The lucrative pensions that taxpayers now provide for state and local elected officials could soon be on the way out.
House Speaker Andy Tobin is pushing a proposal to vastly recraft the Elected Officials Retirement Plan which now allows everyone from local officials to legislators and the governor retire after 20 years at 80 percent of their highest pay. That is nearly twice as generous as what is offered to most other public employees in the Arizona State Retirement System.
But that’s only half the story.
Until last year, the plan that legislators crafted for themselves and their colleagues was set up so their pensions are based not on the average of what they’ve earned during their entire career but only an average of what they made in the last three years.
What that means is a person could serve 16 years in the Legislature at $24,000 a year and then run for a single four-year term on the Arizona Corporation Commission where the salary is $79,500. That puts the pension payments at $63,600.
Virtually all of the commissioners elected in the last two decades have been lawmakers.
Many lawmakers also have chosen to end their careers as county supervisors, where the salary is $67,800 for Pima and Maricopa counties and $56,500 elsewhere.
The 80 percent retirement after 20 years doesn’t even take into account annual cost-of-living increases which eventually could push the retirement pay above what the official was making when actually working.
Consider: Jane Hull, who served as governor from 1997 through 2002, never made more than $95,000 in that position. But that time, coupled with her service as a state legislator, not only entitled her to 80 percent of that when she left office but benefit increases that have boosted her annual pension to more than $100,000 a year.
Tobin’s proposal, being carried by Rep. Phil Lovas, R-Peoria, would convert the EORP from a “defined benefit’’ plan, with payments guaranteed at a certain level based on years of service and salary, to a “defined contribution’’ plan. That is closer to a typical 401(k) program that has become a business standard, with the employer contributing a set amount — usually matched by the worker — and each worker’s pension ultimately determined by how well the investment has done.
Nothing in the legislation will affect anyone already in office, as the Arizona Constitution precludes tinkering with the rights of anyone in a public retirement plan. But if approved, it would affect anyone not in office as of July 1.
It also would affect judges, who are in the same plan. But despite its prospective-only application, the proposal is being panned by the Arizona Judges Association.
Tobin said all four of the state pension systems need to be revamped. He said, though, it’s only fair for lawmakers to start with the one that affects them.
He also said that EORP is the most “underfunded’’ of the plans when looking at its current assets compared to future liabilities.
Tobin said lawmakers have tried to rein in the fund’s liability in the past. That includes putting limits on cost-of-living increases for retirees and requiring those still working to contribute more.
That, he said, only resulted in lawsuits by active and retired judges who complained that violates their rights. And so far the rulings have gone in favor of the judges.
This legislation avoids that problem by making the changes apply only to those who are not now in the system.
“Let’s go stop the bleeding,’’ he said. “Let’s not be in court on these other issues.’’
Pete Dunn who lobbies for the Arizona Judges Association said his client understands the desire to revamp the system. And he said efforts are under way to work with proponents “to try to make the new plan better than they’re proposing.’’
And by “better,’’ Dunn means more generous.
“They’re essentially going from giving judges and elected officials, who currently have a very good plan, to, for new judges and elected officials, the worst pension plan in the state,’’ he said.
“We think that’s really short-sighted and we think that there ought to be a pension plan that’s as least as good as the state retirement plan.’’
That, like EORP, is a defined benefit plan. And workers can eventually get a pension worth 80 percent of their highest pay.
But it takes at least 35 years to get to that point, not the 20 years in the one for lawmakers and judges.
That defined contribution plan would have the government and the employee each contribute 5 percent of the salary each year. That is far less than the 11.5 percent now contributed by workers — and the 36.4 percent due from employers.
Dunn said that going to a defined contribution plan, with its virtually certain-to-be smaller benefits, would make fewer attorneys willing to give up their private practice to serve on the bench.
“It’s going to impact the quality of the judiciary,’’ he said. “We’re working to see if we can come to some agreement.’’
How far the proposal might go is unclear, even with current legislators unaffected.
A proposal to reduce benefits for elected officials and judges to that of other state employees was introduced as far back as 2003. But that measure failed to gain any traction.
What may finally make a difference, though, is that EORP is funded at 58.4 percent of its liabilities. In 2003 that figure was nearly 119 percent.