taken from the May 2002 AAUP AZ Advocate

The Arizona State Retirement System

by Wayburn S. Jeter, Chairman, Legislative Committee

University of Arizona Retirees Association

The present Arizona State Retirement System is an outgrowth of a retirement program for public school teachers. From 1912 to 1943, teachers in Arizona were granted pensions by the Legislature if they were at least 65 years of age and had a minimum of 30 years of service. In 1943, the Legislature created the Teachers’ Retirement System that used a fixed benefit formula to determine pension amounts.

A defined contribution retirement program, the Arizona State Retirement system (ASRS), was created in 1953 to provide benefits for state employees, including the universities and persons working for the state’s political subdivisions. In 1954, the teachers voted to join the ASRS, a change that became effective on January 1, 1955. This program came to be known as "the System."

In 1971, more than 80% of the members voted to change from the defined contribution program ("the System") to a defined benefit program that came to be known as "the Plan." The "System" was closed to new members by 1976. At the present time, approximately 300,000 active, inactive and retired members participate in the defined benefit program.

The ASRS provides retirement, disability, survivor and health insurance benefits for its members. In 1998, the voters of the State passed a constitutional amendment protecting retirement benefits. Among other things, the amendment requires that the retirement funds may be administered, invested and distributed only in the interest of ASRS members and beneficiaries. Currently, the Fund has a value of approximately 22 billion dollars. The ASRS is administered by a board of directors representing active employees, employers and the public. The directors are appointed to three-year terms by the Governor with Senate confirmation.

Both the active members and employers contribute equally to the employee’s retirement contract. The contribution rate is set by the Legislature. Over the years, it has varied from a maximum of 7% to 2% of salary each by employers and employees. The current contribution is 2.66%. the Legislature passed a law recently that the rate cannot below 2%.

The benefit formula is determined by computing the employee’s years of service times a percentage (currently ranging form 2.1%-2.3%) of average monthly earnings. The multiplier is set by the Legislature. The earnings average is based on 36 consecutive months of highest earnings within the last 10 years of service. For example, a 20-year employee might have an average monthly salary of $3,000. The figure multiplied by 2.1% would be 63. Sixty-three times 20 years would yield a $1,260 per month pension payment, or 41.5% of salary. This amount may be less, depending on the payment option chosen- single life annuity, guaranteed number of years payment, joint and survivor benefits, etc.

Also each year, there may be added an excess earnings permanent benefit increase based on the return on fund investments over 8%. This increase is capped at 4% of the total retirement benefits.

Another feature is the health insurance premium benefit. This non-taxable amount is contributed toward health insurance costs. For example, at this time a retired member with 10 years of service and no dependents and with Medicare receives a monthly premium payment of $100. A member with Medicare eligibility and one dependent, also Medicare eligible receives $170. Other figures apply in the case of non-Medicare eligibility or mixed eligibilities. The monthly payments are made to the health insurance provider, and there are restrictions. Only carriers contracted by the Department of Administration or the Arizona State Retirement System may be paid.

These are some of the basic facts about ASRS. Obviously, all sorts of individual special situations occur, and these are handled on a case-by-case basis.