PSPRS investment returns through February 2017

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 through February 2017, the eighth month of the current fiscal year (FY), with the FY end 2014, 2015, and 2016 returns included for comparison:

Report	PSPRS	PSPRS	Russell 3000	Russell 3000
Date	Month End	Fiscal YTD	Month End	Fiscal YTD
6/30/2014	0.78%	13.82%	2.51%	25.22%
6/30/2015	-0.73%	4.21%	-1.67%	7.29%
6/30/2016	-0.32%	1.06%	0.21%	2.14%
7/31/2016	1.62%	1.62%	3.97%	3.97%
8/30/2016	1.76%	3.40%	0.26%	4.23%
9/30/2016	0.71%	4.14%	0.16%	4.40%
10/31/2016	-0.27%	3.86%	-2.16%	2.14%
11/30/2016	1.17%	5.07%	4.48%	6.71%
12/31/2016	1.30%	6.43%	1.95%	8.79%
1/31/2017	1.03%	7.52%	1.88%	10.84%
2/28/2017	1.17%	8.78%	3.72%	14.96%

There is usually about a two-month lag in PSPRS reporting its investment returns.

PSPRS had another 1%+ return for February 2017, and fiscal YTD has earned 8.78%.  However, the Russell 3000 has pulled more than 6% ahead of PSPRS.  For the fiscal YTD, PSPRS is earning 58.68% of the Russell 3000.  This fits the recent performance of PSPRS, which has usually earned 50-60% of the Russell 3000. 

Based on calendar date YTD returns, it looks as if the Russell 3000 had a small gain in March 2017, but it was up another 1.06% percent in April 2016.  Looking at this month's returns, private equity returned only 0.11% and has earned 11.51%, gross of fees, for the fiscal YTD.  This is funny timing, considering how much effort PSPRS just put into explaining how great their private equity returns have been.  One would expect private equity returns to show higher returns in a bull market, and PSPRS uses the Russell 3000 + 100 basis points as its benchmark.  The lag between PSPRS' private equity returns and the Russell 3000 gives us an indication of how unpredictable and risky private equity investments can be.


 * Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  Returns, gross of fees, are used in the table for consistency.  The past two years fees have reduced the final annual reported return by about a half percent.  Returns, net of fees, were 13.28% in FY 2014, 3.68% in FY 2015, and 0.63% in FY 2016.

Smout's Pout: The PSPRS Adminstrator tries to explain why PSPRS is one of the worst performing pensions in the US

Most of you have probably already seen this April 14, 2017 Arizona Republic article by Craig Harris, "Study concludes Arizona public-safety pension fund among worst-performing in nation." The title pretty much tells you everything you need to know, but if you have not read Mr. Harris' article, I would recommend you read it, even if it is just to hear what PSPRS spokesman Christian Palmer has to say in defense of PSPRS' ranking by the Pew Charitable Trusts (Pew) as ". . . the third-worst performing government trust fund as measured over a 10-year period that ended in 2015":

This isn't magic or a testament to how great anyone is.  This is because PSPRS has the highest share of alternative investments. ... Our costs may look high compared to other systems that may not make the same efforts to report all fees and investment expenses.

It's not magic, huh?  That's good to know because I was wondering why PSPRS hadn't tried to hire Penn & Teller to manage their investments.  Nor is it a testament to anyone's skill, either?  That's funny since that is generally what rankings tell us, but I suppose those managing the 69 funds that outperformed PSPRS were just having an incredible run of luck for the ten-year period that Pew analyzed.

I do not mean to pile on Mr. Palmer as he is just the spokesman for PSPRS and may have not fully prepared a response to the Pew Report, but this is what he said in his official capacity for PSPRS.  I had not posted anything on the Pew Report since I was waiting for PSPRS to send out a more fully thought-out response.  That response finally came out to today.  This is PSPRS' response to both the Arizona Republic article and Pew Report.  I had expected another party line response from PSPRS Board of Trustees Chairman Brian Tobin, but this time PSPRS brought out some different people.  The response starts with a short statement from Allan C. Martin, a partner in the independent investment advisor NEPC, LLC.  I am assuming that the rationale for including Mr. Martin's statement is that he is an objective party.  He restates PSPRS' standard line about how they are in this percentile of these particular funds over this specific timeframe, which is kind of like assessing the performance of the Atlanta Falcons midway through the third quarter of Super Bowl LI.  The fact that PSPRS was 70th out of 72 funds and the Falcons lost the game are really not important if you just look at the numbers in just the right way.  This nonsense is what we continually hear from PSPRS to explain away its underperformance.

Before I finish discussing Mr. Martin's portion, I would like to point out a few more things about NEPC, LLC.  PSPRS' fiscal year (FY) 2016 annual report lists NEPC's fees as $436,848.  In FY 2015, PSPRS paid NEPC $321,332, FY 2014 $326,501, and FY 2013 $326,886.  This is the disclaimer NEPC places at the end of its reports to PSPRS:

This report may contain forward-looking statements that are based on NEPC's estimates, opinions, and beliefs, but NEPC cannot guarantee that any plan will achieve it targeted return or meet other goals.

The reader can reach his own conclusions about PSPRS and NEPC from this additional information.

The rest of PSPRS' response comes from PSPRS Administrator Jared Smout.   There is a lot to say about Mr. Smout's statement, which comes in the form of him answering his own questions, but first we have to emphasize one very important thing.  As much as PSPRS tries to portray itself as a victim of Pew and the Arizona Republic, it was not targeted by either organization.  Pew analyzed 73 public pension funds and found PSPRS to be the third worst performing in the ten-year period ending in FY 2015, and the Arizona Republic just reported this fact.  The self-righteous indignation of Mr. Smout and other PSPRS cheerleaders does not change the fact that all the public pensions competed in the same financial markets as PSPRS and likely had their own unique problems to deal with.  Yet all but two performed better than PSPRS.  Now let's get to Mr. Smout's statements:

Why PSPRS paid the highest percentage of its investments in fees for outside investment management among the 73 largest public retirement systems in the country?
PSPRS had the highest percentage of alternative asset investments within their portfolio of every pension identified by the Pew Charitable Trusts study. These investments, which include private equity deals like buying and reselling companies or properties, require fees because they are not simple transactions like buying stocks or bonds. However, unlike fees for traditional investments like mutual funds, management fees are often reimbursed. PSPRS invests heavily in alternative asset classes as part of a deliberate strategy to minimize the risk of our portfolio, which has grown to more than $9 billion.
Additionally, the Pew report concluded – and even warned – that pensions are not reporting their fees accurately, or, in many cases, not reporting them at all. We, on the other hand, take the time and effort to report all of our investment expenses. A lot of plans don’t want to put in the work and they really don’t want to report totals when it is politically easier to keep them hidden. The Pew report advised that this exact type of disparity made their numbers unreliable for direct comparisons among pensions.

My response to this is: so what?  You pay a lot in fees, but you are still one of the worst funds in the nation.  That is the problem that is being highlighted here.  Most people would expect a positive correlation between higher fees and higher returns.  The saying "you get what you pay for" is generally not meant ironically, but apparently at PSPRS, it is.  Second, while it may be true that other pensions are not reporting their fees accurately, they are still outperforming PSPRS in the one number that matters, annualized returns.

Why in 2016, PSPRS spent nearly $129 million on investment management fees, while earning less than 1 percent return ($49 million) on it investments?

This question confuses “investment management fees” for investment expenses. There are two types of fees for alternative investments: management fees and performance fees. Management fees are up-front costs that are often – at least with PSPRS, which bargains its fees down with investment funds-reimbursed. For example, last fiscal year the trust paid approximately $87 million in management fees but we estimate that about $57 million of these fees will be paid back with interest in future years. PSPRS, like any institutional investor, must reward its investment managers for strong performance. The typical performance fee amounts to 20 percent of all profits above 8 percent. To be clear, achieving returns that trigger performance fees is a good thing. It means PSPRS is making money for the trust and selecting the right investments. Right now, PSPRS has private credit and private equity investment portfolios that are performing on an elite level compared to other peer pensions. These investments are making the trust money and lowering risk levels by diversifying our investments. For these reasons, alternative asset investments are worth the money for PSPRS and its members. Additionally, all public pension plans, not only PSPRS, had low investment returns last fiscal year ending June 30, 2016. Despite the tough environment characterized by struggling international markets, low interest rates, weak bond returns and geopolitical instability, PSPRS returns were among the top third of comparable pension funds. The PSPRS portfolio also assumed less risk than 96 percent of peer pension investments. Private equity investments generated a net of fee 11.3 percent return and outperformed all PSPRS asset classes

Once again, Mr .Smout is harping on fees paid to alternative investments.  Let me simplify what Mr. Smout is trying to say here.  Paying high fees is fine as long as the return surpasses those fees.  Would you rather pay $2 in fees to earn $3 or pay $20 to earn $40?  In the second case, you paid ten times the fees but returned twice as much, so strictly looking at the dollar amount paid in fees is not a fair measure of value because high fees in one asset class could be more than covered by even higher earnings in that asset class, and a loss in another asset class with low fees would eat into the profits of other asset classes with higher fees.  PSPRS earned 0.63% in FY 2016 and paid 0.43% in fees, so in aggregate, PSPRS did not pay more in fees than it earned on its investments.  This is a misperception left by the Arizona Republic article.  Of course, Mr. Smout still cannot help himself from making excuses about the same markets all the pensions were investing in or using his own special metrics to make PSPRS look good.

Why PSPRS paid fees of 2 percent to outside firms to manage its investments, while most state retirement funds paid less than one-half of 1 percent on management fees?

In 2015, PSPRS spent months conducting an in-depth fee analysis and shared the findings with the Republic. The examination of hundreds of funds revealed PSPRS paid about less than half the industry standard of 2 percent. Again, the Pew report warned that its data was unreliable and unfit for comparing pensions. 

The findings of the fee review were not published by the Republic. Also in 2015, an independent report contracted by the Arizona Auditor General found that PSPRS saved roughly $40 million on its investment fees by hiring attorneys to negotiate with investment fund managers.

Using PSPRS as an example, the challenge associated with fee reporting is that a pension can have several hundred alternative investments that were made and will end at different times. Some investments can take as long as 10 years or more to mature. This can make fee totals appear disproportionately high in years when a plan makes a lot of investments or in low return years like fiscal year 2016. On the flip-side, if a high number of investments mature in a particular year or generate many fee reimbursements, PSPRS could appear to pay very low fees. It is impossible to look at a reported fee total for one year to determine if a pension is overpaying for its alternative investments.

So PSPRS did its own in-depth fee analysis and the Arizona Republic didn't publish it?  Gee, I wonder why?  Probably for the same reason that news outlets didn't publish studies by the Tobacco Institute stating that cigarettes were not harmful.  It looks like the Republic was wise to not use PSPRS' numbers because Pew, a disinterested, independent organization, showed that they were wrong.  Pew had no incentive to misrepresent the fees PSPRS paid, while PSPRS did.  So does PSPRS pay 2% or "about less than half the industry standard of 2 percent"?  Mr. Smout never comes out and says that Pew is wrong and should retract its numbers.  He just gives a mealy-mouthed explanation of fees in the third paragraph.  And he is still perplexed as to why the Arizona Republic wouldn't trust his numbers?

Why PSPRS, a $9 billion trust, has only about half the money required to pay all current and future pension obligations to its members?

There are several reasons for this, all of which PSPRS has openly addressed for several years. Two global financial disasters – the “Dot.Com collapse and housing market crash – are a key factor, especially combined with the statutory formula for awarding pension increases to PSPRS retirees. The current PSPRS low-risk investment strategy that features greater reliance on alternative investments is a direct result of damages PSPRS suffered when it was heavily invested in public equities (stocks). (NOTE: This formula, the Permanent Benefit Increase, or PBI, was discontinued with the passing of Prop 124 in 2016.)

To a lesser extent, asset losses in legacy Arizona real estate investments were also steep enough to push overall investment returns down to below average levels. PSPRS has also been forced to reverse cost-saving pension reforms due to lawsuits and the costs associated with this have had a negative effect on funding levels. 

More vacuity from Mr. Smout.  Apparently, Mr. Smout doesn't realize that the dot.com and housing market collapse affected the entire world, not just Arizona, and that the other 72 other public pension had to deal with the same financial stresses.  Oh, and by the way, so did the Arizona State Retirement System (ASRS) and PSPRS' own Cancer Insurance Plan, both of which have outperformed PSPRS.  Yes, the PBI was a problem, but once again, what does this have to do with PSPRS' sub-standard returns?

Why the $36.2 billion Arizona State Retirement System for teachers and local and state employees ranks far better than PSPRS, settling among the top third when it comes to performance on investment returns?

ASRS has almost double the public equity exposure than PSPRS. Public equities are cheap but also volatile. If a fund can support short-term volatility then owning more public equities is a sensible strategy. An investor with a higher risk tolerance is able to seek higher investment returns. For many reasons, including the PBI and current funding levels, this level of volatility and risk are not acceptable for PSPRS. The explanation regarding our performance is simple; the trust was disproportionately harmed by legacy real estate investments. Even then, the Trust’s portfolio outperforms 75 percent of its peers on a 10-year basis through the end of 2016, net of fees, which most wouldn’t classify as “underperforming.”

And why ASRS paid less than half (about four-tenths of 1 percent) of what PSPRS paid on investment management fees?

The fees ASRS pays for their alternative investments is in line with what PSPRS pays for alternative investments. The difference between our total fee levels is explained by the percentage of assets that we each have in equities and alternative assets. PSPRS has a higher percentage of its assets in alternative investments, while ASRS has a higher percentage of its assets in public equities, which are inexpensive to buy. Many pension funds are increasing their allocations to alternatives, which they wouldn’t do if they thought it was an inefficient use of capital. 

These last two statements are Mr. Smout at his whiniest.  You would think he had walked in the door for the first time and just realized the sorry state of PSPRS.  In fact, he has worked at PSPRS for 20 years, becoming Deputy Adminstrator in 2011 and Adminstrator in 2015.   Are we supposed to feel sorry for Mr. Smout because of the self-perceived disadvantages vis-a-vis ASRS?  Maybe it's just possible that ASRS is better managed than PSPRS.  Perhaps Paul Matson, who has been Chief Executive of ASRS since 2003, could give Mr. Smout some pointers on how to run a pension.

To conclude this long post, Mr. Smout has provided the perfect closing line:

Many pension funds are increasing their allocations to alternatives, which they wouldn’t do if they thought it was an inefficient use of capital.

So if you are still unconvinced of the wisdom of PSPRS' investment philosophy, just remember PSPRS is just doing what everyone else is doing, only more so.  They have the highest percentage of alternative investments but the third lowest returns.  Herd mentality and underpeformance: there's a combination that will fill you with confidence.

PSPRS investment returns through January 2017

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 through January 2017, the seventh month of the current fiscal year (FY), with the FY end 2014, 2015, and 2016 returns included for comparison:

Report	PSPRS	PSPRS	Russell 3000	Russell 3000
Date	Month End	Fiscal YTD	Month End	Fiscal YTD
6/30/2014	0.78%	13.82%	2.51%	25.22%
6/30/2015	-0.73%	4.21%	-1.67%	7.29%
6/30/2016	-0.32%	1.06%	0.21%	2.14%
7/31/2016	1.62%	1.62%	3.97%	3.97%
8/30/2016	1.76%	3.40%	0.26%	4.23%
9/30/2016	0.71%	4.14%	0.16%	4.40%
10/31/2016	-0.27%	3.86%	-2.16%	2.14%
11/30/2016	1.17%	5.07%	4.48%	6.71%
12/31/2016	1.30%	6.43%	1.95%	8.79%
1/31/2017	1.03%	7.52%	1.88%	10.84%

There is usually about a two-month lag in PSPRS reporting its investment returns.

January 2017 was another good month for PSPRS.  For the month, PSPRS achieved about 55% of the return of the Russell 3000, but for the year, PSPRS has returned about 69% of the Russell 3000.  Since the election, PSPRS has so far earned at least 1% every month, and PSPRS has already exceeded its expected rate of return of 7.4%.

The calendar date YTD return of Russell 3000 as of April 12, 2017 is 4.93%, 3.05% higher than the the 1.88% earned through the end of January 2017.  With the a loss of 0.77% through the first 12 days of April, this means that the Russell 3000 will have a combined return in February and March 2017 of about 3.9%.  It will be interesting to see what PSPRS returns in those months.

If PSPRS collectively owes members $220 million in refunds as was estimated when Hall was decided last year, a 1% return will earn $2.2 million on members' excess contributions every month just on the principal alone.  A rate of 3.9% will have earned PSPRS over $8.5 million in February and March 2017.  If you are personally owed a $10,000 refund, a 1% return, $100 is what PSPRS will earn off your excess contributions each month; 3.9% is $390 earned off your money in February and March.  This is what PSPRS is earning off of the hard-earned money they should never have had in the first place.  Will PSPRS Board Chairman Brian Tobin and the other Trustees do what is right for PSPRS members, or will they side with PSPRS' administration like they have in the past and let members get cheated, treated as income sources rather than the system's beneficiaries?  Based on his past actions, I have little confidence in Mr. Tobin, but hopefully some of the new members of the Board will do what they can to make sure this is fairly settled.

 * Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  Returns, gross of fees, are used in the table for consistency.  The past two years fees have reduced the final annual reported return by about a half percent.  Returns, net of fees, were 13.28% in FY 2014, 3.68% in FY 2015, and 0.63% in FY 2016.

Operation Overlong: When PSPRS members are likely to hear anything new on the Hall case

With thanks to the anonymous reader who alerted me to via a comment in the last post, it now looks like PSPRS members have their own D-Day to look forward to.  The next Maricopa County Superior Court date for Hall v. EORP will not be until June 6, 2017 at 2:00 PM.  The court calendar lists the presiding judge as the Honorable Timothy Thomason.  The case minutes from March 28, 2017 show that the judge to whom it was originally assigned, the Honorable Randall Warner, was recused due to having a personal stake in the outcome of the case.  Judge Thomason was not appointed to the bench until 2014 and is not affected by the Hall decision.

So there we have it.  Nothing is likely to happen until that date, though I believe that PSPRS could refund excess contributions now since that matter, like the lowering of contribution rates back to 7.65%, requires no adjudication.  PSPRS just needs to turn loose of the money.  If attorneys are still haggling over an interest rate and attorneys' fees, that can be taken care of at a later date.  There is no reason to hold back the principal owed to members.

We also have to remember that PSPRS members still have to wait for the resolution of Parker v. PSPRS, the case that actually relates to PSPRS members.  As I mentioned in a previous post, Rapplyea v. PSPRS was settled less than three weeks after Fields v. EORP.  However, I think that there may be an outstanding issue in Parker, namely the status of the old permanent benefit increase (PBI) formula, that was not addressed in Hall, but this should be discussed in a future post.  Regardless, I don't believe that the refund of excess contributions and interest payments should be delayed by any outstanding PBI issues.  The contribution rate issue was resolved by the Supreme Court, and PSPRS members should see that portion of Parker resolved soon after the final decision in Hall. 

Special interest: What would be a fair interest rate for PSPRS members on their excess contributions?

PSPRS has told us that among the issues still up in the air is the calculation of interest payments on excess contributions.  This makes sense, but it should have nothing to do with refunding excess contributions since there is no uncertainty as to how much members are owed.  If you want to know what your refund will be, you can calculate it using the method explained here.  These amounts could be refunded to members now, and though I do not know if it would require the Superior Court's approval, it does not seem likely, since PSPRS is lowering the contribution rates without having gone to court first.  So what could be the reason for the delay in refunding excess contributions?  If PSPRS is incurring interest, it would make sense that they would want to expedite repayment.  Let's start looking at this by first trying to get an idea about how much interest members will receive.

The Arizona Supreme Court awarded pre-judgment interest, which is covered under under A.R.S. 44-1201 (A) and (B).  They state:

44-1201. Rate of interest for loan or indebtedness; interest on judgments
A. Interest on any loan, indebtedness or other obligation shall be at the rate of ten per cent per annum, unless a different rate is contracted for in writing, in which event any rate of interest may be agreed to. Interest on any judgment that is based on a written agreement evidencing a loan, indebtedness or obligation that bears a rate of interest not in excess of the maximum permitted by law shall be at the rate of interest provided in the agreement and shall be specified in the judgment.
B. Unless specifically provided for in statute or a different rate is contracted for in writing, interest on any judgment shall be at the lesser of ten per cent per annum or at a rate per annum that is equal to one per cent plus the prime rate as published by the board of governors of the federal reserve system in statistical release H.15 or any publication that may supersede it on the date that the judgment is entered. The judgment shall state the applicable interest rate and it shall not change after it is entered.

I have no idea how the judge might rule, but I think that PSPRS members would be covered under subsection B.  PSPRS did not sign off "any loan, indebtedness or other obligation" and was simply following the laws enacted by the Arizona Legislature.  There was no intent on their part to ignore or violate a binding contract.  This was the reason why the trial court judge initially turned down the plantiffs' request for interest.

Of course, this does not mean members should have to suffer financially either.  They were faultless and are the wronged party in this case, and they should be remunerated for the lost buying power and/or potential earnings on their back wages.  This is why subsection B seems like the most likely remedy for PSPRS members due a refund.  It would make members whole on their money but not be a punitive measure directed against PSPRS.  This, of course, leaves us to figure out what a fair interest rate would be.

If we consider subsection B to be the likely remedy, it would be interesting to see what the interest rate might be under different scenarios.  I have been paying the higher rate since it was raised in July 2011, and my total overpayment through January 2017 was $11,177.  The breakdown of my fiscal year overpayments is as follows:

Fiscal	Excess
Year	Paid
2012	$695
2013	$1,294
2014	$2,029
2015	$2,280
2016	$3,047
Jan 2017	$1,832
Total	$11,177

The following table shows PSPRS' actual fiscal year rates of return and what they have earned year-to-date through January 2017. Even though we are in April 2017, the rate of return through January 2017 is the latest information available from PSPRS' meeting notes.  The table also shows the actual prime rate during those fiscal years.  I lowered PSPRS' fiscal 2017 year-to-date rate by 0.52% to account for investment fees:

Fiscal	PSPRS	Prime
Year	Actual	Rate
2012	-0.79%	3.25%
2013	10.64%	3.25%
2014	13.28%	3.25%
2015	3.68%	3.25%
2016	0.63%	3.25-3.50%
2017	7.00%	3.50-4.00%

I was interested to see what PSPRS actually earned on my overpayments versus what they would actually pay me in interest if they used the subsection B formula, which is the prime rate plus 1%.     The prime rate was unchanged at 3.25% for seven years between December 2008 until December 2015.  It was raised in December 2015 (3.50%), December 2016 (3.75%), and March 2017 when it reached its current rate of  4.00%. 

For ease of calculation, I broke down each full fiscal year overpayment into 12 equal payments and compounded them monthly at four different interest rates.  For fiscal year 2017, I broke the overpayment into seven equal payments.  Here is what I found:

	Payout	Interest
Overpayment	$11,177	-
PSPRS Actual	$12,869	$1,692
Prime + 1%	$12,487	$1,310
Fixed 5.00%	$12,725	$1,548
Fixed 10.00%	$14,559	$3,382

If we use a strict interpretation of the prime rate plus 1% formula stated in subsection B of A.R.S. 44-1201, this would use the prime rate + 1% in effect at the time of each overpayment.  This would produce an interest payment of $1,310.  If we used the current prime + 1% (5.00%) and fix it retroactively to July 2011, we get an interest payment of $1,548.  As can be seen, both of these interest payments are less than what PSPRS actually earned on the overpayments.  A fixed 10% payment would produce an interest payment much higher than what PSPRS actually earned.  The annualized rate for PSPRS actual returns was approximately 5.42%

So what would be a fair interest rate?  As of January 2017, I would say that 5.42% would be fair.  This would be a wash for both parties.  It would not be right for PSPRS to keep the gains earned off members' money they should not have had in the first place.  Conversely, PSPRS should not be punished for simply following the conditions imposed on it by SB 1609, though PSPRS as an entity will not be punished, as any interest in excess of what they actually earned will hurt employers and employees long-term via higher contribution rates. Of course, this 5.42% interest rate will change depending on what PSPRS earns between January 2017 and whenever the excess contributions are finally refunded to members.

Since we do not know what is going on, we are once again left to speculate.  Will the judge just mandate an interest rate?  Will each side's attorneys argue for the rate most favorable to their clients?  If I was the plaintiff's attorney, I would be willing to accept the actual annualized rate up through March 31, 2017 since this was when the Supreme Court returned the case to the trial court judge.  (This actual annualized rate is likely to be higher than the 5.42% we mentioned earlier.) However from April 1, 2017 onward, I would only accept an interest rate that is the higher of either the actual annualized rate as of March 31, 2017 or PSPRS' real rate of return.  This would force PSPRS to pay members what it actually earns on their money, but it would prevent PSPRS from passing on to members any losses it might incur in the interim.

In answer to the question we asked earlier, the only logical reason for PSPRS to delay refunds to members would be if they were currently earning more than they expect to pay in interest.  For fiscal year 2017, PSPRS is earning nearly 1% per month through January 2017.  If this rate were to continue for the next five months, PSPRS would have a fiscal year rate of return of about 12.40%.  This is why it is critical that conditions are created where PSPRS has an incentive to return members' money as soon as possible.  They are earning a lot on our money right now, and members need protections to keep them from being cheated.