Your ASRS contribution rate actually consists of two main parts: the “Pension and Health Insurance Benefit” rate, which is a pre-tax deduction from your paycheck, and the “Long Term Disability Income Plan” rate, which is a post-tax deduction. If you look at your paystub, the pre-tax deduction is listed as “ASRSRET” while the post-tax deduction is labeled “ASRS LTD.”
You’ll also notice that your post-tax contribution is a fraction of your pre-tax contribution. This is because the pre-tax Pension and Health Insurance Benefit rate makes up the vast majority of your total contributions – 12.12% of the total 12.27% contribution rate for FY 2024-25. These pre-tax contributions are what fund the majority of our primary benefits, including your possible future pension benefit.
The immediate advantage of having most of your contributions deducted pre-tax is that it lowers the taxable income of your paycheck. Fewer taxes are taken out of your paycheck by paying contributions pre-tax than if the same percentage of contributions were taken out of your paycheck post-tax. But it’s also essential to understand one other effect of these pre-tax deductions: taxes being taken out once you begin to receive a pension benefit.
Some new retirees are surprised to see taxes taken out of their ASRS pension benefit when they start to receive retirement checks, thinking they paid taxes as they were contributing and were now being taxed a second time when receiving their pension. However, as you can see, this isn’t actually the case. Functionally, it’s similar to how most all pre-tax retirement savings plans function, such as a 401(k), in which taxes are paid when you eventually begin to withdraw funds in retirement.
Want more information about contributions? Visit our Contribution Rates page for answers to common questions such as how rates are determined, why contribution rates fluctuate, and more.
by Nathaniel Brengle, Strategic Communications
Updated: 10/2/2024
