CC - Agendas - City Council - REGULAR - 8/14/2018

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9.E.a League Staff #1 League of Arizona Cities & Towns Resolution Research and pursue potential legislative approaches during the 2019 Legislative Session to permit Tier 1 and Tier 2 members of the Public Safety Personnel Retirement System (PSPRS) to make an irrevocable election to join the PSPRS Defined Contribution Plan established by Laws 2016, Chapter 2. A. Purpose and Effect of Resolution Laws 2016, Chapter 2 (SB1428) established a Tier 3 of pension participation and benefits for PSPRS members hired on or after July 1, 2017. In addition to establishing Tier 3 for the Defined Benefit (DB) plan, legislation also established a Defined Contribution (DC) plan for new employees hired on or after July 1, 2017. Upon employment a new employee now has the option to participate in either the DB or DC plan and, absent an election, will default into the DB plan. A DB plan is an annuity in which the employer inherits the investment risk of the plan and failure to meet assumed rates of return resulting in unfunded liabilities to the employer plan. A DC plan is similar to a 401(k) in that the investment risk is inherited by the employee and, upon retirement, the employee can withdraw funds in a lump sum or annuitize their benefits. There are no unfunded liabilities in a DC plan. Tier 1 and 2 members must meet certain periods of service requirements between 15 and 20 years in order to become eligible for retirement benefits. However, many police and fire personnel are hired in Arizona as their second career following service in the military, service in police or fire employment in another state, or in other career paths. During the Pension Ad Hoc Committee established by the Arizona House of Representatives, the committee heard testimony from police and fire personnel indicating they wished they had the opportunity to join a DC plan and not be bound by the years of service requirement for Tiers 1 and 2. Current liabilities in the PSPRS Fund, as of 06/30/2017, amount to $15,578,700,116 with a total of 33,522 active, inactive, retired, disabled, and survivor members. Although liabilities vary by individual, the average per -member liability totals $464,730. By permitting police and fire personnel to make an irrevocable election to join the PSPRS DC plan two outcomes will result: 1) for each member that joins the DC plan, the employer's plan liabilities will diminish and 2) it provides employees a voluntary election they do not currently have to participate in a plan that may more adequately suit their situation. B. Relevance to Municipal Policy Title 38, Chapter 5, Article 4 established PSPRS and its corresponding construct, including membership. Of the 233 separate employer plans in PSPRS, 122 of the plans are municipal police and fire plans. Potential alleviation of employer liabilities by permitting Tier 1 and 2 employees to join the DC plan would permit municipalities to utilize those funds in a different way. C. Fiscal Impact to Cities and Towns While the fiscal impact is unknown because it is contingent upon each individual election, each individual transitioning from the DB to DC plan will save hundreds of thousands of dollars. Attachment: 2018 League Conference Resolutions Packet (2125 : League Resolutions Voting) 34 Packet Pg. 170