Purchasing prior service will be more expensive after June 30, 3017

header_prior_serviceIf you intend to purchase prior service, you should examine the opportunity now to see if it fits your future plans.

Purchasing prior service is expensive. It will get more expensive After June 30, 3017.

HB 2019; credited service; military service purchase, which becme effective on August 6th, Makes three important modifications.

  1. The new law reduces the number of years of service you must have in PSPRS before you qualify to purchase credit for active military service from 10 years to 5 years.
  2. Modifies the discount rate, used to calculate your cost, for service purchases or transfers of service credit. All types of service purchase will use the new, more expensive rate starting July 1, 2017.
  3. Retrocatively, and temporarily, changes the calculation of out-of-state service purchase back to the current calculation. Basically, if you purchased out-of-state service between approximately May 2015 and August 6th, 2016, you should check with PSPRS to see if you are aligible for a refund.

PSPRS has implemented a payroll deduction option to assist members with who would like to purchase service over time.


Why PSPRS needs pension reform

PSPRS Challenges
PSPRS pension plan has seen a massive reduction in funded status and increase in unfunded liabilities over last decade.

  1. Employer costs are skyrocketing for state agencies and local governments
    1. Cities like Bisbee, Prescott are facing massive unfunded liabilities that threaten services, budgets.
  2. Some previous legislative reforms have been struck down by the courts, and others are under litigation.

PSPRS Degrading Solvency1DegradingSolvency


Causes of PSPRS Problems
Permanent Benefit Increases (PBI) have undermined plan’s solvency by skimming assets

  • For retirees before 2011, 50% of “excess” returns over 9% diverted to separate PBI fund
  • Diverted funds cannot be used to reduce unfunded liabilities, plan assets grow slower with part of the funds not allowed to earn interest over time
  • PBI benefit has not been pre-funded like a traditional pension COLA
  • For retirees after 2011, returns need to exceed 10.5% and no PBI unless funded ratio >60%
  • Until 2015, PBI had been paid out annually at 4% for over 20 years despite the continuing decline in funded status

2.  PBI benefits are not distributed equitably, not tied to inflation, not paid each year

3.  Underperforming investment returns, unrealistic expected rate of return

Causes of Problems With PSPRS:
PSPRS Actual Investment Returns, 1993-2015

PSPRS’ Expected Rate of Return is Unrealistic
•  Based on the historic trend, PSPRS is using an unrealistically high expected rate of return at 7.5%
•  Actuarially valued returns have been 5% or less since 2002, nearly fifteen years
•  We estimate the likelihood of achieving a 7.5% return over the next 30 years is just 45%
•  If the pattern of 5% average actuarial return continues, unfunded liabilities and normal cost will increase dramatically in the coming years

•  Consider the following two figures:
•  the first shows forecasted employer contributions assuming no change to the plan and the 7.5% expected return;
•  the second shows the increase in forecasted employer contributions assuming the actuarial returns continue at 5%.

PSPRS Baseline
Employer Contribution as % of Payroll

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PSPRS Baseline
Employer Cost & Funded Ratio, w/ 5% Return

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The Risks of Inaction
1.  Rising employer contribution rates result in more money to pensions, crowding out other public services
2.  Inability to hire new public safety workers
3.  Inability to raise public safety wages
4.  New tax & debt proposals
•  (e.g., failed Prescott PSPRS tax, pension obligation bonds)
5.  Service-level insolvency
6.  Municipal bankruptcy

The Process:
A collaborative approach to develop a proposed reform for PSPRS

Goals of Pension Reform
Establish a retirement system that is affordable, sustainable, and secure:
1.  Provide retirement security for all members (current and future) and retirees
2.  Reduce taxpayer and pension system exposure to financial risk and market risk
3.  Reduce long-term costs for employer/taxpayers and employees
4.  Stabilize contribution rates
5.  Ensure ability to recruit 21st century employees
6.  Improve governance & transparency

The Reform Development Process
•  Collaborative stakeholder working groups
•  Public safety associations, led by Professional Fire Fighters of Arizona
•  Legislative pension workgroup, led by Sen. Lesko & Rep. Olson
•  League of Cities & Towns pension reform task force

•  Reason Foundation provided education, policy options, and actuarial support for all stakeholders, and facilitated consensus amongst stakeholders on conceptual design and reform framework
•  Separate negotiation tracks have focused the fiscal elements of the reform, and the governance elements of the reform

The Solution
Fixing broken PBI design Stable, affordable normal cost
Reduces taxpayer risk exposure by more than half Minimizes contribution rate volatility

The Proposed Reform
1. Improvements for Current Members & Retirees
•  Replace uncertain, inequitable, unsustainable PBI with pre-funded COLA that provides certainty and equity for retirees.
•  Requires constitutional amendment
•  An exchange of benefit with greater value for retirees
•  Serves public interest by correcting broken PBI that has been a major cause of increased unfunded liabilities
•  Compounding COLA based on regional CPI, capped at 2% max— provides certainty
•  Pre-paid—actuarially accounted for in advance as part of normal cost determination
•  New “Catch-Up” Defined-Contribution Plan for Non-Social Security Tier 2 Participants Hired On or After January 1, 2012

The Proposed Reform
2. Changes for New Hires After July 1, 2017
•  Option of electing to participate in either a new:
1.  Defined Contribution Only Plan, or
2.  Defined Benefit Hybrid Plan.

insert 5Chart.png

The Proposed Reform: New Hire Changes
A. Tier 3 Defined Contribution Only Plan Option
•  Employees provided with a professionally-managed defined contribution plan, with contributions consisting of:
•  A required employer contribution of 9% of the employee’s regular compensation; and
•  A required contribution by the employee of a minimum of 9% of that employee’s regular compensation.
•  Employees may elect to increase the employee’s contribution up to the annual limits established by the IRS.
•  10-year vesting of employer contributions (immediate in event of disability retirement).
•  Reasonable safeguards to ensure adequate long-term financial security, such as:
•  Prohibitions on borrowing against assets
•  Limited pool of funds to invest in, with options available for target-date funds and index-based funds
•  Annuitization options
•  Member education and advice

The Proposed Reform: New Hire Changes
B. Tier 3 Hybrid Plan – Defined Benefit Element
•  Stepped multiplier based on years of credited service:
•  1.50% for 15.00-16.99 years of credited service
•  1.75% for 17.00-18.99 years of credited service
•  2.00% for 19.00-21.99 years of credited service
•  2.25% for 22.00-24.99 years of credited service
•  2.50% for 25+ years of credited service (same as current)
•  50/50 Cost Sharing:
•  All costs for Tier 3 D Hybrid Plan benefits are split 50/50 between employers and Tier 3 Hybrid Plan employees, including normal costs, future Tier 3 unfunded liability amortization costs, and administrative costs.
•  No caps on employer or employee contribution rates.
•  Tier 3 Hybrid Plan members will only contribute to any future unfunded liabilities on the obligations of the participants in the Tier 3 Hybrid Plan and no other PSPRS tier.

The Proposed Reform: New Hire Changes
B. Tier 3 Hybrid Plan – Defined Benefit Element
•  Limits pension “spiking”
•  Reduces cap on pensionable compensation from $200,000 to $110,000
•  Cap adjusted every three years to account for real wage growth, as determined by a weighted average of actual changes in public safety wages in Arizona
•  Final average salary = highest 5-year average
•  Maximum annual pension = 80% of final average salary (subject to pensionable compensation cap)

•  Increases minimum benefit eligibility age from 52.5 years old to 55 years old.
•  Actuarially equivalent benefit available at age 52.5

The Proposed Reform: New Hire Changes
B. Tier 3 Hybrid Plan – Defined Contribution Element
•  Tier 3 Hybrid Plan members not enrolled in Social Security provided with a defined-contribution plan with contributions consisting of:
•  A required employer contribution of 3% of the member’s regular pay; and
•  A required contribution by the member of a minimum of 3% of that member’s regular pay.
•  Employees may elect to increase the employee’s contribution up to the annual limits established by the IRS.

The Proposed Reform
3. Governance and Other Reforms
•  Composition of PSPRS Board of Trustees will be modified to reflect the 50/50 sharing of costs and risks of the Tier 3 retirement formula.
•  New unfunded liabilities associated with any future benefit increase required to be fully paid in the year of enactment and cannot be amortized over any period of years.
•  At no time will any employer’s or employee’s annual payment to PSPRS be less than their share of actuarially determined normal cost. No credits against normal cost shall be factored in to annual employer or employee contributions.
•  Incorporating comprehensive fiduciary standards in statute
•  Other reforms TBD, under discussion

The Solution
Fiscal & Risk Analysis

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Summarizing how the proposed reform will address the problems and challenges of PSPRS

•  Employee Benefits of Proposed Pension Reform
•  Pay lower annual employee contributions (effective pay raise for new tier employees)
•  Choice between retirement plan designs (Hybrid DB/DC or Full DC)
•  Employees without social security will have:
•  A portable element of retirement benefits (the DC account) with ability to customize investment strategy based on personal retirement goals
•  Professional DC plan management and retirement planning education and assistance

•  Employer / Taxpayer Benefits of Proposed Pension Reform
•  Minimize volatility of annual employer contributions
•  Employees equally share costs and investment risk with taxpayers
•  Reduces overall risks, slows growth of unfunded liabilities


NFOP webinar on Body-Worn Cameras: Privacy, Professionalism, and Protection

cameraThe FOP hosted the following Webinar on 10/9/2014 @ 3:00 p.m. Eastern Time

Presented by Michael E. Coviello, Esq. Associate General Counsel National Fraternal Order of Police Division of Labor Services

This Webinar will discuss the pros and cons of the use of body-worn cameras including police officers’ and citizens’ right to privacy, the potential for discipline, and suggestions for policy discussions and negotiations.

Body-worn cameras are not new but they are being used by more and more agencies, sometimes without regard to officers’ concerns about job security and privacy. We will explore these issues and provide some guidance.

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Order Your AZ FOP Super Bowl Badge (Deadline Nov. 30)!!!

FOPSuperBowlBadgeGoldTime is running out to order a piece of history!

Please visit: http://azsuperbowlbadges.com/index.php?route=product/category&path=103

For the first time ever the NFL and the FOP have an officially licensed Super Bowl badge. As you know 2015 is the 100th Anniversary for the FOP, so these commemorative badges will become highly collectable.

Time is running out, so please order your today!

Please be sure to select your lodge number on the order form on the website. All badges will be shipped to Phoenix Lodge 2 and distributed by your actual lodge from there.

The badge company requires that only one place for shipment be allowed to maintain integrity of the program. Fraternally, John Ortolano AZ FOP State PresidentContinue reading

Discount Ticket and Services

Discount Ticket and Services:

Lodge 2 has been able to secure additional benefits for our members recently. Lodge 2 will be offering benefits through a program called E.S.M. The Lodge purchased a membership with them so our members can enjoy shopping from a range of merchandise that can be sent to you.

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Arizona Diamondbacks 2013 regular season tickets.

The Arizona Diamondbacks are excited to share these discounts for the 2013 regular season.

Select games and seating areas are available for these discounts.  Come out and cheer the D-backs on to a victory in May!


  • Friday, May 10 – D-backs vs Phillies @ 6:40pm – Post-game Fireworks (weather permitting)
  • Saturday, May 11 – D-backs vs Phillies @ 5:10pm – D-backs Street Festival
  • Sunday, May 12 – D-backs vs Phillies @ 1:10pm – Happy Mother’s Day! Giveaway:  Mother’s Day Tote Bag (5,000 moms)
  • Tuesday, May 14 – D-backs vs Braves @ 6:40pm
  • Friday, May 24 – D-backs vs Padres @ 6:40pm – Post-game Fireworks (weather permitting)
  • Saturday, May 25 – D-backs vs Padres @ 7:10pm – Giveaway:  D.Baxter Fan (10,000)
  • Sunday, May 26 – D-backs vs Padres @ 1:10pm
  • DOUBLE HEADER – Monday, May 27 – D-backs vs Rangers @ 12:40pm and 6:40pm – Happy Memorial Day!  Double Header Street Festival

The following seating options are available*:

  • Infield Reserve – $9-$13 (reg. $14-$25)
  • MVP Box – $20-$25 (reg. $23-$40)
  • Club Reserve – $28-$36 (reg. $33-$50)
  • All You Can Eat – $28-$32 (reg. $30-$39)
  • Bleachers – $14-$20 (reg. $19-$33)
  • Baseline Reserve – $20-$28 (reg. $26-$45)
  • Infield Box** or Club Box** – $45-$50 (value $55-$80)

Click on the link  below and use the special offer code:… (members must be logged into the web site to see the remainder of this message)… This content is for members only.