HB2745 - 502R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 38-727, Arizona Revised Statutes, is amended to read:

START_STATUTE38-727. Eligibility; options

The following provisions apply to all employees hired on or after the effective date:

1. All employees and officers of this state and all officers and employees of political subdivisions establishing a retirement plan administered by the board pursuant to this article who as a result of state service or service for the political subdivision are included in agreements providing for their coverage under the federal old age and survivors insurance system are subject to this article, except that membership is not mandatory:

(a) On the part of any employee who is eligible and who elects to participate in the optional retirement programs established by the Arizona board of regents pursuant to the authority conferred by section 15‑1628 or by a community college district board pursuant to authority conferred by section 15‑1451.

(b) For a state elected official who is subject to term limits, who is eligible for participation in ASRS because the state elected official elected not to participate in the elected officials' retirement plan as provided in section 38‑804, subsection A and who elects not to participate in ASRS as provided in paragraph 7 of this section.

(c) On the part of any employee or officer who is eligible to participate and who participates in the elected officials' retirement plan pursuant to article 3 of this chapter, the public safety personnel retirement system pursuant to article 4 of this chapter or the corrections officer retirement plan pursuant to article 6 of this chapter.

2. All employees and officers of political subdivisions whose compensation is provided wholly or in part from state monies and who are declared to be state employees and officers by the legislature for retirement purposes are subject, on legislative enactment, to this article and are members of ASRS.

3. Any member whose service terminates other than by death or withdrawal from membership is deemed to be a member of ASRS until the member's death benefit is paid.

4. Employees and officers shall not become members of ASRS and, if they are members immediately before becoming employed as provided by this section, shall have their membership status suspended while they are employed by state departments paying the salaries of their officers and employees wholly or in part from monies received from sources other than appropriations from the state general fund for the period or periods payment of the employer contributions is not made by or on behalf of the departments.

5. Notwithstanding other provisions of this section, a temporary employee of the legislature whose projected term of employment is for not more than six months is ineligible for membership in ASRS. If the employment continues beyond six successive months, the employee may elect to either:

(a) Receive credit for service for the first six months of employment and establish membership in ASRS as of the beginning of the current term of employment if, within forty‑five days after the first six months of employment, both the employer and the employee contribute to ASRS the amount that would have been required to be contributed to ASRS during the first six months of employment as if the employee had been a member of ASRS during those six months.

(b) Establish membership in ASRS as of the day following the completion of six months of employment.

6. A person who is employed in postgraduate training in an approved medical residency training program of an employer or a postdoctoral scholar who is employed by a university under the jurisdiction of the Arizona board of regents is ineligible for membership in ASRS.

7. A state elected official who is subject to term limits and who is eligible for participation in ASRS because the state elected official elected not to participate in the elected officials' retirement plan as provided in section 38‑804, subsection A may elect not to participate in ASRS. The election not to participate is specific for that term of office. The state elected official who is subject to term limits shall make the election in writing and file the election with ASRS within thirty days after the elected official's retirement plan mails the notice to the state elected official of the state elected official's eligibility to participate in ASRS. The election is effective on the first day of the state elected official's eligibility. If a state elected official who is subject to term limits fails to make an election as provided in this paragraph, the state elected official is deemed to have elected to participate in ASRS but only if the state elected official was elected before January 1, 2013. The election not to participate in ASRS is irrevocable and constitutes a waiver of all benefits provided by ASRS for the state elected official's entire term, except for any benefits accrued by the state elected official in ASRS for periods of participation before being elected to an office subject to term limits or any benefits expressly provided by law.

8. Every full‑time superior court commissioner who is appointed on or after July 1 of the first fiscal year after the social security administration approves the inclusion of superior court commissioners on this state's section 218 agreement is a member of ASRS and is subject to this article.

9. Notwithstanding any other provision of this section, all employees of an employer who are hired on or after January 1, 2013 are ineligible for membership in ASRS. END_STATUTE

Sec. 2. Section 38-735, Arizona Revised Statutes, is amended to read:

START_STATUTE38-735. Payment of contributions; recovery of delinquent payments

A. All amounts deducted from a member's compensation as provided in section 38‑736 and employer contributions required pursuant to section 38‑737 shall be paid to ASRS for deposit in the ASRS depository.

B. Each employer shall certify on each payroll the amount to be contributed and shall remit that amount to ASRS.

C. Payments made by employers pursuant to this article or article 2.1, or 7 or 8 of this chapter become delinquent after the due date prescribed in the board's rules and thereafter shall be increased by interest from and after that date until payment is received by ASRS. ASRS shall charge interest on the delinquent payments at an annual rate equal to the interest rate assumption approved by the board from time to time for actuarial equivalency. Delinquent payments due under this article or article 2.1, or 7 or 8 of this chapter, together with interest charges as provided in this subsection, may be recovered by action in a court of competent jurisdiction against an employer that is liable for payments or, at the request of the director, may be deducted from any other monies, including excise revenue taxes, payable to the employer by any department or agency of this state. The employer shall record delinquent payments that are recovered or deducted from other monies pursuant to this subsection pursuant to applicable accounting and financial reporting standards. END_STATUTE

Sec. 3. Title 38, chapter 5, Arizona Revised Statutes, is amended by adding article 2.2, to read:

ARTICLE 2.2. ARIZONA STATE DEFINED

CONTRIBUTION RETIREMENT SYSTEM

START_STATUTE38-798. Definitions

In this article, unless the context otherwise requires:

1. "Annuity account" means an account that is established for each member to record the deposit of member contributions and employer contributions and interest, dividends or other accumulations credited on behalf of the member.

2. "ASRS" means the Arizona state retirement system that is established by article 2 of this chapter.

3. "Board" means the ASRS board that is established by section 38-713.

4. "Compensation" means the full compensation actually received by a member for service whether or not part of the compensation is received from monies other than those provided by this state or a political subdivision of this state.

5. "Defined contribution system" means the Arizona state defined contribution retirement system established by this article.

6. "Employer" means:

(a) This state.

(b) Political subdivisions of this state that are participating in ASRS on the effective date of this article.

7. "Employer contribution" means an amount deposited in the member's individual annuity account on a periodic basis coinciding with the employee's regular pay period by an employer from the employer's own monies.

8. "Existing employer" means any employer who employed or employs a member of the existing retirement system.

9. "Existing retirement system" means the defined benefit program that is established by article 2 of this chapter.

10. "Member":

(a) Means all employees of an employer who are hired on or after January 1, 2013, who are eligible pursuant to this article and who are engaged to work at least twenty weeks in each fiscal year and at least twenty hours each week.

(b) Means all employees of an employer who are hired on or after January 1, 2013, who are eligible pursuant to this article and whose work for more than one employer totals at least twenty weeks in a fiscal year and at least twenty hours each week and includes work provided on a part-time basis to an employer who is not the full-time employer of the employee.

(d) Does not include any employee of an employer who is hired on or after January 1, 2013, who is otherwise eligible pursuant to this article and who begins service in a limited appointment for not more than eighteen months. If the employment exceeds eighteen months, the employee shall be covered by the defined contribution system as of the beginning of the nineteenth month of employment. In order to be excluded under this subdivision, classifications of employees designated by employers as limited appointments must be approved by the board.

11. "Member contribution" means an amount reduced from the member's regular pay and deposited in the member's individual annuity account in the defined contribution system.

12. "Permanent, total disability" means a mental or physical incapacity that is shown by an examination by a physician or physicians selected by the board and that requires the absence from employment service for at least six months.

13. "Retirement" means a member's withdrawal from the active employment of an employer and completion of all conditions precedent to retirement.

14. "Year of employment service" means employment for at least ten months, except that no more than one year of service may be accumulated in any twelve month period. For the purposes of this paragraph, "month" means twenty employment days. END_STATUTE

START_STATUTE38-798.01. Defined contribution system; body corporate

A. The Arizona state defined contribution system is established to provide for the secure, fair and orderly retirement of employees of this state and political subdivisions of this state.

B. The defined contribution system constitutes a body corporate, and all business of the defined contribution system shall be transacted in the name of the Arizona state defined contribution retirement system. END_STATUTE

START_STATUTE38-798.02. Article to be liberally construed; purpose; qualified plan

A. This article shall be liberally construed in order to provide a general annuity based retirement system for employees of this state and political subdivisions of this state.

B. The purpose of this article is to provide a defined contribution retirement program that is fully funded on a current basis from employer and employee contributions.

C. The defined contribution system is designed to be a qualified governmental plan under section 401(a) of the internal revenue code. the legislature intends that the defined contribution system is a qualified plan under section 401(a) of the internal revenue code, as amended, or successor provisions of law, and that the defined contribution system is exempt from taxation under section 501 of the internal revenue code. The board may adopt any additional provisions to the defined contribution system that are NECESSARY to fulfill this intent. END_STATUTE

START_STATUTE38-798.03. Administration of the defined contribution system

A. The board shall administer the defined contribution system.

B. The board may sue and be sued, contract and be contracted with and conduct all of the business of the defined contribution system in the name of the Arizona state defined contribution retirement system. END_STATUTE

START_STATUTE38-798.04. Powers and duties of the board

A. The board has all of the powers necessary to effectuate the purposes of this article.

B. The board shall:

1. Contract with a private pension, insurance, annuity or mutual fund or any other qualified company or companies to administer the day-to-day operations of the defined contribution system. In selecting the company or companies the board shall take into account as its highest duty the proper safeguard and protection of the member and employer contributions, providing employees with investment products at the lowest available cost and providing employees with a broad range of investment products that will maximize the interest, dividend or other return on contributions.

2. Adopt rules regarding the proper investment of the contributions. END_STATUTE

START_STATUTE38-798.05. Participation in defined contribution system; limiting participation in existing retirement system

A. Beginning January 1, 2013, the defined contribution system is the single retirement program for all new employees whose employment begins on or after that date. No additional new employees except as may be provided in this section may be admitted to the existing retirement system. Members of the existing retirement system whose employment continues beyond January 1, 2013 are not affected by this article and are entitled to continue to contribute and participate in the existing retirement system without a change in provisions or benefits.

B. Notwithstanding article 2 of this chapter, any employee whose employment terminates on or after January 1, 2013 and who is later reemployed by an employer is eligible for membership only in the defined contribution system, except that if reemployment with an existing employer occurs not more than six months after the employee's previous employment and the employee has not withdrawn contributions from the existing retirement system, the employee is entitled to readmission to the existing retirement system.

C. An employee whose employment with an employer or an existing employer is suspended as a result of an approved leave of absence is eligible for readmission to the existing retirement system in which the employee was a member.

D. The board shall resolve any question that exists regarding readmission to membership in the existing retirement system. END_STATUTE

START_STATUTE38-798.06.||Voluntary participation in defined contribution system

A. On written election on or after January 1, 2013, a member of the existing retirement system may voluntarily elect membership in the defined contribution system on a prospective basis under either of the following:

1. All benefits earned by a member under the existing retirement system before a voluntary election by the member shall be frozen and made available to that member on retirement as provided by the existing retirement system. For the purposes of this paragraph, "frozen" means that the member's compensation, credited service and any other factor used to determine benefits shall be calculated as of the date the member elected membership in the defined contribution system and after that date no increase in compensation, credited service or any other factor may be used to increase the member's retirement benefit above the retirement benefit the member would have received if the member had retired on the date the election was made.

2. Withdrawal of the member's contributions to the existing retirement system plus employer contributions and interest on those contributions as determined pursuant to section 38‑740 as if the member is terminating employment and deposit of that withdrawn amount in the defined contribution system.

B. If a member of the existing retirement system elects membership in the defined contribution system pursuant to subsection A, paragraph 2 of this section, the member's years of credited service in the existing retirement system shall be applied toward years of employment service required by section 38-798.09.

C. The board shall allow an election under this section on a retroactive basis to January 1, 2013.

D. After a member of the existing retirement system elects membership in the defined contribution system pursuant to this section, the member shall not change the election or again become a member of the existing retirement system. END_STATUTE

START_STATUTE38-798.07. Member contributions; annuity account; 414(h) pick‑up

A. Each employee who is a member of the defined contribution system may contribute a percentage ranging from zero per cent to a maximum of fifteen per cent of the member's gross compensation by salary reduction, except that the amount contributed each year shall not be more than the maximum amount allowed under the internal revenue code.

B. The employer shall make salary reductions at the normal payroll intervals and shall remit this amount within five working days to the private pension, insurance, annuity or mutual fund or any other qualified company or companies designated by the board to administer the day-to-day operations of the defined contribution system.

C. All member contributions shall be deposited immediately in an account or accounts established in the name of the member and shall be held in trust for the benefit of the member. An account agreement shall be issued to each member prescribing the terms and conditions under which contributions are received and the investment and retirement options available to the member. On or before December 31, 2012, the board shall adopt rules defining the minimum requirements for the investment and retirement options to be provided to the members. The rules, to the extent not inconsistent with the applicable provisions of the internal revenue code, shall provide for varied retirement options, including:

1. Lump sum distributions.

2. Joint and survivor annuities.

3. Other annuity forms in the discretion of the board.

4. Variable annuities that gradually increase monthly retirement payments, except that increased payments shall be funded solely by the existing current value of the member's account at the time the member's retirement payments commence and not, to any extent, in a manner that would require additional employer or employee contributions to any member's account after retirement or cessation of employment.

5. The instances in which, if any, distributions or loans can be made to members from their annuity account balances before the member attains fifty-five years of age.

D. Although designated as employee contributions, all employee contributions made to the defined contribution system shall be picked up and paid by the employer in lieu of contributions by the employee. The contributions picked up by an employer may be made through a reduction in the employee's compensation or an offset against future compensation increases, or a combination of both. An employee participating in the defined contribution system does not have the option of choosing to receive the contributed amounts directly instead of the employer paying the amounts to the defined contribution system. It is intended that all employee contributions that are picked up by the employer as provided in this subsection shall be treated as employer contributions under section 414(h) of the internal revenue code, shall be excluded from employees' gross income for federal and state income tax purposes and are includable in the gross income of the employees or their beneficiaries only in the taxable year in which they are distributed. The specified effective date of the pickup pursuant to this subsection shall not be before the date the defined contribution system receives notification from the internal revenue service that all employee contributions that are picked up by the employer as provided in this subsection shall be treated as employer contributions pursuant to section 414(h) of the internal revenue code. Until notification is received, any employee contributions made under this are made with after‑tax contributions. END_STATUTE

START_STATUTE38-798.08. Employer contributions

A. Each participating employer shall annually make a contribution equal to one hundred per cent of each member's contribution, except that the employer's contribution shall not be more than five per cent of each member's gross compensation. The pro rata share of this amount shall be paid on each date that a member contribution is made and shall be remitted as provided for in section 38-798.07 for credit to the member's annuity account.

B. Each participating employer has a fiduciary duty to its employees to ensure that the employer contributions are made in a timely manner. END_STATUTE

START_STATUTE38-798.09. Termination of membership; suspension account

A. A member whose employment with a participating employer terminates after the completion of six complete years of employment service is eligible to terminate the member's annuity account and receive a distribution from the member's annuity account in an amount equal to the member's contribution plus one-third of the employer contributions and any earnings on the contributions.

B. A member whose employment with a participating employer terminates after the completion of nine complete years of employment service is eligible to terminate the member's annuity account and receive a distribution from the member's annuity account in an amount equal to the member's contribution plus two-thirds of the employer's contributions and any earnings on the contributions.

C. A member whose employment with a participating employer terminates after the completion of twelve complete years of employment service is eligible to terminate the member's annuity account and receive a distribution of all monies contributed and accumulated in the member's annuity account.

D. A member whose employment with a participating employer terminates before the completion of six complete years of employment service is eligible to terminate the member's annuity account and receive a distribution from the member's annuity account in an amount equal to the member's contribution plus any earnings on the contributions.

E. Notwithstanding subsections A, B and C of this section, on the death or permanent, total disability of any member, that member or the member's beneficiary is eligible to terminate the member's annuity account and receive all monies contributed to or accumulated in the member's annuity account.

F. The remaining balance, if any, in the member's account after the distribution pursuant to this section shall be remitted and paid into a suspension account that is administered by the board. The board shall adopt rules regarding the distribution of any balance in the suspension account. Any monies in the suspension account shall be used solely for the purpose of reducing employer contributions in future years.

G. The board shall maintain any account balances remitted to the suspension account in the name of the terminated employee for five years after initial remittance to the suspension account. At the end of five years for each terminated employee, the board shall certify in writing to each contributing employer the amount of the account balances plus earnings on the account balances attributable to each separate contributing employer's previously terminated employees' accounts that have been irrevocably forfeited due to expiration of five years since termination pursuant to section 38-798.14.

H. On certification to the several contributing employers of the aggregate account balances plus earnings on the account balances that have been irrevocably forfeited pursuant to this section, the several contributing employers may reduce in the next succeeding fiscal year or years their total aggregate contribution requirements pursuant to section 38-798.08 for the current fiscal year by an amount equal to the aggregate amounts irrevocably forfeited and certified as such to each contributing employer.

I. On the use of the amounts irrevocably forfeited to any contributing employer as a reduction in the current fiscal year contribution obligation and on notification provided by the several contributing employers to the board of their intention to use irrevocably forfeited amounts, the board shall direct the distribution of the irrevocably forfeited amounts from the suspension account to be deposited on behalf of the contributing employer to the member annuity accounts of its current employees pursuant to section 38‑798.08. END_STATUTE

START_STATUTE38-798.10. Retirement; commencement of annuity payments

A. At any time after a member attains fifty-five years of age, the member may elect to take retirement by notifying the board or its designee in writing of the member's intention at least sixty days before the effective date of retirement.

B. Retirement payments shall begin within thirty days after a member's retirement date under the payment option or options provided by the board and elected by the member. END_STATUTE

START_STATUTE38-798.11. Amount of annuity payments

A. The amount of annuity payments a retired member receives shall be based solely on the balance in the member's annuity account at the date of retirement, the retirement option selected or, if an annuity option is selected, the actuarial life expectancy of the member and such other factors as normally govern annuity payments.

B. On retirement of a member and with the approval of that member, the board or its designee may purchase an annuity with the balance of the member's account. On delivery of the annuity to the member on the member's retirement, the member shall execute a release surrendering any claim the member may have against the retirement trust. END_STATUTE

START_STATUTE38-798.12. Supplemental annuity contracts

The board shall authorize the private pension, insurance, annuity or mutual fund or other qualified company or companies with which it contracts to make available to members such supplemental annuity options, disability and other insurance or benefits as the board deems appropriate, except that supplemental annuities, insurance and benefits shall be funded solely from employee contributions. END_STATUTE

START_STATUTE38-798.13. Account statements

On an annual basis the board shall prepare or cause to be prepared an account statement for each member's annuity account. The statement shall include a statement of the current market value of the member's account. The board shall prescribe the form and content of the account statement not inconsistent with the provisions of this section. END_STATUTE

START_STATUTE38-798.14. Years of employment service

A member of the defined contribution system who terminates employment with a participating employer and does not remove any monies from the member's annuity account and becomes reemployed with a participating employer within five year retains the member's previous years of employment service for purposes of section 38-798.09. END_STATUTE

START_STATUTE38-798.15. Right to benefits not subject to execution

A. The right of any person to a benefit provided for in this article is not subject to execution, attachment, garnishment, the operation of bankruptcy or insolvency laws or any other process.

B. Any assignment of the right of any person to a benefit provided for in this article is not enforceable in any court. END_STATUTE

START_STATUTE38-798.16. Reservation to legislature

The right to modify, amend or repeal this article, or any provision of this article, is reserved to the legislature.

Sec. 4. Section 38-804, Arizona Revised Statutes, is amended to read:

START_STATUTE38-804. Membership; termination

A. All elected officials who were elected or appointed before january 1, 2013 are members of the plan, except that a state elected official who is subject to term limits and who was elected or appointed before january 1, 2013 may elect not to participate in the plan. The state elected official who is subject to term limits and who was elected or appointed before january 1, 2013 shall make the election in writing and file the election with the board within thirty days after the state elected official assumes office. The election is effective on the first day of the state elected official's eligibility for that term of office. The election not to participate is specific for that term of office. If a state elected official who is subject to term limits and who was elected or appointed before JANUARY 1, 2013 fails to make an election as provided in this subsection, the state elected official is deemed to have elected to participate in the plan. The election not to participate in the plan is irrevocable and constitutes a waiver of all benefits provided by the plan for the state elected official's entire term, except for any benefits accrued by the state elected official in the plan for periods of participation before being elected to an office subject to term limits or any benefits expressly provided by law. The state elected official who elects not to participate in the plan shall participate in the Arizona state retirement system unless the state elected official makes an irrevocable election not to participate in the Arizona state retirement system as provided in section 38‑727.

B. If a member who becomes a member of the plan before January 1, 2012 ceases to hold office for any reason other than death or retirement, within twenty days after filing a completed application with the board, the member is entitled to receive the following amounts, less any benefit payments the member has received and any amount the member may owe to the plan:

1. If the member has less than five years of credited service with the plan, the member may withdraw the member's accumulated contributions from the plan.

2. If the member has five or more years of credited service with the plan, the member may withdraw the member's accumulated contributions plus an amount equal to the amount determined as follows:

(a) 5.0 to 5.9 years of credited service, twenty‑five per cent of all member contributions deducted from the member's salary pursuant to section 38‑810, subsection A.

(b) 6.0 to 6.9 years of credited service, forty per cent of all member contributions deducted from the member's salary pursuant to section 38‑810, subsection A.

(c) 7.0 to 7.9 years of credited service, fifty‑five per cent of all member contributions deducted from the member's salary pursuant to section 38‑810, subsection A.

(d) 8.0 to 8.9 years of credited service, seventy per cent of all member contributions deducted from the member's salary pursuant to section 38‑810, subsection A.

(e) 9.0 to 9.9 years of credited service, eighty‑five per cent of all member contributions deducted from the member's salary pursuant to section 38‑810, subsection A.

(f) 10.0 or more years of credited service, one hundred per cent of all member contributions deducted from the member's salary pursuant to section 38‑810, subsection A.

C. If a member has more than ten years of credited service with the plan, leaves the monies prescribed in subsection B of this section on account with the plan for more than thirty days after termination of employment and after that time period requests a refund of those monies, the member is entitled to receive the amount prescribed in subsection B of this section plus interest at a rate determined by the board for each year computed from and after the member's termination of employment.

D. If an elected official who becomes a member of the plan on or after January 1, 2012 ceases to hold office for any reason other than death or retirement, within twenty days after filing a completed application with the board, the member may withdraw the member's accumulated contributions from the plan and shall be paid the member's accumulated contributions plus interest at a rate determined by the board as of the date of termination, less any benefit payments the member has received and any amount the member may owe to the plan.

E. If the amount prescribed in subsection B, C or D of this section includes monies that are an eligible rollover distribution and the member elects to have the distribution paid directly to an eligible retirement plan or individual retirement account or annuity and specifies the eligible retirement plan or individual retirement account or annuity to which the distribution is to be paid, the distribution shall be made in the form of a direct trustee‑to‑trustee transfer to the specified eligible retirement plan. The distribution shall be made in the form and at the time prescribed by the board. A member who receives the amount prescribed in subsection B, C or D of this section from the plan or who elects a transfer pursuant to this subsection forfeits the member's credited service, and all rights to benefits under the plan and membership in the plan terminate.

F. In no case shall more than twelve months of credited service be credited on account of all service rendered by a member in any one year.

G. If an elected official who has terminated the member's membership in the plan pursuant to subsection B of this section is subsequently elected or otherwise becomes eligible for membership in the plan pursuant to subsection A of this section, credited service only accrues from the date of the member's most recent eligibility as an elected official.

H. Notwithstanding subsection G of this section, if an elected official files a written election form with the board within ninety days after the day of the member's reemployment as an elected official and repays the amount previously withdrawn pursuant to subsection B or C of this section within one year after the date of the member's reemployment as an elected official, with interest on that amount at the rate of nine per cent for each year, compounded each year from the date of withdrawal to the date of repayment, credited service shall be restored. Credited service shall not be restored until complete repayment is made to the fund.

I. H. If a retired member subsequently becomes an elected official, contributions shall not be made by the retired member and credited service shall not accrue while the retired member is holding office.

J. I. In addition to subsection I H of this section, if a retired member subsequently becomes, by reason of election or reelection, an elected official of the same office from which the member retired within a time period following the member's retirement that is less than one full term for that office, the member shall not receive a pension. If the elected official ceases to hold the same office, the elected official is entitled to receive the same pension the elected official was receiving when the elected official's pension was discontinued pursuant to this subsection. Nothing in this subsection prohibits a retired judge called by the supreme court to active duties of a judge pursuant to section 38‑813 from receiving retirement benefits.

J. An elected official who is elected or appointed on or after January 1, 2013 is ineligible to become a member of the plan and is subject to article 3.1 of this chapter. END_STATUTE

Sec. 5. Title 38, chapter 5, Arizona Revised Statutes, is amended by adding article 3.1, to read:

ARTICLE 3.1. PUBLIC EMPLOYEE DEFINED

CONTRIBUTION RETIREMENT SYSTEM

38-831. Definitions

In this article, unless the context otherwise requires:

2. "Board" means the board of trustees of the system.

3. "Compensation" means the full compensation actually received by a member for service whether or not part of the compensation is received from monies other than those provided by this state or a political subdivision of this state.

4. "Defined contribution system" means the public employee defined contribution retirement system established by this article.

5. "Employer" means a department, agency or political subdivision of this state that makes employer contributions to the defined contribution system on behalf of a public employee who participates in the defined contribution system.

6. "Employer contribution" means an amount deposited in the member's individual annuity account on a periodic basis coinciding with the employee's regular pay period by an employer from the employer's own monies.

7. "Existing employer" means any employer who employed or employs a member of the existing retirement system.

8. "Existing retirement system" means the defined benefit programs that are established by articles 3, 4 and 6 of this chapter.

9. "Member" means a public employee under either the defined contribution system or the existing retirement system and any person receiving a benefit under this article.

10. "Member contribution" means an amount reduced from the member's regular pay and deposited in the member's individual annuity account in the defined contribution system.

11. "Permanent, total disability" means a mental or physical incapacity that is shown by an examination by a physician or physicians selected by the board and that requires the absence from employment service for at least six months.

12. "Public employee" means:

(a) Every elected official of this state who is elected or appointed on or after January 1, 2013.

(b) Every elected official of each county of this state who is elected or appointed on or after January 1, 2013.

(c) Every justice of the supreme court, every judge of the court of appeals, every judge of the superior court and every full‑time superior court commissioner who is elected or appointed on or after January 1, 2013.

(d) Each elected official of an incorporated city or town whose employer has executed a proper joinder agreement for coverage of its elected officials and who is elected or appointed on or after January 1, 2013.

(e) An employee of a participating employer under the public safety personnel retirement system who becomes employed on or after January 1, 2013.

(f) An employee of a participating employer under the corrections officer retirement plan who becomes employed on or after January 1, 2013.

13. "Retirement" means a member's withdrawal from the active employment of an employer and completion of all conditions precedent to retirement.

14. "System" means the public safety personnel retirement system.

15. "Year of employment service" means employment for at least ten months, except that no more than one year of service may be accumulated in any twelve month period. For the purposes of this paragraph, "month" means twenty employment days. END_STATUTE

START_STATUTE38-831.01. Defined contribution system; body corporate

A. The public employee defined contribution retirement system is established to provide for the secure, fair and orderly retirement of public employees of this state and political subdivisions of this state.

B. The defined contribution system constitutes a body corporate, and all business of the defined contribution system shall be transacted in the name of the public employee defined contribution retirement system. END_STATUTE

START_STATUTE38-831.02. Article to be liberally construed; purpose; qualified plan

A. This article shall be liberally construed in order to provide a general annuity based retirement system for public employees of this state and political subdivisions of this state.

B. The purpose of this article is to provide a defined contribution retirement program that is fully funded on a current basis from employer and employee contributions.

START_STATUTE38-831.03. Administration of the defined contribution system

A. The board shall administer the defined contribution system.

B. The board may sue and be sued, contract and be contracted with and conduct all of the business of the defined contribution system in the name of the public employee defined contribution retirement system. END_STATUTE

START_STATUTE38-831.04. Powers and duties of the board

A. The board has all of the powers necessary to effectuate the purposes of this article.

B. The board shall:

1. Contract with a private pension, insurance, annuity or mutual fund or any other qualified company or companies to administer the daily operations of the defined contribution system. In selecting the company or companies the board shall take into account as its highest duty the proper safeguard and protection of the member and employer contributions, providing public employees with investment products at the lowest available cost and providing public employees with a broad range of investment products that will maximize the interest, dividend or other return on contributions.

2. Adopt rules regarding the proper investment of the contributions. END_STATUTE

START_STATUTE38-831.05. Participation in defined contribution system; limiting participation in existing retirement system

A. Beginning January 1, 2013, the defined contribution system is the single retirement program for all new public employees whose employment begins on or after that date. No additional new public employees except as may be provided in this section may be admitted to the existing retirement system. Members of the existing retirement system whose employment continues beyond January 1, 2013 are not affected by this article and are entitled to continue to contribute and participate in the existing retirement system without a change in provisions or benefits.

B. Notwithstanding articles 3, 4 and 6 of this chapter, any public employee whose employment terminates on or after January 1, 2013 and who later becomes a public employee is eligible for membership only in the defined contribution system, except that if the public employee has not withdrawn contributions from the existing retirement system, the public employee is entitled to readmission to the existing retirement system.

C. A public employee whose employment is suspended as a result of an approved leave of absence is eligible for readmission to the existing retirement system in which the public employee was a member.

D. The board shall resolve any question that exists regarding readmission to membership in the existing retirement system. END_STATUTE

START_STATUTE38-831.06.||Voluntary participation in defined contribution system

1. All benefits earned by a public employee under the existing retirement system before a voluntary election by the member shall be frozen and made available to that member on retirement as provided by the existing retirement system. For the purposes of this paragraph, "frozen" means that the member's compensation, credited service and any other factor used to determine benefits shall be calculated as of the date the member elected membership in the defined contribution system and after that date no increase in compensation, credited service or any other factor may be used to increase the member's retirement benefit above the retirement benefit the member would have received if the member had retired on the date the election was made.

2. Withdrawal of the member's contributions to the existing retirement system plus employer contributions and interest on those contributions as determined pursuant to section 38‑804, 38‑846.02 or 38‑884 as if the member is terminating employment and deposit of that withdrawn amount in the defined contribution system.

C. The board shall allow an election under this section on a retroactive basis to January 1, 2013.

START_STATUTE38-831.07. Member contributions; annuity account; 414(h) pick‑up

A. Each public employee who is a member of the defined contribution system may contribute a percentage ranging from zero per cent to a maximum of fifteen per cent of the member's gross compensation by salary reduction, except that the amount contributed each year shall not be more than the maximum amount allowed under the internal revenue code.

1. Lump sum distributions.

2. Joint and survivor annuities.

3. Other annuity forms in the discretion of the board.

5. The instances in which, if any, distributions or loans can be made to members from their annuity account balances before the member attains fifty-five years of age.

START_STATUTE38-831.08. Employer contributions

B. Each participating employer has a fiduciary duty to its employees to ensure that the employer contributions are made in a timely manner. END_STATUTE

START_STATUTE38-831.09. Termination of membership; suspension account

A. a public employee whose employment with a participating employer terminates after the completion of four complete years of employment service is eligible to terminate the member's annuity account and receive a distribution of all monies contributed and accumulated in the member's annuity account.

B. A member whose employment with a participating employer terminates before the completion of four complete years of employment service is eligible to terminate the member's annuity account and receive a distribution from the member's annuity account in an amount equal to the member's contribution plus any earnings on the contributions.

C. Notwithstanding subsections A and b of this section, on the death or permanent, total disability of any member, that member or the member's beneficiary is eligible to terminate the member's annuity account and receive all monies contributed to or accumulated in the member's annuity account.

D. The remaining balance, if any, in the member's account after the distribution pursuant to this section shall be remitted and paid into a suspension account that is administered by the board. The board shall adopt rules regarding the distribution of any balance in the suspension account. Any monies in the suspension account shall be used solely for the purpose of reducing employer contributions in future years.

E. The board shall maintain any account balances remitted to the suspension account in the name of the terminated employee for five years after initial remittance to the suspension account. At the end of five years for each terminated employee, the board shall certify in writing to each contributing employer the amount of the account balances plus earnings on the account balances attributable to each separate contributing employer's previously terminated employees' accounts that have been irrevocably forfeited due to expiration of five years since termination pursuant to section 38-831.14.

F. On certification to the several contributing employers of the aggregate account balances plus earnings on the account balances that have been irrevocably forfeited pursuant to this section, the several contributing employers may reduce in the next succeeding fiscal year or years their total aggregate contribution requirements pursuant to section 38-831.08 for the current fiscal year by an amount equal to the aggregate amounts irrevocably forfeited and certified as such to each contributing employer.

G. On the use of the amounts irrevocably forfeited to any contributing employer as a reduction in the current fiscal year contribution obligation and on notification provided by the several contributing employers to the board of their intention to use irrevocably forfeited amounts, the board shall direct the distribution of the irrevocably forfeited amounts from the suspension account to be deposited on behalf of the contributing employer to the member annuity accounts of its current employees pursuant to section 38‑831.08. END_STATUTE

START_STATUTE38-831.10. Retirement; commencement of annuity payments

B. Retirement payments shall begin within thirty days after a member's retirement date under the payment option or options provided by the board and elected by the member. END_STATUTE

START_STATUTE38-831.11. Amount of annuity payments

START_STATUTE38-831.12. Supplemental annuity contracts

START_STATUTE38-831.13. Account statements

START_STATUTE38-831.14. Years of employment service

START_STATUTE38-831.15. Right to benefits not subject to execution

A. The right of any person to a benefit provided for in this article is not subject to execution, attachment, garnishment, the operation of bankruptcy or insolvency laws or any other process.

B. Any assignment of the right of any person to a benefit provided for in this article is not enforceable in any court. END_STATUTE

START_STATUTE38-831.16. Reservation to legislature

The right to modify, amend or repeal this article, or any provision of this article, is reserved to the legislature.

Sec. 6. Section 38-841, Arizona Revised Statutes, is amended to read:

START_STATUTE38-841. Purpose; vested benefits

A. Before the establishment of the public safety personnel retirement system, municipal firemen and policemen, employees of the Arizona highway patrol and other public safety personnel in the state of Arizona were covered under various local, municipal and state retirement programs. These heterogeneous programs provided for wide and significant differentials in employee contribution rates, benefit eligibility provisions, types of benefit protection and benefit formulas.

B. In order to provide a uniform, consistent and equitable statewide program for public safety personnel who are regularly assigned hazardous duty in the employ of the state of Arizona or a political subdivision thereof, this retirement system was created effective as of July 1, 1968, as an amendment to and continuation of three prior systems. Groups of employees covered under the three prior systems as of June 30, 1968, and the assets and liabilities accumulated thereunder for such employees, are transferred with prior service credits to this retirement system as of the effective date, and both they and their employers shall be required to make stipulated contributions to support the system's benefit structure on a sound actuarial basis. Future employees in such groups shall commence participation in, and contributions to, the system immediately on commencement of covered employment.

C. The provisions of this system shall not be construed to authorize the granting of any retirement benefits to persons who are retired as of the effective date of this article July 1, 1968, except as described in sections 38‑849 and 38‑853.

D. Additional eligible groups of public safety personnel will participate in the system pursuant to election by their employer for such coverage under an appropriate joinder agreement.

D. An employee of a participating employer of the system who becomes an employee on or after January 1, 2013 is ineligible to become a member of the system and is subject to article 3.1 of this title.

E. The public safety personnel retirement system is a jural entity that may sue and be sued. END_STATUTE

Sec. 7. Section 38-884, Arizona Revised Statutes, is amended to read:

START_STATUTE38-884. Membership of retirement plan; termination; credited service; redemption

A. Each employee of who becomes employed by a participating employer before January 1, 2013 is a member of the plan unless the employee is receiving a pension from the plan. A person employed shall undergo a medical examination performed by a doctor or clinic appointed by the local board or, in the case of a state correctional officer who is employed by the state department of corrections, complete a physical examination pursuant to section 41‑1822, subsection B. For the purposes of subsection B of this section, the doctor or clinic appointed by the local board may be the employer's regular employee or contractor.

B. The purpose of the medical examination authorized by this section is to identify a member's physical or mental condition or injury that existed or occurred before the member's date of membership in the plan. Any employee who fails or refuses to submit to the medical examination prescribed in this section is deemed to waive all rights to disability benefits under this article. Medical examinations conducted under this article shall not be conducted or used for purposes of hiring, advancement, discharge, job training or other terms, conditions and privileges of employment unrelated to receipt or qualification for pension benefits or service credits from the fund. This subsection does not affect or impair the right of an employer to prescribe medical or physical standards for employees or prospective employees.

C. If a member who becomes a member of the plan before January 1, 2012 ceases to be an employee for any reason other than death or retirement, within twenty days after filing a completed application with the board, the member is entitled to receive the following amounts, less any benefit payments the member has received and any amount the member may owe to the plan:

1. If the member has less than five years of credited service with the plan, the member may withdraw the member's accumulated contributions from the plan.

2. If the member has five or more years of credited service with the plan, the member may withdraw the member's accumulated contributions plus an amount equal to the amount determined as follows:

(a) 5.0 to 5.9 years of credited service, twenty‑five per cent of all member contributions deducted from the member's salary pursuant to section 38‑891, subsection B.

(b) 6.0 to 6.9 years of credited service, forty per cent of all member contributions deducted from the member's salary pursuant to section 38‑891, subsection B.

(c) 7.0 to 7.9 years of credited service, fifty‑five per cent of all member contributions deducted from the member's salary pursuant to section 38‑891, subsection B.

(d) 8.0 to 8.9 years of credited service, seventy per cent of all member contributions deducted from the member's salary pursuant to section 38‑891, subsection B.

(e) 9.0 to 9.9 years of credited service, eighty‑five per cent of all member contributions deducted from the member's salary pursuant to section 38‑891, subsection B.

(f) 10.0 or more years of credited service, one hundred per cent of all member contributions deducted from the member's salary pursuant to section 38‑891, subsection B.

D. If a member who becomes a member of the plan before January 1, 2012 has more than ten years of credited service with the plan, leaves the monies prescribed in subsection C of this section on account with the plan for more than thirty days after termination of employment and after that time period requests a refund of those monies, the member is entitled to receive the amount prescribed in subsection C of this section plus interest at a rate determined by the board for each year computed from and after the member's termination of employment.

E. The accumulated member contributions of a member who ceases to be an employee for a reason other than death or retirement and who becomes a member of the plan on or after January 1, 2012 shall be paid to the member plus interest at a rate determined by the board as of the date of termination within twenty days after filing with the plan a written application for payment.

F. If the refund includes monies that are an eligible rollover distribution and the member elects to have the distribution paid directly to an eligible retirement plan or individual retirement account or annuity and specifies the eligible retirement plan or individual retirement account or annuity to which the distribution is to be paid, the distribution shall be made in the form of a direct trustee‑to‑trustee transfer to the specified eligible retirement plan. The distribution shall be made in the form and at the time prescribed by the board.

G. Service shall be credited to a member's individual credited service account in accordance with rules the local board prescribes. In no case shall more than twelve months of credited service be credited on account of all service rendered by a member in any one year. In no case shall service be credited for any period during which the member is not employed in a designated position, except as provided by sections 38‑921 and 38‑922.

H. Credited service is forfeited if the amounts prescribed in subsection C, D or E of this section are paid or are transferred in accordance with this section.

I. If a former member becomes reemployed with the same employer within two years after the former member's termination date, a member may have forfeited credited service attributable to service rendered during a prior period of service as an employee restored on satisfaction of each of the following conditions:

1. The member files with the plan a written application for reinstatement of forfeited credited service within ninety days after again becoming an employee.

2. The retirement fund is paid the total amount previously withdrawn pursuant to subsection C, D or E of this section plus compound interest from the date of withdrawal to the dates of repayment. Interest shall be computed at the rate of nine per cent for each year compounded each year from the date of withdrawal to the date of repayment. Forfeited credited service shall not be restored until complete payment is received by the fund.

3. The required payment is completed within one year after returning to employee status.

J. A present active member of the plan who received a refund of accumulated contributions from the plan pursuant to subsection C, D or E of this section and forfeited credited service pursuant to subsection H of this section may elect to redeem any part of that forfeited credited service by paying into the plan any amounts required pursuant to this subsection. A present active member who elects to redeem any part of forfeited credited service for which the member is deemed eligible by the board shall pay into the plan the amounts previously paid or transferred as a refund of the member's accumulated contributions plus an amount, computed by the plan's actuary that is necessary to equal the increase in the actuarial present value of projected benefits resulting from the redemption calculated using the actuarial methods and assumptions prescribed by the plan's actuary.

K. A retired member may become employed by an employer in a designated position and continue to receive a pension if the employment occurs at least twelve months after retirement. The retired member shall not contribute to the fund and shall not accrue credited service. If a retired member becomes employed by an employer in a designated position before twelve months after retirement:

1. Payment of the retired member's pension shall be suspended until the retired member again ceases to be an employee. The amount of pension shall not be changed on account of service as an employee subsequent to retirement.

2. The retired member shall not contribute to the fund and shall not accrue credited service. END_STATUTE

Sec. 8. Repeal

Title 38, chapter 5, article 8, Arizona Revised Statutes, is repealed.

Sec. 9. Modification of contract

The board of trustees of the public safety personnel retirement system and each appropriate political subdivision of this state shall modify the existing joinder agreements entered into pursuant to sections 38‑815, 38‑851 and 38‑902, Arizona Revised Statutes, to reflect this act.

Sec. 10. Conforming legislation

The legislative council staff shall prepare proposed legislation conforming the Arizona Revised Statutes to the provisions of this act for consideration in the fifty‑first legislature, first regular session.