One of the most common questions we get from retirees relates to whether they will receive regular increases to their pension. Many are surprised to learn that the ASRS was not designed to provide for yearly post-retirement benefit increases.
By design, the ASRS is meant to be one of three sources of income in a member's overall retirement portfolio, with social security and personal savings being the other two. In retirement-speak, this is commonly referred to as the three-legged stool. As a member of the ASRS, most of you are contributing to two of these - ASRS and social security - already.
Will my pension ever go up? The short answer: maybe, but don't plan on it.
- For retirees with a membership date (the date you first joined ASRS) after September 12, 2013, there is no statute or rule in place that would give retirees a benefit increase. The only way for these retirees to get an increase to their pension would be for the legislature to grant an ad hoc increase.
- For retirees with a membership date before September 12, 2013, you are eligible for a PBI, or permanent benefit increase, if ASRS investment experience meets the criteria to provide one. The ASRS last granted a PBI in 2005. (Learn more about PBI's here.)
Although you may have friends and family who participate in pension plans from other states that do provide regular post-retirement benefit increases to their retirees, you may find upon closer examination that their benefit has other features that are less generous, such as:
- Non-participation in Social Security. According to the National Association of State Retirement Administrators (NASRA), “Approximately one-fourth of employees of state and local government [across the United States] participate in a public retirement system in lieu of Social Security. This includes approximately 40 percent of public school teachers and over two-thirds of firefighters, police officers, and other first responders.” This means that retirees of those pension systems are not eligible to receive a Social Security benefit while receiving their pension benefit. A pension fund without Social Security as part of its overall design typically provides some of the features social security has, like a cost-of-living raise. ASRS retirees, alternatively, do receive their Social Security benefit in addition to their pension benefit.
- A smaller base benefit. Some plans will provide a smaller starting pension benefit because their design anticipates regular post-retirement benefit increases.
In summary, the lack of a regular post-retirement benefit should not be viewed as good or bad. It is merely how the ASRS plan was designed. To make the most of your ASRS benefit, it's important to understand how it was designed and plan accordingly. For example:
- A member retiring at age 60 with approximately 20 years of service (the profile of the ‘average' retiree) will receive approximately 43% of their final average salary as a monthly pension and would not yet be eligible for Social Security or Medicare. So this retiree would likely need to rely on their personal savings as a supplement until they were eligible for those benefits.
- If the same retiree worked until they were 65 or 67, they would find that not only would they receive a larger benefit from ASRS, they would also have additional income from Social Security immediately upon retiring, in addition to lower healthcare costs due to Medicare eligibility. This retiree would likely need a smaller amount in personal savings than they did in the previous example.
As you can see, understanding how your plan is designed, combined with a little planning, can ensure that you are best prepared when you get closer to retirement.
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