Misleading Info in Phoenix Pension Debate

August 20, 2014

Voters in Phoenix, Arizona, will go to the polls in November and vote on a ballot initiative that would reform the city's pension system. According to critics, the Phoenix Pension Reform Act will be a failure that simultaneously costs taxpayers hundreds of millions of dollars.

Is this really the case? According to Adrian Moore and Anthony Randazzo of the Reason Foundation, not at all: Phoenix has modeled its reform on reforms in other cities that have successfully restructured their pension systems and reduced taxpayer risk.

According to Moore and Randazzo, if the plan passes, new public employees would move into a plan similar to a 401(k). The reform would do away with provisions that have allowed workers to inflate their pensions to levels higher than their actual salaries.

Critics claim the plan would cost taxpayers $358 million over two decades, citing a study from an actuarial group.

  • In fact, that study looked only at costs and did not take into account cost savings.
  • In fact, taxpayers will save up to $1.6 billion over 25 years if the reform is put into place.

Opponents also point to examples in other states, insisting that similar reform plans have failed. Michigan, they say, saw an increase in unfunded liabilities after a 1997 reform.

  • While Michigan did see a pension debt increase, it took place several years after its reform and was due to the fact that the state had underfunded its defined benefit system.
  • Michigan's reformed system has been stable since 1997, as have similar reforms in Alaska and West Virginia.

Source: Adrian Moore and Anthony Randazzo, "The Truth About Pension Reform in Phoenix," Reason Foundation, August 15, 2014. 

 

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