A bill backed by top Republicans in the Arizona Legislature that replaces pensions for new judges and other elected officials with a 401(k)-style retirement plan passed the Arizona Senate on the second try Wednesday.
The 16-13 vote came a day after the bill failed on a 12-12 vote because four Republican senators were absent. The House already voted for the bill, but a second vote is required because of Senate amendments before it heads to Gov. Jan Brewer for her consideration.
If signed into law, House Bill 2608 only applies to new elected officials, and it was amended to allow new judges who are already in the state’s regular retirement system to remain there.
The Elected Officials Retirement Plan is the smallest and most troubled among the four state retirement plans and only has assets to cover about 58 percent of its liabilities. It also has more retirees and their survivors drawing benefits than active members paying into the system, 992 to 845.
“Look, I said yesterday on the floor this is like a Ponzi scheme in some respects in the sense that you have more people now receiving and you’ve turned the pyramid over,” Senate President Andy Biggs said after Wednesday’s vote. “It’s unsustainable by any stretch, had to be done regardless of some of the complaints. We’ve actually done right by the judges. … I think we’ve done right by everybody.”
The bill was supported by Biggs and GOP House Speaker Andy Tobin.
The state will have to continue paying $3 million to $5 million a year into the EORP for decades to make it whole as current members retire and begin drawing pensions, Biggs said.
The plan had about $356 million in assets and $610 million in liabilities at the end of 2012 and the state contribution has gone from about 6 percent of salaries in 1999 to 39 percent today. A legislative effort to cut cost-of-living increases is being challenged in court.
The plan covers state legislators, elected officials at the state and county level and some city officials as well as most judges. One of the problems is that pensions are based on the person’s highest salary even if they only earned a small fraction of that amount earlier in their career.
Democrats opposed the bill, arguing that the state’s other three retirement plans are in the cross hairs if the EORP closure passes.
“I’m concerned that it’s opening the door,” Sen. Linda Lopez, D-Tucson, said Tuesday. “This is kind of like the camel’s nose under the tent, so to speak.”
The judge’s association agreed that the plan was unsustainable and tried to get the bill amended to allow elected officials to sign up for the Arizona State Retirement System, the biggest state pension plan.
They mostly failed in that effort. They did manage to get an increase in the proposed state match to a 401(k)-style defined-contribution plan, from 5 percent to 6 percent of earnings, lobbyist Pete Dunn said. And they were able to insert the provision allowing new state or other employees who currently are in ASRS to stay in the plan when they become judges. The association agreed not to oppose the bill with the changes.