Pension Update – 03.25.2011

APA President, Jimmy Chavez, Testifying on the SB 1609

On Tuesday, March 22, SB1609 passed out of the House Committee on Employment and Regulatory Affairs by a 6 to 3 vote. The 41-page Robson amendment (authored by Sen. Yarbrough and Rep. Adams) was attached to the bill, which essentially melds HB2726 (Adams’ pension bill) to this one.

As mentioned earlier, this bill is problematic for current employees and retirees of PSPRS, CORP and ASRS.

In their testimony at the committee hearing, both Sen. Yarbrough and Rep. Adams referred to the need of “taking the medicine” to fix the system. Those of us who are a part of the system understand the need for some changes, but “taking the medicine” should not mean severing off limbs. PSPRS, ASRS and CORP are NOT going bankrupt, despite the rhetoric in the media and legislature.

As a result of the bill passing out of committee, a joint news conference was held Wednesday afternoon at Wesley Bolin Plaza near the capitol. Speaking at the news conference were representatives from public safety groups throughout the state. The message was clear from everyone: THE CURRENT LANGUAGE IN SB1609 IS NOT THE SOLUTION TO PENSION REFORM IN ARIZONA!

The following is a synopsis of how we will be affected if SB1609 passes in its current state:

SB 1609 retirement systems; plan design and 41 page Adopted Amendment Overview
PSPRS Changes:

Retiree Members

  • COLA – Changes excess earnings formula for retiree cost of living increase and will likely not allow increases to occur for 15-20 years. Stipulates that in order for monies to be placed in the excess earnings account the fund must be at 70% of market value (not actuarial value) and over 9% annual return for ¼ of earnings to go toward excess earnings account and 80% of market value and over 9% earnings for ½ of earnings to go toward excess earnings account. Representative John Fillmore (R) offered an amendment (that failed 4-5) that would base the amount going into the excess earnings fund to be based on actuarial value and would allow for the PSPRS board to determine amount to go into excess earnings fund at 60% of value and over 10.5% annual return for up to 2% pension increase, 65% and 10.5% annual return for up to 2.5% increase, 70% of value and up to 10.5% annual return for up to 3% increase, 75% value and 10.5% return for up to 3.5% increase and 80% value or greater and 10.5% annual return for up to 4% increase. This is a much more reasonable alternative and would have allowed for increases to occur in positive market years. This entire provision may be unconstitutional under Article 29 of the Arizona Constitution.

Current Active Members

  • Contribution rate increase – 2% increase on July, 1, 2011 (9.65%), 1% increase on July 1, 2012 (10.65%), 1% increase July 1, 2013 (11.65%) and thereafter a 1/3 employee contribution and 2/3 employer contribution of the total contribution rate for that agency, whichever is lower. The increase may also be unconstitutional under Article 29 of the Arizona Constitution. This provision increases contributions too quickly and would reduce members pay. Also, by stipulating a 1/3(employee) 2/3(employer) split it creates a disparity among police officers and fire fighters because you will now have over 230 different employee contribution rates for the same pension benefit. Representative John Fillmore offered an amendment (that failed 4-5) that would have lengthened the time period of contribution rate increases and provided for rate reductions or freeze on increases once the fund was at 80% funded. The increase proposed was 1% increase on July 1, 2011 (8.65%) and ½% for the next four years topping out at 11.65% in 2016. This was a more reasonable alternative and would lessen the impact on members take home pay.
  • DROP Changes – Eliminated for members under 5 years. For members under 20 years would require contributions from both employee and employer to continue to PSPRS at the new Alternative Contribution Rate (not less than 8%) and earnings would be tied to PSPRS fund earnings average annual earnings but not less than 2%. DROP would continue under current law for those members 20 years or more.
  • Purchase of Prior Service Credit – Eliminates the ability to purchase any credited service other than like instate time (coming over from another public safety agency) or military call up service as defined in federal law. Would no longer allow for military reserve time, federal service time or out of state service time unless purchased prior to the effective date of the legislation.
  • Return to work provision – requires employer to pay an alternative contribution rate not less than 8% to the pension fund.
  • Return to Work – Requires employer to pay an Alternative Contribution Rate (ACR) of no less than 8% when rehiring an employee after they retire.

New Members (Second Tier effective after July 1, 2011)

  • Normal retirement will be 25 years of service, at least 52.5 years old and 62.5% of FAC.
  • Average monthly compensation will be 5 years FAC.
  • No DROP
  • Changes benefit payment for members who terminate employments, other than death or retirement, to only the members accumulated contributions plus interest.

CORP Changes

Retiree Members

  • Same COLA changes as PSPRS.

Current Members

  • Contribution rate increase as of July 1, 2011 of ½% (8.46%) and as of July 1, 2012 and thereafter employee pays 50% and employer pays 50% of the total contribution rate.
  • Purchase of Prior Service Credit – Same as PSPRS.
  • Return to Work – Same as PSPRS.

New Members (Second Tier effective July 1, 2011)

  • Same changes as PSPRS.

ASRS Changes

Current Members

  • Return to Work – Same as PSPRS

New Members (Second Tier effective after July 1, 2011)

  • Eliminates “points” system and puts in place a new “normal retirement date” to be 65 years of age or 62 years of age with at least 10 years of service. This would make Arizona the highest “normal retirement date” in the US.

Other Provisions

  • Study Committee – To study defined contribution options, definition of compensation, consolidation of local pension boards, merging 401(a) plan options, consolidation of separate risk pools in PSPRS and CORP and medical disability reforms.
  • Pension forfeited for commission of felony (class 5 or higher) in the performance of official duties.

WATCH APA’s TESTIMONY HERE – 1:24:00 & 2:38:00 time markers

READ THE LATEST VERSION OF THE BILL HERE