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BILL # HB 2112 |
TITLE: ASRS; eliminate 80% benefit cap |
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SPONSOR: Boone |
STATUS: As Introduced |
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PREPARED BY: Marge Zylla/Eric Jorgensen |
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HB 2112 eliminates the cap on retirement benefits paid to retiring members of the Arizona State Retirement System (ASRS).
The elimination of the benefit cap would apply to both current and future members.
Estimated Impact
This bill has no fiscal impact for FY 2010, as ASRS contribution rates are based on the status of the plan as of June 30th of the previous year.
Savings from this measure would begin to accrue in FY 2013, when this change would reduce the contribution rate by 1 basis point (or 0.01%) at a savings of $(108,100) to the General Fund and $(49,500) to other appropriated funds.
The long term impact of this change would be greater, decreasing the contribution rate 7 basis points (or 0.07%) at its savings peak in FY 2039. Based on current salaries and conditions, a 7 basis point decrease would generate General Fund savings of $(756,400) and other appropriated fund savings of $(346,500).
Other participating employers and employees in ASRS, including school districts and local governments, would see similar savings.
Contribution rates have 2 components. The first component is the normal cost, which is the permanent cost associated with providing the benefit. The second component is the unfunded liability. Unfunded liability is created by adding benefits or changing assumptions and represents the cost of providing benefits to recipients who did not pay the full cost of the benefits as part of the normal cost. Unfunded liability is paid off over a specific amortization time period. The amortization period for ASRS is 30 years.
For FY 2009, the contribution rate that both the employer and employee pay to ASRS is 8.95%. The changes included in this bill would reduce the contribution rate by changing assumptions about the benefit payments.
The bill would eliminate the current cap to a member’s monthly benefit. Currently the monthly benefit is limited to 80% of the member’s average monthly compensation. Since members currently do not experience an added pension benefit for continuing their employment after reaching the cap, members are more likely to retire. Eliminating the cap provides an incentive to continue working in the system. This means members contribute for a longer period and receive benefits for a shorter period, which reduces the normal cost. Employees who have reached the cap and retired are also more likely to utilize the return to work program, which has a negative impact on the system.
Local Government Impact
Many local governments also participate in ASRS. This retirement change would affect local governments in the same way that it affects the state. The magnitude of the increase would depend on each government’s participating salary base.
4/1/09