On November 20, 2014, Mayor Greg Stanton appointed members to the Civilian Retirement Security Ad Hoc Committee ("Committee"), including Council members Thelda Williams and Daniel Valenzuela, who served as co-chairs, along with five community and business leaders.
The Committee met over the course of three months and reviewed extensive actuarial analyses and received advice from consultants and outside legal counsel. On Wednesday, February 11, 2015 the Committee made a unanimous recommendation for additional pension reform.
Summary of the Recommendation from the Committee
The Committee made a unanimous recommendation for an option called a Stacked Hybrid Plan, discussed in more detail below, which combines a defined benefit plan for compensation up to $125,000 and a defined contribution plan above that cap. The plan recommended by the Committee would:- Create additional savings of $38.8 million over 20 years.
- Improve the recruitment and retention of employees by lowering the Tier 2 and future hire employee contribution rates to no more than 11 percent.
- Implement best practices in pension administration for future hires, including a change to a five-year final average salary calculation, the elimination of the sick leave service credit, and changes to the benefit multiplier. Those changes will better match COPERS benefits and calculations to national trends in pension administration.
- This plan is expected to avoid costly litigation because benefits are reduced only for future new hires, and current employees' retirement benefits are not impacted by these changes.
This proposal has no effect on Tier 1 employees who retire from the City.
Under the proposed recommendation, Tier 2 and all future hires would continue to share equally with the City in the contribution rate, with a ceiling of 11 percent for employee contribution rates. The City would pay the rest of the required contribution. There would be no changes to retirement benefits for Tier 2 employees.
The most significant changes under this proposal are for employees hired after a future implementation date; those new employees would go into a new tier, Tier 3. For Tier 3 employees, compensation up to $125,000 would count towards the traditional pension system, with that cap increasing each year to match inflation. Compensation above the cap would receive a 2 percent contribution from the City in a 401k-style plan.
Tier 3 would also have other changes to benefits, including:
- A self-funded cost-of-living adjustment (COLA) option at retirement. Employees could choose at retirement to reduce their initial benefit in order to receive COLAs throughout their retirement.
- Change the Final Average Salary (FAS) calculation to a five-year average.
- Change the benefit multiplier for Tier 3 as follows:
- Less than 10 Years of Service: 1.85% all years
- 10-19 Years of Service: 1.9% all years
- 20-30 Years of Service: 2.0% all years
- More than 30 Years of Service: 2.1% all years
- Eliminate the sick leave service credit.
- Eliminate the ability for some employees previously employed by the state or other cities in Arizona to start as Tier 1 employees.
There is one change that will impact all tiers of employees, but it is not a retirement benefit. Currently, if employees leave the City and withdraw their contributions to COPERS, they receive an interest credit on their contributions based on a formula set by the COPERS Board with a current maximum of the assumed rate of return (7.5 percent). One recommended change would reduce the interest credit to a maximum of 3.75 percent for employees, in any tier, who leave the City and withdraw their contributions.
The above recommendations were approved by the City Council by a 6-3 vote on March 4, 2015.
On March 25, 2015, the Mayor and City Council voted 5-3 to forward the recommendations to the voters for the election on August 25, 2015. See the
attached report that includes the recommended Charter changes.
