DALLAS - Phoenix voters rejected a set of reforms designed to shift the investment risk from the pension program to city employees and to prevent pension spiking.
Moody's Investors Service interpreted defeat of the measure known as Proposition 487 as a negative credit factor for the city.
Phoenix has an adjusted net pension liability of $4.4 billion, analysts said.
"Phoenix has the sixth highest adjusted net pension liability relative to revenues among the 50 largest Moody's-rated local governments," they wrote.
The pension reform would have replaced the city's defined benefit system with a defined contribution plan for future employees, with investment decisions transferred from the pension fund to the individual employee in the style of private sector 401(k)s.
The proposition would have blunted pension spiking by setting limits on benefits eligible to current employees. Pension spiking is a practice whereby city employees convert certain benefits such as unused sick time or saved vacation pay to boost their pension benefits.
Some supporters of the reform noted that some employees, such as firefighters and police officers, are allowed to use pension spiking while other rank-and-file employees are limited or restricted from the practice.
The city's actuaries projected the new plan would have increased city contributions by $358 million over 20 years.
"However, the long-term benefits associated with shifting investment performance risk to general employees would exceed the expense, particularly if plan investment and other experience failed to meet expectations," Moody's said.
Opponents of the measure said taxpayers would not see savings for years, and, in the short-term, the new rule would cost them large sums. That's because the city would have to pay off the $5 billion fund in an expedited time frame and without contributions from future employees who would be part of the new system.
