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Tuesday, September 11, 2012

PSPRS pension debate primer

My union local emailed me this link to a rebuttal written by Professional Fire Fighters of Arizona (PFFA) President Tim Hill (Hill: Robb fails to mention some important facts on public safety pensions).  It responds to Robert Robb's August 10, 2012 piece in the Arizona Republic (Public pension funds are ticking time bomb).  Here are some important facts that Mr. Hill did not mention in his piece:
  1. The S&P 500 index hits its all-time high of 1,565.15 on October 9, 2007 and closed at 676.53 on March 9, 2009.  It closed at 1,429.08 yesterday (September 10, 2012).  This is 90% of the all-time high, but a 211% increase over the market low during the most recent recession. Markets and returns can and do fluctuate.
  2. PSPRS' funding ratio was 126.9% on June 30, 2001.  It was 61.9% on June 30, 2011 and may have dropped below 60% at the fiscal year end on June 30, 2012. The funding ratio measures the ability of PSPRS to meet its obligations.
  3. Employers (i.e. taxpayers) paid a contribution rate of 20.11% vs. 7.65% for employees in fiscal year (FY) 2010-11.  This employer rate is estimated to increase to 27.18% vs. 9.55% for employees in FY 2012-13.
  4. Employers (i.e. taxpayers) contributed $44,518,693 to PSPRS in FY 2001-02.  In FY 2010-11, they contributed $273,824,144.  (Note: taxpayers also contribute to PSPRS through a fire insurance premium tax.  This tax is not included in the figures above.)
  5. Employees contributed $62,486,725 to PSPRS in FY 2001-02.  In FY 2010-11, they contributed $99,262,271.
  6. The average PSPRS pension in FY 2001-02 was $30,759.  In FY 2010-11, it was $47,739.
  7. There were 15,557 active members (current employees) vs. 5,989 retirees in PSPRS as of FY year end June, 30, 2002.  As of FY year end June 30, 2011, there were 18,638 active members vs. 9,522 retirees.
  8. As of FY 2001-02, there were 645 in the DROP.  As of FY 2010-11, there were 1,419 in the DROP.  Those in the DROP do not pay into PSPRS nor does the employer contribute anything toward those in the DROP.
  9. Taxpayers are constitutionally bound to fund PSPRS.  This leaves taxpayers with virtually unlimited liability to PSPRS, and they are left to make the greater sacrifice to keep PSPRS funded.
  10. $40,000 a year may not seem like a lot, but if you were to enter the DROP today with a $40,000 ($3,333/month) annual pension, you will walk away with  $224,000 five years later.   Also, $40,000 is the average pension.  When this average is calculated, it includes smaller pensions taken 15, 20, and more years ago as well lower surviving spouse pensions, so it is likely pensions being taken today are much higher.
  11. Anyone hired on or after January 1, 2012 will have to work longer, pay more, and receive fewer benefits.  They will get no DROP.  They will pay for the excesses of those hired before them.
  12. Pension reforms are threatened in the courts and the legislature.  For those hired before January 1, 2012, this may eventually return PSPRS to the status quo before SB 1609.
  13. PSPRS has large investments in hedge funds and private equity firms.  
Readers can reach their own conclusions based on these additional facts.  They are relevant and need to be considered by anyone who wants to seriously engage in debates over PSPRS.

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