Legislation enacting a major overhaul of the state’s badly underfunded public safety worker pension plan was unanimously approved Wednesday by a Senate committee and will likely come to a vote Thursday by the full Senate.
The overhaul is backed by firefighter and police unions as well as cities, towns and other public agencies that pay into the system. They worked with Sen. Debbie Lesko for the past year to come up with a plan to fix the trouble system.
The issue is pressing because public agencies have seen contribution rates to the Arizona Public Safety Personnel Retirement System soar to make up for the underfunding.
A prominent taxpayer association and the Goldwater Institute opposed the deal during testimony Wednesday, saying it doesn’t provide enough savings. The groups also questioned the math behind its savings projection.
“The concern is that for the majority of employers we do not reduce the costs,” said Kevin McCarthy, president of the Arizona Tax Research Association.
Lesko said she also wanted more from the plan but added, “The thing is when you live in reality you have to negotiate. You don’t get everything you want.”
Goldwater Institute attorney Michael Hunter said he also was skeptical of an analysis that projected the revamped system would become financially healthy in about 20 years. He said that may be true, but he’s concerned the deal hammered out by the groups could be made better with time.
“Maybe it belongs in the basement for a year and it will be better next year,” Hunter said.
Representatives of cities said they need the relief included in the overall now. Mesa Mayor John Giles testified that the city currently has $400 million in unfunded liability in the public safety retirement plan.
“This is a hole that is getting deeper and deeper and deeper – doing nothing is simply not an option,” Giles said.
Two police groups that oppose the plan argued that a higher retirement age and other changes concern them.
A major component of the deal must be approved by voters. Lesko has said it must be on Gov. Doug Ducey’s desk by Feb. 15 to be on a May 17 special election ballot. All 30 senators are co-sponsoring the bill, but passage in the House is less certain.
A major part of the overhaul changes how cost of living boosts for current retirees and employees are calculated.
The plan is now set up so 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.
New hires to police and fire departments statewide would be placed in a new retirement fund with higher employee contributions, higher 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.
The changes for current employees mean 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.
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.