Tuesday, February 8, 2011


Highly-anticipated reforms combat generous giveaways to politicians, “double-dipping” by government entities

(Media availability today at 2 p.m.)

STATE CAPITOL, PHOENIX (Feb. 8, 2011) – House Speaker Kirk Adams unveiled a sweeping overhaul of the state’s financially unstable pension system today that aims to stop generous giveaway to politicians and the practice of “double-dipping” by government entities. The overhaul seeks to create a more financially sound system for the employees who are counting on the fund for their retirement and lowers the burden on taxpayers.

“We must protect those Arizonans who are counting on our pension system – the teachers, firemen and law enforcement officers – by seeking out and destroying the abuses that are draining and bankrupting their retirement,” Adams said. “Our pension system is a ticking time bomb ready to explode. If we don’t address its financial instability with these reforms, hard-working Arizonans will be on the hook and at the mercy of ever increasing liabilities. Meanwhile, our state’s bravest will face an uncertain retirement.”

Last year, the Arizona Chamber Foundation blew the whistle on a problem that threatens to cost Arizonans billions. In 10 years time, our state petition program’s nearly $5 billion surplus has turned into a more than $10 billion deficit – much of it a result of benefit increases, government growth and rising salaries that we simply cannot afford.

Meanwhile, the Arizona Republic has detailed a number of abuses, including “double-dipping” practices where government entities are hiring back early retirees and draining money from the pension. (Read the full series here: http://www.azcentral.com/news/articles/2010/11/12/20101112arizona-pension-funds.html)

As the Republic has reported, Arizona ’s four statewide pension systems lack sufficient funds to pay for current and future pension liabilities.

Speaker Adams has taken the lead on this issue, opting out of his own state pension before his vesting date and giving up at least $260,000 in potential income. The Republic said Adams “deserves kudos” for this “act of integrity.” The National Taxpayers Union gave Adams a “Profile in Taxpayer Advocacy” for his efforts.

On Monday afternoon, Speaker Adams introduced HB 2767, his highly-anticipated reform package.

“This fight won’t be easy – and it will be a fight,” Adams said. “The powerful unions and out-of-state interests that would rather stick with the status quo and put our state workers at risk will recycle the same old scare tactics and threats. But as leaders, we must have the guts to stand up, do what’s right and reform this system before it’s too late. And I’m prepared to lead the charge.”

The Speaker’s seatmate, Representative Justin Olson, will play a major role in guiding this legislation through the House and ensuring its passage. Rep. Olson is co-sponsoring HB 2726 with Speaker Adams.

Speaker Adams ’ reform package includes the following elements:

  • Deprives elected officials and judges of their generous plan and treats them like everyone else by removing both their early retirement eligibility and the ability to retire after 20 years service without hitting the retirement age. Additionally, the reform package sustainably reduces the retirement multiplier for elected officials to the same standard applied to all other state employees.
  • Ends the potential for “double-dipping” by forcing employers like cities and school districts to make payments into the pension trust when they rehire retirees.
  • Completely eliminates the current point system for new hires that combines age and years of service, replacing it with a set retirement age.
  • Repeals the Deferred Retirement Option Plan, or DROP, which lets workers receive lump-sum cash payouts for up to five years of service.
  • Repeals the Cost of Living Adjustment Plan, or COLA, which provides generous permanent benefit increases.
  • Moves towards a 50-50 contribution system with employee increases and employer decreases until the match is achieved.
  • Requires a study by the Board of Investment about the feasibility and cost of moving towards a 401k-style defined contribution plan.

To see today’s Arizona Republic story on the reforms, go here:http://www.azcentral.com/news/articles/2011/02/08/20110208arizona-bill-pension-reform.html

For a detailed breakdown of all the proposed changes, see attached document.

The Speaker will be available today immediately after floor session, at approximately 2 p.m., to discuss this legislation further with members of the media.

To schedule interviews or to receive a full briefing of the package, please contact Daniel Scarpinato at 602-926-3233 or dscarpin@azleg.gov

Pension Design Reform 2011

Current Law
ASRS Return to Work:
>20hrs/20wks Rule – resume active status.
True change in position – can collect pension.
Another system – can collect pension.
Terminated employment for 12 months and return – can collect pension.
Returns to work as teacher after 12 months – can collect pension.

Return to Work Changes
HB2027 (July 2012 effective date).
Alternative Contribution Rate charged to ASRS employer when hiring retired ASRS member, after 12 months.
ASRS Normal Retirement Eligibility:
Age 65
Age 62 and 10-yrs of service
Any combination of age and service totaling 80 points or 85 points, if hired post July 2011.

Change Normal Retirement Eligibility
(Hired post July 2011 effective date).
Age 65
Age 62 and 10-yrs of service.
*Remove point system
4-Systems Permanent Benefit Increases (COLAs):
Up to a 4% increase contingent on variables within each system.

Repeal COLAs
(General effective date).
Repeal all COLAs in each system
EORP Normal Retirement Eligibility:
Age 65 and 5-yrs of service
Age 62 and 10-yrs of service
20 or more yrs of service regardless of age.

Change Normal Retirement Eligibility
(Hired post Jan 2012 effective date).
Age 65 and 5-yrs of service
Age 62 and 10-yrs of service
EORP Early Retirement Eligibility:
Any age and 5-yrs of service.

No Early Retirement
(Hired post Jan 2012 effective date).
No early retirement eligibility
EORP Retirement Multiplier:
4% × member’s average yearly salary × yrs of service.
Change Retirement Calculation
(Hired post Jan 2012 effective date).
Graded multiplier (%) scale based on years of service:
10 to 19.99-yrs: 2.1%
20 to 24.99-yrs: 2.15%
25 to 29.99-yrs: 2.2%
30+ yrs: 2.3%

After member attains 20-yrs of service, the member can elect to DROP up to 5-yrs. No member or employer contributions are paid to system during that period, member contributions go to member account plus interest.

Repeal DROP
Repeal DROP (effective Jan 2012). If you are not in DROP by date, you cannot DROP.  Members in DROP by date may continue to DROP.
3-PSPRS Systems Employee/Employer Contributions:
Members Fixed:    Employer:
PSPRS –  7.65%     20.89%  avg
CORP –   7.96%      8.75%   avg
EORP –   7%          17.42%(st/county) 29.79%(city)

Increase Member Contributions
(July 2011 effective date).
Increase member contribution rates by 1/5th each year for 5-yrs with corresponding employer decreases until matching contribution rate is achieved. 
Salary Benefit Calculation (PSPRS, CORP, EORP):
Highest average salary paid during 3 consecutive yrs within the last 10-yrs of service.  PSPRS is within last 20-years of service

Smooth Salary Calculation
(Hired post Jan 2012 effective date).
Highest average salary paid during 5 consecutive yrs within the last 10-yrs of service. PSPRS is within last 20-years of service.
Refund of Contributions (PSPRS, CORP, EORP):
From 5 to10-yrs of service, members are refunded a graduated portion of the employer contributions up to 100%, if member has 10-yrs of service.
No Employer Refunds
(Hired post Jan 2012 effective date).
Terminated members will no longer receive double their contributions.
Normal Retirement Eligibility (PSPRS & CORP):

20-yrs of service at any age
Age 62 and 15-yrs of service

20-yrs of service at any age
Age 62 and 10-yrs of service
Any combination of age and service totaling 80 points.  If dispatcher, 25-yrs at any age.
Change Normal Retirement Eligibility
(Hired post Jan 2012 effective date).

25-yrs of service
Age 62 and 15-yrs of service

25-yrs of service
Age 62 and 10-yrs of service

* Requires a Study of Defined Contribution Plan feasibility and cost.  The Board of Investment will complete the Study by Dec 31, 2011.

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