SB 1504 Policy Brief
- 1 day ago
- 9 min read
Updated: 2 hours ago
Assessing the Fiscal and Workforce Realities of Undoing Pension Reform
Counties deeply value the men and women who serve in public safety roles and recognize the physical and emotional demands of their careers. At the same time, county supervisors must balance budgets and ensure responsible use of taxpayer dollars. For more than a decade, local governments have worked with the Legislature, PSPRS, and employee groups to strengthen the retirement system and protect the long‑term benefits. That sustainable policy framework enabled the historic investments that stabilized the system and safeguarded benefits for current and future retirees. While well-intentioned, SB1504 would begin to erode that long-term sustainability and create significant negative consequences.
Key Facts:
The System is Still Underfunded: Do not be misled by recent improvements; PSPRS is only 70.5% funded and still carries $7.2 billion in debt. The recent stability was purchased by $5.8 billion in employer deposits—much of it from taxpayer-funded bonds — it doesn't mean there is "extra" money for benefit expansions. Without those additional deposits the plan would be just 53% funded.
There is No Statewide Staffing Crisis: Data proves that staffing levels are increasing, with 1,000 more officers (+8%) and 1,800 more firefighters (+26%) employed today than in 2018. 70% of agencies are larger now than they were before the pandemic and Tier 3 turnover rates are at their lowest levels since the tier's inception. A blunt statewide mandate is the wrong tool for localized staffing challenges.
Undoing the "Pension Deal": This bill removes the minimum retirement age, which was a key cost-control provision of the 2011 and 2016 reforms. Because the state constitution creates a one-way ratchet with no undo button, this change permanently increases taxpayer burden with no way to scale back. This was a key element to balance the employees’ interest for a premium benefit with an affordable cost.
Expensive Regardless of How We Pay: Prefunding this expansion requires an immediate, massive cash infusion that would overwhelm local budgets. However, spreading the cost over time is even worse—it acts as a credit card for taxpayers that doubles the total cost and reduces the take-home pay of the very recruits we are trying to hire.
This is Not a Simple Change: Pension policies have significant ramifications and there is no undo button. The constitution protects benefits the moment they are enacted so any change should be done by consensus, with consideration of unintended consequences and a clear data-driven analysis to justify the change.
Dispelling Misconceptions About SB 1504
Use the buttons below to quickly navigate to each item.
The PSPRS plan is fully funded | There is a crisis in retention and/or recruitment in public safety positions. |
This is a simple policy change. | Tier 3 is a bad benefit. |
There is no way for a PSPRS member to stop working until 55. | Public safety officers won’t make it to 55 to draw their pensions. |
The Public Safety Retention & Recruitment Study indicates that the pension is the most important item for the retention. | The cost of this is manageable if we spread it out. |
Misconception 1 The PSPRS plan is fully funded
PSPRS is funded at 70.5%, almost exclusively from the $5.8 billion that employers deposited to stabilize the system – a majority funded by $3.3 billion in bonds being paid off over the next 10-20 years.
There is still $7.2 billion in pension debt on the books, in addition to debt from bonding.
The reforms stabilized the system moving forward – but it was actions by employers, based on trust that there was a stable, sustainable plan that caused the funded status to improve from a low of 45%.
Those actions were done to meet our existing promises to public safety employees at a reasonable cost to taxpayers – not to fund benefit enhancements.
Source: PSPRS & CORP Actuarial Valuations, PSPRS & CORP Additional Contributions & Debt Financing, provided by PSPRS
Additional Information: Local Contributions & Debt Report
Misconception 2 There is a crisis in retention and/or recruitment in public safety positions.
There may have been an issue during COVID – but that isn’t the case now. There are more officers now than before the pandemic, and over 2/3rds of agencies have more employees. Any retention or recruitment challenges should be addressed with local tools – not a blunt statewide mandate.
Since FY18, Arizona has added over 1,000 officers (+8%) and 1,800 fire members (+26%), with 70% of agencies currently employing more staff now than before the pandemic.
Similar to other public and private sectors, law enforcement saw an increase in retirements and trouble hiring during the pandemic and its immediate aftermath. However, that trend is clearly reversing in most agencies in the state – while there may be instances of agencies facing local retention or recruitment challenges and it is important for those agencies to address – it is clearly not a statewide crisis.
Source: Change in total PSPRS eligible headcount by division from end of FY 2018 to end of FY 2025;
CSA Analysis of PSPRS & CORP anonymous member data; For members with any activity after June 30, 2017
Misconception 3 This is a simple policy change.
Pension reform balanced the employee groups’ desire for a premium benefit with the need for a sustainable structure that is affordable for the taxpayer and the employee. The minimum retirement age was a key provision in pension reform for cost control to achieve that goal. Changing the agreement after the fact – when there can’t be any other changes to reduce taxpayer burden – means that there is only a one-way ratchet that constantly increases pension costs. This is not a simple policy change.
Pensions policies have significant ramifications and there is no undo button. The constitution protects benefits the moment they are enacted so any change should be done by consensus, with consideration of unintended consequences and a clear data-driven analysis to justify the change.
Unintended consequences of this policy:
This would reduce take-home pay for new recruits.
If this debt is amortized, the cost of the benefit will increase for current and new employees. This could create recruitment challenges, since we know employees entering the career are very sensitive to take home pay.
This will crowd out other investments in the workforce.
Pension mandates become the first dollar employers have to spend. For counties at revenue or expenditure limits, there are direct tradeoffs for other investments when the legislature mandates pension changes.
This may cause more experienced personnel to leave earlier.
Earlier retirement eligibility may cause more individuals to leave the workforce sooner. The existing experience in Tier 1 demonstrates that the largest number of retirements occur when individuals reach minimum service requirements.
A cost increase on employees will put pressure on cost sharing.
Last year employee groups were concerned about contribution rate levels for Tier 3, even though they are the lowest a new employee has in the state.
Inevitably, markets will underperform assumptions and require increased employer and employee rates. Taking up the capacity to pay for those market fluctuations with benefit expansions makes it more likely that employees will demand a removal of cost sharing in the future. That would seriously jeopardize the provisions put in place to protect taxpayers from unlimited cost exposure.
This creates cost for some employees that they won’t see a benefit from.
30% of active Tier 3 members will see an increase in their costs but won’t see a change in their benefit. That’s because those members in Tier 3 entered the workforce after they were 30, so they’ll meet the minimum retirement age and service requirements at the same time.
Misconception 4 Tier 3 is a bad benefit.
The PSPRS Tier 3 benefit is already the best pension available to Arizonans entering the public workforce – ASRS also has a minimum retirement age, but its higher and has a lower benefit. Public safety members also have the lowest contribution rate they must contribute to earn that benefit.
Additionally, PSPRS conducted an analysis on the Tier 3 benefit versus the Tier 1 benefit. That analysis revealed that the base benefit for Tier 3 was comparable to the Tier 1 benefit -- achieving the employee groups' goal during pension reform of maintaining a premium benefit.
Table: Requirements, Benefits & Contributions for Normal Retirement with 25 Years of Service
Plan | Benefit | Minimum Age | Contribution Rate |
ASRS | 55.0% | 60 | 11.87% |
PSPRS T3 | 62.5% | 55 | 8.80% |
PSPRS T2 | 62.5% | 52.5 | 7.65% |
Source: PSPRS Tier 1 & Tier 3 Benefits Comparison, prepared for the PSPRS Recruitment & Retention Study, dated November 13, 2024. ASRS Retirement Eligibility: https://www.azasrs.gov/content/retirement-eligibility; ASRS Benefit Formula: https://www.azasrs.gov/blog/pension-benefit-formula; PSPRS Plan Matrix: https://www.psprs.com/wp-content/uploads/2025/06/PSPRS_Matrix_of_Plan_Provisions_06_2025.pdf; ASRS Contribution Rate for FY 2027; PSPRS Contribution Rate for FY 2027
Misconception 5 There is no way for a PSPRS member to stop working until 55.
Unlike the legacy tier, employees have flexibility outside of the base DB benefit to prioritize retirement before 55. There are other tools to provide an earlier retirement to those who prioritize it, outside of the inflexible structure of pension benefits.
Employees have a choice between the DB, which requires waiting until 55 to start their guaranteed, life-time benefit, or the DC, which could be accessed as soon as someone reaches 25 years of service, regardless of age. Employees make a choice to participate in the DB, and this is one of the trade-offs to secure a guaranteed pension benefit.
Employees in PSPRS have access to supplemental savings (457b, IRAs) the same way that other public employees do. If employees want to prioritize retiring earlier or providing a bridge into their next career they have the freedom to do that.
Misconception 6 Public safety officers won’t make it to 55 to draw their pensions.
Officers are doing work that most don’t want to face – which is why they already receive a premium benefit. However, based on national actuarial data public safety officers are expected to have marginally better mortality outcomes than general government employees.
The 2011 and 2016 pension reforms included a minimum retirement age in part because reformers recognized that retirees were living far longer than when the legacy benefit was designed. The minimum age requirement ensures that Tier 2 and Tier 3 retirees draw their pension for a comparable number of years to Tier 1 members, even as longevity has increased dramatically.
Actuarial tables used by PSPRS today project that a male public safety retiree retiring at 45 (possible under the bill) will live to approximately age 86 — more than 11 years longer than the mortality assumptions common when the legacy benefit was designed. The minimum retirement age was one of several provisions specifically calibrated to keep the benefit affordable at that longer payout horizon.
Tier 2 and 3 are already designed to pay out benefits for roughly 30 years for a member retiring at the minimum age with 25 years of service. Removing the minimum retirement age would extend that to 40 years — funded by contributions made over the same 25-year career.
Current data suggests that public safety employees are expected to live marginally longer than their civilian counterparts in tables based on actual mortality experience and used by the PSPRS to estimate the cost of benefits.
The mortality tables also suggested that the likelihood of dying before 55 is correspondingly less in the public safety population than in the general public employee (2.4% versus 2.9%).
Although in the data it did indicate that there were more public safety officers in the disability population, state law already provides individuals with the ability to retire if they have a service-related disability regardless of age.
The report also notes that typically disability benefits for public safety employees were less restrictive than general government benefits, which may account for some of the difference the mortality.
Source: Pub-2016 public Retirement Plans Mortality Tables Report, SOA Research Institute & LIMRA; PSPRS Actuarial Experience Study
Misconception 7 The Public Safety Retention & Recruitment Study indicates that the pension is the most important item for the retention of Tier 2 and 3 members.
The study showed that the vast majority of LEOs and firefighters are satisfied with their job and overwhelmingly likely to stay through retirement.
While the study did indicate that Tier 2 and 3 employees are less satisfied with their pension than Tier 1, it did not show that it was a better retention tool than other locally set policies, like salary adjustments. This dissatisfaction can be explained by many factors, including the pervasive narrative from older members that Tier 3 members don’t have a good benefit.
What the study did show clearly was that:
LEOs
“LEOs in Arizona are overwhelmingly likely to remain employed until retirement” with, “less than 10% of respondent suggested that they were ‘very unlikely’ to spend their entire careers as an Arizona LEO”, and
Additionally, “The likelihood of remaining employed as an LEO in Arizona until retirement is much larger among PSPRS Tier 1 LEOs (who have less time remaining until they are eligible for their pension benefits, relative to Tier 2 and Tier 3 LEOs), but no subset reported anything more than mild uncertainty about remaining employed in law enforcement.”
Fire Service
“Ninety-five percent of [fire] respondents indicated they intend to stay in a fire service career until retirement” with “All age groups show a similar pattern of stability, estimating they will remain as firefighters until their retirement age.”
Source: Recruitment and Retention of Arizona's Law Enforcement and Fire Service Personnel, ASU, UA & NAU, 2024 Arizona Law Enforcement Retention Survey; Arizona Fire Service Retention Survey
Misconception 8 The cost of this is manageable if we spread it out.
The cost is much more expensive if we spread it out. Putting benefit expansions on a credit card basically doubles the cost to the employee and the taxpayer.
While that can mask the true cost of the benefit by spreading it out over time it's more expensive and leads to higher ongoing costs for employers and lower take-home pay for employees.