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Arizona poised to undertake major pension reforms

by John Stephenson / /

Recently, I profiled Representative Kirk Adams, the Speaker of the Arizona House of Representatives, for setting a good example. To highlight the need for reforms to Arizona’s costly public employee pension plans, Adams opted out of the very generous retirement plan given to state lawmakers. Since then, Adams has been working to make good on his call for reform by introducing a pension reform bill (HB 2726) with Rep. Justin Olson that aims to reduce the growing cost of Arizona’s public employee pension plans while ensuring the state’s 360,000 employees and retirees will have a secure retirement.

To shore up Arizona’s pension plans, the bill would require that new public employees with less than 10 years of service cannot retire until they are 65 (or 62 with 10 years of service). Police and firefighters would also be required to pay more towards their pensions and, eventually, pay the same amount as their employers contribute. The bill would also eliminate the Deferred Option Retirement Plan, which gives police and firefighters who defer retirement large, six-figure lump sum payments, for those not already in the program. Additionally, Arizona state lawmakers would lose their early retirement eligibility and be subject to the same standards as other state employees. Finally, the bill would study the feasibility of switching from a defined-benefit pension system to a defined contribution system such as a 401(k).

It is likely that this bill could move before the end of the session. The need for reform has never been greater. As Adams points out, the Arizona Chamber Foundation found that Arizona’s “nearly $5 billion [pension] surplus has turned into a more than $10 billion deficit – much of it a result of benefit increases, government growth and rising salaries that we simply cannot afford.” Additionally, the Arizona Republic, in an eight-part series, discovered a number of abuses, including “double-dipping,” in the state’s plans. The state’s pension plans now cost Arizona taxpayers $1.39 billion annually, an increase of 448 percent over the last decade.

Adams deserves praise for introducing these reforms. I certainly hope he continues to push for these and other reforms to the state’s pension plans. If the costs are not contained soon, Arizona taxpayers could be left on the hook for billions.