Featured Post

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...

Wednesday, March 2, 2016

Correction to the last post about PSPRS retiree representation

Thank you to the reader who pointed this out.  There is a PSPRS retiree on the ten-member PSPRS advisory committee.  Here is the relevant passage from SB 1428:
BEGINNING JANUARY 1, 2017, THE PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM ADVISORY COMMITTEE IS ESTABLISHED AND SHALL SERVE AS A LIAISON BETWEEN THE BOARD AND THE MEMBERS AND EMPLOYERS OF THE SYSTEM.  THE COMMITTEE SHALL BE APPOINTED BY THE CHAIRPERSON OF THE BOARD FROM NAMES SUBMITTED TO THE CHAIRPERSON BY ASSOCIATIONS REPRESENTING LAW ENFORCEMENT, FIREFIGHTERS, STATE GOVERNMENT, COUNTIES, CITIES AND TOWNS AND TRIBAL GOVERNMENTS.  THE COMMITTEE SHALL SELECT A CHAIRPERSON FROM AMONG ITS MEMBERS EACH CALENDAR YEAR.  THE COMMITTEE SHALL CONSIST OF THE FOLLOWING TEN MEMBERS:
1.  A MEMBER WHO IS A LAW ENFORCEMENT OFFICER.
2.  A MEMBER WHO IS A FIREFIGHTER.
3.  A MEMBER OF THE ELECTED OFFICIALS' RETIREMENT PLAN.
4.  A MEMBER OF THE CORRECTIONS OFFICER RETIREMENT PLAN.
5.  A RETIREE FROM THE PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM.
6.  A REPRESENTATIVE FROM A CITY OR TOWN IN THIS STATE.
7.  A REPRESENTATIVE FROM A COUNTY IN THIS STATE.
8.  A REPRESENTATIVE FROM A FIRE DISTRICT IN THIS STATE.
9.  A REPRESENTATIVE FROM A STATE EMPLOYER.
10.  A REPRESENTATIVE FROM A TRIBAL GOVERNMENT LOCATED IN THIS STATE
I apologize for this error and should have read the text of the bill, not just the fact sheet.  Regardless, it is still vitally important that retirees get representation on the Board of Trustees since they will be outnumbered 9-1 by government and active employees on the advisory committee, and the advisory committee members will submitted by "associations of representing law enforcement, firefighters, state government, counties, cities, and towns and tribal governments," organizations that will overwhelming favor active members.  This will further help stack the advisory committee against retirees.

Tuesday, March 1, 2016

PSPRS retirees: Find your voice and protect yourselves before it's too late


While it is already too late for anything to be done about SB 1428, the PSPRS reform bill already signed by Arizona Governor Doug Ducey, or the May 2016 referendum to change the COLA formula, there is one crucial reform that needs to be implemented and is still possible to accomplish, even at this late date.

It is imperative that retirees get representation on the PSPRS Board of Trustees and the new advisory committee.  This is to prevent a repeat of PSPRS’ past efforts to consciously work against the interests of retirees.  The current PSPRS Board of Trustees seemed to see no problem when PSPRS Chief Investment Officer (CIO) Ryan Parham wrote in this article, "The truth about PSPRS investment performance," in the December 18, 2014 Arizona Capitol Times:
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.

Mr. Parham publicly admitted that PSPRS was trying to keep its returns under 9% to avoid paying permanent benefit increases (PBI’s) to retirees.  His confession actually served two purposes: it gave PSPRS cover for its lackluster investment returns and made it look like the under-performance was serving a higher purpose.  Call me crazy but shouldn’t the Chief INVESTMENT Officer be trying to make investments that earn as much money as possible for PSPRS, regardless of the consequences to the underlying fund, and does anybody really believe that PSPRS’ investment staff can target their investment strategy to earn precisely within the sweet spot between their expected rate of return of 7.5% and the 9% threshold that triggered PBI’s?

Mr. Parham felt confident enough in his position to tell the world that PSPRS is deliberately lowballing its returns, and the PSPRS Board of Trustees, which includes a firefighter and law enforcement representatives, expressed no uneasiness or outrage about this.  Only in such an insular, dysfunctional, and arrogant organization as PSPRS could senior personnel fail to perform their most fundamental fiduciary duty, then have the audacity to claim that it is a calculated act of good management.  While I would be the first one to say that the excess earnings PBI model was horrible and needed to go, I would never even suggest that PSPRS purposely and spitefully diminish its own investment returns in order to deny retirees PBI's.  If producing greater-than-9% returns is truly harmful to PSPRS, prove it to me by actually earning those higher returns and show me hard evidence of its negative financial impact.  I suspect that if a retiree representative had been on the Board of Trustees he might have felt the same way, and there would been a few hard questions asked of Mr. Parham and his fellow Trustees like:

Aren’t we supposed to earn the highest return possible and let the legislature and voters change financially flawed laws and policies?
Can we even earn 9% with the low risk strategy we’ve put in place?
If we cannot earn 9% with your current strategy, why don’t we just admit this?
Aren’t we violating the Fields decision and the spirit of the law by intentionally holding down returns?
Why should retirees trust PSPRS if management and Trustees when we express displeasure about a bad policy through the infliction of financial pain on them?

Beginning in 2017, SB 1428 adds two more public safety members to the Board of Trustees and changes the makeup as follows:
a)      two members representing law enforcement, one of whom is  appointed by the President of  the  Senate  and  one  of  whom  is  appointed  by  the  Governor.  A  statewide  association representing  law  enforcement  shall  forward  at  least  three  nominees  for  each  position  to the  appointing  officer.    At  least  one  of  the  members  appointed  shall  be  an  elected  local board member;
b)      two  members  representing  firefighters,  one  of  whom  is  appointed  by  the  Speaker  of  the House  of  Representatives  and  one  of  whom  is  appointed  by  the  Governor.  A  statewide association  representing  firefighters  shall  forward  at  least  three  nominees  for  each position  to  the  appointing  officer.    At  least  one  of  the  members  appointed  shall  be  an elected local board member;
c)       three  members  representing  cities  and  towns  in this  state,  one  of  whom  is  appointed  by the  President  of  the  Senate,  one  of  whom  is  appointed  by  the  Speaker  of  the  House  of Representatives  and  one  of  whom  is   appointed  by  the  Governor.  An  association representing  cities  and  towns  shall  forward  at  least  three  nominees  for  each  position  to the  appointing  officer.  These  nominees  shall  represent  taxpayers  or  employers and  may not be members of PSPRS;
d)      one  member  representing  counties  in  this  state  who  is  appointed  by  the  Governor.  An association representing county supervisors in this state shall forward nominations to the Governor, providing at least three nominees for the position.  These  nominees shall represent taxpayers or employers and may not be members of PSPRS; and
e)      one member who is appointed by the Governor from a list of three nominees forwarded by the Board.  The Board shall select the nominees to forward to the governor from a list received from the advisory board of at least five nominees.
SB 1428 also creates a “PSPRS advisory committee” beginning in 2017 that will:
serve as a  liaison between  the  Board  and  the  members  and  employers  of  PSPRS.  The committee  shall  be appointed by the Chairman of the Board from names submitted by associations representing law  enforcement,  firefighters,  state  government,  counties,  cities  and  towns  and  tribal governments.
Do you notice anything missing from the board and committee?  There is not a single retiree representative in either group.  The state unions, government groups, and the Board itself will nominate members to the Board of Trustees, and they will be chosen by the Governor, Senate President, and or the Speaker of the House.  Retirees cannot even get representation on the advisory committee and have been completely shut out of any role in PSPRS oversight, despite the fact that retirees are the most reliant on PSPRS for their standard of living, especially now that COLA’s will be calculated on an individual’s own retirement benefit, instead of the average normal pension.

The doubling of the representation of public safety unions on the Board of Trustees will not help retirees, and it is actually designed to help increase the influence of the state unions, the same ones that are shafting the next generation of firefighters and law enforcement.  As far as I know, the two public safety Trustees did nothing to speak up for retirees when Mr. Parham announced that PSPRS was trying to keep returns under 9%.  Will adding two more public safety Trustees make this situation any better?

Let’s contrast this to the Arizona State Retirement System (ASRS).  Among ASRS’ nine board members are four public representatives, two with experience in the private investment management industry, an economics professor, and the president of the Arizona Tax Research Association, and a retiree representative.  The other four ASRS board members represent state employees, political subdivisions, educators, and members at large.  Four of PSPRS’ nine-member board will be made up of public safety with another member picked by the Board of Trustees itself.  So ASRS has four neutral board members and a retiree representative, while PSPRS will essentially have a nearly built-in majority of state public safety union members.  For an example of how things already work, the current PSPRS Board of Trustees is chaired by Brian Tobin, the former president of the Professional Fire Fighters of Arizona.  If you are a retiree, think about what will happen when you add two more public safety union representatives to the two already there, and those four have a hand in nominating a fifth.  Do you think retirees will get treated any better in the future than they have been recently?  If high inflation eats up the purchasing power of retirees, who will be there to speak for them?  No one.

Once again, it is vitally important that retirees work to get one, but ideally two, representatives on the PSPRS Board of Trustees.  Instead of the public safety unions stacking the Board with two more members, a law enforcement and a firefighter retiree representative should be given those spots.  Otherwise, retirees will again be at the mercy of others that have only their own selfish interests at heart.  Why would we not want to follow the example of the only properly functioning state pension system, ASRS, instead of repeating past mistakes of our failed system.  The only way for PSPRS retirees to protect their interests is to have representation on the PSPRS Board of Trustees.  I don’t know if this can be accomplished, but we will never know if retirees don’t try to lobby their legislators, Speaker of the Arizona House David Gowan, Arizona Senate President Andy Biggs, or Governor Doug Ducey.  This is probably the only chance retirees will have to defend themselves.  I hope they take it for all our sake.