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Economist updates senators on ATRS finances, warns inflation erodes retirees' purchasing power
Summary
An economist testifying to the Senate Education Committee said Arkansas's teacher retirement costs have been relatively stable but inflation creates risk for retirees because the ATRS cost-of-living adjustment is a 3% simple (non-compounding) increase tied to base pension, not to CPI.
An economist with expertise in school finance told the Senate Education Committee that Arkansas's teacher pension system has managed its funding risks better than many states, but inflation creates pressure that can erode retirement incomes.
Bob Castrell said Arkansas per-pupil pension contributions have held roughly around $1,000 (inflation-adjusted), compared with national increases from about $540 to over $1,700 per pupil over the past two decades. He credited the Arkansas Teacher Retirement System (ATRS) for choices that avoided large, unsustainable benefit increases in the 2000s. He added that extraordinary investment returns in the previous year provided near-term respite but warned markets remain volatile.
Castrell highlighted the limits of the ATRS cost-of-living adjustment, explaining it is "3% simple" and not compounded; he said that arrangement means COLA applies to the base pension at retirement and does not compound annually. He suggested options the committee could weigh, including partial indexing to CPI, regional price adjustments, caps, or contingency mechanisms tied to plan funding levels.
Committee members asked for specifics of the COLA calculation and for recommendations on protecting retirees without destabilizing the plan's finances. Castrell said the ATRS board can rebase the benefit in some years but cautioned any change depends on fiscal conditions and trade-offs between benefit generosity and plan solvency.
No legislative action was taken at the hearing; the economist offered to provide additional analyses to committee staff.
