Peoria City Council unanimously voted to allocate an additional $3 million to the Public Safety Personnel Retirement System (PSPRS) — an agent multiple-employer — to reduce the unfunded liability associated with police and fire pension funds.
The PSPRS was established to provide a uniform, consistent and equitable statewide retirement program for Arizona’s public safety personnel. The board of the PSPRS is state appointed. The city must be a member of the board but has no choice in the governing body of the board.
“The pension operates in two buckets,” said Kevin Burke, deputy city manager for Peoria. “One is an aggregated bucket where all the funds are pulled together for the purpose of investing and for uniform distribution of benefits to the members. So, whether you’re in Glendale Fire or Peoria Police, you’re getting a similar benefits package and it’s all aggregated. The other bucket associated with this structure is the financial liability is all individualized so the police department has a separate plan from the fire department in terms of its financial health and its financial accountability.”
Burke said the PSPRS has been on a “roller coaster” since 2000, when it was overfunded by 120%. Still, it then saw a rapid decline over the next two decades due to bad investments by the board, the dot-com bust, the Great Recession, benefits being awarded that weren’t sustainable and bad plan assumptions as well as structural elements.
“In 2011 the state Legislature tried to do some reform efforts; unfortunately, those were unsuccessful. They were litigated in court the subsequent year and proven to be not valid,” Burke said.
“It took a statewide ballot election in 2016 to put some reforms in place. The trajectory (of the fund) is going downhill till about 2015 and then it plateaus and runs flat, but it dropped the overall status of the pension plan to only 48% funded.”
Burke also broke down the fund individually for police and fire, which told a similar story. Back in 2000 both police and fire were over 100% funded before starting on the downward trend where police bottomed out at 54.6% and fire bottomed out at 71.5%.
Since 2020 there have been multiple active efforts to fund the pension, and it has seen an increase.
“(There were) a couple of key items. One was that we were coming out of COVID and the market just went fantastic for a year there in 2021 and we saw 27% returns on the pension fund, which pushed us up,” Burke said. “Also, at the same time, the state government and cities had a good amount of one-time cash available, and so they started paying down their unfunded liabilities with lump-sum contributions.”
The city made lump-sum payments of $30 million in October 2021, $5 million in June 2022 and $6 million in May 2023. These efforts caused the aggregated portion of the fund to be 66% funded, police to be 80% funded and fire to be 82.2% funded.
The state law requires that the PSPRS be 100% funded by 2036, and earlier in the meeting the council also approved a policy to continue these lump-sum payments until full funding is achieved.
To fully fund the PSPRS the city would need to contribute $18 million a year on average, adding up to $270 million by 2036. However, according to Burke, if the city continues to make larger contributions as it has been — including giving another $3 million this fiscal year — then it will save the city money in the long run.
“We upped with those lump-sum contributions and some other work that we did that we should be fully funded somewhere between 2029 and 2031,” Burke said.
“So, about five to seven years earlier depending on returns and things of that nature and it’ll save us about $60 to $85 million in contribution, so this has been a strategy that has been well worth its effort.”
The council voted 7-0 to allocate the $3 million to the PSPRS, saving the city another $5.4 million in its overall strategy.
