Monday, February 23, 2015

Why you should hate the Professional Fire Fighters of Arizona's (PFFA) PSPRS reform proposal, Part I

The art of economics consists in looking not merely at the immediate but at the larger effects of any act or policy: it consists in tracing the consequences of that policy not merely for one group but for all groups. 

                                                               Henry Hazlitt,  
                                                               Economics in One Lesson

If you are an active employee who is keeping an open mind about the Professional Fire Fighters of Arizona (PFFA) PSPRS reform proposal, you may be asking yourself this: 
If SB 1609 already requires me to pay increased contributions into PSPRS, why do I care whether the extra contribution amount goes to pay COLA's to retirees or is used to pay down PSPRS' deficit since it comes out of my check either way?
Okay, maybe you weren't asking that question, but it does allow me to go into some of the unintended consequences of the PFFA's reform proposal.

PFFA President Bryan Jeffries has stated that the PFFA reform proposal, ". . . would fund retirees' cost of living adjustments out of the pockets of current working public safety workers, not taxpayers."  This would be done by taking the aforementioned extra contribution amount already being paid by active workers (currently 3.4%, but topping out at 4% on July 1, 2015) to pay down PSPRS' deficit, and instead, use it to fund COLA's for retirees.  The destructive excess earnings model of paying COLA's would be eliminated.  Active workers would see no net change in their paychecks, as they have to pay the additional 4% for their whole careers anyway; taxpayers would be off the hook for the COLA's; and retirees would still be able to get COLA's, though they will be at a reduced amount.  Win,win, and not a total loss, right?

Not quite.  If you are an active employee making contributions into PSPRS, it is true that your contribution will not change.  However, you will have to consider the unintended consequences of your career earnings becoming the dedicated source of income for retiree COLA's.  Governments (and public employee unions) love to have dedicated sources of income.  This is usually done via some type of tax like a gas tax hike for road repairs, a tax on cigarettes for health programs, or a sales tax increase for some particular program (like was attempted in 2012 with Proposition 204, which would have made the temporary one cent sales tax increase permanent to fund education).

The dedicated funding source is fine as long as the economy is good.  When there is a downturn, the tax will remain, even if the taxpayers are finding their own income diminished.  If we are talking about gas, cigarette, or even sales tax, the taxpayer has some means to offset their loss of income by driving, smoking, or buying less in general.  But what happens to active employees when there is an economic downturn?

Active employees, who have been dutifully funding retiree COLA's with 4% of their earnings, will now see the unintended consequences of the PFFA reform proposal.  Their employers, suffering from decreased tax revenues, will have to find ways to trim their budgets.  This is particularly harsh for those in public safety because economic downturns usually mean that PSPRS suffers investment losses, which in turn, means higher annual required contributions (ARC's) for employers. The employers are hit by this double squeeze of lower tax revenue and higher ARC's.  This spells disaster for active public safety employees.

Wages and benefits are by far the largest part of law enforcement and fire service budgets.  When an employer has to trim public safety budgets, it really has no other option than reducing payroll costs, either individually or in the aggregate.  While it may be good to be the recipient of a dedicated source of income, it is not so good to to be the dedicated source of income.  Active employees will find this out if the PFFA's succeeds in making their proposal part of the Arizona Constitution.

If there is another financial crisis, active employees are going to get hammered because they will be the only source of cost savings in the budget.  However, retirees may not even notice the financial hardship visited on active employees because of the design of the PFFA reform proposal.  Looking at the fiscal year (FY) 2014 actuarial report, we can see that active members contgributed about $152 million into PSPRS.  If COLA's were being paid per the PFFA reform proposal, 4% of this amount, or about $6 million, could be used to pay retiree COLA's.  There were about 10,500 retirees at the end of FY 2014 with an average yearly retirement benefit of $51,600.  The $6 million allocated for COLA's would not be enough to pay a full 2% to all retirees.  $6 million divided among 10,500 retirees would only be about a $571 annual increase for each retiree.

Now let's redo these calculations.  Suppose a bad economy caused employers to give our active employees a 2% pay cut in FY 2014.  This would reduce our total active member contributions to about $149 million from $152 million.  4% of the reduced amount would be about $5.96 million.  With this lower amount to pay COLA's, retirees would receive a $567 annual increase versus $571.

However, the average FY 2014 salary of our active employees is about $75,000 per year.  A 2% pay reduction means that our average employee loses $1,500 a year.  Retirees will see their COLA reduced by $0.33 per month while the average active employee will see his monthly salary drop by $125.  Even if we drop the active employees' pay 10% ($625 a month), our retiree will only see his monthly COLA reduced by about $4.17 a month.

Here we can see the truly insidious effects of the PFFA reform proposal.  It shifts not only the burden of retiree COLA's on to active employees, but also the punishing effects of any future financial crises.  Retirees will be insulated from most of the effects of any financial crisis since any reduction in their COLA's will be minimal in comparison to active employees.  Active employees will take the brunt of nearly all the downside of financial downturns.  Retirees will take virtually none.  This is the same problem with the current excess earnings COLA model that has made it such a problem for PSPRS: all the upside to retirees, all the downside to PSPRS.  Only now, instead of the costs of the bad model hitting PSPRS, the PFFA wants active employees to absorb them.

The PFFA's desire to make active employees the dedicated source of income for retiree COLA's is so egregious that it is could be used as an example of historian Robert Conquest's Third Law of Politics which says, "The simplest way to explain the behavior of any bureaucratic organization is to assume that it is controlled by a cabal of its enemies."  With a friend like the PFFA . . .

In the next post we will discuss how this plan is bad for retirees as well.

Saturday, February 21, 2015

The PSPRS fix is in: The Professional Fire Fighters of Arizona's (PFFA) Operation Blue Falcon continues apace

The recent death of actor James Garner gave me cause to begin  re-watching his great 1970's detective show The Rockford Files on Netflix.  While I had watched the show as a kid back when it was originally run (at 9:00 PM on Friday nights on NBC, if memory serves me right), re-watching has caused me to notice certain things that I either missed or forgot.  In particular, the episode, "The House on Willis Avenue," was much more interesting in 2015 than it was in 1978, when it was originally broadcast.  Briefly, it involves a murder tied to a private data collection agency that was criminally abusing its access to private personal information.  Rockford exposes the company and brings the perpetrators to justice, but the most interesting thing is a slide that appears at the end of the episodes that reads:
Secret information centers, building dossiers on individual exist today.  You have no legal right to know about them, prevent them, or sue them for damages.  Our liberty may well be the price we pay for permitting this to continue unchecked.
Member, U.S. Privacy Protection Commission
If you are still with me, you are probably wondering what this has to do with PSPRS.  The simple point I think this makes is how years of complacency has made what was once outrageous seem like no big deal.  The level of individual privacy we accept now is lower in 2015 than in 1978, when the ability to maintain your privacy was much greater.  Instead of expecting the government, which should protect us from privacy violation, we just hope that they are not abusing our privacy in a more egregious manner.

This makes a good segue into how this is relevant to PSPRS: the February 20, 2015 Arizona Republic "Into the Mind" editorial with Professional Fire Fighters of Arizona (PFFA) President Bryan Jeffries entitled, "How firefighters would reform Arizona pensions."  I have already written about the PFFA's  reform proposal to "fix PSPRS" in this post, which mostly notes how it provides no improvement over SB 1609,  and I was hopeful that it would have already died on the vine.  Unfortunately, like many bad ideas, it refuses to die, PFFA appears determined to release its Frankenstein monster out of the lab.

First, let me credit Mr. Jeffries for his honesty.  He openly admits to the inter-generational wealth transfer of the PFFA reform proposal by stating, "Our plan would fund retirees' cost of living adjustments out of the pockets of current working public safety workers, not taxpayers."  If you are not familiar with the PFFA reform proposal (which is available at the League of Arizona Cities and Towns Pension Task Force website), it would eliminate the current excess earnings models for cost of living allowances (COLA's) and take the SB 1609-mandated contribution increases of active PSPRS members now being used to pay down PSPRS' deficit, and instead, use them to pay COLA's to retirees.  It would also delay COLA's for up to seven years or until age 60, whichever is sooner.

The additional contributions mandated by SB 1609 will top out at 4% starting next fiscal year.  This 4% taken from current employees will then be used to pay a delayed COLA of up to 2% to retirees.  You do not need to be a mathematician to figure out that someone who works for 25 years paying 4% per year will never recoup in future COLA's what he paid in past contributions unless he lives for a really, really long time.  Compare this to SB 1609, which guarantees a minimum COLA of 2% if PSPRS is at least 60% funded and earned at least 10.5% in the prior fiscal year.  If you are an active PSPRS member, especially one just starting his or her career in public safety, does the PFFA reform proposal sound like a good deal to you?  Would you like to take a guaranteed loss on your total lifetime income as the PFFA wants or would like your future COLA's to track with the overall financial health of PSPRS?

Mr. Jeffries also proposes a false choice of on whom the responsibility for funding retiree COLA's should fall: active workers or taxpayers.  This fallacious proposition fails to identify the fundamental problem with PSPRS which is that it has only one source for COLA's, and it is neither active workers nor taxpayers.  While the excess earnings formula connotes something bad about using excess earnings to pay COLA's, in fact, excess earnings are the ONLY source from which PSPRS can pay COLA's .  The current excess earnings formula suffers from a horribly bad design because it takes half of any earnings over 9% in a fiscal year and segregates it into a fund that can only be used to pay COLA's.  However, if PSPRS loses money, it absorbs 100% of the loss.  This is why PSPRS continued to pay COLA's even as its funded ratio dropped each year.  SB 1609 addressed the problem by tying COLA's to not only the excess earnings percentage but also to PSPRS' funded ratio.  While the Fields decision rolled back SB 1609' s changes, it did not change the fact that an underfunded pension can not pay COLA's. 

The PFFA leadership has blithely offered up the current and future wages and benefits of its active members to maintain the payment of COLA's from a perilously underfunded pension.  Rather than advocating a better solution to the excess earnings model than SB 1609, which correctly prioritized bringing PSPRS back to financial health over paying COLA's, the PFFA has decided that COLA's are sacrosanct and wants to use its active, dues-paying members as a permanent source of COLA funding.  I would hope that most retirees would object to this.  Whether you are a member of PSPRS who just started paying contributions or someone who did his time and has been retired for 25 years, I think that we can agree that we are all in this together.  No one group has a greater claim to PSPRS' assets or a lesser obligation for its liabilities.  If you are in for a penny, you are in for a pound.  In the end, the best way to ensure that COLA's are paid is to bring PSPRS back to financial health as soon as possible, and it does not have to be accomplished through some form of inter-generational theft.

The PFFA leadership has perhaps spent too much time among the media and politicians to realize that, like Colonel Nicholson in The Bridge on the River Kwai, good people can forget whom they represent and for what they are supposed to stand.  PFFA's constituency is out here, not at The New York Times, Arizona Republic, PSPRS office, mayor and city council chambers, or the Arizona Statehouse.  Those entities may be impressed that Mr. Jeffries and the PFFA are willing to sacrifice workers' earnings to garner their favor, but rank and file PSPRS members should see the PFFA reform proposal as a breach of faith that helps neither active workers nor retirees.

So this brings us back to the analogy that started this post.  Is this what we have come to now?  An organization that is supposed to represent the interests of unionized firefighters in Arizona is freely giving up workers' hard-earned and diminished income.  Would unionized public safety workers have meekly accepted a proposal like this 40, 50, or 60 years ago?  Would law enforcement unions have stood by helplessly as another organization transformed the financial landscape beneath the feet of its own members?  Has such a sense of complacency set in that we can not even recognize when we are being hurt by those whose job it is to stand up for us?  There should be a lot more to come on this subject in the future.  Stay tuned.

Tuesday, February 17, 2015

PSPRS investment returns through December 2014

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 for December 2014, the halfway point of the current fiscal year, with the June 2014 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%





7/31/2014 -0.67% -0.67% -1.97% -1.97%
8/31/2014 1.73% 1.05% 4.20% 2.14%
9/30/2014 -1.53% -0.49% -2.08% 0.01%
10/31/2014 0.40% -0.09% 2.75% 2.76%
11/30/2014 0.92% 0.82% 2.42% 5.25%
12/31/2014 -0.18% 0.64% 0.00% 5.25%

There is usually about a two-month lag in PSPRS reporting its investment returns.  2014 ended with no montly change in the Russell 3000 and a slight loss for PSPRS.  PSPRS' total returns were once again brought down by its non-US equity portfolio, which decreased 3.02% in December 2014.  The non-US equity portfolio has an 8.35% loss in the current fiscal year versus a 4.30% gain in the US equity portfolio.  The real assets portfolio has suffered a 3.22% loss for the current fiscal year and is the only other asset class with a loss for the current fiscal year.

PSPRS' monthly return for January 2015 is likely to be quite poor.  The Russell 3000 shows a 2.78% loss  for the month of January 2015, though February 2015 has been so far been a great month.  The Russell 3000 is currently higher than it was on December 31, 2014, but the markets have been so volatile lately that guessing where February will end is a fool's errand.  Regardless, PSPRS is likely to end the month of February 2015 with a fiscal year-to-date return of less than one percent with only four months to reach its expected rate of return of 7.85% by June 30, 2015.

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees, except on the final report of the fiscal year.  The past two years fees have reduced the final annual reported return by about one-half of a percent.

Tuesday, January 20, 2015

PSPRS investment returns through November 2014

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 for November 2014, the fifth month of the current fiscal year, with the June 2014 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%





7/31/2014 -0.67% -0.67% -1.97% -1.97%
8/31/2014 1.73% 1.05% 4.20% 2.14%
9/30/2014 -1.53% -0.49% -2.08% 0.01%
10/31/2014 0.40% -0.09% 2.75% 2.76%
11/30/2014 0.92% 0.82% 2.42% 5.25%

There is usually about a two-month lag in PSPRS reporting its investment returns.  I try to post the PSPRS returns each month, but there is a one-month delay because the PSPRS Board of Trustees did not have a monthly meeting in December 2014.  This table includes the returns for October and November 2014.

As of the end of November 2014, PSPRS' non-US equity portfolio, which makes up 14.23% of PSPRS' total portfolio, has returned -5.49%.  PSPRS' real assets portfolio, which makes up 7.33% of PSPRS' total portfolio, has returned -2.61%.  Every other asset class, including real estate, has shown a positive return through November 2014. 

The Russell 3000 is made up of the 3,000 largest US companies.  The US market has recently done much better than the rest of the world, and PSPRS' negative return on its non-US equity portfolio is in line with the non-US equity benchmark of -5.53%.  PSPRS' real assets portfolio is lagging its benchmark by 3.18%.  It should be pointed out that other assets classes have negative benchmarks but positive returns for PSPRS, so there is some tradeoff between asset classes.

The up-and-down fiscal year continues.  The Russell 3000 website shows a 0.0% return for the month of December 2014, so it is anybody's guess what PSPRS will earn for December.  Those next returns will mark the halfway point of the fiscal year.  By the end of 2013, PSPRS's fiscal year-to-date return had nearly reached its expected rate of return.  PSPRS will not be in the same enviable position at the end of 2014.

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees, except on the final report of the fiscal year.  The past two years fees have reduced the final annual reported return by about one-half of a percent.

Friday, January 9, 2015

Parham's Paradox: true confessions from PSPRS' Chief Investment Officer

One of the more remarkable things I have ever read about PSPRS is this piece by PSPRS Chief Investment Officer (CIO) Ryan Parham, "The truth about PSPRS investment performance," that appeared in the December 18, 2014 Arizona Capitol Times.

Whenever an interested party proclaims to tell you the "truth" about a matter in which they are involved, you should be suspicious.  However, I read this with an open mind since I do not reflexively believe that the PSPRS administration and staff are responsible for PSPRS' financial woes, and after reading it through, I can not really dispute Mr. Parham's points about the relative quality of PSPRS' recent investment performance, the punishing effect that permanent benefit increases (PBI), more commonly referred to as COLA's, have on PSPRS' funded ratio, and the need to change the current COLA formulaton.

However, the most amazing thing that Mr. Parham writes is this:
. . . it is important to remember our innovative, low-risk, moderate return strategy is by conscious design, due to a pension benefit that PSPRS alone must pay to pensioners. This benefit, called the Permanent Benefit Increase, or “PBI,” siphons and distributes half of all returns in excess of 9 percent to eligible retirees. Not only are these increased payment levels made permanent, the investment gains only serve to increase – not decrease – unfunded future liabilities.

This rang true in fiscal years 2013 and 2014, in which PSPRS net performances were a positive 11 percent and 13.3 percent, respectively, while the system’s funded ratio dropped on both occasions. The cruel irony of this is that unless the PBI is modified to allow the PSPRS to retain and reinvest all of its gains, it is unlikely that we will ever be able to significantly impact the decline in our funding ratio.
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. (italics mine)
This passage is astonishing, and I had to read this a couple of times to ensure that I understood what Mr. Parham was saying.  Incredibly, he is saying that PSPRS' investment strategy is not designed just to balance investment risk and reward, but is also consciously designed to target as closely as possible the 9% threshold that triggers the excess earnings transfer into the Reserve for Future Benefit Increases ("the Reserve").  This is a stunning admission that PSPRS is deliberately low-balling its potential investment returns in order to limit contributions to the Reserve from which COLA's are paid.  I would like reiterate that this information is coming directly from the chief investment officer, a man who probably knows more about PSPRS than anyone else working there, in a piece that is giving us "the truth about PSPRS investment performance."

If you are a retiree, this likely outrages you. The CIO just confessed that PSPRS is purposefully trying to minimize its ability to pay COLA's.  But for everyone, this situation is just perplexing.  Mr. Parham is saying that with the current COLA formulation, earning over 9% actually has a negative effect on PSPRS' finances.  How can that be?  50% of anything over 9% would seem to be better than nothing, but he does not give any numbers to explain this.  If I were to speculate, I would guess that this would be due to the compounding effect over time of increased benefits, but I would need to see a more detailed explanation by Mr. Parham to better understand this situation.  Regardless, with a current expected rate of return (ERR) of 7.85%, this gives PSPRS a pretty small window of 1.15% to work with to help increase its funding level.

We should note that Mr. Parham's piece appeared in the Arizona Capitol Times, a newspaper which describes itself as "your inside track to Arizona politics."  By publishing his piece in a newspaper geared toward Arizona's governmental/political class and not a more mainstream paper like the Arizona Republic, it appears that Mr. Parham is appealing to the state's movers and shakers with a bit of inside information about the real reason why PSPRS' returns are so low.  I guess the rest of us just could not contemplate the subtleties of such a complex strategy, so Mr. Parham did not even bother to place a link to this piece on the PSPRS website like they usually do with other pieces written by PSPRS staff and trustees.

In the end, I have no choice but to give Mr. Parham the benefit of the doubt that his information is correct and that investment gains over 9%, paradoxically, are harmful to PSPRS' financial condition.  Furthermore, if it helps to change the COLA formulation in a beneficial manner (i.e. NOT like the Professional Fire Fighters of Arizona (PFFA) plan of intergenerational theft), this will have been a good thing.  However, Mr. Parham has also implied that PSPRS could produce higher returns than it currently does.  His words should end up on the wall of every PSPRS trustee and state legislator, as well as the governor and state treasurer.  It should not be lost down a memory hole if PSPRS does not produce stellar returns when the COLA formula is finally changed.  Just imagine what PSPRS would look like if its investment staff actually tried to earn as much money as possible.  That's the standard Mr. Parham has set for the investment staff, so I hope they are ready to perform.

Tuesday, December 16, 2014

What PSPRS can learn from the Arizona State Retirement System (ASRS)

If you want to see an illustration of what is wrong with PSPRS, check out this article, "Public workers, employers to pay less for pension plan," by Craig Harris from the December 5, 2014 edition of the Arizona Republic.

Mr. Harris writes about the fiscal year 2016 contribution rates and COLA's for employed and retired members, respectively, of the Arizona State Retirement System (ASRS).  ASRS is the largest defined benefit pension system in the state.  It basically covers any non-federal government worker in Arizona who does not work in public safety, corrections, or as an elected official or does not work for the cities of Tucson or Phoenix.  This includes the three state universities, community colleges, school districts, and state, county, and municipal governments.  It is a huge system with assets about four times that of PSPRS.

ASRS is often held up as an exemplar when compared to PSPRS, and ASRS is a stick with which critics like to beat PSPRS.  This has especially been the case over the past two years when so much negative attention was focused on PSPRS' former Administrator and staff.  This is not an unfair comparison because it is funded at almost 77%, significantly better than PSPRS' 49% funding ratio, and returned 18.6% last fiscal year versus 13.2% for PSPRS.  However, Mr. Harris gives some important details about ASRS that can give us some some understanding as to why ASRS is in such better shape than PSPRS that goes beyond any difference in the funds' respective management.

The article states that ASRS' employers and employees will see a drop in their contribution rates next fiscal year.  The drop is small from 11.48% to 11.35% but shows that ASRS is moving in a positive direction.  This also means that ASRS employees will pay less next fiscal year than PSPRS employees, who will see their contribution rate increase (and finally top out) at 11.65%.  As far as I know, all non-public safety employees in Arizona must also pay into Social Security, which is fixed at 6.2% apiece for the employer and employee

Like Social Security, ASRS equally splits the annual required contribution (ARC) between the employer and employee.  This is starkly different from PSPRS where employees will be capped at 11.65% next year, but employers have an open-ended commitment to the remainder of the ARC.  For next fiscal year, PSPRS has an average employer contribution rate of  over 41%.  Individual employer rates can be much worse, such as that of the City of Tucson which will have contribution rates in the mid-60% range for both its police and fire departments.  This means that the City of Tucson will have to pay over $0.60 for every dollar of pensionable income paid to its police officers and firefighters.

The importance of equally splitting contribution rates cannot be overstated.  It is the best barometer employees have to measure the health of their pension system and receive forewarning that a problem is brewing.  Politicians are reactionary and will act only after the problem becomes too big to ignore.  The higher ranks of public safety unions tend to be comprised of more senior members who have little incentive to advocate for proactive changes that may adversely affect their own retirements.  Therefore, a rising contribution rate can work as an early warning system for rank-and-file employees when past and/or current policies begin to show deleterious effects on PSPRS and, at the very least, force consideration of corrective actions.

PSPRS was about 127% funded on June 30, 2001.  PSPRS was 49.2% on June 30, 2014.  ASRS was 113% funded on June 30, 2001 (but had actually peaked at 120% funded the previous fiscal year) and was 77% funded on June 30, 2014.  During this 14-year period, ASRS employers and employees saw contribution rates increase from 2.49% (FY 2002) to 11.35% (FY 2016).  PSPRS employees had a fixed rate of 7.65% until fiscal year 2012 when it began to increase incrementally, reaching the maximum rate of 11.65% in fiscal year 2016.  The average PSPRS employer rate increased from 4.21% (FY 2002) to 41.08% (FY 2016).  We see in ASRS a steady increase in the contribution rate that was shared equally by employer and employee.  ASRS began with a lower contribution rate than PSPRS and raised it to meet funding shortfalls and now is in a position to begin lowering it back down.  On the other hand, PSPRS' fixed employee contribution rate hid rapidly escalating pension shortfalls from employees, who are now in a worse financial position than ever as increased employer contribution rates eat into their current wages.

As well as having a more transparent method of allocating ARC's, ASRS has a stricter COLA policy.  Mr. Harris writes:
For a permanent benefit increase to kick in, the trust must produce a rate of return in excess of 8 percent — the assumed rate of investment growth — for 10 years and generate a pool of excess earnings.
I am not sure how ASRS determines when there is "a pool of excess earnings," but ASRS, unlike PSPRS, has a proper understanding of COLA's.  We will not go into the details of the Fields decision again here, but even those whom the decision benefited must acknowledge that it is bad for all PSPRS members, working or retired.  It is simple common sense that a pension system cannot pay COLA's when it is underfunded, especially when it is less than half funded.  Paying COLA's to retirees from an underfunded pension is simply consuming the seed corn that is necessary to bring PSPRS back to financial health.  As in the case of employees and contribution rates, the real and pernicious damage caused by the pre-SB 1609 COLA formula was hidden from retirees, despite the potential financial risk to themselves and the certain financial burden it places on those that follow them in public safety careers.

While ASRS and PSPRS started at the same place in 2001, their financial fortunes have diverged dramatically over the past 14 years.  Both systems had to endure the dot.com crash and Great Recession, yet ASRS is in such a better position than PSPRS.  How did this happen?  Even if we attribute some of this to the systems' respective management teams, we cannot deny that PSPRS' problems went unaddressed for much longer than ASRS'.  ASRS was increasing employer/employee contribution rates and cutting retiree COLA's well before the Great Recession.  The legislature and public safety unions did nothing about PSPRS until well after the market crashed for the second time in the decade, and the state firefighters' union was even denying any reform was necessary at the time SB 1609 was passed, though they are now advocating their own bad reform proposal.

Obviously, ASRS is better designed than PSPRS and already has mechanisms in place to better allocate costs between workers, retirees, and employers.  These mechanisms makes financial sense, but more importantly, they ensure that every stakeholder is aware of and bears the pain of pension funding shortfalls.  This is something that is sadly missing from PSPRS.  If employees saw their checks shrinking year on year and retirees saw their COLA's diminished or eliminated, it would have forced them to look more critically at the policies that were slowly depleting PSPRS, and hopefully, do something about them before they spiraled completely out of control.