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Employer Matching, Lifetime Benefit... Do You Know Your Pension?

Think a 401(k) Might Be Better? Guess Again!

Every two weeks you see that 11.5% coming out of your paycheck, earmarked for a pension or long term disability that you don’t anticipate needing for a long time to come. Sometimes you may wonder if you would be better off with a different type of retirement plan, like a 401(k). Well, here are some facts that might make you feel better about your ASRS pension:

Employer Matching. Did you know that you are not the only one contributing to your financial future? Your employer is matching it! That’s right, every paycheck your employer is also contributing 11.5% on your behalf. Compare that to other retirement vehicles, such as 401(k)’s. During the recession, many employers stopped matching any retirement contributions. While employer-matching is beginning to make a comeback, as of 2015 only 3.9% of employers were offering any matching funds for retirement.

Lifetime Benefit. While 79% of Americans have the option to voluntarily contribute to a 401(k) plan, only 32% are choosing to do so—and, of those that do, most will not fund a secure retirement. The average American’s 401(k) balance is only $96,288—which is not considered adequate to support a retirement from age 65 to potentially 90 years of age!

How does this differ from your ASRS 401(a) defined benefit plan? Your ASRS retirement pension provides a lifetime guaranteed benefit based on your years of service and final salary. You have a contractual relationship with the ASRS, protected by the Arizona constitution. Your benefit does not “run out” and cannot be reduced.

Pensions Cost Half as Much. While a 401(k) plans may provide similar benefits to a pension, pensions do so at about half the cost. Money saved from pooled longevity risk combined with the cost savings from optimal asset allocation, higher returns and lower fees result in 48% lower costs than 401(k) plans.

If you’d like to know more about the benefits of ASRS membership, check out this video and find out what’s in it for you!

 

Sources:

Washington Post (July 18, 2017)

AARP, NRTA and the National Institute on Retirement Security

Motley Fool (July 19, 2017)

Arizona State Retirement System

Written by Pamela Foust, Strategic Communications

Published in the April 2018 digital newsletter "Expanding Your Financial Horizons"

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