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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, November 21, 2017

Parker v. PSPRS interest rate set at 5.25%: no timeline on payments to members

Here is PSPRS' press release on the settlement of Parker v. PSPRS:
PSPRS Chairman: 2011 changes cost system more than $220 million 
ARIZONA – Members of PSPRS impacted by the Parker lawsuit are entitled to collect 5.25 percent interest on excess contribution refunds, according to a Maricopa County Superior Court ruling entered today.

The decision applies the same rate to pre-judgment and post-judgment interest on contribution refund amounts, as well as any permanent benefit increase (PBI) amounts withheld due to 2011 pension reforms deemed unconstitutional.

“The Hall and Parker litigation serves as a good example of what can happen when pension reforms are not properly vetted,” said PSPRS Board of Trustees Chairman Brian Tobin. “This cost our system more than $220 million while Proposition 124, which was crafted and supported by all stakeholders, is expected to provide about a half a billion dollars in savings.”

The interest period for excess contribution refunds started July 1, 2011, for all PSPRS members and employers. Ending periods will vary according to when each employer refunded excess contributions to impacted members.

Employers must notify PSPRS of the final processing date of contribution refunds related to the Parker lawsuit if they have not done so already. PSPRS needs this information in order to accurately calculate interest owed to members affected by the litigation. Employers can provide this information by emailing activemembers@psprs.com or by calling 602-255-5575. Members should then be notified by their employer of their individual amount.

These dates are also necessary for employers who wish to claim PSPRS contribution credits for pre-judgment interest totals awarded in light of the Hall and Parker lawsuits.

Post-judgment interest must be separately applied by the employer to any contribution refund amounts not returned by November 21, 2017, which is the date of the official entry of Judge Rosa Mroz’s order that establishes the interest and concludes the lawsuit. As a reminder, employers are not allowed to take credits against post-judgment interest.

“This ends a difficult chapter in PSPRS history,” said PSPRS Administrator Jared Smout. “And it gives the fund the opportunity to build on the positive trajectory of the last fiscal year, when the fund gained more than $1 billion in value.”
You can read the actual judgment here. One interesting thing here is the final pre- and post-judgment interest rate of 5.25%, which is one percent higher than the pre-judgment rate in Hall.  The post-judgment rate is the same in both Hall and Parker.  The decision states:
The Existing Active Plan Members shall be paid prejudgment interest and postjudgment interest pursuant to A.R.S. § 44 -1201(B) and (F) at the rate of 5.25%.  Pursuant to paragraph 2 of this Judgment, the interest shall run on the amount of any Existing Active Plan Member’s employee contribution in excess of 7.65 percent, from the date each such amount was withheld from such member ’s paycheck until payment of the amount, whether before or after entry of this Judgment.  Pursuant to paragraph 3 of this Judgment, the same interest shall also run on the amount of any permanent benefit increase not paid to an Existing Active Plan Member, from the date on which the permanent benefit increase should have been paid until payment of the amount, whether before or after entry of this Judgment.
This portion I placed in boldface is key since it makes clear that interest runs from the time the excess contributions were taken.  This means that every excess payment a member paid has been earning 5.25% from the time each one was deducted all the way up to the day the aggregate excess was refunded.  If you are interested in a discussion of interest payments, please check this post.  Based on a refund of around $12,000, I calculated an interest payment for myself of about $1,200.  This one percent difference increases that interest payment by about $300.

Unfortunately, there is no deadline for payment.  The court has mandated that "the Plan shall undertake further efforts, in good faith and within a reasonable time, to achieve the Plan’s or the employers’ completion of such remedial actions."  PSPRS has shown time and time again that their definition of "good faith" and "reasonable time" are not based on any consideration of its membership.  It would not surprise me if PSPRS dragged its feet again as it can continue to make more by holding onto the interest payments than by paying them out as quickly as possible.  (The interest is simple, not compounded, so once a member has been paid, no more interest accrues.)  As usual, don't expect any help from Board of Trustees Chairman Brian Tobin, whose only statement in the press release is about rehashing a political argument, one, by the way, that could have easily gone the other way if a single judge had voted differently, and nothing about what the Board and PSPRS plan to do for members.  Something like "we'll being working to get members their payments ASAP" or "we expect all payments to be paid by such-and-such date" would have been nice to hear.  He is a members' representative, after all, but he went native along time ago and has been worthless as a member representative and as a board trustee.  Since we can't count on Million Dollar Man Brian Tobin to do anything for members, it will have to fall on one or more of the other three member representatives to actually work for the benefit of members and not PSPRS' administration this time around.

3 comments:

  1. Problem is it is not PSPRS who makes the payments, it is the individual employers PSPRS has no statutory authority over when the employer's make those payments.

    ReplyDelete
    Replies
    1. Employers cannot pay interest until they have authorization from PSPRS. Employers spent months continuing to draw excess contributions after the Arizona Supreme Court deemed them illegal in November 2016, and PSPRS did not authorize refunds of excess contributions until June 2017. These actions were the fault of PSPRS, not employers, and PSPRS was able to earn a several-point rate spread over what it will be required to pay members. Furthermore, many of the delays employers had in refunding employees was due to PSPRS not giving employers adequate time to prepare for last minute changes. As they have known for over a year that they would have to pay interest, PSPRS should be ready now to simply plug in the agreed-upon interest rate, get the individual totals, and authorize employers to make the payments. Any delay will once again be the fault of PSPRS.

      Delete
  2. Just notified that PSPRS is posting interest amounts on the website below refund amount.

    ReplyDelete

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