ASRS taking bigger bite out of teacher paychecks, dampening effects of multiyear pay raise

PHOENIX (December 30, 2019)—As the state Legislature prepares for the 2020 legislative session and for the negotiation of a state budget with an anticipated final installment of a multiyear phased-in average statewide 20% teacher pay raise, a new paper from the Arizona Chamber Foundation assesses the effect that the state retirement plan for teachers and other public employees is having on teacher take-home pay.

Authored by education policy expert Dr. Matt Ladner, the paper, “Modernizing Teacher Pensions for the 21st Century,” finds that the pension system over the past two decades has taken a larger bite out of teachers’ paychecks.

“Just two decades ago the pension system that covers Arizona’s teachers (in addition to state workers and others) was thriving and teachers contributed only a modest amount of their paychecks for the promise of a healthy retirement payout,” according to the paper. “Today, we see a pension system in decline and a much heavier burden placed on teachers and school systems.”

At the outset of the 21st century, the Arizona State Retirement System (ASRS), had a healthy surplus and could meet its commitment to retirees, depending on only a 3% contribution from ASRS participants and 3% from employers. That picture is dramatically different today.

“Starting in July of 2019, the system will have increased the burden on classroom teachers, taking 12.11 percent directly from teachers and other contributors and another 12.11 percent from teachers’ schools,” according to the paper. Despite the increase in contributions, the solvency of the fund has declined dramatically.

Glenn Hamer, the chairman of the Chamber Foundation and the president and CEO of the Arizona Chamber of Commerce and Industry, said this de facto tax on teaching could make the profession less attractive to potential new recruits to the field and diminish the positive effects of successive state budgets that have made teacher pay more competitive.

“This new policy brief provides an important assessment of the effects the teacher pension system has on teacher pay,” Hamer said. “Despite efforts by lawmakers and Gov. Doug Ducey to increase teacher pay, the comparatively large employee contribution to the ASRS could exacerbate teacher shortages and lessen the effects of the phased-in teacher pay raise. Overall teacher pay is up, but a healthier state retirement system would make for larger teacher paychecks.”

Despite these challenges, recent reforms to the state pension system for public safety professionals provide an example of policymakers and beneficiaries working together to ensure the long-term sustainability of a retirement system.

“These retirement system challenges are not unique to Arizona, but Arizona leaders have previously demonstrated a willingness to modernize pension plans in order to head off future problems that could prove insurmountable,” Hamer said. “We hope this paper provides legislators and beneficiaries important information to begin a necessary conversation on how to improve both teachers’ take-home pay and their retirement plan.”

This is not the first time the Chamber Foundation has examined the state retirement system. In 2010, the Foundation published, “Pension Tension: Understanding Arizona’s Public Employee Retirement Plans.” That paper also looked at the disturbing trend of increased employee contributions combined with increased unfunded liabilities.

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