[Vision2020] Good Economic News

Mon Dec 14 10:44:17 PST 2009

Don, Ron and Visionaries,

I think the goal here is to have two effective and reasonably comparable retirement programs for employees at the University of Idaho.  A personal financial adviser recommends that one rebalance one’s portfolio every two years or so.  Given that future projections for stocks and bonds are very different now from what they were twenty years ago, it is also makes sense for the University to realign its retirement offerings.

Judy

From: Donovan Arnold [mailto:donovanjarnold2008 at yahoo.com] 
Sent: Saturday, December 12, 2009 9:08 AM
To: vision2020 at moscow.com; JLBrown; Ron Force
Subject: Re: [Vision2020] Good Economic News

Ron,

Thank you for the detailed explaination. 

It sounds like to me, except for those forced onto this plan, took a gamble and lost. I think it would be unfair to the faculty that were forced into the plan to have to compensate PERSI. But those that opted for it sound like they just lost a bet rather than going for the sure thing of PERSI. 

These gamblers seem to have cost PERSI lots of revenue, and those in it, and the University, and thus the students. I don't see why they should be allowed to skip out on their agreed to contract of paying what they owe back to the students, faculty, and University.

Of course, my understanding could be wrong, but as you explained it to me, that is the way I see it.

Your Friend,

Donovan Arnold

--- On Sat, 12/12/09, Ron Force <rforce2003 at yahoo.com> wrote:

From: Ron Force <rforce2003 at yahoo.com>
Subject: Re: [Vision2020] Good Economic News
To: "Donovan Arnold" <donovanjarnold2008 at yahoo.com>, vision2020 at moscow.com, "JLBrown" <jlbrown at turbonet.com>
Date: Saturday, December 12, 2009, 12:02 AM

Donovan,

In the early 90's there was a proposal to move university faculty from PERSI, which is a defined benefit program to a defined contribution program.  Under defined benefit, a pension is based on a combination of years of service and the salary received (usually the highest pay over some months, like 60). The contributions are pre-tax, and when the pension is received, it's taxed at regular income rates.  If the employee leaves employment before retiring, they could withdraw or roll over their contributions, but not the employer's. The employer and employee contribute to a centralized fund, managed by the state, in the case of PERSI. Regardless of the return on the fund, the state is obligated to pay the pensions.  

In the defined contribution plan, the employer and employees contribution goes into a choice of managed funds, which become the property of the employee. Once again, they're pre-tax, so if they're taken out they become subject to regular income tax. Under IRS rules, withdrawals before the age of 59 1/2 are subject to an additional penalty.

Faculty were certainly unhappy with PERSI at the time.  It had the lowest pension payout rate in the West. If you changed jobs and went to another state, inflation would eat up the value of the pension, and if you withdrew the funds, you lost the employer's contribution.  The previous twenty years in the stock market showed that retirement funds invested in mutual funds would outpace PERSI, and of course intelligent faculty could easily pick winning stocks. The university liked the idea of the defined contribution plan, since most of the new faculty they wanted to recruit envisioned being mobile, getting the call from Harvard after a few years,and a non-mobile retirement plan was a disincentive.

On the state side, having so many (relatively) high-paid people in PERSI magnified the risk that their investment strategies would fall behind pension obligations and have to draw on general taxation for retirement payouts.

The deal was that faculty who were in PERSI could stay with it until retirement, or switch to the new defined contribution plan. All new faculty would be placed in the defined contribution plan (no choice). Most of the grandfathered faculty chose to go with the defined contribution plan and were happy to do so.  To compensate PERSI for the loss the universities agreed to continue a minimum payment to PERSI for each faculty member on defined contribution.

Things didn't work out for everyone as envisioned.  PERSI got better management and increased their benefits.  The stock market didn't do as well for the majority as anticipated, although some got lucky and juggled their funds at the right time to avoid the big losses in 2001 and 2008. And, faculty mobility has declined considerably.  Many of the faculty who had the choice now realize they would have been better off in PERSI, but I guess hindsight is always better.

In the real world (outside government) the defined benefit pension is as dead as a doornail, and the employer contributions to 401Ks (defined contribution) are rapidly disappearing, so complaints from the Ivory Tower sound a little like whining.

Sorry to be so long-winded answering a simple question. Anything to add/correct, Judy?

Ron Force
Moscow ID USA

  _____  

From: Donovan Arnold <donovanjarnold2008 at yahoo.com>
To: vision2020 at moscow.com; JLBrown <jlbrown at turbonet.com>
Sent: Fri, December 11, 2009 12:37:54 PM
Subject: Re: [Vision2020] Good Economic News

Judy,

Perhaps you can explain to us why people are on the ORP instead of PERSI?

Thanks,

Donovan Arnold

--- On Fri, 12/11/09, JLBrown <jlbrown at turbonet.com> wrote:

From: JLBrown <jlbrown at turbonet.com>
Subject: Re: [Vision2020] Good Economic News
To: vision2020 at moscow.com
Date: Friday, December 11, 2009, 6:36 PM

Visionaries,

This is good news for PERSI participants.  However, UI employees who are on the University’s Optional Retirement Program (ORP), which is subject to market fluctuations, have taken a hard hit as a result of this recession.  ORP participants have been required to subsidize PERSI since 1990.  Especially with PERSI doing so well, the time is ripe to end this subsidy. 

Judy 

Moscow-Pullman Daily News 

Faculty Senate calls for end to retirement plan subsidy 

Published on: November 4, 2009 

University of Idaho Faculty Senators want the state’s university presidents, board of education members and faculty leadership to pressure the Idaho Legislature to drop a requirement that members of the UI’s Optional Retirement Plan subsidize the Public Employees Retirement System of Idaho. 

Senators passed a resolution Tuesday afternoon strongly recommending the aforementioned parties ask the Legislature to end the subsidy and redirect the PERSI-bound money into accounts of ORP participants. 

The resolution’s text states the Legislature in 1990 directed that a portion of the employer-paid contributions reserved for ORP members be paid to PERSI, even though ORP participants do not benefit from PERSI.  It also says ORP accounts are subject to market fluctuations, while PERSI members do not experience such a risk, leading to “unfair and unequal treatment of OPR participants.” 

Senate Chairman Jack Miller said if the Legislature eventually does away with the subsidy, PERSI may need to seek additional funding in the form of a rate increase.  However, he said the subsidy’s elimination wouldn’t affect the benefits of current PERSI enrollees. 

“All it would be doing, in my estimation, is taking away a subsidy that should never have been there in the first place,” he said. 

-----Original Message-----
From: vision2020-bounces at moscow.com [mailto:vision2020-bounces at moscow.com] On Behalf Of Tom Trail
Sent: Friday, December 11, 2009 6:51 AM
To: vision2020 at trumpet.fsr.net
Subject: [Vision2020] Good Economic News 

Visionaries: 

One has to look hard for good economic news in Idaho these days.  I just 

talked to Don Drum, the Executive Director of PERSI--Idaho Public Employees 

Retirement Fund.  The information he shared with me is current as of today. 

The PERSI Fund  stands at $10.5 billion which is ahead of the total when 

the market dropped.  From July 1, 2009 the Fund has a return of $15.8% 

which is the best return in PERSI history. 

PERSI retirees will receive a 1% COLA which will be effective March 1st. 

Employers have been expecting a contribution rate increase for the 

coming year, but Don told me that the Fund is performing so well that 

there will probably be no increase at all. 

That's my one good glimmer of good news. 

Rep. Tom Trail
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