The City Council approved the recommendations of the Civilian Retirement Security Ad Hoc Committee and it will go to the voters for a decision on the August ballot.
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 only reduced for future new hires, and current employees’ retirement benefits are not impacted by these changes. Under the proposed recommendation, Tier 2 and all future hires would continue with the 50/50 split in the contribution rate, with a ceiling of 11 percent for employee contribution rates. The City would pay the rest. 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 $125,000 would receive a two 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. • Change the Final Average Salary (FAS) calculation to a five-year average. • Change the benefit multiplier for Tier 3 to the following: Years of Service Tier 3 Less than 10 years 1.85 percent all years. 10-19 years .9 percent all years. 20-30 years 2.0 percent all years. Over 30 years 2.1 percent all years • Elimination of 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. This proposal has no effect on Tier 1 employees who plan to retire from the city. There is one change that will impact all tiers of employees, but it is not a retirement benefit. Currently, if any employee leaves the City 3 and withdraws 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. The Ad Hoc Committee recommendation reduces the interest credit to a maximum of 3.75 percent for employees in any tier who leave the City and withdraw their contributions.
* Tier 2 employees are the new hires since the voters approved pension reform This has NO impact on public safety employees or retirees.
