Arizona Passes Fundamental Pension Reform

Last month, Arizona Governor Doug Ducey signed three significant pension reform bills into law. According to the Reason Foundation’s Pension Integrity Project, the reform package will save Arizona taxpayers a combined $1.5 billion over 30 years.

Senator Debbie Lesko – the ALEC Arizona state chair and national chair of the ALEC Women’s Caucus – was the sponsor and driving force behind the reform package. Along with Senate President Andy Biggs, Lesko worked tirelessly to earn the trust and goodwill of stakeholders – including but not limited to police and fire unions across the state.

Thanks to Lesko’s hard work and determination, new public safety hires in Arizona will be offered a choice between a full defined contribution plan and a traditional defined benefit plan. Additionally, new employees will equally share the cost of their pension.

Employees currently pay 11.65 percent of their salary toward pension benefits, but there is no limit on the taxpayer-funded employer contribution. On average, employers pay the equivalent of nearly 43 percent of each employee’s salary for retirement benefits. The new law will control the cost of pension benefits for new employees by limiting the maximum salary on which they are calculated to $110,000 per year – down from the current cap of $265,000 per year.

These reforms will protect Arizona taxpayers by strengthening the long-term viability of the state’s pension funds, and more public safety professionals can look forward with confidence to economic security when they retire.

One element of Senator Lesko’s reform package remains subject to a statewide referendum. On May 17, voters will be asked to link retirees’ cost-of-living adjustments to the regional Consumer Price Index, with an annual cap of 2 percent – a significant departure from the 4 percent compounded increase that has been paid out for the past two decades.