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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...

Thursday, June 8, 2017

The lastest on refunds of excess contributions in the Hall v. EORP and Parker v. PSPRS cases (Update 2)

I would like to thank the anonymous commenter who provide information and a link in the last post.  The comment pertains to the rate of interest and references a May 11, 2017 appellate decision in Arizona State University Board of Regents v. Arizona State Retirement System (ASU v. ASRS).  The case in question has some interesting similarities and differences from Hall v. EORP that could influence the decision in Hall and Parker.

Like Hall and Parker, ASU v. EORP involves and overpayment of contributions, but the contributions in ASU v. EORP appear to be employer contributions for an unfunded actuarial liablity claimed by ASRS.  ASRS demanded a payment of over $1 million from ASU with a penalty of 8% annual interest on any amount not paid within 90 days.  ASU made the payment but sued ASRS over the claim and won.  This reversed the debtor/creditor relationship, and ASRS had to refund the payment.  As in Hall, the final sticking point was over how much interest to charge.  The Superior Court judge order the judgment rate of "the lesser of ten percent per annum or at a rate per annum that is equal to one percent plus the prime rate as published by the board of governors of the federal reserve system," rather than the ten percent per annum rate on "any loan, indebtedness, or other obligation."  The rate awarded at the time was 4.25%, less than half what would have been awarded on a loan, indebtedness, or other obligation.

ASU disputed this interest rate, in particular because it was based solely on a judgment.  They prevailed in this argument and have been awarded the ten percent rate.  The Appeals Court decision is only six pages long, but the gist of it is that ASRS treated the original demand for payment like an indebtedness, which included a punitive interest rate for any delay in remittance, that was required to pay an actuarial unfunded liability.  If this was the case when ASRS was the creditor, it was equally applicable when ASRS became the debtor and had to pay the same money back to ASU.  This certainly seems like a fair and reasonable rationale.

The question for us is would this be applicable in Hall and Parker?  While there was no formal demand for payment from PSPRS to employees for the extra contributions, employees had no choice but to pay them, and the extra money was just taken from them whether they consented to it or not.  Employees did not formally agree to give or loan money to PSPRS.  The government used its power to extract it from their paychecks.  As ASU did, employees paid it then went to court to challenge the additional amount.  If we look at page 14 of PSPRS' 2016 Consolidated Actuarial Valuation, it describes the additional 4% paid (the excess contributions) in that fiscal year as a "portion used to pay down unfunded liability."  So we see that PSPRS members unjustly had a part of their earnings taken (no threat of punitive interest was necessary as they had no choice in whether to make the additional contributions) to pay an unfunded PSPRS liability.  Now like in ASU v. ASRS, we see the script flipped and the debtor and creditor switching places.

However, this is no slam dunk for an award of ten percent per annum interest.  ASU v. ASRS was a dispute between two parties over a specific issue involving 17 individuals taking part in a termination program.  In the judgment of ASRS, ASU was in arrears to ASRS.  ASU disagreed and the court agreed with them.  In regards to the Hall and Parker cases, EORP and PSPRS were making no demands on their respective employees and were simply following the requirements of SB 1609, for which the Arizona legislature was responsible.  This major difference seems likely to reduce the chances that PSPRS members are awarded a ten percent per annum rate of pre-judgment interest.

This is all in the hands of Judge Thomason now.  The latest information on the Hall case says that the matter is under advisement, meaning the judge is making his decision.  Once again, I would like to thank the reader who referenced this case.  It is often difficult to keep up with everything that is going on, and any help that can be provided is greatly appreciated.


  1. Cheers, I'm glad you found it as interesting as I did. Your blog has become the main source of information for the masses, and we appreciate you.

  2. I am hoping someone has information on members of PSPRS who were hired after June of 2011 and prior to January 2012, when the tier 2 started, are not eligible for the refund. I contacted my employer and PSPRS, and no one seems to know exactly why. Any information would be great.

  3. You wouldn't be eligible for the refund because of the law change and you were hired under the knowledge that you would pay the hire rates. The law was passed but not implemented until later.

  4. It's not really a refund when the government keeps the money and makes money off it. Then, it returns it devalued in the face of inflation, and the credit used in the interim. I guess it could be worse, Greece/Russia.


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