Public Safety Personnel Retirement System

Arizona City On Hook For $16 Million of Additional Pension Payments in 2015, New Calculations Reveal

Tucson’s 2015 payment to its pension systems will likely be much higher than city officials initially thought—new calculations by Arizona pension officials indicate Tucson may be on the hook for an additional $16 million.

The city thought its 2015 payment to the public safety pension system would total around $46 million. But after recent calculations, the payment will likely be upwards of $62 million.

Reported by the Arizona Daily Star:

Tucson could pay up to $16 million more for its police and fire pensions next fiscal year, according to a newly released state pension board report.

The ballooning costs are mostly the result of a recent Arizona Supreme Court decision overturning a 2011 state law intended to keep pension costs down.

The decision means Tucson could pay about $62 million for its public-safety pensions next year.

Back in February, the court ordered the Public Safety Personnel Retirement System to reimburse retirees $40 million for past cost-of-living increases and to shift $335 million to a reserve fund to cover future cost-of-living increases.

After the ruling, the state pension board had to calculate how much of a dent the court order would put in each city’s retirement funds.

It released its calculations earlier this week.

For Tucson, it drops its police and fire pensions under 40 percent funded through the plan’s investments, according to PSPRS documents.

That means taxpayers are on the hook for $763 million in unfunded pension obligations owed to existing and future public safety retirees. The two pensions hovered around 50 percent funded last year.

As a result, Tucson will likely pay over 60 cents on every dollar of salary for police and fire personnel toward pensions.

Tucson’s payments to its pension systems in 2015 are expected to total around $100 million.

Arizona Pension Scolded After Racking Up $1.76 million Legal Bill In 2013-14

The Public Safety Personnel Retirement System (PSPRS) racked up $1.76 million in legal bills in fiscal year 2013-14.

To put that legal tab in context, consider the legal bills accrued by the state’s largest pension fund, the Arizona State Retirement System: ASRS is four times as big as PSPRS, but only paid $1.24 million in legal bills.

The state’s Attorney General’s Office is now saying that enough is enough. From now on, the Office says it must approve any legal work outside investment advice.

From the Arizona Republic:

The Arizona Attorney General’s Office has cracked down on the use of outside legal counsel by the financially troubled Arizona public-safety pension fund after the fund paid out $1.76 million to the Kutak Rock law firm last fiscal year.

The Public Safety Personnel Retirement System also is represented by the Attorney General’s Office and recently hired a full-time investment attorney who makes $215,000 annually. The pension fund has relied on Kutak Rock for administrative, litigation and investment advice, records show.

Under the Attorney General’s directive, Kutak Rock now may only provide investment advice. Any additional work must be approved by the Attorney General’s Office.

Eric Bistrow, chief deputy attorney general, recently wrote PSPRS that engaging outside counsel “when there is no need to do so constitutes a breach of fiduciary responsibilities.” Bistrow noted that he has instructed staff members to “be vigilant in requiring” PSPRS to adhere to proper standards.

Of the $1.76 million billed by Kutak Rock last year, just more than one-third related to investment advice, records show. The balance related to administrative and litigation matters.

[…]

“We took this action because they (Kutak Rock) were doing too much and were well beyond the scope,” said Stephanie Grisham, spokeswoman for Attorney General Tom Horne. “Basically, they (PSPRS) were using them instead of us, and that was not okay.”

Bistrow bluntly told PSPRS that large outside legal tabs would no longer be tolerated. He said in his directive that the same services “can be obtained with as much, if not more, expertise and at a much lower cost, at this office.”

Jared Smout, PSPRS interim administrator, said the pension fund is “working to make everything right. We are trying to figure out the balance. The AG’s Office will now provide review of public records requests, open meetings laws and personnel matters.”

What caused the high legal bills? The pension fund offers an explanation:

PSPRS has been particularly busy in [several] legal areas over the past 18 months. The system has been locked in litigation with former employees who allege it engaged in questionable financial practices, and its director retired this summer after The Arizona Republic disclosed that illegal raises had been paid to some staffers.

Those problems have invited close scrutiny by journalists and the FBI, which is investigating some of the whistle-blowers’ allegations.

Smout said PSPRS has until now relied on outside counsel because the trust’s investments expanded during the past decade and the agency needed legal expertise.

“We’ve only had competent in-house counsel since August,” Smout said.

Read more coverage of Arizona’s PSPRS, and the controversies surrounding the fund, here.

State Law May Stand In Way of Phoenix Pension Cuts

A Phoenix ballot initiative – titled Proposition 487 – would block off the city’s traditional pension system from all new hires, and instead shift those employees into a new, 401(k)-style plan.

The measure, if passed, would not apply to the city’s police and firefighters. But opponents of the reform are now saying that a legal quirk could end up blocking benefits for all of the city’s 4,000 police officers and firefighters. Reported by the Arizona Republic:

The initiative targets the retirement plan for general city workers hired in the future. Although the measure’s preamble states it’s not intended to affect first responders, attorneys for Phoenix have said the actual language, specifically the amendment to the City Charter, is poorly written and could wind up blocking pension contributions for existing and future police and fire.

However, several areas of state law, including the Arizona Constitution and provisions creating the Public Safety Personnel Retirement System, could prohibit Phoenix from ever withdrawing from the plan or diminishing retirement benefits for existing employees, attorneys said.

[…]

[Attorney Robert] Klausner said the likely result is that the Public Safety Personnel Retirement System would have to sue Phoenix or stop crediting its police and firefighters for additional years of service. Ultimately, he said, the city is in an “impossible conundrum” that it would probably lose.

“No matter what you do, you’re violating the law and welcoming a lawsuit,” Klausner said. “All that does is make lawyers really happy.”

Proponents of the reform measure have accused opponents of “scare-mongering”. From the Arizona Republic:

Scot Mussi, chairman of the group, said it’s clear that the city could not legally stop its payments to the state pension system. He said “scare mongering” Phoenix officials have suggested it could apply to public-safety workers to trick voters.

“That’s just crazy,” Mussi said of the argument regarding police and firefighters. “It would be unconstitutional. It would violate state law, and it goes against what’s expressed in the initiative itself.”

The fight over the measure has been going on for several weeks now. Opponents had earlier claimed that the measure would also unintentionally cut benefits for disabled workers.

Judge Orders Arizona Fund to Release Federal Subpoena to Public

There are so many scandals surrounding Arizona’s Public Safety Personnel Retirement System—illegal raises, large severance packages for fired personnel, allegations of sexual harassment—that it’s easy to forget that one has outlasted them all.

The longest running scandal dates back to last year, when the three high-level investment personnel mysteriously quit the fund—presumably in protest of something.

It didn’t take long to find out why. Allegations soon surfaced that other investment staff at the fund had inflated the value of real estate assets in order to trigger large bonuses for themselves. A federal criminal investigation is still ongoing.

But back in March, watchdog group Judicial Watch asked the fund to release the federal grand-jury subpoena related to those allegations to the public. The fund refused, and so the matter went to court.

A judge ruled Wednesday that the subpoena is a matter of public record, and PSPRS has to release it. From the Arizona Republic:

Judicial Watch filed a public records request for the documents after The Arizona Republic in early March reported that PSPRS had received a federal grand jury subpoena as part of a criminal investigation into whether pension-trust managers inflated certain real-estate investment values. PSPRS has denied the allegations.

The trust refused to release the records, prompting Judicial Watch to sue. The trust claimed it was not in its best interest to release the records and that disclosure might interfere with a federal grand jury investigation.

However, the judge said “PSPRS does not show any specific, material harm that would result from disclosure of this federal grand jury subpoena.” He also ruled that “although the public records law does not mandate disclosure of every document held by a state agency, a document with a ‘substantial nexus to government activities’ is a public record. … Clearly there is such a substantial nexus here.’ “

The judge gave no timeline for the release. But PSPRS Chairman Brian Tobin said he will release it to the public sometime Monday, after a meeting with the system’s board of directors.