Pension Update: SB 1609 passes to Senate (04.14.2011)

The Arizona House of Representatives voted to pass SB 1609 (your pension bill) to the Senate.  WATCH THE VIDEO HERE.  Below is the ammended bill (that the Arizona Police Association (APA) had input into) that the Senate should be voting on today (04.15.2011).  MPA will keep you updated on any information we receive. 

Read APA’s comments to the Capitol Times here: Arizona Capitol Times: Union leaders credit governor for pension bill compromise

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SB 1609 – retirement systems; plans; plan design

Read the PDF Version by clicking here: House Ammended SB 1609 (04.14.2011)

Sponsors: Senators Yarbrough, Allen, Bundgaard, et al. (with permission of committee on Rules)

DPA Committee on Employment and Regulatory Affairs

DPA Caucus and COW

X House Engrossed

Overview

SB 1609 makes changes to the existing contribution and benefit structures for the Arizona State Retirement System (ASRS), the Public Safety Personnel Retirement System (PSPRS), the Elected Officials Retirement Plan (EORP) and the Corrections Officers Retirement Plan (CORP).

History

Established in 1953, ASRS manages retirement, health and Long-Term Disability LTD benefits for state, county and municipal employees. ASRS benefits are funded by member and employer contributions and by earnings on investments. The ASRS has three funds: Retirement, Health Benefit, and LTD, to which the employee and employer contributions are distributed according to actuarially determined contribution rates. Actuaries are appointed by the board of directors of ASRS, and must make assessments according to statutory actuarial standards.

In 1968, PSPRS was created by the Legislature to provide a uniform statewide retirement program for public safety personnel and full-time firefighters who are regularly assigned to hazardous duty. Under PSPRS, the employee contribution rate is fixed by statute at 7.65% of salary on a pre-tax basis.

Created in 1986, CORP provides retirement benefits for certain full-time state and county detention officers, and is designed to meet the special needs of personnel engaged in the prison environment. The employee contribution rate is fixed by statute at 8.41% of salary on a pre-tax basis.

EORP was established in 1985 to provide a statewide program for eligible elected officials. Elected official means every elected official of the state, counties, every justice of the Supreme Court, every judge of the court of appeals and superior court, every full-time superior court commissioner and each elected official of an incorporated city or town whose employer has executed a proper joinder agreement for coverage of its elected officials. A state elected official who is subject to term limits may elect not to participate in EORP for that specific term of office. EORP member contribution rates are set in statute at 7% of salary on a pre-tax basis.

Provisions

ASRS

Defines contract fee for the purposes of this section as the gross amount paid to a retired member as an independent contractor minus an amount, not to exceed 10%, for an administrative fee.

Defines gross salary for the purposes of this section as the gross amount paid to a retired member by a leasing company as salary or wages, including amounts that are subject to deferred compensation or tax shelter agreements for services rendered or that would have been paid to the retired member except for the member’s election or a legal requirement that all or part of the gross amount be used for other purposes.

Removes the 85 points system for all members.

Retains the 80 points system for members hired before July 1, 2011.

Changes age plus service requirements for members hired after the effective date of the bill to:

·   Age 55 and 30 years of service.

·   Age 60 and 25 years of service.

·   Age 62 and 10 years of service.

·   Age 65.

Transfers the PSPRS Administrator from EORP to ASRS prospectively.

Removes obsolete language.

Alternate Contribution Rate (ACR)

Requires employers to pay an ACR, beginning on July 1, 2012 for retired members who perform services that would otherwise be performed by an employee of the employer.

Requires the ACR to be assessed starting the day after retirement for a member who reached normal retirement, and for a member who is an early retiree, working less than 20 weeks each year and 20 hours each week.

Removes the 12-month grace period for return to work employees before the ACR is assessed.

Prohibits the retired member from accruing credited service, member service, account balances, retirement benefits, LTD benefits, and the time is not eligible for later service purchase.

Requires employers to pay the ACR on behalf of any retiree that it employs regardless of 20/20 status, direct/leasing/contracting arrangement, or whether the retiree satisfied the 12 month break in service without working on a leased or contract basis.

Instructs the ASRS actuary to determine the ACR in an annual valuation performed by June 30th each year.

Specifies that the ACR is calculated as the greater of 2% or two times the “deficit” payment, and calculates the ACR by adding the employer ASRS Contribution Rate to the employer LTD Contribution Rate, and then subtracting the normal cost.

Establishes a cap on the ACR that cannot be higher than the employer’s portion of the total ASRS Contribution Rate which is the Defined Benefit (DB) plus LTD.

States that the ACR shall be payable on the compensation (for direct hire), gross salary (for leased employee), or contract fee (for independent contractor), as defined in the bill.

Allows ASRS to determine how frequently the ACR is paid and how the monies are submitted to the ASRS.

Specifies that late contributions will be subject to 8% interest and may be recovered in court or by state revenue offsets.

Requires employers to submit any reports, data, paperwork or materials required by the ASRS to determine the function, utilization, efficacy or operation of the return to work program.

Clarifies the period for which a member shall repay suspended pensions to the ASRS starts with the date the ASRS notifies the member in writing that their employment violated the statute, the date the ASRS determines the member knew or should have known that their employment violated the statute, or any other time period determined by the ASRS.

Requires an employer that employed a member whose pension was suspended to pay the ASRS the ACR starting with the date the member returned to employment. The employer is required to make the ACR payment through the earlier of:

The date the member terminates employment,

The date the employer begins making the ACR payment required by the new Return to Work statute, or

The date the member resumes active membership in the ASRS.

EORP

Defines average yearly salary as the five consecutive years within the last 10 completed years of credited service as an elected official that yield the highest average.

Stipulates that if a member does not have five consecutive years of credited service, the considered period is the member’s last consecutive period of employment with a plan employer immediately before retirement.

Removes the definition of recent elected official and all references to that term in the bill.

Allows a member to withdraw the member’s contributions plus interest at a rate determined by the PSPRS Board if that member ceases to hold office for any reason other than death or retirement.

Requires contributions by a retired member’s employer if a retired member subsequently becomes an elected official.

Removes the ability for an elected official to retire early after reaching age 60 and at least 10 years of service.

Changes the amount of payment for a surviving spouse of a deceased retired or deceased active or inactive member to one-half, rather than three-fourths, of the deceased retired member’s pension at the time of death.

Allows a member to elect, at the time of retirement, an optional form of retirement benefit that provides for an actuarially reduced pension and an increased surviving spouse’s benefit.

Changes the monthly pension amount equal one-twelfth of:

3% of the member’s average yearly salary multiplied by credited service, not to exceed 75% of average yearly salary and;

Reduces that amount for early retirement by one-half of 1% for each month the member’s early retirement age precedes normal retirement age.

Changes the disability pension amount to 3% of the member’s average yearly salary multiplied by:

·  25 years of service if the member has 10 or more years of credited service;

·  12.5 years of service if the member has five or more years of credited service but fewer than 10 years;

·  6.25 years of service if the member has fewer than five years of credited service.

Contributions

Removes a member’s flat contribution rate of 7% of the member’s gross salary, retroactive to July 1, 2011.

Sets member contribution rates to:

·  7% of member’s gross salary through June 30, 2011;

·  10% of member’s gross salary for Fiscal Year (FY) 2011-2012;

·  11.5% of member’s gross salary for FY 2012-2013 and;

·  for FY 2013-2014 and thereafter, either 13% of member’s gross salary, or 33.3% of the sum of contribution rate from the preceding fiscal year and the normal cost plus the actuarially determined amount required to amortize the unfunded accrued liability for the employer, whichever is lower.

Requires, for FY 2013-2014 and thereafter, that the member’s contribution rate shall not be less than 7% and the employer contribution rate shall not be less than sufficient to meet both the normal cost, plus the actuarially determined amount required to amortize the unfunded accrued liability.

Prohibits, retroactive to July 1, 2011, the member’s contribution that exceeds 7% of the member’s compensation from being used to reduce the unfunded accrued liability in FY 2011-2012 and thereafter.

ACR

Requires an employer to pay an ACR for a retired member who returns to work in any capacity in a position ordinarily filled by an elected official, if that retired member has been retired for more than one full term from that office.

Sets the ACR at the portion of the total required contribution that is applied to the amortization of the unfunded actuarial accrued liability, based on actuarial calculations of the total required contribution for the preceding fiscal year.

Requires that the ACR be applied to the compensation, gross salary or contract fee of a retired member who returns to work.

Sets a minimum of 10% for the ACR.

Specifies that all ACR contributions are irrevocable and shall be used as benefits or to pay expenses of the plan.

Penalizes an employer for delinquent ACR payments and adds interest until payment is received by the plan.

Requires an employer or a retired member to submit any reports, data, paperwork or materials that are requested by the Board in order determine the compensation of a retired member who returns to work, and to determine the function of the return to work program.

Cost of Living Adjustments (COLAs)

Stipulates that the COLA formula shall be triggered by a funded rate of 60% using the actuarial value of assets as well as a 10.5% investment performance.

The COLA increases by .5% for every 5% increase in the funded rate and places a final cap on the COLA. When the funded rate is 80% or higher and investment earnings are at 10.5% or higher, a 4% COLA will be awarded.

Members must be age 55 or older to receive a COLA.

Service Purchase

Changes service purchase requirements to allow members to purchase up to 5 years of service from another system.

Stipulates that members must be a member of the plan for 10 or more years to qualify for service purchase.

Requires members to forfeit time in the system from which the purchase it.

PSPRS

Redefines normal retirement date for an employee who becomes a member of the system on or after January 1, 2012, as the first day of the calendar month immediately following the employee’s completion of 25 years of service if the employee is at least 52.5 years old.

Redefines average monthly benefit compensation for an employee who becomes a member of the system on or after January 1, 2012, as five consecutive years within the last 20 completed years of credited service that yield the highest average.

Specifies that retroactive to January 1, 2009, a member of PSPRS includes a Police Chief or Fire Chief.

Repeals a dual enactment.

Prohibits the sale of compensatory time from being included in the calculation of overtime pay, regardless of the date that funding value of accrued assets to accrued liabilities reaches at least 100%.

Prohibits members, for purposes of computing retirement benefits, from using third party contracts between public agencies for law enforcement, fire or emergency medical activities or where the employer supervises the employee’s performance of those activities.

Modifies the benefit amount for members who retire with other than 25 years of credited service:

·˜ Reduces by 4% for each year of credited service fewer than 25 years;

·˜ Increases by 2.5% of the member’s average monthly benefit compensation multiplied by the number of the member’s years of credited service in excess of 25 years

Limits the maximum amount payable as a normal pension to 80% of the average monthly benefit compensation.

Prevents an individual who becomes a member of the system on or after January 1, 2012 from being eligible for a deferred annuity. A deferred annuity is a lifetime monthly payment actuarially equivalent to the annuitants accumulated contributions plus an equal amount paid by the employer. That member may be eligible for normal retirement if the member attains the service requirement for normal retirement.

Changes the benefit payment for a member who becomes a member of the system on or after January 1, 2012, and who terminates employment for any reason other than death or retirement, to allow the member to withdraw the member’s accumulated contributions plus interest at a rate determined by the Board.

Replaces fund manager duties with duties of the PSPRS Board.

Contributions

Removes the member’s flat contribution rate of 7.65% of the member’s compensation, retroactive to July 1, 2011.

Sets the contribution rate retroactive to July 1, 201l:

·  7.65% of member’s compensation through June 30, 2011;

·  8.65% of member’s compensation through FY 2011-2012;

·  9.55% of member’s compensation through FY 2012-2013;

·  10.35% of member’s compensation through FY2013-2014 and;

·  11.05% of member’s compensation through FY2014-2015.

·   for FY 2013-2014 and thereafter, either 11.65% of member’s gross salary, or 33.3% of the sum of the contribution rate from the preceding fiscal year and the aggregate computed employer contribution rate that is calculated, whichever is lower.

Prohibits, retroactive to July 1, 2011, the member’s contribution rate from being less than 7.65% of the member’s compensation. The employer contribution rate shall not be less than the amount needed to meet both the normal cost plus the actuarially determined amount required to amortize the unfunded accrued liability.

Prohibits, retroactive to July 1, 2011, the member’s contribution that exceeds 7.65% of the member’s compensation from being used to reduce the unfunded accrued liability in FY 2011-2012 and thereafter.

ACR

Requires an employer to pay an ACR for a retired member who returns to work in any capacity in a position ordinarily filled by an employee in an eligible group.

Stipulates that the return to work provisions apply to a retired member who returns to work with another participating employer, and a retired member who returns to work after 60 consecutive days with the same employer from which the employee retired.

Sets the ACR at the portion of the total required contribution that is applied to the amortization of the unfunded actuarial accrued liability, based on actuarial calculations of the total required contribution for the preceding fiscal year.

Requires that the ACR be applied to the compensation, gross salary or contract fee of a retired member who returns to work.

Sets a minimum of 8% for the ACR.

Stipulates that all ACR contributions are irrevocable and shall be used as benefits or to pay expenses of the plan.

Penalizes an employer for delinquent ACR payments and adds interest until payment is received by the plan.

Requires an employer or a retired member to submit any reports, data, paperwork or materials that are requested by the Board and that are necessary to determine the compensation of a retired member who returns to work or necessary to determine the function of the return to work program.

Deferred Retirement Option Plan (DROP)

Stipulates that for a member who has 20 years or more in the system as of January 1, 2012 the current statutory DROP formula applies.

Stipulates that for members with 20 years or less in the system as of January 1, 2012, the employee is required to pay an ACR equal to the employer contribution rate.

Institutes interest earning restrictions for new DROP members.

Removes DROP eligibility for members who are hired after the effective date of the bill.

COLAs

Stipulates that the COLA formula shall be triggered by a funded rate of 60% using the actuarial value of assets as well as a 10.5% investment performance.

The COLA increases by .5% for every 5% increase in the funded rate and places a final cap on the COLA. When the funded rate is 80% or higher and investment earnings are at 10.5% or higher, a 4% COLA will be awarded.

Members must be age 55 or older to receive a COLA.

Service Purchase

Changes service purchase requirements to allow members to purchase up to 5 years of service from another system.

Stipulates that members must be a member of the plan for 10 or more years to qualify for service purchase.

Requires members to forfeit time in the system from which the purchase it.

 

CORP

Defines average monthly salary for an employee who becomes a member of the plan on or after January 1, 2012, as one sixtieth of the aggregate of salary paid during a period of 60 consecutive months of service in which the member received the highest salary within the last 120 months of service.

Defines normal retirement date for an employee who becomes a member of the plan on or after January 1, 2012, as:

The first day of the month immediately following completion of 25 years of service if the employee is at least 52.5 years old or;

The employee’s 62nd birthday and completion of 10 years of service.

Removes a dual enactment.

Changes the benefit payment for a member who becomes a member of the system on or after January 1, 2012, and who terminates employment for any reason other than death or retirement, to allow the member to withdraw the member;s accumulated contributions plus interest at a rate determined by the Board.

Changes the minimum requirements, for a member who becomes a member on or after January 1, 2012, for a normal retirement pension to one of the following:

·  At least 62 years of age and 10 or more years of service, or

·  At least 52.5 years of age and 25 years or more of service.

Sets the amount of normal retirement benefit for a member who becomes a member on or after January 1, 2012 and has 25 years of credited service, to 62.5% of the member’s average monthly salary, except:

If the person retires with more than 25 years of credited service, increases by 2.5% of the member’s average monthly benefit compensation multiplied by the number of the member’s years of credited service in excess of 25 years, or

If the person retires with less than 25 years of credited service, reduces the pension to the product of 2.5% of the member’s average monthly salary and the member’s credited service.

Stipulates that for a person who becomes a member of the plan on or after January 1, 2012, the amount of an ordinary disability pension is equal to a fraction times the member’s normal retirement pension. The fraction is obtained by dividing the member’s actual years of credited service, not to exceed 25, by 25.

Contributions

Deletes member contribution rates previously established, retroactive to July 1, 2011, and establishes a new contribution rate:

·  Through June 30, 2011, 8.41% and 7.96% for a dispatcher;

·  For FY 2011-2012 and each fiscal year thereafter, 8.41% or 50% of the sum of the member’s contribution rate from the preceding fiscal year and the aggregate computed employer contribution rate, whichever is lower, except that the member contribution rate shall not be less than 7.65%.

·  Specifies that the contribution rate for a full-time dispatcher is 45 basis points less than the member contribution rate, except that at the close of any fiscal year, if the plan’s actuary determines that the aggregate ratio of the funding value of the accrued assets to the accrued liabilities is at least 100%, a full-time dispatcher’s contribution rate is equal to the member contribution rate for the next fiscal year.

·   Stipulates that for FY 2011-2012 and each year thereafter, the amount of the member’s contribution rate that exceeds 8.41%, or 7.96% for a full-time dispatcher, shall not be used to reduce the employer’s contributions.

ACR

Requires an employer to pay an ACR for a retired member who returns to work in any capacity in a position ordinarily filled by an employee in an eligible group.

Stipulates that the return to work provisions apply to a retired member who has been retired for 12 consecutive months.

Sets the ACR at the portion of the total required contribution that is applied to the amortization of the unfunded actuarial accrued liability, based on actuarial calculations of the total required contribution for the preceding fiscal year.

Requires that the ACR be applied to the compensation, gross salary or contract fee of a retired member who returns to work.

Sets a minimum of 6% for the ACR.

Stipulates that all ACR contributions are irrevocable and shall be used as benefits or to pay expenses of the plan.

Penalizes an employer for delinquent ACR payments and adds interest until payment is received by the plan.

Requires an employer or a retired member to submit any reports, data, paperwork or materials that are requested by the Board and that are necessary to determine the compensation of a retired member who returns to work or necessary to determine the function of the return to work program.

Cost of Living Adjustments COLAs

Stipulates that the COLA formula shall be triggered by a funded rate of 60% using the actuarial value of assets as well as a 10.5% investment performance.

The COLA increases by .5% for every 5% increase in the funded rate and places a final cap on the COLA. When the funded rate is 80% or higher and investment earnings are at 10.5% or higher, a 4% COLA will be awarded.

Members must be age 55 or older to receive a COLA.

Service Purchase

Changes service purchase requirements to allow members to purchase up to 5 years of service from another system.

Stipulates that members must be a member of the plan for 10 or more years to qualify for service purchase.

Requires members to forfeit time in the system from which the purchase it.

Felonies

Requires the court to order a person’s membership terminated and the person shall forfeit all rights and benefits earned under the state retirement system or plan if the member is convicted of a class one, two, three, four, or five felony that was committed in the course of the member’s employment as a public official or for a public employer.

Stipulates that an order of forfeiting a member’s benefits on conviction of an offense shall not be stayed on the filing of any appeal of the conviction. If the conviction is reversed on final judgment, no rights or benefits shall be forfeited and the member’s membership shall be reinstated.

Permits the court, after considering the totality of the circumstances, to award the forfeited benefits to a spouse, dependent or former spouse of a member who has been convicted of a felony. The judge must consider:

·   The role, if any, of the spouse, dependent or former spouse in connection with the illegal conduct for which the person was committed.

·   The degree of knowledge, if any possessed by the person’s spouse, dependent or former spouse in connection with the illegal conduct for which the person was convicted.

·  The community property nature of the benefits involved.

·  The extend to which the person’s spouse, dependent or former spouse was relying on the forfeited benefits.

·  Prohibits a person who is subject to forfeiture as a result of a felony from becoming eligible for future membership in any state retirement system or plan.

·  Requires the court to provide a copy of the order of forfeiture to the state retirement system or plan to which it applies.

·   Stipulates that this section does not apply to a member whose most recent retirement occurs before the effective date of this section, unless the member has resumed making contributions in the state retirement system or plan.

·   Clarifies that the felony provisions outlined in this bill apply only to the state retirement system or plan in which the person was a contributing member at the time of the offense.

·   Makes clarifying changes to the appeal process stipulating that the members benefits on conviction of an offense shall not be stayed on the filing of any appeal of the conviction.

·    Stipulates that during the appeal of the conviction and until final judgment is issued, for a member who is not receiving benefits, the member and the employer must continue to make contributions to the retirement system for a member who is receiving benefits.

·     Requires the retirement system to suspend payments to the member and hold the benefits in trust.

·     Stipulates that if the conviction is reversed, then no rights or benefits will be forfeited and the membership will be reinstated.

·     Clarifies that all changes to felony provisions apply prospectively only.

·     Prohibits a member in any system from receiving benefit other than a lump sum payment of member’s contributions if convicted of a felony related to professional duties.

·     Changes the crime of knowingly making a false statement or falsifying documents with the intent to defraud the system from a class six to a class five felony for PSPRS and CORP.

·     Removes conflicting felony language in current statute.

·     Contains a severability clause.

·      Contains legislative findings.

Defined Contribution Study Committee (Committee)

 Establishes a Committee consisting of:

·  The five members of the State Board of Investment.

o The chairperson of the State Board of Investment is the Chairperson of the study committee.

o Three members of the Senate.

o Three members of the House of Representatives.

o One member of the Board of Trustees of PSPRS.

o One member of the ASRS Board.

Instructs the Committee to study:

The feasibility and cost of transferring existing members of a public retirement system or plan to a new defined contribution plan as well as providing for a new defined contribution plan for newly hired public employees.

The existing section 401(a) plans in statute.

The definitions of compensation, average yearly salary.

The advantages and disadvantages of the local board system.

The practices of granting accidental and ordinary disability retirements to members in PSPRS and CORP.

Permits the Committee to use the services of consultants, actuaries and attorneys in performing the Committee’s duties and exempts contracts for services from the Arizona Procurement Code.

Requires the Committee to meet at least twice in 2011.

Requires the Committee to submit an interim report on or before December 31, 2011.

Requires the Committee to submit a final reports with its recommendations and findings on or before December 31, 2012.

All Systems

Service Purchase

Changes service purchase requirements to allow members to purchase up to 5 years of service from another system.

Stipulates that members must be a member of the plan for 10 or more years to qualify for service purchase.

Requires members to forfeit time in the system from which the purchase it.

Miscellaneous Changes

Permits the Legislature to enact permanent one-time increases in retirement benefits for PSPRS, CORP and EORP after December 31, 2015 following an analysis of the effect on the plan by the Joint Legislative Budget Committee (JLBC.)

Requires JLBC to analyze the effect of the permanent benefit increase on the funded status of the plan based on the following criteria:

o The funded status of the plan.

o The length of time since the last increase.

o The increase in the cost of living since the last increase.

o The current economic condition of this state.

o Recent investment performance of the plan.

o The overall view of the economy and market.

o The total cost of the increase to the plan.

Permits members of PSPRS, CORP, and EORP who receive a refund and subsequently become reemployed as an elected official to redeposit the amount withdrawn plus interest into the fund.

Stipulates that a member who redeems prior service pursuant to statute is subject to the benefits and duties in effect at the time of the member’s most recent reemployment.

Retroactively to May 31, 2011 prohibits excess investment earnings to be transferred to the excess investment earnings on pensions in payment status account.

Stipulates that after May 31, 2011 no excess investment earnings on the net assets of the fund shall be transferred to the excess investment earnings account.

Requires the Board of Trustees to provide to the Legislature and the JLBC on or before December 31st of each year the shared cost structure of employees and employers, the funding status and the rate of return.

Stipulates that the report to the Legislature shall include when the trigger to the reduction in employee rates is being met.

States that the Legislature’s intent in establishing the ACR for all four systems is to mitigate the potential actuarial impact that a retired member who returns to work.

Appropriates $250,000 from the ASRS administration account in FY 2011-2012 to the ASRS system for the administrative implementation of this act.

Exempts the appropriation from the lapsing of appropriations.

Appropriates $50,000 from the ASRS administration account in FY 2011-2012 to the state Treasurer for the purpose of implementing the duties of the Committee.

Exempts the appropriation from the lapsing of appropriations.

Appropriates $50,000 from the PSPRS system in FY 2011-2012 to the state Treasurer for the purpose of implementing the duties of the Committee.

Exempts the appropriation from the lapsing of appropriations.

Stipulates that all monies remaining unexpended and unencumbered on September 30, 2013 from the appropriations made to the Committee shall revert respectively to ASRS and PSPRS.

Contains a general effective date with retroactive provisions as noted.

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