Fiscal Note
BILL # SB 1085 TITLE: PSPRS; funded ratio; asset transfer
SPONSOR: Livingston STATUS: Senate Engrossed
PREPARED BY: Molly Murphy
Description
The bill would modify the actuarial funding requirements for the Public Safety Personnel Retirement System (PSPRS) in
certain circumstances where an employer group's funded status is above 100%. In addition, the bill would implement
asset transfer policies for employer groups that have no remaining liabilities or beneficiaries.
Estimated Impact
The bill's fiscal impact for state and local government employers will depend on each PSPRS group's funded status, as the
modification to the actuarial funding requirements is dependent on the group having a funded status above 100%. The bill
would have no immediate state fiscal impact, as no state PSPRS employer group currently has a funded status above
100%. If any state employer group's funded status reached 100%, the bill would reduce the level of required employer
contributions, with the level of reduction depending on the individual circumstances of that employer group. Because
any reduction in employer contributions is subject to future actuarial valuations, any savings cannot be estimated in
advance.
Analysis
Actuarial Funding Requirements
The bill would modify the following actuarial funding assumptions:
• Maintenance of Effort (Employee Contributions) – Under current law, certain members of PSPRS (hired after July 20,
2011, and before July 1, 2017) generally pay an employee contribution rate of 11.65% in most circumstances.
However, any employee contributions above 7.65% are not directly accounted for in the valuation process, so they do
not serve to reduce the employer contribution rate. SB 1085 would modify this provision, so that once an employer
reached 100% funded status, the "excess" employee contributions above 7.65% can be factored into the valuation
process and reduce any required employer contribution.
• Stabilization Reserve – Under current statute, when an employer group has "excess" assets that exceed accrued
liabilities, the plan's valuation sets aside 50% of that excess into a Stabilization Reserve. That reserve is excluded
when calculating the employer contribution rates each year, unless that employer group becomes underfunded
again, which then results in the Stabilization Reserve being drawn down. SB 1085 would increase the Stabilization
Reserve limit to 100% of the present value of all future benefits. This means that once an employer has no unfunded
liability, they can continue to accrue monies until they have sufficient assets to pay all future benefits with no further
employer contributions.
• Minimum Employer Contributions/Suspension of Contributions – Under current law, regardless of funding status, the
employer contribution rate must be at least 8% (or 5% for certain employers). Under SB 1085, that minimum
contribution rate would be repealed and once an employer has reached the new Stabilization Reserve limit (and has
pre-funded all future benefit payments), the PSPRS Board of Trustees is authorized to suspend any additional
employer contributions, subject to certain fiduciary restrictions.
(Continued) - 2 -
Based on data from PSPRS, 12 local government PSPRS employer groups have met this threshold for funding 100% of the
present value of all future benefits (see Table 1 for a list of these employer groups). Savings for these individual employer
groups would depend on their specific future actuarial valuations.
Table 1
Employer Groups Currently Eligible for SB 1085
Contribution Rate Change
Flagstaff Police Groom Creek Fire
Winslow Fire Apache County Detention
Coconino County Deputies Pinal County Dispatchers
Pima Police Gila County Dispatchers
Tombstone Marshals Wickenburg Dispatchers
Hayden Police Graham County Dispatchers
Asset Transfer Policy
If a PSPRS group has no liabilities or beneficiaries, SB 1085 would allow that employer to request the PSPRS Board of
Trustees transfer those excess assets to another PSPRS-managed group under the employer. This provision would result
in savings to the employer group receiving the excess assets. Given that an asset transfer must be initiated by the
employer, the fiscal impact cannot be predicted in advance, however, any impact is expected to be minimal given the
small dollar amount of the potential transfers. Based on data from PSPRS, only 3 employer groups currently have no
liabilities or beneficiaries (Greenlee County Attorney Investigators, La Paz County Attorney Investigators, and Tonopah
Valley Fire District).
Local Government Impact
See above.
2/1/22