Three Candidates Remain For Top Job at Arizona Public Safety Fund

Arizona sign

The Arizona Public Safety Personnel Retirement System is searching for a new director, and the fund has reportedly narrowed the field to three candidates.

The candidates, according to the Arizona Republic:

– Jared Smout, acting administrator at PSPRS. Smout was the organization’s deputy administrator from September 2011 to July 2014, when he was promoted to his current job. He also has done accounting, budgeting and financial consulting. He has a Master of Public Administration degree from Brigham Young University.

– Kevin Olineck, vice president for client services for British Columbia Pension Corp. Olineck has been in this position since May 2009, and he previously was vice president of pension services for the Alberta Pensions Services Corp. He has a bachelor of arts degree in the Advanced Program in Public Administration from the University of Saskatchewan.

– Deric Righter, former chief executive of ThyssenKrupp USA, a Michigan-based holding company for a German conglomerate. Righter also was a vice president of public banking for JPMorgan Chase in Detroit. He has a Master of Business Administration degree from Northwestern University.

More from the Republic:

The pension system is significantly underfunded, and the new director likely will work with the Arizona Legislature on state laws and policy issues for PSPRS members and retirees.

The job, which pays up to $269,000, attracted roughly 70 applicants.

The three finalists were selected from a group of five semifinalists, who recently interviewed with a selection committee. One of those who didn’t advance was Maricopa County Supervisor Andy Kunasek, who withdrew from consideration, according to Palmer.

The job came open when the previous administrator, Jim Hacking, reached a settlement in July to leave the trust after The Arizona Republic uncovered evidence that he had given raises to his investment staff without state Department of Administration approval, as required by law.

The fund plans to hire one of the candidates by the end of January, according to a spokesman.


Photo credit: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons

Arizona Pension CIO Counters Claims of Being States Worst-Performing System

Arizona sign

Ryan Parham, chief investment officer of the Arizona Public Safety Personnel Retirement System (PSPRS), penned a piece in the Arizona Capitol Times on Thursday defending his fund against claims of being Arizona’s “worst-performing pension plan.”

But Parham says the raw return numbers don’t tell the whole story. Here’s what Parham has to say:

All too often, fiction and gossip move faster than truth and reason. As such, it is often stated by our detractors that our $8 billion portfolio is the state’s “worst-performing pension plan,” which gives the impression that our investment staff is incompetent and responsible for the trust’s sagging pension funding levels.

The truth is: the Arizona Public Safety Personnel Retirement System has an enviable investment record. Prominent industry consultants rank PSPRS among the top 4 percent of all U.S. pension funds in risk-adjusted returns for the past three years. We also join the top 11 percent of all U.S. pension funds for the past five years. While these facts might not make for a provocative headline, they matter to our beneficiaries, our contributors, our staff and our elected officials.


Last fiscal year, PSPRS outperformed national risk-adjusted averages by one half of 1 percent. It sounds miniscule, but it meant an additional $380 million in value to the trust. Our actively managed strategy is simple: Diversify assets and reduce exposure to publicly traded equities, the greatest driver of market volatility. High-risk strategies and lack of diversification have proven disastrous for PSPRS, as evidenced by $1 billion losses suffered in the 2000-2001 “dot-com” market crash.

While it is true that in recent years PSPRS’ returns have been less than its sister plan, the Arizona State Retirement System (ASRS), it is important to remember our innovative, low-risk, moderate return strategy is by conscious design, due to a pension benefit that PSPRS alone must pay to pensioners. This benefit, called the Permanent Benefit Increase, or “PBI,” siphons and distributes half of all returns in excess of 9 percent to eligible retirees. Not only are these increased payment levels made permanent, the investment gains only serve to increase – not decrease – unfunded future liabilities.

Read the entire column here.


Photo: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons

Viewpoint: Arizona’s Pension Whistle-Blowers Deserve State Protection

Entering Arizona

This week, Arizona’s Department of Administration agreed to pay the legal tab of four ex-employees of the Public Safety Personnel Retirement System (PSPRS).

The ex-employees are being sued by a real estate investment firm, Troon, for “defaming” the firm by raising questions about how it values assets.

The employees quit PSPRS last year in protest of the allegedly inflated real estate valuations.

The fact that the government is footing the ex-employees’ private legal bills has divided observers into two camps: the camp that believes the public shouldn’t be obligated to cover private legal bills, and the camp that thinks the state is doing a service to whistle-blowers who tried to expose misconduct within the pension system.

Here’s an editorial from the Arizona Republic editorial board, which falls into the latter camp:

It is hard to fathom that four highly educated, highly paid employees of the state’s pension system for first responders would quit their jobs in protest if they didn’t see something that raised serious concerns.

And so it is right that the state that employed them should protect them now that they are under heavy legal fire.

Last year, three investment managers and the in-house counsel for the Public Safety Personnel Retirement System made a powerful statement: They could no longer work for a system they believed had gone rogue.

The four unwittingly made themselves targets for legal action by asking serious and difficult questions about the valuation of the trust’s real-estate investments managed by Desert Troon.

They wanted to know whether the PSPRS used inflated real-estate values for Troon-managed investments to trigger bonuses.

Troon manages large swaths of trust real estate in Arizona, Colorado, Texas and Utah. In return, the trust has paid Troon at least $12 million per year. And Troon enjoys a minority-ownership stake.

As reported by The Republic’s Craig Harris, Troon-managed properties are among the poorest-performing real-estate investments for the system in recent years.

Lost value from the Troon-managed real estate is adding to the larger problem of a pension system for police and firefighters that is short more than half the money it needs to fund current and future retirement payments for those enrolled.

The trust also manages pension systems for public officials and correctional officers. Those funds, along with the others, creak under an unfunded liability of $7.78 billion.

After PSPRS investment managers Anton Orlich, Mark Selfridge and Paul Corens and in-house counsel Andrew Carriker quit their jobs, they found themselves defendants in a Troon lawsuit accusing them of engaging in a conspiracy to defame senior management at the company and the pension system.

The legitimacy of the four men’s concerns will play out over time, but those concerns can’t be called frivolous. They’ve led to a federal criminal investigation into the PSPRS. And a federal grand jury has gone after 100 trust documents, many involving Troon-related real-estate investments.

The former employees have paid dearly for sounding the siren on the state’s pension system. Legal bills have stacked up, and until recently, they did not know how much financial and emotional strain they would have to bear, given they were sued after they left the PSPRS.

Fortunately, the state has affirmed it will cover their legal defense, and there are no financial limits to that coverage. In fact, the state is required to provide legal defense for current or former employees when sued for “acts within the course and scope of employment.”

Without that protection, Arizona would be compelling silence in its employees who perceive wrongdoing in the workplace. It would also make whistle-blowers susceptible to punitive lawsuits meant to shut them up.

Unless we’re looking at the unfathomable, and these four former employees were motivated by malice when they quit their jobs, they did something courageous and decent that requires the state of Arizona to have their backs.

Arizona’s Gubernatorial Candidates Both Vow To Address Pension Woes, But Specifics Hard To Come By

Both of Arizona’s gubernatorial candidates (Republican Doug Ducey and Democrat Fred DuVal) have said they will try to find a solution to the funding problems plaguing the Arizona Public Safety Personnel Retirement System (PSPRS). The system is only 49 percent funded.

But neither candidate offered much in the way of specifics during interviews with the Arizona Republic’s editorial board. From the Arizona Republic:

Neither Republican Doug Ducey nor Democrat Fred DuVal, during interviews with The Arizona Republic, offered specific plans to fix the troubled Public Safety Personnel Retirement System. 

Both said they would try to develop a consensus among employees, employers and lawmakers to find a solution for the $7.78 billion unfunded liability that has put a crimp on local communities’ ability to hire police officers and firefighters.

DuVal and Ducey say working with all groups involved in the pension systems is the only way to avoid litigation, which thwarted pension reforms the 2011 Legislature enacted.


DuVal said PSPRS is financially unsustainable, but court rulings have made it clear that state constitutional changes, which would require voter approval, may be needed for reform.

“We want to approach this in a way that has long-term solutions,” DuVal said. “We need to make sure everyone is involved. We are looking at broad participation to avoid litigation.”

Ducey said basically the same thing.

“The biggest concern is to look at the unfunded liabilities,” Ducey said. “There are a number of reforms, and lot of different options. I want to talk to leaders of all the organizations.”

He also said he would embrace recommendations by a pension-reform task force he led as state treasurer, including limiting retirement benefits to base-salary compensation. That proposal would prevent using lump-sum payouts of vacation and sick time and prevent the artificial inflation, or “spiking,” of pensions.

The Arizona PSPRS saw its funding ratio drop dramatically over the course of fiscal year 2013-14 – from 58.7 percent to 49.2 percent. It isn’t the only Arizona retirement system in trouble. From the Arizona Republic:

The funding ratio for the Corrections Officer Retirement Plan dropped from 69.7 percent to 57.3 percent, and there are $1.1 billion in unfunded liabilities. The average pension is $26,299.

The funding ratio for the Elected Officials’ Retirement Plan dropped from 56.5 percent to 39.4 percent and there is a $482 million unfunded liability. The average pension is $50,338.


The plan for elected officials, which includes judges, is in the worst shape. It has less than 40 percent of the money it needs to pay for current and future pension obligations. The fund may run out of money in 20 years if no significant changes are made. That plan is closed to newly elected politicians, and is expected to eventually cease, but additional public funds may be needed.

PSPRS is shouldering $7.78 billion of unfunded liabilities. Since 2010, it has reduced its assumed rate of return from 8.5 percent to 7.8 percent.

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

entering Arizona

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

Entering Arizona

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.