Assigned to FIN FOR
COMMITTEE
Assigned to FIN FOR
COMMITTEE
ARIZONA STATE SENATE
Fifty-Third Legislature, Second Regular Session
Purpose
Provides modifications to the Correction Officers' Retirement Plan (CORP) and the Public Safety Personnel Retirement Plan (PSPRS).
Background
PSPRS is a governmental retirement plan for Arizona full-time certified peace officers and full-time firefighters qualified under 401(a) of the Internal Revenue Code (IRC). It is a defined benefit plan (DB), which means the pension is determined by a formula, rather than by the amount of money in the member’s account. In addition, PSPRS is known as an agent multiple-employer retirement plan. Separate accounts are kept for each employer in the system. Monies in the entire system are pooled for investment purposes, but benefits and refunds are paid for by each employer only from the employer's separate account in the PSPRS.
Laws 2016, Chapter 2 required the PSPRS Board (Board) to establish, design and administer a defined contribution (DC) plan. A DC plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Participants are eligible to participate in the DC plan beginning 90 days after the date the participant is hired.
Laws 2017, Chapter 163 required closure of CORP for corrections officers hired on or after July 1, 2018. The bill puts future corrections officers into the 401(a) DC plan managed by PSPRS, but provides probation and surveillance officers the option to choose between the DB plan or the DC plan. This legislation also works in tandem with a referendum on the 2018 ballot to replace CORP’s permanent benefit increase (PBI) with a cost-of-living-adjustment (COLA), similar to that which Proposition 124 required for the PSPRS plan.
Because of the complexity of prior legislation and court cases, PSPRS members are referred to as either Tier 1, Tier 2 or Tier 3 members. These members are described in the following table:
|
Tier |
Date of Employee Hire |
|
1 |
Before January 1, 2012 |
|
2 |
January 1, 2012 – June 30, 2017 |
|
3 |
July 1, 2017 and thereafter |
There is no anticipated impact to the state General Fund associated with passage of this legislation.
Provisions
Social Security Benefits (Retroactive to January 1, 2018)
1. Clarifies that whenever a Tier 3 employee who elects the DB plan, and who is not covered by Social Security, subsequently becomes covered by Social Security, therefore ceasing to make contributions to the DC plan, the employer shall also stop making contributions to the DC plan on the employer's behalf.
2. Requires that if the participant later becomes uncovered by Social Security, the participant and the participant's employer must resume contributions on behalf of the employee.
3. Clarifies that Tier 2 participants are included in these provisions.
Vesting
4. Provides full vesting for a member of the PSPRS or CORP DC plan, who is determined to be eligible for an accidental or catastrophic disability pension before completing 10 years of service.
Disability
5. Requires that a CORP employee, in the employee's first 90 days of employment, who is killed in the line of duty or who dies from injuries suffered in the line of duty, be considered as having been enrolled in CORP and the surviving spouse of the deceased employee is eligible for survivor benefits.
Rollover Contributions
6. Expands the eligible use for the DC plan by giving current or retired members of a PSPRS or CORP employer authority to rollover contributions from a qualified plan or an individual retirement account into a separate account within the DC plan.
7. Requires that these rollover contributions shall be deposited in a separate rollover account for the participant and made immediately available for the participant to either:
a) withdraw all or any portion of the lump sum deposit; or
b) directly transfer all or any portion of the deposit to an eligible retirement plan.
8. Expands the definition of participant, for purposes of the rollover, by adding:
a) a member who has elected to enter the reverse deferred option retirement plan (reverse DROP);
b) an individual who has made a rollover contribution and who is either a current employee of PSPRS employer or who is currently receiving or entitled to receive a PSPRS or CORP pension; and
c) a former employee who was an active participant in the DC plan who has an annuity account balance or a separate rollover account balance.
Reverse DROP (Conditional upon the vote of the people of
Laws 2017, Chapter 163 at next general election)
9. Requires that lump sum payments made from a reverse DROP be directly deposited in an account created for the member in the PSPRS DC plan.
10. Allows the member to immediately either withdraw all or any portion of the lump sum reverse DROP amount, or directly transfer all or any portion to an eligible retirement plan.
11. Conditions the enactment of this legislation on the affirmative vote of the people of Laws 2017, Chapter 163 at the next general election.
Miscellaneous
12. Clarifies that the local board of the judiciary may specify a designated position as a nondesignated position, if the position is filled by an employee who has at least five years of credited service under the Arizona State Retirement System and who makes a written request to the local board to specify the position as a nondesignated position within 90 days after accepting the position.
13. Includes as a participant of the DC plan, a CORP member who is not in a designated position. Current statute defines designated position for the judiciary as probation and surveillance officers.
14. Extends, from January 1, 2018, until January 1, 2019, the date by which Indian tribes may opt out of participating in the public safety employer risk pool.
15. Clarifies that a PSPRS member who is subsequently reemployed is not required to redeposit funds that have been previously withdrawn to be subject to the benefits and duties in effect at certain times in specified situations.
16. Gives deputies, along with existing language for assistance administrators, operations, investment and legal authority in certain instances.
17. Clarifies the inclusion of Tier 2 members and CORP employees for participation in the DC plan.
18. Provides definitions.
19. Contains technical and conforming changes.
20. Becomes effective on the general effective date or later, subject to the provisions of the conditional enactment.
Prepared by Senate Research
January 29, 2018
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