SAN JOSE, Calif., February 16, 2016—The Retirement Security Initiative (RSI) today called Arizona’s bipartisan legislative overhaul of its statewide public safety pension system a huge win for the state and for pension reform efforts across the nation. The legislation, which was signed into law today by Governor Doug Ducey, will set Arizona’s public safety pension system on a path to stability, saving the state billions of dollars in the coming decades while still providing retirement security for workers.
Arizona’s Public Safety Personnel Retirement System currently has $6.2 billion in assets but $12.7 billion in liabilities. The plan’s debt has been skyrocketing for years due to factors like poor investment performance and an unsustainable cost-of-living formula structure. To help make up the shortfall, required employer contributions to the plans have drastically increased over the past few years, by as much as 145 percent, exceeding 60 percent of payroll in many jurisdictions throughout the state.
“Without immediate changes to Arizona’s public safety pension system, employer contributions will continue to skyrocket with every downturn in the market putting the system at risk of collapse,” said RSI principal and former Utah State Senator Dan Liljenquist. “These reforms are a major victory for Arizona taxpayers and public workers.”
Major provisions of the reforms include replacing the broken cost-of-living formula structure with a traditional Consumer Price Index-based calculation for employees and retirees; offering new workers a choice between a full-defined contribution plan and a traditional pension plan; and requiring new employees and their employers to share equally, 50/50, in retirement account costs while capping pension payments.
RSI credits Arizona State Senator Debbie Lesko (R-21) for her tenacious, year-long effort to build consensus among pension stakeholders, including firefighters, police officers and city and local governments, as well as the leadership exhibited by Arizona’s public safety associations, including the Professional Fire Fighters of Arizona, without which the reform would never have happened. The Reason Foundation also provided substantial support, including actuarial analysis, reform ideas and facilitation of consensus among stakeholders. RSI believes that successful pension reform must include collaboration and partnerships and be developed with input from employees, retirees, labor, management, taxpayers and fiscal experts.
“We congratulate Senator Lesko, Arizona’s public safety associations and Reason Foundation for a job well done,” said Liljenquist. “Their efforts are a shining example that pension reform is possible and we are optimistic this win will provide momentum to other state and city governments that are challenged by growing pension debt to act sooner rather than later.”
For more information on the Arizona reforms, click here.