Arizona Pension Reform Signed, But COLA Needs Voter Nod

Arizona Gov. Doug Ducey (R) on Feb. 16 signed a reform of the Arizona Public Safety Personnel Retirement System (PSPRS) — the state pension system that serves state police and firefighters. The reform is contained in SB 1428 and 1429, which Sen. Debbie Lesko (R-Peoria) introduced.

In a press release, Ducey hailed the legislation, saying “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” He added, “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.”

The measures will:

• require new public employees to serve until age 55 before being eligible for full pension benefits;

• cap pension benefits for new hires;

• split the cost of pensions evenly between employers and new employees, as is done with other state retirement plans;

• provide new hires the option of a 100% defined contribution plan, similar to a 401(k), which allows for increased flexibility and portability of an employee’s funds (e.g., if they move out-of-state); and

• replace the pension benefit increase (PBI) mechanism with a cost-of-living adjustment (COLA).

The Reason Foundation reports that the COLA provision http://reason.org/news/show/az-public-safety-pension-reform would:

• replace the PBI with a traditional, pre-funded COLA for current employees and retirees;

• create a COLA that would be based on the changes in the consumer price index for the Phoenix region, with a cap of 2% maximum;

• apply the COLA percentage to each PSPRS retiree’s actual benefit level (as opposed to a level dollar amount granted under the current PBI, regardless of the individual retiree’s benefit level); and

• require that the new COLA be pre-funded and actuarially accounted for in advance as part of normal cost determination.

The provision of the reform package that would replace the PBI with a COLA will not go into effect without voter approval. A vote is scheduled for May 17.