Difference between revisions of "City of Phoenix Pension Reform, Propositions 201 and 202 (March 2013)"

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After the Pension Reform Task Force presentation to the council in February, but before any legislative action on the Council's part, a court case was decided by the Maricopa County Supreme Court which changed the pension reform possibilities for Phoenix even though it was brought about by an unrelated statewide pension reform. When [http://www.azleg.gov/legtext/50leg/1r/bills/sb1614p.pdf Bill 1614] was voted into law by the [[Arizona Senate]], changing the employee contribution to the Arizona State Retirement System from 50 to 53 percent, seven schoolteachers sued. Judge Eileen Willett decided in favor of the teachers, ruling the pension changing bill unconstitutional as retirement benefits are considered by the [[Arizona Constitution]] to be contractual relationship between the state and its employees and state law forbids "impairing the obligation of a contract." In her ruling, Willett wrote, "When the plaintiffs were hired as teachers, they entered a contractual relationship with the State regarding the public retirement system of which they became members. Their retirement benefits were a valuable part of the consideration offered by their employers upon which the teachers relied when accepting employment."<ref>[http://www.azcentral.com/news/politics/articles/2012/02/03/20120203arizona-pension-law-ruled-unconstitutional.html Arizona pension law ruled unconstitutional]</ref> Since this ruling prevented the City of Phoenix from changing the pension of any current employees or retirees, the Phoenix City Council went on to propose models for reform that only took effect on new hires.
 
After the Pension Reform Task Force presentation to the council in February, but before any legislative action on the Council's part, a court case was decided by the Maricopa County Supreme Court which changed the pension reform possibilities for Phoenix even though it was brought about by an unrelated statewide pension reform. When [http://www.azleg.gov/legtext/50leg/1r/bills/sb1614p.pdf Bill 1614] was voted into law by the [[Arizona Senate]], changing the employee contribution to the Arizona State Retirement System from 50 to 53 percent, seven schoolteachers sued. Judge Eileen Willett decided in favor of the teachers, ruling the pension changing bill unconstitutional as retirement benefits are considered by the [[Arizona Constitution]] to be contractual relationship between the state and its employees and state law forbids "impairing the obligation of a contract." In her ruling, Willett wrote, "When the plaintiffs were hired as teachers, they entered a contractual relationship with the State regarding the public retirement system of which they became members. Their retirement benefits were a valuable part of the consideration offered by their employers upon which the teachers relied when accepting employment."<ref>[http://www.azcentral.com/news/politics/articles/2012/02/03/20120203arizona-pension-law-ruled-unconstitutional.html Arizona pension law ruled unconstitutional]</ref> Since this ruling prevented the City of Phoenix from changing the pension of any current employees or retirees, the Phoenix City Council went on to propose models for reform that only took effect on new hires.
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==Similar measures==
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* [[City of Tucson Pension Reform Initiative, Proposition 201 (November 2013)]]
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* [[City of Phoenix Pension Reform Initiative (2014)]]
  
 
==See also==
 
==See also==
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[[Category:Local pensions, Arizona, 2013]]
 
[[Category:Local pensions, Arizona, 2013]]
 
[[Category:Local charter amendments, Arizona, 2013]]
 
[[Category:Local charter amendments, Arizona, 2013]]
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[[Category:Local pensions, 2013]]

Revision as of 13:39, 1 November 2013


Propositions 201 and 202
City of Phoenix seal.PNG
Quick stats
Type:City charter amendment
Referred by:Phoenix City Council
Topic:City pensions
Two City of Phoenix Pension Reform Questions, Propositions 201 and 202, were on the March 12, 2013 ballot for voters in the City of Phoenix in Maricopa County, Arizona. Both propositions were overwhelmingly approved.

Proposition 201 amended the Phoenix City Charter to make five changes in the City of Phoenix Employee Retirement System (COPERS). The most important of these changes requires any member of the Plan to contribute half of the funds for his or her retirement and establish that retirement eligibility occurs when the sum of the employee's age and years of service equals 87 instead of 80, which was the rule before Proposition 201 was enacted. Proposition 201 left intact the previous retirement eligibility rules of 60 years of age with 10 years of service and 62 years of age with 5 years of service. Proposition 201 also established certain multiplier benefits to increase over time instead of decrease in order to encourage later retirement.[1]

Proposition 202 puts in place what is known as a "prudent investor rule". It also ensures that the city's Retirement Plan remains tax-exempt and makes the amended plan compatible with all applicable federal tax laws.[2][3]

Proposition 201 applies only to those employees hired on or after July 1, 2013. The provisions do not apply to any employees who were hired by the city prior to July 1, 2013, nor do the provisions apply to any now-retired former city employees. Police and fire employees, and elected officials, are exempt from the changes in Propositions 201 and 202.

With the enactment of Proposition 201, the city's contribution to COPERS is expected to decrease by 51%, yielding an approximate cumulative savings of $596 million by year 2037, while the highest employee contribution rate is estimated to be 13.6 percent of salary.[1][4]

The City of Phoenix has approximately 14,000 employees. About 8,000 of them participate in COPERS, the city's pension plan. There is a 20-40% turnover in city employees every seven years; as a result, the city expects to see "significant savings in about 10 years" if Proposition 201 is approved.[5]

A new pension reform effort has been announced. The proposed initiative measure would change the Phoenix pension system from a defined benefit plan to a defined contribution plan and would seek to eliminate pension spiking.

Aftermath

Some citizens are worried that the pension reform that was approved in 2012 will not be enough to get a handle on the city's retirement fund debt. Propositions 201 and 202, which established higher employee contributions and a higher age of retirement, were referred to the March 2013, ballot by the city council and overwhelmingly approved by voters. But recently a group called Citizens for Pension Reform announced that they are beginning circulation of signature petitions to put an initiative before voters that would entirely change the pension system for public employees going forward. The initiative would focus on two things:[6][7][8]

  • first, it would change the city's retirement system from a defined benefit system, in which retirees are guaranteed payments despite investment performance, to a 401(k) style defined contribution plan, in which the city contributes a set amount and the retiree's benefits depend on his or her own contributions and investment performance.
  • second, it would take steps to put a stop to pension spiking by implementing limits on the pension benefits available to current employees.

Citizens for Pension Reform must collect 25,480 valid, voter signatures to get their initiative on the 2014 ballot, and any one signature cannot be over 6 months old when the petitions are turned in.[9]

Election results

Proposition 201

Proposition 201
ResultVotesPercentage
Approveda Yes 81,893 79.33%
No21,33320.67%

Election results from Phoenix City, March 12, 2013 election results.

Proposition 202

Proposition 202
ResultVotesPercentage
Approveda Yes 78,423 76.99%
No23,43323.01%

Election results from Phoenix City, March 12, 2013 election results.

Text of ballot questions

Proposition 201

The question on the ballot:

Shall Part I, Chapter XXIV, Artile II, Sections 14.1, 17.3, 19.1, 19.7, 27.1(b), 28.1(b) and 28.1(c) of the Charter of the City of Phoenix be amended, and shall new Sections 2.22 and 2.23 be added to this Article, to reform the City of Phoenix Employees' Retirement Plan by creating new terms of participation for employees of the City of Phoenix hired on or after July 1, 2013 who are members of the Retirement Plan as described above?[10]

Proposition 202

The question on the ballot:

Shall Part I, Chapter XXIV, Artile II, Sections 34.1 and 34.2 of the Charter of the City of Phoenix be amended, and shall new Sections 28.1(f), 34.3, 34.5, 43.1, 43.2, 43.3 and 43.4 be added to this Article, to reform the City of Phoenix Employees' Retirement Plan by putting in place a prudent investor rule for the Retirement Board, adding provisions confirming that the Retirement Plan is a tax-exempt governmental retirement plan and is administered in accordance with applicable federal tax laws, and allowing the City to contribute more than its annual actuarially required contribution to the Retirement Plan in a fiscal year when the City has the financial ability to do so to reduce Retirement Plan liabilities?[11][10]

Summary statements

Phoenix election law requires that when a ballot measure is on the City of Phoenix ballot, the city must prepare a statement to appear in the official sample ballot that fairly states what the impact of the measure will be, if it is approved. These are called "summary statements". The summary statements for Propositions 201 and 202 appear below.

Proposition 201

Front cover of the sample ballot for the March 12 election

English:

This proposition, if adopted, would amend the City Charter to put in place new terms of participation in the City of Phoenix Employees' Retirement Plan for employees hired by the City of Phoenix on or after July 1, 2013. More specifically, for these new employees only: (1) the member's contribution rate to the Retirement Plan for each year will be 50 percent; (2) the current Rule of 80 retirement option would be replaced with a Rule of 87 retirement option; (3) the pension multiplier factor applied to various years of service in the calculation of the member's retirement benefits would would be changed from a multiplier that decreases over time to a muliplier that increases over time; (4) the member would not be eligible to receive a month of service credit for any month in which the member had less than 20 days of service; and (5) any minimum pension obligation is eliminated. Additionally, this proposition, if adopted, would allow new employees of the City of Phoenix who prior to July 1, 2011 were allowed to participate in Arizona State Retirement System, and still have contributions and service on record with that System, to participate in the Retirement Plan on the terms that existed prior to these changes.[10]

En Espanol:

Esta proposición, en caso de adoptarse, enmendaría la Constitución de la Municipalidad para establecer términos nuevos de participación en el Plan para el Retiro de los Empleados de la Municipalidad de Phoenix para aquellos empleados contratados por la Municipalidad de Phoenix a partir del 1.º de julio de 2013. En específico, sólo para estos empleados nuevos: (1) la tasa de contribución del miembro al Plan para el Retiro para cada año será del 50% de la tasa de contribución anual calculada por los actuarios del Plan para el Retiro, y la Municipalidad pagará el otro 50%; (2) la opción de retiro actual correspondiente a la Regla de 80 se reemplazaría con una opción de retiro correspondiente a la Regla de 87 (esto significa que, al sumarse, la edad del miembro y sus años de servicio deben ser iguales o superiores a 87 para que el miembro pueda retirarse de acuerdo con esta opción); (3) el factor multiplicador aplicado a los años de servicio del miembro para el cálculo de sus beneficios de retiro se modificaría de un multiplicador que disminuye con el transcurso del tiempo a un multiplicador que aumenta con el transcurso del tiempo; (4) el miembro no sería elegible para recibir un mes de crédito de servicio por ningún mes en el que tenga menos de 20 días de servicio; y (5) se elimina cualquier obligación de pensión mínima. Además, esta proposición, en caso de adoptarse, permitiría a los empleados nuevos de la Municipalidad de Phoenix, que estaban autorizados a participar en el Sistema para el Retiro del Estado de Arizona antes del 1.º de julio de 2011, y que aún mantienen contribuciones y servicio registrado en dicho sistema, participar en el Plan para el Retiro de acuerdo con los términos que existían con anterioridad a estos cambios.[10]

Proposition 202

English:

This proposition, if adopted, would amend the City Charter to put in place a prudent investor rule for the Retirement Board responsible for directing investments for the City of Phoenix Employees' Retirement Plan, and would also add provisions confirming that the Retirement Plan is a tax-exempt governmental retirement plan and is administered in accordance with applicable federal tax laws. In addition, this proposition, if adopted, would allow the City to contribute more than its annual actuarial required contribution to the Retirement Plan in a fiscal year when the City has the financial ability to do so to reduce Plan liabilities.[3][10]

En Espanol:

Esta proposición, en caso de adoptarse, enmendaría la Constitución de la Municipalidad para establecer una regla del inversionista prudente para la Junta para el Retiro responsable de dirigir las inversiones para el Plan para el Retiro de los Empleados de la Municipalidad de Phoenix, y agregaría además disposiciones que confirman que el Plan para el Retiro de los Empleados de la Municipalidad de Phoenix es un plan para el retiro gubernamental libre de impuestos y es administrado de conformidad con las leyes tributarias federales. Además, esta proposición, en caso de adoptarse, permitiría a la Municipalidad aportar más que la contribución requerida desde el punto de vista actuarial anual al Plan para el Retiro durante un año fiscal cuando la Municipalidad tenga la capacidad financiera de hacerlo con el fin de reducir las obligaciones del plan.[10]

Proposition 201

Logo of the "Yes on 201" campaign

Supporters

Supporters of Proposition 201 who provided arguments in its favor that were printed in the city's official voter guide included:

  • Phoenix mayor Greg Stanton
  • Rick DeGraw, Chair of the Phoenix Pension Reform Commission
  • Richard Rea, member of the Phoenix Pension Reform Commission
  • Jack Thomas, member of the Phoenix Pension Reform Commission
  • Ann Seiden, member of the Phoenix Pension Reform Commission
  • Karen Schroeder, member of the Phoenix Pension Reform Commission
  • Mark Dobbins, member of the Phoenix Pension Reform Commission
  • Roger Peck, member of the Phoenix Pension Reform Commission[12]
  • Todd Sangers, president and CEO of the Greater Phoenix Chamber of Commerce
  • Amy Bratt, manager, Public Affairs & Economic Development, Greater Phoenix Chamber of Commerce[12]
  • Susan Anable, Vice President of Public Affairs, Cox Communications Southwest Region
  • Brian Mueller, president, Grand Canyon University
  • Brandon Goad, president, Phoenix Parks Foundation
  • B. Paul Barnes, co-founder, Citizens for Phoenix
  • Ann Malone, co-founder, Citizens for Phoenix
  • Neal Haddad, director, Citizens for Phoenix
  • Kurt R. Sheppard, Chief Executive Officer, Valle del Sol
  • Tom Simplot, Councilmember, City of Phoenix; Honorary Co-chair, Phoenix Pension Reform Committee
  • Daniel T. Valenzuela, Councilmember, City of Phoenix; Honorary Co-chair, Phoenix Pension Reform Committee
  • Jo Marie McDonald, Vice President, Phoenix Community Alliance
  • Donald Keuth, president, Phoenix Community Alliance
  • Michelle Rider, president and CEO, Westmarc
  • Bill Sheldon, chairman of the board, Westmarc
  • Betsey Bayless

Arguments in favor

Voting on Local
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Supporters of Propositions 201 argued that the changes will save the city money and cut back on the rapidly increasing pension costs of the city while, at the same time, retaining an attractive Retirement Plan that can draw quality workers for city employment. Greg Stanton, the Mayor of Phoenix, said that the propositions on the March ballot strike the appropriate balance between limiting the city's expenditures and providing competitive employment opportunities for the city's workforce. Stanton said, "We are going to be able to put significantly more resources into police, fire, our library system, parks and recreation. Under the proposal, it's a true partnership with our employees. We share in the risk. We share in the benefit."[1]

Opposition

No arguments opposing Proposition 201 were submitted for inclusion in the city's official voter guide.

Not enough change?

Some city council members argued in favor of more drastic reforms, claiming that Proposition 201 will merely slow down the movement toward possible bankruptcy.[13] Council member Sal DiCiccio voiced his preference for the city to move to a 401 type pension plan. But since a 401-type plan lacked council support, DiCiccio argued for the reform measure to include caps on city contributions. Speaking about city employee pension funding, DiCiccio said, "These costs are skyrocketing. The taxpayers need to be protected. I'm going to try to see if I can rally the votes for (a contribution cap)."[1]Jim Waring joined DiCiccio in calling for a contribution cap for the city to protect the tax payers from over spending, but these contribution caps were rejected by the council in a six to three vote.[4]

Proposition 202

Supporters

Supporters of Proposition 202 who provided arguments in its favor that were printed in the city's official voter guide included:

  • Linda Reidenback, chairperson, City of Phoenix Employees' Retirement Board[12]
  • Elizabeth Bissa, vice-chairperson, City of Phoenix Employees' Retirement Board[12]
  • Michelle Rider, president and CEO, Westmarc[12]
  • Bill Sheldon, chairman of the board, Westmarc[12]

Arguments in favor

Arguments in favor of Proposition 202 included:

  • It will provide the Board of COPERS "with greater opportunity to maximize investment returns and which are similar to the investment standards used by many other retirement plans."[12]
  • It will update the city charter "to include several federal tax law rules which are currently documented in Board policies. Compliance with the federal tax rules is required for all tax-deferred retirement programs."[12]
  • It will allow the City of Phoenix "to reduce the unfunded liabilities by making additional contributions to the Retirement Plan, at the City’s discretion and when the City has the financial ability to do so."[12]

Opposition

No arguments opposing Proposition 202 were submitted for inclusion in the city's official voter guide.

Editorial opinion

"Yes on 201"

  • The Arizona Republic endorsed Proposition 201 on February 15. They wrote,
As long as defined-benefit pension plans remain a financially reasonable burden for taxpayers, they can stay in the government tool kit for attracting talented employees.

Unfortunately, far too many public pension plans these days are tumbling toward insolvency. The plans that survive will be those whose directors recognize the limits on the taxpayer’s purse.

Public-employee retirement plans serving workers in places like Philadelphia, Chicago and countless cities in California are not yet seeing that reality. As a result, their prospects for financial survival range from dire to desperate.

Pending voter approval of Phoenix’s Proposition 201 on March 12, Phoenix’s system will take a more responsible tack. The Arizona Republic recommends that Phoenix voters support passage of Prop. 201 on next month’s ballot.

The proposal, expected to save Phoenix taxpayers $596 million over the next 23 years, is a sound and prudent compromise representing months of often difficult negotiation. It retains the promise of employees settling into retirement with a reasonably assured income, albeit one underwritten as much by the employees themselves as by taxpayers.[14][10]

Path to the ballot

See also: Laws governing local ballot measures in Arizona

Propositions 201 and 202 were referred to the March 12, 2013 ballot on October 31, 2012 through a unanimous (9-0) vote of the Phoenix City Council.[15]

The Phoenix City Retirement Plan cost taxpayers $28 million in 2000 while it cost $110 million in the 2012 fiscal year.

The rapidly rising costs of the retirement plan led to the decision of the Phoenix City Council to push for pension reform.[1] The City Council released a list of goals for pension reform which consisted of re-balancing contributions and making a 50/50 partnership with employees, attracting high quality workers with a competitive pension plan and saving money. To accomplish these goals, a "Pension Reform Task Force" was appointed in January of 2011. The task force was charged with the responsibility of working with management, consultants and other stakeholders to propose recommended changes.[16]

The Pension Reform Task Force held 13 public meetings and several public input sessions. On February 14, 2012, the final recommendations were presented to the City Council. The Pension Reform Task Force made these recommendations:

  • A continuation of the city's Defined Benefit Program.
  • A 50/50 contribution split between the employees and the city
  • An increase in retirement age.

The Task Force, however, was opposed to having the city move from a "defined benefit" plan to a "defined contribution" plan.[7]

In May 2012, the pension reform options available to the city were limited by a Maricopa County Superior Court judgement. This judgment held that municipalities in the county, including the City of Phoenix, are not allowed to change the pension plan of any existing employee or retiree. This meant that any changes to the city's pension plans could apply only to newly-hired employees. With that constraint, the City Council developed three reform models, each of which only applied to new hires. The first model mostly adhered to the changes recommended by the Pension Reform Task Force. This model is the one that was finally selected by the Council and was placed on the ballot as Propositions 201 and 202.

The second model put forward for deliberation by the council was the same as the first model except that it added caps on the city's contribution at 10%, 7% or 5%. The addition of a contribution cap was voted down in a six to three vote. Model three proposed a mandatory 401 system with matching 10%, 7% or 5% contributions from the city.[4]

Court case

After the Pension Reform Task Force presentation to the council in February, but before any legislative action on the Council's part, a court case was decided by the Maricopa County Supreme Court which changed the pension reform possibilities for Phoenix even though it was brought about by an unrelated statewide pension reform. When Bill 1614 was voted into law by the Arizona Senate, changing the employee contribution to the Arizona State Retirement System from 50 to 53 percent, seven schoolteachers sued. Judge Eileen Willett decided in favor of the teachers, ruling the pension changing bill unconstitutional as retirement benefits are considered by the Arizona Constitution to be contractual relationship between the state and its employees and state law forbids "impairing the obligation of a contract." In her ruling, Willett wrote, "When the plaintiffs were hired as teachers, they entered a contractual relationship with the State regarding the public retirement system of which they became members. Their retirement benefits were a valuable part of the consideration offered by their employers upon which the teachers relied when accepting employment."[17] Since this ruling prevented the City of Phoenix from changing the pension of any current employees or retirees, the Phoenix City Council went on to propose models for reform that only took effect on new hires.

Similar measures

See also

External links

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References