PSPRS Employer Targets Rising Police Pension Costs
Paradise Valley targets rising police pension costs [Phoenix]
By Philip Haldiman – The Republic | azcentral.com – Wed Jan 29, 2014 8:02 AM
Paradise Valley police – Paradise Valley begins discussing policy to address current police pension issues.
Paradise Valley is in the beginning stages of creating a policy to protect against the rising pension costs of police officers.
Officials with the town say that with 33 retirees on the plan each costing $45,555 annually and only 23 active members paying into the plan, more money is leaving the pool than coming in.
Financial Director Scott McCarty said the objective is to fund the estimated costs for current and future retirees.
“We are trying to match future inflows with future outflows. Inflows include employee contributions, employer contributions and investment earnings,” he said. “Future outflows are the pension payments.”
Effective next July 1, Paradise Valley’s contribution rate to the Public Safety Personnel Retirement System will be about 62 percent of the wages of a sworn position, while the PSPRS average employee rate will be about 33 percent, according to the town.
Assuming a patrol officer has a wage of $65,000, then about $40,600 is paid by the town, McCarty said.
This will give Paradise Valley the seventh highest contribution percentage in the state. By contrast, the town was paying about 11 percent in fiscal 2003-04.
Town officials are worried this could lead to future financial issues and will spend the coming months drafting policy addressing the problem.
Town Manager Jim Bacon said this year’s budget includes $1.3 million for police pensions, and next year’s budget will be $1.5 million.
“That’s why it will be an important part of the budget. In the town’s case, we have more people receiving a pension than are contributing to the fund,” he said. “This is why the town can expect to experience further rate increases.”
An actuary contracted by the town has found that the 33 retired members will cost the town $1.5 million in fiscal 2014-15. McCarty said this number reflects the amount of money necessary to provide benefits for current and future retirees.
This will be 9 percent of the operating revenues in the coming year.
McCarty said those numbers are expected to grow.
“The system can’t be changed, and the options are limited, so the focus has to be in managing the expenditure,” he said.
Most people in Paradise Valley’s plan receive a $45,555 retiree pension, according to the current budget.
“We’re trying to figure out how big of a problem this is, but we won’t know that until we study it more,” McCarty said. “Unfortunately, this isn’t going away. We are going to have pension costs forever, but what is the maximum a year we can afford and can we live within that boundary?”
Paradise Valley is one of 255 member entities in the state that pay into the Public Safety Personnel Retirement System, which provides a retirement program to certain public-safety personnel, including police officers and firefighters.
Under the system, for 25 years or more of service, the pension is 50 percent of the employees average monthly compensation for the first 20 years, plus 2 percent of average monthly compensation for each year above 20 years.
McCarty said the amount is capped at 80 percent. “This is considered ‘normal retirement,’ ” he said.
The town pays into its own pool, as a separate member entity of the retirement system, and each entity has its own contribution rates.
The retirement system has a seven-member board of trustees responsible for investing monies and paying out benefits. Below that, Paradise Valley has a five-member board that determines eligibility and payment of benefits.
In 2001, state lawmakers essentially increased retiree payouts, and three years earlier, voters approved a constitutional amendment keeping public-employee pension benefits from being diminished.
Councilman Dan Schweiker said the current pension system came about because of those decisions.
Additionally, each municipality is its own retirement pool, he said, rather than all municipalities being pooled together, which would spread the income and retirement expenses over a much larger group, lessening the burden on the town.
Schweiker said over the years, Paradise Valley has hired the best, well-seasoned officers. But this is an actuarial problem that will cost the town dearly in the future, he said.
“We felt that our residents wanted experienced officers in town. However, financially we benefit better by hiring younger officers who will be paying into the system longer,” Schweiker said. “And, if they have experience we would benefit from that being out-of-state experience so their previous out-of-state time working does not penalize us when their pensions are due.”
Town officials say that as they continue to research the issue, they will get a better picture of the long-term impacts to the town.
Councilman Paul Dembow said that promises made to the current force must be kept, but going forward he would like to see reforms that will make the system sustainable.
When new hires are made, he suggested implementing a fair, sustainable program that works for all parties involved. But the Arizona Legislature may have to contribute to policy change, he said.