Wednesday, April 6, 2016

PSPRS and its self-serving vision of success (plus investment returns through January 2016)

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 for January 2016, the seventh month of the current fiscal year (FY), with the fiscal year end 2014 and 2015 returns included for comparison:

Report PSPRS PSPRS Russell 3000 Russell 3000
Date Month End Fiscal YTD Month End Fiscal YTD
6/30/2014 0.78% 13.82% 2.51% 25.22%
6/30/2015 -0.73% 4.21% -1.67% 7.29%





7/31/2015 0.13% 0.13% 1.67% 1.67%
8/30/2015 -1.43% -1.31% -6.04% -4.47%
9/30/2015 -1.02% -2.31% -2.91% -7.25%
10/31/2015 1.95% -0.36% 7.33% 0.08%
11/30/2015 0.37% 0.09% 0.55% 0.63%
12/31/2015 -0.95% -0.86% -2.05% -1.43%
1/31/2016 -1.41% -2.26% -5.42% -7.00%

There is usually about a two-month lag in PSPRS reporting its investment returns. There is nothing really new for this month with, once again, a smaller loss for PSPRS when the overall market shows a loss, and we should expect a smaller gain for PSPRS in February and March 2016, when the overall market had gains.  I did want to highlight a chart provided in the Board of Trustees meeting materials from March 23, 2016.  This chart shows the results of backward-looking stress tests of PSPRS' current portfolio during nine financial market stresses over the last 19 years:


Today's PSPRS Trust
Events Portfolio Actual
Asian Crisis of 1997 3.2% 5.7%
Russian/LRCM Crisis 1998 -3.7% -5.5%
WTC Attacks - Sept 11 0.1% -11.7%
Stock Market Crash 2002 -3.0% -21.1%
August Crisis 2007 3.8% 1.6%
January Crisis 2008 0.9% -2.7%
Credit Crunch 2008 (Aug - Nov) -9.0% -23.1%
Crisis 2009 (Jan - Feb) -4.7% -12.9%
Flash Crash 2010 -2.8% -3.7%

PSPRS touts the efficacy of their current portfolio by saying:
The current Global Trust Portfolio is now able to produce positive returns in four stress scenarios.
Downside potential losses of today's portfolio have decreased significantly.
The PSPRS Trust portfolio is 70% less volatile than public stock markets, and we continue to invest with returns expectations which are similar to those markets.
As the result of successful portfolio construction, the current Trust portfolio is now able to provide more positive returns in many stress scenarios.
While all these statements are mostly true--PSPRS' current portfolio is certainly less volatile than it former equity-concentrated portfolio--as with any information that trickles out of PSPRS, we have to look at it a little more closely to get the complete story.  PSPRS is doing its stress tests in isolation. We should certainly expect to see decreased losses when an equity-concentrated portfolio, especially one that consisted of individual stocks rather than index funds, is substituted with a more risk-averse portfolio. In hindsight it would have been a great plan if I had moved all my investments into cash in 2000 and/or 2007.  However, that does not mean that I should have permanently left all my savings in cash for the obvious reason that I would never have been able to realize the market gains following the financial downturns in 2001-02 and 2008-09.

Likewise for PSPRS.  Retroactively recalculating PSPRS' returns only when there was a dramatic financial downturn gives only half the story.  PSPRS' current portfolio would have done better than the actual portfolio during eight of the nine events, but what gains did PSPRS forgo during the periods outside of those events?  Without this full picture, PSPRS is being disingenuous about its current investment strategy.  Where would PSPRS' funded level be if the current strategy had been utilized for the entire 19-year period?  Running stress tests in isolation is like taking a handful of batting or pitching slumps from the career of a Hall of Fame player and substituting an average player into those slump periods to prove that the average player (playing averagely) would have helped the team(s) more than the Hall of Famer.  It leaves out all the positive data for the Hall of Famer that would show how much he helped his team(s) over the totality of his career.

Furthermore, PSPRS also neglects to compare its strategy against baseline passive strategies like the S&P 500, Russell 3000, high-grade government and corporate bonds, or some combination of all of them.  This would be the middle ground between the old and the current strategies.  If PSPRS had just invested in the S&P 500 over the past 19 years or in a combination of 70% in the Russell 3000 and 30% in high-grade corporate bond funds or any other combination, what would its funded ratio be today?  Passive strategies avoid the hubris of the individual stock-picking of the past portfolio or the overly complicated academic experimentation of the current portfolio.  We know the track record of passive strategies, which go back decades through all kinds of market ups and downs, and if a non-passive strategy does not produce better gains than the passive strategies, there should be serious discussion as to why the non-passive strategy is being utilized.

Though it would be better to compare the old strategy versus the current strategy to see which would produce a better funded percentage for PSPRS, it would not actually be possible to do this since the old strategy was essentially the stock picks of a single individual who was running PSPRS at the time.  (Though he has been criticized since he left, it has been conveniently forgotten that for most of his career he managed PSPRS' portfolio very successfully, though a passive strategy would have achieved the same results with far less risk.)  This individual may have continued to make bad picks after the dot.com crash or he may have gone on another hot streak and brought PSPRS back into the black.  And who knows how he would have done during the Great Recession.  Regardless, this is why using a comparison against a passive strategy would be the best since the data on the passive strategy is readily available. 

I wanted to do a simple comparison with the scant data available from PSPRS, so I compared what percentage of the Russell 3000 PSPRS was achieving over the time periods available.  Here is what it shows:

Year/Period PSPRS Russell 3000 Percent
2014 13.82% 25.22% 54.80%
2015 4.21% 7.29% 57.75%
3-year 6.16% 10.55% 58.39%
5-year 5.96% 10.40% 57.31%
10-year 4.34% 6.38% 68.03%

As can be seen over the past two fiscal years PSPRS and the three and five year annualized returns, PSPRS' returns have fit into a pretty tight range between 54.80% and 58.39% of the Russell 3000's returns.  All these periods coincide with the implementation of the current strategy.  Only the ten-year annualized returns show a significant difference at 68% of the Russell 3000.  Up until June 2009, PSPRS was still heavily invested in stocks and bonds, about 55% and 19%, respectively, and only about 26% in alternative investments.  The next fiscal year PSPRS began its change to its current strategy in earnest with stocks and bonds dropping to about 60% of its portfolio and alternative investments making up almost 40% of the portfolio.  PSPRS continued this transition over the years, and its current breakdown is about 37% stocks and bonds and 63% alternative investments.

What can we make of the fact that over the 10-year period PSPRS achieved a higher percentage of the Russell 3000 than all the other more recent periods?  The period between February 2006 and January 2011 includes the horrendous downturn of 2008-09 but also the upswing after the market bottomed out.  This could mean that PSPRS missed out on a good portion of the recovery by decreasing its stock and bond portfolio and moving more into alternative investments, but it is impossible to tell from the limited data here.  It is certainly intriguing and makes it all the more interesting to know what would have happened to PSPRS if it had maintained a 55/20/25 stock/bond/alternative investment portfolio or used a passive investment strategy that included just stocks and bonds.

Ultimately, PSPRS has to develop and implement a strategy that can earn its expected rate of return (ERR).  Actual returns matter only in relation to the ERR.  A pension not realizing its ERR is actually being underfunded, even when it has positive returns, and any deficit created will have to be made up in the future through higher contribution rates.  This is the problem we are seeing with PSPRS.  If PSPRS' current investment strategy can be expected to earn only about 55-60% of the Russell 3000, the Russell 3000 will have to average annual returns between 12.50% and 13.64% for PSPRS to achieve its ERR of 7.50%.  This is a very high bar to set for financial markets over the long run.

As mentioned earlier, there is limited data available to test PSPRS' current investment strategy, but the past five years have shown a consistent pattern.  Furthermore, the last five years are not cherry-picked like PSPRS' stress tests or speculative like PSPRS' forward-looking numbers.  The five years of data represent what actually happened under the current strategy, and what it shows is not good for PSPRS and its members.  If the current pattern continues, PSPRS will not earn enough to meets its obligations, go further into deficit, and have to decrease its ERR.  This means higher contribution rates will be required to keep PSPRS fully funded.  This will especially hurt the new group of Tier 3 members who will have to split normal costs 50/50 with employers.  As employee contribution rates rise for this tier, new hires will opt for the defined contribution pension (DC) over the defined benefit (DB) pension,which will lead to a downward spiral and eventual demise of the PSPRS DB pension.

With so much at stake, is it a lot to ask that PSPRS give a full and honest assessment of its investment strategy?

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  Returns, gross of fees, are used in the table for consistency.  The past two years fees have reduced the final annual reported return by about a half percent.  Returns, net of fees, were 13.28% and 3.68% for fiscal years 2014 and 2015, respectively.

Wednesday, March 2, 2016

Correction to the last post about PSPRS retiree representation

Thank you to the reader who pointed this out.  There is a PSPRS retiree on the ten-member PSPRS advisory committee.  Here is the relevant passage from SB 1428:
BEGINNING JANUARY 1, 2017, THE PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM ADVISORY COMMITTEE IS ESTABLISHED AND SHALL SERVE AS A LIAISON BETWEEN THE BOARD AND THE MEMBERS AND EMPLOYERS OF THE SYSTEM.  THE COMMITTEE SHALL BE APPOINTED BY THE CHAIRPERSON OF THE BOARD FROM NAMES SUBMITTED TO THE CHAIRPERSON BY ASSOCIATIONS REPRESENTING LAW ENFORCEMENT, FIREFIGHTERS, STATE GOVERNMENT, COUNTIES, CITIES AND TOWNS AND TRIBAL GOVERNMENTS.  THE COMMITTEE SHALL SELECT A CHAIRPERSON FROM AMONG ITS MEMBERS EACH CALENDAR YEAR.  THE COMMITTEE SHALL CONSIST OF THE FOLLOWING TEN MEMBERS:
1.  A MEMBER WHO IS A LAW ENFORCEMENT OFFICER.
2.  A MEMBER WHO IS A FIREFIGHTER.
3.  A MEMBER OF THE ELECTED OFFICIALS' RETIREMENT PLAN.
4.  A MEMBER OF THE CORRECTIONS OFFICER RETIREMENT PLAN.
5.  A RETIREE FROM THE PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM.
6.  A REPRESENTATIVE FROM A CITY OR TOWN IN THIS STATE.
7.  A REPRESENTATIVE FROM A COUNTY IN THIS STATE.
8.  A REPRESENTATIVE FROM A FIRE DISTRICT IN THIS STATE.
9.  A REPRESENTATIVE FROM A STATE EMPLOYER.
10.  A REPRESENTATIVE FROM A TRIBAL GOVERNMENT LOCATED IN THIS STATE
I apologize for this error and should have read the text of the bill, not just the fact sheet.  Regardless, it is still vitally important that retirees get representation on the Board of Trustees since they will be outnumbered 9-1 by government and active employees on the advisory committee, and the advisory committee members will submitted by "associations of representing law enforcement, firefighters, state government, counties, cities, and towns and tribal governments," organizations that will overwhelming favor active members.  This will further help stack the advisory committee against retirees.

Tuesday, March 1, 2016

PSPRS retirees: Find your voice and protect yourselves before it's too late


While it is already too late for anything to be done about SB 1428, the PSPRS reform bill already signed by Arizona Governor Doug Ducey, or the May 2016 referendum to change the COLA formula, there is one crucial reform that needs to be implemented and is still possible to accomplish, even at this late date.

It is imperative that retirees get representation on the PSPRS Board of Trustees and the new advisory committee.  This is to prevent a repeat of PSPRS’ past efforts to consciously work against the interests of retirees.  The current PSPRS Board of Trustees seemed to see no problem when PSPRS Chief Investment Officer (CIO) Ryan Parham wrote in this article, "The truth about PSPRS investment performance," in the December 18, 2014 Arizona Capitol Times:
PSPRS wants its retirees to enjoy increases, but we are incentivized to seek lower returns in the range of 9 percent to maximize earnings that can be applied to cover – and hopefully reduce – unfunded liabilities.

Mr. Parham publicly admitted that PSPRS was trying to keep its returns under 9% to avoid paying permanent benefit increases (PBI’s) to retirees.  His confession actually served two purposes: it gave PSPRS cover for its lackluster investment returns and made it look like the under-performance was serving a higher purpose.  Call me crazy but shouldn’t the Chief INVESTMENT Officer be trying to make investments that earn as much money as possible for PSPRS, regardless of the consequences to the underlying fund, and does anybody really believe that PSPRS’ investment staff can target their investment strategy to earn precisely within the sweet spot between their expected rate of return of 7.5% and the 9% threshold that triggered PBI’s?

Mr. Parham felt confident enough in his position to tell the world that PSPRS is deliberately lowballing its returns, and the PSPRS Board of Trustees, which includes a firefighter and law enforcement representatives, expressed no uneasiness or outrage about this.  Only in such an insular, dysfunctional, and arrogant organization as PSPRS could senior personnel fail to perform their most fundamental fiduciary duty, then have the audacity to claim that it is a calculated act of good management.  While I would be the first one to say that the excess earnings PBI model was horrible and needed to go, I would never even suggest that PSPRS purposely and spitefully diminish its own investment returns in order to deny retirees PBI's.  If producing greater-than-9% returns is truly harmful to PSPRS, prove it to me by actually earning those higher returns and show me hard evidence of its negative financial impact.  I suspect that if a retiree representative had been on the Board of Trustees he might have felt the same way, and there would been a few hard questions asked of Mr. Parham and his fellow Trustees like:

Aren’t we supposed to earn the highest return possible and let the legislature and voters change financially flawed laws and policies?
Can we even earn 9% with the low risk strategy we’ve put in place?
If we cannot earn 9% with your current strategy, why don’t we just admit this?
Aren’t we violating the Fields decision and the spirit of the law by intentionally holding down returns?
Why should retirees trust PSPRS if management and Trustees when we express displeasure about a bad policy through the infliction of financial pain on them?

Beginning in 2017, SB 1428 adds two more public safety members to the Board of Trustees and changes the makeup as follows:
a)      two members representing law enforcement, one of whom is  appointed by the President of  the  Senate  and  one  of  whom  is  appointed  by  the  Governor.  A  statewide  association representing  law  enforcement  shall  forward  at  least  three  nominees  for  each  position  to the  appointing  officer.    At  least  one  of  the  members  appointed  shall  be  an  elected  local board member;
b)      two  members  representing  firefighters,  one  of  whom  is  appointed  by  the  Speaker  of  the House  of  Representatives  and  one  of  whom  is  appointed  by  the  Governor.  A  statewide association  representing  firefighters  shall  forward  at  least  three  nominees  for  each position  to  the  appointing  officer.    At  least  one  of  the  members  appointed  shall  be  an elected local board member;
c)       three  members  representing  cities  and  towns  in this  state,  one  of  whom  is  appointed  by the  President  of  the  Senate,  one  of  whom  is  appointed  by  the  Speaker  of  the  House  of Representatives  and  one  of  whom  is   appointed  by  the  Governor.  An  association representing  cities  and  towns  shall  forward  at  least  three  nominees  for  each  position  to the  appointing  officer.  These  nominees  shall  represent  taxpayers  or  employers and  may not be members of PSPRS;
d)      one  member  representing  counties  in  this  state  who  is  appointed  by  the  Governor.  An association representing county supervisors in this state shall forward nominations to the Governor, providing at least three nominees for the position.  These  nominees shall represent taxpayers or employers and may not be members of PSPRS; and
e)      one member who is appointed by the Governor from a list of three nominees forwarded by the Board.  The Board shall select the nominees to forward to the governor from a list received from the advisory board of at least five nominees.
SB 1428 also creates a “PSPRS advisory committee” beginning in 2017 that will:
serve as a  liaison between  the  Board  and  the  members  and  employers  of  PSPRS.  The committee  shall  be appointed by the Chairman of the Board from names submitted by associations representing law  enforcement,  firefighters,  state  government,  counties,  cities  and  towns  and  tribal governments.
Do you notice anything missing from the board and committee?  There is not a single retiree representative in either group.  The state unions, government groups, and the Board itself will nominate members to the Board of Trustees, and they will be chosen by the Governor, Senate President, and or the Speaker of the House.  Retirees cannot even get representation on the advisory committee and have been completely shut out of any role in PSPRS oversight, despite the fact that retirees are the most reliant on PSPRS for their standard of living, especially now that COLA’s will be calculated on an individual’s own retirement benefit, instead of the average normal pension.

The doubling of the representation of public safety unions on the Board of Trustees will not help retirees, and it is actually designed to help increase the influence of the state unions, the same ones that are shafting the next generation of firefighters and law enforcement.  As far as I know, the two public safety Trustees did nothing to speak up for retirees when Mr. Parham announced that PSPRS was trying to keep returns under 9%.  Will adding two more public safety Trustees make this situation any better?

Let’s contrast this to the Arizona State Retirement System (ASRS).  Among ASRS’ nine board members are four public representatives, two with experience in the private investment management industry, an economics professor, and the president of the Arizona Tax Research Association, and a retiree representative.  The other four ASRS board members represent state employees, political subdivisions, educators, and members at large.  Four of PSPRS’ nine-member board will be made up of public safety with another member picked by the Board of Trustees itself.  So ASRS has four neutral board members and a retiree representative, while PSPRS will essentially have a nearly built-in majority of state public safety union members.  For an example of how things already work, the current PSPRS Board of Trustees is chaired by Brian Tobin, the former president of the Professional Fire Fighters of Arizona.  If you are a retiree, think about what will happen when you add two more public safety union representatives to the two already there, and those four have a hand in nominating a fifth.  Do you think retirees will get treated any better in the future than they have been recently?  If high inflation eats up the purchasing power of retirees, who will be there to speak for them?  No one.

Once again, it is vitally important that retirees work to get one, but ideally two, representatives on the PSPRS Board of Trustees.  Instead of the public safety unions stacking the Board with two more members, a law enforcement and a firefighter retiree representative should be given those spots.  Otherwise, retirees will again be at the mercy of others that have only their own selfish interests at heart.  Why would we not want to follow the example of the only properly functioning state pension system, ASRS, instead of repeating past mistakes of our failed system.  The only way for PSPRS retirees to protect their interests is to have representation on the PSPRS Board of Trustees.  I don’t know if this can be accomplished, but we will never know if retirees don’t try to lobby their legislators, Speaker of the Arizona House David Gowan, Arizona Senate President Andy Biggs, or Governor Doug Ducey.  This is probably the only chance retirees will have to defend themselves.  I hope they take it for all our sake.

Tuesday, February 23, 2016

PSPRS investment returns through December 2015

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 for December 2015, the sixth month of the current fiscal year (FY), with the fiscal year end 2014 and 2015 returns included for comparison:

Report PSPRS PSPRS Russell 3000 Russell 3000
Date Month End Fiscal YTD Month End Fiscal YTD
6/30/2014 0.78% 13.82% 2.51% 25.22%
6/30/2015 -0.73% 4.21% -1.67% 7.29%





7/31/2015 0.13% 0.13% 1.67% 1.67%
8/30/2015 -1.43% -1.31% -6.04% -4.47%
9/30/2015 -1.02% -2.31% -2.91% -7.25%
10/31/2015 1.95% -0.36% 7.33% 0.08%
11/30/2015 0.37% 0.09% 0.55% 0.63%
12/31/2015 -0.95% -0.86% -2.05% -1.43%

There is usually about a two-month lag in PSPRS reporting its investment returns.   PSPRS suffered 23.67% and 35.00% of the Russell 3000's losses in August and September, respectively, and suffered 46.34% of the Russell 3000's loss in December.  With half the fiscal year gone, PSPRS has a little over 60% of the loss of the Russell 3000, which is in the 55-60% range seen in the past two fiscal years, though this is 60% of a loss, rather than gains.

The Russell 3000 lost about 5.5% in January 2016, so it will be interesting to see if these patterns of monthly returns continues.  Based on the year so far, I would expect PSPRS to show a loss of about 1.25% in January 2016, and its fiscal YTD loss to be only about 30% of the Russell 3000.  With three trading day left in the month, February 2016 is down 0.92%, but the markets have been so volatile that 1-2% swings are not unusual.  Regardless, PSPRS will still have a loss at the end of February with only four months left to try and get into the black.

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  Returns, gross of fees, are used in the table for consistency.  The past two years fees have reduced the final annual reported return by about a half percent.  Returns, net of fees, were 13.28% and 3.68% for fiscal years 2014 and 2015, respectively.

Friday, February 19, 2016

PSPRS members: Watch the oral arguments before the special panel of judges deciding the Hall case

If you would like to view the oral arguments before the special panel of judges in the Hall case, you can find the video here.  The video is from February 18, 2016 and lasts about 55 minutes.  For more about the legal issues and arguments in the Hall case, see this post, "What the Hall is going on?  Legal issues surrounding the Hall and Parker cases against EORP and PSPRS" from July 2015.

Neither side in the case dealt with the COLA issue, which should be decided for the plaintiffs under the same reasoning as the Fields case, and will be a dead issue soon anyway when the May referendum is approved and permanently changes the COLA formula.  All the arguments and questions from the judges dealt with the constitutionality of raising employee contribution rates.  The attorneys' arguments are interesting, as are the judges' questions, but there seems to be no clear indication how this case will be decided or how each judge will vote.

There was no firm date on when a decision will be reached, though the plaintiffs' attorney asked that the panel decide the case itself and not send it back to a lower court for reconsideration.  I believe from the past that the only notice that the case has been settled is a 24-hour advance warning that a decision will be announced the next day.  We will be stuck waiting until then.

Wednesday, February 17, 2016

PSPRS reform signed into law: The betrayal of the future generation is complete (with a chance of poetic justice for those that betrayed them)

Governor Doug Ducey signed the PSPRS pension reform legislation into law on February 16, 2016, so the sellout of the next generation of firefighters and law enforcement is complete.  The point man for this betrayal, Bryan Jeffries, president of the Professional Fire Fighters of Arizona (PFFA), states in this  article, Arizona pension reform is signed by Gov. Doug Ducey, but voters will have a say, by Craig Harris in the February 17, 2016 Arizona Republic, that his organization is "all in."  That's funny.  I must have missed the election that all us voted in to approve this.

This is all pretty much a done deal.  I don't anticipate any organized resistance to the referendum in May that will change the COLA formula.  All that's left to do is to make sure the next generation of PSPRS members understands how our generation left them to pay the tab for our excesses.  The only unresolved issue is the Hall case, which will be argued before the special five-judge panel that was created after the sitting justices on the Arizona Supreme Court recused themselves from the case because they had a personal stake in the case.  The five judges named to the panel have no stake in the Hall case, having been placed on the bench after the new defined contribution pension replaced the defined benefit pension in the Elected Officials' Retirement Plan (EORP).  There is a separate case by PSPRS members that is active, but since it involves the same issues, it is not being heard as the results of Hall will carry over.

There was a little extra drama surrounding the Hall case over the past week when the plaintiffs tried to force the recusal of Clint Bolick, the new Arizona Supreme Court justice, from the case.  Justice Bolick replaced Pinal County Superior Court Judge Karl Eppich as a member of the panel.  Justice Bolick formerly was the vice-president of litigation for the Goldwater Institute.  This February 16, 2016 Arizona Republic article by Craig Harris, Ex-Goldwater lawyer-turned-justice to hear pension case, says this about Justice Bolick:
Bolick, in December 2010, was quoted by The Arizona Republic as saying proposed legislative changes to PSPRS could be made without running afoul of the Constitution or contract law. That very issue is now before the Supreme Court judicial panel. The Goldwater Institute also was a major supporter of the 2011 law that required judges and others in PSPRS to pay more for their benefits.
You can read more about the recusal effort here.  (You will have to choose "Active civil cases" then search for "Hall" with you browser's find tool.)  Arizona Republic columnist Laurie Roberts also has a piece here.  I am certain that the plaintiffs will win on the COLA issue in their case, but this will be a hollow victory that will last only until the May election when the new 2% maximum COLA will likely win approval from the voters and make the constitutional issue of altering the COLA formula moot.  The more interesting issue will be how the judges rule on the change in contribution rates.

The Hall plaintiffs, which by extension is all of us who were already PSPRS members when SB 1609 went into effect in 2011, are also contesting the change in employee contribution rates.  For PSPRS members, the employee contribution rate increased incrementally from 7.65% to the current rate of 11.65%.  A plaintiff victory would mean refunds of any contributions of over 7.65% paid by Tier 1 and Tier 2a PSPRS members, and it would be the final slap in the face to Tier 2b and Tier 3 PSPRS members.

A plaintiff victory would lower the fixed contribution rate of Tier 1 and Tier 2a members 4% to less than the rate of Tier 2b, who will still be stuck with the fixed 11.65% rate, and Tier 3 members, who will have a variable rate that is being estimated at 9% but will likely be higher.  It's not enough that nearly all the sacrifice is being heaped on Tier 3 members.  They will have to work 25 years, have no DROP, have a cap on pensionable earnings, cannot collect full benefits until 55 years of age, have a COLA based on PSPRS' funded ratio which is not collectible for seven years or when the member turns 60 years old, have to split the normal cost 50/50 with employers, and have previous generations' unfunded liabilities limiting their employers' abilities to offer better wages and benefits.  Now it is possible that Tier 1 and Tier 2a members will get big refunds and further add to the unfunded liabilities that will affect the finances and quality of life of Tier 2b and Tier 3 members and their families for years to come.

However, in this whole shameless spectacle, there is some potential for a bit of poetic justice.  A loss by the plaintiffs on the constitutionality of raising employee contribution rates would open the door for the legislature to raise the rates for Tier 1 and Tier 2a (and Tier 2b) members anytime they deemed it necessary and appropriate.  There would no longer be a "fixed" employee contribution rate.  This could someday be an issue if there is another financial crisis or prolonged market downturn.  The PFFA and law enforcement union negotiators acquiesced so timidly to Reason Foundation's plan because they believed it would protect Tier 1 and Tier 2a members, like themselves, from having to make any of the sacrifices they so freely placed on Tier 2b and Tier 3 members.  Wouldn't it be funny if Justice Bolick, former litigator for Reason Foundation's kindred spirit in Arizona, the Goldwater Institute, provided the tie-breaking vote against the Hall plaintiffs?

Oral arguments in the Hall case will be made tomorrow, February 18, 2016.