Permanent Benefit Increase

History of the PBI

Arizona Revised Statute § 38-767 outlines the provisions for providing what is termed a Permanent Benefit Increase (PBI) to retired members.

Funds to pay for the PBI come from excess earnings on the actuarial value of the overall ASRS fund. When excess earnings are identified, a formula that includes years of service is used to determine the individual retired member’s PBI , which, if available, is applied at the beginning of the fiscal year, July 1. Once granted, the PBI cannot be taken away; pension checks cannot be reduced, even in years when there are no excess earnings or negative earnings.

The purpose of the PBI is to help retired members keep pace with increasing living expenses, but the PBI is not tied to any cost of living index and is not guaranteed to be paid every year. The PBI should not be seen as a “raise,” as the pension check is an annuity, not a paycheck.

Frequently Asked Questions

Who is qualified to receive a Permanent Benefit Increase?

Members who joined the ASRS prior to September 13, 2013 are eligible for the Permanent Benefit Increase. Members with a membership date on or after Sept. 13, 2013 are not eligible for the PBI.

How does the ASRS arrive at the amount available to fund the PBI?

The pool of money for the PBI is generated from excess returns on the actuarial value of the overall fund; it is not the same as the market rate of return. To determine if there are excess earnings, the fund must have earned more than the actuarial assumed rate of return of 8 percent; however, investment gains and losses to the fund are “smoothed” over a rolling 10-year rolling; that is, the gains and losses are not applied all in the same year, but instead recognized over a 10-year period. The reason gains and losses are “smoothed” over a 10-year rolling period is to minimize excessive increases or decreases in the contribution rate.

What is the amount a retiree may receive for a PBI?

The PBI is calculated per member, based on years of service. For example, the last PBI came in 2005 and was approximately $25 per year of credited service. A retiree with 20 years of service at retirement would receive a PBI of $500, paid in a $41.66 addition to their monthly benefit..

Why were no funds available for a PBI even though the ASRS fund has experienced strong returns in certain years?

Keep in mind that although the fund may earn more than 8 percent in a particular fiscal year, earnings below the 8 percent mark during the rolling 10-year period make it difficult to accumulate sufficient excess earnings to meet statutory requirements for PBI distributions.

When will another PBI be available?

As years in which losses are applied pass the 10-year mark, the outlook for future PBIs improves and gains of more than 8 percent are added the outlook for a PBI improves. Depending upon rates of return in future years, it could be several more years before the PBI pool is built back up to the point where a future PBI will be available. Once excess returns are identified and made available for a PBI, it will likely begin at a much smaller rate than some retirees have experienced in the past.

Current Status of the PBI

At the end of each fiscal year – June 30 – the ASRS conducts an actuarial review of the defined benefit plan. This review identifies whether there are excess earnings to provide for a Permanent Benefit Increase, as outlined in state statute.

The 2020 valuation showed there are no excess funds available for an addition to the Permanent Benefit Increase for retired members. All current PBIs will continue to be included in benefit checks.

As outlined in state statute, increases can only be provided when there are excess returns. Given the market performance over the past 10-year period that the ASRS uses to recognize gains and losses over time, there are no excess earnings for an additional PBI at this time.

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