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PERF benefit to decline amid fund shortfall

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Public employees, including thousands who work in Indiana’s justice system, face a looming change in retirement benefits that could cost them. Estate-planning attorneys say government workers who are considering retirement in the next couple of years should weigh their options carefully.

Effective Oct. 1, the Indiana Public Retirement System will reduce the guaranteed interest rate for workers who choose to annuitize investments in their annuity savings accounts. Employees covered by the Public Employees’ Retirement Fund have 3 percent of their salary invested in those accounts and may elect to invest a greater portion of their earnings.

joseph-hankins.jpg Hankins

But the interest rate the state previously guaranteed on those annuities has proved to be unsustainable. Like many other states, Indiana’s promises to public employees resulted in hundreds of millions of dollars in unfunded obligations.

INPRS, which administers PERF, stresses that the annuity is just part of a retiree’s benefits, in addition to a defined pension. Also, annuitizing the savings account is just one of several options for retiring workers. A retiree instead may choose to take a lump-sum payout or roll the money over into another investment vehicle.

Indianapolis attorney Joseph Hankins said employees owe it to themselves to make sure they don’t get short-changed. “Some people will choose to hit the ‘annuitize’ button and be done with it,” he said.

But that could be a costly decision for people retiring after Oct. 1. That’s when the state will reduce the return on PERF annuities from an annual interest rate of 6.75 percent to 5.75 percent. In real terms, someone who annuitizes $50,000 in savings after Oct. 1 will receive almost $100 less per month than would be received by someone who retires before Oct. 1 and opts for an annuity.

perf-facts.jpgINPRS says the change was needed because Americans are living longer and guaranteed rates of return on investment have fallen. The change has prompted units of government to alert workers about how their retirement benefits may be affected.

Changes to the system were contained in HEA 1075, which Gov. Mike Pence signed into law this year. The legislation reduces the interest rate in two steps – the cut from 6.75 percent to 5.75 percent effective Oct. 1, and a further reduction to 4.5 percent on annuitized benefits after Oct. 1, 2015. The reductions apply to PERF as well as annuitized Teacher Retirement Fund benefits.

“We do not have specific estimates on the number of judiciary employees and/or all PERF and TRF members who may be retiring this year,” said Jennifer Dunlap, spokeswoman for INPRS. “We’ve seen about a 30 percent increase in overall attendance at our retirement workshops.”

Longtime Schererville attorney John O’Drobinak has advised clients who are PERF beneficiaries, and he’s one himself, having worked 19 years as a probate commissioner. “They’re going to take a pretty good hit if they annuitize” after Oct. 1, he said.

“I feel this is an effort to ensure the state doesn’t find itself in the position other states are in,” he said of unfunded pension obligations. INPRS on its website says actuaries estimated the system faced a potential loss of $181 million for current annuities, and that could have risen to $343 million if there had been no changes.

The changes have no impact on current PERF or TRF retirees, INPRS says. According to the system, there are about 73,000 current PERF benefit recipients and about 145,000 active members who will be eligible for benefits. That’s roughly twice the number receiving or eligible for TRF benefits.

Dunlap said about half of the PERF and TRF retirees choose to annuitize their annuity savings accounts through INPRS.

O’Drobinak doubts he would advise anyone to choose an annuity at the lower rates the state will enact after Oct. 1. People could likely earn a greater rate of return by rolling the money into a private-market investment, he said. Lawmakers were slow to allow INPRS to turn to the private market for investment advice, he explained, something the system will be allowed to do in 2017 under HEA 1075.

odrobinak-john.jpg O'Drobniak

O’Drobinak took a lump-sum payout of his annuity savings when he retired, and he had closely compared his options – something he’s concerned many people, PERF or not, don’t do.

“I don’t think people who are going to retire put a lot of thought into what they’re going to do until just before they’re going to retire,” O’Drobinak said.

At a recent meeting of the Marion Superior Executive Committee, judges chose to send emails to all court employees informing them of the coming change. For some, a possible benefit reduction could prompt a choice to retire sooner than they might have planned.

For employees who might be thinking of doing just that, “They need to hurry up and make a decision,” said John Galloway, training manager for the city of Indianapolis, to make certain their final service day falls before Oct. 1.

Galloway said the city arranged an information session for employees, but so many people responded that two additional sessions had to be scheduled.

Foremost, Galloway tells employees they need to be sure they can afford to retire and make sure they’ve done adequate financial planning.

Most court employees are covered by PERF. Judges and prosecutors, however, are covered by separate retirement funds administered by INPRS.

Hankins, the Indianapolis attorney, said lawmakers appeared to have no choice but to throttle down the PERF annuity interest rate or run the risk of the program becoming insolvent. But people thinking of retiring from the system do have choices.

Expediting retirement “could be a decision some employees make once they take an informed look,” Hankins said. That would include looking at various scenarios, such as whether increased annuity saving fund balances generated by working longer might offset losses from payouts at lower rates of interest.

“I would really urge anyone contemplating retirement, it’s really important to sit down with trained professionals who can help them make informed decisions,” he said.•

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  1. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  2. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  3. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  4. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  5. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

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