REFERENCE TITLE: retirement savings; employees
State of Arizona
Second Regular Session
Senator Quezada; Representatives Cardenas, Velasquez: Fernandez
amending title 23, Arizona Revised Statutes, by adding chapter 10; relating to the Arizona secure choice retirement savings trust act.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Title 23, Arizona Revised Statutes, is amended by adding chapter 10, to read:
ARIZONA SECURE CHOICE RETIREMENT SAVINGS TRUST ACT
ARTICLE 1. GENERAL PROVISIONS
In this chapter, unless the context otherwise requires:
1. "Arizona secure choice retirement savings program" or "program" means a retirement savings program that the Arizona secure choice retirement savings trust offers.
2. "Board" means the Arizona secure choice retirement savings board.
3. "Department" means the labor department of the industrial commission of Arizona.
4. "Eligible employee":
(a) Means an individual who is employed by an eligible employer.
(b) Does not include:
(i) Any employee who is covered under the Railway Labor Act (45 United States code section 151) or any employee who is engaged in interstate commerce and who is not subject to the legislative powers of this state except as authorized under the united states constitution or federal law.
(ii) Any employee who is eligible to participate in a qualifying retirement plan or arrangement that is described in 26 united states code section 219(g)(5) or an automatic payroll deduction ira that the employee's employer maintains or offers.
(iii) any employee who was eligible to participate in a plan, arrangement or automatic payroll deduction ira under item (ii) of this subdivision at any time during the preceding two calendar years but the plan or arrangement was terminated or frozen at any time during the preceding two calendar years or the employer ceased to offer the automatic enrollment payroll deduction ira at any time during the preceding two calendar years.
(iv) any employee who is covered by a collective bargaining agreement that expressly provides for the employer to contribute to a multiemployer retirement plan described in 26 united states code section 414(f).
(v) any employee who is under eighteen years of age before the beginning of the calendar year.
5. "Eligible employer" means a person or entity that is engaged in a business, industry, profession, trade or other enterprise in this state, whether for‑profit or nonprofit, excluding the federal government, this state, any county, any municipal corporation or any of this state's units or instrumentalities, and that has five or more employees, but does not include any employer that has not been in business at all times during the calendar year and the preceding calendar year.
6. "IRA" means an individual retirement account or individual retirement annuity under 26 United States Code Section 408(a) or (b).
7. "Participating employer" means an eligible employer or any other employer that provides a payroll deposit retirement savings arrangement for eligible employees pursuant to this chapter.
8. "Payroll deposit retirement savings arrangement" means an arrangement by which an employer allows employees to remit payroll deduction contributions to a retirement savings program.
9. "Trust" means the Arizona secure choice retirement savings trust that is established by this chapter.
23‑1602. Arizona secure choice retirement savings trust; funds; investment
A. The Arizona secure choice retirement savings trust is established. The board shall administer the trust for the purpose of promoting greater retirement savings for private employees in this state in a convenient, voluntary, low‑cost and portable manner.
B. The board shall segregate monies that the trust receives into two funds that shall be identified as the program fund and the administrative fund. Monies in the trust are continuously appropriated to the board for the purposes of this chapter.
C. Monies in the trust may be invested or reinvested by the state treasurer pursuant to section 35‑313 or may be invested in whole or in part under a contract with the arizona state retirement system or by private money managers, or both, as the board determines.
D. All costs of the administration of the trust shall be paid out of the administrative fund. The board may transfer monies from the program fund to the administrative fund for the purpose of paying operating costs that are associated with the administration of the trust and as required by this chapter.
23-1603. Arizona secure choice retirement savings board; members; compensation; fiduciary duty; investment policy
A. The Arizona secure choice retirement savings board is established and consists of the following seven members:
1. The state treasurer or the treasurer's designee.
2. The director of the department of financial institutions or the director's designee.
3. An individual with retirement savings and investment expertise who is appointed by the speaker of the house of representatives.
4. A small business representative who is appointed by the governor.
5. two public members who are appointed by the governor.
6. An employee representative who is appointed by the president of the senate.
B. The state treasurer shall serve as the chairperson of the board.
C. Members of the board are not eligible to receive compensation but are eligible to receive reimbursement of expenses pursuant to Title 38, chapter 4, article 2.
d. board members, the program administrator and other staff shall discharge their duties with respect to the trust solely in the interest of the program participants as follows:
1. For the exclusive purposes of providing benefits to the program participants and defraying reasonable expenses of administering the program.
2. by investing with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person that acts in a like capacity and that is familiar with those matters would use in the conduct of an enterprise of a like character and with like aims.
3. any contributions that employees and employers pay into the trust shall be used exclusively for the purpose of paying benefits to the participants of the program, for the cost of administration of the program and for making investments for the benefit of the program.
e. The board shall annually prepare and adopt a written statement of investment policy that includes a risk management and oversight program. The requirements are as follows:
1. The investment policy must mitigate risk by maintaining a balanced investment portfolio that provides assurance that a single investment or class of investments will not have a disproportionate impact on the total portfolio.
2. The risk management and oversight program must be designed to ensure that an effective risk management system is in place to monitor the risk levels of the program's investment portfolio and that the risks taken are prudent and properly managed.
23‑1604. Arizona secure choice retirement savings program; allocations; benefit; implementation
A. The Arizona secure choice retirement savings program is established and includes, as the board determines, one or more payroll deposit retirement savings arrangements.
B. Interest, earnings and losses must be allocated to program accounts as the board prescribes.
c. An individual's retirement savings benefit under the program must be an amount that is equal to the balance in the individual's program account on the date that the retirement savings benefit becomes payable.
d. The board may not implement the program if the IRA arrangements that are offered fail to qualify for the favorable federal income tax treatment that is ordinarily accorded to IRAs under the internal revenue code or if it is determined that the program is an employee benefit plan under the employee retirement income security act of 1974 (29 United States Code chapter 18).
23-1605. State of Arizona; immunity from liability
This state is not liable for the payment of the retirement savings benefit that the program participants earn pursuant to this chapter. Any financial liability for the payment of benefits in excess of monies that are available under the program is borne by the entities with whom the board contracts to provide an insurance, annuity or other funding mechanism to protect the value of individuals' accounts pursuant to section 23‑1608. This state, and any of the funds of this state, have no obligation for payment of the benefits that arise from this chapter.
23-1606. Board; powers; rules
a. The board, in the capacity of trustee, may do all of the following:
1. Establish one or more payroll deposit ira arrangements.
2. Make and enter into contracts that are necessary for the administration of the trust.
3. Adopt a seal and change and amend it from time to time.
4. Cause monies in the trust to be held, invested and reinvested.
5. Accept any grants, gifts, legislative appropriations and other monies from this state, any unit of federal, state or local government or any other person, firm, partnership or corporation for deposit in the trust.
6. employ staff, Appoint a program administrator, determine the duties of the program administrator and other staff as necessary and set their compensation.
7. Make provisions for the payment of costs of administration and operation of the trust.
8. evaluate and establish the process by which an eligible employee of an eligible employer is able to contribute a portion of the employee's salary to the program for automatic deposit of those contributions and the participating employer provides a payroll deposit retirement savings arrangement to forward the employee contribution and related information to the program or its agents.
9. evaluate and consider existing processes and arrangements for the deposit and administration of tax that is required to be deducted and withheld that relate to the collection of income tax at source on wages or for the deposit of tax that is required to be paid under the unemployment insurance system.
10. Retain and contract with the ASRS board that is established by section 38‑713, private financial institutions, other financial and service providers, consultants, actuaries, counsel, auditors, third-party administrators and other professionals as necessary.
11. design and establish the process for the enrollment of program participants.
12. allow participating employers to use the program to remit employees' contributions to their individual retirement accounts on their employees' behalf.
13. Procure insurance against any loss in connection with the property, assets or activities of the trust and secure private underwriting and reinsurance to manage risk and insure the retirement savings rate of return.
14. Procure insurance that indemnifies each member of the board from personal loss or liability that results from a member's action or inaction as a member of the board.
15. Set minimum and maximum investment levels in accordance with contribution limits that are set for IRAs by the internal revenue code.
16. Arrange for collective, common and pooled investment of assets of the retirement savings program or arrangements, including investments in conjunction with other funds with which those assets are permitted to be collectively invested, to achieve cost savings through efficiencies and economies of scale.
17. allocate administrative fees to each individual retirement account on a pro rata basis.
18. Explore and establish investment options that offer employees returns on contributions and the conversion of individual retirement savings account balances to secure retirement income without incurring debt or liabilities to this state.
19. If necessary, determine the eligibility of an employer, employee or other individual to participate in the program.
20. Evaluate and establish the process by which an individual or an employee of a nonparticipating employer may enroll in and make contributions to the program.
21. explore and establish separate investment options as prescribed by the board that comply with the internal revenue code and employee retirement income security act of 1974 provisions that enable voluntary employer contributions on behalf of employees into accounts to be managed alongside the program's ira accounts under section 401(a) of the internal revenue code.
22. Carry out the duties and obligations of the trust pursuant to this chapter and exercise all other powers that are reasonably necessary to meet the purposes, objectives and provisions of this chapter that pertain to the trust.
B. The board shall adopt rules that it deems necessary to implement this Chapter and that are consistent with the internal revenue code and regulations that are issued pursuant to that code and to ensure that the program meets all criteria for federal tax-deferral or tax-exempt benefits, or both.
23-1607. Annual audited financial report
The board shall publish an annual audited financial report, prepared in accordance with generally accepted accounting principles, on the operations of the trust. The annual audit shall be made by an independent certified public accountant and shall include direct and indirect costs that are attributable to the use of outside consultants, independent contractors and any other individuals who are not state employees.
23-1608. Funding mechanism; indemnification
The board shall ensure that an insurance, annuity or other funding mechanism is in place at all times that protects the value of individuals' accounts. The funding mechanism must protect, indemnify and hold this state harmless at all times against any and all liability that is in connection with funding retirement benefits pursuant to this chapter. The costs of the funding mechanism must be paid out of the funds that are held in the trust and may not be attributed to the administrative costs of the board in operating the trust.
23-1609. Employee information packet; disclosure form; opt-out form
A. Before opening the Arizona secure choice retirement savings program for enrollment, the board shall design and disseminate an employee information packet to employers through the department. The packet must include background information on the program and appropriate disclosures for employees.
B. The disclosure form must include all of the following:
1. The benefits and risks that are associated with making contributions to the program.
2. How to make contributions to the program.
3. How to opt out of the program, including an opt‑out form.
4. The process for withdrawal of retirement savings.
5. How to obtain additional information on the program.
C. In addition, the disclosure form must clearly articulate that:
1. Employees seeking financial advice should contact financial advisers, that employers are not in a position to provide financial advice and that employers are not liable for decisions employees make pursuant to section 23‑1606, subsection A, paragraph 21.
2. The program is not an employer-sponsored retirement plan.
3. The program fund is privately insured and is not guaranteed by this State.
23-1610. Arizona secure choice retirement savings program; enrollment; contribution
A. After the board opens the Arizona secure choice retirement savings program for enrollment, any employer may choose to have a payroll deposit retirement savings arrangement to allow employee participation in the program.
B. Beginning three months after the board opens the program for enrollment, eligible employers that have more than one hundred eligible employees and that do not offer an employer-sponsored retirement plan or automatic enrollment payroll deduction IRA shall have a payroll deposit retirement savings arrangement to allow eligible employee participation in the program.
C. Beginning six months after the board opens the program for enrollment, eligible employers that have more than fifty eligible employees and that do not offer an employer-sponsored retirement plan or automatic enrollment payroll deduction IRA shall have a payroll deposit retirement savings arrangement to allow eligible employee participation in the program.
D. Beginning nine months after the board opens the program for enrollment, all other eligible employers that do not offer an employer‑sponsored retirement plan or automatic enrollment payroll deduction IRA shall have a payroll deposit retirement savings arrangement to allow eligible employee participation in the program.
E. Each eligible employee shall be enrolled in the program unless the employee elects not to participate in the program. An eligible employee may elect to opt out of the program by making a notation on the opt-out form prescribed by section 23‑1609.
F. Following initial implementation of the program pursuant to this section, at least once every year, participating employers shall designate an open enrollment period during which eligible employees that previously opted out of the program shall be enrolled in the program unless the employee again elects to opt out pursuant to subsection E of this section.
G. An employee who elects to opt out of the program and who subsequently chooses to participate through the employer's payroll deposit retirement savings arrangement may enroll only during the employer's designated open enrollment period or, if the employer permits, at an earlier time.
H. Employers shall retain the option at all times to set up any type of employer-sponsored retirement plan, including a defined benefit plan or 401(k), simplified employee pension plan or savings incentive match plan for employees, or offer an automatic enrollment payroll deduction ira instead of having a payroll deposit retirement savings arrangement to allow employee participation in the Arizona secure choice retirement savings program.
I. An eligible employee may terminate the employee's participation in the program at any time in a manner that is prescribed by the board and thereafter by making a notation on the opt-out form prescribed by section 23‑1609.
J. Unless otherwise specified by the employee, a participating employee shall contribute three percent of the employee's annual salary or wages to the program.
K. By rule, the board may adjust the contribution amount set in subsection J of this section to not less than two percent and not more than four percent and may vary that amount within that range for participating employees according to the length of time the employee has contributed to the program.
23-1611. Employers; immunity
A. Employers are not liable for an employee's decision to participate in, or opt out of, the Arizona secure choice retirement savings program or for the investment decisions of employees who have assets that are deposited in the program.
B. An employer is not a fiduciary or considered to be a fiduciary over the trust or the program. An employer is not responsible for the administration, investment or investment performance of the program. An employer is not liable with regard to investment returns, program design and benefits that are paid to the program participants.
C. An employer's voluntary contribution under section 23‑1606, subsection A, paragraph 21 does not in any way contradict this section or change the employer's relationship to the program or an employer's obligations to employees.
23-1612. Employers; payments
The employer shall pay employee contributions that the employer deducts through payroll deduction to the trust using a process that is established by the board as follows:
1. on or before the last day of the month following the month in which the compensation otherwise would have been payable to the employee in cash.
2. before a deadline set by the board that is later than the date that is provided in paragraph 1 of this section but not later than the due date for the deposit of tax that is required to be deducted and withheld for the collection of income tax at source on wages or for the deposit of tax that is required to be paid under the unemployment insurance system for that payroll period.
23-1613. Enforcement; civil penalties
A. The department may enforce employer compliance with this act.
b. After due process, the department may impose penalties against eligible employers for failure to comply with section 23‑1610, subsections b, c and d as determined by the board. proceeds of penalties after deducting the department's enforcement expenses shall be deposited for the benefit of the trust.
c. After due process, the department may impose penalties against employers that are equal to lost earnings and interest on contributions made later than the deadlines prescribed in section 23‑1612. The department shall abide by the following:
1. the department shall prescribe a methodology for calculating lost earnings and interest.
2. proceeds of the penalties must be deposited for the benefit of the trust and credited to the iras of the affected employees on a pro rata basis.
23-1614. Program termination
The program that is established by this chapter ends on July 1, 2026 pursuant to section 41‑3102.