Public Pension Liabilities in Arizona

From Byron Schlomach at Goldwater:

For this calculation, actuaries assume a rate of return on all the money invested. The assumed rate of return, or “discount rate”, makes a big difference in how big current liabilities might be. For example, if you invested enough now to pay back a $100 debt in 10 years and you expected a rate of return of 5 percent each year, you would need to invest $61.39. But, if you expected an 8 percent return each year, you would only need to invest $46.32 today.

Arizona’s government pension funds use a discount rate of either 8 or 8.25 percent, considerably higher than the 5 percent they have actually earned over the last decade. Consequently, while Arizona’s unfunded pension liabilities are officially $16 billion, a huge sum, the unfunded liabilities using the actual rate of return of 5 percent are more like $37 billion. That’s $5,800 for every man, woman, and child in the state.


  1. fredrick.:

    Most states are doing this, there is going to be a blow up if the economy stays south for a few more years. This might be a good reason to vote Obama. Get this trash out of the way as the Obama economy continues to flounder. Under Romney there will probably be a slight bump, which will conceal this issue for a few more years.

  2. Fred from Canuckistan:

    So State pension planning is like Climate Scientology.

    You can believe the models or you can believe the data, but not both.

  3. FA Jones:

    AZRS used to be such a well run organization. I remember in the late 80s the state wanted to give state employee's raises so they cut the rate that they and the employees paid into the system. The AZRS pointed out they could only get away with this if they raised the rates for a few years following that bad decision. Which actually happened. At least I don't have a lot of money invested in AZRS...

  4. MingoV:

    "That’s $5,800 for every man, woman, and child in the state."

    The pensions aren't due all at once, so the per-person amount needed today is much less than that.

    We've let our politicians screw us so they could appease government employees. Governments at all levels exempted themselves from following pension investment rules (and other employment-related rules) imposed on private businesses. People should demand that states amend their constitutions to prevent governments (state and local) from violating employment-related laws.