City of Phoenix Pension Reform Initiative, Proposition 401 (November 2014)

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A City of Phoenix Pension Reform Initiative ballot question may be on the ballot in 2014 for voters in the city of Phoenix.

The Pew Charitable Trust did a study in 2009 that estimated the Phoenix public employee retirement system had $5.115 billion in liabilities and that $1.399 billion of this fund was not backed by city assets, making the retirement fund only 73% funded.[1] City Councilman Sal DiCiccio reports that the unfunded liabilities have nearly doubled and now stand at $2.4 billion in pension debt not backed by city assets.[2][3]

A group called Citizens for Pension Reform announced that they are beginning circulation of signature petition in order 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:[4]

  • 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.

The Phoenix City Retirement Plan cost taxpayers $28 million in 2000 while it cost $110 million in the 2012 fiscal year.[5] In the face of this ballooning of city pension costs, Phoenix voters overwhelmingly approved two propositions that reformed the retirement system of city employees, Proposition 201 and 202, in 2013

Background

Props 201 and 202

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.[6]

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 is what led to the decision of the Phoenix City Council to push for pension reform.[7] The City Council released a list of goals for pension reform which consisted of rebalancing 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.[8]

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.[5]

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.[9]

Spiking

Objections to the use of "pension spiking", a practice in which city employees convert certain benefits such as unused sick time or saved vacation pay to boost the salaries on which their pensions are based or extend their credited length of city service. Some were further upset by the fact that some employees, such as firefighters and police officers, are allowed to use pension spiking while other rank-and-file employees are limited or restricted from the practice. Some city employees filed suit against the city when they were denied the ability to spike their pensions when other employees were permitted to use the increasingly controversial practice. The city argued in court that it is not legally bound to let employees include unused sick time in their pension-benefit calculations but began allowing it voluntarily in 1996 and can change their position at will.[2]

Several reports released by the Arizona Republic highlighted the pension spiking of executive-level public-safety officers and managers. The reports featured 10 public-safety retirees that had increased their lump-sum retirement benefits to over $700,000 and their annual pension payouts to more than $114,000 per year. According to backers, the proposed pension reform initiative would prohibit the practice of pension spiking.[2]

Sal Diciccio

Support

Supporters

  • Citizens for Pension Reform
  • City Council member, Sal DiCiccio[10]

Arguments in favor

Opposition

Opponents

  • City Pension Reform Task Force[5]

Arguments against

City officials have said that if this initiative goes on the ballot and is approved, the taxpayers would not see savings for years and that in the short term it will cost them large sums because because the city would have to pay off the $5 billion dollar fund in an expedited time frame and without contributions from future employees, who would be part of the new system.[4]

References

  1. [http://www.pewstates.org/uploadedFiles/PCS_Assets/2013/Pew_city_pensions_brief.pdf Pew Charitable Trusts, "Cities Squeezed by Pension and Retiree Health Care Shortfalls," March, 2013]
  2. 2.0 2.1 2.2 Azcentral.com, "Phoenix pension ‘spiking’ rules vary for city employees," September 14, 2013
  3. Pew Charitable Trust, "A Widening gap in Cities," January, 2013
  4. 4.0 4.1 Azcentral.com, "Phoenix ballot initiative would overhaul pension system," September 16, 2013
  5. 5.0 5.1 5.2 Pension Reform Task Force Presentation Document
  6. Phoenix Pension Reform FAQ
  7. Cite error: Invalid <ref> tag; no text was provided for refs named Article1
  8. See the Pension Reform Task Force Document here for a list of the members of the task force
  9. Cite error: Invalid <ref> tag; no text was provided for refs named Council
  10. Ahuwatee Foothill News, "DiCiccio: Why we need real pension reform — you decide," September 17, 2013