Membership Action – Pension Update

 
Retirement

Retirement

Dear MPA Members,

Arizona House Representative Kirk Adams has released his bill to “fix” several Arizona pension systems, including CORP and PSPRS. 

Read HB 2726 (Note: 58 pages long, a summary is below).

HB 2726 will be heard in the House Employment & Regulatory Affairs Committee in House Hearing Room 3, located at 1700 W. Washington, tomorrow (02/15/2011) at 2pm.  All members are encouraged to attend, as many members of our law enforcement community will be there.  If you cannot be there, we have a sample letter you might consider sending out to your elected officials and listed legislators below.

MPA takes issue with many proposals in this bill. The bill proposes eliminating DROP and essentially putting everyone into something similar to a 401(k) system. With this change, it will mandate increasing employee contributions one percent for four years (four percent total), then switching to employees and employers splitting contribution’s 50/50. With numbers expected to be in the 30 percent range, that means employee contributions would skyrocket up by 15 to 20 percent of your salary the fifth year, while employers rates would drop down to 15 to 20 percent. Our members cannot afford such steep increases. 

DROP does not have the negative impact on the system that is publicly portrayed.  There is confusion to the general public, and even some elected officials, that this program drains the retirement program.  DROP was enacted to help municipalities prepare for an employee to retire and an agency the opportunity to train and replace the retiree. What they generally do not understand is that the employee and the employer are not paying into the system anymore.  We see DROP as more of a savings account that actually helps the system.  For example, last year DROP created 13.5% in interest and only paid out 8.5%.  What is left over (5%) went back into the system; hence assisting in making our retirement sustainable. 

If DROP is eliminated, it will have a huge impact on our ability to maintain adequate manpower and protect the streets. There will be a mass exodus of people who will DROP that will take years to replace.  PSPRS has already received a significant increase of people that are electing to DROP, and the system will be overrun if DROP is eliminated soon.  We all know there is not much planning for hiring more police officers in many municipalities, including Mesa.   

Also, it is proposed in the bill to eliminate COLA’s for retirees.  Reasoning to keep this necessary assistance to retirees are logical, however, elected officials and the general public have received contradicting messaging.  Obviously, most of us are not currently bringing home six figure incomes.  When the median officer’s wages in Arizona are $45,000 a year, it is estimated a retiree will bring home $22,500 yearly.  For a family, this could be below poverty lines.  It is essential to protect the COLA prevision as it crucial to the vast majority of those in the pension system.

Lastly, many elected officials and the public do not comprehend that Mesa officers, like many other municipalities, do not pay into social security and were mandated to opt out of that benefit.  Most assume that we are receiving both pension and social security benefits when we retire.  Ultimately, we are saving the city of Mesa and taxpayers from paying into an extra system, and less money returns to us (as retirees).

If this bill passes, as is, I foresee a huge legal challenge in the future. The MPA and APA believe the bill’s provisions agree clearly violate Article 29 of the Arizona Constitution and run contrary to several previous Court Decisions. This will stall needed relief while the courts sort it out and rule on it.  As I mentioned before, all of Arizona police organizations got together and proposed an alternative to HB 2726 that is projected to give an 80% actuary to the pension fund.  These proposals (listed below) will, we believe, withstand any legal challenge and do not infringe upon current constitutional protections. 

Again, we encourage members to attend the bill hearing tomorrow.  If you cannot, your voice is important to be heard with your elected officials and members of the House Employment & Regulatory Affairs Committee.  A sample letter and contact information has been supplied to you below.  MPA will continue to keep you updated as the bill progresses. 

Sincerely,

Fabian Cota

President of the Mesa Police Association

Sample letter:

The MPA is formally asking members to contact the following list of legislators tonight through tomorrow phone and e-mail stating the below message:

“Dear Rep. (please fill in legislators name here),

I (state your name) of the (state your association’s name) request that you vote “no” on HB 2726. This bill has long-term negative consequences for me and my family as well as to those of my brethren who served in and retired from a law enforcement entity. The specific contract and covenant that I signed with (state your city, county, state organization here) is something I hold sacred as I perform my duties and I expect the same in return. The actions being contemplated by the committee today potentially violates the provision of this contract and covenant. Such actions will have a huge detrimental effect to the retention and recruitment of police officers in the future and to my safety now and into the future.

If passed as written this bill will have immediate impact to all members of the law enforcement family and in the long-term may have substantial impact to the citizens we serve.

Sincerely,

(place your full name here) “

Below is a list of committee members, their phone numbers and their e-mail addresses. Please let them hear from you today and tomorrow.

Bob Robson (District 20) 602-926-5549 ; brobson@azleg.gov

Justin Olson (District 19) 602-926-5288; jolson@azleg.gov

Eddie Farnsworth (District 22) 602-926-5735; efarnsworth@azleg.gov

John Fillmore (District 23) 602-926-3012; jfillmore@azleg.gov

John Kavanagh ( District 8 ) 602-926-5170; jkavanagh@azleg.gov

Kimberly Yee (District 10) 602-926-3024; kyee@azleg.gov

Sally Gonzales (District 27) 602-926-3278; sgonzales@azleg.gov

Lynne Pancrazi (District 24) 602-926-3004; lpancrazi@azleg.gov

Daniel Patterson (District 29) 602-926-5342; dpatterson@azleg.gov

Here is a summary of the changes proposed by HB 2726 to PSPRS:

 PSPRS

Existing Members

  • Maintain high 3 FAC
  • Maintain normal retirement requirements
  • Contribution rates rise 4% over 4 years, on the 5th year (fy 2015-2016) 50% of aggregate computed employer contribution rate, not less than 7.65% (for perspective the aggregate computed rate as of 6/30/10 was 30.33% so 50/50 would be 15.165%). Contribution rate increases retro to July 1, 2011.
  • If entering DROP, must do so prior to enactment date of bill because DROP goes away
  • Benefit increases repealed (38-856) effective 6/29/2011

New Hires

  • High 5 FAC
  • If ceases to hold office for any reason other than death or retirement, member can withdraw their accumulated contributions less any benefit payments already received or any amount the member owes the plan (no employer match of refund contributions)
  • 25 years of service or 62 years of age with 15 years of service
  • Contribution rates rise 4% over 4 years, on the 5th year (fy 2015-2016) 505of aggregate  computed employer contribution rate, not less than 7.65%
  • No DROP
  • 25 years of service: Receive a monthly amount that equals 62.5% of member’s average monthly benefit compensation; less than 25 years of service reduced 4% for each credited year under 25 yrs; more than 25 years increased monthly amount 2.5% of the avg. monthly benefit multiplied by number of years over 25 with a max of 80% of the average monthly compensation.

 

APA’s Sustainable Proposal:

1. No diminished benefits or changes for current retirees and active PSPRS members, including structural changes to DROP.

2. Introduce a 2nd tier PSPRS Retirement measures for new members (hired after the close of session or at the regular enactment date). Goal – to achieve 80% actuarial funding in 25 years.

New Tier elements include:

  • 20 year retirement with a 50% benefit utilizing a 5 year FAC
  • 25 year retirement with a 60% benefit utilizing a 5 year FAC
  • 30 year retirement with a 70% benefit utilizing a 5 year FAC
  • Maximum pension set a 70% benefit. No increases beyond 70%.
  • No 2.5% retroactive escalator at 25 years of service (standard accrual will continue at 2% past 20 years of service)
  • 2% increase in employee contribution rate
  • DROP participants will continue to pay employee full PSPRS contribution during participation in DROP. DROP contributions to be held in a separate account. At the conclusion of the DROP Period monies deposited will be returned to DROP participants. Interest earned by the investment of this money by PSPRS will be given to DROP plan participants at a maximum rate of the prevailing national saving account interest rate. All other interest will be sent to the underlying fund.
  • Employers pay reduced contribution for DROP participants equal to an amount the employer would pay when a new officer is hired. (not at the current pay scale DROP participant) Permit employers to reduce their contribution rate by setting fees for non-emergency response services provided by police officers or for copies of paperwork (for example) requested by the public.

Such a fee would constitute a USER Fee (noted as an SLI) and can only be used to offset the employer contribution payment in their employee’s retirement system.

  • Restructure COLA – maximum award 4%. Determination of yearly COLA award based on CPI. If CPI is above 4%, maximum COLA that can be awarded is 4%.
  • Money deposited into the Excess Earnings Account will occur only after the earnings reach 11%. ½ or 1 point will be sent to the Excess Earning Account for every point above 11%.