Senior Issues

The following is a reprint of an information memorandum distributed to Arizona House and Senate Members and JLBC Staff. The author of the historical perspective was Representative Andy Nichols (District 13). The memo was written in rsponse to another memo distributed by Seantor Edward J. Cirillo (District 15).

The memo will bring back memories for many of you. It also highlights a major discussion point with members of our legislature.

TO: House and Senate Members, JLBC Staff
FROM: Representative Andy Nichols
DATE: March 21, 2000
SUBJECT: Source of the ASRS Surplus - Response to Senator Cirillo's Memo of March 13, 2000

By way of some much needed historical perspective, the employer and employee contribution rate for ASRS members was set by statute at 7% until the First Special Session of 1984. Then, in a move to cut general fund expenses and save the budget, the rate was set at 6.27% for Fiscal Year 1985 and at an annual rate to be determined by the plan's actuaries beginning July 1, 1985.

The principle of adjusting the contribution rate to meet the projected liabilities of the plan over the 30-year planning horizon without any allowance for benefit increases was well understood at the time, and was not popular with the participants or with the retirees. The legislature was flooded with calls and hearing rooms were filled with retirees protesting this change. Note that this outrage was based on a reduction to 6.27%, and contribution rates have now fallen to 2.17%.

In return for accepting this change, members of the legislature were assured it was only for the duration of the "bad times," and that this drastic measure was necessary to save educational and other vital government programs at risk in the down economy. Apparently, those promises have been long forgotten, along with the years of protests from retirees about "raiding" the earnings on their retirement savings to balance the budget.

Current contribution levels were further depressed in 1989 when the legislature switched the actuarial accounting method to the "projected unit cost" method for an additional saving to employers of 67 basis points. This followed a special law in 1987 that set the rate at 2% - even though the actuarial method would have required a rate of 4.69%.

The ASRS retirement fund is not really like any private sector retirement fund: the pension amounts are not dependent on the interest earnings of the trust fund nor on the balance in the account. Benefits are set by the legislature and are paid irrespective of the balance in the fund. If this were a "defined contribution" plan such as those we see in the private sector, we would not be having this discussion because the increased earnings on the account balances would automatically increase the pension benefits of the members.

It is important for us to realize, as we ponder the policy choices before us on how to allocate the tremendous growth in the retirement fund balance, that this is not our money, but that IT BELONGS TO THE MEMBERS - and that for years we have done nothing but cut our contribution to their future income security. These actions have been made possible because of the unparalleled growth in investment markets, but now that state revenues are healthy too, we should consider putting back some of our investment in our state workers - just as we promised to do so many years ago.

Thank you for your consideration of this perspective.

Rep. Andy Nichols (Dist. 13)