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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...

Thursday, November 10, 2016

**** PLAINTIFFS WIN HALL CASE 3-2 ****


Opinion in Hall v. EORP case has been issued.  Here is the relevant passage of the 42-page decision:
Upon transfer from the court of appeals, we affirm the granting of summary judgment to the employed Plan members . As we held in Fields, the Bill’s change to the benefit increases formula violates the Pension Clause because it “diminishes and impairs” the employed members  pension benefits. The Bill’s changes to the benefit increases formula and the contribution rate also violate our holding in Yeazell because the Legislature cannot unilaterally change the terms of the members’ pension contracts once their rights to those terms have vested at the beginning of the members’ employment.  Contrary to the trial court’s ruling, however, we find that the employed members are entitled to attorneys’ fees and prejudgment interest and that the judgment must run against the State as well as the Plan.

Obviously, there will be more to follow.

17 comments:

  1. good news, thanks

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  2. Hope this pertains to CORP retirees as well.

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    1. I don't know of any pending cases against CORP. There was another lawsuit (Parker v. PSPRS) over the same issues in Hall, but that case was essentially held in limbo with the result in Hall carrying over to the Parker case. I don't know of anything similar with CORP, but I do not know anything about that pension system.

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  3. Those members in Tier 1 and Teir 2a who are not retired yet, would they also received the 4% PBI based off this decision? We were told when hired that was included in our pension. Thanks for the information, you have been very helpful through this process

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  4. There may be a small group of Tier 1 and 2a members that may be entitled to a PBI if they retired some time between, I believe, June 2011 and June 2014. This was the last time when PSPRS had enough funds to pay a PBI. Since that time PSPRS has not earned enough to pay a PBI. The Hall decision upheld the old PBI formula, but now annual COLA’s will be the lesser of 2% or the CPI because of Proposition 124, which passed in May. This proposition superseded the Fields decision as it amended the Arizona Constitution, and this should be the same for Hall.

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    1. what is PBI? sorry not really following this comment. Im under the impression our contribution rates will return to 7.65? is this the case or will we stay at 11.65%? I entered in 2008

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    2. It is a little confusing. PSPRS used to pay what were call permanent benefit increases (PBI's) under a different methodology. What used to happen is that whenever PSPRS earned over 9%, half the earning over 9% were placed in a fund that they used to pay out the PBI’s. This PBI could be as high as 4% per year, based on the average normal retirement, so retirees were getting PBI’s every year when we had the long bull market. SB 1609 tried to change how PBI’s were paid but was struck down by the courts, first in Fields and now in Hall. This is all moot now since Proposition 124 passed in May. Now there will be true, though capped, cost of living allowances (COLA’s) that are the lower of 2% or the consumer price index (CPI). The COLA will be based on a retiree’s individual benefit not an average normal retirement. This new COLA applies to everyone, retired or still active.

      Some of the confusion with this is that the terms PBI and COLA were used interchangeably over the years, even though the PBI’s were not COLA’s as they were not based on inflation. Since you joined PSPRS before 2012, your contribution rate will return to 7.65%, and you should receive a refund of excess contributions, plus interest of what looks like 4.5% (prime rate plus 1%).

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  5. What does this mean for municipalities?

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    1. Councilman-elect,

      I am going from memory here, but several years ago the numbers I heard were that the aggregate employer contribution rate would increase 6% and the aggregate funded ratio would decrease by 3%. This, of course, will vary depending each employer’s financial status in PSPRS.

      This story from the Arizona Daily Star:

      http://tucson.com/news/local/arizona-pension-ruling-could-mean-million-in-refunds-to-some/article_15c129e7-f356-5aff-83be-c446648561ce.html

      says $220 million in refunds due and an increase in liabilities of $1.3 billion. I would assume most of this is in PSPRS as EORP is very small in comparison. This is bad news for employers.

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    2. I noticed that several of the local police unions are informing their members of the recent court decision. However, they are stating that this does not apply to PSPRS yet and that the Parker case still has to be decided and could take another year. Is this correct?

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  6. From the FOP website....
    At the same time that we filed the Rappleyea case, we also filed the FOP member "Parker" case in which we asserted, on behalf of all active law enforcement officers, that SB 1609’s attempts to diminish their benefits and increase their contributions was similarly unlawful and unconstitutional. Approximately three months after we filed the Parker case, PLEA followed our lead and decided to join the case by filing a motion coped from our filing

    As in the retired officers’ case, we persuaded PSPRS and Arizona that the parties should agree to be bound by whatever decisions are reached in the active judges case (“Hall”). Because we knew that the outcome in Hall would directly apply to our active officers in

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  7. Have you heard, when this will take place. i.e. the 4% drop in contributions and refunds.

    Thanks

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  8. It's supposed to happen very soon...from what I was told by my dept finance director there is a limited window to refund the money to current and retired personnel. Plus most depts and districts do not want to continue to accrue further debt. There are numerous smaller agencies that will not be able to incur these payouts. Some have already stated that no matter the ruling and time frame, they do not have the funds to pay. Goes to show that having a contingency account that is 10% of the annual budget is sound practice.

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    1. As far as I know, the refunds should come from PSPRS, not from employers. The excess contributions went to PSPRS and were not kept by employers. I think that any pre-judgement interest will likely come from the state treasury, but I am not sure. Employers will take the big financial hit when their contribution rates are recalculated to reflect the increased liabilities created by Hall.

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  9. I'm still confused. If I retired in 2000 does Prop 124 still apply?

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    1. Yes, it amended the Arizona Constitution and applies to all PSPRS member.

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  10. So everybody that's retired including police officers that worked 20 plus years and subsequently received a permanent disability during work will receive a 2 percent Cola??..beginning when?

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