We must continue to honor the agreements we’ve made with our city employees and first responders. While many taxpayers do not like the idea of lifetime pension payments, this is the type of retirement plan, as part of city employment contracts, that both sides agreed to at the time. While time and technology have advanced, our retirement systems are still deadlocked into last century’s ways of compensating retired public employees.
We must be a city that honors our agreements, but also a city that embraces change and innovation.
The Phoenix pension system, and crisis, is broken down into two sections, PSPRS and COPERS.
Public Safety Personnel Retirement System (PSPRS)
PSPRS is the state run retirement system for public safety officers (police and fire). In 2016 there were some major reforms to the PSPRS program, including allowing new employees to choose between a Defined Benefit (pension) or Defined Contribution (401k) retirement plan which will limit future financial risk to both the taxpayer and the employee. One of the other changes required cities to create and implement plans to pay down their pension obligation debt.
Phoenix was given 19 years to pay off its current unfunded pension liability of $8.7 billion. However, instead of cutting pet political projects and making tough choices on budget priorities, the city council chose to extend these payments by an additional 10 years.
Extending the payment terms by a decade does create smaller payments, with fewer tough votes for politicians, but will also add an additional $2.3 billion in interest. This boondoggle won’t be faced by anyone on the council today. In 30 years it will be the problem of the children being born today.
The current city council, some who even claim to be fiscal conservatives, saved a little money today by burdening our children with a massive $2.3 billion interest bill.
As mayor, I will call for a 3% reduction in across the board spending to be shifted to the pension liability payments. This will allow us to pay off this debt within the original 19 year period and avoid a crippling interest payment. You can read my City Budget Plan here.
City Of Phoenix Employee Retirement System (COPERS)
COPERS is the city run retirement for city employees (excluding sworn police and fire). In 2015 voters passed Prop 103 that created a hybrid retirement system for new employees. The problem with the COPERS system and Prop 103 is that the unfunded liability is still around $1.8 billion. The hybrid system, created for new hires under Prop 103, says that anything up to $125,000 in annual salary counts towards the defined benefit (pension) plan and anything over $125,000 counts towards a defined contribution (401k) plan. The reality is very few newly hired employees are making over $125,000 in annual salaries. That means the risk is still 100% with the taxpayer.
As mayor, I would like to negotiate with city employees and propose a new charter amendment that lowers that hybrid threshold to $85,000 and create a defined contribution option for newly hired employees that would include a 9% employer match, similar to the new option under PSPRS.
Under a defined contribution plan the employer matching is paid in at the time the employee receives their check. Not 30 years down the line, subject to the political priorities of an elected official.
Also with a defined contribution plan a newly hired employee has more options of incorporating any previous retirement plans and has the portability to take their retirement with them, should they decide to seek employment outside city government.
This will create retirement stability for the employee and remove the long term risk to the taxpayer.