If you’re starting a job with an Arizona university (ASU, NAU, or U of A), you have exactly 30 days to make one of the most important financial decisions of your career: ASRS pension or Optional Retirement Plan (ORP).
This decision could have a significant impact on what your retirement looks like, and how you can best prepare to retire comfortably. Here’s how to make the right choice for you and your family.
Need to Make a Quick Decision
University Employees: You have 30 calendar days from your hire date to choose ASRS or ORP. If you don’t make a choice, you are automatically enrolled in the ASRS. This decision is permanent for your entire university career.
These deadlines exist because both systems need to know how much money, and where, to set aside your future benefits.
Basics of ASRS Pension
The Arizona State Retirement System (ASRS) is a traditional pension plan covering over 650,000 public employees across Arizona. Here’s how it works:
What You Get: A guaranteed monthly payment for life, calculated using a formula based on your salary and years of service.
How It’s Funded: You contribute 12% of your salary (pre-tax), your employer contributes 12%, and ASRS invests the money professionally. That percentage can and does change on a year to year basis.
The Formula: Monthly Pension = Average Salary × Years of Service × Multiplier
Example: Teacher with 25 years of service, $65,000 average salary, 2.2% multiplier = $2,979/month for life.
Key Features:
- •Payments guaranteed until you die
•Spouse can receive survivor benefits
•Disability insurance included
•Protected by Arizona Constitution
ASRS Advantages
Guaranteed Income for Life: Your pension never stops paying, even if you live to 100. Market crashes, recessions, inflation – none of it affects your monthly check.
Professional Money Management: ASRS manages over $60 billion with experienced professionals. You don’t need to pick investments or time the market.
Built-in Insurance: Disability benefits if you can’t work, survivor benefits for your spouse, all included at no extra cost.
Predictable Planning: You can calculate your future pension with reasonable accuracy, making retirement planning straightforward.
Constitutional Protection: Your earned benefits are protected by Arizona’s constitution. They cannot be reduced or taken away.
ASRS Disadvantages
Zero Inflation Protection: Your pension payment stays exactly the same every year. A $3,000 monthly pension loses about 30% of its buying power over 20 years due to inflation.
Career Lock-In: If you switch to the private sector (or a university in another state) it will stop all future contributions to your pension.
Limited Income Replacement: Even after 30 years, your pension typically replaces only 60-70% of your working income. You’ll need additional savings regardless.
Early Retirement Penalties: Retire before your “normal” retirement age and your benefits are permanently reduced by as much as 6-7% per year if you retire too early.
No Investment Upside: While you avoid market crashes, you also miss out on potentially higher investment returns over long periods.
Basics of ORP (Optional Retirement Plan)
The Optional Retirement Plan is a 401(k)-style individual account system available only to university employees. Here’s how it works:
What You Get: An individual investment account that you own and control, with the accumulated balance available at retirement.
How It’s Funded: You contribute 7% of your salary (pre-tax), your employer contributes 7%, and you choose how to invest the money from available options.
The Growth: Your account grows based on your investment choices and market performance over time.
Example: Employee contributing $4,550 annually ($65,000 salary × 7%) with employer match, earning 7% annually over 25 years = approximately $593,000 account balance. In retirement, if you withdrew 5%, that would be around $29,650 per year.
Key Features:
- •You own the account completely
•Portable if you change jobs
•Investment control and responsibility
•Account passes to beneficiaries upon death
ORP Advantages
Full Portability: Your account goes with you if you change jobs, states, or career paths. No loss of benefits for career changes.
Investment Growth Potential: Historically, stock market returns have outpaced inflation over long periods (no guarantee this will continue), potentially providing higher retirement income.
Personal Ownership: The account is yours. You control investments and can leave remaining balance to your beneficiaries.
Flexibility: Access to funds starting at age 59½ without early retirement penalties that affect ASRS.
Inflation Protection: Investment growth can help your retirement savings keep pace with or exceed inflation.
ORP Disadvantages
Investment Risk: Your retirement income depends entirely on market performance and your investment choices. Poor markets or bad decisions can significantly reduce your wealth.
No Guaranteed Income: Unlike ASRS, there’s no promise of monthly payments. You could outlive your money, especially if you don’t handle your investments wisely.
Investment Responsibility: You must choose investments, monitor performance, and make adjustments throughout your career.
No Built-in Insurance: No automatic disability or survivor benefits. You’d need to purchase these separately.
Required Management: You’ll need to manage the account balance and withdrawal strategy in retirement.
Decision Framework: 4 Key Questions for ASRS vs. ORP
1. How long do you expect to work at Arizona universities?
ASRS Favors: 20+ year careers. The pension formula rewards long service with higher multipliers and substantial monthly benefits.
ORP Favors: Shorter tenures or uncertain career paths. Since you own the account, you get full value regardless of how long you stay.
2. Do you want guaranteed income or potential higher growth?
ASRS Provides: Certainty and guaranteed monthly payments regardless of market conditions.
ORP Provides: Opportunity for higher returns but with the risk of market losses and no guaranteed income.
3. Are you comfortable managing investments?
ASRS: Professional money managers handle all investment decisions. You have no control but also no responsibility.
ORP: You choose investments and decide if/when to make changes to your account.
4. How important is career flexibility?
ASRS: Best for those committed to Arizona public service. Benefits stop growing if you leave the system.
ORP: Ideal for those who may change careers, move states, or work in the private sector.
I obviously can’t tell you through this blog post which one is right for you, your family and your financial situation. But if you find yourself agreeing with the structure of one more than the other then that might be a sign of what’s right for you.
Consider ASRS if:
- •You plan 20+ years in Arizona university system
•You value guaranteed income over potential growth
•You don’t want to manage investments
•You have lower risk tolerance
•You want built-in disability and survivor benefits
Consider ORP if:
- •You’re comfortable with investment decisions
•You may leave the university system
•You want to retire before age 62 (and may not have enough service credits at your desired early retirement age to have a solid pension amount)
•You prefer building personal wealth via the stock market over guaranteed income
•You want full control over your retirement assets
Either Choice Can Work! Especially if:
- •You commit to saving 10-15% additionally in other accounts
•You understand the trade-offs you’re making
•You plan accordingly for each option’s weaknesses
Next Steps, before your 30-day deadline:
- •Answer the 4 key questions honestly
•Run pension/investment calculators for both options
•Consider consulting a financial advisor familiar with both systems
•Submit your election before the deadline
After Making Your Choice:
- •Maximize your 401(a) or 403(b) or 457(b) contributions
•Build an emergency fund of 3-6 months living expenses
•Plan your supplemental retirement strategy (like IRAs and non-retirement investment accounts)
•Review and adjust your plan annually
The Bottom Line
There’s no universally “right” choice, only the right choice for your specific situation. The key is understanding what you’re choosing and planning accordingly.
ASRS provides excellent security for career university employees who value guaranteed income and don’t want investment responsibility.
ORP offers more control and growth potential for those willing to take investment risk and manage their own retirement accounts.
Most importantly: Start saving in supplemental accounts immediately, regardless of which primary plan you choose. Your 401(a), 403(b), 457(b), IRA and non-retirement account contributions will have a significant impact on your retirement lifestyle regardless of whether you choose the ASRS or ORP.
This guide provides general information only. Consult with a qualified financial advisor familiar with Arizona public employee benefits for personalized advice.