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Wednesday, June 28, 2017

PSPRS members: A preliminary estimate on how much pre-judgment interest you will receive on your excess contributions

Like many people, I am interested in how much pre-judgment interest will be paid.  This calculation is, unfortunately, not as simple as determining your principal owed, a figure now available on your PSPRS account.  However, I was able to calculate some rough estimates based on what we know now.

What I have heard is that pre-judgment interest will be simple interest, meaning that interest will not be earned on interest, only principal.  The formula I used was to take the expected interest rate, likely 5% per year, and divide it by the 26 biweekly excess contributions that were collected by PSPRS since the start of fiscal year (FY) 2012.  This biweekly interest (0.05/26) is 0.00192308.  So this is how much interest one would earn every two weeks on their accumulated excess contributions.  If we start with my very first excess contribution of $25 in July 2011, I would have earned $0.05 in interest two weeks later.  Assuming my next excess two weeks later remained $25, I would earn simple interest on $50, which would be about $0.10.  My cumulative interest after four weeks would then be $0.15.  On $75, I would earn $0.14 for a cumulative interest of $0.29 ($0.05 + $0.10 + $0.14).  Additional interest would be earned every two weeks all the way up until a final judgment on the excess contribution portion of Parker v. PSPRS, which may come July 12, 2017, the next court date in Parker.

My final refund total was right around $12,000, so every two weeks I will earn an additional $23.08.  This biweekly pre-judgment interest amount will not change as no more excess contributions are being taken by PSPRS.  However, it is possible that the rate could change to a post-judgment rate of 10% per year after the final judgment on the excess contribution portion of Parker.   The biweekly interest rate earned would double to over $46.  I suspect that there will not be any difference in the pre-judgment rate between Hall and Parker as the parties in Parker agreed to abide by the decision in Hall, but since they are two different cases, there still must be a formal decision in Parker by the judge in that case.  I also do not know if the plaintiffs in Parker are going to challenge the constitutionality of Proposition 124, which changed the permanent benefit increase (PBI) formula via voter referendum last year, as a violation of the contracts clause of the Arizona and US Constitutions.  Regardless, any unresolved constitutional issues will not affect the excess contributions issue.

So what was the final pre-judgment interest I figured for myself as of the end of June 2017 with the method I described?  I have an estimate of $1,420 total prejudgment interest at the 5% annual rate.  If I increase the interest rate to 5.25%, which would be 1% plus the prime rate in effect today (The Federal Reserve raised interest rates 0.25% on June 14, 2017, several days after the final decision in Hall.),  it will increase to about $1,489.  I would have preferred to create a table with different excess contributions amounts and estimated pre-judgment interest totals, but I feel that everyone's situation is probably so unique that it will give an inaccurate picture of their pre-judgment interest amount.   There are just too many different factors in how the excess contribution grew over time to make a generic table for everyone.  However, if you have been paying the excess contributions for the full time and are somewhere around $12,000 in total excess, $1,300 to $1,500 in pre-judgment interest is probably a good preliminary estimate at 5% per year.  Of course, this is just my methodology on pre-judgment interest.  It remains to be seen what PSPRS will actually do.


  1. Has the interest not been decided or how it will be computed? I have read many different views on this and even our association seems unable to provide a definitive answer. I thought it was already decided in court?

  2. I have the same question. Why is there so much debate as to how this will be paid if it is already decided? Can you shed any light on this Drop Zone ?

  3. Reading the judge's decision, it seems to me that the only question was whether he was going to order a rate of 10% or prime + 1% rate. He denied the higher rate but did not specify an exact rate that would be used. As I mentioned, the prime rate actually increased 0.25% several days after the judge's decision. I don't know if this is why he did not mandate a specific rate. I know that PSPRS has used a 5.00% rate in its estimate of aggregate interest, which implies that the prime + 1% is the rate that will be used, with the possibility that it could be 5.25%, not 5.00%. I wish I had more to go on, but I am in the dark also.

  4. Thx for the response. Did we ever figure out if the computation is the one you wrote about or the amount x interest x 5 (years) that psprs had in their slides?


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