PRESCOTT VALLEY - In a presentation to area fire, police, and municipal officials on Wednesday, May 13, the president of the Professional Fire Fighters of Arizona (PFFA) described a sweeping plan to bring solvency back to the state's faltering public service pension fund.
The Arizona Public Service Personnel Retirement System (PSPRS), which pays police and firefighter pensions, is funded by investment income, employer contributions and employee deductions from pay. Started in 1968, it was fiscally healthy into the 1990s, when it was "well over 100 percent funded and growing," according to PFFA President Bryan Jeffries.
The PSPRS began to get into trouble in 1999, when the administrator of the fund, lured by the big gains being made in tech stocks, decided to invest heavily in them.
The tech bubble burst, Jeffries said, but the administrator thought that was just an anomaly.
"He doubled-down on those investments," Jeffries said, and "we lost a third of the total assets of the PSPRS fund" between 1999 and 2001.
It hadn't fully recovered by 2007, when the recession hit.
The legislature inadvertently created another problem when it tried to help, but passed a bill that failed to stand up in court.
Senate Bill 1609 eliminated the annual four percent cost of living increases (COLAs) to retirees, a move which the Arizona Supreme Court ruled was unconstitutional in 2014.
"The most recent increases (in employer costs) are largely due to the effects of the lawsuit," PSPRS spokesman Christian Palmer told The Daily Courier in April. "As a result of losing that, PSPRS is forced to pay retroactive benefit increases to retirees."
The total cost was in the neighborhood of $375 million.
As of June 2014, Jeffries said, the PSPRS was only 49 percent funded. Fire districts, cities, and towns, have been forced to pay higher mandatory contributions.
Contribution rates, he said, have gone up to an average of 42 percent of the employers' total payroll and are continuing to rise; some pay substantially more. For example, the City of Prescott is facing a 75 percent contribution for firefighters alone in fiscal year 2016, a 15 percent jump from 2015.
Those large contributions could force Prescott to make cuts in services like libraries; Chino Valley Fire District has already announced layoffs and may have to temporarily close fire stations.
Jeffries said the PFFA plan had been vetted by attorneys and actuarial experts.
Essentially, among other things, it requires employees to work six years longer or turn 60 to be eligible for benefits; includes a higher employee contribution to the system; and cuts the COLAs to a maximum of two percent, which, he said, if done legally, would not be as big a hurdle as it seems.
"Most of (the retirees) have commented to me that they didn't even realize that COLA system existed," Jeffries said. "They just went on thinking, 'Whatever I get is whatever I get.'"
To make the change legal, voters would have to approve a referendum changing the state constitution. The PFFA is prepared to fund a campaign in 2016, he said, noting that having the backing of firefighters and
police should make it "an easy sell" to voters.
If approved, he said, the average employer contribution rate would drop to 30 percent and, once the PSPRS was again fully funded and sustainable, which would take an estimated 18 years, employers would pay just 10 percent on average.
Reaction from those in the audience was uniformly positive.
Mayer Fire Chief Glenn Brown said he felt the plan was workable, and said he was surprised that the rank-and-file were in favor of the decrease in COLAs.
"I told him to his face (Jeffries) I didn't envy him going around the state of Arizona, telling firefighters and police officers that he was recommending
reducing their pensions, but that's what he's done" and "I give him a ton of credit."
Prescott City Councilman Chris Kuknyo said, "I'm happy to see any plans coming forward.
"We keep asking" for a plan, he added, only to be told, "'The state needs to fix it,' but here's a guy that's got a plan and he's with a lot of other real smart people with ways to fix it."
"The numbers look sound,"
Central Yavapai Fire District Assistant Chief of Administration Dave Tharp said, "This offers us a sensible solution where people are taking reduced benefits, and the taxpayers are being saved money and we're looking at not only now, but the future."
Chino Valley firefighter Rob Zazueta said, "It's probably the best plan we've come up with so far.
"This is what we've been waiting for."
Follow Scott Orr on Twitter @AZNewsguy. Reach him at 928-445-3333 ext. 2038, or 928-642-7705.
More like this story
- Firefighters propose solution to 'major problem' with pension fund
- Firefighters' plan to save pensions not popular, may face uphill battle
- Editorial: Public safety pension fix is in works, voters
- Tracking the fall of Arizona's public service retirement plan
- Four ideas proposed to fix public safety pension problems