House Engrossed Senate Bill

 

 

 

State of Arizona

Senate

Fifty-third Legislature

First Regular Session

2017

 

 

SENATE BILL 1063

 

 

 

AN ACT

 

amending title 38, chapter 5, article 4, Arizona Revised Statutes, by adding section 38-842.02; amending section 38-843, Arizona Revised Statutes; amending title 38, chapter 5, article 4, Arizona Revised Statutes, by adding section 38-846.05; amending section 38-861, Arizona Revised Statutes; relating to the public safety personnel retirement system.

 

 

(TEXT OF BILL BEGINS ON NEXT PAGE)

 

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

Section 1.  Title 38, chapter 5, article 4, Arizona Revised Statutes, is amended by adding section 38-842.02, to read:

START_STATUTE38-842.02.  Public safety employer risk pool

A.  The public safety employer risk pool is established for members hired on or after July 1, 2017 and consists of, for actuarial purposes in the system and to determine contribution rates pursuant to section 38-843, any employer of an eligible group that has on the effective date of this section two hundred fifty or fewer active members who were hired before July 1, 2017.

B.  If an employer has more than two hundred fifty active members who were hired before July 1, 2017 in any eligible group on the effective date of this section, the employer may not participate in the risk pool for any of the employer's eligible groups, except that:

1.  Each state agency's eligibility for the risk pool is not affected by another state agency's ineligibility for the risk pool.

2.  For a county with multiple eligible groups in the system, the eligibility of Each eligible group of a county for the risk pool is not affected by the ineligibility for the risk pool of another eligible group of that county.

C.  Any Indian tribe that has elected to participate in the system and that qualifies for the public safety employer risk pool pursuant to subsection A of this section may elect to opt out of the risk pool before January 1, 2018. The Indian tribe shall notify the administrator of the system in writing before January 1, 2018 of the Indian tribe's decision not to participate in the public safety employer risk pool. If an Indian tribe is a new employer in the system pursuant to subsection D of this section, the Indian tribe shall have ninety days after the date of participation to elect to opt out of the risk pool and to notify the administrator of the system in writing of the Indian tribe's decision not to participate in the public safety employer risk pool.

D.  This state or any political subdivision of this state, Indian tribe or public organization that becomes a new employer in the system and that has two hundred fifty or fewer employees, on the effective date of participation in the system pursuant to section 38‑851, that are in an eligible group shall participate in the public safety employer risk pool unless subsection B or C of this section applies.

E.  If any individual employer in the public safety employer risk pool experiences a deviation in reported active member payroll of greater than twenty percent of the average of all participating employers in the risk pool in a twenty-four‑month period, the system actuary shall prepare a financial impact report to determine whether the deviation creates an increased or decreased unfunded liability within the risk pool.  If the deviation in reported active member payroll creates an increase to the unfunded liability within the risk pool, the responsible individual employer shall pay into the system, within sixty days after being notified of the amount due, one hundred percent of the cost of the increase in the unfunded liability.  If the deviation in reported active member payroll creates a decrease to the unfunded liability within the risk pool, the system shall immediately credit the responsible individual employer one hundred percent of the cost of the decrease in the unfunded liability.END_STATUTE

Sec. 2.  Section 38-843, Arizona Revised Statutes, is amended to read:

START_STATUTE38-843.  Contributions

A.  Each employer who participates in the system on behalf of a group of employees who were covered under a prior public retirement system, other than the federal social security act, shall transfer all securities and monies attributable to the taxes and contributions of the state other than the state contribution to social security, the employer and the employees for the covered group of employees under the other system, such transfer to be made to the fund subject to all existing liabilities and on or within sixty days following the employer's effective date.  All monies and securities transferred to the fund shall be credited to the employer's account in the fund. A record of the market value and the cost value of such transferred contributions shall be maintained for actuarial and investment purposes.

B.  As determined by actuarial valuations reported to the employer and the local board by the board of trustees, each employer shall make contributions sufficient under such actuarial valuations to meet both the normal cost for members hired before July 1, 2017 plus the actuarially determined amount required to amortize the unfunded accrued liability on a level percent of compensation basis for all employees of the employer who are members of the system or participants as defined in section 38‑865, paragraph 7, subdivision (a) over, beginning July 1, 2017, a closed period of not more than twentyyears that is established by the board of trustees taking into account the recommendation of the system's actuary, except that, beginning with fiscal year 2006‑2007, except as otherwise provided, the employer contribution rate shall not be less than eight percent of compensation. For any employer whose actual contribution rate is less than eight percent of compensation for fiscal year 2006‑2007, that employer's contribution rate is not subject to the eight percent minimum but, for fiscal year 2006‑2007 and each year thereafter, shall be at least five percent and not more than the employer's actual contribution rate. An employer shall have the option of paying a higher level percent of compensation thereby reducing its unfunded past service liability.  An employer shall also have the option of increasing its contributions in order to reduce the contributions required from its members under subsection C of this section, except that if an employer elects this option the employer shall pay the same higher level percentage contribution for all members of the eligible group. A county employer that elected to pay a higher level percentage contribution rate may eliminate that higher level percentage contribution rate amount for members who are hired on or after January 1, 2015.  During a period when an employee is on industrial leave and the employee elects to continue contributions during the period of industrial leave, the employer shall make the contributions based on the compensation the employee would have received in the employee's job classification if the employee was in normal employment status.  All contributions made by the employers and all state taxes allocated to the fund shall be irrevocable and shall be used to pay benefits under the system or to pay expenses of the system and fund.  The minimum employer contribution that is paid and that is in excess of the normal cost plus the actuarially determined amount required to amortize the unfunded accrued liability as calculated pursuant to this subsection shall be used to reduce future employer contribution increases and shall not be used to pay for an increase in benefits that are otherwise payable to members.  The board shall separately account for these monies in the fund. Forfeitures arising because of severance of employment before a member becomes eligible for a pension or any other reason shall be applied to reduce the cost of the employer, not to increase the benefits otherwise payable to members. After the close of any fiscal year, if the system's actuary determines that the actuarial valuation of an employer's account contains excess valuation assets other than excess valuation assets that were in the employer's account as of fiscal year 2004‑2005 and is more than one hundred percent funded, the board shall account for fifty percent of the excess valuation assets in a stabilization reserve account. After the close of any fiscal year, if the system's actuary determines that the actuarial valuation of an employer's account has a valuation asset deficiency and an unfunded actuarial accrued liability, the board shall use any valuation assets in the stabilization reserve account for that employer, to the extent available, to limit the decline in that employer's funding ratio to not more than two percent.

C.  Each member who was hired before July 1, 2017, throughout the member's period of service from the member's effective date of participation, shall contribute to the fund an amount equal to the amount prescribed in subsection E of this section, except as provided in subsection B of this section. Each member who was hired on or after July 1, 2017, throughout the member's period of service from the member's effective date of participation, shall contribute to the fund an amount equal to the amount prescribed in subsection G of this section.  During a period when an employee is on industrial leave and the employee elects to continue contributions during the period of industrial leave, the employee shall make the employee's contribution based on the compensation the employee would have received in the employee's job classification if the employee was in normal employment status.  Contributions of members shall be required as a condition of employment and membership in the system and shall be made by payroll deductions.  Every employee shall be deemed to consent to such deductions. Payment of an employee's compensation, less such payroll deductions, shall constitute a full and complete discharge and satisfaction of all claims and demands by the employee relating to remuneration for the employee's services rendered during the period covered by the payment, except with respect to the benefits provided under the system.  A member may not, under any circumstance, borrow from, take a loan against or remove contributions from the member's account before the termination of membership in the plan or the receipt of a pension.

D.  Each employer shall transfer to the board the employer and employee contributions provided for in subsections B, C and G of this section within ten working days after each payroll date. Contributions transferred after that date shall include a penalty of ten percent per annum, compounded annually, for each day the contributions are late, such penalty to be paid by the employer.  Delinquent payments due under this subsection, together with interest charges as provided in this subsection, may be recovered by action in a court of competent jurisdiction against an employer liable for the payments or, at the request of the board, may be deducted from any other monies, including excise revenue taxes, payable to such employer by any department or agency of this state.

E.  The amount contributed by a member who was hired before July 1, 2017 pursuant to subsection C of this section is:

1.  Through June 30, 2011, 7.65 percent of the member's compensation.

2.  For fiscal year 2011‑2012, 8.65 percent of the member's compensation.

3.  For fiscal year 2012‑2013, 9.55 percent of the member's compensation.

4.  For fiscal year 2013‑2014, 10.35 percent of the member's compensation.

5.  For fiscal year 2014‑2015, 11.05 percent of the member's compensation.

6.  For fiscal year 2015‑2016 and each fiscal year thereafter, 11.65 percent of the member's compensation or 33.3 percent of the sum of the member's contribution rate from the preceding fiscal year and the aggregate computed employer contribution rate that is calculated pursuant to subsection B of this section, whichever is lower, except that the member contribution rate shall not be less than 7.65 percent of the member's compensation and the employer contribution rate shall not be less than the rate prescribed in subsection B of this section.

F.  For fiscal year 2011‑2012 and each fiscal year thereafter, the amount of the member's contribution that exceeds 7.65 percent of the member's compensation shall not be used to reduce the employer's contributions that are calculated pursuant to subsection B of this section.

G.  For members hired on or after July 1, 2017, the employer and member contributions are determined as follows:

1.  For employers and members in the public safety employer risk pool:

(a)  As determined by the system consolidated actuarial valuation reported to the board of trustees, each employer shall make contributions sufficient under such actuarial valuation to pay fifty percent of both the normal cost plus the actuarially determined amount required to amortize the total unfunded accrued liability within the risk pool for all employers attributable to all members in the risk pool. For each year that new unfunded liabilities are attributable to the public safety employer risk pool, a new amortization base representing the most recent annual gain or loss, smoothed over a period of not more than five years as determined by the board, shall be created on a level‑dollar basis over a closed period equal to the average expected remaining service lives of all members of the risk pool but not more than ten years, as determined by the board.

(b)  The remaining fifty percent of both the normal cost and actuarially determined amount required to amortize the total unfunded accrued liability within the public safety employer risk pool as determined in subdivision (a) of this paragraph shall be divided by the total number of members in the risk pool such that each member contributes an equal percentage of the member's compensation. Member contributions shall begin simultaneously with membership in the system and shall be made by payroll deduction.

2.  For employers and members that are not in the public safety employer risk pool:

1.  (a)  As determined by actuarial valuations reported to the employer and the local board by the board of trustees, each employer shall make contributions sufficient under such actuarial valuations to pay fifty percent of both the normal cost plus the actuarially determined amount required to amortize the total unfunded accrued liability for each employer attributable only to those members hired on or after July 1, 2017.  For each year that new unfunded liabilities are attributable to the employer's own members hired on or after July 1, 2017, a new amortization base representing the most recent annual gain or loss, smoothed over a period of not more than five years as determined by the board, shall be created on a level‑dollar basis over a closed period equal to the average expected remaining service lives of all members but not more than ten years, as determined by the board.

2.  (b)  The remaining fifty percent of both the normal cost and actuarially determined amount required to amortize the total unfunded accrued liability as determined pursuant to paragraph 1 of this subsection subdivision (a) of this paragraph shall be divided by the total number of the employer's members who were hired on or after July 1, 2017 such that each member contributes an equal percentage of the member's compensation. Member contributions shall begin simultaneously with membership in the system and shall be made by payroll deduction.

H.  In any fiscal year, an employer's contribution to the system in combination with member contributions may not be less than the actuarially determined normal cost for that fiscal year.  The board may not suspend contributions to the system unless both of the following apply:

1.  The retirement system actuary, based on the annual valuation, determines that continuing to accrue excess earnings could result in disqualification of the system's tax-exempt status under the provisions of the United States internal revenue code.

2.  The board determines that the receipt of any additional contributions required under this section would conflict with its fiduciary responsibility.

I.  If a member's employment is terminated with an employer by either party, the total liability under the system associated with the member's service with the employer remains with the employer. END_STATUTE

Sec. 3.  Title 38, chapter 5, article 4, Arizona Revised Statutes, is amended by adding section 38‑846.05, to read:

START_STATUTE38-846.05.  Retiree pool account; transfers; funding

A.  The retiree pool account is established in the fund for the purpose of sharing the actuarial liability attributable to uncontrollable costs for the employers of members who are hired on or after July 1, 2017 and who are determined eligible for a normal retirement benefit pursuant to section 38‑844 or for an accidental, ordinary or catastrophic disability pension pursuant to section 38-844 and for survivors of members who are hired on or after July 1, 2017 and who are determined eligible for a death benefit pursuant to section 38‑846.

B.  For members who are determined eligible for a normal retirement benefit pursuant to section 38‑844, an amount equal to the actuarial present value of future benefit payments, calculated as of the member's retirement date, shall be transferred from the employer's account to the retiree pool account.

C.  For a member who is determined eligible for an accidental, ordinary or catastrophic disability pension pursuant to section 38‑844 and who has not reached the member's normal retirement date, an amount equal to the actuarial present value of future benefit payments already accrued, calculated as of the date of disability retirement, shall be transferred from the employer's account to the retiree pool account. If a member who is determined eligible for an accidental, ordinary or catastrophic disability pension has reached the member's normal retirement date, the amount transferred to the retiree pool account is calculated in the same manner as a normal retirement pursuant to subsection B of this section.

D.  For a survivor of a deceased member determined eligible for a death benefit pursuant to section 38‑846, if the member was not retired and had not reached the member's normal retirement date, an amount equal to the actuarial present value of future survivor benefit payments already accrued, calculated as of the survivor's retirement date, shall be transferred from the employer's account to the retiree pool account.  If the deceased member had reached the member's normal retirement date, an amount equal to the actuarial present value of future survivor benefit payments, plus any amount payable, calculated as of the survivor's retirement date, shall be transferred from the employer's account to the retiree pool account.

E.  The retiree pool account shall remain one hundred percent funded. In any fiscal year that the retiree account is not one hundred percent funded as of June 30, the amount necessary to adjust the retiree pool account up or down to one hundred percent funded shall be transferred from or to the investment earnings of the fund before those earnings are distributed to each employer's account.END_STATUTE

Sec. 4.  Section 38-861, Arizona Revised Statutes, is amended to read:

START_STATUTE38-861.  Future benefit increases; payment; cost calculation; definition

A.  Any future benefit increase adopted by the legislature or any participating employer for any member of the system shall be fully paid in the year of enactment of the benefit and may not be amortized over any period of years. A benefit for members hired before July 1, 2017 shall be paid by the employer and the cost of the benefit for members hired on or after July 1, 2017 shall be split equally between the employer and the member pursuant to section 38‑843, subsection G.

B.  The plan actuary shall calculate the cost of the benefit increase using all of the following:

1.  A discount rate equal to the ten-year treasury constant maturity rate for the fiscal year in which the benefit is enacted.

2.  An expected rate of return on assets equal to the ten-year treasury constant maturity rate for the fiscal year in which the benefit is enacted.

3.  A mortality table based on the most recent proposal from the retirement plans experience committee of the society of actuaries that is not older than the RP‑2014 mortality table.

4.  All other actuarial assumptions approved by the board for the most recent fiscal year valuation.

C.  For the purposes of this section, "future benefit increase" includes any benefit increase that leads to a change in the present value of future benefits or a change to accrued liabilities.

Sec. 5.  Emergency

This act is an emergency measure that is necessary to preserve the public peace, health or safety and is operative immediately as provided by law.END_STATUTE