Phoenix Prop 103: Pension Plan Change—The Good, The meh, and the Ugly

Proposition 103 amends the City Charter to adjust the pension plan for city employees.

This is only the most recent of several ballot measures attempting to deal with Phoenix’s ballooning pension expenses.  My original post on last year’s (failed) Prop 487 included an explanation of the challenges facing Phoenix’s pension system, which I’ll link you to rather than repeating it at length here.  Suffice it to say, the pension plan still needs work.

Prop 103 stops far, far short of the serious reform that Prop 487, which I supported, offered.  Whereas 487 would have replaced the pension plan with a 401(k)-like plan for new hires, Prop 103 leaves the pension system largely intact with some minor tweaks, which I will characterise as the good, the meh, and the ugly:

The good
  • Only the first $125k of an employee’s compensation would be considered when calculating pension benefits.
  • Employees’ final salary used to calculate benefits would be averaged over five years, instead of just three.
The meh
  • Credit for unused sick leave is formally eliminated.  This brings Phoenix’s Charter in line with a previously issued court ruling against the practice known as pension-spiking, but it isn’t really a change; thus, meh.
The ugly

While the above provisions apply only to city employees hired after 1 January 2016, the below rolls back a 2013 reform retroactively for current employees.

  • Employee contributions to the plan would be capped at 11% of salary.

Employees hired after mid-2013 are now contributing about 15% of their pay into the system, so this provision would increase the city’s liabilities.  This is noteworthy—current employee contributions are high because the plan remains underfunded due to years of overly generous provisions and plan performance projections made through rose-colored economic blinders.

If the city’s current actuarial projections are to be believed, the passage of Prop 103 would offset city expenses by a paltry $38.8m spread out over the next 20 years.  Compare that to the plan’s  unfunded liabilities of $1.5b as of last year and you’ll see how small the improvement is.

Though small, Proposition 103 is an improvement.  I plan to vote YES, but there is more work to be done.  Don’t let city leaders use its passage as an excuse to avoid more serious reforms.  It has the support of AFSCME, and I expect it to pass easily.

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