Arizona House passes police and fire pension overhaul

The Arizona House on Thursday passed a proposal overhauling the state’s badly underfunded public safety worker pension plan despite growing concerns from several Republicans that the changes didn’t do enough to fix the plan’s problems.

Relatively minor changes made before the trio of 49-10 votes mean the package of three bills must return to the Senate for final approval before heading to Gov. Doug Ducey’s desk.

A portion of the legislation requires voter approval because it changes benefits for current employees. The Senate must act on the revisions Monday to meet a deadline for placement on the May 17 special election ballot.

The 10 Republicans who voted against the bills said they were concerned with the math used to measure the small savings in the proposal. They worried that it did little to actually fix the retirement system.

“I don’t think this really fixes anything,” Rep. Eddie Farnsworth, R-Gilbert. “I think it puts a Band-Aid on it for a period of time.”

Farnsworth also said the constitutional changes in the plan were poorly enacted.

Senate President Andy Biggs said he believes the overhaul, while bringing modest savings in early years, sets the state police and fire pension plan on a path to stability. The state Constitution and contract law means the state can’t lower promised pensions.

“The thing to remember is the people who are under the contracts already, you can’t change a contract that’s already there,” Biggs said. “But what you can do is lay a foundation for a stable and balanced fund going forward — and that’s really what this bill does.”

The House action, which came after a week of fears the overhaul would be delayed by fiscal conservatives in the House, means one of the legislative session’s first major issues appears to have been resolved without major problems. The Senate passed the legislation last week unanimously, so it is expected to win quick passage again.

Peoria Republican Sen. Debbie Lesko negotiated the deal with public safety unions and cities, towns and counties that have seen the costs of their pension contributions soar. She said she was pleased with the House vote.

“My goal was always unanimous, but I’m happy with 49-10,” she said after the House voted.

A major component of the plan changes how yearly cost-of-living increases for current employees and retirees are calculated and requires voter approval. Other major provisions include a new tier for newly hired police and firefighters that limits maximum pension payments and requires employers and employees to share equally in payments to retirement accounts. 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.

Current employees pay about 11 percent of their pay into the retirement plan, but employer contributions aren’t capped.

The system’s current 49 percent funding status has led to massive increases in employer contributions, crimping budgets for cities and towns as their average retiree contributions near 50 percent of salary. Some contributions are higher.

The cities will continue to pay those high rates for about two decades, but gradually see them decrease as the current employees retire and new employees go into a cheaper system.

The Public Safety Personnel Retirement System plan has $6.2 billion in assets but $12.7 billion in liabilities.