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.”

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.

Related Stories:
Arizona Pension Fires Top Executive for Sexual Harassment

Arizona PSPRS Consolidates 10 Asset Classes into 3

Arizona Evaluates over $1.5 Billion in Private Credit Investments

Tags: , , , , , ,