PHOENIX - Arizona Gov. Doug Ducey has signed bipartisan pension overhaul legislation, though part of the plan must be approved by voters later this year.
The pension reform package, sponsored by Republican State Sen. Debbie Lesko in SB 1428 and SB 1429, makes several changes to the current Public Safety Personnel Retirement System that serves police and firefighters.
Ducey signed it Tuesday.
That system currently has $6.2 billion in assets but $12.7 billion in liabilities, according to the Retirement Security Initiative, an advocacy group.
The changes, which only affect new hires who start after July 1, 2017, will require new public employees to serve until the age of 55 before being eligible for full pension benefits.
The new law will also cap pension benefits for new hires and split the cost of pensions 50/50 between employers and new employees to bring the public safety system more in line with other state retirement plans.
The overhaul will also provide new hires the option of a 100% defined contribution plan, similar to a 401(k), and tie cost-of-living adjustments for retirees to the regional Consumer Price Index, with a cap of 2%.
For the COLA cap provision to apply to current members of PSPRS, it will require voter approval on May 17.
"It's been a long process, but the result is a bipartisan, well-informed and meaningful plan that will protect our taxpayers while providing a sustainable pension system for the women and men who risk their lives every day to keep us safe," said Ducey, a Republican. "Today, we are one step closer to setting our pension system on a path to financial stability while improving the way it serves our brave cops and firefighters."
A statement released by the Retirement Security Initiative, formed this year and led by several well-known figures in the municipal finance arena, including municipal bankruptcy expert Jim Spiotto, former New York Lt. Gov. Richard Ravitch, former Chicago former chief financial officer Lois Scott, and former San Jose, Calif. Mayor Chuck Reed, said the pension plan's debt has been skyrocketing for years due to poor investment performance and an unsustainable cost-of-living formula structure.
To compensate, required employer contributions to the plans have drastically increased over the past few years, by as much as 145%, exceeding 60% 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 Dan Liljenquist, a former Utah state senator. "These reforms are a major victory for Arizona taxpayers and public workers."
Liljenquist credited all those who worked on the effort, including Lesko, the pension beneficiaries, and the Reason Foundation, which provided analysis.
"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," Liljenquist said.
