Pension reform bill solidifies system, protects taxpayers

by Glenn Hamer

February 11, 2011

Speaker of the House Kirk Adams is walking the talk at the Capitol with his calls for major reforms to the state's pension system.  The speaker has already withdrawn from the Elected Officials Retirement Plan, and this week he introduced House Bill 2726 (public retirement systems; plan design) which aims to put the state's public retirement plans back on stable footing.

The speaker's legislation comes on the heels of a series of articles last November by Arizona Republic reporter Craig Harris that found that Arizona's pension system is costing the state and local governments nearly $1.4 billion annually.  To put that in perspective, that's more money than the budgets for higher education and the corrections system. 

In announcing his reform plan, the speaker acknowledged last June's report by the Arizona Chamber Foundation, Pension Tension: Understanding Arizona's Public Employee Retirement Plans.  That paper found that at the beginning of the decade, Arizona's pension funds enjoyed a cumulative $4.7 billion surplus.  Since that time, however, asset growth has been unable to keep pace with the liability growth caused by a number of factors, including an expanding government workforce, rising salaries and legislative action that increased benefit levels. As a result, the $4.7 billion surplus has become a $10.4 billion deficit.

The changes Speaker Adams is proposing aren't just cosmetic.They are real, substantive reforms that are necessary if, as the speaker has said, we want that teacher who spent years of service in the classroom to have a stable retirement.

First, the legislation would require Arizona State Retirement System employees hired starting in July to work until they were 62 with 10 years or more of service, or until age 65 with less than 10 years of service, before they could retire with full pension benefits.

Currently, ASRS employees can also retire when they reach 80 points, which is determined by adding an employee's age to his or her years of service.  That number is scheduled to increase to 85 for employees hired after July 1.  HB 2726 would eliminate the points option.

The bill also would force ASRS employers like cities and school districts to make payments into the pension trust when they rehire ASRS retirees. Currently, employers make no payments into the pension system for these so-called "double-dippers" who draw a salary at the same time they're collecting a pension.  School districts, for example, could still hire back experienced teachers, but no longer would they be able to do so without making a contribution to the pension system.

The speaker seeks to put an end to automatic cost of living adjustments in all of the state's public employee pension systems.  Three of the four Arizona public pensions see annual COLAs irrespective of the state of the economy or the health of the particular fund.  The decision to increase an annual pension payout would be made by the Legislature and the governor through the regular appropriations process under the Adams plan. The lawyers will be gearing up over this one. Colorado, Minnesota, and South Dakota all passed legislation that reduced the size of COLAs for current retirees, and all three states were sued. 

Another big change the bill proposes is to, over a five-year period, bring state employer contributions in line with employee contributions.  Whereas ASRS matches employee contributions 1:1, some funds make a nearly 3:1 employer to employee contribution. By bringing all pension system employer contributions in line with the ASRS levels, the funds will become more stable while lessening the burden on the state employer, thus protecting taxpayer dollars.

The Adams plan also brings the elected officials retirement plan back to the real world.  There's no reason taxpayers should be funding extra generous retirement plans for elected officials.  

Shaking up the status quo when you're sure to face stiff opposition from entrenched public employee unions takes courage.  But if we want to ensure that our teachers, police officers and firefighters have retirement benefits they can count on in the future while protecting taxpayer dollars, then serious reforms are needed now.  Kudos to Speaker Adams for taking up the fight.