Pensions bankrupting AZ cities (Phoenix, Mesa: 2015, homes, income)

[ajonesaz]

Outrageous public pensions could bankrupt these states

This year alone, Phoenix must contribute $143 million to public-safety pensions, up from just $16 million a decade ago. The city also must pay a $133 million tab for civilian worker pensions. Rising costs have helped create persistent deficits in Phoenix, whose general fund budget is only $1.15 billion this year.

Phoenix is far from alone. Cities around the Grand Canyon state are experiencing pension “sticker shock,” in the words of the Arizona Republic. Six other cities—including Mesa, Scottsdale, and Glendale—face $23 million in extra pension payments next year. Thanks to poor stock market performance and an inability to reduce its pension benefits, the city of Tempe has seen its public-safety pension costs rise nearly ten-fold in a decade, from $1.9 million annually to $18.3 million, while Mesa’s will reach $41 million this year, up from $6 million a decade ago.

[Ponderosa]

You're conflating problems with Phoenix and its public safety fund with the rest of the pensions in the state. The public safety and election officials funds have always been a problem because there are not enough people paying in and the retirement thresholds are so low coupled with things like automatic increases.

In reality, the ASRS which covers most public employees is among the more stable funds in the country. Yes, contributions have gone up to cover losses from the recession, but the trend is the other direction now. That's a good thing. It forces the plan to maintain solvency by adjusting contributions to performance. The huge percentage that the paper loves to cite is because in the good years under Clinton, the contribution rate was 2%. Now its over 10, I believe. Keep in mind too that employees pay the same amount. They don't get a free ride like in some states. They don't get cost of living adjustments unless there are excess earning. I don't think they have had a COL in over a decade, but could be wrong about that. Comparing Illinois to AZ in the article is simply absurd as well. Totally different issues.

[pbenjamin]

Originally Posted by Ponderosa

You're conflating problems with Phoenix and its public safety fund with the rest of the pensions in the state. The public safety and election officials funds have always been a problem because there are not enough people paying in and the retirement thresholds are so low coupled with things like automatic increases.

In reality, the ASRS which covers most public employees is among the more stable funds in the country. Yes, contributions have gone up to cover losses from the recession, but the trend is the other direction now. That's a good thing. It forces the plan to maintain solvency by adjusting contributions to performance. The huge percentage that the paper loves to cite is because in the good years under Clinton, the contribution rate was 2%. Now its over 10, I believe. Keep in mind too that employees pay the same amount. They don't get a free ride like in some states. They don't get cost of living adjustments unless there are excess earning. I don't think they have had a COL in over a decade, but could be wrong about that. Comparing Illinois to AZ in the article is simply absurd as well. Totally different issues.

Thank you, saved me the trouble of saying the same thing. I think you are correct about no COL for the ASRS, certainly true for the last few years. They put out a notice recently that it was becoming more likely in the near future, but 2015 saw no increase.

The article comes from The Fiscal Times, which is a conservative outfit that seeks cuts to Social Security, social welfare, etc. It has been described by critics as "tycoon funded" and providing "special interest propaganda". Hardly a neutral source.

The local media, The Arizona Republic in particular, has been involved in a systematic attack on public pensions that dominates not only their editorial stance, but also their news coverage and even their choice of headlines. They tend to do exactly what you describe, conflate the bad with the good. There are some public pensions that need fixing, others that are just fine. The solution will be to fix rather than destroy the systems that are flawed.

[brian571]

I'm in ASRS. The contribution rate is 11.6% for both the employer and employees. No COLA. As an employee it's an expensive, but still nice, benefit to have.

[asufan]

I understand something is needed to entice people into these government jobs, but I can't stand that tax dollars go to fund others retirements. Government at the Municipal level should exist to provide services and amenities to the residents of the city, and not to fund people's retirement at the expense of the city. Pensions are just too expensive, it doesn't work.

[Ponderosa]

Originally Posted by asufan

I understand something is needed to entice people into these government jobs, but I can't stand that tax dollars go to fund others retirements. Government at the Municipal level should exist to provide services and amenities to the residents of the city, and not to fund people's retirement at the expense of the city. Pensions are just too expensive, it doesn't work.

I have a small pension from an earlier position and a much better 401k toward which my employer paid handsomely and invested intelligently while I worked. Inasmuch as most of the projects I worked on were government owned, I guess the taxpayers are paying for mine as well. Seriously, the customer always pays.

Actually it is 401k's that don't work. Not so much because of the vehicle. Theoretically it should be as rewarding as a traditional plan - all it does is switch risk to the retiree from the employer. The problem is that employees don't contribute what they can, and especially make very poor investment decisions. In traditional plans, both employee and employer make forced contributions (although govs are famous for not making their share, spending the money on other things, and then blaming employees when they are underfunded). Traditional plans are professionally managed and usually see better returns.

Anyhow, back to AZ. From the research I have done on this, our state plans are well run, both employees and employers pay their share, on time, and have no history of misappropriation of funds. Things are coming back from the recession (fingers crossed) and increased revenues and growth will mean more workers paying in in future years relative to retirees. The public safety plans are in so-so shape though. But the situation in manageable and the police/fire unions and management are working cooperatively to address a situation both realize is not sustainable. .

[Ponderosa]

Originally Posted by brian571

I'm in ASRS. The contribution rate is 11.6% for both the employer and employees. No COLA. As an employee it's an expensive, but still nice, benefit to have.

I wonder how many private sector people are putting away 11.6% of their gross pay for their retirement. Then there is social security too. With the employer match, that is like 1/3 of gross! No wonder they can afford those big motor homes when they retire..

[asufan]

Originally Posted by Ponderosa

I have a small pension from an earlier position and a much better 401k toward which my employer paid handsomely and invested intelligently while I worked. Inasmuch as most of the projects I worked on were government owned, I guess the taxpayers are paying for mine as well. Seriously, the customer always pays.

Actually it is 401k's that don't work. Not so much because of the vehicle. Theoretically it should be as rewarding as a traditional plan - all it does is switch risk to the retiree from the employer. The problem is that employees don't contribute what they can, and especially make very poor investment decisions. In traditional plans, both employee and employer make forced contributions (although govs are famous for not making their share, spending the money on other things, and then blaming employees when they are underfunded). Traditional plans are professionally managed and usually see better returns.

Anyhow, back to AZ. From the research I have done on this, our state plans are well run, both employees and employers pay their share, on time, and have no history of misappropriation of funds. Things are coming back from the recession (fingers crossed) and increased revenues and growth will mean more workers paying in in future years relative to retirees. The public safety plans are in so-so shape though. But the situation in manageable and the police/fire unions and management are working cooperatively to address a situation both realize is not sustainable. .

Just because people do not save enough on their own in a 401K is no reason to take money from the taxpayers pocket and pay more than they would in a typical 401K matching scenario. When I said pensions don't work, I mean they can't be funded as promised based on the income they are receiving from tax dollars, then other services need to be cut to make up for the shortfall. In a 401K, there is not this issue.

[asufan]

In the interest of full disclosure, both of my parents receive pensions and my wife is vested in a small pension as well

[Ponderosa]

Originally Posted by asufan

Just because people do not save enough on their own in a 401K is no reason to take money from the taxpayers pocket and pay more than they would in a typical 401K matching scenario. When I said pensions don't work, I mean they can't be funded as promised based on the income they are receiving from tax dollars, then other services need to be cut to make up for the shortfall. In a 401K, there is not this issue.

My employer did 100% match like the state does. It was up to 6% of salary. They did not do that for everyone in the company, though, and that was back in the day when we were printing money. Times have changed, I know. I worked with a lot of government people. We even tried to poach the goods ones, but the pension at the end of the rainbow kept many of them on the job for their govs in spite of the crappy pay.