What Happened?
The president of the Arizona firefighters association is encouraging its members and Arizona police officers as well to work with local governments to cut pension benefits amid skyrocketing liability costs. Towns in Arizona and around the country are struggling to pay for public employee retirement funds, and are facing lowered credit ratings and other financial setbacks.
The Goal
Proponents of cuts to pension benefits argue that such changes would help cities continue to meet their contribution obligations toward retirement funds, without pushing them into bankruptcy. Many cities are opting to convert pension plans into 401(k)-style plans that call for increased contributions from individuals to relieve some of the financial burden on local governments, The New York Times reported.
The Arizona firefighters association believes it is the responsibility of emergency response workers to voluntarily cut their pension benefits for the greater financial good of the community. Reasonable cutbacks could also help save existing pension plans rather than see them take on more private sector characteristics.
The Arizona firefighters association proposed to:
- Increase the number of years it takes before new staff can begin collecting a pension
- Increase member contributions
- Reduce cost-of-living expenses
The association expects the proposed changes to return the state pension plan back to fully-funded within 18 years, while saving tens of millions of taxpayer dollars.
The Arizona System
Arizona, and other states across the country, has seen pension systems suffer as a result of poor investments and the economic recession. State and local budgets are already tight form the financial downturn, and continue to fall behind in pension plan payments.
According to The New York Times, the $6.1 billion Arizona Public Safety Personnel Retirement System has just 39 of its 236 employer plans fully funded. About 21 plans are less than 40 percent funded. Because the state continues to drown in unfunded liabilities, local governments must either fund the pension systems for local employees or reform the systems so they cost the cities less.
The firefighters association is concerned that if left up to voters, many may approve legislative efforts to make more serious cuts to pension benefits permanent. If the emergency workers volunteer for specific cuts, there is still mutual control local pension system reform.
Reforms Upheld
The $2.4 billion Baltimore City Fire & Police Employees Retirement System recently underwent significant reforms, that were challenged and upheld in a federal appeals court. In 2010 lawmakers increased Baltimore employees’ contributions and swapped a variable benefit tired to investment returns with a tiered cost-of-living increase. This gave older retirees a 2 percent increase with cost-of-living and employees under 55 no increase, compared to an average 3 percent increase under the old system, Pension and Investments reported.
The change to the pension system was initially deemed unconstitutional in the U.S. District Court in Baltimore, but was then upheld in the 4th Circuit U.S. Court of Appeals. The judge found active and retired workers’ constitutional rights were not impaired with the changes. Baltimore is also negotiating with police and fire labor unions the creation of a hybrid retirement plan for new hires to further cut financial responsibility from the city.
Pension Problems
Gov1 has kept a close eye on various pension reform measures, such as legislative to eliminate instances of pension spiking.