Arizona State Retirement System (ASRS) Solvency Analysis

Policy Study

Arizona State Retirement System (ASRS) Solvency Analysis

Preliminary analysis of ASRS actuarial valuation reports and Comprehensive Annual Financial Reports (CAFRs) by the Pension Integrity Project at Reason Foundation.

The Arizona State Retirement System (ASRS) serves over half a million teachers and state and local government workers while maintaining a $38 billion fund, making it the largest public pension fund in the state and one of the largest nationally. It also has some major pension solvency challenges that policymakers need to resolve now, according to a Reason Foundation analysis.

Back in 2002, ASRS had a $1 billion surplus and had over 100 percent of the assets on hand needed to fund benefits over the long-term, but the system has degraded significantly since then and now has $15.6 billion in unfunded liabilities—after the longest bull market in American history, notably—with only 71 percent of assets on hand to pay out benefits over the long term.

Reviewing publicly available reports published annually by ASRS it is clear how the system devolved since 2002. For nearly three decades ASRS assumed its investments would earn 8 percent and that those investment gains would allow the state to limit contributions to the fund accordingly. Despite significant market changes and underperformance since 2002, the ASRS board decided to lower the plan’s investment rate of return assumption from 8 percent down to 7.5 percent only relatively recently, a level that itself is still likely to be too overly optimistic, Further, in eight of the past 14 years, the state’s annual contribution to ASRS has not kept pace with the interest accruing on the unfunded pension liabilities. In other words, despite the state paying the amounts calculated to fully fund ASRS, the plan’s unfunded liability continues to grow in absolute terms.

The Pension Integrity Project at Reason Foundation produced this report as the first part of an ongoing information series spotlighting the driving factors leading to ASRS’s pension debt and education crowd-out caused by underlying structural problems within ASRS. Bringing interested parties together around a central, non-partisan understanding of the challenges ASRS faces—complete with independent third-party actuarial analysis and expert technical assistance—our organization stands ready to guide policymakers and stakeholders in addressing the shifting fiscal landscape.

Arizona ASRS Pension Solvency Analysis

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