Momentum Building Toward DC in US Public Sector

Arizona becomes the latest state to admit it is not rich enough for guaranteed pensions.

(June 21, 2013) - Public officials elected to serve in Arizona next year will have to depend on defined contribution (DC) pensions in retirement, law-makers agreed this week.

Governor Jan Brewer signed House Bill 2608 into law on Wednesday, which will create a DC plan for judges and other elected politicians who take office after January 1, 2014, azcentral.com reported.

The move will gradually see the closure of the Elected Officials' Retirement Plan, which allows its members to retire after 20 years of service and receive a lifetime pension that starts at 80% of the final salary, the news site claimed.

Arizona's move comes as the public sector is under increasing pressure to contain its pension liabilities. Well-documented issues with Illinois and Kentucky have brought the problems to the forefront of public debate, but there have been changes already occurring to stem the burgeoning retirement obligations faced by US states.

aiCIO reported in April that a number of states had begun scaling back their pension promises to public sector staff.

Michigan legislators recently passed a reform bill that could set the state on a path to offer a pure DC fund to its teachers. It already only offers a hybrid defined benefit/contribution fund that gives no income guarantee to members—something yet to happen in any other state.

Pennsylvania, Florida, Washington State, Kentucky, and Texas all have bills or serious proposals to shut or swap open DB pensions for DC schemes that have appeared in legislatures over the past few months.

Back in Arizona, the DB plan that will effectively be closed is just 58% funded, azcentral.com said. It quoted a spokesman for the state's governor: "The Elected Officials' Retirement Plan is simply unsustainable in its existing framework, with a current unfunded liability in excess of $250 million. With this legislation, the state can pay down this liability over time and transition the retirement system for elected officials to one that more closely matches what most Arizonans have in the private sector."

Related content: The Pure DC Public Plan: Those Who Need It, Can't Afford It

| cioeditors@assetinternational.com |