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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...

Friday, June 9, 2017

***Hall v. EORP is finally concluded and the lower pre-judgment interest awarded***

Judge Thomason has reached a decision in Hall v. EORP.  Plaintiffs will not receive the higher 10% rate as if the settlement were based on a loan, indebtedness, or other obligation.  There is not an actual interest rate attached to the judgment, but it should be around 5% based on the current prime rate.

This should end the Hall v. EORP case, unless the plaintiffs decide to appeal the interest rate decision, as attorneys' fees were awarded and the judgment was also upheld.  The final decision in this case should apply in Parker v. PSPRS as well, at least as it pertains to a pre-judgment interest rate.  I do not know if the plaintiffs will challenge the constitutionality of the change in the PBI/COLA formula implemented last year by Proposition 124.

You can read the full decision here.

41 comments:

  1. Several of the association's are saying that the ruling has not yet been decided on pre-judgment interest and that portion is still under advisement

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  2. I just received the same info. That although the majority of the issues are settled, the judge has not yet finalized decision. Also what will be post judgement interest. Drop Zone can u you offer any further insight.

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    1. There is a different judge in the Parker v. PSPRS, but I believe that it would be unlikely that she would mandate a different rate than in Hall. Page 3 of Judge Thomason's decision states that Subsection B (prime rate +1%) applies, and the "plaintiffs are entitled and will receive interest; just not as much as they had hoped." Of course, the plaintiffs can always appeal just like ASU did in its case against ASRS.

      As to post judgment interest, I believe that it will be at the 10% rate, as once the court reaches its final decision, the money owed becomes an obligation. However, as before, a decision for PSPRS members still needs to be finalized, so I do not believe that post-judgment interest will start for PSPRS until then.

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  3. The PBI/COLA passed last year actually violates Federal Law tegarding contracts. You can view this by reading the Constitution of The United States. They can change the state constitution all they want, the United States Constitution supersedes it.
    Sorry Bryan.

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  4. While I agree that it violates the contracts clause and hope it is overturned, it would be beneficial to cite the specific reference rather than "The Constitution"

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  5. Drop Zone is there a way I can email or message you directly?

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  6. This comment has been removed by the author.

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  7. My agency just informed me I will have my refund by July 21.

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    1. Are they paying you in one payment? Did you have options to choose from? Thanks.

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  8. What agency do u work for ? Will your refund include interest?

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  9. One payment, for active guys 457 is an option. This is not the interest. That will come from PSPRS... with a 1099. I can email you the agency if you leave me a way to do that.

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  10. I'm not sure why my agency is responsible to pay this judgement. They were not named in the lawsuit. They were just doing as they were told by PSPRS. What PSPRS is doing is asking for a loan from my agency to cover their debt. They are keeping their fund balance stable while potentially making some agencies go into negative spending to cover their mistake. It is taking away from payroll and operational funds until paid back. Why penalize the agency. Cough up the entire amount plus admin cost to the agencies to administer their judgement. This is a undue hardship for a lot of us smaller agencies who don't have big city funds standing behind us.

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    1. If you read the previous posts, "Per federal regulations, the refunds cannot be paid back by PSPRS to members, but instead must be done by the employers." You can read the 22 page PSPRS report if you want more details.

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  11. With that reasoning, why blame PSPRS? They were just obeying the law. Government is government and the government is on the hook for the unconstitutional law it passed.

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  12. Because when they were told they could not raise the withholding years ago instead of refunding it they chose to drag it through the courts for 6 years.

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  13. Does anyone know how the interest is compounded? Monthly, Yearly?

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  14. According to the webinar yesterday it will be computed "simple". The example provided was (Total amount refunded X 5% X Amount of time effected).

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  15. That would be great, but how can they justify 5% for the total for the total years, I would think it only year 1 would be the total years, year 2 the remaining, etc

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  16. psprs deposited 2014 cola today for those impacted by the 2011 reforms. No notice or explanation, looks like 35 months worth of $65. Seems like they need to recalculate using the pre-reform formula also.

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  17. PSPRS has posted the specific amounts of what you will receive in the members section of their website. However, there is much confusion still on the interest. For example..if the refund is 10k, is the interest total 500 ?

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    1. As I understand simple interest, 10k at 5% over 6 years looks like this in math form: 10000(.05)x6=$3000.

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    2. Simple interest means that you do not earn interest on the interest. I have no insight into how they will calculate this, but let's say they do use a 5% rate. The correct calculation as I see it would be to divide 5% by the 26 pay periods to get 0.001923. Starting with you first excess contribution amount, you would multiply that fraction by your cumulative excess. So if you first excess was $50, so you would be owed about 10 cents in interest. Two weeks later, if you had another $50 excess for a cumulative total of $100, you would earn 20 cents on that $100. Your total interest earned from those first over-contributions would then be 30 cents. Using your $10,000 example, two weeks of 5% interest would earn you $19.23 on that $10,000. If you add up all these biweekly interest amounts, you will get your total interest due.

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  18. I would think buy back time would have been in PSPRS calculations if purchased between 2011 and 2016, but apparently not.

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  19. There is no provision for buying back time unless you dont have it available. You would have had to have the military or other time on the books to buy. Then there is the reality that you would be buying back only a couple of months.

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    1. No... What I am saying is I purchased time in 2016 and it cost me $21,000. Before the courts ruling. I would think that buy back would be in the refund calculations, but it was not. I figured PSPRS had the added percentage in their formula. Made a difference of $7000.

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  20. Here is what our local board and our HR department put out:

    Finance and Human Resources will discuss the process of the PSPRS contribution of
    refunds per the Hall-Parker Lawsuit.


    · Individual refund amounts to be available on PSPRS member portal this week
    · Federal & State Taxes to be withheld
    o FICA, Medicare & PSPRS part of original payroll
    · Issuance of refund stops the clock on accumulating interest

    Interest on contributions
    · Rate yet to be determined
    o Will be mid-July before court discusses again
    · Not considered wages
    o Must be paid through Accounts Payable
    o A form W-9 is required to be submitted by all receiving a payment
    § If form not submitted City is required to backup withhold at 28%
    § A 1099-INT will be issued by City
    o Cannot be deferred
    · Payment to occur as soon as practical after amounts are known

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  21. Does anyone know if there will be a challenge to the change in the PBI? What would be the impact to someone who entered the retirement system in the late 90's and retired this year?

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  22. For those with good math skills, and insight on how those interests are being calculated can be found at the end of the psprs memo page 13 and on: http://www.psprs.com/uploads/sites/1/Return_of_Contributions_Memo.pdf as you can see they put a total amount and a 5% amount accrued. They calculate the 5% interest rate on all those years to a total of app. 15% over the owned amount. Interesting data for someone elaborate here?

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  23. I just got the notification from our HR department that the refunds will be issued on July 21, and will be subject to the normal withholding. The interest is also coming from the city but through accounts payable and they asked for a form W9 or it will be withheld at 28%.

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    1. So 25% for principal and what rate will be applied for interest? (if you complete your W9 w/o mandatory backup withholding...)

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    2. No, principal taxed as normal wages. Interest will have no withholding with w9

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  24. Our HR advised we could elect to have over payment refund deferred straight into our 457 account. Great news, no taxes taken out.

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  25. I brought up the idea of challenging the PBI change and it didnt seem there was much interest in it. Has anyone heard any interest in that?

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    1. It would be a long process, but if a pension is considered a contractual relationship at the time an employee starts employment, it would certainly seem to be a valid argument that the PBI change violated the Contract Clause of both the Arizona and US Constitution. That was the whole basis for the unconstitutionality of the contribution rate changes in Hall. The court even went so far as to say that the financial solvency of the pension is not a valid reason for violating the contract entered into on hiring. By the initiative process used to pass Proposition 124, voters theoretically could have eliminated our pensions completely. This certainly seems like something that needs to be resolved. Maybe Illinois will be the test case for a challenge like this.

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    2. It needs to happen. That was our agreement when we entered the system. You can change it only before we enter into our contract when we enter the system.

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  26. Would that be another 5 yr decision?

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  27. I think that could really drag on. For those that are retired, what is the difference between the new PBI and the old one?

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    Replies
    1. The old PBI guaranteed a yearly increase amount.

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    2. The old one guaranteed a yearly increase that kept up with inflation. The new method only guarantees you will lose value in your retirement every year.

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  28. Now that PSPRS has earned above 9% and as a result the old PBI could have been funded. when is this issue justiciable? Now or when the first COLA is authorized?

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