November 18, 2016
Public Safety Personnel Retirement System
State of Arizona
November 18, 2016
Contact: Christian Palmer
PSPRS to release FY2018 employer contribution rates
Higher costs for public safety and corrections employers
ARIZONA – The PSPRS Board of Trustees received the June 30, 2016, actuarial results that will raise 2018 fiscal year employer contribution rates for retirement plans for the public safety and corrections employees. An actuarial summary is available online while final aggregate and individual contribution rate reports will be made available when received by PSPRS.
Effective July 1, 2017, the aggregate PSPRS employer contribution rate will rise 9.48 percentage points to 52.09 percent, which reflects immediate actuarial changes caused primarily by Prop 124 and a 2015 reduction of the assumed earnings rate. The aggregate PSPRS funding level decreased 3.0 percentage points to 46 percent.
Saving PSPRS money over the long-term, Prop 124 produces an up-front actuarial cost by replacing the permanent benefit increase upheld by the Arizona Supreme Court in Hall v. EORP with an annual cost-of-living adjustment for retirees (capped at 2 percent).
While the aggregate numbers look at the system as a whole for comparison and monitoring purposes, each employer has their own individual rate and funding level where the impact varies greatly depending on their existing funding levels, employee and retiree demographics, payroll growth and other factors.
Most PSPRS employers will face increased costs and the average increase on employer contribution rates is 3.47 percentage points. However, a small number of employers will experience a decrease in their rate and an increase in their funding level.
“The actuarial results increase costs and put additional strain on local employers,” says System Administrator Jared Smout. “Still, the fact remains that without pension reforms passed in 2016, including Prop 124 and Senate Bill 1428, the entire system would be facing even greater challenges.”
Due to the timing of the Arizona Supreme Court decision in the Hall v. EORP case, the 2018 fiscal year PSPRS employer contribution rates will not include the effects of any retroactive payment of benefit increases and the return of excess contributions until a similar lawsuit against the PSPRS plan is resolved and the remedies applied. Therefore, PSPRS employers should not expect the less significant impacts of these cash payouts to be reflected until their fiscal 2019 rates.
The actuarial reports presented to the PSPRS Board of Trustees by Gabriel Roeder Smith & Co. also reported that, absent the effects of the Hall ruling, the funding ratio for CORP held steady at 57.3 percent but the funding ratio for EORP, the lowest of all PSPRS-managed plans, was reduced from 38.8 percent to 37.6 percent.
Additionally, CORP employers will face an aggregate 2.25 percentage point increase in the employer contribution rate, but the existing rate for EORP remains statutorily set at 23.5 percent and was deemed again by Gabriel Roeder Smith and & Co. as “insufficient” to prevent further decline of the plan used to provide retirement benefits for elected officials and judges.
At this time, the Board of Trustees has chosen to defer applying the effects of the Hall ruling to the CORP and EORP plans until the legal process of implementing the ruling is final and contemplated pension reform measures are enacted that could also mitigate the full effects of the ruling.