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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...

Tuesday, July 4, 2017

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 permanent benefit increase (PBI) formula with the new cost of living allowance (COLA).  This change was put in place by the passage of Proposition 124, the Public Retirement Benefits Amendment, in May 2016.  It amended the Arizona Constitution via referendum to allow a change in a public pension benefit.  This referendum was passed by Arizona voters by a 70-30% margin. 

However, changing a public pension benefit is considered an unconstitutional act in Arizona based on Article 29 of the state constitution, which states “Public retirement system benefits shall not be diminished or impaired . . . “  This was the legal justification for Kenneth Fields' and Philip Hall’s successful challenges to the change in the PBI formulation under the Elected Officials’ Retirement Plan (EORP).  The EORP PBI is a retirement benefit, and it could not be “diminished or impaired” unilaterally by the Arizona legislature under SB 1609.

In order to avoid the same legal problems caused by SB 1609, which was only approved by the legislature, Proposition 124 added the following (italicized) language to Article 29 after a vote by the state’s citizens:
Public retirement system benefits shall not be diminished or impaired, except that certain adjustments to the public safety personnel retirement system may be made as provided in senate bill 1428, as enacted by the fifty-second legislature, second regular session.
This ostensibly allowed the state to “constitutionally” change a public pension benefit, eliminate the PBI formulation for all PSPRS members, and move to a strict COLA for existing retirees and all defined benefit tiers.  Proposition 124 did not affect EORP members, and the Arizona Supreme Court ("the Court") quickly dealt with the PBI issue in one short paragraph in its decision in Hall.  The change was unconstitutional under Article 29, just as it was in Fields, and it did not matter if a member was retired or active.

This is where it gets interesting for PSPRS members.  Outside of Article 29, another argument that was used by plaintiffs in their cases against SB 1609 was that it violated the Contract Clauses of both the Arizona and United States Constitutions.  Since Hall only dealt with EORP, which was not affected by Proposition 124, there was no reason to decide if changing the PBI via referendum violated the Contract Clauses.  The Supreme Court even avoided the consideration of the Contract Clause in its original decision saying:
The dissent also maintains that the Bill’s changes to the Plan may be upheld under the Contract Clauses of the United States and Arizona Constitutions. U.S. Const. art. 1, § 10; Ariz. Const. art. 2, § 25. See infra ¶ 107. As we have explained, however, the Bill’s unilateral and retroactive changes to the vested terms of the Plan violate Yeazell and the Gift Clause. See supra at ¶¶ 19–23. Consequently, analyzing whether the Bill would pass review under the Contract Clauses were it not for Yeazell and the Gift Clause is unnecessary and violates the principle of judicial restraint. See Superintendent, Mass. Corr. Inst. v. Hill, 472 U.S. 445, 453 (1985) (stating that judicial restraint requires “avoid[ing] unnecessary resolution of constitutional issues”).
The Supreme Court was using other guidelines in its decision and was not going to go there when it came to the Contract Clauses.  It even refused to do so in a Motion for Reconsideration filed after its decision.

Before we discuss this further, a little refresher on what exactly was changed by Proposition 124 might be helpful.  The old PBI, which was often incorrectly called a “COLA”, was not based on any measure of inflation.  It worked by taking half of any annual investment earnings over 9% and putting it in a Fund for Future Benefit Increases (“the Fund”).  The money was sequestered and could only be used to pay PBI's.  From the Fund, PBI’s of up to 4% of the average normal retirement could be paid to retirees.  For many years, the Fund had an excess, so PBI’s became a regular and expected annual raise for retirees.  The problem with the PBI formula was that it worked in only one direction.  Whenever PSPRS earned over 9%, money was moved to the Fund, but if PSPRS lost money, nothing went back to PSPRS’ investment pool to help mitigate losses.  If PSPRS lost 10% one year, then earned 10% the next year, 0.50% of the second year’s earnings would still be bled off into the Fund, even though averaged only 0.25% for the two years.  The rough years of the 2000’s showed the ugliness of this system.  While PSPRS became more underfunded every year and employer contribution rates increased, PSPRS was still forced to take much-needed investment earnings and use them to pay PBI’s.

To further illustrate this, we can use the current fiscal year (FY) as an example.  Let's say PSPRS ends the current FY with a 13% annual return.  Under the old PBI system, half of the amount over 9% annual return was required to be transferred to the Fund.  With $9 billion in investments, this would be $180 million taken from PSPRS’ investment pool to be used for PBI’s.  This would be despite the fact that PSPRS is less than half funded and many employers are already straining their budgets to make their annual contributions. 

If we look at the FY 2016 PSPRS annual report, there were 11,863 retirees or survivors, and the average normal retirement was $4,632 per month.  A 4% monthly increase would on the average normal pension would be $185.28.  The cost of this PBI per year would be $26.375 million, leaving over $150 million for PBI’s in future years.  Any future FY’s that achieved returns greater than 9% would continue to add to the Fund, and PBI’s of up to 4% would be paid as long as there was money in the Fund.  This PBI, as the name says, is permanent, not just for that year of excess earnings, so it would have to be paid to all retirees who received it until they or their surviving spouses died.  Remember too that as long as there is money remaining in the Fund, more PBI's could be awarded in future years, compounding the unfunded benefit increases.  Also, as the average normal retirement benefit increased over the years, whether through wage inflation of those still working or via PBI's, future PBI’s would increase as well.  This allowed monthly retirement benefits to steadily increase over the years, especially for those with less-than-average benefits, as their PBI’s were a higher percentage of their monthly benefits as compared to those retirees with average or above-average monthly benefits.

The new COLA system that was put in place with the passage of Proposition 124 is much simpler.  It allows for the payment of an annual COLA that is the lower of 2% or a local consumer price index for the Phoenix area.  The COLA is also paid on an individual’s own retirement, not the average normal benefit, so a retiree cannot see his retirement grow any faster than 2% per year.  If inflation is higher than 2%, retirees will see a loss in earning power that year.  If it less than 2%, they will only get a COLA that matches that annual inflation rate.  If inflation is 1% one year and 5% the next year, the retiree will see his benefit increase by 1% the first year and 2% the next year.  The other 3% of inflation will have to be absorbed by the retiree.  The COLA’s will be paid for in the employer contribution rates in FY 2018, which started July 1, 2017.  The first COLA will not be paid to PSPRS retirees until FY 2019, sometime after July 1, 2018.

So we can see that there is a dramatic difference between the old PBI and new COLA systems.  I would be the last person to defend the old PBI system.  It was a system designed by selfish, shortsighted, and foolish people who thought that PSPRS would never earn less than 9% a year and that high inflation would be a permanent condition in the economy.  They never took in to consideration the compounding effect of this benefit, which anyone with any common sense could have seen would eventually harm the pension.  While not as bad as the PBI system, the new COLA system has its own cabal of selfish, shortsighted, and stupid proponents.  The only difference is that these people think that low inflation and low market returns will be the new normal.  The disgraceful sellouts in the state-level fire and police unions have designed and/or supported a system that will rob retirees of purchasing power in order to bring PSPRS back to financial solvency.  Of course, this is not the subject of this post.  Those who want to read more about what has happened in the reform efforts can look back at older posts. 
 
Returning to our original topic, I do not know if the plaintiffs in Parker v. PSPRS will challenge the constitutionality of Proposition 124.  They would seem to have a good case under the Contract Clauses of the Arizona and United States Constitutions.  Here is what Article I, Section 10 of the United States Constitution says:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
I have place in boldface the relevant part about contracts.  Article II, Section 25 of the Arizona Constitution has nearly identical language and says, “No bill of attainder, ex-post-facto law, or law impairing the obligation of a contract, shall ever be enacted.” 

The United States Constitution makes it very clear that no state can void a contract through passage of a law.  The Arizona Constitution specifically prohibits the Arizona Legislature from doing so.  Yet this is exactly what the Arizona Legislature did by passing SB 1428 and referring a constitutional amendment to the ballot.  I am not a constitutional scholar but what the Arizona Legislature did would seem to violate the letter and spirit of the Contract Clauses.  They passed an unconstitutional law then referred it to the voters in order to make it “constitutional” under Article 29, but this still violated the Contract Clauses.

Under this same guise, couldn't the Arizona Legislature have changed our pension in any way they wanted?  All it would take is for them to pass a law and send it to the voters for approval as a constitutional amendment to Article 29 of the Arizona Constitution.  Proposition 124 set the precedent for any abrogation of pension promises as long as the voters approve an amendment to Article 29, but the pension is still a contract between employees and the state pension system.  Can it be this simple to change this contract?  Article 29 of the Arizona Constitution is meant to give additional protection to the pension contract between public employees and their government employers, but does its public pension-centric focus allow for amendments that can actually override the Contract Clauses?  This seems to be what the Arizona Legislature and state public safety union leaderdship believe.

If we look deeper into the Hall decision, the Supreme Court time and time again refers to the plaintiffs as being in a contractual relationship with the State:
Yeazell thus protects the specific terms of a public pension contract from unilateral retroactive alteration. Even the dissent in Yeazell recognized this as the Court’s holding. See id. at 118, 402 P.2d at 547 (Udall, J., dissenting) (stating that the majority’s holding was based on the “erroneous premise that there was created upon employment an absolute binding ‘contract’ to a specific pension,” which meant that the majority was holding that “the legislature, by subsequent enactment, can modify the original pension terms only if the employee consents”).
The Bill’s changes to the Class Members’ pension contracts are consequently invalid under Yeazell. When the Class Members were elected or appointed as judges, they entered a contractual relationship with the State regarding the public retirement system of which they became members. Their retirement benefits were a valuable part of the consideration the State offered upon which the Class Members relied when accepting employment. See Fields, 234 Ariz. at 220 ¶ 27, 320 P.3d at 1166 (“As in Yeazell, Fields has a right in the existing formula by which his benefits are calculated as of the time he began employment and any beneficial modifications made during the course of his employment.”). Under their contracts, the Class Members received retirement benefits as terms of their contracts for which they agreed to share the cost with their employers. Thus, an increase in the Class Members’ proportionate share of the contribution rate above 7% and the change in the statutory formula granting permanent benefit increases without the Class Members’ consent are breaches of that contract and infringe upon the Class Members’ contractual relationship with the StateSee Thurston, 179 Ariz. at 52, 876 P.2d at 548 (“Where the modification is detrimental to the employee, it may not be applied absent the employee’s express acceptance of the modification because it interferes with the employee’s contractual rights.”). By including in its scope Class Members who were Plan members at the time of enactment, the Bill retroactively, unilaterally, and substantially changed the contract terms that the parties previously agreed to. This violates Yeazell.
As can be seen by all the portions I have put in boldface, the sanctity of the contractual relationship between EORP members and the State was considered the crux of the matter by the Court. This was based on the precedent set in the Yeazell v. Copins case, which dates all the way back to 1956.  The Court could easily dismiss the State's arguments for changing EORP's PBI system to a strict COLA by pointing to Article 29, as the post-retirement benefit increase mechanism was very clearly a retirement benefit that cannot be "diminished or impaired."  However, when it came to the increase in employee contribution rates, the Court used the pension contract-centric Yeazell to overturn the State's actions in SB 1609.  The Court reminds us that employees make a decision on whether to accept employment with an Arizona government entity based on the conditions existing at that time.  EORP members are not like Tier 3 PSPRS members who will enter PSPRS knowing that they will not have a fixed contribution rate and must split normal contributions 50/50 with employers during their entire careers.  Tier 3 employees should be aware of this risk when they are offered employment.  If they are not comfortable with this situation, they can either go into a separate defined contribution plan or decline to work for the state agency.

But what about the dire financial state of EORP and PSPRS?  There are certain conditions under which a contract can be changed retroactively.  Here the issue is brought up in the Hall decision:
EORP and the dissent both argue that this is not the end of the analysis. They note that Yeazell commented that if a governmental entity shows that its pension plan is actuarially unsound, “the law governing mutual mistakes of fact” applies. See 98 Ariz. at 116, 402 P.2d at 546. They interpret this comment to mean that if EORP and the State could show that the parties to the Plan made a mistake about the Plan’s financial viability, the Bill’s retroactive changes would be permissible modifications of the Plan under Yeazell. But EORP and the dissent over-read Yeazell’s comment. Although this Court indeed said that the law of mistakes of fact applied to a pension plan if it was actuarially unsound, we expressly and carefully declined to address the consequences of such an application: “We do not, however, mean to imply what rights or remedies might be available to either party in a situation where it is established that a retirement plan is actuarially unsound. This is a matter beyond the issues of the present litigation.”
However, the Court quickly rejected the State's arguments in the following paragraphs:
This Court’s reticence was appropriate. While the defense of mutual mistake of fact applies in any contract dispute, EORP and the State are unable to prove that defense as a matter of law. That defense requires that the party seeking to void a contract prove that (1) the parties made a mistake about a basic assumption on which they made the contract, (2) the mistake had a material effect on the exchange of performances, and (3) the party seeking avoidance does not bear the risk of the mistake. Restatement (Second) of Contracts § 152(1) (1981); see also Renner v. Kehl, 150 Ariz. 94, 97, 722 P.2d 262, 265 (1986) (applying § 152 in resolving claim of mutual mistake of fact). EORP and the State cannot prove two of these elements.
First, EORP and the State cannot show that the parties made a mistake about a basic assumption of the Plan. They claim (and the dissent accepts, see infra ¶¶ 73, 104) that the mistake was the parties’ shared assumption that the Plan was actuarially sound, meaning that the parties mistakenly believed that the Plan’s investment returns would be sufficient to maintain the Plan’s actuarial soundness without changing the benefit increases formula or the employee contribution rate. But disappointment about anticipated investment returns does not qualify as a mistake. See Restatement (Second) of Contracts § 152 cmt. b (noting that “market conditions and the financial situation of the parties are ordinarily not such assumptions,” and “mistakes as to market conditions or financial ability do not justify avoidance under the rules governing mistake”).  Moreover, the Plan’s actuarial soundness is within the Legislature’s control. The Legislature is responsible for setting the amounts of the employer contributions and court filing fees, see A.R.S. § 38–810(B)–(D), and the Legislature may not “reduce the amount of the contributions to the fund if thereby the soundness of the fund is jeopardized,” Yeazell, 98 Ariz. at 116, 402 P.2d at 546. If the Plan is underfunded because of inadequate investment returns, the State may increase employer contributions and filing fees.
Second, even if unanticipated reductions in investment returns could qualify as a mistake, EORP and the State cannot show that the State did not bear the risk that this mistake might occur. The Legislature designed the Plan so that the State accepted the risk of variable investment returns. When investment returns are high, the State’s funding obligation through employer contributions is reduced or eliminated, as happened from 1998 to 2001. But when investment returns are low, the State’s funding obligation is necessarily increased. In either situation, however, the Class Members’ contribution rate remains fixed. Thus, the Class Members are not permitted to obtain any cost savings from higher investment returns, but they likewise are not required to pay more because of lower investment returns. The reward and risk of investment returns falls on the State. This is simply the nature of defined benefit plans. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439 (1999) (stating that in a defined benefit plan “the employer typically bears the entire investment risk” and “must cover any underfunding as the result of a shortfall that may occur from the plan’s investments”). Because the State bears the risk of the claimed mistake, the State cannot rely on the defense of mutual mistake of fact to justify changes to the Plan.
Again, I have highlighted the numerous portions where the Court repeatedly argues that the poor financial performance of the pension's investments is not a justification for unilaterally changing, to the employees' detriment, the conditions of the pension contract in place at the time of hire.  I would argue that the sheer stupidity of the PBI formula, which was destined to lead to where we are now, was a mistake and enough to make its elimination or replacement constitutional.  This does not even take into consideration the immorality of the PBI formula as a form of inter-generational theft.

So, we can see that the Court did everything possible to lay the groundwork for a constitutional challenge to Proposition 124 by declaring the contribution rates at the time of hire a contract that cannot be changed simply because of the disappointing financial performance of the pension.  The Arizona Legislature did not subject EORP members to the same changes affecting PSPRS members.  This was probably due to the small size of EORP's membership, 1,591 total active and retired members as of the end of FY 2016, versus 30,569 active and retired members in PSPRS.  For some perspective, the Phoenix Police Department alone had 2,486 active members at the end of FY 2016.  I also suspect that the State and EOR did not want to tangle again with retired Judge Kenneth Fields, a committed fighter who would have surely challenged any changes to the PBI formula for EORP members.  Without EORP members being subject to Proposition 124, there was no reason for the Court to even consider the Contract Clause of the Arizona Constitution.  The Court found all it needed to make its decision in Yeazell and did not want to look any deeper or broader into the Arizona Constitution, and based on what they did put in the Hall decision, it seems to me that the Contract Clause would have only bolstered the decision in favor of the plaintiffs.

So what happens if Arizona voters approve an amendment to the State's Constitution that violates another part of the Constitution, as it seems like was done here?  I was hoping that there would be something in the Arizona Constitution that addressed this situation, but I found nothing in Article IV, Section 1 of the Arizona Constitution, which deals with the initiative/referendum process.  I did not read the entire Constitution, but my guess is that that is why we have an Arizona Supreme Court to decide difficult issues such as this.  Only they could decide which part of the state's Constitution has  has precedence over the other, and even their decision might not be final, as this could be an issue that goes all the way up to the United States Supreme Court.

I think that will eventually occur in some pension lawsuit somewhere in the United States.  As more and more states find themselves in the position of Illinois with pension burdens so onerous that they cannot pay for other necessary government functions, some state will, via the initiative or referendum process, attempt to greatly reduce the pension benefits of state employees and/or retirees.  I suppose Parker v. PSPRS could be as good a test case as any.  However, I have no insight into what Thomas Parker and his fellow plaintiffs and lawyers have in mind when they go before Judge Jo Lynn Gentry.  The excess contribution issue is already settled with only the final rate of interest to be decided, but could they ask Judge Gentry to consider the constitutionality of the replacement of the old PBI system with the new COLA?  What of L. Lee Rappleyea, the PSPRS retiree who sued PSPRS over the constitutionality of SB 1609?  Her case was never actually litigated because the decision in Fields was applied to her case.  Now she and her fellow plaintiffs are losers without ever having had their day in court.  Could she refile her case, claiming that Proposition 124 is violating her rights under the Contract Clause?  Or could someone else take up this fight?  I don't know.  Searching the Maricopa County Superior Court website, I find no new cases filed against PSPRS in 2016 or 2017, but I suppose a case could be filed in any court in the state.

If Proposition 124 were found to be unconstitutional, it would upset the whole apple cart of pension reform, and it would only take one PSPRS retiree or one active Tier 1 member to do this.  This would be a disaster for PSPRS, which if I had to predict, would lead to the final PSPRS reform: the complete elimination of any defined benefit pension plan for Arizona's future public safety personnel.  After all, this is what happened to EORP, which is now exclusively a defined contribution pension.  A successful repeal of Proposition 124 would show that any type of retroactive pension reform, with the possible exception of bankruptcy, is impossible.  It will just be simpler to go with a defined contribution plan that has predictable costs and benefits.

The next court date in Parker is for a status conference on July 12, 2017.  It will be interesting to see what happens and if a court date for oral arguments is eventually set for some time in the future.

35 comments:

  1. Excellent post Drop Zone. This seems like a mess and will never end. My question to you is this. For the retired employee, which is more beneficial, the old PBI or the new one ? In the end, do they end up receiving about the same every year or is one significantly better ?

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    2. To give you an example, the last PBI was awarded in FY 2015 after the Fields case was upheld. The back PBI's depleted the Fund for Future Benefit Increases. The cumulative total of the previous 10 monthly PBI's was $1,283.71, so if you retired 10 years earlier your monthly would be that much higher. The last full PBI awarded (the 9th and 10th PBI's were smaller because the Fund was being depleted) was $159.13 per month. $159.13 would represent a 2% increase on a monthly benefit of $7,956, so we can see that the old PBI was much more generous than the new COLA.

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    3. $7,956 !!! Must be nice. My pension is less than one half that amount.

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    4. $7,956 !!! Must be nice. My pension is less than one half that amount.

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  2. This is the same argument that I have been bringing up since the inception to change the PBI began.
    I will bring the lawsuit myself if it is not brought by the current litigants.

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  3. Anonymous I hope you will test the constitutionality of these seemingly questionable actions of the State.
    What am I missing? Is there no one else who will say this thing does not pass the smell test? Why would anyone with a lick of common sense invest in Arizona real estate? I want the people who did put under oath and ordered to answer that question to a federal grand jury inquiry. Why would the plaintiffs agree to the plan we now have for Cola's? Why is the idea concerning the constitutionality of this just now being considered? In July of 1970 we began an increased amount of our wage, 8% I believe, to go to a new 20 year retirement plan. It was described then as in stone and would not change ever. We were specifically told our contribution and the City's contribution was set. Specifically we were told the city would contribute an amount that would insure the the funds soundness forever. And now???

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    1. Did you even read the article?
      The AZ State constitution prior to the ammendment along with the Constitution of the United States plainly show the issue.
      Stop drinking the kool aid.

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    2. No problem. It will happen.

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  4. This story misses a couple key points.
    1. The judges lawsuit was decided by substitute supreme court judges expect for Bolick who dissented and said they could raise the contribution rates. Since the PBI change only impacts public safety it would be decided by the real supreme court which is stacked with Ducey appointees... it is pretty easy to see how this goes with the real supreme court.

    Also what if PSPRS just earned its assumption rate each year of 7.4%? You would get zero under the old PBI formula. In a lot of ways the the new benefit is an increase over the old one.

    Also your pbi caculation formula is incorrect. A few years ago PSPRS started charging the full actuarial impact of the pbi which is much higher than the amount for one year of the PBI you give in your example.

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    1. All the lower court judges that served on the panel were appointed by Republican Governor Jan Brewer. Supreme Court Justice Bolick was appointed by Ducey. Three of the Brewer judges sided with the majority. The Supreme Court currently has 3 Brewer justices, 3 Ducey justices, and 1 Napolitano justice. If you think that you can predict what will happen based on who appointed the judges, you are kidding yourself. This is a constitutional issue that could have an impact across the whole country and affect billions of dollars in benefits. Who knows how they may rule?

      Your second point does not jibe with the history of the PBI. The PBI forumula was much more lucrative for retirees than the COLA could ever be. Also, the assumed rate of return is annualized and assumes that returns will vary from year to year, sometimes higherthan the assumed rate , sometimes lower. Those higher years will be what works to replenish the Fund and allow PBI's to be paid.

      As to your third point, I never mentioned the actuarials, just how the PBI was calculated to show someone how much their monthly retirement would go up. I also tried to show how the compounding effect could be so harmful to the pension. If you understand the actuarials well enough to give us actual percentages and dollar amounts that show the effects of the PBI on the funded ratio and employer contribution rates, feel free to post them here.

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  5. Would seem like a waste of money for lawsuit. The board would just make sure the fund investments never went above 9%, then zero pbi, good for fund, bad for retiree. From a fiduciary stand point, that would be there only option.

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    1. PSPRS Chief Investment Officer Ryan Parham has said as much in the past, but I believe he said it just as an excuse for PSPRS' poor returns. Also does anyone believe that they can actually target their returns in that small sweet spot between 7.4% and 9.0% in order to earn the minimum or slightly higher return but not trigger the PBI? They would only cause PSPRS returns to suffer if they tried this.

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  6. Sometimes people stand up for what is right. I applaud a lawsuit in these particular circumstances

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    1. Have a hard time with that one, lose lose scenario. Means no pbi's atleast until fund is back up to respectable funding, could be awhile...definitely not a win for retiree's. Atleast under current system almost guarantee some increase.

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    2. The funding level has no effect on the payment of PBI's. Money goes into the Fund for Future Benefit Increases whenever PSPRS earns over 9% in a fiscal year. As long as there is money in the Fund, a PBI can be paid.

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  7. In the old pbi it is possible to not see any yearly increase? Also, at our association meetings, although it only takes one to file suit, it didnt seem like they wanted to join the fight (pay for attorney). Would that have to come from the individuals pocket?

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    1. It all depends of how much PSPRS earns at the end of the fiscal year. If PSPRS had no earnings over 9%, then no money would be available to pay PBI's. The final numbers are not out for the current fiscal year that ended last week, but PSPRS' returns will almost certainly be over 9%, which would provide funds for a PBI. EORP retirees will get a PBI in FY 2018. It is important to remember also that it does not matter how much PSPRS earns in the fiscal, only if there is money in the Fund for Future Benefit Increases. So PSPRS could lose money for several years but continue to pay a PBI because one good year put a lot of money in the fund. This is how PBI's became a routine and annual thing for many years.

      As for lawyers' fees, I would guess it would have to be under some type of contingency arrangement. The lawyers in Hall were just awarded $200,000 in fees to be paid by the state. In Fields, no attorneys' fees were awarded from the state, but the plaintiff did not have to pay all of them. The fees were prorated among all the retirees who benefitted from the decision and they were deducted from their retroactive PBI's. So in both cases the plaintiff was not on the hook for all the fees, but it would have to be under a contingency arrangement just in case the plaintiff lost the case.

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  8. Sometimes people stand up for what is right. I applaud a lawsuit in these particular circumstances

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    1. As a constitutional issue, it would be fascinating to see, but it would be a disaster for PSPRS if the plaintiffs won. I guess we are on this runaway legal train, and where it stops or crashes, no one knows.

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    2. Would it be as much of a disaster if PSPRS was not so foolish and irresponsible with the fund? How about if we stop the bonuses and high pay they get? They made sure those were safe when we were worried if we were even going to have a fund anymore.

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  9. As said in Jerry Maguire "Just show me the money"

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  10. Went to a meeting today and spoke to a local PSPRS board member. It did not seem that they were anticipating much of a challenge to the PBI, but interestingly when asked about the refund and the interest, he said he did not want to comment on the interest as he stated they were in dark still about how it will be calculated or when it will be paid. So confusing as we were told it had been decided.

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    1. Local boards have found out after we do. I was keeping my local board up on the case long before they got word from PSPRS.

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  11. Funny. Let them know there will be a lawsuit regarding PBI. I will bring it myself if need be.

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  12. ATTENTION PSPRS, FIRE & PD ELECTED UNION HEADS, POLITICIANS :
    A lawsuit will be filed regarding the unconstitutional prop. 124.
    Ok now, no one can say that they do not think one will be filed.

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  13. Sounds great! Looking forward to my refund...in 2022

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  14. I see they set another court date for PSPRS case in Sept. Did nothing get resolved today?

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  15. People seem to forget something that is very important about what Prop 124 brought with the new CPI formula. The system must be funded at 90 percent in order to even have the full 2 percent considered. 80 percent equates to 1.75 percent and 70 percent to 1.5 percent. This means 0 percent for who knows how long because the system wont be funded at 70 percent for a very long time if ever. In addition to all of the mentioned reasons that 124 is unconstitutional, there is also the diminishment of benefits that affect all of those retirees that were able to share in the average of pensions when the PBI was calculated. 124 causes the calculation to be made from the individual pension amount which hurts most retirees in the state and benefits only the highest paid officers who are usually from the metro area of Phoenix. The hesitancy to file a lawsuit is fueled by the sell-out union leaders that signed on to and supported Prop 124, specifically, Fire, FOP and PLEA. The fact is that new officers now have the choice of defined contribution as opposed to defined benefit plans. This will be the way of the future. Cops are not going to work 30 plus years before being able to receive a pension. With this said, any result of a lawsuit affecting future defined benefit opportunities is probably a moot point anyway. The lawsuit will be filed. and if the union attorneys don't want to take it on there are plenty who will. Stand By and get ready for the ride because it is coming.

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  16. The old PBI aka COLA "DID NOT" increase the funding liability in any significant form. Let me say it again, the old PBI DID NOT increase the liability as outlined in this post. First it was based on the shared average of all pensions (intentionally set this way) to increase the low end of the retirees. Secondly, in your scenario, the PBI would be figured like this:
    What is the average 4% of the whole?
    MOST IMPORTANT: What would it cost to pay this increase benefit to the member for their entire projected lifetime?
    If the fund could cover this amount to the 4% level, they would pay it out. If it was less, that would be the amount.
    SO, there was never any compounding of benefits every year, it was paid once (technically held still bearing interests) over a period of time but HAD NO YEARLY increase.
    The only loss to the PSPRS fund was the amount was sequestered and not allowed to be used for any other purpose than for PBI (future payments under this scene). That 1/2 over 9% was not going back to PSPRS technically.

    You can check the past amounts of the funds and see it appears the benefit takes out a huge amount of money to pay the benefit but then you realize it isn't paying a yearly amount, it is the amount to cover the benefit for the project LIFETIME of the member. So you are not correct when you say the PBI caused a yearly increase in your blog.

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    1. You suffer from a delusion about what a pension is actually able to do, as well as ignorance of basic actuarial principles. The idea that the pension is a magic money machine that creates funding out of thin air is the root of so many of PSPRS' problems. The PBI, like any other unfunded pension benefit, will appear to work fine as long as there are more workers than retirees. Once the number of retirees began to increase rapidly, the PBI was exposed for what it is, a unfunded, unsustainable drain on PSPRS' finances. As a strictly constitutional issue, one can argue for the PBI, but any argument on financial grounds is simply based on greed and willful ignorance.

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  17. The PBI is not an unfunded pension benefit. It doesn't get "funded" unless the return is over 9%. Something that happened 20 some odd years in a row. So much for your false claim of not being sustainable. What grounds do you have for calling people names such as being ignorant or greedy? Seems like your emotions have gotten the better part of your judgement.

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    1. You're like a person who smokes, overeats, and never exercises for "20 some odd years in a row," has a heart attack, and yet still refuses to put together cause and effect. Did it ever occur to you that those years of paying PBI's is a major reason for PSPRS' current dire financial situation? Unhealthy pension management practices, like unhealthy lifestyles, are sustainable until reality intrudes and they aren't anymore, and in both cases, some people have to learn the hard way that things should have been done differently. However, unlike an unhealthy lifestyle, the ultimate pain and sacrifice of unhealthy pension management practices fall on others who neither reaped the benefits nor had any responsibility in their implementation. Many of us actually want PSPRS to benefit those that come after us and don't feel the need to bleed it dry for our own personal gain, but I suppose that's just my emotions getting the better part of my judgment.

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    2. You are believing the lies (more like perpetuating it) told by the employers trying to weasel out of paying a contractual obligation. 1) The pension was altered at the behest of employers to eliminate "volatility" when the DOW was under 2000. If these morons had left it alone, we would not have a problem now as it is over 22000. Why don't you say something about that? 2) Cities continue to claim they are poor (pure lies). Mesa for example claims it will have to sacrifice city services to pay and additional 25 million increase over 20 years ( about 400 million). While they make it sound dire it is not. They have 2 billion budget over 20 years makes it 400 billion. 400 million is nothing to 400 billion. They also have a 25 million carry over yearly, an enterprise fund near 100 million yearly and still claim they have no money. BS! They paid over 125 million to the Cubs without raising taxes or batting and eye. Another 25 million to the A's. Yet you try to blame people who want contractually what is due to them. Ridiculous.

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  18. Any notion that the PBI is or was a sound fiscal policy is not defensible on financial, or even common sense, grounds, but people are free to believe whatever they want. You can chase theories into whatever rabbit hole you want to explain why the PBI was eliminated. The financial explanation is adequate for me. As to the constitutionality issue, your anger and frustration is misplaced. If you or anyone else believes that eliminating the PBI was unconstitutional, he should challenge it in court. It would likely be a landmark case with the lead plaintiff’s name becoming part of US legal history and law. This is where you should direct your energy. PSPRS, the state legislature, and the state public safety unions should be the focus of your hostility, not me.

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