Study calls for hybrid 401(k) plan in Arizona

PHOENIX - A committee that studied funding issues with Arizona's pension system for public employees is recommending that current and former workers be allowed to move into a 401(k)-style plan as an optional alternative to fixed-benefit pensions.

The state also should raise the retirement age for future public employees and change the law to prevent public employees from spiking their pensions, if Arizona is interested in changing its underfunded public-pension system, according to the report by a pension-study committee led by state Treasurer Doug Ducey.

Ducey said the nonbinding proposals would protect public pensions for current employees and provide long-term financial security for Arizona public-pension trusts. They would have to be enacted by the Legislature and Gov. Jan Brewer.

A handful of retirees spoke against the proposal, saying that the current system is financially stable and that changes would make it difficult to recruit new employees into the public sector.

Ducey's office was ordered by the 2011 Legislature to study Arizona's four public-pension plans and determine whether it is feasible to change the way they are operated and funded. Lawmakers that year also adopted a series of changes that affected the retirements of government employees, teachers, police officers, firefighters and corrections employees.

The legislation came after The Arizona Republic in late 2011 detailed how the cost to taxpayers for the state's four pension systems and those in Phoenix and Tucson had skyrocketed in the past decade. It also detailed how some employees were taking advantage of loopholes to significantly enhance their pensions. The committee did not examine the municipal plans.

Republican committee member Sen. Steve Yarbrough said he will seek legislative approval of some of the report's recommendations.

Ducey's committee noted that the four state plans had unfunded liabilities of up to $39.6 billion, and the number of retired members in each of the systems is growing faster than the number of new workers entering the systems. The largest is the Arizona State Retirement System, while the others cover corrections officers, public-safety workers and elected officials. Collectively, they cover more than 581,000 employees, retirees or former employees who have yet to retire, according to the report.

The report noted that 10 years ago taxpayers were contributing $131 million to the four plans, compared with $782 million in 2011. Financial-market downturns in 2000 and 2008 also contributed to additional public funding. The study's main objective was to determine if it is financially feasible to move the state's pension systems from defined-benefit pension plans to defined-contribution plans, popular with private employers.

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