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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Changed the retiree COLA formula
Increased employee contribution rate
New hires to work 25 years
Eliminated or changed DROP
SB1609 violates “Pension Clause” of Arizona Constitution but “Contracts Clause” remains untested.
$40 million in back payments to retirees
$335 million to re-establish the Excess Earnings Account
SB1609 eliminated the Excess Earnings Account. The Fields decisions re-establishes it.
Today, if PSPRS earns over 9% (the assumed earnings rate) half of the money stays in the Fund.
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:
7.65% to main PSPRS fund.
4% to new employee-funded “COLA fund.”
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.”
“The benefits of the beneficiaries shall neither be diminished nor impaired except for the provisions on Bill xxxx, as passed by the Legislature in 2014”.
This would be a statewide campaign. We would fund it and run it.
We anticipate a full political operation, with TV advertising, direct mail and a statewide grassroots effort.