Below is a formula that is very important at the ASRS, but is one that most of us would not learn about outside of retirement fund management:
C + I = B + E
In the formula above, the letters refer to Contributions, Income, Benefits and Expenses – and this is the essence of how your retirement system is funded! A description of these four factors follows.
“Contributions” refers to the deductions that are equally paid by employees (often called active members) and their employers. These contributions are collected with every payroll and then invested by the ASRS.
“Income” refers to all the interest, dividends and capital gains that are generated by investing the contributions. This income is generated because the contributions collected are invested by the ASRS in various bonds, stocks, real estate and other investments in order to create a diversified investment portfolio that maximizes expected returns while minimizing expected risk. The higher the rate of return the ASRS can generate from this portfolio, the lower the contribution rates for employees and employers, and the higher the probability that the ASRS can pay out additional future increases (Permanent Benefit Increases – or PBI’s) to retirees. Over the ten year period ending June 30, 2020, our average annual rate of return has been 8.9%, placing the ASRS in the top 10 percent of our public pension plan peers in terms of total returns. We will report our June 30, 2021 returns as soon as they are finalized.
“Benefits” refers to the various payments that are made to former employees, typically paid in the form of pensions, health insurance supplements, disability payments and refunds. These payments are the reason the ASRS exists, and everything else we do – investment management, accounting, systems development, member services, strategic planning – is done to support a cost-effective system of paying benefits to our members.
“Expenses” refers to the investment and administrative costs of managing the retirement system. The lower the cost of providing all the various retirement, health insurance, disability and other services the better. In order to ensure focus on this area, the ASRS engages an independent external company (CEM Benchmarking Inc.) to measure both ASRS customer service and ASRS administrative costs. The results for the most recent year indicate that the ASRS again has low costs and high service - with an ASRS service score of 92 versus the peer median of 79, and with an administrative cost of $72 per active and retired member versus the peer average of $105, resulting in the ASRS being approximately 31 percent less administratively expensive than our peers. This low-cost high service model has been achieved by a combination of organizational philosophy, long-term planning, action orientation, and a marginal cost versus marginal benefit approach to decision-making and resource allocation.
We believe that this model has served members well and will continue to do so. This approach is at the core of maintaining a sustainable benefit plan for our members.
If you’d like to learn more about the ASRS, please visit our website at AzASRS.gov.
To all of our valued members - thank you for your service to our State, and for the trust you have put in the ASRS.
Sincerely,
Paul Matson, Executive Director
