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PSPRS members: How to calculate what you paid in excess contributions to PSPRS

If you were wondering how much your refund from PSPRS was going to be, reader Rick Radinksy has discovered a relatively simple method of cal...

Sunday, February 17, 2013

Paycheck Protection legislation (an update)

Here is an update on paycheck protection legislation, House won't get to vote on 2 bills to curb unions, by Howard Fischer of Capitol Media Services that appeared in The Arizona Daily Star.  It appears that the legislation is unlikely to pass in the current session, so it will not be brought up for a vote. For more discussion about paycheck protection, see What is paycheck protection really about?

How will EORP reform affect PSPRS members? You be the judge.

This piece, Arizona pensions for elected officials may be cut by Howard Fischer of Capitol Media Services, appeared in the The Arizona Daily Star.  It details a proposal in the Arizona state legislature to change the current Elected Officials Retirement Plan (EORP) from a defined benefit pension (like PSPRS) into a defined contribution plan (e.g. a 401k, 403b, or 475b).

The article brings up several important points.  The first is by Arizona House Speaker Andy Tobin, R-Paulden, who makes the case that if pension reform is needed it is only fair that the legislature start with the plan that affects those making the reforms.  Depending on how successful Mr. Tobin is at reforming EORP, this can either be good or bad for PSPRS members.  If the legislature balks at Mr. Tobin's proposal, those in other state pensions can rightfully point to the failure of the legislature to deal with their own underfunded pension.  However, if his plan passes, this will eliminate the hypocrisy defense that PSPRS members could use against a legislature that tried to make changes only to PSPRS.

Another point in the article goes to a contention that has been made in this blog many times.  That is the creation of a tiered pension system where one or more group(s) gets better benefits than another.  A lobbyist for the Arizona Judges Association, Pete Dunn, states that Mr. Tobin's proposal would create a dual pension system with one excellent pension and one awful one.  As with PSPRS, it would be a tiered system that would determine retirement benefits solely based on a person's date of hire.

It is not mentioned in the article but another point about Arizona judges needs to be made.  While their retirement system is covered under EORP and they participate in elections, Arizona judges are not politicians.  Judges in the Arizona Appellate and Supreme Court are initially appointed to their positions by the governor and are subject to a voter retention process after each term.  The retention process is non-competitive and pertains only to whether the judge will retain the seat for another term.  Depending on population size, Superior Court judges may be appointed and subject to retention elections or run in competitive, non-partisan elections.  For the most part, their positions hinge on their fitness and competence as judges, rather than on their political views.

Furthermore, a judge is a professional position.  While this in no way is meant to disparage members of the Arizona legislature or the state executive branch, who often come from other successful career backgrounds, there is still a very limited criteria to run for political office, and anyone who meets these criteria can obtain signatures and have themselves placed on a ballot, run, and be elected to the legislature or even governor.  This is not the case for judges.  No one who does not have an already successful legal career can become a judge. A judgeship is earned through years of work and study and is generally not subject to the whim of voters.

Finally, judges have the training and experience that allows them to easily move into the private sector or other public sector legal jobs.  Earning a position as a judge is an honor and a sacrifice that carries with it huge responsibilities, but an attorney distinguished and skilled enough to become a judge will always have other opportunities to earn a good (and maybe better) living in other areas of law.

Professionalism, competence, honor, sacrifice, training, experience, non-political: what do all these word evoke in those of us in PSPRS?  They are words many of us would use to describe our own professions in law enforcement and firefighting/EMS.  I was told when I came on the job that we had an added protection to our pension since Arizona's judges were under the same plan as us.  This was misinformation, but the point was being made that judges would be less likely to rule in a way that lessened PSPRS' benefits since they would be harming themselves financially.

This point is crass and cynical.  Who knows how a judge whose retirement was in defined contribution plan would rule in a case involving a defined benefit public pension?  I suspect the judge would remain impartial and follow the law as in every other case.  The real point is that judges should be linked to law enforcement and firefighting/EMS for the more noble reasons mentioned before, not by some cheap financial and/or political calculation.  Do judges deserve a defined benefit pension for the public service they do, and are the costs of a defined benefit pension outweighed by the benefits the public receives in a better court system?  Those are the only questions that matters.  How it ends up being answered will determine a lot about the future of PSPRS. 

Saturday, February 9, 2013

PSPRS lawsuits: Sacrifice is for the other guy

There are currently two lawsuits filed in Maricopa County Superior Court that challenge the changes made to the Arizona Public Safety Personnel Retirement System (PSPRS) by SB 1609 in 2011:

            Rappleyea vs. PSPRS (Case #CV2012-000404)

            Parker vs. PSPRS (Case #CV2012-000456)

The Rappleyea lawsuit was filed by a retiree.  The Parker case was filed by an active member of PSPRS.  Both lawsuits dispute the change in how cost of living allowances (COLA's) are calculated, but the Parker lawsuit also challenges the change in contribution rates imposed by SB 1609.  This November 21, 2012 Legal Challenge Memorandum* from the attorneys representing PSPRS gives more details about the lawsuits.

Previous posts like Have a COLA and a smile have addressed the dangers to PSPRS by reverting back to the old COLA formulation.  However, the Parker lawsuit's attempt to reverse the increase in contribution rates shows that the same impulses of those retirees challenging the COLA reform are alive and well in some active members of PSPRS.

All the lawsuits challenging PSPRS over the SB 1609 reforms hinge on the same two legal arguments.  The first involves the Arizona Constitution's Article 29, which states "public retirement system benefits shall not be diminished or impaired."  This straightforward premise states that any attempt to change benefits is unconstitutional, and it has already been successfully used by retired judges in their lawsuit over COLA changes to the Elected Officials' Retirement Plan (EORP).  The second premise regards the contracts clauses of both the Arizona and US Constitutions.  It argues that the operation and structure of the retirement plan upon an employee's hire date should be construed as a contract between employer and employee and can not be unilaterally changed.  The Parker case's premise is that if an employee was hired before January 1, 2012, the employee contribution rate of 7.65% was a binding contract between the employer and the employee.  If upheld, this would make the annual increases, which top out at 11.65% in fiscal year 2015-16, unconstitutional for those hired before January 1, 2012.

The end result of these cases will have major effects on PSPRS.  The retirees seem to have the stronger and more sympathetic case as the changes were made after they had already retired with certain expectations of future increases in their benefits.  The victory in the EORP case also sets precedent for the Rappleyea case.  I am not a lawyer, but based on a layman's reading of the language of the Arizona Constitution, it seems that changing the COLA formula after someone retired would be unconstitutional.  I think the only argument that could convince a judge otherwise would be that resuming the old COLA formula would imperil PSPRS' very existence. 

As for the active employees, their case is less clear as the changes to both the COLA formula and contribution rates occurred while they were still working and active members of PSPRS.  Both the Rappleyea and Parker cases, as well as two similar cases filed against EORP, will most likely be resolved by the Arizona Supreme Court, possibly as soon as this year. 

So what happens to PSPRS if the Parker case is successful?  A reversion to the old COLA formula would not have an immediate effect since the Parker case involves those still working.  However, if PSPRS was forced to lower contribution rates back to 7.65% for those hired before January 1, 2012, there would be an immediate financial impact.  PSPRS would be forced to refund all employee contributions in excess of 7.65% and could not collect more than that for any employee hired before January 1, 2012.  There would be both an immediate financial hit to PSPRS through the refunds it would be forced to pay and a long-term hit through decreased employee contributions. 

If both the lawsuits are successful, retirees and active employees hired before January 1, 2012 will be exempt from paying any of the increased costs of bringing PSPRS back to full funding.  The burden of those increased costs can only fall on two groups, those hired January 1, 2012 or later and taxpayers.  New hires are already subject to the annually escalating contribution rates (topping out at 11.65%), but their only option will be to advocate for passing even higher rates on to those hired after them.  Employers (i.e. taxpayers), already burdened with paying a 30% contribution rate, will have no choice but to use more of their limited tax revenue to fund PSPRS.

This is the sad state we have reached.  Three distinct groups (retirees, older hires, and newer hires) are all battling for a share of a shrinking pie with the two most powerful groups trying to stake out their chunk of defensible territory.  Taxpayers are innocent bystanders hoping not to get destroyed in the crossfire.  PSPRS will be the scorched earth left at the end.

*March 18,2013 update: Previous link is dead. Undated but what appears to be an updated Legal Challenge Memorandum is available.

Tuesday, February 5, 2013

What is paycheck protection really about?

The following video by Tim Hill,  President of the Professional Fire Fighters of Arizona (PFFA), is posted on YouTube and gives a legislative activity update for 2013:




The first legislative priority Mr. Hill mentions is beating back paycheck protection bills being introduced in the 2013 session.  The term "paycheck protection" is a generic term for laws dealing with the direct withdrawal of union dues from public employees' paychecks.  These laws can affect the ability of unions to spend dues on political activities, require employers to get annual permission from employees to withdraw the dues, or ban the practice of automatic withdrawal altogether.  This Arizona Republic story, Public-employee union dues back in legislative spotlight in Arizona, by Mary Jo Pitzl refers to HB 2026, which would require councils or boards of Arizona's municipalities, counties, and fire districts to vote on whether to specifically authorize payroll deduction of union dues.  The bill has a deadline for these entities to vote on continuing the practice.  Otherwise, these employers would be required to cease payroll deduction of union dues.  Another bill, SB 1142, would require that public employers get express permission each year to deduct union dues from members' paychecks.

If we look past the rhetoric of both sides, the employees, who are supposed to be the beneficiaries or victims of these laws, are really just a sidelight.  The real issue here is money and politics.  Those supporting paycheck protection know that payroll deduction make paying union dues a passive process.  If dues are automatically taken out, the amount is less likely to be noticed.  If union dues were paid annually or semi-annually via check or debit, union members would be inclined to notice how much money they are really spending.  The following Wall Street Journal story (Wisconsin Unions See Ranks Drop Ahead of Recall Vote) details how public unions in Wisconsin lost members after dues were no longer paid via payroll deduction.  Less money coming into public employee unions means they have less power to influence politics.

Conversely, public employee unions love to have dues taken directly from members' paychecks as it provides them with a steady and nearly unbreakable source of income.  My union local's by-laws require dues be paid via payroll deduction, and I suspect this is standard practice wherever it is not forbidden by law.  Hence, it is the only way that members can pay union dues, and attempting to pay dues any other way would be grounds for expulsion from the union.  Mr. Hill calls paycheck protection acts anti-union, which may be justifiable only from the standpoint that it interferes with the union management's preferred method of dues collection.  However, Mr. Hill makes no argument for how payroll deduction of dues benefits union members, and he frames the attempts to change the current system of how dues are collected as  an abrogation of members' rights, despite the fact that the current system allows public employee unions to impose a single payment method on members.  The right he defends is one that allows members no choice with their own money.

Behind all the rhetoric of both sides is the psychology of money.  It is the same one that is behind gym memberships.  Someone who pays upfront up for a 12-month gym membership but only uses it sporadically will balk at paying the same amount again next year.  He can look at his past year's usage and see that he did not get his money's worth.  However, if he had signed up for a monthly debit from his bank, he is less likely to consider the total cost and realize how he is wasting his money.  $50 every month will not seem like a lot until he multiplies it out and figures that he paid $600 for something he barely used.

The supporters of paycheck protection laws want union members to make an active, conscious decision to pay dues; the opponents want the payment of dues to remain passive and automatic.  Forcing a conscious decision on union members will make them think about the value they are getting for their money, especially if they pay one large annual sum.  Whether this will affect public employee union membership in Arizona is an open question.  However, if members believe they are receiving adequate value for their money, unions should have nothing to fear from paycheck protection laws since members will continue to pay their dues as always.

Regardless of how one feels about the issue, PSPRS members should realize that this fight is over their money and the influence it buys, not necessarily what is in their best interests.