Transcript FIXING THE PSPRS PENSION FUND

FIXING THE PSPRS PENSION FUND
PSPRS
CORP
EORP
110%
83%
55%
28%
0%
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06
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08
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What’s the problem with our pension system?
As of June 2013,
June 2014 PSPRS was
only
57% funded.
49.2%
funded
PSPRS
CORP
40%
30%
20%
10%
0%
2003- 04
2004- 05
2005- 06
2006- 07
2007- 08
2008- 09
2009- 10
2010- 11
2011- 12
As the funding levels goes down, employer contribution rates go up.
For 2013 2014, the aggregate
employer contribution rate was
2012- 13
2013- 14
2014- 15
32.5%
41.4%
PHOTO BY: Willem van Bergen
In 2011, the Arizona Legislature tackled so-called pension reform.
We told them that their solution –
SB1609 – was not Constitutional.
They ignored us.
We were right.
In Fields in March 2014, the Arizona
Supreme Court ruled that
SB1609 illegally
diminished benefits of
pension recipients.
SB1609 illegally changed
the retiree COLA formula.
Retired Judge Ken Fields PHOTO BY: Jack Kurtz/The Arizona Republic
SB1609 also
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Forced
new
hires
(after 1/12) to work
25 years for a pension
Eliminated or changed
DROP for new hires and
those with less than 20
years.
PHOTO BY: Willem van Bergen
PSPRS Employer Contribution Rate
60%
This ruling will cost the fund (and AZ taxpayers)
$375 million.
•
$40
million
in
back
payments to retirees
•
$335
million
to
reestablish
the
Excess
Earnings Account
Making these payments will
push employer contribution
rates to more than 55%.
45%
30%
15%
0%
2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 201404
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More cases to
come……..
Very likely that most of not all aspects
of 1609 will be reversed.
Hall Case
Reyes Case
PSPRS Earnings
Today, if PSPRS earns over the 9%
assumed earnings rate, half that money
stays in the Fund.
The other half goes
into the Excess
Earnings Account.
By draining the main fund during
profitable years, we slow its recovery
and lower the funded level.
Actuaries say the Excess Earnings
Account is 80% of PSPRS’ problem.
Why? Because for 28 consecutive
years retirees have received a 4%
annual COLA. That simply isn’t
sustainable.
BREAK EVEN
EEA Contribution
Even worse, this leaves
the our pension system
with a huge problem:
How can we legally restore
funding levels without crippling
our employers? We need a plan
that secures our retirement,
helps cities and taxpayers and
ensures COLAs for retirees.
Fortunately, we have a solution.
Why offer one, you ask?
1. It’s our retirement at stake.
If the system fails, we lose
most of all.
2. Higher employer contribution
rates mean salary cuts,
inability to hire replacements
for retirees and, in extreme
cases, may even lead to layoffs.
Fortunately, we have a solution.
Our answer relies on accepting most
of the provisions of SB1609, which
we have been living with since
2011.
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New employees hired after
1/2012 will have to work 25
years.
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Pension = 62.5%
•
Eliminates requirement that you
be age 52.2 to collect a pension.
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Employers will have a minimum
10% contribution rate.
Key elements
❖
Higher employee contributions
❖
Reduced and changed PBI
program
❖
Eliminating excess earnings
program
❖
Minimum employer
contribution threshold
❖
ESFIP Program
The biggest change?
Fixing the Excess Earnings Account
problem, which today funds COLAs.
With small modifications, we can protect our
retirement system and ensure COLAs for retirees,
actives and “the unborn.”
Our solution?
Our contribution rate
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will remain at 11.65%. (3 highest
rate in County)
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7.65% to main PSPRS fund.
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4% to new employee-funded “PBI fund.”
How will the new
PBI fund work?
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Employees only pay 4% into PBI fund.
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We will contribute to the fund for 3 years before collecting any PBI.
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PBI qualification will be retired for 7 (6 year addition) years or age 60.
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PBI has no liability on corpus of fund.
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PBI will not provide ANY liability to employers.
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This new PBI approach relives employers of 20% of liabilities.
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Increase could be less. Cannot use more than 25% of fund annually.
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After that, all PBI eligible workers get an annual increase of up to 2%.
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The mechanics: Total dollars in the fund, will not give out more than 25% of the
fund for a maximum of 2% (Based on 7.85% assumed earnings)
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This is an improvement over SB1609, which practically eliminated PBI’s.
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This is a 50% or more reduction in benefit and we pay for 100% of it.
DROP will become the
Employee Self-Funded
Inflation Protection Program.
Tier 1 (members with 20 or more years on the job as of 1/2015)
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No contributions
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Interest rate = assumed rate of return for PSPRS
Tier 2 (everyone else)
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Contributions during the program period
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Interest rate = minimum 2% or 7-year average of PSPRS investment
returns (whichever is greater)
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Return of member contributions
Costs of the Three Types of
ESFIPP
• Non contributory costs=0.6%
• Contributory with return of contribution costs 0.4%
• Reverse earns fund 0.8%
Why is this so important?
1. Significant reduction of COLA’s in
future
2. Healthcare costs
3. Lack of Social Security and/or
Windfall provisions
4. Government pension offset
5. Survivor’s benefit reduction
This is different than ASRS
Majority of Arizona Public Safety employers do not
have retiree healthcare plan therefore State plan is
only option to receive PSPRS subsidy.
❖
PSPRS subsidy is this:
CURRENT PREMIUMS
Windfall/GPO?
WEP and GPO
Windfall Elimination Provision affects workers who spent some time in jobs not covered by Social Security and also
worked other jobs where they paid Social Security taxes long enough to qualify for retirement benefits. The provision has a
disproportionate effect on first responders, who retire earlier than most other public employees and are more likely to begin a
second career after they leave PSPRS. Firefighters in this position are penalized and may have their Social Security benefit
reduced by up to sixty (60%) percent. Because of the WEP, if their second career resulted in less than twenty (20) years of
substantial earnings, upon reaching the age at which they are eligible to collect Social Security, they will discover that they
lose sixty percent (60%) of the benefit for which they were taxed
The Government Pension Offset was adopted to shore up the finances of the Social Security trust fund. This "offset" law
reduces by two-thirds the benefit received by surviving spouses who also collect a government pension.
For example, the spouse of a retired law enforcement officer who, at the time of his or her death, was collecting a
government pension of $1,200, would be ineligible to collect the surviving spousal benefit of $600 from Social Security. Twothirds of $1,200 is $800, which is greater than the spousal benefit of $600 and thus, under this law, the spouse is unable to
collect it. If the spouse's benefit were $900, only $100 could be collected, because $800 would be “offset” by the officer’s
government pension.
Our Solution
Reversal of SB 1609
60%
45%
30%
What is the impact
of our solution?
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The
average
employer
contribution rate would fall
from over 55% to mid-30%.
15%
0%
2013
2018
2023
2028
2033
2038
2043
PSPRS % Funded
125%
PSPRS 80% funded in 13 years.
100%
PSPRS 100% funded in 18
years.
Average
employer
contribution rate falls to the
new 10% statutory minimum.
75%
50%
25%
0%
2013
2028
2033
2048
2 MAJOR HURDLES
THAT 1609 DID NOT
ADDRESS
• PENSION CLAUSE
• CONTRACT CLAUSE
Step 1: DEALING WITH THE PENSION CLAUSE
Special legislative session to pass a bill and
a referendum containing the changes we
need and put on the November 2014
ballot.
The bill will be structured to protect
the constitutional language that says
pensions “cannot be diminished nor
impaired.”
Step 1:
Our referendum’s basic
language?
“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”.
CONTRACT
CLAUSE
There needs to be consideration that in
the middle of a contract was
consideration given. Can you no longer
provide what was contracted for, is
there anything else you can give in
consideration to mitigate the impact.
1% ?????
Does this satisfy the federal contract
clause?????
Step 2:
Get the referendum passed
by Arizona’s voters.
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.
This proactive effort represents the best
chance for public safety to protect our
employers, our taxpayers, our pensions,
our pension fund, our retirees, our actives
and our future members.
QUESTIONS