A plan championed by Arizona House Speaker Andy Tobin that would eliminate pensions for new elected officials and judges and replace them with 401(k) style retirement plans passed its first Arizona House hearing Tuesday on a 5-3 party-line vote as the lobbyist for judges agreed the current plan was beyond saving.
The bill makes good on a promise Tobin and fellow Republican Rep. Phil Lovas made to revamp the Elected Officials Retirement Plan in part because it only has assets to cover about 58 percent of its liabilities and the state must make up the difference. And there were slightly more retired members and their survivors drawing benefits last year, 992, as there were active members.
Superior Court judges have said changing the retirement system could discourage highly qualified lawyers from serving on the bench. But in a surprise, the lobbyist for the Arizona Judges Association testified at the House insurance and retirement committee Tuesday they agreed the plan should be shut down because it just wasn’t savable.
But they continued to oppose the bill’s plan to have the state contribute 5 percent of a judge’s or elected officials’ pay into a 401(k)-style plan, calling it too low. Pete Dunn also said there should be an option to join the regular state retirement plan.
“We think that the retirement alternatives for people deciding to become judges or deciding to run for county assessor or county recorder ought to be a reasonably good retirement program,” Dunn said.
Because of the unfunded liabilities, with the plan having about $356 million in assets and $610 million in liabilities, the state contribution has gone from about 6 percent of salaries in 1999 to 39 percent today, Lovas said. And lawsuits challenging a bill cutting cost of living raises for pensions have put that effort on hold. If that sticks, Lovas said the state contributions are projected to rise to 51 percent by 2027.
“So the system is not getting any better, and we think the prudent thing to do is to shut it down,” Lovas said Tuesday. “And what that will do is ensure the solvency of it for members who are currently there, create a fair system similar to what the private sector offers for new members, and we’ll save money in the long run.”
Tobin testified on behalf of the bill, saying it was time to address the elected officials plan, and hinted others are in his sights too.
“Let’s be honest, whether we want to admit or not or agree to it we have a crisis in our elected officials retirement and in many of these defined benefit plans,” Tobin said. “We have some cities and counties around the country who actually are going bankrupt over these issues.”
The bill sponsored by Lovas would not affect current elected officials or judges. But those entering office after July 1 would go into the new plan.
The state’s share of contributions would be lowered and stretched out for 30 years to fund the current shortfall.
As to a different pension plan scaring off potential judges, Lovas doesn’t think so.
“I think we’ll continue to get qualified people,” he said. “Certainly, they’re paid very well, $145,000 a year, you have the status of being a judge, you really don’t have any opposition when you run for re-election – we have retention elections.”
As for pensions, incoming judges and elected officials have had careers inside or outside government where they’ve been able to save for retirement, and they’ll be able to continue doing that with the new defined contribution system Lovas envisions.
About half those enrolled in the plan are elected officials. Besides judges, including the Supreme Court, appeals court and superior courts, those eligible for the plan include state legislators and elected officials at the state and county level, plus some city elected officials.
The bill now goes to the House appropriations committee.