Featured Post

Was it constitutional for Proposition 124 to replace PSPRS' permanent benefit increases with a capped 2% COLA?

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

Wednesday, July 9, 2014

Proposed reforms to PSPRS: new but are they an improvement?

Since the last post I have had a chance to go through the PSPRS Special Board of Trustees Meeting dated June 4, 2014.  I should preface this by saying that there will no reform measures appearing on the November 2014 ballot since there has not been a special session called by the Governor, and at this late date, it would be nearly impossible to work out a ballot measure in time.  The meeting materials begin with the multiple COLA scenario studies PSPRS had requested from its independent actuary, Gabriel Roeder Smith & Company (GRS), to show the effects different COLA scenarios will have on PSPRS' (and EORP's and CORP's)  funding ratio and employer contribution rates.  It ends with a "summary of proposed changes for PSPRS" and funding policy review that includes a comparison of the effects to PSPRS' funding ratio and employer contribution rates when compared to three scenarios where SB 1609 changes are maintained or reversed or a new set of reforms is implemented.  Sandwiched between these studies are  Powerpoint slides by  the Professional Fire Fighters of Arizona (PFFA) that shows their proposed change for "fixing the PSPRS pension fund."

The most important information can be found in the graph and figuress on page 55 of the PDF document below.  (You can type "55" in the page number box to go directly to that page.)  The graph and figures show the effects on the median funded ratio and median contribution rate of PSPRS based on three different scenarios.  The green line and bar represent the effects of the following proposed changes:
  • COLA delayed until 7 years after commencement of benefits or age 60. 
  • Tier 2 members can retire at 25 years of service (no minimum age required).
  • Employee Self funded Inflation Protection Program (IPP) provided for all active generations.  Members can participate in a Non-contributory, Contributory or Reverse IPP (dependent on the date of hire).  
  • Pensionable income limited to $180,000 indexed with CPI. 
  • Eliminate the current excess earnings model for the COLA.  
  • Reduce employee contribution rate to 7.65% (eliminating the 4% maintenance of effort contribution). 
  • Create a new account funded by 4.0% employee contributions (plus actual investment income) which would fund an annual COLA payable after 3 full years of contributions. 
  • A COLA would be paid each year based on funds available.
The blue line and bar represent the effects of the SB 1609 reforms already in place.  Some of these reforms have already been reversed, and others may also be reversed in the near future, but it shows the effects as if the reforms were to remain fully in place.  The red line and bar represent a full reversal of all SB 1609 changes.

The graph and figures show that a complete reversal of SB 1609, the red line, would be a disaster for PSPRS.  Median contribution rates would continue to increase until 2033, and the median funded ratio would not reach 60% until 2023.  We have to remember that these are median rates and ratios and specific rates and ratios for individual employers could be much worse.  When we look at the blue and green lines and bars, they are nearly identical.  The blue and green bars are of nearly equal height, and the blue and green lines converge to a point where they appear like one line.  These lines also maintain a level median contribution rate until 2033.  The blue and green bars also maintain higher funding ratios over time and reach 60% funding approximately five years prior to the red bar.

This now brings us to the big question.  Why do we need a new set of reforms to PSPRS when the reforms of SB 1609 already appear to be working, and the proposed reforms show no improvement over SB 1609?  It goes beyond certain parts of SB 1609 being declared unconstitutional since the SB 1609 reforms could just as easily be proposed as a constitutional amendment as the proposed reforms.  We'll go into this further in the next post.

No comments:

Post a Comment

Relevant comments are welcome, but please adhere to the following rules:

1. No profanity or vulgarity.
2. No spam or advertising.
3. No copyrighted material may be posted unless you are the copyright owner.
4. Stay on topic.
5. Disagreement is fine, but please avoid ad hominem attacks.

Comments reflect the views of the authors alone, and do not reflect the opinion of this website.