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In this blog I and multiple commenters have broached the subject of the suspect constitutionality of PSPRS' replacement of the old perma...

Tuesday, December 11, 2012

PSPRS Members: Will a COLA be paid next year?

PSPRS' most recent actuarial report for the fiscal year ending June 30, 2012 shows that PSPRS has a funding ratio of 58.6% and had a -0.8% return for the year.  These numbers are important for retirees because they are used to determine whether PSPRS will pay a cost of living allowance (COLA) during the next fiscal year.  PSPRS must have a minimum funding ratio of 60% and earn at least a 10.5% return for the previous fiscal year in order for a COLA to be paid.  Neither of these conditions were met, but PSPRS retirees received a COLA for the current fiscal year because funds remained in the Reserve for Future Benefit Increases that existed under the old COLA system.

However, this should be the last COLA awarded under the old system as the Reserve for Future Benefit Increases will soon be exhausted.  The elimination of this old system, which virtually ensured COLA's would be paid every year, was a key part of the pension reform included in SB 1069.  With PSPRS' funding ratio below 60% and likely to continue dropping, the prospects of COLA's in the next few fiscal years are very dim.

Yet there is still a good chance that the old COLA system may return.  The previous post, (Have a COLA and a smile), detailed how some retirees in the Elected Officials' Retirement Plan (EORP) were able to successfully challenge a similar change to their COLA system.  This case is currently under appeal, and other cases, by both active and retired EORP and PSPRS members, are also challenging the changes to COLA's as a breach of a binding contract and a violation of the Arizona Constitution.

This may sound like good news, but if any or all of these cases are successful, they will eliminate one of the key reforms to PSPRS, slow PSPRS' return to financial health, and continue to reward retirees at the expense of current employees and taxpayers.

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