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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, June 7, 2017

The lastest on refunds of excess contributions in the Hall v. EORP and Parker v. PSPRS cases (Update 1)

Here is the latest, albeit minimal, information on the Hall v. EORP case that was posted on PSPRS' Facebook page:
Hall-Parker non-update update: The issue of interest was not settled during yesterday's trial court hearing for the Hall lawsuit. The court is expected to issue an order in the following days although the ruling will pertain to EORP. 
Applicable interest for PSPRS members impacted by the Parker lawsuit is expected to be determined sometime next month. 
However, PSPRS is working to soon provide employers with itemized lists of impacted employees and the pre-judgment (without interest) amounts owed to each individual.
This paves the way for member refunds as soon as possible, followed by separate payments to cover any interest awarded by the court. 
PSPRS will continue to provide updates as they develop.
Obviously, the plaintiffs and EORP do not agree on what a fair interest rate should be.  It would be intersting to know how far apart the parties are and on what rationale each side is basing its proposed interest rate.  We previously discussed what a fair interest rate might be in this post, which as of the end of January 2017 was an annualized rate of 5.42%, which is what I estimated PSPRS had actually earned on members' excess contributions.  This would mean that PSPRS would neither lose nor gain money on the excess contributions during the period they were being taken.  The latest annualized rate will be somewhat higher since PSPRS earned over 1% per month in February and March 2017.  It is possible that the plaintiffs could be arguing for a much higher interest rate by pointing to the S&P 500 or some other stock index or combination of indices as a baseline for what they could have earned if the excess contributions had never been taken from members.  However, this would be unfair to several groups, including employers, taxpayers, PSPRS members, and PSPRS itself, all of whom had no responsibility for SB 1609, and should not be punished for following through on its implementation.

Today's PSPRS post says that a decision should be coming in "the following days," which could be tomorrow or anytime in the future.  I believe that a decision should be relatively quick, though, since it is a specific number that the judge believes will deliver a fair amount of interest.  I do not see any legal nuance to this, and the judge has already had time to review the motions from both plaintiffs and defendants and heard their oral arguments advocating their respective positions.

It appears that the pre-judgment interest rate for EORP plaintiffs will be used up until Judge Thomason issues his final ruling in Hall v. EORP and that post-judgment interest has not been accruing since the Arizona Supreme Court decision in November 2016.  The next scheduled court date in Parker v. PSPRS is on July 12, 2017.  Though there is a different judge presiding over that case, I do not see why that judge would order a different pre-judgment interest rate as EORP and PSPRS invest their contributions in the same large pool of investments.  Employers were just given the go-ahead to start refunding excess contributions on May 31, 2017, and assuming there is a final judgment in Hall prior to July 12, 2017, this gave employers only six weeks to set up a system for refunding excess contributions to affected employees and retirees before post-judgement interest, which can be as high as 10%, begins to accrue on employers.

If we look at the PSPRS Return of Contributions Memo from the May 31, 2017 Board of Trustees meeting, it includes a legal opinion about how to return excess contributions from both Hall and Parker.  That legal opinion is dated May 25, 2017, only six days before the meeting and over six months since the Arizona Supreme Court decision in Hall.  PSPRS' post from today states that they are "working to soon provide employers with itemized lists of impacted employees and the pre-judgment (without interest) amounts owed to each individual."  So PSPRS has not yet gotten individual amounts to employers, even though employers will soon begin accruing post-judgment interest on unpaid excess contributions?  PSPRS also advises employers to give employees a chance to change their withholding rates and contribution amounts to tax-deferred accounts.  Nevermind, the time necessary for consultations to take place between employers and their union representatives, who then have to get answers out to their membership.

We once again see the unprofessional and shabby treatment by PSPRS of its stakeholders.  To be so out of touch with the realities faced by PSPRS local boards, employers, and union locals, those they are supposed to serve, is a disgrace.  PSPRS needlessly imposes costly financial deadlines on employers and administrative burdens on local boards and union locals all while they dilly-dally and move with no sense of urgency on their end.  PSPRS literally had years to figure out what they were going to do if Hall was decided in favor of the plaintiffs, but they never established any timelines to aid this process once the decision came down.  Of course, if you really want to get a true picture of PSPRS' management and Board of Trustees, we can always look to their own words.  This appears in the Return of Contributions Memo:
Furthermore, it is my recommendation that should an employer choose to utilize contribution credits that we allow pre-judgment interest to be included in those credits.  However, due to the complexity of tracking and coordinating the amounts with the employers, I do not recommend that post-judgment interest be included in the credits so as to entice the employers to return the excess contributions as quickly as possible. (italics mine)
I do not know who the "I" in this passage, but it takes an especially arrogant and clueless individual to imply that employers, who will be doing all the hard work of getting refunds out to employees and were given a short timeframe to do so and very little assistance from PSPRS, need to be incentivized to do the right thing.


  1. Now we need to get our PBIs back to what they were when we entered the system.

  2. ASU v. ASRS decision came out in May... it looks to me like the choices for prejudgement interest are set by statute to be either prime +1 or 10%, depending on whether it is a "loan, debt, or obligation", or a judgement. Based on how the appeals court ruled on ASU's overpayments, I would expect us to get 10% as well. But we're all just guessing at this point. Thanks as always for the updates.

    1. From that decision - "This appeal concerns the rate of prejudgment interest that applies to ASRS’s liability for the refund. The superior court held that the refund was in the nature of a “judgment,” and not a “debt” — a distinction that determines the applicable interest rate under A.R.S. § 44-1201. We disagree, and hold that ASRS’s over-collection of money created a debt that was not dependent on the existence of a judgment. We therefore reverse and remand for entry of judgment with prejudgment interest computed at 10%.


      Might provide some insight if anyone is interested in some light legal reading.

    2. Thank you for the comments. I had not considered what you have brought up in this decision. It is a debt from this interpretation. This will make the judge's ruling all the more interesting


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