Mesa to Adopt PSPRS Funding Policy Aimed at 25-Year Amortization, Stable Annual Contribution
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Summary
City staff urged council to adopt a public-safety pension funding policy for Tier 1 and Tier 2 liabilities that locks in a stabilized annual contribution and builds a $20 million pension stabilization fund; staff said the plan aims for full funding by 2042 under a 25-year amortization option.
Mesa staff presented an annual update on the Public Safety Personnel Retirement System funding policy at the May 29 study session, urging council to adopt a policy to stabilize contributions, meet actuarial requirements and reach full funding of the city’s tier 1 and tier 2 PSPRS liabilities by June 30, 2042.
Sam Schultz, assistant director with the Office of Management and Budget, told council the city had chosen a 25-year amortization schedule for tier 1 and tier 2 liabilities and is pursuing a stable contribution approach that front-loads funding to earn investment growth earlier. The city also plans to cap a pension stabilization reserve at $20 million, which staff expect to reach in fiscal 2025–26.
Staff described three funding strategies: stabilizing contribution levels (a roughly $102–$103 million annual contribution in the FY25–26 budget projection), using the marijuana excise tax revenue (about $3.7 million projected this year) toward the contribution, and maintaining the $20 million pension stabilization fund as a reserve to absorb actuarial shocks or investment shortfalls. Schultz and other presenters said these measures aim to reduce volatility in the city’s required annual contributions while meeting the actuarial required contribution each year.
Schultz explained that the city’s PSPRS exposure stems from legacy tiers established before the 2017 Tier 3 reforms; the presentation focused on tier 1 and tier 2 unfunded liabilities. Staff noted the PSPRS board lowered its assumed investment return (discount rate) from 7.3% to 7.2%, which raised liabilities even without local contribution changes, and staff said Mesa’s approach is conservative and designed to meet the state’s amortization timelines.
Council members asked about implementation details. Council member Adams asked whether the PSPRS board — not the city — makes investment decisions; staff confirmed the PSPRS board sets investment policy and contracts with consultants, and municipalities do not control those investment decisions. Several council members thanked staff for building a stable contribution into the city forecast and for creating the stabilization fund. Staff said they will post the adopted policy online and notify PSPRS that Mesa has accepted its assets and liabilities under the chosen funding approach.
Staff requested formal council action to adopt the funding policy at the June 2 meeting; no vote was taken at the study session.
