The Town of Oro Valley has funded approximately 61% of its future payout from the public safety pension fund ("PSPRS"). This valuation is as of June 2019, the latest valuation date per the State.
The PSPRS is managed by the State of Arizona. The State pays the pension to Oro Valley's police officers. Each member entity, like a town, is required to contribute to the fund. The contribution is determined based on town's enrolled employees. The fund has 228 member entities.
Oro Valley's 61% 2019 funding level is about the same as the 59.9% level last year. It is also before consideration of the town's added payment last June of $500,000. So, the actual funded level is a bit better than 61%. Last year, Oro Valley's pension funding level was above the average among members. (See chart here). We suspect that that will remain the same.
The underfunding is about $25 million
"The current Town Policy established a funding ratio goal of 100% by June 30, 2036. The Council identified the following actions to achieve the 100% funding ratio:
- Maintain Annual Required Contribution payments from operating revenues.
- Retain 20-year amortization period. Review Local board practices annually.
- Apply adopted financial policies dedicating surplus funds at year-end toward reducing the unfunded liability.
- Budget an additional payment toward the unfunded liability. For FY 19/20, $500,000 was appropriated in the budget." (Source)
No town can ever assure itself that it will fully fund its PSPRS liability
Determining the exact amount of the PSPRS funding liability is tricky. It involves many assumptions. These assumptions are "mixed together" by actuarial accountants to determine the underfunding. So, the funded ratio is a "moving target."
Underfunding presents no problem to the officer
There is no scenario that we can envision in which the State will not pay a pension to an officer, even if their town member has underfunded the pension. Non payment is not going to ever happen.
There is no danger to a town as long as it pays is minimum required contribution. Oro Valley's goal of a 20 year period to make up the underfunding is aggressive. The State statute allows for a selection of a catchup-period of 25 or 30 years.
There is no danger to a town as long as it pays is minimum required contribution. Oro Valley's goal of a 20 year period to make up the underfunding is aggressive. The State statute allows for a selection of a catchup-period of 25 or 30 years.
Future should be brighter
Many of the 140 Oro Valley police officers covered by the plan are still active. 43 of these are currently drawing from the plan. An additional 8 will be retiring within the next 5 years. Their replacements will not be on the same defined benefits plan.
Many of the 140 Oro Valley police officers covered by the plan are still active. 43 of these are currently drawing from the plan. An additional 8 will be retiring within the next 5 years. Their replacements will not be on the same defined benefits plan.
Defined benefit plans like those once offered by PSPRS are no longer offered. Officers hired after July 1, 2018, participate in a retirement plan that requires their own contribution to their retirement, supplementing the town's contribution (Tier 3) This aligns with best practices in retirement funding.
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