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Wednesday, August 29, 2012

DROPping the ball

 "We have met the enemy, and he is us."
                                           Walt Kelly's comic strip character Pogo

HB2409 was signed into law by Governor Jan Brewer on May 14, 2012.  While this bill modified other PSPRS provisions, the most important change involved the Deferred Retirement Option Plan (DROP).

SB1609, passed in 2011, made major changes to the DROP.  It eliminated the DROP for anyone hired January 1, 2012 or later.  Those with 20 years of service before that date would be still be able to DROP under the provisions in place before SB1609 went into effect.  Those hired before January 1, 2012 but without 20 years of service at that date would see a change in how interest is calculated and be required to pay into PSPRS during their time in the DROP.

HB2409 now requires contributions made during a member's time in the DROP to be refunded to the member when the member leaves the DROP.  It also requires that a 2% interest rate be paid on those contributions as long as PSPRS earned at least 2% in the prior fiscal year.

The DROP was a short-sighted and irresponsible program from the very beginning, and it worsened the financial condition of PSPRS.   SB1609 attempted to remedy some of the problems with the DROP, first by killing it off for future hires, but also by requiring some sacrifice by current members.  It should have jettisoned the DROP completely or, at least, required ALL DROP participants who entered after January 1, 2012, regardless of their years of service, to continue making member contributions.  Instead, it only affected those with less than 20 years of service as of January 1, 2012.  While not ideal, this reform was better than nothing.

Now we see even this minimal reform rolled back.  This myopic legislative "victory" is an insult to those yet to be hired, and it represents part of the erosive process that will reverse the necessary changes PSPRS needs to survive. 

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