Arizona universities aim to eliminate pensions for new hires

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PHOENIX (AP) — Arizona's public universities want to eliminate guaranteed pensions for new employees and create their own health benefits plan as part of an effort to distance their operations from a state government that consistently cuts funding.

The goal is to save money spent on pensions and health insurance and redirect those dollars to students, Board of Regents President Eileen Klein said in a recent interview.

The effort by Klein and the presidents of the University of Arizona, Arizona State University and Northern Arizona University comes as the schools receive ever-decreasing percentages of their funding coming from the state.

University employees now can be members of the Arizona State Retirement System and receive health benefits from the state. The pension proposal would not affect current university employees, Klein said.

"It's really an enterprise-wide proposal so that we have the freedoms to design the benefit structure that works for our employees — prospectively," Klein said. "But the point is, going forward, we need the flexibility design to better meet the needs of our employees and to help, we think, improve the costs associated with those."

Arizona agencies and universities that participate in the state retirement system contribute 11.6 percent of their employees' salaries into the pension plan. Employees contribute the same amount. Klein called the cost of the retirement system "unsustainable."

The universities want to replace pensions with 401(k)-style plans, which involve employers contributing to an employee's retirement account but not being on the hook for a guaranteed pension.

Gov. Doug Ducey is proposing a $75 million cut to university funding in the budget year that begins July 1, a 10 percent reduction. That leaves universities with state aid estimated at $683 million, more than $400 million below the level in fiscal year 2008. Annual tuition increases at all three universities since 2008 have totaled about $1 billion, according to the Legislature's budget analysts.

The proposal to eliminate pensions doesn't go over well with public employee unions. University employees aren't members, but the unions routinely field calls from them, said Luis Schmidt, president of Local 2384 of the American Federation of State, County & Municipal Employees in Phoenix.

"The state system, it is sustainable," Schmidt said Monday. "If reforms need to be done at that level, that's one thing, but to completely go this drastic other direction, that is wrong. That's just pension elimination, that's what that is."

There are more than 16,500 active members of the retirement system at the three universities. Total membership in the state pension plan exceeds 208,000.

ASU President Michael Crow sees pensions as hampering innovation because employees don't have an incentive to improve.

"To me, more important than the financial efficiencies is everyone on the same team, driving the institution forward, committed to the success of the institution, where their individual performance is what benefits them in the long-term relative to their compensation," Crow said. "We want performance to be the driver, not some long-term guarantee."

Klein, the regents president, said she expects legislation to enable the change to be introduced soon.

Sen. Jeff Dial, R-Chandler, has introduced a bill separately that would allow only ASU to eliminate pensions and offer its own health insurance.

The bill also would designate the university as an independent, quasi-public, corporate entity.

"I think it's much harder right now to be relying on government to just provide large sums of money, and I see what we're doing is much more of a partnership with the private sector," Dial said.

Crow said the costs of the pension plan prevent universities from paying higher wages.

"So we want a more flexible organizational structure," he said.

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