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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, January 21, 2014

The Arizona Public Safety Personnel Retirement System (PSPRS) Fiscal Year 2013 Consolidated Annual Financial Report

Following are some of the key figures from the Arizona Public Safety Personnel Retirement System's fiscal year (FY) 2013 Consolidated Annual Financial Report dated December 12, 2013:

  1. The aggregate funding ratio dropped from 58.6% to 57.1%.  (Note: each separate entity has its own funding ratio and contribution rate, but the rate of return is the same for all entities.)  This is particularly significant for retirees because the new COLA formula now has a minimum funding ratio threshold in addition to a minimum rate of return.  These minimum thresholds are a 60% funding ratio and a 10.5% rate of return
  2. The aggregate employer contribution rate will increase to 32.54% from 30.44% in FY 2015, which begins July 1, 2014.
  3. PSPRS had an annual rate of return of 10.64% for FY 2013 versus -0.8% for FY 2012.  This beat the benchmark rate of return of 10.08%.  They call this 10.64% rate of return "far better-than-expected," which I would consider a bit of an exaggeration since they bested the  benchmark rate by only 0.58%.  While PSPRS has an expected rate of return (ERR) of 7.85%, which was bettered by 2.8% and should not be dismissed since any amount over the ERR works at shrinking the unfunded liability, the benchmark is the more important number because it shows if their investment strategy is working.  While the S&P 500 increased from 132.16 1362 to 158.78 1606 (20.1%  17.9% increase) and 10.64% may seem like underperformance in comparison, the new investment strategy implemented by PSPRS is meant to balance risk minimization with return on investment and seems to have worked as planned last FY.
  4. As of June 30, 2013, there were a total of 10,159 pensions, made up of normal service, disability, spousal, and child (with guardian) pensions, being paid by PSPRS.  Of the 7,44 normal service pensions the average annual pension is $52,592.  1,140 disability pensions average $41,527 annually.  1,252 spousal pensions average $41,645.  53 children (with guardian) pensions average $26,482.
  5. Of the 10,159 pensions being paid, 1,058 (10.41%) range from $24,012-$36,000 per year, 4,499 (44.29%) range from $36,012-$48,000 per year, 2,510 (24.71%) range from $48,012-$60,000 per year, and 1,154 (11.36%) range from $60,012-$72,000 per year.  There are 806 making more than $72,000 per year in retirement. 132 make $24,000 or less per year.
  6. As of June 30, 2013, there were 18,436 active members of PSPRS, 10,159 retirees/beneficiaries, and 1,482 in the Deferred Retirement Option Plan (DROP).  Active members decreased by 106, retirees/beneficiaries increased by 357, and DROP participants decreased by 14 compared to last FY.  This means that 18,436 are paying into PSPRS, while 11,641 are not (note: some DROP participants continue to pay into PSPRS but will be refunded their contributions with interest when they cease employment).  This is a ratio of 1.58 active contributing employees to each retired or DROPped non-contributing individual.  This ratio was 1.64 at the end of last FY.
  7. The average annual salary of the 18,436 active members is $74,344 versus $72,767 last FY.
  8. The average age at retirement for a normal service retirement is 51.3 years, and for a disability retirement it is 43.8 years.
  9. Employees paid $127,363,000 into PSPRS last FY.  Employers paid $380,852,000 into PSPRS last FY.
I would recommend that all PSPRS members, at the very least, read (PDF) pages 9-15 of the Introductory Section of the FY 2013 CAFR, as well as their own employer's actuarial report.  The CAFR reemphasizes the detrimental effects the current lawsuits will have on PSPRS' finances if any or all of them are decided in favor of the plaintiffs, but my favorite part is this confidence-inspiring passage in the Board of Trustees' letter:
While today the PSPRS Plan is far better positioned to weather the volatility of the financial markets and perform up to expectations, over the long term, there are still serious risks over which we, as a Board of Trustees, have no control, such as the fiscal grid-lock at the federal level in the U.S., economic malaise and financial market stagnation in Europe, and declining rates of economic growth in Asia and emerging markets of Africa, Latin America, the Middle East, and South and Southeast Asia.  These risks are simply a consequence of the reality that Plan assets must be invested in the financial markets and cannot be totally immunized against the consequences of what happens when those financial markets perform poorly, as was demonstrated in FY '08 and FY '09 and again in FY '12.
 . . . And don't forget about what will happen if Goldfinger irradiates all the gold stored in Fort Knox.  Joking aside, it is actually refreshing to see this type of honesty and advance warning about the potential risks ahead for all of us.  The Trustees do not speculate about what may happen to PSPRS if any of the aforementioned risks precipitate another financial crisis; they leave it up to the reader to stay informed and be prepared.  That seems like a good idea to me.

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