At the November 29th PSPRS Board of Trustees meeting, Trustees voted unanimously to approve an increase in the Tier 3 compensation limit from the current $115,868 to $140,952 based on the wage index analysis effective January 1st,2024. Tier 3 members are those statewide PSPRS members hired after July 1st, 2017. What this means is that wages earned by Tier 3 members up to the new limit will be considered pensionable. This is a 21.65% increase, the largest since Tier 3 began on July 1st, 2017. The initial Tier 3 wage limit for pension benefits was $110,000 and was increased to $115,868 in 2021 which was the first three-year review since the new Tier 3 went into effect.
Per statute, the PSPRS Board is required to adjust the annual compensation limit that is subject to pension calculations every three fiscal years for Tier 3 members. To calculate the index, PSPRS is required to analyze pay scale information from three groups totaling twenty-six employers statewide. The employer groups are made up of law enforcement agencies, fire districts and fire departments and are grouped by small size, mid-size and large size and the pay scales reviewed are those in effect on the fiscal year end date, six months prior to the implantation date. In this case it was the pay scale plans in effect by June 30th, 2023. Employers who had significant pay scale changes after the June 30th date, such as the Phoenix Fire Department, a member of the large category, will be included in the wage index calculation that will take effect in January 2027.
The first group of Tier 3 hires, if hired in 2017 and after July 1st of that year, will be eligible to retire with 25 years of service in 2042. It should be noted that there will be 6 more wage index calculations performed that will ultimately increase the pensionable wage limit. As a reminder for Tier 3 members, at 25 years of service, the multiplier is 62.5% of wages, 30 years is 75% and 32 years is 80% with pay averaged over 5 years instead of 3 years as is the case in Tier 1. So for example, if a member had 25 years of service today and 5 years of average pay of $140,952, the pension would be 62.5% of that amount or $88,095.