Parker v. PSPRS interest rate set at 5.25%: no timeline on payments to members

Here is PSPRS' press release on the settlement of Parker v. PSPRS:

Parker lawsuit interest rate settled by court

PSPRS Chairman: 2011 changes cost system more than $220 million 

ARIZONA – Members of PSPRS impacted by the Parker lawsuit are entitled to collect 5.25 percent interest on excess contribution refunds, according to a Maricopa County Superior Court ruling entered today.

The decision applies the same rate to pre-judgment and post-judgment interest on contribution refund amounts, as well as any permanent benefit increase (PBI) amounts withheld due to 2011 pension reforms deemed unconstitutional.

“The Hall and Parker litigation serves as a good example of what can happen when pension reforms are not properly vetted,” said PSPRS Board of Trustees Chairman Brian Tobin. “This cost our system more than $220 million while Proposition 124, which was crafted and supported by all stakeholders, is expected to provide about a half a billion dollars in savings.”

The interest period for excess contribution refunds started July 1, 2011, for all PSPRS members and employers. Ending periods will vary according to when each employer refunded excess contributions to impacted members.

Employers must notify PSPRS of the final processing date of contribution refunds related to the Parker lawsuit if they have not done so already. PSPRS needs this information in order to accurately calculate interest owed to members affected by the litigation. Employers can provide this information by emailing activemembers@psprs.com or by calling 602-255-5575. Members should then be notified by their employer of their individual amount.

These dates are also necessary for employers who wish to claim PSPRS contribution credits for pre-judgment interest totals awarded in light of the Hall and Parker lawsuits.

Post-judgment interest must be separately applied by the employer to any contribution refund amounts not returned by November 21, 2017, which is the date of the official entry of Judge Rosa Mroz’s order that establishes the interest and concludes the lawsuit. As a reminder, employers are not allowed to take credits against post-judgment interest.

“This ends a difficult chapter in PSPRS history,” said PSPRS Administrator Jared Smout. “And it gives the fund the opportunity to build on the positive trajectory of the last fiscal year, when the fund gained more than $1 billion in value.”

You can read the actual judgment here. One interesting thing here is the final pre- and post-judgment interest rate of 5.25%, which is one percent higher than the pre-judgment rate in Hall.  The post-judgment rate is the same in both Hall and Parker.  The decision states:

The Existing Active Plan Members shall be paid prejudgment interest and postjudgment interest pursuant to A.R.S. § 44 -1201(B) and (F) at the rate of 5.25%.  Pursuant to paragraph 2 of this Judgment, the interest shall run on the amount of any Existing Active Plan Member’s employee contribution in excess of 7.65 percent, from the date each such amount was withheld from such member ’s paycheck until payment of the amount, whether before or after entry of this Judgment.  Pursuant to paragraph 3 of this Judgment, the same interest shall also run on the amount of any permanent benefit increase not paid to an Existing Active Plan Member, from the date on which the permanent benefit increase should have been paid until payment of the amount, whether before or after entry of this Judgment.

This portion I placed in boldface is key since it makes clear that interest runs from the time the excess contributions were taken.  This means that every excess payment a member paid has been earning 5.25% from the time each one was deducted all the way up to the day the aggregate excess was refunded.  If you are interested in a discussion of interest payments, please check this post.  Based on a refund of around $12,000, I calculated an interest payment for myself of about $1,200.  This one percent difference increases that interest payment by about $300.

Unfortunately, there is no deadline for payment.  The court has mandated that "the Plan shall undertake further efforts, in good faith and within a reasonable time, to achieve the Plan’s or the employers’ completion of such remedial actions."  PSPRS has shown time and time again that their definition of "good faith" and "reasonable time" are not based on any consideration of its membership.  It would not surprise me if PSPRS dragged its feet again as it can continue to make more by holding onto the interest payments than by paying them out as quickly as possible.  (The interest is simple, not compounded, so once a member has been paid, no more interest accrues.)  As usual, don't expect any help from Board of Trustees Chairman Brian Tobin, whose only statement in the press release is about rehashing a political argument, one, by the way, that could have easily gone the other way if a single judge had voted differently, and nothing about what the Board and PSPRS plan to do for members.  Something like "we'll being working to get members their payments ASAP" or "we expect all payments to be paid by such-and-such date" would have been nice to hear.  He is a members' representative, after all, but he went native along time ago and has been worthless as a member representative and as a board trustee.  Since we can't count on Million Dollar Man Brian Tobin to do anything for members, it will have to fall on one or more of the other three member representatives to actually work for the benefit of members and not PSPRS' administration this time around.

Injunction, injunction, what's your function: Some speculation as to why there is not a final judgment in Parker v. PSPRS

PSPRS had its annual information seminar on November 7, 2017. The only update given on the Parker case were these bullet points on a Powerpoint slide:

• Two of the three parties have informally agreed as to the form of judgment, the ball is in the third party’s court.
• Formal agreement is done through legal documents and court filings, which have not happened yet.

PSPRS does not say which party has not agreed to the form of judgment.  The minute entry of the last status conference on September 22, 2017 said this:

The plaintiffs in the Hall case have decided not to appeal the trial court’s ruling regarding prejudgment interest.  Phoenix Law Enforcement Association (PLEA) has also decided to abide by the same prejudgment interest rate.  PSPRS has already paid members for the permanent benefit increases (PBI), except to the few members  ho are deceased.  PSPRS is also working with each employer to return the excess contributions to their employees.  There are many employers, each with its own issues. The parties will be discussing whether the issuance of a declaratory judgment will be sufficient to resolve the case.

So it certainly appeared at that time that a final judgment was imminent, as neither the plaintiffs nor PLEA were going to challenge the interest rates already set in the Hall case.  The only other outstanding issue would be attorneys' fees, and that issue would have no bearing on a final judgment on interest rates.  However, not being an attorney, I did not note the significance of the term "declaratory judgment."

I am speculating here, but it appears that one party does not agree with the final decision being in the form of a declaratory judgment alone, and not including an injunction.  You can follow the links if you are interested in reading more about those legal terms, but an injunction (i.e. injunctive relief) legally requires some type of action pertaining to the resolution delivered by the declaratory judgment.  You can get a little insight into this issue from this minute entry from Hall.  So in this case, the declaratory judgment would legally settle the interest rate question, as no parties object to the 4.25% pre-judgment/5.25% post-judgment interest rates set in Hall, but an injunction would be a further legal mandate on PSPRS to achieve final resolution.

Based on our experience of PSPRS' deliberate slow walking of the excess contribution refunds, my guess is that the third party (most likely PLEA) wants a definite deadline this time around when it comes to the payment of interest, which would include a penalty if PSPRS does not meet that deadline.  PSPRS spent months continuing to withdraw excess contributions after it was already declared unconstitutional by the Arizona Supreme Court, then they dragged out the process of paying refunds.  All the while PSPRS was earning interest well in excess of the 4.25% pre-judgment interest rate assigned in Hall.  It has been exactly a full year since the Hall case was decided on November 10, 2017 and the Russell 3000 has returned 21.80% in that time.  Even PSPRS' own annualized rate over the five years ending June 30, 2017 was 7.95%.

I suppose someone might ask why continue to litigate when the litigation itself is acting to prolong the delay in paying interest, but the response to that is why would there be any objection to setting an exact date on when the interest will be paid.  PSPRS has known that these payments were required for a year now, and it seems unlikely that there are anymore outstanding excess contribution refunds to be made.  This means interest is ready to be paid today, but of course, why should PSPRS be in a hurry to pay members if PSPRS benefits financially from dragging its feet?  Only a strict deadline with a penalty for non-compliance will force PSPRS to act ethically and for the benefit of its members.

The next status conference in Parker v. PSPRS is January 22, 2018.