by Craig Harris – Oct. 26, 2011 12:00 AM
The Arizona Republic

Phoenix residents for a second straight year will pay more than $100 million in fiscal 2012-13 to maintain the city’s ailing employee-pension system, while a task force considers whether current city employees should shoulder more of the cost.

Deputy City Manager Rick Naimark said Tuesday that the city’s financial contribution to the Phoenix Employee Retirement Plan for the fiscal year that begins July 1 will increase to $110 million, roughly $3.6 million more than the current fiscal year.

Since 2000-01, when the city paid $22.3 million to fund the pension plan, annual taxpayer-funded city contributions have increased by 377 percent, city records show.

Eleven years ago, the city’s contribution to the pension plan on behalf of each employee amounted to roughly 6 percent of the employee’s income. City workers, meanwhile, contributed 5 percent of their pay.

Today, employees still set aside 5 percent of their pay for their pensions, as required by city charter. But Phoenix’s contribution to the plan on behalf of each employee now equates to roughly 18 percent of each employee’s pay, and that figure will rise to slightly more than 20 percent next fiscal year, Naimark said.

The figures do not include city police or firefighters, who are part of the statewide Public Safety Personnel Retirement System.

The city, by law, has been forced to increase its pension contributions in order to improve the health of a pension system whose current assets total only 66.7 percent of future liabilities. To make its payments, the city has had to cut services.

A fully funded system is at 100 percent. When the ratio of assets to liabilities falls, more contributions must come from one of two sources: employees or their employer. Since 2008-09, when the last major stock-market crash occurred, the city’s annual contribution has increased by roughly $39 million.

Phoenix Mayor Phil Gordon created a pension task force in November 2010, when The Arizona Republic was reporting a series of articles on public pensions. The series found that benefit increases, combined with declining pension-system investments during the past decade, led to soaring costs for taxpayers to keep public-pension systems, including Phoenix’s, afloat.

That task force has met all year and has agreed on proposed changes that would affect new employees starting in the upcoming fiscal year, Chairman Rick DeGraw said. The task force today is expected to discuss proposed changes for current employees, DeGraw said.

One proposal, he said, is to gradually increase over eight years the employee contribution rate – from 5 percent of their pay to 9 percent. However, that would require voter approval because the current contribution rate was set by the city charter in 1994, he said. It is among the lowest in the state and among major cities nationally.

The earliest a proposal could go before voters is May 2012, Naimark said. Although some pension changes need voter approval, others could be made at the council level.

The task force will recommend new employees pay 9 percent of their pay to the pension system. It also will suggest the city prohibit the inclusion of unused vacation and sick pay in calculating employee pensions. The retirement age for new employees also could increase.

Phoenix Councilman Sal DiCiccio, a frequent critic of the city’s pension system, said the task force should recommend a cap on what taxpayers have to pay, but he was doubtful that will occur.

“Everything needs to be on the table,” DiCiccio said. “Once you limit the exposure to the taxpayer, that helps solve the problem.”

Even if changes are made for new and existing Phoenix employees, they still will pay less than those in the Arizona State Retirement System, the largest in the state.

Following legislative changes this year, state employees put 11.13 percent of their pay toward their pensions, while employers pay an amount equivalent to 9.87 percent of each worker’s pay to the ASRS plan.

Although employees in the ASRS pay more, they on average receive less in pension benefits than Phoenix employees. The average annual ASRS pension is $19,788, while the average annual Phoenix pension is $28,042.

Unlike a 401(k) system, a defined-benefit plan like Phoenix’s guarantees employees a specific pension benefit for life, with the amount based on years of service and ending salary.