PERSI approves cost of living adjustment and member/employer rate increase

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At its December meeting, PERSI announced a cost of living increase and a boost in the contribution rates paid by employees and employers into the state retirement fund.

At its December meeting, the Public Employees Retirement System of Idaho (PERSI) granted a 1 percent cost of living adjustment (COLA) to its 37,150 retirees. The action will cost the fund an estimated $50 million annually according to Patrice Perow, PERSI spokesperson.

Perow said the economic markers PERSI uses for determining any increase justified a 1.69 percent increase.

PERSI provides retirement benefits and services to a majority of state and local government employees throughout Idaho. PERSI membership includes full-time state employees and local school district employees, as well as for employees of most other city and county government agencies.

The board also took action on a revenue measure that is expected to generate approximately $40 million from its 65,270 active members ($25 million) and from the employers ($15 million) contributing to the fund. Perow said “the rate increase was first proposed in 2009, then postponed the past two years because the funding level increased.”

In recent years, questions have emerged about PERSI’s financial sustainability amid state and local government budget reductions and profiles of state liabilities that generally show pension plans to be funded at less than 100 percent. In Idaho, for example, Perow says PERSI is currently funded to cover 86.6 percent of its current obligations.

At least one state legislator, Rep. Grant Burgyone, D-Boise, is fine with PERSI’s action, noting that Idaho’s retirement system is rated one of more solvent in the nation. “PERSI is not underfunded the way many state pension plans are,” he says. “Based on the information I have received, I believe PERSI is financially sound.”

By contrast is the view of Bob Williams, a researcher with the private, non-partisan State Budget Solutions. He takes a rather dire view of PERSI. “We estimate that PERSI has an unfunded liability of about $10 billion,” additionally worrying that PERSI is mistakenly assuming that its funds’ investments will produce a return of 7-8 percent annually.

“The state is using budgeting gimmicks—unreasonable expectations on the rate of return in their investments, writing-off financial losses over several years, and so forth—in estimating that they have only $1.2 billion in unfunded liabilities,” he told Idaho Reporter.com. “They aren’t being realistic.”

Still, Burgoyne expresses confidence in the PERSI decision. “I do not see a reason to question the PERSI board’s judgment,” he said, but added that the data and analysis done by State Budget Solutions is of interest to him as Idaho deals with pension decisions.

Sen, Sheryl Nuxoll, R-Cottonwood, views the issue quite differently, and questions why PERSI is increasing benefit expenditures at all, adding that she agrees with Williams’ view that PERSI is being too optimistic in its projections. “The rate of return that they estimate for their investments is very questionable,” Nuxoll told Idaho Reporter.com. “Taxpayers need growth in private business to turn this economy around, not an increase in government retirement funds.”

Another voice weighing in on the PERSI decision is Suzanne Budge, from the Boise office of the National Federation of Independent Business. “Government employees are indeed fortunate to have such generous benefits including both PERSI, a defined benefit program, as well as a 401K, defined contribution program. This is unheard of in the private sector,” she told Idaho Reporter.com. “Defined benefit programs disappeared years ago for most companies.”

Overall, figures show Idaho taxpayers are contributing $2 for every $1 that PERSI members contribute to their own retirement accounts.

Note: PERSI spokesperson Patrice Perow has submitted the following clarifications to this story. The first three notations from her come directly from the story, followed by her clarifications.
1.    At its December meeting, the Public Employees Retirement System of Idaho (PERSI) granted a 1 percent cost of living adjustment (COLA) to its 37,150 retirees.
2.    Perow said the economic markers PERSI uses for determining any increase justified a 1.69 percent increase.
3.    The board also took action on a revenue measure that is expected to generate approximately $40 million from its 65,270 active members ($25 million) and from the employers ($15 million) contributing to the fund.
Facts:
1.    Idaho code 59-1355 mandates a 1% COLA if the CPI-U is equal to or greater than 1%, thus the Board was not required to make a decision on the 1% increase. The Board cannot decide to give less than 1%, because Idaho code dictates the 1% COLA.
2.    Saying a 1.69% COLA was “justified” is misleading. 1.69% represents the CPI-U, which is the basis for any post-retirement adjustments according to statute. The mandatory 1% COLA requires no action by the Retirement Board or legislators.   Idaho Code states that if the CPI-U is greater than 1%, the PERSI Board has the discretion to provide for a higher COLA.  The Board reviewed, analyzed and discussed the impacts of providing a discretionary COLA and made a decision not to provide a COLA above the 1% mandated by Idaho Code.
3.    The rate increase proposed by the Board in 2009 was postponed twice because of 1) fund recovery and 2) to allow employer budgets to recover.  Last year when the Board postponed the rate increase to July 1, 2013, they did so understanding that if the economy continued to recover it was possible they could postpone the increase again this year. However, a sluggish economy and unknowns in Europe as well as the potential fiscal cliff left the Board feeling there was enough uncertainty in the economic recovery that they could not postpone the rate increase again.

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  1. questionwonder

    Recall that historically the public sector employees had attractive benefits because pay was low in comparison to the private sector. The thought was that quality employees were needed in government, education, etc. and the benefits were the incentive to attract such employees.

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