As someone who has spent years analyzing retirement plans, I find the Arizona State University (ASU) Optional Retirement Plan (ORP) to be one of the most flexible and tax-efficient options for university employees. If you’re an ASU faculty or staff member, understanding how this plan works—and how it compares to alternatives like the Arizona State Retirement System (ASRS)—can help you make better financial decisions.
Table of Contents
What Is the ASU Optional Retirement Plan?
The ASU ORP is a defined-contribution plan available to eligible employees as an alternative to the ASRS pension system. Unlike a pension, which guarantees a fixed income in retirement, the ORP places the investment responsibility on you. This means your retirement income depends on how much you contribute and how well your investments perform.
Key Features of the ASU ORP
- Tax-Deferred Growth: Contributions reduce your taxable income now, and earnings grow tax-free until withdrawal.
- Employer Matching: ASU contributes a percentage of your salary, boosting your retirement savings.
- Portability: If you leave ASU, you can roll over your funds into another qualified retirement account.
- Investment Control: You choose how to allocate your funds among various investment options.
How Contributions Work
ASU and you both contribute to the ORP. The exact percentages depend on your employment classification. For most employees, ASU contributes 8.0% of your salary, while you contribute 5.0%.
Contribution Formula
Your monthly contribution is calculated as:
Employee\ Contribution = Gross\ Salary \times 5\%ASU’s contribution is:
Employer\ Contribution = Gross\ Salary \times 8\%For example, if your annual salary is $70,000:
- Your yearly contribution: \$70,000 \times 5\% = \$3,500
- ASU’s yearly contribution: \$70,000 \times 8\% = \$5,600
- Total yearly contribution: \$3,500 + \$5,600 = \$9,100
Comparison: ASU ORP vs. ASRS
| Feature | ASU ORP | ASRS (Pension) |
|---|---|---|
| Contribution Type | Defined-Contribution | Defined-Benefit |
| Portability | Yes (rollover allowed) | Limited (vesting required) |
| Investment Control | Full control over investments | No control (managed by ASRS) |
| Employer Match | 8% (for most employees) | 12.22% (but no personal control) |
Investment Options in the ASU ORP
The ORP offers multiple investment providers, including:
- Fidelity Investments
- TIAA
- Vanguard
Each provider offers a mix of mutual funds, target-date funds, and fixed annuities. Your asset allocation should align with your risk tolerance and retirement timeline.
Example: Growth Projection with Different Returns
Assume you contribute $9,100 annually (from the earlier example) over 30 years. Let’s compare two scenarios:
- Conservative Portfolio (4% annual return):
Aggressive Portfolio (7% annual return):
FV = \$9,100 \times \frac{(1 + 0.07)^{30} - 1}{0.07} \approx \$960,000The difference of nearly $400,000 shows why investment choices matter.
Tax Advantages and Withdrawal Rules
Tax Benefits
- Pre-Tax Contributions: Lower your taxable income now.
- Tax-Deferred Growth: No capital gains taxes until withdrawal.
- Roth Option (if available): Pay taxes now, withdraw tax-free later.
Withdrawal Rules
- Before 59½: 10% penalty (with exceptions like disability).
- Required Minimum Distributions (RMDs): Start at age 73 (under SECURE Act 2.0).
Should You Choose the ASU ORP Over ASRS?
The best choice depends on:
- Job Stability: If you plan to stay at ASU long-term, ASRS offers a pension.
- Investment Skill: If you’re confident managing investments, ORP may yield higher returns.
- Portability Needs: If you might leave Arizona, ORP funds are easier to transfer.
Final Thoughts
The ASU ORP is a powerful tool for retirement savings, especially if you value flexibility and control. By maximizing contributions and choosing smart investments, you can build substantial wealth over time. If you’re unsure, consulting a financial advisor can help tailor a strategy to your needs.
