An Arizona lawmaker wants the state constitution amended to allow cuts to public employee pensions and increases in employee contributions if the systems are badly underfunded.
Republican Rep. John Kavanagh introduced a bill that if passed would refer the proposal to the voters. He said in an interview he is targeting automatic cost of living increases but acknowledged nothing in his proposal would prevent cuts to existing pensions.
“This doesn’t remove the pensions, this simply says if the money’s not there the benefits have to be trimmed to make the system healthy. And employees were never promised” cost of living increases, Kavanagh said. But, “if the world was to flip into a recession, and we went into a depression, surely members don’t think that life will go merrily along in the public pension realm.”
House Minority Leader Chad Campbell said Tuesday there are funding problems with the state’s three major pension systems — a fourth for elected officials and judges was closed to new enrollment last year — but said there are ways to deal with that without removing Constitutional protections that bar diminishing promised payouts.
“Penalizing workers or potential workers who work for a public entity isn’t how you solve the problems,” Campbell said. “I’m not sitting here saying there’s not some problems to be addressed with public pensions and long-term issues, but these are not real solutions, these are political stunts.”
Kavanagh said that under his proposal payouts from the state’s three major pension plans would have to be trimmed and contributions from employees and employers raised if reasonable accounting practices found cuts were needed.
“These decreases are only triggered when it’s necessary to maintain the health of the system,” he said. “If the system doesn’t need the cuts you can’t do them.”
Just what would trigger the cuts, however, is only vaguely defined.
If the House and Senate both pass the bill, it would be placed on the November 2014 ballot.
Current state law does not allow existing pensions to be touched. The state’s biggest pension plan, the Arizona State Retirement System, hasn’t given a cost of living increase to retirees since 2005. The two others and the closed judge’s plan do, but they were trimmed by the Legislature under a 2011 law that is facing numerous legal challenges.
The Arizona Supreme Court heard arguments on whether the law unconstitutionally trimmed cost of living adjustments last year but hasn’t issued a ruling.
Many states are grappling with the problem of underfunded public pensions. A proposed ballot initiative in California would allow cities to renegotiate public workers’ future pension and retirement benefits. Oregon’s Legislature passed a law similar to what Arizona passed in 2011 that cuts future cost of living adjustments.
The issue isn’t just constitutional, but also touches on contract law. A promised pension is a contract, and cutting benefits would likely trigger a challenge on that front as well.
ASRS currently has enough money to pay about 75 percent of its expected pensions. The plan has $30.6 billion in assets as of 2012, more than $9 billion short of liabilities, but is generally considered healthy. As of June 2013 it had about 207,000 current members and 122,000 retirees drawing pensions.
The plan for public safety officers has just 57 percent of its expected liabilities, with $6.1 billion in assets and $10.8 billion in liabilities, a balance considered too low. The state’s plan for prison guards is at 67 percent funding, with $1.6 billion in assets and $2.3 billion in liabilities.
Changing the constitution to allow cuts to current and promised pensions doesn’t sit well with retirees, who could see their guaranteed month checks reduced.
“They act like we haven’t given anything,” said Sigrid Whitman, a retired educator who chairs the legislation committee for the All Arizona School Retirees Association. “The average pension is about $20,000 and we worked very hard and paid into it. Obviously we would be very upset if they put that on the ballot and it passed.”