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PERS changes push some to retire

A flurry of teachers and other Oregon public employees are retiring this year, by far the largest retirement bulge since before the Great Recession.

Statewide, more than 9,500 people have filed to start receiving Oregon Public Employees Retirement System pensions — 44 percent more than last year. A large share of them filed to retire on Dec. 1 to avoid taking a modest hit to their PERS pensions.

But that flurry doesn’t appear to have extended to western Washington County.

“To my knowledge, we have not seen an increase in retirements,” said Hillsboro City Manager Michael Brown. “Also, in talking to a few employees that have retired in the last couple of years, I did not hear them say they retired due to PERS related changes — although I suspect that substantive changes to PERS, either previous or potentially forthcoming, would be at least considered.”

Hillsboro’s public affairs manager, Patrick Preston, said last week there has been no change in the number of retirements of city employees due to the changes in PERS.

“We have not seen any uptick in retirements,” Preston said. “The numbers are actually down from what they were.”

The city has approximately 750 full-time employees, and another 200 part-time and seasonal employees.

“All full-time employees are PERS employees,” Preston pointed out.

Preston provided a list showing the number of full-time, PERS-eligible city employees who have retired over recent years to illustrate that there has been no apparent impact, one way or another, due to changes the PERS board has initiated.

“So far, we have been notified of three retirements coming in 2014,” Preston added.

In the Hillsboro School District, six administrators, teachers and other employees have notified officials of their pending retirements, likely timed to avoid the roughly 2 percent hit that would come if they waited until Jan. 1 or later.

District spokeswoman Beth Graser said retirements — anytime — are more of a hit at the campus level than anywhere else.

“When people retire, it doesn’t have a direct financial impact on us as there are no special fees or anything that we need to pay into the PERS system,” said Graser. “But there is, of course, an impact on our buildings when we lose experienced staff members.”

Metro, the Portland-based regional government, saw 24 people retire in 2013, the largest number in more than a decade, said Mary Rowe, Metro’s human resources director.

One of them is Bill Doran, a park ranger at Oxbow Regional Park who retired last week. Doran, 62, had planned on retiring at year’s end, after 36 years on the job. By retiring a month early, he figures he avoided a 2.3 percent hit to his pension.

“When I heard that was a possibility, I left,” Doran says. “It was kind of a no-brainer.”

Doran wasn’t the only one concerned about losing retirement funds.

Reed Ritchey, director of Washington County’s Community Corrections Department, said he decided to retire on April 1 this year because the Legislature was considering substantial changes to PERS.by: HILLSBORO TRIBUNE PHOTO: CHASE ALLGOOD - Reed Ritchey, director of the Washington County Community Corrections Department, said he retired April 1 because the Legislature was considering major changes in the PERS program.

“I had 2013 in mind for the last few years because I’d reached my 30th year with the county,” explained Ritchey, who hired on with the county’s Mental Health Department in January 1983 as an addiction counselor. “I was concerned about what PERS reforms the Legislature might make. As it turned out, they didn’t make major changes, but I decided to get out ahead of the Legislature just in case.”

Ritchey officially retired April 1, but when the Legislature did not make substantial changes to the PERS program, he came back on a temporary, part-time basis.

“One of the pieces of legislation being talked about was changing the rule that now allows you to consider unused vacation and sick leave in calculating your final year’s salary,” explained Ritchey, whose final day on the job will come Dec. 27. “I’d accrued a large amount of vacation and sick time, and not being able to use that could have made a significant impact in my benefit. The major changes that were floated out there did not occur, but I went ahead and retired just to be safe.”

The Legislature did alter what had been an annual 2 percent cost of living increase in retirees’ payments. For Ritchey, the formula reduced his cost of living increase from 2 percent to a little less than 1 percent, but he said he recognized the system needed to be tweaked.

“From my perspective, it’s not something I’m crazy about,” Ritchey said. “But I’d rather have the pension system solvent and stable, and if that is what it takes, I can live with it.”

Boomers anxious

Fully one-third of all PERS-covered public employees are now eligible to retire, said David Crosley, PERS spokesman. Many of them get more anxious whenever there’s talk in the air of PERS reforms, he explained, as there was throughout this year’s regular legislative session and the fall special session.

PERS retirements often jump in years when there are legislative sessions, said Crosley.

But the much-publicized PERS reductions made by the Legislature this year — cuts to future cost-of-living adjustments and elimination of a tax break for out-of-state retirees — only affect people when they are retired, Crosley noted.

Public employees still on the job won’t face those cuts until they retire, and there’s nothing they can do to avoid them, he said — unless the courts overturn the PERS reforms.

But there were two changes made by the PERS board this year that will reduce pensions for those who retire starting Jan. 1, 2014.

The board reduced the 8 percent “assumed earnings rate” to 7.75 percent, and it updated actuarial tables to adjust for changing life expectancies and related factors.

The pension system has long operated with an assumption that its investments will earn more than 8 percent a year, enough to cover PERS administrative costs and boost workers’ regular retirement accounts by 8 percent a year.

That system is often dubbed the “8 percent guarantee,” because PERS recipients could count on their regular accounts growing 8 percent a year while they work. And, if they retire under the Money Match program, the pension system calculates their pensions on the assumption their funds will continue to earn 8 percent a year.

Investment professionals now expect the market won’t earn as much in coming decades as in the past, so the PERS board dropped its assumed earnings rate to 7.75 percent. As a result, when workers retire under Money Match, their pensions will be “annuitized” — essentially converted to a monthly payment for life — based on these assumptions.

The changes in actuarial tables also reduced pensions somewhat, and the combination caused many public employees to hit the exit doors rather than see their pensions fall. But when the PERS actuary calculated the impact of the two changes made by the board, they turned out to be relatively small. And, it’s important to note, the reductions only affect those people in Tier 1, who joined PERS before 1995, and who retire under the Money Match calculation. Those who joined the system after 1996, or who retire under the formula — a fixed percentage of their final average salary for each year they work — won’t see any reductions from the two changes made by the PERS board.

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 prevent a 1.9 percent reduction in his or her pension. A 65-year-old in the same boat would avert a 2.3 percent reduction.

But that same employee could make up much or all of those losses simply by working several months longer, according to the actuary.

Pent-up desire to retire

Experts contend people decide to retire based on multiple factors, including their job satisfaction, family situations, health care, children in college and outside investments.

Many people delayed retiring when the Great Recession pillaged their home values and other investments. That pent-up demand may partly explain this year’s surge in retirements, because many peoples’ home values have recovered, and the stock market has hit record highs. That gives employees more confidence about retiring — or the necessary earnings if they or their spouse plan to supplement their PERS with IRAs or 401(k)s.

Portland teachers face a more complex decision now.

“In the case of Portland, it’s a perfect storm of events,” said Ed Foster, a financial planner who works closely with the Portland Association of Teachers, advising teachers about retirement.

The early retirement incentives provide up to five years of health insurance and 50 percent of the cost of a spouse’s insurance, Foster said. That enables people to retire before they reach Medicare eligibility at age 65 without having to shell out $700 to $1,000 a month for health insurance. Portland schools also provide $425 monthly stipends for up to five years, or until age 62, when workers are eligible for early Social Security.




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