FIXING THE PSPRS PENSION FUND. As of June 2013, PSPRS was only. 57% funded. What’s the problem with our pension system?. For 2014, the aggregate employer contribution rate was. 32.5%. As the funding levels goes down, employer contribution rates go up. PHOTO BY: Willem van Bergen.
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SB1609 violates “Pension Clause” of Arizona Constitution but “Contracts Clause” remains untested.
SB1609 eliminated the Excess Earnings Account. The Fields decisions re-establishes it.
The other half goes into the Excess Earnings Account.
This happens regardless of the health of the Fund.
Even though the Fund is currently underfunded a COLA must be paid with Excess Earnings.
For 28 consecutive years retirees have received a 4% annual COLA. That simply isn’t sustainable – especially while the fund status declines.
Actuaries say the Excess Earnings Account is 80% of PSPRS’ problem.
Excess Earning Account - COLA
Why offer one, you ask?
Our answer relies on accepting most of the provisions of SB1609, which we have been living with since 2011:
We will contribute to the fund for 3 years before paying any COLAs.
After that, all COLA eligible workersmay receivean annual increase of up to 2%.
Cannot use more than 25% of fund annually to pay for COLAs
Must be retired for 7 years or age 60 before eligible for COLA
Tier 1:Members with 20 or more years on the job as of 1/2015
Interest rate = assumed rate of return for PSPRS
Tier 2: Everyone else
Contributions during the program period
Interest rate = minimum 2% or 7-year average of PSPRS investment returns (whichever is greater)
Return of member contributions
Reverse ESFIPP:Allow Reverse ESFIPP (DROP) (currently in CORP system)
Tier 1: Non contributory costs -0.6%
Tier 2: Contributory with return of contributions -0.4%
Reverse ESFIPP (DROP):earns fund +0.8%
The average employer contribution rate would fall from over 55% to mid-30%.
PSPRS 80% funded in 13 years.
PSPRS 100% funded in 18 years. Average employer contribution rate falls to the new 10% statutory minimum.
The bill will be structured to protect the constitutional language that says pensions “cannot be diminished nor impaired.”