The Public Safety Personnel Retirement System (PSPRS) recently announced a 14.5% net investment return for the fiscal year ending June 30, 2026—more than double its 7.2% assumed rate of return and generating approximately $3.3 billion for the trust.
That is great news for Arizona employers and reflects continued progress in strengthening the pension system.
But for finance leaders, a strong year shouldn’t be a reason to put pension planning on hold. It can be an opportunity to ask: How can we use today’s positive results to strengthen our agency’s position for the future?
Strong Returns Today. Greater Resiliency Tomorrow.
Investment performance is inherently cyclical. While strong returns can improve pension funding and potentially provide contribution relief, future markets are impossible to predict.
If upcoming employer valuations result in lower contribution requirements, agencies will have an important decision to make: Will that budgetary relief simply be absorbed into the General Fund, or could a portion be preserved to prepare for the next market downturn or contribution increase?
By redirecting some or all of any future contribution relief toward pension prefunding, an agency can build a locally controlled reserve and put itself in a stronger position to manage future pension costs.
The Arizona Employers Pension Prefunding Program (AEPPP) is a locally controlled solution that provides Arizona public agencies with an IRS-approved Section 115 Trust specifically designed for this purpose.
Through the AEPPP, agencies can:
- Build a dedicated pension reserve during stronger financial and investment periods
- Help stabilize future budgets when pension costs increase
- Retain local control over contributions, investment strategy, and the timing of distributions
- Invest strategically for the long term rather than waiting to react to future cost increases
- Demonstrate proactive pension management to elected officials, taxpayers, and other stakeholders
How Can Your Agency Strengthen Its Position?
PSPRS has made tremendous progress, and its latest investment results are another positive step. But one strong year does not eliminate long-term pension obligations—or the possibility of future market volatility.
With updated employer valuations expected before year-end, now is an ideal time for finance leaders to look ahead and consider:
- If our pension contributions decline, how will we use that flexibility?
- Could preserving a portion of those dollars help protect our budget in future years?
- What steps can we take today to give our agency greater control over tomorrow’s pension costs?
A strong year may improve today’s outlook. A deliberate prefunding strategy can help strengthen your agency’s financial position for years to come.
PARS can help your agency evaluate how the AEPPP could complement its existing PSPRS funding strategy, including how potential contribution relief could be used to build greater long-term budget stability and local control. Contact us today to learn more.
Carter Kimberly
Senior Consultant
As Senior Consultant, Carter’s focus is on developing and fostering relationships with public agencies to understand their unique needs and develop retirement plans and trusts that save agencies money and address their long-term OPEB and pension liabilities. Carter specializes in working with educational agencies, counties, and special districts within California, as well as counties, cities, towns, and fire districts in Arizona.
You can learn more about our dedicated team of public agency retirement consultants here.