PHOENIX — Voters on Tuesday agreed by a wide margin to amend the Arizona Constitution in a bid to cut future pension costs for government public safety employees.
Proposition 124 is part of a series of changes adopted earlier this year by lawmakers to restore financial stability to the Public Safety Personnel Retirement System. It provides pension benefits for police and firefighters.
Many changes in the law are prospective, affecting only people who will be hired in the future. But proponents say the changes are also necessary to curb future cost-of-living increases for existing employees and those already retired.
The problem is an existing constitutional provision that says pension benefits for public employees “shall not be diminished or impaired.” Proposition 124 gives lawmakers limited permission to make alterations.
There is no dispute the pension system is broken. Its obligations exceed its assets by more than $6 billion.
In an effort to bridge the gap and put the fund on financial footing, lawmakers previously voted to require participating governments to pay additional amounts to eventually make up the difference. The results, according to some city officials, have been little short of devastating.
The Flagstaff Fire Department, for example, pays premiums equal to 70 percent of its workers’ salaries. For Prescott, its police pension obligations are at 72 percent. And Bisbee is paying almost as much in premiums as the salary obligations.
Actuaries who worked on the plan said the state can’t do anything to wipe out the existing debt. But they said new limits on pensions for employees will help limit future obligations.
What is contingent on voter approval is a change that now guarantees public safety retirees a cost-of-living increase any time the fund’s earnings exceed a certain amount. While there have been no increases for the last two years, pensioners saw 4 percent increases for more than a decade before.
The legislation would replace that with cost-of-living allowance capped at no more than 2 percent a year .
There was no organized opposition to the ballot measure, with proponents raising about $500,000. And most police and fire groups supported it.
The package contains one other provision, not subject to the fate of Proposition 124, designed to save money for local governments.
New hires will have the option to go into the existing “defined benefit” plan, with pensions based on salary and years of service, or an optional “defined contribution” plan. That is similar to 401(k) plans where private employers and their workers contribute set amounts, and the pension is based on how much those funds earned.
