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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...

Wednesday, February 17, 2016

PSPRS reform signed into law: The betrayal of the future generation is complete (with a chance of poetic justice for those that betrayed them)

Governor Doug Ducey signed the PSPRS pension reform legislation into law on February 16, 2016, so the sellout of the next generation of firefighters and law enforcement is complete.  The point man for this betrayal, Bryan Jeffries, president of the Professional Fire Fighters of Arizona (PFFA), states in this  article, Arizona pension reform is signed by Gov. Doug Ducey, but voters will have a say, by Craig Harris in the February 17, 2016 Arizona Republic, that his organization is "all in."  That's funny.  I must have missed the election that all us voted in to approve this.

This is all pretty much a done deal.  I don't anticipate any organized resistance to the referendum in May that will change the COLA formula.  All that's left to do is to make sure the next generation of PSPRS members understands how our generation left them to pay the tab for our excesses.  The only unresolved issue is the Hall case, which will be argued before the special five-judge panel that was created after the sitting justices on the Arizona Supreme Court recused themselves from the case because they had a personal stake in the case.  The five judges named to the panel have no stake in the Hall case, having been placed on the bench after the new defined contribution pension replaced the defined benefit pension in the Elected Officials' Retirement Plan (EORP).  There is a separate case by PSPRS members that is active, but since it involves the same issues, it is not being heard as the results of Hall will carry over.

There was a little extra drama surrounding the Hall case over the past week when the plaintiffs tried to force the recusal of Clint Bolick, the new Arizona Supreme Court justice, from the case.  Justice Bolick replaced Pinal County Superior Court Judge Karl Eppich as a member of the panel.  Justice Bolick formerly was the vice-president of litigation for the Goldwater Institute.  This February 16, 2016 Arizona Republic article by Craig Harris, Ex-Goldwater lawyer-turned-justice to hear pension case, says this about Justice Bolick:
Bolick, in December 2010, was quoted by The Arizona Republic as saying proposed legislative changes to PSPRS could be made without running afoul of the Constitution or contract law. That very issue is now before the Supreme Court judicial panel. The Goldwater Institute also was a major supporter of the 2011 law that required judges and others in PSPRS to pay more for their benefits.
You can read more about the recusal effort here.  (You will have to choose "Active civil cases" then search for "Hall" with you browser's find tool.)  Arizona Republic columnist Laurie Roberts also has a piece here.  I am certain that the plaintiffs will win on the COLA issue in their case, but this will be a hollow victory that will last only until the May election when the new 2% maximum COLA will likely win approval from the voters and make the constitutional issue of altering the COLA formula moot.  The more interesting issue will be how the judges rule on the change in contribution rates.

The Hall plaintiffs, which by extension is all of us who were already PSPRS members when SB 1609 went into effect in 2011, are also contesting the change in employee contribution rates.  For PSPRS members, the employee contribution rate increased incrementally from 7.65% to the current rate of 11.65%.  A plaintiff victory would mean refunds of any contributions of over 7.65% paid by Tier 1 and Tier 2a PSPRS members, and it would be the final slap in the face to Tier 2b and Tier 3 PSPRS members.

A plaintiff victory would lower the fixed contribution rate of Tier 1 and Tier 2a members 4% to less than the rate of Tier 2b, who will still be stuck with the fixed 11.65% rate, and Tier 3 members, who will have a variable rate that is being estimated at 9% but will likely be higher.  It's not enough that nearly all the sacrifice is being heaped on Tier 3 members.  They will have to work 25 years, have no DROP, have a cap on pensionable earnings, cannot collect full benefits until 55 years of age, have a COLA based on PSPRS' funded ratio which is not collectible for seven years or when the member turns 60 years old, have to split the normal cost 50/50 with employers, and have previous generations' unfunded liabilities limiting their employers' abilities to offer better wages and benefits.  Now it is possible that Tier 1 and Tier 2a members will get big refunds and further add to the unfunded liabilities that will affect the finances and quality of life of Tier 2b and Tier 3 members and their families for years to come.

However, in this whole shameless spectacle, there is some potential for a bit of poetic justice.  A loss by the plaintiffs on the constitutionality of raising employee contribution rates would open the door for the legislature to raise the rates for Tier 1 and Tier 2a (and Tier 2b) members anytime they deemed it necessary and appropriate.  There would no longer be a "fixed" employee contribution rate.  This could someday be an issue if there is another financial crisis or prolonged market downturn.  The PFFA and law enforcement union negotiators acquiesced so timidly to Reason Foundation's plan because they believed it would protect Tier 1 and Tier 2a members, like themselves, from having to make any of the sacrifices they so freely placed on Tier 2b and Tier 3 members.  Wouldn't it be funny if Justice Bolick, former litigator for Reason Foundation's kindred spirit in Arizona, the Goldwater Institute, provided the tie-breaking vote against the Hall plaintiffs?

Oral arguments in the Hall case will be made tomorrow, February 18, 2016.


  1. Too bad! They would have to pay their share into the system like ASRS members have for years..............

  2. From 1980 until 2005, PSPRS members were paying higher rates than ASRS members. Most extreme example, in 2001, ASRS members contributed 1.92% of their salary, while PSPRS paid 7.85%.

  3. Thank you for your comment. ASRS' contributions fluctuate because employees and employers split the normal cost, which is dependent on ASRS' current financial condition. While PSPRS employee contribution rate used to be fixed at 7.65% (it is currently 11.65%) and could be higher than ASRS' in any given year, PSPRS' members did not have to split normal costs. (Tier 3 members hired next year will have to split normal costs for the first time.) If that were the case now, some employees might be paying 20-40% out of each paycheck to fund PSPRS. So it all depends on how your employer is doing.

    There are several stark contrasts between PSPRS and ASRS, the most striking being that ASRS is much better managed and has had better oversight than PSPRS. However, there seems to be a philosophical difference between the two systems as well. PSPRS has a fetish for hard, immutable formulas while ASRS allows more flexibility based on prevailing economic conditions. The ASRS viewpoint appears to have won the day, at least for future PSPRS members, whose contributions will be dependent on PSPRS' overall financial condition. Current PSPRS members will continue under the old system that has led to so many of PSPRS' problems. Thank you again for your comment.

  4. A light reading of the fact sheet for SB1428 seems to reveal that Tier 3 members will have a non-revocable choice of a DB or DC plan. If tier 3 members can opt out of the DB plan for the remainder of their careers, then wouldn't that start the death spiral for each agencies DB plan? The only thing propping up PSPRS plans are new blood coming into the system. Like any Ponzi Scheme, once new investors stop coming in, the death spiral begins. So it will be with PSPRS, once the EE contribution rates start to rise (ie: 50/50 split) then fewer new hires are going to want to participate. As fewer and fewer new hires opt into the DB plan the EE and ER required rates will begin to soar hirer and hirer until the inevitable happens....


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