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Courts

Judge rules against contribution cap for Arizona plan

An Arizona judge struck down a cap on employer contributions to the Arizona Elected Officials Retirement Plan because of the severe underfunding of the plan, court filings show.

Judge Timothy J. Thomason of Maricopa County Superior Court in Phoenix ruled Mondayin favor of two retired judges and participants in the plan who had filed a lawsuit in 2016 charging that the EORP is not being funded by an annual actuarially determined employer contribution rate as required by the Arizona Constitution. The cap of 23.5% on employer contributions, established by the Arizona Legislature in 2012, should be thrown out, according to Mr. Thomason, because it prevents that rate actuarially determined rate from ever being implemented.

The EORP, which was closed to new hires at year-end 2013 and has a funding ratio of 37.6%, is one of three pension funds that make up the $9 billion Arizona Public Safety Personnel Retirement System, Phoenix.

In a March 1 memo, Brian Tobin, chairman of the board of PSPRS, and Jared Smout, administrator, said a recent Arizona Supreme Court ruling had made the EORP unsustainable and the employer contribution rate needed to be raised.

That ruling, in November, said a 2011 law that mandated phased increases in employee contributions to a maximum of 13% violated the state constitution and ordered the contributions be restored to 7%.

The ruling, which affected all three PSPRS funds, was ultimately going to cost $220 million, which included payments of excess contributions and retroactive payments to retirees, PSPRS spokesman Christian Palmer said at the time. Actuarial consultant Gabriel Roeder Smith said in a 2016 report that if contributions were not increased, the EORP would run out of assets in 13 years, according to the March memo.

"Last year, stakeholders of our public safety pension worked and sacrificed to enact reforms that put the public safety pension on a sustainable path," Mr. Palmer said in an emailed a statement Wednesday about Mr. Thomason's ruling. "We're confident that similar measures can be put into law to turn around the elected officials plan before it's too late."

Last year the Legislature created the Arizona Public Safety Personnel Defined Contribution Retirement Plan as an option for certain new employees hired after June 30, 2017.