Assigned to FIN FOR
COMMITTEE
Assigned to FIN FOR
COMMITTEE
ARIZONA STATE SENATE
Fifty-Third Legislature, Second Regular Session
EORP; cost-of-living adjustment.
Purpose
Repeals current statute regarding the Elected Officials' Retirement Plan (EORP) permanent benefit increases (PBI) and instead establishes an EORP cost-of-living adjustment (COLA). Conditions the enactment on the affirmative vote of the people of H.C.R. 2032 at the next general election.
Background
In 1990, the PBI formula was first enacted, providing retirement payment increases based on investment earnings. Unlike a COLA, which is generally tied to the inflation rate, the benefit increase is tied to the plan's return on investment. If investments returned more than nine percent, half of the return would be used to fund increases up to four percent, with any remainder placed into a reserve for future benefit increases. After that statute expired in 1994, the Legislature enacted a new PBI formula the following year. Increases were based on the plan's investment returns, capped at the lesser of three percent or half of the percentage change in the consumer price index. In 1998, the Legislature raised the maximum possible increase to four percent and eliminated any reference to the inflation rate. According to EORP, since the 1998 change, EORP retirees received a four percent annual benefit increase each year until the end of FY 2010.
Laws 2011, Chapter 357 ended future inflows into the PBI reserve fund and increased the investment return rate upon which future PBIs would be calculated. This case was challenged, with plaintiffs alleging that Laws 2011, Chapter 357 violated the Arizona Constitution. Fields v. Elected Officials' Retirement Plan, 234 Ariz. 214 (2014). The Supreme Court sided with the plaintiffs and held that, because the statute diminished and impaired the plan's retired members' benefits, it violated the Pension Clause of Article 29 of the Arizona Constitution (Ariz. Const. art. 29 § 1).
In 2016, the provision was again changed from the PBI to a COLA for members of PSPRS by an affirmative vote of the people in Proposition 124. This passage did not affect members of the Corrections Officer Retirement Plan or EORP.
There may be a positive impact to the state General Fund upon the affirmative vote of H.C.R. 2032 at the next general election, as the existing PBI has historically been in the range of four percent and the new COLA is limited to two percent.
Provisions
1. Repeals all sections of statute relating to a permanent benefit increase for members of EORP.
2. Entitles each EORP retired member or survivor of an EORP retired member to receive a compounding COLA in their base benefit.
3. Specifies that a retired member or a survivor of a retired member shall receive annually a COLA in the base benefit based on the average annual percentage change in the metropolitan Phoenix-Mesa Consumer Price Index published by the United States Department of Labor, Bureau of Labor Statistics, with the immediately preceding year as the base year for making the determination, not to annually exceed two percent of the retired member's or survivor's base benefit.
4. Specifies that in the first year of a member's retirement, the COLA shall be prorated based on the date of retirement.
5. Specifies that the first payment shall be made immediately following the first year the prorated COLA is paid.
6. Specifies that on each year after the first payment, the COLA shall be made on July 1.
7. Requires the plan actuary to include the projected cost of providing the COLA in the calculation of normal cost and accrued liability.
8. Conditions the enactment of this legislation on the affirmative vote of the people of S.C.R. 1010, Fifty-Third Legislature, Second Regular Session, at the next general election.
9. Conditions the enactment of Laws 2017, Chapter 163, section 24, on the passage of the vote of the people of H.C.R. 2032, Fifty-Third Legislature, Second Regular Session, rather than S.C.R. 1023, Fifty-Third Legislature, First Regular Session.
10. Becomes effective on the general effective date or later, subject to the provisions of the conditional enactment.
Prepared by Senate Research
March 19, 2018
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