OSFFC Members who are close to retiring.... PLEASE NOTE new PERS actuarial tables will NOT GO INTO EFFECT until JANUARY 1, 2010.. BEFORE CONSIDERING RETIRING please contact PERS and possibly professional retirement assistance!!!!!! 

Subject: PERS Board July 16, 2009 Meeting; Our File 5415-237


At last week's PERS meeting the actuaries made their
presentation and recommendations regarding demographic and investment
assumptions to be used in the December 31, 2008 plan evaluation.  As you
know the actuaries do this on a biannual basis in time so that the new
assumptions can be used in the actuarial study which will set employer
contribution rates.  As part of this process the actuary recommends and
the board adopts an earnings assumption for the plan and, in addition,
the mortality tables which will be used in making the evaluation.  Any
change in the assumptions regarding earnings or mortality have a direct
impact on money match benefits paid under the system.

At the prior PERS board meeting the PERS actuary modeled the
impact of a change from the current 8% earnings assumption to a 7.5%
assumption.  Though he made it clear he was not making any
recommendation at that time, it was also clear that the board would be
seriously considering a change in the earnings assumption.  If that
assumption were lowered it would not only affect the calculation of
money match benefits at retirement by lowering the amount of a monthly
benefit for each money match participant but would also impact the
guarantee that Tier One members currently enjoy on their accounts.  The
actuary estimated about $200 million in lost benefits by moving to a
7.5% assumption at the July 16 meeting.  The PERS actuary did, in fact,
recommend lowering the earnings rate to 7.5% but acknowledged that the
OIC analysts are projecting benefits substantially in excess of 8.5%.
Ultimately he told the board that he believed that any assumption
between 7.5% and 8.5% could be justified.  The board ultimately voted
four to one (Brenda Rocklin, dissenting) to maintain the earnings
assumption at 8%.  I think the feeling of the board was that given the
information presented there simply was not a compelling case to be made
at this time for making a change in that assumption.

The second issue the board took up was the adjustment of
mortality rates based on current experience of the plan.  While these
mortality rates being adopted were for the purpose of evaluating the
plan for employer contribution purposes they will be folded into a new
set of actuarial factors which will have a direct impact on Tier One
money match retirees.  You will recall that one of the parts of the PERS
reform legislation in 2003 directed PERS to make certain that actuarial
assumptions were, in fact, consistent with the actual experience of the
plan.  As we have seen on average PERS retirees are outliving the
actuarial assumptions and therefore the assumptions have been amended
from time to time to match the longer life expectancy.  As a result of
these changes the monthly benefit at the time of retirement goes down
with the expectation that that benefit will be paid over a longer period
of time.  The PERS actuary recommended a change which would bring those
life expectancy assumptions in line with current experience.  He also
recommended the use of what are referred to as generational tables,
which are tables which use a slightly different longevity expectation
depending on your year of birth.  These tables have built in assumptions
about increases in longevity which makes the tables essentially
self-adjusting.  The board accepted and adopted the PERS actuary's
recommendations and adopted these mortality tables.  The result is about
a 2% loss of value for retiring money match members commencing January
1, 2010.  There was some confusion at the meeting so I spoke with Bill
Hallmark after the meeting and he confirmed that most of this loss is
based on simply bringing the tables into line with current experience
and that a relatively small portion of it may be attributed to the use
of these new generational tables.  The good news is that because the
generational tables are self-adjusting, it is likely that any additional
changes which will be made in the future will be smaller than we have
recently experienced.

As I mentioned earlier these new mortality assumptions will be
folded into a new set of actuarial tables to be used in calculating
money match benefits and those tables will be finalized and presumably
adopted by the board at the November meeting.  Bill Hallmark indicated
that they are preparing some examples of how these may impact PERS
retirees and that as soon as those are forwarded to PERS they intend to
post them on the website, which will give people some indication of the
impact on their benefits.

The bottom line: no change in earnings assumption but a change
in actuarial assumptions which should impact retirees retiring on or
after January 1, 2010 in an amount of approximately 2%.  Clearly members
should take this into account when making their retirement planning.
Let me know if you have any questions.

--
Kai Jones, Legal Secretary
Bennett, Hartman, Morris & Kaplan, LP
111 SW 5th #1650, Portland, OR 97204
503-227-4600