(Reuters) - Voters in Phoenix have rejected a proposal, funded in part by a hedge fund billionaire, to convert the pension system for city workers to a 401k-style retirement plan favored by most U.S. private employers.
In a big victory for city labor unions, voters rejected Prop. 487 by a margin of 56.5 percent to 43.5 percent, according to results posted online by the Maricopa County Recorder/Elections Office.
The measure proposed to end the city’s traditional defined-benefit pension plan for new workers, shifting them to a plan dominant in the private sector, with employees pay a far greater share of the cost. Existing workers could have kept their current pensions.
The initiative was one of this year’s biggest test cases pushed by pension-reform advocates, including Texas billionaire and former Enron executive John Arnold, who have argued that traditional pension plans are an increasingly unaffordable burden for cash-strapped state and local governments.
The pro-reform camp drew in more than $1.4 million in contributions, with more than $1 million coming from Arnold, according to the Arizona Republic newspaper.
Arnold, a former trader at Enron, the defunct energy company, went on to make an estimated $3 billion running Centaurus, a Houston-based natural gas-trading hedge fund.
Pension costs and debt were significant factors in the bankruptcies of Detroit, and of Stockton and San Bernardino in California, where bankruptcy judges have said public pensions are no longer sacrosanct. Efforts to reform pensions are ongoing in California and Illinois.
Fierce fights, with successes and failures on both sides and bankrolled with tens of millions of dollars, have been waged in Rhode Island and Kentucky, where laws altering retirement benefits for public workers were passed in 2011 and 2013,
In California, an effort for a statewide pension reform initiative faltered this year. Arnold bankrolled reform efforts in all three states.
A ballot initiative to change the public pension system was overwhelmingly rejected by voters in Cincinnati, Ohio, last year, despite almost $500,000 in contributions, mostly from outside non-profit groups that did not disclose their funding sources. An effort in Tucson, Arizona, was knocked off the ballot after a lawsuit.
Phoenix’s pension fund for so-called non-safety employees is 64.2 percent funded, according to Rick Naimark, the deputy city manager. It faces a $1.09 billion shortfall over 20 years to pay pensions. Retirement plans for police and firefighters remain untouched.
A report from the city council had estimated that take-home pensions for new hires would have been cut roughly in half had Prop. 487 passed.
Additional reporting by Tim Reid; Editing by Jeffrey Benkoe