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New Law Could Reduce Costs For Some Public Safety Employers

May 15, 2022

By Terri Jo Neff |

While the City of Bisbee is hoping $24 million in municipal bonds will resolve fiscal problems associated with its unfunded liability to the Public Safety Personnel Retirement System (PSPRS), the governor recently signed legislation addressing the opposite problem – several public safety employers who have overly funded accounts or accounts with no future liabilities.

Gov. Doug Ducey signed Senate Bill 1085 earlier this month to provide government employers of public safety workers more options in calculating contribution rates paid to PSPRS. The legislation, sponsored by Sen. David Livingston (R-Peoria), also addressed the fiscal burden on public safety employers when even when the group is properly funded or has an excess of employee contributions. 

Before the governor signed the bill, certain members of PSPRS hired after July 20, 2011 and before July 1, 2017 generally pay an employee contribution rate of 11.65 percent. However, employee contributions above 7.65 percent are not directly accounted for in the valuation process, so they do not serve to reduce an employer’s contribution rate.

SB 1085 modifies how the “excess” of employee contributions are treated once an employer reaches 100 percent funded status. As a result, any employee contribution above 7.65 percent can be factored into the valuation process in an effort to reduce any required employer contribution.

The Joint Legislative Budget Committee has identified 12 local government PSPRS employer groups which appear to meet the 100 percent funding threshold: Apache County Detention, Coconino County Deputies, Flagstaff Police, Gila County Dispatchers, Graham County Dispatchers, Groom Creek Fire, Hayden Police, Pima Police, Pinal County Dispatchers, Tombstone Marshals. Wickenburg Dispatchers, and Winslow Fire.

Another key feature of SB105 is a provision which removes language in state law dating back to FY 2007 that required the employer contribution rate to not be less than 8 percent of employee compensation (5 percent for some employers) regardless of funding status. In some circumstances, the PSPRS Board of Trustees would have authority to suspend additional employer contributions subject to certain fiduciary restrictions. 

SB1085 also provides a procedure for an employer to request the PSPRS board transfer excess assets of an employer’s account which has no liabilities or beneficiaries to another PSPRS group under the same employer. The JLBC reports this would currently impact only three employer groups: Greenlee County Attorney Investigators, La Paz County Attorney Investigators, and Tonopah Valley Fire District.

PSPRS was established in 1968 to provide a uniform statewide retirement program for public safety personnel. It is a defined benefit pension plan organized into local boards for different employing agencies.

However, overly optimistic investment projections, a rash of baby boomer retirements, and a kick-the-can attitude by many city and town councils the last two decades has left several PSPRS employer groups underwater and accruing interest.

Last year Ducey signed legislation which appropriated $500 million of the state’s budget surplus to the underfunded Arizona Department of Public Safety (DPS) account with PSPRS. Despite the move, the DPS group’s unfunded PSPRS liability remains at nearly $431 million, and grows at about 7.3 percent annually. 

Another $502 million in supplemental payments -to the DPS and the Arizona Game & Fish Department PSPRS group accounts- has been proposed this year by the governor’s office as budget discussions continue with the Legislature.  Another Livingston-sponsored bill SB1087, would have also appropriated  $550 million toward underfunded pension liabilities in the Corrections Officer Retirement Plan (CORP) which is administered by PSPRS.

SB1087 cleared the Senate but not the House. As a result, any appropriations for state pension liabilities will likely be addressed in budget bills in the next few weeks.

The State may be flush with cash, but the same cannot be said for communities like Bisbee which has a $24 million PSPRS unfunded liability.  Voters there will be asked in November to approve a city council plan to continue a one-cent sales tax, half of which will be used toward payments on a recently adopted resolution for the issuance of municipal bonds to pay off the city’s entire underfunded PSPRS liability.

Doing so, city officials announced earlier this month, will result in a bond interest debt that is less than the amount accruing each month from interest on its unpaid $24 million PSPRS debt.

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