More than 200,000 teachers and university, state and local employees are going to see their latest pay hikes wiped out with a 50 percent hike in what they have to pay into the mandatory state retirement system next year.
Rich Stephenson, deputy director of the Arizona State Retirement System, said workers will have to contribute 7.75 percent of their pay beginning July 1 to keep the fund financially sound, up from 5.2 percent. He said that is because of a poor stock market performance as well as legislatively mandated benefit increases, particularly for long-term employees.
Stephenson said the hike is the result of a decision by lawmakers several years ago to alter the formulas used to keep the fund actuarially sound. In the short term, he said, that change aided government workers, pushing the contribution rate for employees down as low as 2 percent of their salaries. That, in turn, forced at least part of the last round of increases as well as the new one.
The move is meeting with surprise and concern from affected employees.
"It really is one step forward and two steps back," said Susan Thomas, president of the Chandler Education Association.
She said teachers got scheduled pay increases of 3 percent to 3.5 percent last year. But that, she noted, is designed solely to compensate for increased experience and education.
All totaled, the plan calls for taking an additional $186 million from workers’ paychecks.
That’s only half of the problem. Employers, including the state and local governments as well as school districts, are required to provide a dollar-for- dollar match. That means an additional $186 million from taxpayers.
Jeanine L’Ecuyer, spokeswoman for Gov. Janet Napolitano, said the governor is aware of the problem.
"The governor is going to work very hard to hold employees harmless," L’Ecuyer said. "We do realize this is an effective cut in pay."
L’Ecuyer said the governor believes she can find the necessary $88 million — half of that to cover worker costs and half what the state itself will have to pay.
Sen. Bob Burns, R-Peoria, chairman of the Senate Appropriations Committee, said he, too, hopes to immunize state workers. He said, though, that giving workers an additional raise — assuming the money is there — is not an answer, as a higher salary would result in higher taxes. At one time, all state workers got pensions equivalent of 2 percent of their highest salary for each year they worked.
Lawmakers boosted that base to 2.1 percent, with increasing bonuses for those who stay longer.
Now, at 30 years, the figure is 2.3 percent. That translates into $20,700 for someone who was earning $30,000 a year.
Employees hired before 2002 actually can end up with pensions higher than their salaries if they work long enough. But a change in the law for those who started after that caps their benefits at 80 percent of their highest salary, no matter how long they work.