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Why Your Pension Benefit Doesn't Depend on Your Account Balance

As a member of the Arizona State Retirement System, you make contributions with each of your paychecks. Both you and your employer contribute equal amounts, which are invested to generate revenue and build the ASRS trust fund, which in turn pays your guaranteed lifetime pension benefit upon retirement. These contributions, plus interest, combine to form your account balance. Many members think that the amount of money in their account determines what their pension will be and if they can afford to retire, and think that when that balance is depleted, their monthly pension payments will end. However, this is not the case. 

Your pension benefit is calculated using the “ASRS Defined Benefit Formula”, which is as follows:

Credited Service x Graded Multiplier (based on your years of service) x Average Monthly Compensation = Your Unreduced Lifetime Monthly Pension upon reaching normal retirement

On average, after you have been retired for 6-8 years, your contributions will have been paid back to you in full. With the cost-sharing model, this doesn’t mean your pension payments will stop. You will continue to be paid the same monthly pension for the rest of your life through the ASRS trust fund. 

While your account balance does tell you how much you and your employer have contributed towards your retirement, and how much interest has been earned on those contributions, there are two primary reasons to be interested in your account balance: first, if you should pass away before your contributions have been paid back to you (either while still employed or retired), they will be paid to your beneficiary. Second, if you refund your account and terminate your ASRS membership. At that time you could get your contributions refunded (which doesn’t include a percentage of your employer contributions unless your membership started prior to July 1, 2011). Doing this does have tax penalties as well. If you leave your ASRS employer, it is still highly recommended to keep your funds on account with us, because if you choose to withdraw your funds, you waive all rights to your ASRS membership benefits (including Long Term Disability, Survivor Benefit, Lifelong Monthly Pension, Retiree Health Insurance, and the Premium Benefit program). If you returned to work for an ASRS employer and didn’t refund, you could start contributing again and pick up where you left off. If you refunded, you would have to start all over, unless you bought back the years of service you refunded. You may also be eligible to transfer your ASRS service to another retirement plan. 

In conclusion, your account balance doesn’t matter as much as your years of service and average monthly salary in determining what your lifetime monthly pension benefit will be. So just keep on working and we’ll take care of your money, your future, and keep it secure for your lifetime! 

By Ben Robinson, Strategic Communications

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