PSPRS Online Services:

PSPRS: A peek inside the Tier 3 benefits


Senate Bill 1428, passed by the legislature in 2016, contains substantial benefit changes for police officers and firefighters hired on or after July 1, 2017.
This communication is meant to provide you with information about those changes and let you know how you can learn more about the new Tier 3 benefit provisions in upcoming training sessions.

PSPRS members who are hired on or after July 1, 2017, will be able to choose between a Defined Benefit (DB) plan and a Defined Contribution (DC) plan. The major differences between those two plans are described below. The decision by the member is irrevocable and remains in effect for the member’s entire career, and must be made within the first 90 days of employment. If a decision is not made by the 90th day, the member will automatically be enrolled in the DB plan.
No matter which plan is chosen, the salary used to determine contributions will be capped at $110,000 per year, which will be adjusted every three years with inflation.

In a DB plan, contributions from members and employers are paid into the plan, and if the member works enough years (15 years are required for Tier 3 employees), they receive a monthly pension for the rest of their life based on their years of service, average salary, and a multiplier once they turn 55 years old. Members who work less than 15 years receive a refund of their contributions plus interest. Tier 3 DB plan members would also qualify for the same disability and survivor benefits provided to Tier 1 and Tier 2 members.

In order to retire, members must reach age 55 and have at least 15 years of credited service. Benefits are calculated using the highest 5 consecutive years of salary within the last 15 years of service and a graded multiplier as follows:

15 to < 17 years of credited service: 1.50%
17 to < 19 years of credited service: 1.75%
19 to < 22 years of credited service: 2.00%
22 to < 25 years of credited service: 2.25%
25+ years of credited service: 2.50%

Here’s an example of how that works. A member with 15 years of service could retire at age 55 with a pension equal to 22.5% of their average salary (15 years x 1.50% = 22.5%).
If that same member worked for 25 years, they could retire at age 55 and receive a pension equal to 62.5% of their average salary (25 years x 2.50% = 62.5%).
Contribution rates will be calculated each year by PSPRS’ actuary. Costs will be split evenly between employers and employees.

Tier 3 members who choose the Defined Benefit plan but who do not pay into Social Security will be DB plan members will also automatically pay an additional 3% of their salary into a new supplemental defined contribution plan, which will be matched by the employer.
When those members retire they will receive a pension from the DB plan and will also be able to receive (or rollover) the assets that have accumulated in their Defined Contribution plan account in a lump sum. Although these members are DB plan members, they also participate in the DC plan. This combination of DB and DC is considered a “hybrid” plan.

In a Defined Contribution plan, members contribute during their working years and those contributions, typically matched by employer contributions, are accumulated in a separate account and invested by the member. At retirement the member is eligible to receive (or rollover) the assets that have accumulated in their account.

Tier 3 members who choose the DC plan will contribute 9% of their salary into the plan. Employers contribute a matching 9%. An additional contribution will be paid into the DC disability fund to provide DC plan members with disability benefits if they are ever needed.

Tier 3 members who quit before working 10 years will be able to receive their contributions plus investment earnings, but would only receive a portion of the employer contributions, based on the number of years worked. Employer contributions for DC members vest at 10% per year of service, and fully vest after 10 years of service. After working 10 years, members will be able to receive their contributions plus all of the employer contributions plus investment earnings on both.

The actual investment options available to DC plan are still in the planning stages. State law requires that the plan include multiple predetermined investment options that reflect different risk profiles as well as investments that automatically rebalance and reallocate as the investor ages.

A third party administrator or another company will also be contracted with by PSPRS to provide members basic guidance for selecting PSPRS retirement plans. This pending DC plan will also be used to provide additional DC benefits to Tier 2 members who under their employers do not contribute to Social Security.

There are several other benefit provisions that become effective July 1, 2017. PSPRS continues to develop training opportunities for employers, local boards and members and posting those to our website ( In March and April, PSPRS will provide regional training with four two-hour training events. These events will not be broadcast via a webinar, but will be available for all to attend in person on the following dates, times and locations:

• March 30, 2017 – Pima Community College, 1255 N. Stone Avenue, Tucson, AZ (10 am – noon)
• April 6, 2017 – Flagstaff Council Chambers, 211 W. Aspen, Flagstaff, AZ (10 am – noon)
• April 13, 2017 – Burton Barr Central Library, Pulliam Room,1221 N. Central Ave, Phoenix, AZ (9:00 – 11:00 am or 1:00 – 3:00 pm)

To sign up for one of these events please contact PSPRS Local Boards Outreach Coordinator Don Mineer via email at [email protected] or call 602-296-2543.

SB1428 Pension Reform Matrix of Changes