Initiative to curb public employee pensions launched

2013-09-10T00:00:00Z 2013-09-10T14:19:05Z Initiative to curb public employee pensions launchedBy Howard Fischer Capitol Media Services Arizona Daily Star
September 10, 2013 12:00 am  • 

PHOENIX — Saying he doesn’t want a Detroit-like bankruptcy here, a GOP activist is hoping to get voters to curb the size of pensions for public employees.

The initiative drive being launched by Roy Miller would limit the annual budget growth of city and county budgets until their existing pension funding is considered “adequate.’’

Miller conceded that, when it comes to pensions and predicting future costs, there can be a lot of wiggle room as future earnings are built on assumptions like what the stock market will do and where interest rates will go.

But the measure sets a floor of 80 percent of future obligations as what would be considered “adequate.’’ With the state’s largest retirement system several points below that — and years away from 80 percent — the initiative could cause an immediate hit to spending in virtually all counties and cities.

A separate provision of the initiative would eliminate any pension benefits for any elected official not already in office, if and when it is approved.

State lawmakers this past year approved sweeping curbs in what has been the most generous pension plan for the state, allowing politicians to retire at 80 percent of their highest salary after just 20 years. That plan included guaranteed cost-of-living increases for retirees, which has actually boosted payments to beyond what they were earning while in office.

The new law puts future elected officials into a “defined contribution” plan, much like a 401(k) offered by many companies. That ties retirement benefits to the actual earnings of the plan, versus some state-set guarantee.

Miller insisted even that is too generous.

“I believe that elected officials ought to be policymakers,’’ he said. “They ought to not be career positions.’’

He said they should take time to serve the public “and then go back into the real world.’’

Miller’s initiative, like the changes approved by the Legislature, would not affect those already in office or retired because it’s illegal in Arizona to tinker with benefits already earned.

The issue of adequate funding for public employee pensions gained national attention when Detroit, unable to meet its bills, filed for bankruptcy protection. Among the allegations has been the city’s pension system was severely underfunded, leaving taxpayers on the hook for future obligations.

Pension funds have taken a sharp hit since the recession, with managers finding they are unable to earn as much on their investments as they had a decade earlier. The stock market dropped and fixed-income investments were paying very little.

This applies particularly to “defined benefit’’ plans, the kind that most public employees have, where they are guaranteed a set pension based on salary and years of service.

The result is the Arizona State Retirement System, the state’s largest — and the one that serves counties, schools and most cities — was 75.7 percent funded as of June 2012.

ASRS spokesman David Cannella said numbers for the fiscal year that ended June 30 are still being compiled. But he said funding should be closed to that, “maybe a little bit lower.’’

Cannella said ASRS managers have done what they could to correct the problem by increasing the contribution rates that both employers and employees make. That currently stands at 11.54 percent each.

A decade ago, with the economy booming, it was just 2 percent, though it had been higher in some years before that.

But Cannella said even with an improving economy, he does not think the system will get to 80 percent until around 2021.

That would trigger the spending curbs in the initiative for each of the local governments with employees in the ASRS.

A few cities have their own retirement plans. And they could find themselves in worse shape.

In Tucson, for example, the latest publicly available figures put the system liabilities at $340 million above assets. That translates out to a funding ratio of less than 64 percent.

That funding has led to a separate initiative drive in Tucson to totally scrap that city’s current defined benefit plan in favor of a defined contribution plan.

Miller has until July 3 to get the 172,809 valid signatures on petitions needed to put the issue on the 2014 ballot.

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