Think tank pans Arizona DC plan News added by Benefits Pro on February 4, 2014
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By Dan Berman

Even as the Arizona public pension system recovers from the rocky years of the Great Recession, a non-partisan think tank said efforts by lawmakers to move workers to a defined contribution system could cost taxpayers billion in the long run.

The Grand Canyon Institute, based in Phoenix, said switching employees from a traditional pension plan would likely cause shortfalls as contributions from employees dried up.

Keeping the public pension system solvent would require larger infusions of money from tax collections, burdening the state budget.

“The facts show that Arizona does not need a radical overhaul of its public sector pension plans,” said Stephen Herzenberg, executive director of the Keystone Research Center in Harrisburg, Pa., and co-author of the report, in statement. “In fact, the options on the table to replace Arizona’s defined benefit could deliver a double whammy, increasing costs to taxpayers while eroding retirement security.”

The report noted that the main cause of the retirement security crisis in Arizona is a lack of savings and the fact that defined benefits plans are increasingly being replaced by DC plans, which open participants to more risk.

Other findings by the institute included:
  • Taken together, Arizona pensions are relatively healthy, within 10 percent of the funded ratio that pension financial experts consider healthy.
  • Over the long term, Arizona pensions have had a low cost for taxpayers. And, unlike other public pension plans, if there is an economic downturn, Arizona employees would split the increase in pension costs with taxpayers.
  • Arizona pension plans are modest, averaging only $22,000, and many retirees receiving higher pensions get no Social Security and rely completely on their pension for retirement income.
  • Arizona’s state pension plans now follow National Institute on Retirement Security best practices for public pension plans that will help ensure their financial sustainability in the future.
Originally published on BenefitsPro.com
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