Phoenix Voters Could Decide on Replacing Employee Pension With 401(k)-Type Plan

Phoenix voters will likely be voting on reforms of the pension system for city employees, which includes actually phasing out the program, and replacing it with a 401(k)-style plan.

A right-wing group called the Arizona Free Enterprise Club started its effort to collect signatures to put this on the ballot in January, and announced yesterday that it had more than 54,000 signatures. Only 25,480 verified signatures are needed to put the issue on the ballot.

The measure, if it's eventually approved by voters, would replace the pension system with the 401(k) plan for new employees. It would also allow current employees switch over from the pension to the 401(k) plan.

There's a major difference between the two. The workers pay in to both systems, but in the pension, the benefits are defined -- a formula based on an employee's length of service, salary, and age decides their pension payouts. In a 401(k) system, there's no guarantee of what the payout will be, as it all depends on how the investment of the contributions work out, thus passing on the risk to the employee, unlike the pension system.

In addition to that, the measure would change the rules about so-called "pension spiking." Right now, if a city employee doesn't use up his or her unused sick time or vacation days, those days can essentially be cashed out when an employee retires.

The pension spiking became a more well-known issue once former City Manager David Cavazos, who had the highest salary in the city, retired with well over six figures' worth of unused sick time and vacation days.

Since the city manager's post is where this can have the most impact on the city's bottom line, Mayor Greg Stanton said the new city manager would not have a contract that allowed such a manuever. Longtime city employee Ed Zuercher, who was selected as the new city manager, indicated he was fine with that.

Recall that just last year, Phoenix voters approved Propositions 201 and 202, which dealt with reforms to the pension program. The city-proposed changes were billed as a way for the city to save nearly $600 million over 23 years.

After Cavazos' retirement later last year, Mayor Stanton set up a subcommittee on "pension fairness and spiking elimination." They say their proposal will save $233 million over the next quarter-century.

None of this is satisfactory to the group that gathered signatures to but its own style of pension reform on the ballot.

"The outpouring of support from Phoenix residents wanting real pension reform has been tremendous," Scot Mussi, executive director of the Arizona Free Enterprise Club, says in a statement. "The power brokers at City Hall have refused to fix our broken pension system, instead passing sham reforms thinking they can hide the problem from taxpayers. Voters are fed up with the games and deserve an opportunity to decide the issue for themselves."

It's worth noting that neither the city reforms nor the ones proposed by the Arizona Free Enterprise Club affect cops or firefighters. They have their own pension system statewide called the Public Safety Employees' Retirement System.

Click here to read the text of the Arizona Free Enterprise Club's "Phoenix Pension Reform Act."

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Follow Matthew Hendley on Twitter at @MatthewHendley.

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Matthew Hendley
Contact: Matthew Hendley