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Tuesday, February 18, 2014

What does the law say about calculating PSPRS pension benefits?

Many of you have probably already seen this February 17, 2014 Arizona Republic article by Craig Harris, Walking fine line on pension 'spiking' lawsuits.  For more on the issue of pension spiking, this blog had a series of three posts in August 2013 entitled "PSPRS and pension spiking" that can be found here: part I, part II, and part III.

For those not familiar with the relevant A.R.S. statute regarding pensionable income, this is it:
"Compensation" means, for the purpose of computing retirement benefits, base salary, overtime pay, shift differential pay, military differential wage pay, compensatory time used by an employee in lieu of overtime not otherwise paid by an employer and holiday pay paid to an employee by the employer on a regular monthly, semimonthly or biweekly payroll basis and longevity pay paid to an employee at least every six months for which contributions are made to the system pursuant to section 38-843, subsection D. Compensation does not include, for the purpose of computing retirement benefits, payment for unused sick leave, payment in lieu of vacation, payment for unused compensatory time or payment for any fringe benefits. (Italics mine)
While workers should certainly be compensated for their unused sick and vacation time, this passage makes it clear that payouts for sick and vacation time can not be used to calculate retirement benefits.  The thin reed clung to by defenders of including sick and vacation time payouts in pension calculations is summed up here by Mr. Harris:
Supporters of the practice say those who benefit are not breaking the law because the excess vacation and sick leave are not being cashed out in a lump sum. Instead, they are being paid in the form of extra pay over numerous paychecks.
This defense is irrelevant since A.R.S. makes no distinction between sick and vacation time payouts that are paid incrementally or in a lump sum.  If we contrast this with how clearly A.R.S. deals with longevity pay, requiring it be paid at least every six months, we can see that there is little room for interpretation.  Payments for unused sick and vacation time can not be used in pension calculations, no matter how they are paid to employees.  The reason sick and vacation payouts are done incrementally is to limit the large tax hit employees would suffer if their payout appeared on a single paycheck.  The excess taxes paid on that one paycheck would then not be recouped until the employee got his tax refund the following year.  Incremental payments are an obvious benefit to the employee, who keeps control of more of his own money.

Even if you believe the Goldwater Institute is part of some nefarious conspiracy against public safety employees, is a cabal of rich evil geniuses really required to challenge the use of sick and vacation payouts in pension calculations?  I think anyone with basic reading comprehension can see that it violates both the letter and intent of the law, but this is another case where we will have to see what the courts have to say.

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