By Jonathan Eberle |
A new analysis from the Reason Foundation places Arizona 17th in the nation for unfunded pension liabilities, marking another chapter in the state’s long-running effort to stabilize its public retirement systems. According to the report, Arizona carried $27.3 billion in unfunded pension debt in fiscal year 2024. That figure represents a roughly $10 billion increase over the past decade—a rise that analysts say was expected as part of the state’s transition to reformed retirement plans.
Leonard Gilroy, senior managing director of the Reason Foundation’s Pension Integrity Project, told The Center Square that Arizona anticipated higher unfunded liabilities in the early years after adopting major pension reforms.
Arizona operates four major public pension systems: Arizona State Retirement System (ASRS), Public Safety Personnel Retirement System (PSPRS), Correctional Officer Retirement Plan (CORP), and Elected Officials Retirement Plan (EORP). While PSPRS, CORP, and EORP underwent substantial structural changes, ASRS—the state’s largest pension system—did not. As a result, ASRS now accounts for 70% of the state’s total pension liabilities and is the only major system whose funded status declined from 2014 to 2024.
Gilroy noted that taxpayers are responsible for about two-thirds of the state’s pension debt, with active employees covering the remaining one-third. However, he emphasized that recent reforms have led to a more equitable cost-sharing model between workers and taxpayers. Between 2014 and 2024, Arizona’s overall pension funded ratio improved slightly—from 72% to 74.3%. That means the state has roughly three-quarters of the assets needed to cover its estimated $106.6 billion in future pension obligations.
The improvement, Gilroy said, reflects a decade of “difficult reforms and difficult decisions,” including reducing investment return assumptions, paying down existing debt, and creating new retirement options for incoming public employees. A major turning point came in 2016, when lawmakers approved Senate Bill 1428, giving government employees hired after July 1, 2017, a choice between a traditional defined benefit pension and a defined contribution plan similar to a 401(k). The shift was designed to better match the modern workforce, which is less likely to stay in a single job for an entire career.
Arizona’s pension trajectory is improving, he added, but the state will need to maintain its reforms and continue meeting its investment return targets to keep progress on track. “If you put in the money now,” Gilroy said, “you save that money in the long run because you’re not trying to chase the problems of the past.”
While challenges remain—particularly within ASRS—experts say Arizona has a realistic path to achieving full funding if the state’s current course continues.
Jonathan Eberle is a reporter for AZ Free News. You can send him news tips using this link.
