Investments

The ASRS is invested in nearly all sectors of the market, including the major indexes. When the markets go up, the ASRS fund increases; when the markets go down, so does the ASRS fund. The ASRS total fund has fluctuated from approximately $25 billion in September 2008 prior to the steady market decline began, down to $17 billion in March 2009, and is currently at approximately $33 billion.

ASRS members participate in a defined benefit plan. Member benefits are determined by a formula that takes into account years of service and average salary at the time of retirement. The ups and downs of the stock market do not affect the level of your retirement benefit, as it would with a defined contribution plan, such as a personal 401(k) plan. For retired members, their monthly lifetime benefit is guaranteed not to decline despite what the markets or the ASRS total fund may do at any given time. However, prolonged down markets make it difficult for the ASRS to accumulate excess funds used to fund the Permanent Benefit Increase program. That benefit, also defined in state statute, provides for an increase to retirees' monthly benefits only when excess earnings are sufficient to generate such an additional benefit. For active members, prolonged down markets that lead to multiple years of rates of return below the ASRS assumed earnings rate of 8 percent will put upward pressure on contribution rates. For inactive members who have an account balance with the ASRS but are no longer making contributions because they are no longer employed by a participating employer, their accounts continue to accrue interest at the rate of 8 percent. (For withdrawal of contributions only, however, interest applied will vary dependent upon the dates contributions were received.).

The ASRS manages a well-diversified portfolio that is designed to produce returns over a long period of time. This institutional investment approach relies primarily on an asset allocation strategy that does not radically change due to market conditions. See the ASRS Strategic Asset Allocation Policy above for more details. There are, however, opportunities to shift funds to take advantage of market conditions. For example, the ASRS has:

• Tactically committed and invested capital to non-U.S. Treasury securities (trading at attractive historical yields).
• Through our Global Tactical Asset Allocation (GTAA) sector, we have marginally reduced over-weighting in equities and commodities, reallocating to other opportunities.
• Continued to analyze markets for other opportunistic investments.

Timing the markets to produce a steady return is difficult, if not impossible. Consider this: From 1997 through 2011, the Dow Jones Industrial Average produced an annualized return of 6.63% for those who stayed fully invested in the fund. Missing the 10 best days produced a return of 1.97%, and missing the 20 best days produced a return of -1.05%.

Obviously, market conditions affect us all. During these volatile times, the ASRS will continue to closely monitor investments and make adjustments when prudent, but will continue to take a long-term approach to investing. It is in such times that members can be particularly reassured as participants in a defined benefit plan that is supported by a professionally managed, well-diversified portfolio that benefits are guaranteed, and not tied to any account balance that may go up or down. Funds used to pay benefits come into the Retirement System through member and employer contributions, and from investments. Although the market value of the ASRS fund will fluctuate, as will the markets in general, there are sufficient funds to meet current benefit obligations.

Benefits to ASRS members are guaranteed by the Arizona Constitution, which states that the "assets of public retirement systems, including investment earnings and contributions, are separate and independent trust funds" to be used solely for the benefit of members and beneficiaries, and that benefits "shall not be diminished or impaired."