Things to Know About: Arizona State Retirement System

The Arizona State Retirement System (ASRS) is a public pension program that helps former Arizona employees retire. Many UAEA members are likely familiar with the basics of ASRS but I think they may underestimate how important of a role it may play in their retirement. The following information about the strengths of ASRS was pulled from both the ASRS website and conversations with Tempe’s Nationwide account representatives: 

First, ASRS is a pension plan designed exclusively to help Arizona employees. The first comprehensive Arizona state pension was started in 1953 as a way of protecting former state employees in retirement. The program grew over time and now hundreds of public entities ranging from cities to public schools to counties to even the state universities have employees who contribute. Asset management is handled entirely internally by State of Arizona employees who are also on the plan, incentivizing careful management. Contrast this with privately managed pension programs where fund managers might prioritize riskier investments or a higher-volume of investments in the hopes of collecting extra fees. CEM Benchmarking, a company that analyses pension funds, found that ASRS had the second lowest annual cost of 14 similar pension funds, coming in at $48/year less than the average of its peers ($68pp/year vs $116pp/year). What’s more, from 2016 to 2023 ASRS reduced its administration fees by an average of 2% every year, bringing the costs even lower all the time. Finally, CEM also gave ASRS top marks for service, finding that the customer response time, efficiency of the call center, and usefulness of the website all exceeded the industry average, meaning that efficient management is not coming at the cost of the accessibility of the program for its members.

Second. ASRS has a risk-adverse investment strategy. The ASRS fund has had positive returns every single year over the past decade, ranging from as low as 0.6% in the 2015 fiscal year to 25.1% in the 2020 fiscal year. For reference, the S^P 500 had two negative years in the same time frame, including calendar year 2022 where the market fell by 19%. Yes, your ASRS retirement payments are pegged to your former wages and not to market conditions but consistent positive performance is still a good thing - it means the pension plan probably won’t be going bankrupt anytime soon. ASRS is a genuinely solid program that employees should be able to rely upon whether they’re retiring next week or they just started with the City. I want to be clear that past performance is no guarantee of future success (and that I am not a financial advisor) but the historic trend over the past decade has been only an increase in asset value, which bodes well.  

Third, ASRS uses a simple formula to calculate member retirement benefits. It does vary based upon when members first started contributing to the program but in its most simple form it is (Years of Service to Arizona * Service Years Multiplier (starts at 2.1% and rises after 20 years of service) * Average Monthly Compensation (how this is calculated varies, but if you joined after 2011 it is based on the highest paying 60 months in the last 120 months of your employment).  If you joined prior to 2011, the Average Monthly Compensation (AMC) includes Termination Pay, so payouts you receive when retiring for unused sick or vacation time directly influence how much money you’ll get from ASRS (the same unfortunately does not apply to people after 2011). Knowing all of this offers some interesting perspectives on how to plan for retirement. Obviously one should try and increase their AMC as much as possible but the most important part of the formula might actually be Years of Service. Someone who works 10 years will receive twice as much per month as someone who works 5 in an identical role. Someone who worked just under 20 years would receive 4x as much per month. Working over 20 years can drive up the Multiplier from 0.021 to as high as 0.023, but that really doesn’t make as much of a difference unless you can also increase AMC along the way. Also note that Years of Service do not have to be with one employer and they do not have to be continuous - if you quit City of Tempe after 15 years and start a job in the private sector, you can always come back to a public sector role near retirement and work another 5 years to get a bump to your pension payout. 

UAEA thinks ASRS is a great program and will do our best over the next year to make it and the other elements of the Tempe retirement plan easier to understand for our members. Hopefully this information gives you some reassurance that the program is well-managed and potentially a key part of your future retirement.