City of Phoenix voters will be deciding this fall on a measure to reform the city’s pension plan for employees. It would end the practice of boosting pensions by adding vacation and sick time, and would transition employees into a 401-K style plan. Tom Simplot, the co-chair of Phoenix Citizens for Pension Responsibility, which opposes the changes, will discuss the issue.
Ted Simons: Good evening. Welcome to "Arizona Horizon." I'm Ted Simons. Phoenix voters will decide this fall on a measure to reform the city pension plan for employees. Joining us now is former Phoenix City Councilman Tom Simplot, the co-chair of Phoenix citizens for pension responsibility, a group that opposes those changes. Good to have you here, thanks for joining us.
Tom Simplot: Hi Ted, thanks.
Ted Simons: This is a measure again, to reform the employee pension plan. Let's talk about what the measure wants to do and find out why you're against it.
Tom Simplot: Well, from our standpoint it's not really reform, it's more like elimination. Because what it really primarily does is shift the pension plan into a defined contribution plan. So that is a complete change from what we have today, which is a pension defined pension payout that people receive at the end of retirement. So we want to make sure that we educate the voters so that they understand that this actually will be a cost increase to voters and residents and that actually decreases the benefits to employees and at the end of the day it's going to be wrapped up in litigation for years to come.
Ted Simons: As far as the cost is concerned I understand that I think most folks expect maybe a bump early but I think the argument is the bump goes away in time. You say no?
Tom Simplot: Well, I would say look at how much time is involved. If it's 20 to 25 years, which is what the city studies have shown, we're talking about more than 400 million dollar cost that city taxpayers have to pick up one way or another. It's either going to come through reduced services or it's going to come through taxes like a food tax in the future.
Ted Simons: I want to get back to the 401-K style plan. The employee pension plan as it stands is under-funded by what $1.5 billion and only 56% of it is funded. Does it need reforming?
Tom Simplot: Well, the irony is we have already done a lot of reform with the cities' pension plan in the past few years. Were there abuses with the cities' pension plan, like any of the pension plans across America, I think probably that's true. Did we reform it? Yes we did. Starting with a year ago, more than a year ago city voters approved pension reform saving almost $600 million over the next 25 years. The city council last summer then passed more pension reform saving another $280 million over the next 25 years. Then just recently the past few weeks the current city council approved employee contracts saving more than $60 million over the next 20 years. If we want to talk reform, reform has occurred. They have limited the pension spiking that everybody loves to talk about and they have actually changed the dialogue and the course of how we compensate our employees.
Ted Simons: The new plan eliminates pension spiking? This reform idea? This initiative?
Tom Simplot: This initiative doesn't do anything about pension spiking. That's already been done Ted. That's the irony of their message. We have already accomplished the true reform. What theirs does is simply shift it from one sort of pension plan to a 401-K sort of plan.
Ted Simons: The 401-K plan again what they say, this is a more sustainable plan and it's a more fair plan in the long run. Your response.
Tom Simplot: I think you have to look at the numbers. If you look at the numbers that the city has produced through an independent consultant we see that the net increase to the taxpayers will be $400 million. How they are able to argue that they are actually saving money over the next 25 years is they're actually using savings from deferred compensation that is not even a part of this initiative.
Ted Simons: You're saying --
Tom Simplot: It's a Bait and switch.
Ted Simons: We gotcha, but you're saying $400 million say cost here initially until the bump, as we mentioned earlier, goes away. What if this does not pass? How much will the city be on the hook for? Is it going to be more than $400 million?
Tom Simplot: Oh, no. We already see those cost savings coming into play so I'm glad you asked that question. Over the next 25 years, we're going to see almost $900 million in pension savings because of the reform that has already taken place. And if the initiative does pass that 400 million, that initiative, actually wipes out the savings that have already been passed by the voters.
Ted Simons: So you're saying without the initiative this $1.5 billion under-funding what, eases off, goes away in time?
Tom Simplot: It will eventually ease off, because remember what we did a year ago with voters we now have two tiers of employees, one tier of employees are those employees who were there before the voters approved the pension reform. They are gradually going to retire over the next 20 years. The new employees from over the past year, they actually pay more into the pension plan and don't have the perks that the old employees used to have.
Ted Simons: I know the transition costs, what you're talking about here, among the bumps that we're talking about, those who are for this saying they say there are mechanisms in the initiative to address these transition costs.
Tom Simplot: That's the deferred compensation. That's where people get lost in the weeds. In order to actually pay for that $400 million transition cost they are banking on a city council or city manager actually taking away deferred compensation. That's not retirement. Deferred compensation is a part of the employee's compensation package, and that's built into the employee union contracts.
Ted Simons: And again, regarding this new initiative what they are saying is that the city will see savings with the initiative from day one. Forget the transition costs, savings will start immediately. You say?
Tom Simplot: That's just not true. Read the initiative. I ask voters to read the initiative. That's why we formed this committee, to educate the voters about what this initiative really says and what it's going to mean to their pocketbook as a taxpayer.
Ted Simons: Is there a chance though, and again I'm speaking for those who filed the initiative, they are saying that the concept of ballooning pension costs, we have seen it now, we're going to see it later regardless of what reforms have been made this type of 401-K style plan alleviates that.
Tom Simplot: And I think in response to that we need to look at what other states and cities have done who have tried to adopt the 401-K type of pension plan and have found that it actually has done just the opposite. For example, take a look at Detroit or Alaska. What they have found is that it actually ballooned much more which brings me back to the reforms that the voters and city council have already passed. We need to let those actually take effect and we'll see the benefit.
Ted Simons: Are there more reforms needed?
Tom Simplot: That may be. In my view, Ted, pension reform may be incremental, it may evolve over time. This isn't the answer. It took us 35 years to get to the point where we needed pension reform because we realize that abuses existed. It may take a while to unwind all of that but we have made great strides in just two years.
Ted Simons: Councilor Wearing says the most expensive course for the city to take right now is to continue what's being done. Your thoughts.
Tom Simplot: As if he's referring to the reforms that the voters passed and the city council has enacted, no.
Ted Simons: He's basically saying doing nothing costs the most
Tom Simplot: No. Doing nothing - we're talking about two different things. Stay the course, means stay the course that the voters have approved, stay the course that council has approved, stay the course with the employee contracts. We're going to see more than $893 million in savings over the next 25 years.
Ted Simons: All right, so you're saying that, what he says that's the most expensive course. You're saying not so.
Tom Simplot: That's not so.
Ted Simons: All right, we'll see what happens good to have you here.
Tom Simplot: Thanks, Ted.
Tom Simplot:Co-Chair, Phoenix Citizens for Pension Responsibility;