PENSION PLANS AT CROSSROADS
The Arizona Supreme Court just handed an enormous past-due bill to taxpayers.
The state Legislature’s attempt in 2011 to rein in the costs of poorly performing pension plans is unconstitutional, according to the justices. The Arizona Constitution forbids reducing publicpension benefits, which effectively means that no matter how high the costs go, taxpayers simply will have to find a way to pay them.
As a result, the pension board will have to pay out $7.9 million to bring the tab current for beneficiaries of the Elected Officials’ Retirement Plan, a part of the state’s worst-performing pension trust, the Public Safety Personnel Retirement System.
The ruling also applies to other beneficiaries of the PSPRS whose benefits were temporarily curtailed. That adds $32.1 million for retroactive raises. The system will set aside $335.6 million to fund cost-of-living adjustments going forward.
That’s big money. And the cost to taxpayers will go way up in the near future, which in some hard-pressed communities will mean fewer police officers on the streets and fewer services. That is a worrisome trend.
The 5-0 Supreme Court decision may be perfectly rational and predictable — a constitutionally guaranteed promise made must be kept, after all. But it leaves Arizona taxpayers in a position of disturbing vulnerability, one that begs for a constitutional amendment that will allow lawmakers to make the sorts of changes the justices now say they cannot.
A primary advocate for pension-plan reform, Rep. John Kavanagh, R-Fountain Hills, says he would like to see a referendum on the fall ballot to amend the constitution to allow that sort of legislative action.
The dark, foreboding future hanging over Arizona’s poorly funded public-employee pension plans tells us such changes are necessary.
As reported by the Arizona Republic’s Craig Harris, contributions to the shaky PSPRS by employers (meaning: the governments whose elected officials, judges and publicsafety personnel are participants in the plans) have increased to $451 million a year in the past decade, a 425 percent increase. Despite that enormous level of underwriting from taxpayers, the trust still is underfunded by $5.7 billion, the worst condition of any of the state’s three pension trusts.
Promised cost-of-living raises only exacerbate an already rickety system. Keeping employee contributions incredibly low shifts the responsibility for bringing the systems back to solvency fully on taxpayers.
A retirement system that forces communities to expend ever greater resources on retirement payouts rather than on officers on the street is not a viable option.
Without sensible reform, another option even more unpalatable to government workers becomes more possible: Lawmakers simply could abandon defined-benefit retirement plans in favor of defined-contribution plans, similar to the private sector’s 401(k) plans. Newly appointed judges and elected officials now are under such a plan.
Those appear to be the choices: Create a constitutional path to pension reform, or deal with the prospect of the only other option available. The status quo cannot stand.