PSPRS: Scottsdale adopts funding policy to comply with HB2097

The City of Scottsdale has unfunded PSPRS liabilities of $168,060,815 for police, and $6,064,307 for fire. (Photo by Scottsdale Fire Department)

A funding policy for Scottsdale’s Public Safety Personnel Retirement System has been adopted to comply with a 2018 Arizona house bill, which requires the city to record a plan of action to address its $174 million unfunded accrued liability.

On March 19, the Scottsdale City Council approved the funding policy on consent, at their regular meeting at City Hall, 3939 N. Drinkwater Blvd.

Arizona House Bill 2097 was passed into law on April 3, 2018, requiring municipalities to adopt a pension funding policy for their Public Safety Personnel Retirement System — commonly referred to as PSPRS — before July 1, 2019, and annually each year thereafter.

The bill was codified, and requires Scottsdale to adopt a pension funding policy to communicate how the city will maintain stability of the city’s required contributions, how and when the city’s funding requirements will be met, defining the city’s funded ratio target under PSPRS and when it will be met.

Unfunded Actuarial Accrued Liability is the difference between trust assets and the estimated future cost of pensions earned by employees. The UAAL results from actual results — interest earnings, member mortality and disability rates, for example — being different from the assumptions used in previous actuarial valuations.

Municipalities throughout the country have historically provided pensions to their public safety personnel. Pensions were meant to attract quality workers and the promise to provide that pension when a worker retired served to reward employees for years of service to the public.

The Arizona Public Safety Personnel Retirement System is a 236-member organization managing the pension plans for eligible public safety personnel entities statewide.

A bicycle officer patrolling around Scottsdale City Hall, 3939 N. Drinkwater Blvd. (photo by Melissa Fittro)

The Arizona Constitution recognizes public employee pensions, while PSPRS and its duties were established in the late 1960s to ensure public safety employees equal footing in terms of pension eligibility, contribution rates and benefit formulas.

Scottsdale’s police and fire department employees who are regularly assigned hazardous duty participate in the PSPRS, the city’s website states. Scottsdale has a trust fund for each department.

The new house bill requires the city to also formally accept Scottsdale’s share of the assets and liabilities based on the PSPRS actuarial report, and post the pension funding policy on its website.

Annually, PSPRS provides Scottsdale with both a police and fire actuarial report that includes the city’s assets, liabilities, unfunded actuarial liability, funding ratio and the projected contributions required for the upcoming fiscal year, as well as contribution rate projects for 10 more years.

Actuarial reports from June 30, 2018 reflect a funded ratio of 51.9 percent for the police department, and 93.8 percent for the fire department.

The city’s unfunded liabilities were $168,060,815 for police, and $6,064,307 for fire, a city staff report states.

Both city and employee annual contribution rates vary depending upon the employee’s hire date. The city’s police contribution rates for fiscal year 2018 were 40.15 percent or 47.26 percent, and employee rates were 7.65 percent, 9.73 percent or 11.65 percent, the staff report stated.

The city’s fire contribution rates for fiscal year 2018 were 12.69 percent or 17.19 percent and employee contribution rates were 7.65 percent, 10.33 percent or 11.65 percent.

For fiscal year June 30, 2018 Scottsdale paid the required contributions to PSPRS for police and fire of $17,376,660.

Additionally, the fire pension plan receives an annual fire premium insurance tax credit to the city’s fire trust fund to further reduce the city’s required contribution. The amount received in fiscal year 2018 was $1,887,734, the staff report stated.

The unfunded actuarial accrued liability is shown as a city liability, the staff report states; however, it will be partially paid through employee contributions and the annual allocation of the fire insurance premium tax.

“Scottsdale is currently paying down the unfunded liability for PSPRS plans and is expected to have them paid in 18 years or by June 30, 2036 as amortized in both actuarial reports,” the staff report penned by Treasurer Jeff Nichols states.

City staff recommends for Scottsdale to continue to pay the annual required contribution each year, which includes a portion of the amortized unfunded component to reach 100 percent funded status of both plans by 2036, and formally accept the city’s share of the assets and liabilities included in the PSPRS actuarial reports.

Northeast Valley News Editor Melissa Rosequist can be e-mailed at mrosequist@newszap.com or can be followed on Twitter at twitter.com/mrosequist_.

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