Pension plan changes pass handily
PHOENIX — Voters on Tuesday agreed to amend the Arizona Constitution in a bid to cut future pension costs for government public safety employees.
Proposition 124 is part of a series of changes adopted earlier this year by lawmakers to restore financial stability to the Public Safety Personnel Retirement System. It provides pension benefits for police and firefighters.
Many of the changes in the law are prospective, affecting only people who will be hired in the future.
But proponents of the change say it’s also necessary to curb future cost-of-living increases for existing employees and those already retired.
The problem is an existing constitutional provision which says pension benefits for public employees “shall not be diminished or impaired.” Proposition 124 gives lawmakers limited permission to make alterations.
There is no dispute the pension system is broken. Its obligations exceed its assets by more than $6 billion.
In an effort to bridge the gap and put the fund on financial footing, lawmakers previously voted to require participating governments to pay additional amounts to eventually make up the difference. The results, according to some city officials, have been little short of devastating.
The Flagstaff Fire Department, for example, pays premiums equal to 70 percent of its workers’ salaries. For Prescott, its police pension obligations are at 72 percent. And Bisbee is paying almost as much in premiums as the salary obligations.
Actuaries who worked on the plan said the state can’t do anything to wipe out the existing debt. But they said new limits on pensions for employees will help limit future obligations.
For example, new employees will not have some of the same options as current workers, including the ability to retire early and collect benefits. There also is now a cap on how much of any new employee’s salary can be considered in computing their pension.
All that is already approved.
What is contingent on voter approval is a change which now guarantees public safety retirees a cost-of-living increase any time the fund’s earnings exceed a certain amount. While there have been no increases for the last two years, pensioners have seen 4 percent increases for more than a decade before.
The legislation would replace that with cost-of-living allowance capped at no more than 2 percent a year — contingent on Proposition 124 being approved.
There was no organized opposition to the ballot measure, with proponents raising about $500,000. And most police and fire groups supported it — with the key exception of the Arizona Police Association.
Justin Harris, the organization’s president, told lawmakers during the debate he had no real problems with provisions to change contribution rates and benefit packages for newly hired employees. But he strongly objected to the cap on future cost-of-living increases for current officers and those already retired.
As it turned out, the organization opted to remain officially neutral on the measure and not spend any money to try to kill it.
The package contains one other provision, not subject to the fate of Proposition 124, designed to save money for local governments.
New hires will have the option to go into the existing “defined benefit” plan, with pensions based on salary and years of service, or an optional “defined contribution” plan. That is similar to 401(k) plans where private employers and their workers contribute set amounts, and the pension is based on how much those funds have earned.