretty sad, because Oregon has been one of the best states in keeping its public pension plan funded, it’s now ~ 90% fully funded and increasing steadily with the stock market surge that has been going on after the 2008 financial crisis. By comparisons, most states are far less securely funded, if you are in a public pension plan.

The reason for all the trouble with PERS in Oregon is that the state stubbornly follows actuarial “rules” on the unfunded liability, i.e. ignores that the financial markets are solving the problem, and therefore keeps jacking up employer rates until the public understandably won’t stand for it anymore.

With good luck, the PERS cuts will be stopped by the court, the PERS trust fund will be fully funded in a couple of years, and the attacks on PERS will abate.

By the way, none of this really affects much whether the pension benefits at UO are substantially better than at other public universities. Unless you work for one of the few states (like Washington, which is 100% funded) in which the public pension plan is more securely funded than in Oregon, you are better off here.

The public employee unions have not done a good job, to put it mildly, in representing any of this to the public, in my opinion.