Arizona State Pension Is Headed for ‘Complete Desperation,’ Research Group Warns

Pension’s unfunded liabilities making it difficult to hire, retain teachers.

The Arizona Chamber Foundation (ACF), a research group, decries the Arizona State Retirement System’s (ASRS) dwindling funded ratio, which it claims is trending toward “complete desperation.”

As a direct result of the ASRS’ situation, the state’s educational environment degraded in an effort to help cover the pension’s unfunded liabilities. The ASRS quadrupled state teachers’ contributions to help mitigate their dwindling funded ratio, subsequently hampering the state’s ability to attract and retain teachers.

The pension used to have a $1 billion funding surplus in 2002,the group’s report contended, but since its issues began, it looked to teachers’ paychecks for help.

“By 2002, ASRS…had 104.% funds needed to fund beneficiaries, despite taking a modest 3% of payroll from ASRS participants,” the ACF said in its “Modernizing Teachers Pensions for the 21st Century” report. “Starting in July 2019, the system will have increased the burden on classroom teachers, taking 12.11% directly from teachers and other contributors and another 12.11% from teachers’ schools.”

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Additionally, the ASRS increased contributions from the schools themselves to 12.11%. The school contribution has a compound effect on teachers’ salaries, the ACF explained, meaning they have less room in their budget to provide pay raises for staff.

Despite schools and teachers paying four times more than they used to, the solvency of the system has continued to decline. “Arizona’s pension system for teachers has not yet reached the precipice of complete desperation, but it is trending in that direction,” the report reads.

One of the major consequences is lessened attraction of Arizona’s educational market to prospective teachers.

“By reducing take-home pay, the pension system can deter teacher recruitment efforts even if prospective teachers lack awareness of details regarding factors constraining take-home pay. In other words, prospective teachers don’t need to understand that pensions absorbing a large portion of payrolls contributes to a lower teacher pay—they may be deterred simply because they believe it is low,” the AFC report said.

Also, the structure of the ASRS’ payment scheme is duly antiquated. Currently, teachers must pay out contributions but won’t be completely vested in the system until they spend five years working under the system – a benchmark that only 30% of workers reach. As a result, the average teacher forgoes pay, but doesn’t receive the corresponding pension benefit.

“ASRS, in short, is built for an era in which people signed on with an employer, worked in a multi-decade career with the same organization, and then retired. This does not typify the modern American labor market in general, nor the current teaching profession,” the report said.

“ASRS, in short, requires modernization.” The AFC did not propose any solutions and said that is better to be suggested and coordinated by the pension’s staff.

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New WWE Football League Provokes Oklahoma Pension Lawsuit

Pension alleges the company’s chairman, Vince McMahon, diverted company resources to support a new, unrelated venture.

The Oklahoma Firefighters Pension and Retirement System has filed a lawsuit against World Wrestling Entertainment (WWE), which the plan owns shares in, charging that its chief had mis-allocated company money. 

Specifically, the pension’s motion states that there is “a credible basis from which to infer” that WWE Chairman Vince McMahon usurped a corporate opportunity for XFL, his own personal private venture, and diverted resources from the WWE to support it.

XFL is a professional American football league owned by McMahon’s Alpha Entertainment that originally launched in 2001 and ran for a single season. McMahon recently revealed that Alpha intends to revive the league with a 10-week season beginning in 2020.

“Plaintiff [the Oklahoma Firefighters Pension and Retirement System] has a credible basis to believe that McMahon and potentially other senior officers of WWE may have breached their fiduciary duties by usurping WWE’s corporate opportunities and diverting resources from WWE to McMahon’s newest business endeavor, the XFL,” the court documents read.

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“Plaintiff also has a reasonable basis to believe directors of WWE may have breached their duties by failing to conduct oversight to ensure that those corporate opportunities were not usurped, that those resources were not diverted, and that McMahon did not engage in transactions that constitute a conflict of interest with WWE.”

The pension owns 107 shares worth about $6,867 of WWE stock. 

Alpha Entertainment purchased the intellectual property of XFL from the WWE, and the pension wants to investigate the merits of the transaction. Inquiries include if Alpha Entertainment paid fair market value to the WWE for the intellectual property of the XFL, including giving WWE a percentage of the company, and if Alpha is paying fair market value for the support services that WWE is providing as part of the deal.

Although the WWE may have benefitted from the development of the XFL, the pension said, “it appears that McMahon set about to exploit the WWE’s XFL-related asset for the benefit of himself personally and to the exclusion of the WWE.”

The WWE sold its XFL rights to McMahon’s Alpha Entertainment for $1 million, plus an undisclosed equity interest that at the time was valued at zero dollars, the court documents state. “Those property rights, however, may have been worth far more than $1 million.” They pointed to a separate occasion where an acquisition offer was made to the company for $50 million.

A few other conflicts of interest were brought to the attention of the Court of Chancery of the State of Delaware. One was that law firm K&L Gates was advising both the seller and the acquirer in Alpha’s purchase of XFL rights from the WWE.

Another conflict was that McMahon’s attention, which the WWE has repeatedly said “are essential for the company’s value and its future performance,” would be compromised under his split responsibilities managing both Alpha Entertainment and the WWE.

McMahon’s employment agreement with the WWE also says he must not participate “in a business competing with the professional wrestling or other core businesses conducted by the [WWE] or any of its affiliates. According to the pension’s litigation, the WWE has clearly defined its competition as “professional and college sports, other lived, filmed, televised, and streamed entertainment.” Given the XFL is a professional sports league, McMahon’s new responsibilities in managing the organization are a clear breach of his obligations to the company, the pension alleges.

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