The ‘surtax’ on ASRS Public Employees

Posted by AzBlueMeanie:

It's not enough that the Tea-Publican legislature cut $183 million from the K-12 school budget that will invariably lead to school closures and teacher layoffs, but those teachers "lucky" enough to still have a job next school year will be paying a 3% "surtax" on their wages — not a pension contribution to shore up the Arizona State Retirement System (ASRS) — but rather to provide tax revenue to the general fund to offset some of the tax revenue to be lost due to the soon-to-expire temporary 1% sales tax passed in May 2010 (ostensibly for the purpose of preventing the aforementioned cuts to education.)

SB 1614 increases the employee contribution amount to 53%, A.R.S. Sec. 38-736 (A), and correspondingly reduces the state's contribution to 47%. A.R.S. Sec. 38-737 (A).

These changes are estimated to save the state $40 million. The $40 million saved from the ASRS contribution rate changes are diverted to the general fund. House Speaker Kirk Adams has said that the contribution rate shift was more of a budget issue than a pension reform issue.

On its face, this "surtax" would appear to create a 3% structural contribution shortfall to ASRS on the part of the state. If you have a better explanation, let us hear from you.

Teachers are among thousands of government workers who contribute to ASRS. Out of the $40 million the state would be getting back from the contribution rate shift, the share for public school teachers and employees would be around $24 million.

SB 1614 also provides that a new employee is not eligible to receive state employee benefits until having completed 90 days of work, and is not eligible to participate in ASRS until having completed 6 months of work. A.R.S. Sec. 38-671 (A) and (B).

Withholding health care benefits from state employees for their first three months on the job and retirement contributions for six months is estimated to save the state $20 million more.

There is also a provision to require employees to work reduced hours in order to comply with any reductions in appropriations. A.R.S. Sec. 41-763.05.

ASRS is being singled out and treated differently from the other state retirement systems. House Speaker Kirk Adams, R-Mesa, and Sen. Steve Yarbrough, R-Chandler, have sponsored bills that would reform two other public pension programs, the Elected Officials Retirement Plan (EORP) and Public Safety Personnel Retirement System (PSPRS) in addition to ASRS. The bill that passed out of the Senate was SB 1609. As reported earlier, the bill passed with the promise that it would be further amended in the House.

While SB 1609 does change the contribution rates for EORP and PSPRS members, any saved funds go back into the system in order to shore up those retirement funds.

SB 1614 has already run into the law of unintended consequences. The Arizona Capitol Times (subscription required) reports Shift in ASRS contribution rate poses costly computer problem:

By increasing the amount that state workers pay into the system from 50 percent, matched dollar-for-dollar by their employers, to 53 percent and delaying enrollment into the pension system until the employee has been working for six months, the state could save $40 million.

On paper, it seems like a simple shift. But this is the computer age.

ASRS lobbyist Lesli Sorenson said the result of adding those three little percentage points to the employee contribution is going to require a massive overhaul of the organization’s computer system.

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Sorenson said ASRS would also have to revamp their online system, where members can track their benefits.

Now, ASRS employees are faced with the daunting task of dissecting their computer system and figuring out new calculations and new formulas to come up with the proper numbers.

The undertaking will require some re-training of their internal IT staff, as well as finding the time to actually have them do the work. They also might have to bring in some outside consultants for the job.

Sorenson estimates the cost to make the changes — from programming and development, testing, analysis, as well as labor and training — will be somewhere between $1.5 and $2 million.

Lawmakers, however, have given ASRS $700,000 for the project. The bulk of that money, $600,000, will be available beginning in July — the same month the new contribution rates go into effect — while only $100,000 will be available for the last few months of this fiscal year.

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Sorenson said the big difference between the other retirement systems and ASRS is that ASRS, which is used by the vast majority of state and local government workers, has not seen contribution rates change since 1967.

And over the past few years, ASRS has spent around $48 million, funded mostly by the Government Information Technology Agency and the Department of Administration, to develop a fully automated system to track each dollar that comes in and goes out.

“We handle $1.8 billion in contributions every year,” Sorenson said. “It’s not really something you want to just do on a sheet of paper.”

Jennifer Loredo, a lobbyist for the Arizona Education Association, said it seems like ASRS members have been singled out. “I think school employees will ask the legislature, why do this to them when they are the only ones that have a set 50-50 match?”

Ah Jennifer, you know the answer to that question: because your AEA members are union members, and Tea-Publicans hate unions even more than they hate public education.