Arizona Pension Lowers Employee Contribution Rate For First Time in 5 Years; Strong Investment Returns Cited

Arizona welcome sign

Starting in July, members of the Arizona State Retirement System will pay a smaller percentage of their paychecks toward the pension system. It’s the first contribution rate decrease in five years, but it comes with a catch: retirees will not receive a cost-of-living raise in 2015.

More details on the contribution rate decrease from the Arizona Republic:

The decrease in the contribution rate, which was approved by the ASRS board of trustees, is the first in five years.

Chairman Kevin McCarthy said the reduction is small — a fraction of 1 percent — but a step in the right direction. He said it will save money for public employees and employers “who have seen nothing but increases.”

The reduction is possible because of large investment returns this past fiscal year. In addition, roughly 500 more public employees joined ASRS and began paying into the trust. Since 2009, the system annually lost thousands of active members — and their payments — because of government layoffs.

And details on the COLA:

Barbara Masztakowski, who retired in 2003 from Chandler, said it’s not fair that retirees are not getting an increase when ASRS investment staffers are.

“Truly, they should treat themselves the way they treat us,” Masztakowski said in a phone interview.

She said the formula that ASRS uses to trigger benefit increases for retirees is nearly impossible to achieve.

For a permanent benefit increase to kick in, the trust must produce a rate of return in excess of 8 percent — the assumed rate of investment growth — for 10 years and generate a pool of excess earnings.

That formula uses a “geometric and actuarially smoothed average” that takes into account compounding. The current 10-year average is about 7.6 percent, below the trigger.

Although ASRS retirees have not received a cost-of-living adjustment for nearly a decade, retirees in the more financially fragile state Public Safety Personnel Retirement System saw their COLA benefits restored earlier this year after winning a lawsuit. The ASRS retirees were not part of that case.

Paul Matson, ASRS executive director, said he understands retirees may not be happy but said he expects a benefit increase within the next few years.

The lack of a COLA is controversial among retirees because 10 of the System’s investment staffers are receiving bonuses in 2015 totaling $225,000. Fund investments returned 18.6 percent overall last fiscal year.

 

Photo credit: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under Creative Commons Attribution-Share Alike 2.5 via Wikimedia Commons

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