Arizona State Retirees’ Benefits Frozen

Arizona state retirees who got used to annual increases in their pensions can’t expect another permanent benefit for at least three years.

The Arizona State Retirement System began last month the second of what are expected to be five fiscal years with no annual increase in the pensions paid to its 78,000 retired members. That follows at least 12 years of consecutive benefit increases ending in 2005.

In fiscal year 2001, a state law and agency rules went into effect allowing the system to begin using a 10-year rolling average of earnings on the retirement system trust fund to calculate whether state retirees would receive a permanent benefits increase each year, and if so, how much.

Under the current system, the state assumes the fund will make an 8 percent return. Any earnings higher than 8 percent and up to 12 percent are set aside to be put toward the retirees' permanent benefits increase.
The amount of the increase varies from year to year and is never guaranteed, but once it is added it remains part of their retirement income.

The retirees last received a benefits increase in July 2005. "With that payment, the permanent benefits increase account was totally exhausted, and we're in the process of building that back up again," said Pat Klein, assistant director of external affairs for the Arizona State Retirement System.