Scottsdale chief financial officer outlines PSPRS liability, commissioners weigh paydown and trade-offs

Sonya Andrews summarized Scottsdale's pension obligations at the Feb. 28 Budget Review Commission meeting, focusing on the Arizona State Retirement System (ASRS) for general employees and the Public Safety Personnel Retirement System (PSPRS) for police and fire.

Andrews said Scottsdale pays about 11% of payroll into ASRS and described ASRS as a state-administered, cost-sharing multiple-employer plan. "Currently, we are paying about 11, about 12% of our payroll for ASRS," she said.

The longer discussion centered on PSPRS, which the presenter described as an agent multiple-employer plan with employer-specific valuations. Andrews summarized the recent history and reforms: investment losses in the early 2000s and 2008, outdated actuarial assumptions (including payroll-growth and mortality tables), and subsequent statutory reforms that reduced actuarial assumptions (investment return assumptions were lowered to 7.2% and payroll-growth assumptions reduced to 2%).

Andrews provided figures for Scottsdale's PSPRS obligations: the city made $59.5 million of additional payments for police above the annual required contributions from 2021 through 2024; those payments and investment returns reduced the police unfunded liability to roughly $143.8 million on the most recent valuation. For fire, the city made about $5.3 million of additional payments and the fire plan currently shows stronger funded status (about the low-80s percent funded). Andrews said employer contribution rates have risen substantially during the period of higher unfunded liability, noting police employer rates rose as high as 63% of payroll and at the time of the meeting were about 52.55%; fire employer contributions moved from around 12% in 2015 to nearly 30%.

Commissioners debated policy trade-offs. Several asked whether the commission should recommend accelerating paydown of the unfunded liability using reserves set aside for that purpose, balanced against the opportunity cost of using those funds for capital projects, maintenance or other priorities. Commissioner Stevens urged viewing funded status (for example, an 80% funded target) over a multi-year trend to manage market volatility and avoid knee-jerk responses to annual valuation swings. City Manager Ketan and others noted legal and structural limits: some PSPRS assumptions and system-level investment decisions are made at the state PSPRS board level and not directly by the city.

Commissioners requested additional data: a breakdown of active and inactive members by PSPRS tier (Andrews provided a count for Scottsdale police: 98 active and 433 inactive in tiers 1/2, and 22 active and 25 inactive in tier 3), historical payroll-growth and contribution-rate trends, and dollar amounts for the city's annual pension expense (Andrews said Scottsdale pays roughly $28 million to $31 million annually in pension expense to PSPRS for police and fire, excluding any additional one-time paydowns). Andrews said the city will provide supplemental schedules and historical charts at a future meeting.

No changes to pension policy were adopted at the meeting. Commissioners signaled they want more analysis on: (1) the costs and benefits of accelerating unfunded liability paydown versus using funds for deferred maintenance and capital; (2) sensitivity of the city's liabilities to PSPRS investment-return assumptions and payroll-growth assumptions; and (3) potential procedural issues such as pension "spiking" or high-overtime years that can affect pensionable earnings.