PSPRS Responses to HB 2010; Criminal Justice; Budget Reconciliation

Impacts on DOC CORP members, PSPRS officers and Dispatchers

We have received a number of calls from members regarding this legislation and its impact on the funds and retirement benefit of our members.  We have reviewed this bill and questions 1-3 conveys our thoughts on its impact on the CORP fund; question 4 addresses the definition of compensation for PSPRS and question 5 addresses Dispatchers. 

1. What do you see as the long term impact on pensioners?

First, we don’t expect the bill to have any impact on current pensioners.  Pension benefits are guaranteed by Article 29 of the Arizona Constitution, which states the following:

1. Public retirement systems

Section 1. A. Public retirement systems shall be funded with contributions and investment earnings using actuarial methods and assumptions that are consistent with generally accepted actuarial standards.

B. The assets of public retirement systems, including investment earnings and contributions, are separate and independent trust funds and shall be invested, administered and distributed as determined by law solely in the interests of the members and beneficiaries of the public retirement systems.

C. Membership in a public retirement system is a contractual relationship that is subject to article II, section 25, and public retirement system benefits shall not be diminished or impaired.

The fund will continue to have annual actuarial valuations performed to determine the contribution rate needed to fund the plan.  The results of those valuations will be provided to the Dept. of Corrections, the appropriate office of the state, the legislature or the office of the Governor if the Dept. of Corrections no longer exists.  The cost required to fund the plan is ultimately the responsibility of the State.  If there are no active employees from which to obtain part of the contributions, then the entire cost must be borne by the state.

2. What do we see as the immediate impact on the approximately 700+ DOC CORP members who are eligible to retire?

The members who are eligible to retire may choose to do so by filing their application with the local board.  While it may cause a spike in workload for both the local board and PSPRS staff, we will make accommodations for it.

CORP members should familiarize themselves with the provisions for eligibility for retirement.  Normal retirement is 20 years of service, age 62 with 10 years of service or 80 points and for members who worked prior to 1986 through 7/13/1995, and who have monies on account with CORP, a normal retirement benefit is payable at age 62 with 10 years or 80 points.

New legislation, HB2326, created A.R.S. 38-911 which provides for a Deferred Annuity (annuitized refund) for those members who leave employment on or after 9/30/2009, leave their money on account and apply for retirement after age 62 with 10 years of credited service.  The deferred annuity does not make a member eligible for health insurance coverage, survivor or children’s benefits or benefit increases.

The Return to Work rules enacted under HB2326 are in place for all members of CORP who retired after 12/31/2008.  This rule requires that a retired member must wait 12 months before returning to employment with CORP or their pension will be suspended. 

The impact on the retirement system of adding 700+ new retirees immediately will most likely escalate the contributions required to fund it.  However, the liability for these 700+members is already accounted for in the plan and we have been funding their benefits all along.

3.  What do we see as the immediate impact on the DOC CORP members who are not eligible to retire?

As we see it, if a prison is changed from being publicly operated to privately operated, these members will have to make choices as follows:

• Find employment in another CORP covered position and continue in the plan. 
• Find employment in a position covered by another state retirement system or municipal retirement system and transfer their service and monies into that system.
• Terminate employment with DOC and choose to take a refund of their accumulated contributions.
• If they have at least 10 years of credited service they may terminate employment with DOC and choose to leave their contributions on deposit with CORP.  They will be eligible for deferred annuity (annuitized refund) at age 62.

Other provisions of this bill impact the retirement benefits of Public Safety Officers and Dispatchers.  Our review and thoughts on those provisions are here.

4.  What are the changes in the definition of compensation in ARS 38-842 (10)?

The law changes the definition of “compensation” for purposes of computing retirement benefits, to exclude payments made directly or indirectly by the employer to the employee for work performed for a third party on a contracted basis or any other type of agreement where a third party pays or reimburses the employer for the work performed by the employee for that third party.  Compensation will include work performed by the employee for third party contracts between public agencies for law enforcement, training, wildfire and emergency management activities.

5.  Will dispatchers hired after 11-24-09 continue to participate in CORP?

No.  The law requires dispatchers hired after 11-24-09 to participate in the Arizona State Retirement System, rather than Corrections Officer Retirement Plan.  This applies to all employers who have their dispatchers participating in CORP.