Plan C: Retire today. You have to drive to Salem and submit the paperwork at PERS by COB today. Rumor is that it will be a madhouse, get there early. Then submit your TRP plan retroactively like UO let Frohnmayer do (surely Doug Blandy will do the same for the rest of us, though he won’t answer my email about it) and get another part-time job to supplement your PERS.
Retirement forms etc. are here.
5/31/2013: Hannah Hoffman reports the Republican plan includes a cut in the annuity rate from 8% to 4%:
Their plan also calls for employee contributions to be redirected from their individual accounts into the main PERS fund; for Money Match accounts to be annuitized at 4 percent, rather than the current 8 percent; and to prohibit employees from using unused vacation time or more than 40 hours of unused sick leave in calculating their final salary.
Kotek and House Majority Leader Val Hoyle, D-Eugene, have been clear in the past that none of these ideas resonate well within their party.
That did not seem to deter Republicans. Ferrioli said they were searching for the “sweet spot” on PERS reform and weren’t in any rush to do it by the end of June, the tentative date for ending the current session.
“Getting it done on time is not nearly as important as getting it right,” he said.
So, perhaps there will be a window to retire early and get the 8%, if this does go through? What a mess.
5/30/2013: Christian Gaston and Esteve have more details here. This new story seems to suggest the inactives would indeed get screwed.
5/30/2013: Harry Esteve reports in the Oregonian: Is it just me or does he seem a bit skeptical?
Republicans legislative leaders unveiled their version of public pension reform Thursday, a plan that relies heavily on ideas that Democrats already have rejected as unconstitutional, unfair to retirees or politically infeasible. …
The bulk of the savings in the Republican plan would come from nearly doubling the cuts in cost-of-living increases for PERS retirees.
Under a plan that passed with all Democratic votes, retirees who get more than $20,000 annually in PERS benefits would face smaller caps on yearly increases. The current cap of 2 percent stair-steps down at higher benefit levels. In all, the plan shaves $460 million from the cost of PERS over the next two years.
The Republican plan calls for steeper cuts, with stiffer limits after the first $20,000 in annual benefits. It would add another $447 million in savings to the Democratic plan.
Other elements of the Republican proposal include reducing benefits for PERS members who no longer work in public jobs, reducing the employer contribution to PERS accounts and ending the practice of counting unused sick leave and vacation time toward retirement benefits.
I think this means the inactive definition wouldn’t apply to current faculty? And the last doesn’t matter to the MM folks. But an end of the 2% COLA for amounts over $20K would seriously cut benefits. Assume you retire at 65 with $60K PERS. Currently you’d get $87.4K at age 85. Under this plan you’d get $69.1K – very unlikely to keep you even with inflation, not that I’m a macroeconomist.
5/29/2013: State offers SEIU swap of 6% retirement pickup for 6% raise. I don’t get the point of this. Anyone?
And my post below is a little too paranoid – this is nothing new, just a centralization of existing special plans to work around IRS limits on the amount of income these highly paid employees can shelter under regular retirement plans. See below for OUS Counsel Ryan Hagemann’s prompt response.
5/28/2013: Meanwhile, deep inside the bunker, OUS
plans a figures out how to maintain their special supplemental retirement scheme for presidents and coaches after an OUS break-up:
and spends taxpayer’s money on an administrator to run it for them:
OUS Chair Matt Donegan will be at Matt court for President Gottfredson’s Investiture. If anyone goes, give him a shout-out about this.
And maybe Chancellor Melody Rose knows what’s up:
From: UO Matters
Subject: retirement plan for coaches and presidents, public records requestDate: May 28, 2013 8:46:27 PM PDT
Cc: Ryan Hagemann , Charles Triplett , Diane Saunders
Dear Chancellor Rose:
I saw in the announcement of the 3/15 meeting for the Board Committee on Governance & Policy that there was to be discussion of a special retirement plan for university presidents and coaches: http://www.ous.edu/sites/default/files/state_board/meeting/letters/call130315-GPFA.pdf and that OUS was hiring an administrator for this.
I’d appreciate it if you could ask your public records officer, Chuck Triplett, to send along any public records describing this plan or proposed plan.
I ask for a fee-waiver, on the basis of public interest in retirement plans, which is currently quite high given the various proposals to cut PERS for state employees.
From OUS Counsel Ryan Hagemann:
The reference to retirement plans in the March 15, 2013 Governance & Policy Committee docket was not a proposal to create a new retirement plan. The plans listed are existing plans of the Oregon University System. The materials were included as part of a discussion of services that might be shared if one or more of the OUS institutions achieves an institution board. Because retirement plans—now administered across the system—are complex and touch on the lives of employees, the Committee thought it a reasonable place to start in approaching the principles and substantial work that would be necessary to conceive of shared services. I have included the links to the materials that were used for this discussion on shared services and retirement plans.
5/28/2013: Peter Keyes (Architecture) sends his analysis of the possible PERS changes:
How a long-term, full-time faculty member in the OUS system could get hammered by changes aimed at “inactive” PERS members.
Background: The Optional Retirement Plan (ORP)
In the early 1990s, the State of Oregon instituted the Optional Retirement Plan (ORP) for faculty
and some administrative employees of the OSSHE (now OUS) Oregon University System. This
was a defined-contribution plan, in contrast to the defined-benefit feature of PERS. This has a
good feature for the employees, who would have a portable retirement plan which could follow
them to another state if they changed jobs (which often happens with young academics). It also
had benefits for the State, as it would greatly reduce the amount of money the State of Oregon
would contribute to these employees’ pensions in the long run. The ORP can be seen as the
first of the actions that the State subsequently took to reduce its PERS liabilities.
Tier 1 PERS employees had to make an irrevocable decision to enter the ORP program by
September 27, 1996. If they did, henceforth the State would place an amount into the
employee’s ORP account that was equivalent to the amount the employer would have continued
to contribute to PERS if the employee had remained. (This amount comprises both the
employer’s contribution, and the State’s “pick-up” of the employee’s 6% contribution.)
If employees were vested in PERS, they had the option of transferring the balance of their
PERS Employee Accounts into their ORP accounts (in which case they would “…forfeit the
existing balance in my Oregon PERS Employer Account and I forfeit all rights to future Oregon
PERS benefits..”), or leaving that balance in their now “inactive” PERS account, and be eligible
for future PERS benefits. Any amount left in PERS would continue to receive the return on
investment, either in the variable account, or the fixed return of 8%.
Some employees kept their PERS accounts, conservatively hedging their retirement bets by
having both a defined-benefit (PERS), and a defined-contribution plan (ORP). The terms of the
“inactive” PERS deal were clear – if one was in the 8% fixed account, one’s balance at
retirement could be calculated in advance, as could the Money Match and Full Formula benefit
calculations. This was the benefit – calculated according to the rules set up by the State – that
many of us have counted on in all our long-range financial planning over the past 16 years.
The proposal: eliminating the Money Match Option for “inactive” PERS accounts
If the legislature goes forward with the proposal to eliminate the Money Match Option for
“inactive” PERS accounts, ORP members will have to use the Full Formula Option, which will
base their PERS benefit solely upon their highest salary and years of service before they
entered the ORP. The Full Formula Option was intended to be used by active employees,
based upon their salary at retirement, not what their salary happened to be 16 to 30 years
before their retirement. The Money Match Option allows one’s Employee Account to
compound until retirement, then uses the same annuity formula for that balance as is used by all
other PERS members.
What are the costs and benefits of the ORP?
How much money does the State save by having these employees who opted into the ORP,
and how much do these members stand to lose? Let’s look at two employees whose cases
define the range of current employees in the ORP:
- A faculty member who began employment in 1978, switched to the ORP in 1996, and plans to retire in 2013. This faculty member essentially has the first half of her pension in PERS, and the second half in the ORP.
- A faculty member who started work in 1990, switched to the ORP in 1996, and plans to retire in 2025. He had passed the years of service for vesting in PERS, but had a relatively small PERS balance in 1996.
Each of these employees has already saved the state a lot of money by opting into the ORP. If
we assume a 20-year life expectancy after retirement, how much does the State save on
pension costs for each of these employees, under the current rules, which maintain the Money
Current ORP condition compared to base-case PERS
So the decision of faculty members to go into the ORP turns out to have been very good for the
State of Oregon, while it turns out to have been not so good for the employees, who can expect
a retirement income that will be between 10% and 24% less than if they had stayed in PERS.
(Note that this is not just the decline in PERS income, but in total income, including from ORP.)
Costs and benefits of eliminating the Money Match for “inactive” PERS accounts
However, now the State is thinking of changing the deal the faculty signed on to, eliminating the
Money Match option for “inactive” employees. How much money will the State save by doing
this? And how badly will this hurt current employees in the ORP? The numbers are rather
The only possible conclusion is that the elimination of the Money Match Option for OUS
employees who opted into the ORP and so became “inactive” PERS members will result in a
retirement income that is 33% to 55% less than they were planning on (and had been
promised), and 49% to 60% less than if they had stayed in PERS. This is for people who
stayed at their university as full-time employees, for 35-year careers.
Immediate Effects on the University
Many ORP members nearing retirement in the next few years are considering retiring
immediately, as the deadline for putting in retirement papers is June 1. If the elimination of the
Money Match is not publicly taken off the table quickly, we may see a large exodus of key
faculty members this week, as they will not want to risk up to 55% of their retirement income.
May 26, 2013
To find your current PERS balance and calculate possible annuity payouts use the official PERS calculator: https://orion.pers.state.or.us/SelfService/viewPage?component=/mhome.jsp&dialog_id=DState_44&mode=MBR
Hannah Hoffman delivers more potentially bad news about PERS, and every other state pension plan.
5/27/2013: Saul Hubbard on PERS politics in the RG:
Roller-coaster negotiations over how and how deeply the state Legislature should alter the Public Employee Retirement System this year have taken another twist.
Oregon Democrats have declared themselves open to one final avenue of PERS reform, if the minority Republicans agree to provide the needed votes for $200 million in tax increases, probably aimed at high-income individuals and big businesses.
The Democrats’ new PERS proposal, first presented by Democratic Gov. John Kitzhaber, would eliminate, or greatly reduce, the “money match” retirement formula for “inactive” PERS members — most often former state employees who haven’t yet retired, meaning their PERS pension accounts are still open.
Good article, seems like anything could happen. Harry Esteve has more in the Oregonian.
5/27/2013: TRP not such a good idea?
I’ve suggested that faculty with who switched from PERS to ORP in 1996 might want to consider retiring and going on the TRP before the legislature acts, to try and lock in their annuity at the current 8% rate. I just learned of one disadvantage of the TRP, from Ernie Pressman:
The ORP Plan document is clear that no contributions can be made to the ORP after faculty finish the tenured full time part of the program (up to 3 years). You can take a distribution from the ORP after the 3 years are up, but no further contributions until after the 5 year/3000 hour time is over. Same is true of PERS. Once an employee begins to take a PERS benefit no more contributions are made.
Currently for Tier 1 facult UO pays about 22% of your salary, pre-tax, into the ORP. But that stops when you got on TRP. This reduces your effective pay while on TRP by 18%. Additionally, once you start taking the PERS benefits (typically when you start the TRP although I think that’s flexible) the total money match amount is locked in, so you lose what is (currently) an effective 16% rate of return on that, and in addition your annuity is reduced because you started taking it at a younger age.
Maybe I’m missing something, but the TRP is starting to look like a pretty lousy deal. Including retirement contributions, the payoff from putting in another 1.5 years at full time and then retiring is 22% higher than the payoff from working 3 years at 0.5 FTE under the TRP, without the contributions. But of course you do get a 6% raise when you commit to retire within 3 years. So if you know you are going to retire within 3 years you should sign the TRP papers now. In a pinch you could always get in another 1.5 FTE after that. (One person told me that UO used to make contributions for TRP people but stopped a few years ago.)
The TRP agreement is here. I couldn’t find anything about how it affects your UO health insurance – you get it for the quarters you are teaching? If you do 0.5 FTE TRP in a year do you get health benefits for the whole year?
If you have a lot of pre 1996 years it still might might sense to try and jump the gun on the legislature. But for others it might be worth sticking it out, collect the UO contributions, and hope that the annuity rate cut is not all the way to 4% and that the courts will rule the cuts are illegal.
5/26/2013: Ted Sickinger reports on the PERS machinations in the Oregonian.
DOJ doesn’t want to defend cuts just to inactives in court – easier if the cut is to everyone. Kitzhaber’s plan to cutting the assumed rate from 8% to 4% is back on the table. This means everyone close to retirement that has any PERS stake, active or inactive, should be thinking about retiring immediately, before the bill gets through. July 7 is the last day of the session.
5/26/2013: Questions to VPAA Doug Blandy on retroactive TRP and sabbatical repayments:
From: Bill Harbaugh
Subject: retirement rulesDate: May 26, 2013 9:00:34 AM PDT
To: Douglas Blandy
Cc: Ernie Pressman , Russ Tomlin
Hi Doug –
I assume you’ve been following the possibilities of substantial PERS changes that might result in large reductions in retirement income for many UO faculty. From what I’ve been reading it seems possible that the legislature might implement change very quickly, and that it might therefore be very advantageous for a fair number of faculty to go on the TRP immediately, before they are in place.
The attached TRP contract for former President Frohnmayer shows that your predecessor Russ Tomlin allowed Frohnmayer to enroll in the TRP program retroactively. I am wondering if UO has done this in other instances, if UO will extend that same courtesy to other faculty if this legislation advances, and what the rules for such retroactive enrollments are.
I hope you can provide a quick explanation for the faculty, given the speed of events and the potentially large amounts of money that are involved.
From: Bill Harbaugh
Subject: year of return after sabbatical?
Date: May 26, 2013 11:02:53 AM PDT
To: Douglas Blandy
Cc: Ernie Pressman , Russ Tomlin , Gary BLACKMER
Hi Doug – A second retirement question:
UO has traditionally told faculty that they must return for a full year at full-time after a sabbatical, or pay back their sabbatical salary. Secretary of State auditor Gary Blackmer has said that, actually, the relevant OAR (OAR 580-021-0220) just requires faculty to return for a year, and is silent on that year being full-time or part-time.
Your predecessor Russ Tomlin has said that UO interpretation of the rule has sometimes not been enforced, and that some faculty have been allowed to use one quarter of part-time TRP time to count towards the year of return requirement.
My question is this: Will UO allow a faculty member to use a full year of TRP work, even if only at 1/3 time, to complete the year of return sabbatical requirement, as the OAR rule allows?
Given the news from Salem on PERS cuts, this issue may be crucial for at least a few UO faculty, and I would appreciate a speedy reply. There is more info at http://uomatters.com/2013/05/kitzhaber-plan-to-throw-orp-faculty.html#more
5/25/2013: Frohnmayer retirement loopholes may help some ORP victims by allowing retroactive 600 hour retirement contracts and part-time work to satisfy post-sabbatical employment rule.
Also see the latest PERSinfo blog post, here, and Hannah Hoffman’s blog at the Salem-Journal, here.
Disclaimer: This is not financial advice, but it is something to think about very seriously.
If Kitzhaber’s plan to eliminate the money match for inactive PERS members gets through the legislature, many UO faculty who switched into the ORP (TIAA-Cref, Valix, Fidelity etc) in 1996 may find themselves facing cuts in retirement income of as much as 50%. The PERS spokesperson has said that these people will likely be considered inactive, and therefore lose a huge chunk of PERS income, at least given the most recent language he’s seen.
One way out would be to immediately retire under current rules, and go on the 600 hour program. This allows you to work between 1/3 and 1/2 time for up to 5 years after retirement. (So, for example, 5 years at 1/3 time, or 3 years at 1/2 time). This will be particularly attractive because the PERS hit increases the earlier you started at UO before 1996. Faculty close to retirement face the largest potential losses.
It’s quite possible the bill could take effect in a very short period of time, giving people only a week or so to get this done. If you are anywhere close to retirement you might want to talk with your dean and prepare the 600 hours paperwork, which takes quite a while. You don’t have to sign it yet. As explained below, VPAA Russ Tomlin let Frohnmayer sign his retroactively, but that doesn’t mean you’ll be allowed to!
Another issue is that OUS rules and UO sabbatical contracts require you to repay your sabbatical earnings unless you work at UO for a year afterward. The VPAA has traditionally told faculty that returning on the 600 hours program does not count, you have to work full-time as a regular employee. So if you took some sabbatical time this year – even just one quarter – you could be in a serious bind: take the PERS hit, or repay $60K or so to UO.
Fortunately, Dave Frohnmayer may have found a loophole that could work for others as well. His retirement contract did not include the clause about repayment of sabbatical money. He took the sabbatical his last year of regular employment, then retired and went on 600 hours. Back in 2011 I asked the state Audits Division to look into this and see if he should have to repay UO.
Their report noted that his contract should indeed have included this clause, but that he didn’t have to repay anything because he had returned to UO for a full year of work afterwards. My take on their interpretation of the rules was that the VPAA had been misinterpreting them. One full year of post-retirement employment under the 600 hours program, even though it’s not full time, satisfies the post-sabbatical requirement.
So, if you do decide to prepare for the potential loss of a major part of your PERS benefits by preparing to retire immediately, ask your dean and VPAA Doug Blandy if UO will also apply this interpretation to you, and count a year of 600 hours employment as satisfying the post-sabbatical employment requirement.
Here is the mail from the auditor:
From: “Sandra K HILTON”
Subject: Audit Manager ContactDate: December 1, 2010 1:27:22 PM PST
Cc: “Gary BLACKMER”
** Confidential **
Dear Mr. Harbaugh,
I wanted to let you know that I am the audit manager at the Oregon Audits Division that is your contact person for the concerns surrounding former President Frohnmayer’s contracts. If you have any additional documentation, you can forward it to me. Also, I would appreciate it if you could direct me to the appropriate OAR or OUS Policy that requires sabbatical salary to be returned if the academic staff member does not return to regular full time employment. I reviewed OAR 580-021-0220 which requires the staff member to return to the institution for a period of at least one year, but I do not see anything that specifies service must be full time. Thank you.
Sandra Hilton, CPA
Oregon Audits Division
VPAA Russ Tomlin’s earlier email on this:
From: Russ Tomlin <firstname.lastname@example.org>
Date: August 16, 2010 10:10:51 AM PDT
To: Bill Harbaugh <email@example.com>
Subject: Re: Public Records Request – Current Frohnmayer Employment
Just back from vacation this morning.
Prior practice on sabbatical has permitted faculty to count one term
(or semester) of TRP service toward the required one-year continued
service after sabbatical. I have approved this for a couple of cases on
my watch, following prior institutional practice.
In addition, VPAA Russ Tomlin allowed Frohnmayer to sign his 600 hours contract retroactively. I can imagine that this courtesy, while it sounds a little dicey legally, could be extremely important if the Kitzhaber legislation does go forward:
The full set of Frohnmayer contracts and the auditors report are here
5/23/2013: Kitz plan gets more support. Hannah Hoffman reports. No updates on whether or not this would affect the many current UO employees who shifted from PERS to ORP in 1996.
5/20/2013: Panic update: Hannah Hoffman reports that negotiations are on again. One mathy prof reports that this would cut his retirement income by 40%.
5/16/2013: Hannah Hoffman has the news that Kitz has bailed on this plan. The Republicans aren’t willing to raise taxes on the richest 2% in exchange. And state tax revenues are up. And the stock market is up so much that PERS is back to looking fairly robust. So PERS looks safe for this session at least.
5/15/2013: Too early to panic, but many UO faculty switched from PERS Tier 1 to ORP in 1996 when it was introduced. Their PERS balances have accumulated since then, and when they retire they typically use the money match formula, which doubles the balance, which they then take as an annuity. This is presumably how people like Dave Frohnmayer get $257K a year in PERS, even though his salary when he left the plan was only $121K. Obviously the deal for most faculty is considerably smaller, but still potentially $50-60K a year. The reports on Kitzhaber’s new plan say it would prevent people who have left PERS from getting the money match. Instead they’d have to use a considerably less generous plan, based on their last years of earnings while in the plan – i.e. 1996. No inflation adjustment! Would this also apply to UO faculty who switched out but still work for the state? Not yet clear. Also not clear if this will get through the legislature – the Democrats and unions are opposed, but it may be the price of income tax increases for the top 2%.
OK, start panicking. In response to a Q from UO M, former UO student journalist Hannah Hoffman, now at the Salem Journal and the reporter of the best piece on this so far, offers her interpretation:
… “inactive” is anyone no longer in the PERS system. That would include anyone who left it for another retirement plan. If the employer isn’t making contributions to PERS for them, and they aren’t contributing to PERS, they won’t count. It’s all preliminary, and there may be exceptions, but it looks like it would apply to these faculty.
Or maybe not quite yet: Ernie Pressman from HR, one the many excellent UO administrators who keep this place working, and are not afraid to answer questions, reports that he is on it:
I am acutely aware of this situation and am working with OUS on the definition of “inactive” and how that applies to ORP participants.
Or maybe panic right now: response to a query from Hannah Hoffman, from PERS spokesperson:
From: David CROSLEY <firstname.lastname@example.org<mailto:email@example.com>>Date: May 16, 2013, 9:34:13 AM PDT
To: “Hoffman, Hannah”Subject: Re: Question about inactive members
If a non-vested Tier One or Tier Two member elects the OUS Optional Retirement Plan (ORP), the member’s account is transferred to the ORP and membership in PERS is terminated.
Vested Tier One or Tier Two members who elect the ORP may leave their PERS accounts intact or transfer their accounts to the ORP. Those who leave their accounts with PERS become inactive PERS members. To the extent any legislation affects inactive members, they would be affected as would any other inactive member, with the hedge that the actual impact cannot be determined until the actual text of a bill is reviewed. Vested members who transfer their accounts to the ORP terminate PERS membership.
There’s more in the persinfo blog here, under “Train Robbery”.