PHOENIX (AP) — Arizona taxpayers are about to start paying more to prop
up four of Arizona’s ailing public retirement plans.
The Arizona Republic
reports that the increased payments begin July 1, as the plans continue to
suffer such heavy market losses that their values are far below what they
owe pensioners over the long term.
Administrators say that the pension system for Arizona’s police officers and
firefighters, for example, is in the worst shape and has little hope for a
“The picture is not good,” said Jim Hacking of the Public Safety Personnel
Retirement System. “And there is not much of anything we can do about it.
We can only hope the financial markets start improving.”
The bleak outlook comes as the Pew Center on the States, a national
organization that seeks ways to make government more effective, last week
released a study saying Arizona’s state pension systems remain
underfunded. Arizona is among 34 states facing that problem.
But the Pew Center said Arizona’s management of its long-term liabilities
for public pensions was cause for “serious concern.” The Pew Center said
Arizona’s four statewide systems, as of fiscal 2010, faced a $12 billion
funding gap. The funding gap is the difference between assets on hand and
the amount needed to pay for retirement obligations of those enrolled in
State pension administrators had forecast an increase in contributions by
public employers to their trust funds during the coming fiscal year because
of stock-market declines dating to 2008. But an overall market decline in
the current fiscal year, which ends June 30, means even more money than
anticipated likely will be needed over the next few years to help stabilize
the public-safety-personnel fund, the Elected Officials’ Retirement Plan, the
Corrections Officer Retirement Plan and the Arizona State Retirement
System, officials said.
As funding levels drop, additional contributions are needed from public
employers and employees to keep the gap from widening. The increase in
public-employer contributions forces governments to cut elsewhere or
raise taxes, which would impact taxpayers.
Ideally, a public-pension trust is 100 percent funded, meaning the current
value of assets in the trust is equal to the pension cost calculated for all
current and future retirees. Pensions funded at 80 percent or higher are
considered healthy by industry standards.
All of Arizona’s pension funds were below that benchmark in 2010, and fell
further in 2011, according to records obtained by The Arizona Republic.
The largest system, the Arizona State Retirement System, whose members
include teachers and government employees, had the highest funding level
at nearly 76 percent as of June 30, 2011. That system is the healthiest
because its members historically have paid the same amount into the trust
as their employers, and it has not given cost-of-living raises to retirees
since 2005 because there were not adequate funds.
Employers in the public-safety-personnel fund pay an amount equal to
22.68 percent of each worker’s salary into the trust. On July 1, the rate
increases to 27.18 percent, a cost that is likely to be borne by taxpayers,
The Arizona Republic reported.
All statewide systems will increase rates for employers July 1, but the
increase of 4.5 percent for public-safety-personnel employers such as
cities and counties is the largest, according to the newspaper.
Kil Huh, Pew’s research director, said the Arizona Legislature in 2011 tried
to tackle the funding problem by increasing employee contributions and
tweaking some benefits for retirees to cut pension costs. But he noted that
court decisions this year struck down changes such as having Arizona State
Retirement System employees pay more for their pensions and limiting
cost-of-living raises for elected officials.
Arizona has some of the strongest protections for public pensions in the
country because its Constitution says public retirements cannot be
diminished, which courts have interpreted as meaning that pension
benefits cannot be reduced.
“Moving forward, they are going to have to think of a funding strategy,”
Copyright 2012 The Associated Press.