PHOENIX (AP) - A proposal that would institute a major overhaul of the state’s badly underfunded pension plan for public safety workers will be introduced in the Arizona Senate on Monday.
The overhaul is the result of months of meetings between lawmakers, pension officials, firefighter and police unions as well as cities, towns and other public agencies that pay into the system.
The issue is pressing as public agencies that pay into the system have seen their contribution rates soar to an average of 42 percent of the salary paid to each police officer or firefighter in the Arizona Public Safety Personnel Retirement System. Some are paying much more, including the city of Bisbee, which is paying 90 percent of its police and fire payroll for pensions.
Sen. Debbie Lesko, R-Peoria, led the talks and will introduce the bill. She said Friday that 25 of 30 senators have signed on as co-sponsors and she is hoping to get more. The number of House backers is unclear. Nearly all the employer and employee groups also are backing the final deal, she said.
Lesko said a major component of the deal must be approved by voters, and she’s aiming to have it placed on the May 17 special election where Gov. Doug Ducey’s school funding proposal is also on the ballot.
That part of the proposal changes the way yearly benefit increases that are sapping the trust fund are calculated. The way the plan is now set up, excess earnings from the pension trust are put into a fund that doles out automatic increases in most years. The problem is that when the fund sees losses, as it did during the Great Recession, excess cash in flush years can’t make up the difference because it is sent to the cost-of-living-adjustment fund.
The new proposal would change the payout to just actual cost-of-living increases or two percent a year, whichever is greater. Currently, boosts can be as much as 4 percent. That should help stabilize the current fund, which has sunk to just 50 percent of its expected liabilities, with $6.2 billion in assets and $12.7 billion in liabilities.
Getting it on the May ballot means the plan must be approved by Feb. 15, an extremely fast schedule for legislation that could be sidetracked if House opposition emerges.
New hires to police and fire departments statewide would be placed in a new retirement fund with higher employee contributions, minimum age and years of service before full pensions are payable and caps on maximum payouts.
New hires also would be given a choice of opting for a 401(k) style retirement plan rather than a plan with a guaranteed pension. New employees in cities and town agencies that don’t participate in the Social Security system will be given a new 3 percent match to put into a 401(k)-style account.
The changes for current employees means the existing pension plan will stabilize over time, Lesko said. The new plan for newly hired workers will also cut the high contribution rates now paid by employers as new workers are hired.
“There’s long-term effects that help the fund, make it more sustainable and improve the funding status,” Lesko said Friday. “But there’s also short-term improvements that will take effect to help the employers and taxpayers right away.”
The problems with the public safety pension fund have been growing for years. The Legislature tried to change how cost-of-living increases were made in 2011, but the courts struck that down as an unconstitutional cut in promised benefits.
Two other state pension funds, one for regular employees and one for corrections officers, are in better financial shape and no overhaul is immediately planned. The Legislature closed a plan for elected officials and judges to new members in 2013 because it was severely underfunded.
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