Arizona Public Safety Retirement System Cuts $ 1.58 Billion in Debt


A pension system that serves Arizona first responders and correctional officers said it received $ 1.58 billion in additional contributions over the past year from employers in the city and county as well as the State, thus helping to consolidate the financial situation of the pension funds it manages.

The Public Safety Personnel Retirement System also expects to receive additional voluntary contributions from other cities and counties, particularly those in the Phoenix metro area and surrounding areas.

The state contributed $ 1 billion of the $ 1.58 billion provided in the 12 months to June 30, the pension system said. The remaining $ 580 million came from voluntary contributions from various cities, counties, airports, districts and other municipal employers. In addition to these special payments, state employers added an additional $ 1 billion to the system in regular and mandatory contributions.

The additional contributions helped stabilize funds and save taxpayer dollars by reducing unfunded obligations that would escalate if left unpaid.

“This step is the result of a total effort to help employers understand and realize the true cost of public safety retirement benefits and the taxpayer savings that can be realized by paying off unfunded pension obligations,” PSPRS administrator Mike Townsend said in a statement. Affirmation prepared. “Employers statewide are reducing a mountain of retirement debt.”

Reduction of unfunded debt

As of June 30, 2020, the pension funds managed by the PSPRS had around $ 12 billion in unfunded bonds, so the additional injection will reduce that by more than 10%. At that time, the system had funded only about 47% of its future pension liabilities. Typically, pension plans should be at least 80% funded, said Harry Papp, an outside investment manager who is vice chairman of the PSPRS board.

More current accounts of the debt and the underfunding status of the pension system will not be available for several months.

Arizona’s new budget recently signed by Governor Doug Ducey included $ 500 million in appropriation for Department of Public Safety and Department of Corrections pension funds managed by the PSPRS, for a total of $ 1 billion. .

Among the voluntary or additional contributions made by municipal employers who contribute to the system, some entities have embezzled money from their budgets while others have raised funds by selling bonds in a low interest rate environment.

Flagstaff was one of the first to do so last year, arranging a bond-like financing deal that involved receiving money from investors while making lease payments on buildings in the city. . The move was primarily to pay off the city’s $ 112 million shortfall in the retirement system.

Various other employers, including Yuma, Pima and Pinal counties, have also made relatively large additional contributions over the past year, while others are considering doing so.

At the time the Flagstaff deal was announced, Phoenix had more than $ 3 billion in unfunded liabilities related to the retirement system, while Tucson, Mesa and Tempe owed an additional $ 2 billion combined. More than 300 cities, counties and other public entities in Arizona support the retirement system.

More willingness to contribute

Government employers who support PSPRS are more willing to put money in lately. The $ 1.58 billion in additional funding that arrived in the 12 months to June 30, 2021, compares to just $ 120 million in such contributions over the previous 12 months.

“There is a lot more confidence in what is going on in the PSPRS system,” Papp said.

After years of underperforming investments and other turmoil, the pension system has changed much of its staff as well as actuaries, lawyers, accountants and other service providers, he said. said, adding that the fund’s investment management team generated a preliminary 28% return in the 12 months. until June 30.

Public pension funds are responsible for taking employee contributions from public employers and investing that money in the hope of increasing the assets that support retired members.

Among various administrative changes, the board last August adopted more conservative actuarial assumptions that require higher employee contributions from employers, said board chair Scott McCarty. But the payoff, he added, is a “well-run pension system that can deliver on its promises to members at the least long-term cost to employers and taxpayers.”

The PSPRS provides retirement benefits to approximately 60,000 Arizona police, firefighters and other first responders, as well as correctional officers and elected officials, including retirees and beneficiaries. Unlike the first two funds, which are supported by hundreds of Arizona municipalities, the elected officials program has only one employer, the state, and therefore different funding terms.

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