PERS changes spur some employees to retire early
A flurry of teachers and other Oregon public employees are retiring this year, by far the largest retirement bulge since before the recession began.
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 Dec. 1 to avoid taking a modest hit to their PERS pensions.
Janice Avidan, a fourth-grade teacher at Buckman Elementary School, is one of 99 Portland Public Schools teachers who officially retired Dec. 1.
Im just ready; I felt it in my bones, said Avidan, who turns 60 in January. She has taught school for 29 years.
Avidan had planned to formally retire at the end of the school year next June, but moved her date up when she found out that her PERS pension will be trimmed roughly 2 percent if she retires Jan. 1 or later.
Including non-teachers, 149 Portland Public Schools employees officially retired last week, according to data supplied by district spokeswoman Christine Miles. Thats more than the entire number who retired all last school year, or the five prior school years.
Avidan, like many others, will continue teaching until the end of the school year, since retirees are allowed to work half-year or half-time while drawing PERS checks.
Portland Public Schools teachers have more at stake than other public employees right now because the school district also is seeking, via collective bargaining, to eliminate early retirement incentives at the end of the school year. Thats what prompted Avidans initial decision to retire.
But the Portland school district is not the only local government seeing a surge in retirees.
Metro, the regional government, saw 24 people retire in 2013, the largest number in more than a decade, said Mary Rowe, 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 years 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 said. It was kind of a no-brainer.
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 theres talk in the air of PERS reforms, he said, as there was throughout this years regular legislative session and the fall special session. PERS retirements often jump in years when there are regular legislative sessions, Crosley added.
But the much-publicized PERS cutbacks made by the Legislature this year reducing cost-of-living adjustments and ending a tax subsidy for out-of-state retirees only affect people once they are retired, Crosley notes.
Public employees still on the job wont face those cuts until they retire, and theres 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.
The PERS 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 operates with an assumption that its investments will earn enough to boost workers regular retirement accounts by 8 percent a year. Tier 1 public employees, who joined PERS before 1995, are guaranteed their regular accounts will grow 8 percent a year, no matter how PERS investments fare. If those employees retire under the Money Match program, PERS calculates their pensions on the assumption their funds will continue to earn 8 percent a year.
But professionals now project that investments wont earn as much in coming decades, so the PERS board dropped its assumed earnings rate to 7.75 percent. As a result, when Tier 1 workers retire under Money Match, their pensions will be annuitized converted to a monthly payment for life assuming their accounts will earn slightly less in future years.
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 board decisions, it turned out to be relatively small. And, its important to note, the reductions only affect Tier 1 members retiring under the Money Match calculation. Those who joined the system since 1996, or who retire under the formula a fixed percentage of their final average salary for each year they work wont see any reductions from the two board changes.
For those affected, its 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.
Pent-up desire to retire
People decide to retire based on multiple factors, including job satisfaction, family situations, health care, children in college, and other funds.
Many people delayed retiring when the recession pillaged their home values and other investments. That pent-up demand may partly explain this years surge in retirements, because many peoples home values have recovered, and the stock market hit record highs. That gives people more confidence about retiring, or the necessary earnings if they or their spouse plan to supplement PERS pensions with IRAs or 401(k)s.
Portland teachers face a more complex decision now.
In the case of Portland, its 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 spouses insurance, Foster said. That enables people to retire before they reach Medicare eligibility at age 65, without having to shell out $600 to $1,200 a month for health insurance. Portland Public Schools also provides $425 monthly stipends up to five years, or age 62, when workers are eligible for early Social Security.
Foster, who said hes been twice as busy as ever this year counseling Portland teachers, has advised them not to retire because of the PERS cuts, because they could counter those by working several more months. But the potential loss of early retirement benefits is a much-bigger deal, he noted.
The maximum early retirement benefit is worth up to about $79,500 over five years, said Michelle Ridell, the school districts assistant chief human resources officer.
Mary Morris, an award-winning teacher at Da Vinci Arts Middle School in Portland, is one of many baby boomers facing a dilemma.
She turns 55 in February, and hoped to continue teaching until 58, when shell have earned a $2,400 monthly PERS pension. But if the district ends the early retirement incentives in June and she subsequently retires before turning 65, health insurance would cost a huge chunk of her pension. As a result, Morris is thinking about retiring before the school year is out, to retain her right to five years worth of health insurance benefits and the monthly stipend.
I feel like if I dont take this now, Ill never be able to afford to retire, Morris said.
PERS employees decision on retirement could hinge on Affordable Care Act
Starting next year, a new wild card could dramatically reshape when people retire.
Its the Affordable Care Act, or Obamacare.
Its going to change the whole landscape, says Terri Burton, benefits director for Portland Public Schools. A lot of folks are working to keep health insurance. They now have a different option.
Burton thinks in about a year there could be another surge of public employee retirements due to Obamacare, or Oregons state version of the health insurance program called Cover Oregon.
People are cautious, she said. Its going to take word of mouth, as people share stories about their new insurance and what it costs.
However, she predicts, By the next year theyll all have talked to each other.
It may not take that long for some.
Despite the frustrating problems using the Obamacare and Cover Oregon online sign-up components, some people are managing to get quotes for insurance or actually signing up.
Mary Morris, a teacher at Da Vinci Arts Middle School in Portland, makes $64,000 a year now, but turns 55 in February and is thinking about retiring. If she retires at age 58, Morris said, shell accrue a $2,400 monthly pension from the Oregon Public Employees Retirement System. At that income, her research shows, shed qualify for an Obamacare health insurance plan costing her $400 a month.
Ed Foster, a Lake Oswego financial planner who advises many Portland teachers on their retirement finances and decisions, is an independent contractor and thus eligible to get insured under Obamacare. His wife was very persistent, he said, and managed to sign the family up. Were going to save some money on it, Foster said.