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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, December 3, 2013

PSPRS members: Yes, Virginia, your pension can be cut

If you feel confident that your state constitution will protect your pension from being reduced, see this story by Nathan Bomey of the Detroit Free Press.  U.S. Bankruptcy Court Judge Steven Rhodes today ruled that Detroit's pensions have no special status in a municipal bankruptcy, in spite of a clause in the Michigan Constitution which forbids their diminishment or impairment.  Arizona has a similar clause in its Constitution.

Of course, there will be more legal wrangling, but this a very important precedent that will likely carry over state lines.


  1. CORP retirees haven't gotten a COLA increase in 2 or 3 years. With the stock market up as it is the investments must be making money, there must be funds going into the pension trust fund.

    1. Thank you for your comment. CORP, like PSPRS and EORP, was subject to the reforms put in place by SB 1609. The permanent benefit increase (aka COLA) is now subject to both a minimum funding ratio AND minimum rate of return for the past fiscal year.

      CORP, at 66.9% funded, is better funded than either PSPRS or EORP and meets the minimum funding ratio requirement (> 60%). The combined fund also earned 10.58% last fiscal year, which is just slightly over the 10.50% funding ratio threshold.

      However, as I read the regulations, only the portion over the 10.50% is eligible to be paid out as a COLA. This is .08% of excess earnings of only CORP's share of the investment pool. I do not know how this would translate into total dollar amounts or amounts per retiree.

      Please keep in mind that there is no longer a fund that holds excess investment returns and builds over time. This means COLA's will not be paid in any year the fund does not earn at least 10.50%.

      This could all change overnight, of course, depending on what the Arizona Supreme Court rules on current challenges to SB 1609. Those cases are still pending.


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