PHOENIX - Legislation overhauling the underfunded Arizona’s Corrections Officers Retirement Plan is meeting with strong approval from advocates of aggressive measures to fully fund retirement liabilities.
Arizona Gov. Doug Ducey signed SB 1442 into law April 17 after it passed through the state Senate and House with strong majorities in each. The new law adopts a defined contribution plan for new correction officers, and allows new employees to be 100% vested within three years of service. It also replaces the existing permanent benefit increase with a cost of living adjustment tied to inflation. The CORP is only about 53% funded, and more than $1 billion in debt.
The CORP pension reform effort is expected to shift about 90% of new hires into a defined contribution retirement plan and nearly eliminate the potential for new unfunded liabilities once the current pension debt is paid off, according to a fact sheet released by the Reason Foundation, a Los Angeles-based think tank that says it promotes choice, competition, and a dynamic market economy.
The law met with applause from the Retirement Security Initiative, a San Jose, Calif.-based group that encourages states and localities to be proactive in addressing their unfunded pensions and other post-employment liabilities.
“The CORP plan, as it was structured, was not sustainable and failing the vast majority of employees it was designed to benefit,” said RSI Executive Director Pete Constant. “Overall, this reform protects the promises made to current members of the plan, while providing retirement security for new employees.”
This pension overhaul follows another in Arizona last year, when the state took action to pass a comprehensive change to the Public Safety Pension System. That retirement system was also struggling, with $6.2 billion in assets but $12.7 billion in liabilities, and like the new law offered new hires the option of a 100% defined contribution plan and replaced a permanent benefit increase with a COLA tied to inflation. A key lawmaker behind that effort, Republican Sen. Debbie Lesko, was also a leader in passing SB 1442.
“We congratulate Sen. Lesko and are proud that this effort, too, had the support of employees, employers and taxpayer groups,” said Constant. “It’s a job well done and demonstrates to other state and city governments that meaningful pension reform is possible through collaborative stakeholder engagement.”