Cities, towns offer new public safety pension proposal
The League of Arizona Cities and Towns is calling for major changes to the financially troubled retirement system for first responders because its members have been hard hit by rising public-safety pension costs.
The 91-member league wants a new statewide retirement system for employees hired after July 1, 2016. It wouldn’t change the pension plan for current members and retirees.
The league also wants to replace the seven-member Public Safety Personnel Retirement System board, which has only three private-sector members, with an independent body of “qualified experts with fiduciary responsibility.”
The league’s plan has been in the works since June 2014. It was presented Wednesday before the PSPRS board, with one member expressing skepticism. The board took no formal action.
The proposal comes amid another reform effort pushed by the Professional Firefighters of Arizona and a work group at the Capitol.
Most of those involved have publicly acknowledged the current system is financially broken and needs an overhaul as cities and towns have been forced to cut services and put a freeze on hiring police and firefighters because of increased public-safety pension costs. Teachers and other public employees are part of the Arizona State Retirement System and not covered by this proposal.
Costs have increased because of generous benefits for retirees, years of poor investment returns and an Arizona Supreme Court decision that rolled back cost-saving reforms.
The Legislature would need to make any significant changes to the public safety pension system.
The league’s plan would:
•Create a different pension system for new employees hired after July 1, 2016.
•Have employers and employees pay the same amount of money or contribution rate into the trust. Currently, employers pay four to eight times the contribution rate of employees.
•Pool assets and liabilities to spread the risks among all government bodies.
•Have a pension board of trustees who are independent, qualified experts. The current board has four public employees with three — a firefighter, police officer and county supervisor — who benefit from the system.
“We have to change the system, and the way it’s designed,” said Scott McCarty, Queen Creek’s finance director and league pension-task-force chairman.
McCarty said the league wants to make changes for future employees to avoid court challenges. Arizona courts and those across the country have struck down numerous pension-reform laws that have reduced benefits for retirees or changed the system for current employees.
Greg Ferguson, PSPRS Vice Chairman and a Yuma County supervisor, told McCarty that the league’s pooled-asset plan amounted to a cost shift for some governments that would have to pay more to offset the burden of other communities that have high contribution rates. Ferguson also said the current system would suffer even more if new members were not allowed to join.
McCarty, later in an interview, complained that it was unfair to ask new employees to continue to prop up an ailing system, calling it a “death spiral.”
Sen. Debbie Lesko, R-Peoria, has been running a pension-reform work session at the Capitol since February. Lesko, in a phone interview, said she hoped to have a plan in place for the 2016 Legislature to consider in January.
Lesko said the league is a major player in discussions because its members employ thousands of police officers and firefighters and are major financial contributors to PSPRS.
Lesko said the league’s plan and the firefighters’ proposal, which would change the funding mechanism for pension increases, have good points and that she’s not ruling anything out.
“We are close to a breaking point and everyone realizes we need to do something,” Lesko said. “I’m excited we have all been in the same room talking about this. We may get something done.”
Brian Tobin, PSPRS chairman and a Phoenix deputy fire chief, said he’s attended Lesko’s meetings, and he believes they have been productive.
“It’s a healthy, collaborative effort to determine a reasonable solution to pension reform,” Tobin said.
The Arizona Republic in 2010 published a weeklong series detailing the burdens that state governments faced because of generous pension benefits and rising costs.
The Legislature responded in 2011 by passing cost-saving reforms, but the state Supreme Court in 2014 restored cost-of-living raises to PSPRS retirees, costing the system hundreds of millions of dollars.
Since 2011, the health of the PSPRS has deteriorated, and the funded ratio — the percentage of pension-fund liabilities that could be paid with current assets — has dropped from nearly 62 percent to about 50 percent.
As funded ratios drop, more money is needed from taxpayers to shore up the nearly $8.3 billion trust.