 |
ARIZONA STATE SENATE
Fifty-Fifth Legislature, Second Regular Session
AMENDED
retirement savings program; state treasurer
Purpose
Establishes the Arizona Work and Save Program (Program), administered by the State Treasurer, for eligible individuals and covered employers to begin contributing to an IRA under the Program by July 1, 2024. Outlines Program requirements and requires the State Board of Investment (BOI) to serve as trustee. Appropriates $400,000 in FY 2023 to the State Treasurer to implement the Program.
Background
The State Treasurer is responsible for the safekeeping of
all securities for which the State Treasurer is the lawful custodian. The State
Treasurer invests state monies and operates the Local Government Investment
Pool for the benefit of participating units of local government
(A.R.S.
§ 35-314). The BOI reviews investments of Arizona State Treasury monies,
serves as trustees of permanent funds and provides management of the assets of
the funds consistent with outlined conditions (Ariz.
Const. art. 10 § 7).
S.B. 1375 appropriates $400,000 from the state General Fund in FY 2023 to the State Treasurer.
Provisions
Arizona Work and Save Program Administration
1. Establishes the Program, administered by the State Treasurer, for eligible individuals and covered employers to begin contributing by July 1, 2024.
2. Appropriates $400,000 from the state General Fund in FY 2023 to the State Treasurer for Program implementation and exempts the appropriation from lapsing.
3. Establishes the Work and Save Fund (Fund), administered by the State Treasurer, consisting of the assets of the Program and specifies that Fund monies are continuously appropriated.
4. Defines covered employer as a person or entity engaged in a business, industry, profession, trade or other enterprise in Arizona, whether for profit or not for profit, excluding the federal government, the state, any county, any municipal corporation or and of the state's units or instrumentalities.
5. Requires the BOI to accept any grants, gifts, appropriations or other monies from the state, any unit of federal, state or local government or any other person, firm, partnership, corporation or other entity solely for deposit in the Fund, whether for investment or administrative purposes.
6. Requires the BOI to serve as Trustee of the Program and the Fund.
7. Requires the Program to allow eligible individuals in Arizona to voluntarily choose whether to contribute to an IRA under the Program, including allowing covered employees in Arizona the choice to contribute to an IRA though payroll deduction under the Program.
8. Requires the Program to allow each covered employer to offer its employees the voluntary choice whether to contribute to a payroll deduction IRA by allowing automatic enrollment where employees may opt out of participation.
9. Requires the Program to allow for individuals who are not employees to participate in the Program, including individuals who are self-employed or independent contractors.
10. Requires the Program to determine whether annual increases of participant's contribution rates should be included in the Program and allow a participant to choose not to participate in the increases.
11. Allows the State Treasurer, in its discretion, to phase in the Program so that the ability to contribute first applies on different dates for different classes of individuals, including employees of employers of different sizes or types and individuals who are not employees, including self-employed and independent contractors.
12. Requires a staged or phased-in implementation schedule to be substantially completed by January 1, 2025.
13. Requires the State Treasurer to ensure that all contributions to IRAs under the Program are used only to:
a) pay benefits to Program participants;
b) pay the cost of administering the Program; and
c) make investments to benefit the Program and Program assets are not transferred to the state General Fund or otherwise encumbered for any other purpose.
14. Requires the Program to address the failure of a covered employer to transmit a payroll deduction contribution on the earliest date the amount withheld from the covered employee's compensation can reasonably be segregated from the covered employer's assets, but not later than the 15th day of the month following the month in which the amounts are withheld.
15. Requires the Program to:
a) provide for direct deposit on contributions into Program investments;
b) be professionally managed;
c) not allow any employer contribution by covered employers;
d) provide a report at least annually to each participant on the status of the participant's account;
e) provide that each account holder owns the contributions to or earnings on amounts contributed and that the state and employers have no proprietary interest in those contributions as earnings;
f) keep total fees and expenses as low as practicable; and
g) establish rules and procedures promoting portability of benefits and governing the distribution of monies from the Program.
16. Requires the Program to provide that the:
a) account owner is solely responsible for investment performance and that IRA accounts and rates of return are not guaranteed;
b) IRA to which contributions are made must be a Roth IRA, except the BOI may add an option for all participants to affirmatively elect to contribute to a traditional IRA as an alternative; and
c) BOI must design a standard or default package that provides for a particular contribution rate and investment to be presented to covered employees as the most prominent combination of options, if covered employees are free to elect any other options, and a different investment that in all cases is subject to IRA conditions.
17. Requires the State Treasurer to:
a) enter into participant agreements by July 1, 2024;
b) develop and implement the Program as outlined by adopting rules, guidelines and procedures that establish the processes for enrollment and contributions to payroll deduction IRAs under the Program;
c) arrange for collective, common and pooled investment of assets of the Program and Fund to achieve economies of scale and other efficiencies designed to minimize costs for the Program and the participants;
d) develop and disseminate educational information designed to educate participants and citizens about the benefits of planning and saving for retirement and information to help the participants and citizens decide the level of participating and savings strategies that may be appropriate for the participants and citizens;
e) conduct outreach to individuals, employers, other stakeholders and the public regarding the Program and to specify the contents, frequency, timing and means of required disclosures from the Program to eligible participants;
f) if necessary, determine the eligibility of an employer, employee or other individual to participate in the Program;
g) establish the processes for withdrawals, rollovers and direct transfers from IRAs under the Program to facilitate portability and maximize benefits;
h) arrange for and facilitate compliance with all applicable U.S. Internal Revenue Code (U.S. IRC) requirements and federal and state laws and accounting requirements and arrange for assistance to covered employers and employees for compliance;
i) retain professional services, including accountants, auditors, consultants and other experts;
j) seek rulings and other guidance from the U.S. Department of the Treasury and the U.S. IRC;
k) interpret, in rules, policies, guidelines and procedures, Program regulations to consider the Program purpose and objectives;
l) charge, impose and collect administrative fees and service charges in connection with any agreement, contract or transaction relating to the Program;
m) develop and implement an investment policy that defines the Program investment objectives and that provides for policies and procedures consistent with the investment objectives; and
n) develop audit requirements.
18. Requires Program financial audits to be prepared in accordance with generally accepted accounting principles that detail the activities, operations, receipts and expenditures of the Program.
19. Requires the State Treasurer to make audit reports and Program performance reports publicly available on its website.
20. Requires the State Treasurer to cause the Program, Fund and arrangements and account established under the Program to be designed, established and operated:
a) in accordance with best practices for retirement saving vehicles;
b) to encourage participation, saving, sound investment practices and appropriate selection of investment options, including any default investments;
c) to maximize simplicity and ease of administration for covered employers;
d) to minimize costs, including by collective investment and other measures to achieve economies of scale and other efficiencies in Program design and administration;
e) to promote portability of benefits; and
f) to avoid preemption of the Program by federal law.
21. Allows the State Treasurer, on approval by the BOI, to use existing investment funds to negotiate and select the financial institution or institutions to act as the depository and manager of the Program.
22. Allows the State Treasurer to enter into agreements to collaborate or combine resources, investments or administrative functions with other governmental entities.
23. Allows an arrangement to include collective or pooled investments with other monies of other states' programs with which Program assets and trust are allowed to be collectively invested and are consistent with Program regulations.
24. Requires the BOI to designate appropriate default investments that must include a mix of asset classes and to seek to minimize participant fees and expenses of investment and administration.
25. Requires the BOI to strive to design and implement investment options that are available to holders or accounts that are intended to achieve maximum possible income replacement and that are balanced with an appropriate level of risk in an IRA-based environment that is consistent with the policy investment objective.
26. Allows the investment options to encompass a range of risk and return opportunities and allow for a rate of return commensurate with an appropriate level of risk with consideration to the investment objectives.
27. Requires the menu of investment options to be determined by taking into account the nature and objectives of the Program, the desirability of limiting investment choices to a reasonable number and the extensive investment choices available to participants if they roll over to an IRA outside the Program.
28. Allows the BOI to provide for one or more reasonable priced distribution options to provide a source of fixed regular retirement income.
29. Allows the BOI to establish any processes deemed reasonably necessary to verify whether an employer is a covered employer, including reference to online data and possible use of questions in employer state tax filings.
Fund Administration
30. Designates the Fund as a public instrumentality of the state that is established for an essential public purpose and requires the State Treasurer to designate trust interest in the Fund for each account owner.
31. Requires the Fund to be separated into a Trust Account and an Operating Account and requires the Trust Account to include amounts received by the Program from participants pursuant to agreements and interest and investment income earned by the Fund.
32. Requires the State Treasurer to make transfers from the Trust Account to the Operating Account as necessary to immediately pay obligations under agreements and for the operating expenses and administrative costs of the Program.
33. Requires the State Treasurer to deposit and invest monies or other amounts in the Fund with approved financial institutions.
Miscellaneous
34. Deems, as confidential, individual account information relating to Program accounts and relating to individual participants, including names, addresses, telephone numbers, email addresses, personal identification information, investments, contributions and earnings.
35. Requires participant and account information to be maintained as confidential:
a) except to the extent necessary to administer the Program in a manner consistent with statute and federal law; and
b) unless the individual who provides the information or is the subject of the information expressly agrees in writing to the information disclosure.
36. Allows the BOI to enter into an intergovernmental agreement or memorandum of understanding (MOU) with the state and any state agency to receive outreach, technical assistance, enforcement and compliance services and collection or dissemination of information pertinent to the Program, subject to the obligations of confidentiality.
37. Requires the state or a state agency that enters into an agreement or MOU to collaborate to provide the outreach, assistance, information and compliance of other services or assistance to the BOI.
38. Allows an MOU to cover the sharing of costs incurred in gathering and disseminating information and the reimbursement of costs for any enforcement activities or assistance.
39. Precludes, from liability and responsibility for Program payments, the state, the BOI, each member of the BOI or other state official, other state boards, commissions or agencies, or any member, officer or employee and the Program.
40. Precludes a covered employer or other employer from liability and responsibility for:
a) an employee's decision whether to participate in the Program or their specific elections;
b) a participant's of the BOI's investment decision;
c) the administration, investment, investment returns or investment performance of the Program;
d) the Program design or the benefits paid to participants;
e) an individual's awareness of or compliance with conditions and provisions of tax laws that determine which individuals are eligible to make tax-favored contributions to IRAs; and
f) any loss, failure to realize any gain or any other adverse consequences.
41. Specifies that a covered employer or other employer is not a fiduciary in relation to the Program of Fund or any other Program arrangement.
42. Specifies that the debts, contracts and obligations of the Program or the BOI are not the debts, contracts and obligations of the state.
43. Requires the Program to be designed and implemented in a manner consistent with federal law.
44. Defines terms.
45. Contains a severability clause.
46. Makes technical changes.
47. Becomes effective on the general effective date.
Amendments Adopted by Committee
1. Removes the requirement for the BOI to employ or retain personnel for assistance and advisement.
2. Makes technical changes.
Senate Action
FIN 2/9/22 DPA 8-2-0
Prepared by Senate Research
February 10, 2022
MG/slp