Bill Text: AZ HB2422 | 2019 | Fifty-fourth Legislature 1st Regular | Chaptered
Bill Title: Public retirement systems
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2019-03-26 - Chapter 36 [HB2422 Detail]
Download: Arizona-2019-HB2422-Chaptered.html
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House Engrossed |
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State of Arizona House of Representatives Fifty-fourth Legislature First Regular Session 2019
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CHAPTER 36
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HOUSE BILL 2422 |
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AN ACT
Amending sections 38-644, 38-803, 38‑804.01, 38‑820 and 38‑832, Arizona Revised Statutes; amending title 38, chapter 5, article 3.1, Arizona Revised Statutes, by adding section 38‑834; amending sections 38-840.01, 38‑843.04, 38‑848, 38‑848.02, 38‑849, 38‑858 and 38-866, Arizona Revised Statutes; amending title 38, chapter 5, article 4.1, Arizona Revised Statutes, by adding section 38‑868.01; amending title 38, chapter 5, Arizona Revised Statutes, by adding article 5.1; amending sections 38‑881.01, 38-883, 38‑884.01, 38‑895.01 and 38‑907, Arizona Revised Statutes; relating to public retirement systems.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 38-644, Arizona Revised Statutes, is amended to read:
38-644. Eligibility
A. Except as provided in subsections B, C and D of this section, to qualify for covered benefits under the program, a person must satisfy all of the following criteria:
1. Be an active or retired member of the public safety personnel retirement system or the corrections officer retirement plan or a participant in the public safety personnel defined contribution retirement plan.
2. Be one of the following:
(a) A firefighter who is or was regularly assigned to hazardous duty of the type normally expected of a firefighter.
(b) A peace officer.
(c) A corrections officer employed by the state department of corrections or the department of juvenile corrections, a detention officer employed by a county, city or town or any other member as defined in section 38‑881 if the department, county, city, town or participating employer as defined in section 38-881 has voluntarily established a program and the corrections officer, detention officer or other member as defined in section 38‑881 voluntarily enrolled in the program and made the payments pursuant to section 38‑642, subsection D.
3. Have cancer that was first diagnosed after the person's date of membership in the public safety personnel retirement system or corrections officer retirement plan or date of participation in the public safety personnel defined contribution retirement plan.
B. Persons who terminate employment with a participating employer are not eligible for benefits under the program unless the person has made a valid claim for payment of expenses under the program before termination of employment.
C. On retirement, persons who were either receiving benefits under the program before retirement or who are diagnosed with cancer subsequent to retirement remain eligible for coverage under the program for the total of:
1. Either:
(a) Five months for each year of credited service accumulated toward retirement under the public safety personnel retirement system or corrections officer retirement plan. or
(b) For five months for each year of service under the public safety personnel defined contribution retirement plan.
2. Plus actual time spent in the deferred retirement option plan pursuant to section 38‑844.03 or the reverse deferred retirement option plan pursuant to section 38‑885.01.
D. A person whose eligibility to receive benefits under subsection C of this section is expiring may continue to remain eligible for coverage under the program if the person makes an election with the board and pays to the board the cost of the premium as determined by the board at the time determined by the board.
E. A person is not eligible for benefits under the program if there is any evidence that the cancer that forms the basis for a benefit claim under the program existed before the person's membership in the public safety personnel retirement system or corrections officer retirement plan or the person's participation in the public safety personnel defined contribution retirement plan.
Sec. 2. Section 38-803, Arizona Revised Statutes, is amended to read:
38-803. Powers and duties of the board
A. The board, in the administration, management and operation of the plan and fund, shall:
1. Account for the operation, administration and investment expenses and allocate them against investment income.
2. Contract on a fee basis with an actuary to make an actuarial valuation of the plan based on the valuation method and valuation assumptions recommended by the actuary and approved by the board. The actuary shall be a member of the American academy of actuaries.
3. Contract on a fee basis with an independent auditing firm to make an annual audit of the accounting records of the fund and file a copy of the audit with the auditor general.
4. Invest the monies in the fund as provided in article 4 of this chapter.
5. Within a period of six months after the close of each fiscal year, submit a detailed report of the operation and the investment performance of the plan to the governor, the legislature and the members of the plan.
6. By November 1 of each year provide a preliminary report and by December 1 31 of each year provide a final report to the governor, the speaker of the house of representatives and the president of the senate on the contribution rate for the ensuing fiscal year.
B. The board, in the administration, management and operation of the plan and fund, may:
1. Employ services as it deems necessary.
2. Either keep invested monies separate or commingle invested monies as it deems appropriate.
3. Delegate authority as it deems necessary and prudent to the administrator employed pursuant to section 38‑848, subsection M, paragraph 6.
4. Do all acts, whether expressly authorized, that are deemed necessary or proper for the protection of the fund.
Sec. 3. Section 38-804.01, Arizona Revised Statutes, is amended to read:
38-804.01. Reinstatement of credited service; effect of prior law
An elected official who received a refund as provided in section 38‑804, who is subsequently reemployed as an elected official and who redeposits may have redeposited the amount withdrawn with interest as provided in section 38‑804 or an elected official who redeems prior service pursuant to statute is subject to the benefits and duties in effect at the time of the elected official's most recent reemployment. This section does not apply if a court of competent jurisdiction orders reinstatement of benefits and duties under a prior law.
Sec. 4. Section 38-820, Arizona Revised Statutes, is amended to read:
38-820. Credit for military service
A. A member of the plan who has at least five years of credited service with the plan may receive credited service for periods of active military service performed before employment with the member's current employer if:
1. The member was honorably separated from the military service.
2. The period of military service for which the member receives credited service does not exceed sixty months.
3. The period of military service for which the member receives credited service is not on account with any other retirement system, except as provided by 10 United States Code section 12736 or except if the member is not yet eligible for a military retirement benefit.
4. The member pays the cost to purchase the prior active military service. The cost is the amount necessary to equal the increase in the actuarial present value of projected benefits resulting from the additional credited service.
5. The amount of benefits purchased pursuant to this subsection is subject to limits established by section 415 of the internal revenue code.
B. An active member of the plan who volunteers or is ordered to perform military service may receive credited service for not more than sixty months of military service as provided by the uniformed services employment and reemployment rights act of 1994 (38 United States Code part III, chapter 43). The member's employer shall make employer contributions and the member shall make the member contributions pursuant to subsection C of this section if the member meets the following requirements:
1. Was an active member of the plan on the day before the member began military service.
2. Entered into and served in the armed forces of the United States or any military reserve unit of any branch of the armed forces of the United States or is a member of the national guard.
3. Complies with the notice and return to work provisions of 38 United States Code section 4312.
C. Contributions made pursuant to subsection B of this section shall be for the period of time beginning on the date the member began military service and ending on the later of one of the following dates:
1. The date the member is separated from military service.
2. The date the member is released from service related service‑related hospitalization or two years after initiation of service related service‑related hospitalization, whichever date is earlier.
3. The date the member dies as a result of or during military service.
D. Notwithstanding any other law, on payment of the contributions made pursuant to subsection B of this section, the member shall be credited with service for retirement purposes for the period of military service of not more than sixty months. The member shall submit a copy of the military discharge certificate (DD-256A) and a copy of the military service record (DD-214) or its equivalent with the member's application when applying for credited service corresponding to the period of military service.
E. The employer and the member shall make contributions pursuant to subsection B of this section as follows:
1. Contributions shall be based on the compensation that the member would have received but for the period that the member was ordered into active military service.
2. If the employer cannot reasonably determine the member's rate of compensation for the period that the member was ordered into military service, contributions shall be based on the member's average rate of compensation during the twelve-month period immediately preceding the period of military service.
3. If a member has been employed less than twelve months before being ordered into military service, contributions shall be based on the member's compensation being earned immediately preceding the period of military service.
4. The member has up to three times the length of military service, not to exceed sixty months, to make the member contributions. Once the member has made the member contributions or on receipt of the member's death certificate, the employer shall make the employer contributions in a lump sum. Death benefits shall be calculated as prescribed by law.
5. If the member's employer pays military differential wage pay to members serving in the military, contributions shall be paid to the plan pursuant to section 38‑810 for any military differential wage pay paid to the member while performing military service.
F. In computing the length of total credited service of a member for the purpose of determining retirement benefits or eligibility, the period of military service, as prescribed by this section, shall be included.
G. If a member performs military service due to a presidential call‑up, not to exceed forty‑eight months, the employer shall make the employer and member contributions computed pursuant to subsection E of this section on the member's return and in compliance with subsection B of this section.
H. In addition to, but not in duplication of, subsection B of this section, beginning December 12, 1994 contributions, benefits and credited service provided pursuant to this section shall be provided pursuant to section 414(u) of the internal revenue code, and this section shall be interpreted in a manner consistent with that internal revenue code section.
I. For plan years beginning after December 31, 2008, a member who does not currently perform services for an employer by reason of qualified military service as defined in section 414(u)(5) of the internal revenue code is not considered having a severance from employment during that qualified military service. Any payments by the employer to the member during the qualified military service shall be considered compensation to the extent those payments do not exceed the amounts the member would have received if the member had continued to perform services for the employer rather than entering qualified military service.
J. For deaths occurring from and after December 31, 2006, in the case of a member who dies while performing qualified military service as defined in section 414(u)(5) of the internal revenue code, the survivors of the member are entitled to any benefits, other than benefit accruals relating to the period of qualified military service, provided under the plan as though the member resumed and then terminated employment on account of death.
Sec. 5. Section 38-832, Arizona Revised Statutes, is amended to read:
38-832. Defined contribution system; annual report; quarterly statements
A. The board shall establish, design and administer a defined contribution system to provide for the retirement of elected officials.
B. The purpose of this article is to provide a defined contribution system that is fully funded on a current basis from employer and member contributions.
C. The legislature intends that the defined contribution system for members under this article be designed to be a qualified government plan under section 401(a) of the internal revenue code, as amended, or successor provisions of law, and be exempt from taxation under section 501 of the internal revenue code. The board may adopt any additional provisions to the defined contribution system that are necessary to fulfill this intent. On or before December 31, 2013, the board shall submit to the internal revenue service a request for a determination letter that the defined contribution system is a plan qualified under section 401(a) of the internal revenue code and a private letter ruling that all member contributions that are picked up by the employer as provided in section 38‑833 shall be treated as employer contributions pursuant to section 414(h) of the internal revenue code.
D. The board may:
1. Employ the services of the third‑party administrator that is contracted on September 13, 2013 to administer the supplemental defined contribution plan pursuant to article 8 of this chapter to also administer the defined contribution system.
2. Employ other services it deems necessary, including legal services, for the operation and administration of the defined contribution system.
3. Perform all acts, whether or not expressly authorized, that it deems necessary and proper for the operation and protection of the system.
E. The board shall adopt policies regarding the defined contribution system, including the administration of the member and employer contributions, investment options, termination in the defined contribution system, the administration of the payout options under the defined contribution system and the administration of the member distributions.
F. On receipt of the determination letter and private letter ruling from the internal revenue service, the board shall participate in a competitive bid process at least once every five years to contract with a private person or any qualified company or companies to administer the defined contribution system established under this section.
G. Any contract for a third‑party administrator of the defined contribution system shall include competitive fees, quarterly meetings with the public safety personnel retirement system, annual updates to the board on the status of the defined contribution system and quarterly statements to each member. On or before December 1 31 of each year, the board shall report the status of the defined contribution system to the governor, the president of the senate, the speaker of the house of representatives and the joint legislative budget committee.
Sec. 6. Title 38, chapter 5, article 3.1, Arizona Revised Statutes, is amended by adding section 38-834, to read:
38-834. Credit for military service
A. An active member of the defined contribution system who volunteers or is ordered to perform military service may receive years of service for not more than sixty months of military service as provided by the uniformed services employment and reemployment rights act of 1994 (38 United States Code part III, chapter 43). The member's employer shall make employer contributions and the member shall make the member contributions pursuant to subsection B of this section if the member meets the following requirements:
1. Was an active member of the defined contribution system on the day before the member began military service.
2. Entered into and served in the armed forces of the United States or any military reserve unit of any branch of the armed forces of the United States or is a member of the national guard.
3. Complies with the notice and return to work provisions of 38 United States Code section 4312.
B. Contributions made pursuant to subsection A of this section are for the period of time beginning on the date the member began military service and ending on the later of one of the following dates:
1. The date the member is separated from military service.
2. The date the member is released from service-related hospitalization or two years after initiation of service-related hospitalization, whichever date is earlier.
3. The date the member dies as a result of or during military service.
C. Notwithstanding any other law, on payment of the contributions made pursuant to subsection B of this section, the member shall be credited with service for vesting purposes for the period of military service of not more than sixty months. The member shall submit a copy of the military discharge certificate (DD-256A) and a copy of the military service record (DD-214) or its equivalent with the member's application when applying for service corresponding to the period of military service.
D. The employer and the member shall make contributions pursuant to subsection A of this section as follows:
1. Contributions are based on the compensation that the member would have received but for the period that the member was ordered into or volunteered for military service.
2. If the employer cannot reasonably determine the member's rate of compensation for the period that the member was ordered into or volunteered for military service, contributions are based on the member's average rate of compensation during the twelve‑month period immediately preceding the period of military service.
3. If a member has been employed less than twelve months before being ordered into or volunteering for military service, contributions are based on the member's compensation being earned immediately preceding the period of military service.
4. The member has up to three times the length of military service, not to exceed sixty months, to make the member contributions. Once the member has made the member contributions or on receipt of the member's death certificate, the employer shall make the employer contributions in a lump sum. Death benefits shall be calculated as prescribed by law.
5. If the member's employer pays military differential wage pay to members serving in the military, contributions are paid to the defined contribution system pursuant to section 38‑833 for any military differential wage pay paid to the member while performing military service.
E. In computing the length of total credited service of a member for the purpose of disability in accordance with article 3.2 of this chapter, the period of military service, as prescribed by this section, is included.
F. If a member performs military service due to a presidential call‑up, not to exceed forty‑eight months, the employer shall make the employer and member contributions computed pursuant to subsection D of this section on the member's return and in compliance with subsection A of this section.
G. In addition to, but not in duplication of, the provisions of subsection A of this section, beginning January 1, 2014, contributions, benefits and credited service provided pursuant to this section are provided pursuant to section 414(u) of the internal revenue code, and this section shall be interpreted in a manner consistent with that internal revenue code section.
H. For plan years beginning after January 1, 2014, a member who does not currently perform services for an employer by reason of qualified military service as defined in section 414(u)(5) of the internal revenue code is not considered having a severance from employment during that qualified military service. Any payments by the employer to the member during the qualified military service shall be considered compensation to the extent those payments do not exceed the amounts the member would have received if the member had continued to perform services for the employer rather than entering qualified military service.
I. For deaths occurring from and after January 1, 2014, in the case of a member who dies while performing qualified military service as defined in section 414(u)(5) of the internal revenue code, the survivors of the member are entitled to any benefits, other than benefit accruals relating to the period of qualified military service, provided under the defined contribution system as though the member resumed and then terminated employment on account of death.
Sec. 7. Section 38-840.01, Arizona Revised Statutes, is amended to read:
38-840.01. EODC disability program; administration; power and duties of the board; hearing
A. The elected officials' defined contribution retirement system disability program is established for members of the elected officials' defined contribution retirement system. The board shall administer the EODC disability program.
B. The board may delegate authority to administer the program as it deems necessary and prudent to the administrator employed pursuant to section 38‑848.
C. The board, in the administration, management and operation of the program, shall:
1. Account for the operation, administration and investment expenses and allocate them against investment income.
2. Contract on a fee basis with an actuary to make an actuarial valuation of the program based on the valuation method and valuation assumptions recommended by the actuary and approved by the board. The actuary shall be a member of the American academy of actuaries.
3. Contract on a fee basis with an independent auditing firm to make an annual audit of the accounting records of the EODC disability program trust fund and file a copy of the audit with the auditor general.
4. Invest the monies in the EODC disability program trust fund as provided in article 4 of this chapter.
5. On or before December 1 31 of each year, submit to the governor, the speaker of the house of representatives and the president of the senate a detailed report of the operation and the investment performance of the program that includes the contribution rate for the ensuing fiscal year.
D. The board, in the administration, management and operation of the program, may:
1. Employ services as it deems necessary.
2. Either keep invested monies separate or commingle invested monies as it deems appropriate.
3. Do all acts, whether expressly authorized, that may be deemed necessary or proper for the protection of the EODC disability program trust fund.
4. Determine the rights, benefits or obligations of any person under this article and afford any person dissatisfied with a determination of the person's rights, benefits or obligations under this article with a hearing on the determination.
Sec. 8. Section 38-843.04, Arizona Revised Statutes, is amended to read:
38-843.04. Compensation limitation; adjustments; definition
A. The annual compensation of each member taken into account for purposes of the system shall not exceed the following:
1. Beginning January 1, 1996 through December 31, 2001, one hundred fifty thousand dollars $150,000.
2. Except for members who are hired on or after July 1, 2017, beginning January 1, 2002, two hundred thousand dollars $200,000. The board shall adjust the two hundred thousand dollar $200,000 annual compensation limit under this paragraph at the same time and in the same manner as adjusted by the United States secretary of the treasury under section 401(a)(17)(B) of the internal revenue code. The adjustment under this paragraph for a calendar year applies to annual compensation for the plan year that begins with or within the that calendar year.
3. For members who are hired on or after July 1, 2017, one hundred ten thousand dollars $110,000. The board shall adjust the one hundred ten thousand dollar $110,000 annual compensation limit under this paragraph as prescribed in subsection C of this section. Notwithstanding the adjustments made under subsection C of this section, the limit under this paragraph, as adjusted by the board, may not exceed the maximum compensation limit of section 401(a)(17) of the internal revenue code, as adjusted by the United States secretary of the treasury.
B. If compensation under the system is determined on a period of time that contains fewer than twelve calendar months, the compensation limit for that period of time is equal to the dollar limit for the calendar year during which the period of time begins, multiplied by the fraction in which the numerator is the number of full months in that period of time and the denominator is twelve.
C. Beginning in fiscal year 2020‑2021, and every third fiscal year thereafter, the board shall adjust the annual compensation limit specified in subsection A, paragraph 3 of this section by the average change in the public safety wage index as determined in this subsection. The board shall annually publish the public safety wage index in January. The annual compensation limit adjustment under this subsection for a calendar year applies to the annual compensation for that calendar year. To determine the public safety wage index:
1. Employers represented in the public safety wage index shall provide the board pay scales for the month of July for the enforcement classifications of public safety officers annually in July.
2. The board shall determine the weighted average of the change in the top of the pay scale for public safety officers of the employers represented in the public safety wage index. The average change shall be weighted by measuring each employer's total number of members divided by the total number of members of all employers represented in the public safety wage index.
D. The board shall establish a public safety wage index that is composed of a group of employers that represent represents geographic diversity across this state and that represent represents:
1. Seven large employers, each of which has one thousand or more total system members, composed of one state law enforcement agency, one county law enforcement agency, three municipal law enforcement agencies and two municipal fire agencies.
2. Nine midsized employers, each of which has more than two hundred but less fewer than one thousand total system members, composed of one state law enforcement agency, two county law enforcement agencies, four municipal law enforcement agencies, one municipal fire agency and one fire district.
3. Ten small employers, each of which has two hundred or less fewer total system members, composed of three municipal law enforcement agencies, four municipal fire agencies and three fire districts.
E. The board may not change the employers represented in the public safety wage index more frequently than every ten years, unless required to maintain the composition of employers as prescribed in subsection D of this section.
F. For the purposes of this section, "public safety officers" means the classification of police officers, sheriff's deputies, firefighters or wildlife managers or their equivalent enforcement classifications.
Sec. 9. Section 38-848, Arizona Revised Statutes, is amended to read:
38-848. Board of trustees; powers and duties; independent trust fund; administrator; agents and employees; advisory committee
A. Beginning January 1, 2017, the board of trustees shall consist of nine members and shall have the rights, powers and duties that are set forth in this section. The term of office of members shall be five years to expire on the third Monday in January of the appropriate year. The board shall select a chairperson from among its members each calendar year. Members are eligible to receive compensation in an amount of fifty dollars $50 a day, but not to exceed one thousand dollars $1,000 in any one fiscal year, and are eligible for reimbursement of expenses pursuant to chapter 4, article 2 of this title. Beginning January 1, 2017, the board consists of the following members appointed as follows:
1. Two members representing law enforcement, one of whom is appointed by the president of the senate and one of whom is appointed by the governor. A statewide association representing law enforcement in this state shall forward nominations to the appointing elected officials, providing at least three nominees for each position. At least one of the members appointed under this paragraph shall be an elected local board member.
2. Two members representing firefighters, one of whom is appointed by the speaker of the house of representatives and one of whom is appointed by the governor. A statewide association representing firefighters in this state shall forward nominations to the appointing elected officials, providing at least three nominees for each position. At least one of the members appointed under this paragraph shall be an elected local board member.
3. Three members representing cities and towns in this state, one of whom is appointed by the president of the senate, one of whom is appointed by the speaker of the house of representatives and one of whom is appointed by the governor. An association representing cities and towns in this state shall forward nominations to the appointing elected officials, providing at least three nominees for each position. These nominees shall represent taxpayers or employers and may not be members of the system.
4. One member who represents counties in this state and who is appointed by the governor. An association representing county supervisors in this state shall forward nominations to the governor, providing at least three nominees for the position. These nominees shall represent taxpayers or employers and may not be members of the system.
5. One member who is appointed by the governor from a list of three nominees forwarded by the board. The board shall select the nominees to forward to the governor from a list of at least five nominees received from the advisory committee.
B. Each appointment made pursuant to subsection A of this section shall be chosen from the list of nominees provided to the appointing elected official. For any appointment made by the governor pursuant to subsection A of this section, before appointment by the governor, a prospective member of the board shall submit a full set of fingerprints to the governor for the purpose of obtaining a state and federal criminal records check pursuant to section 41‑1750 and Public Law 92‑544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation. A board member may be reappointed. Notwithstanding section 38‑295, a board member may be removed from office only for cause by the appointing power or because the board member has vacated the member's seat on the board. A board member who is removed for cause shall be provided written notice and an opportunity for a response. The appointing power may remove a board member based on written findings that specify the reason for removal. Any vacancy that occurs other than by expiration of a term shall be filled for the balance of the term. All vacancies shall be filled in the same manner as the initial appointment. A board member vacates the office if the member either:
1. Is absent without excuse from three consecutive regular meetings of the board.
2. Resigns, dies or becomes unable to perform board member duties.
C. The members of the board who are appointed pursuant to subsection A of this section and who are not members of the system shall be independent, qualified professionals who are responsible for the performance of fiduciary duties and other responsibilities required to preserve and protect the fund and shall have at least ten years' substantial experience as any one or a combination of the following:
1. A portfolio manager acting in a fiduciary capacity.
2. A securities analyst.
3. A senior executive or principal of a trust institution, investment organization or endowment fund acting either in a management or an investment‑related capacity.
4. A chartered financial analyst in good standing as determined by the chartered financial analyst institute.
5. A current or former professor or instructor at the college or university level in the field of economics, finance, actuarial science, accounting or pension‑related subjects.
6. An economist.
7. Any other senior executive engaged in the field of public or private finances or with experience with public pension systems.
8. A senior executive in insurance, banking, underwriting, auditing, human resources or risk management.
D. All monies in the fund shall be deposited and held in a public safety personnel retirement system depository. Monies in the fund shall be disbursed from the depository separate and apart from all monies or funds of this state and the agencies, instrumentalities and subdivisions of this state, except that the board may commingle the assets of the fund and the assets of all other plans entrusted to its management in one or more group trusts, subject to the crediting of receipts and earnings and charging of payments to the appropriate employer, system or plan. The monies shall be secured by the depository in which they are deposited and held to the same extent and in the same manner as required by the general depository law of this state. For purposes of making the decision to invest in securities owned by the fund or any plan or trust administered by the board, the fund and assets of the plans and the plans' trusts are subject to the sole management of the board for the purpose of this article except that, on the board's election to invest in a particular security or make a particular investment, the assets comprising the security or investment may be chosen and managed by third parties approved by the board. The board may invest in portfolios of securities chosen and managed by a third party. The board's decision to invest in securities such as mutual funds, commingled investment funds, exchange traded funds, private equity or venture capital limited partnerships, real estate limited partnerships or limited liability companies and real estate investment trusts whose assets are chosen and managed by third parties is not an improper delegation of the board's investment authority.
E. All contributions under this system and other retirement plans that the board administers shall be forwarded to the board and shall be held, invested and reinvested by the board as provided in this article. All property and monies of the fund and other retirement plans that the board administers, including income from investments and from all other sources, shall be retained for the exclusive benefit of members, as provided in the system and other retirement plans that the board administers, and shall be used to pay benefits to members or their beneficiaries or to pay expenses of operation and administration of the system and fund and other retirement plans that the board administers.
F. The board shall have the full power in its sole discretion to invest and reinvest, alter and change the monies accumulated under the system and other retirement plans and trusts that the board administers as provided in this article. In addition to its power to make investments managed by others, the board may delegate the authority the board deems necessary and prudent to investment management pursuant to section 38‑848.03, as well as to the administrator, employed by the board pursuant to subsection M, paragraph 6 of this section, and any deputy or assistant administrators to invest the monies of the system and other retirement plans and trusts that the board administers if the administrator, investment management and any deputy or assistant administrators follow the investment policies that are adopted by the board. The board may commingle securities and monies of the fund, the elected officials' retirement plan, the corrections officer retirement plan and other plans or monies entrusted to its care, subject to the crediting of receipts and earnings and charging of payments to the account of the appropriate employer, system or plan. In making every investment, the board shall exercise the judgment and care under the circumstances then prevailing that persons of ordinary prudence, discretion and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income from their funds as well as the probable safety of their capital, if:
1. Not more than eighty percent of the combined assets of the system or other plans that the board manages is invested at any given time in corporate stocks, based on the cost value of the stocks irrespective of capital appreciation.
2. Not more than five percent of the combined assets of the system or other plans that the board manages is invested in corporate stock issued by any one corporation, other than corporate stock issued by corporations chartered by the United States government or corporate stock issued by a bank or insurance company.
3. Not more than five percent of the voting stock of any one corporation is owned by the system and other plans that the board administers, except that this limitation does not apply to membership interests in limited liability companies.
4. Corporate stocks and exchange traded funds eligible for direct purchase are restricted to stocks and exchange traded funds that, except for bank stocks, insurance stocks, stocks acquired for coinvestment in connection with the system's or the plans' or trusts' commingled investments and interests in limited liability companies and mutual funds, are any of the following:
(a) Listed or approved on issuance for listing on an exchange registered under the securities exchange act of 1934, as amended (15 United States Code sections 78a through 78pp).
(b) Designated or approved on notice of issuance for designation on the national market system of a national securities association registered under the securities exchange act of 1934, as amended (15 United States Code sections 78a through 78pp).
(c) Listed or approved on issuance for listing on an exchange registered under the laws of this state or any other state.
(d) Listed or approved on issuance for listing on an exchange of a foreign country with which the United States is maintaining diplomatic relations at the time of purchase, except that not more than twenty percent of the combined assets of the system and other plans that the board manages is invested in foreign securities, based on the cost value of the stocks irrespective of capital appreciation.
(e) An exchange traded fund that is recommended by the chief investment officer of the system, that is registered under the investment company act of 1940 (15 United States Code sections 80a‑1 through 80a‑64) and that is both traded on a public exchange and based on a publicly recognized index.
G. Notwithstanding any other law, the board is not required to invest in any type of investment that is dictated or required by any entity of the federal government and that is intended to fund economic development projects, public works or social programs, but may consider such economically targeted investments pursuant to its fiduciary responsibility. The board, on behalf of the system and all other plans or trusts the board administers, may invest in, lend monies to or guarantee the repayment of monies by a limited liability company, limited partnership, joint venture, partnership, limited liability partnership or trust in which the system and plans or trusts have a financial interest, whether the entity is closely held or publicly traded and that, in turn, may be engaged in any lawful activity, including venture capital, private equity, the ownership, development, management, improvement or operation of real property and any improvements or businesses on real property or the lending of monies.
H. Conference call meetings of the board that are held for investment purposes only are not subject to chapter 3, article 3.1 of this title, except that the board shall maintain minutes of these conference call meetings and make them available for public inspection within twenty‑four hours after the meeting. The board shall review the minutes of each conference call meeting and shall ratify all legal actions taken during each conference call meeting at the next scheduled meeting of the board.
I. The board is not liable for the exercise of more than ordinary care and prudence in the selection of investments and performance of its duties under the system and is not limited to so‑called "legal investments for trustees", but all monies of the system and other plans that the board administers shall be invested subject to all of the conditions, limitations and restrictions imposed by law.
J. Except as provided in subsection F of this section, the board may:
1. Invest and reinvest the principal and income of all assets that the board manages without distinction between principal and income.
2. Sell, exchange, convey, transfer or otherwise dispose of any investments made on behalf of the system or other plans the board administers in the name of the system or plans by private contract or at public auction.
3. Also:
(a) Vote on any stocks, bonds or other securities.
(b) Give general or special proxies or powers of attorney with or without power of substitution.
(c) Exercise any conversion privileges, subscription rights or other options and make any payments incidental to the exercise of the conversion privileges, subscription rights or other options.
(d) Consent to or otherwise participate in corporate reorganizations or other changes affecting corporate securities, delegate discretionary powers and pay any assessments or charges in connection therewith.
(e) Generally exercise any of the powers of an owner with respect to stocks, bonds, securities or other investments held in or owned by the system or other plans whose assets the board administers.
4. Make, execute, acknowledge and deliver any other instruments that may be necessary or appropriate to carry out the powers granted in this section.
5. Register any investment held by the system or other plans whose assets the board administers in the name of the system or plan or in the name of a nominee or trust.
6. At the expense of the system or other plans that the board administers, enter into an agreement with any bank or banks for the safekeeping and handling of securities and other investments coming into the possession of the board. The agreement shall be entered into under terms and conditions that secure the proper safeguarding, inventory, withdrawal and handling of the securities and other investments. Access to and deposit or withdrawal of the securities from any place of deposit selected by the board is not allowed and may not be made except as the terms of the agreement provide.
7. Appear before local boards and the courts of this state and political subdivisions of this state through counsel or an appointed representative to protect the fund or the assets of other plans that the board administers. The board is not responsible for the actions or omissions of the local boards under this system but may seek a review or rehearing of actions or omissions of local boards. The board does not have a duty to review actions of the local boards but may do so in its discretion in order to protect the fund. No limitations A limitation period precludes does not prohibit the board or administrator from contesting, or requires require the board or administrator to implement or comply with, a local board decision that violates the internal revenue code or that threatens to impair the tax-qualified status of the system or any plan administered by the board or administrator.
8. Empower the fund administrator to take actions on behalf of the board that are necessary for the protection and administration of the fund or the assets of other plans that the board administers pursuant to the guidelines of the board.
9. Do all acts, whether or not expressly authorized, that may be deemed necessary or proper for the protection of the investments held in the fund or owned by other plans or trusts that the board administers.
10. Settle threatened or actual litigation against any system or plan that the board administers.
K. Investment expenses and operation and administrative expenses of the board shall be accounted for separately and allocated against investment income.
L. The board, as soon as possible within a period of six months following the close of any fiscal year, shall transmit to the governor and the legislature a comprehensive annual financial report on the operation of the system and other plans that the board administers that contains, among other things:
1. A balance sheet.
2. A statement of income and expenditures for the year.
3. A report on an actuarial valuation of its assets and liabilities.
4. A list of investments owned.
5. The total rate of return, yield on cost, and percent of cost to market value of the fund and the assets of other plans that the board administers.
6. Any other statistical and financial data that may be necessary for the proper understanding of the financial condition of the system and other plans that the board administers and the results of their operations. A synopsis of the annual report shall be published for the information of members of the system, the elected officials' retirement plan or the corrections officer retirement plan.
7. An analysis of the long‑term level percent of employer contributions and compensation structure and whether the funding methodology is sufficient to pay one hundred percent of the unfunded accrued liability under the elected officials' retirement plan.
8. An estimate of the aggregate employer contribution rate for the public safety personnel retirement system for the next ten fiscal years and an estimate of the aggregate employer contribution rate for the corrections officer retirement plan for the next ten fiscal years.
9. An estimate of the employer contribution rates for the next ten fiscal years for each of the following employers within the public safety personnel retirement system:
(a) Department of liquor licenses and control.
(b) Department of public safety.
(c) Northern Arizona university.
(d) University of Arizona.
(e) Arizona state university.
(f) Arizona game and fish department.
(g) Department of law.
(h) Department of emergency and military affairs.
(i) Arizona state parks board.
10. An estimate of the employer contribution rates for the next ten fiscal years for each of the following employers within the corrections officer retirement plan:
(a) State department of corrections.
(b) Department of public safety.
(c) The judiciary.
(d) Department of juvenile corrections.
11. An estimate of the aggregate fees paid for private equity investments, including management fees and performance fees.
M. The board shall:
1. Maintain the accounts of the system and other plans that the board administers and issue statements to each employer annually and to each member who requests a statement.
2. Report the results of the actuarial valuations to the local boards and employers.
3. Contract on a fee basis with an independent investment counsel to advise the board in the investment management of the fund and assets of other plans that the board administers and with an independent auditing firm to audit the board's accounting.
4. Permit the auditor general to make an annual audit and transmit the results to the governor and the legislature.
5. Contract on a fee basis with an actuary who shall make actuarial valuations of the system and other plans that the board administers, be the technical adviser of the board on matters regarding the operation of the funds created by the provisions of the system, the elected officials' retirement plan, the corrections officer retirement plan and the public safety cancer insurance policy program and perform other duties required in connection therewith. The actuary must be a member of a nationally recognized association or society of actuaries.
6. Employ, as administrator, a person, state department or other body to serve at the pleasure of the board.
7. Establish procedures and guidelines for contracts with actuaries, auditors, investment counsel and legal counsel and for safeguarding of securities.
N. The administrator, under the direction of the board, shall:
1. Administer this article.
2. Be responsible for the recruitment, hiring and day‑to‑day management of employees.
3. Invest the monies of the system and other plans that the board administers as the board deems necessary and prudent as provided in subsections F and J of this section and subject to the investment policies and fund objectives adopted by the board.
4. Establish and maintain an adequate system of accounts and records for the system and other plans that the board administers, which shall be integrated with the accounts, records and procedures of the employers so that the system and other plans that the board administers operate most effectively and at minimum expense and that duplication of records and accounts is avoided.
5. In accordance with the board's governance policy and procedures and the budget adopted by the board, hire employees and services the administrator deems necessary and prescribe their duties, including the hiring of one or more deputy or assistant administrators to manage the system's operations, investments and legal affairs.
6. Be responsible for income, the collection of the income and the accuracy of all expenditures.
7. Recommend to the board annual contracts for the system's actuary, auditor, investment counsel, legal counsel and safeguarding of securities.
8. Perform additional duties and powers prescribed by the board and delegated to the administrator.
O. The system is an independent trust fund and the board is not subject to title 41, chapter 6. Contracts for goods and services approved by the board are not subject to title 41, chapter 23. As an independent trust fund whose assets are separate and apart from all other funds of this state, the system and the board are not subject to the restrictions prescribed in section 35‑154 or article IX, sections 5 and 8, Constitution of Arizona. Loans, guarantees, investment management agreements and investment contracts that are entered into by the board are contracts memorializing obligations or interests in securities that the board has concluded, after thorough due diligence, do not involve investments in Sudan or Iran or otherwise provide support to terrorists or in any way facilitate illegal immigration into the United States. These contracts do not involve the procurement, supply or provision of goods, equipment, labor, materials or services that would require the warranties required by section 41‑4401.
P. The board, the administrator, the deputy or assistant administrators and all persons employed by them are subject to title 41, chapter 4, article 4. The administrator, deputy or assistant administrators and other employees of the board are entitled to receive compensation pursuant to section 38‑611.
Q. In consultation with the director of the department of administration, the board may enter into employment agreements and establish the terms of those agreements with persons holding any of the following system positions:
1. Administrator.
2. Deputy or assistant administrator.
3. Chief investment officer.
4. Deputy chief investment officer.
5. Fiduciary or investment counsel.
R. The attorney general or an attorney approved by the attorney general and paid by the fund is the attorney for the board and shall represent the board in any legal proceeding or forum that the board deems appropriate. The board, administrator, deputy or assistant administrators and employees of the board are not personally liable for any acts done in their official capacity in good faith reliance on the written opinions of the board's attorney.
S. At least once in each five‑year period after the effective date, the actuary shall make an actuarial investigation into the mortality, service and compensation experience of the members and beneficiaries of the system and other plans that the board administers and shall make a special valuation of the assets and liabilities of the monies of the system and plans. Taking into account the results of the investigation and special valuation, the board shall adopt for the system and other plans that the board administers those mortality, service and other tables deemed necessary.
T. On the basis of the tables the board adopts, the actuary shall make a valuation of the assets and liabilities of the funds of the system and other plans that the board administers at least every year. By November 1 of each year the board shall provide a preliminary report and by December 1 31 of each year provide a final report to the governor, the speaker of the house of representatives and the president of the senate on the contribution rate for the ensuing fiscal year.
U. Neither the board nor any member or employee of the board shall directly or indirectly, for himself or as an agent, in any manner use the monies or deposits of the fund except to make current and necessary payments, nor shall the board or any member or employee become an endorser or surety or in any manner an obligor for monies loaned by or borrowed from the fund or the assets of any other plans that the board administers.
V. Financial or commercial information that is provided to the board, employees of the board and attorneys of the board in connection with investments in which the board has invested or investments the board has considered for investment is confidential, proprietary and not a public record if the information is information that would customarily not be released to the public by the person or entity from whom the information was obtained.
W. A person who is a dealer as defined in section 44‑1801 and who is involved in securities or investments related to the board's investments is not eligible to serve on the board.
X. The public safety personnel retirement system advisory committee is established and shall serve as a liaison between the board and the members and employers of the system. The committee shall be appointed by the chairperson of the board from names submitted to the chairperson by associations representing law enforcement, firefighters, state government, counties, cities and towns and tribal governments. The committee shall select a chairperson from among its members each calendar year. The committee shall consist of the following ten members:
1. A member who is a law enforcement officer.
2. A member who is a firefighter.
3. A member of the elected officials' retirement plan.
4. A member of the corrections officer retirement plan.
5. A retiree from the public safety personnel retirement system.
6. A representative from a city or town in this state.
7. A representative from a county in this state.
8. A representative from a fire district in this state.
9. A representative from a state employer.
10. A representative from a tribal government located in this state.
Sec. 10. Section 38-848.02, Arizona Revised Statutes, is amended to read:
38-848.02. Board of trustees; report on employer and employee costs; posting funding ratio
A. On or before December 1 31 of each year, the board of trustees shall provide to the legislature and the joint legislative budget committee and shall post on its website the shared cost structure of employees and employers, the funding status and the rate of return. The report to the legislature shall include when the trigger to the reduction in the employee rates is being met.
B. The board of trustees shall post on its website for each plan the board administers each employer's funding ratio.
Sec. 11. Section 38-849, Arizona Revised Statutes, is amended to read:
38-849. Limitations on receiving pension; violation; classification; reemployment after severance; reinstatement of service credits; reemployment of retired member or member with a disability; definition
A. If a member is convicted of, or discharged because of, theft, embezzlement, fraud or misappropriation of an employer's property or property under the control of the employer, the member shall be subject to restitution and fines imposed by a court of competent jurisdiction. The court may order the restitution or fines to be paid from any payments otherwise payable to the member from the retirement system.
B. A person who knowingly makes any false statement or who falsifies or permits to be falsified any record of the system with an intent to defraud the system is guilty of a class 5 felony. If any change or error in the records results in any member or beneficiary receiving from the system more or less than the member or beneficiary would have been entitled to receive had the records been correct, the local board shall correct such error, and as far as practicable shall adjust the payments in such manner that the actuarial equivalent of the benefit to which such member or beneficiary was correctly entitled shall be paid. If a member is convicted of a crime specified in this subsection, section 13‑713 applies.
C. If a member who received a severance refund on termination of employment pursuant to section 38‑846.02 becomes reemployed with the same employer within two years after the former member's termination date, the member may have forfeited credited service attributable to service rendered during a prior period of service as an employee restored on satisfaction of each of the following conditions:
1. The member files with the system a written application for reinstatement of forfeited credited service within ninety days after again becoming an employee.
2. The retirement fund is paid the total amount previously withdrawn pursuant to section 38‑846.02 plus compound interest from the date of withdrawal to the date of repayment. Interest shall be computed at the rate of nine percent for each year compounded each year from the date of withdrawal to the date of repayment. Forfeited credited service shall not be restored until complete payment is received by the fund.
3. The required payment is completed within one year after returning to employee status.
D. If a member who received a severance refund on termination of employment, as provided in section 38‑846.02, is subsequently reemployed by an employer, the member's prior service credits shall be cancelled and service shall be credited only from the date the member's most recent reemployment period commenced. However, a present active member of the system who forfeited credited service, received a severance refund pursuant to section 38‑846.02 and becomes reemployed with the same employer two years or more after the member's termination date or becomes reemployed with another employer may elect to redeem any part of that forfeited credited service by paying into the system any amounts required pursuant to this subsection. A present active member who elects to redeem any part of forfeited credited service for which the member is deemed eligible by the board shall pay into the system the amounts previously paid or transferred to the member as a severance refund plus an amount, computed by the system's actuary that is necessary to equal the increase in the actuarial present value of projected benefits resulting from the redemption calculated using the actuarial methods and assumptions prescribed by the system's actuary. On satisfaction of this obligation the member's prior service credits shall be reinstated.
E. If a retired member becomes reemployed in any capacity by the employer from which the member retired before one year from after the date of retirement or in the same position at any time following retirement:
1. The following apply:
(a) Within ten days after the retired member is reemployed, the local board shall advise the system in writing of the retired member's reemployment.
(b) The system shall not make pension payments to the retired member during the period of reemployment.
(c) Employee contributions shall not be made on the retired member's account, nor shall any service be credited during the period of reemployment. On subsequent termination of employment by the retired member, the retired member is entitled to receive a pension based on the member's service and compensation before the date of the member's reemployment. The employer shall pay the alternate contribution rate pursuant to section 38‑843.05.
2. Paragraph 1, subdivisions (a) and (b) of this subsection do not apply if any of the following occur occurs:
(a) The retired member becomes reemployed after sixty consecutive days from the member's retirement date as a result of participating in an open competitive new hire process for an entry level, nonsupervisory position, except if the retired member is hired for the same position.
(b) The retired member is hired as a fire inspector or arson investigator.
(c) Notwithstanding section 38‑844, the retired member who is receiving an accidental disability, ordinary disability, catastrophic disability or temporary disability and who accepts a job reassignment as an accommodation in accordance with the Americans with disabilities act of 1990 due to a disability that is directly related to the retired member being awarded an accidental disability, ordinary disability, catastrophic disability or temporary disability benefit.
F. If a retired member is assigned voluntary duties acting as a limited authority peace officer, pursuant to the Arizona peace officer standards and training board rules, employee contributions shall not be made on the retired member's account, and any service shall not be credited during the period of reemployment. The employer shall not pay the alternate contribution rate pursuant to section 38‑843.05.
G. If after one year from the date of retirement a retired member becomes reemployed by the employer from which the member retired in a position other than the same position from which the member retired, employee contributions shall not be made on the retired member's account, and any service shall not be credited during the period of reemployment. The employer shall pay the alternate contribution rate pursuant to section 38‑843.05.
H. At any time following retirement, if the retired member becomes employed by an employer, other than the employer from which the member retired, in a position ordinarily filled by an employee of an eligible group, employee contributions shall not be made on the retired member's account, and any service shall not be credited during the period of reemployment. The employer shall pay the alternate contribution rate pursuant to section 38‑843.05.
I. If a member who retired under an accidental or ordinary disability becomes reemployed as an employee of an eligible group, section 38‑844 applies and a determination shall be made by the local board as to whether subsection E, F, G or H of this section applies.
J. The local board shall review all reemployment determinations and voluntary assignments as described in subsection F of this section. If the local board or the system is not provided the necessary information required by the system to make a reemployment determination, the local board and the system shall suspend pension payments until information is received and a determination is made regarding whether the reemployment meets the requirements of subsection E, F, G, H or I of this section.
K. A person who defrauds the system or who takes, converts, steals or embezzles monies owned by or from the system and who fails or refuses to return the monies to the system on the board's written request is subject to civil suit by the system in the superior court in Maricopa county. On entry of an order finding the person has defrauded the system or taken, converted, stolen or embezzled monies owned by or from the system, the court shall enter an order against that person and for the system awarding the system all of its costs and expenses of any kind, including attorney fees, that were necessary to successfully prosecute the action. The court shall also grant the system a judicial lien on all of the nonexempt property of the person against whom judgment is entered pursuant to this subsection in an amount equal to all amounts awarded to the system, plus interest at the rate prescribed by section 44‑1201, until all amounts owed are paid to the system.
L. Notwithstanding any other provision of this article, the board may offset against any benefits otherwise payable by the system to an active or retired member or survivor any court ordered amounts awarded to the board and system and assessed against the member or survivor.
M. Notwithstanding any other provision of this article, a member who retires having met all of the qualifications for retirement and who subsequently becomes an elected official, by election or appointment, is not considered reemployed by the same employer.
N. For the purposes of this section, "same position" means a position in which the member performs substantially similar duties that were performed and exercises substantially similar authority that was exercised by the retired member before retirement.
Sec. 12. Section 38-858, Arizona Revised Statutes, is amended to read:
38-858. Credit for military service
A. A member of the system who has at least five years of service with the system may receive credited service for periods of active military service performed before employment with the member's current employer if:
1. The member was honorably separated from the military service.
2. The period of military service for which the member receives credited service does not exceed sixty months.
3. The period of military service for which the member receives credited service is not on account with any other retirement system, except as provided by 10 United States Code section 12736 or except if the member is not yet eligible for a military retirement benefit.
4. The member pays the cost to purchase the prior active military service. The cost is the amount necessary to equal the increase in the actuarial present value of projected benefits resulting from the additional credited service.
5. The amount of benefits purchased pursuant to this subsection is subject to limits established by section 415 of the internal revenue code.
B. An active member of the system who volunteers or is ordered to perform military service may receive credited service for not more than sixty months of military service as provided by the uniformed services employment and reemployment rights act of 1994 (38 United States Code part III, chapter 43). The member's employer shall make employer contributions and the member shall make the member contributions pursuant to subsection C of this section if the member meets the following requirements:
1. Was an active member of the system on the day before the member began military service.
2. Entered into and served in the armed forces of the United States or any military reserve unit of any branch of the armed forces of the United States or is a member of the national guard.
3. Complies with the notice and return to work provisions of 38 United States Code section 4312.
C. Contributions made pursuant to subsection B of this section shall be for the period of time beginning on the date the member began military service and ending on the later of one of the following dates:
1. The date the member is separated from military service.
2. The date the member is released from service related service‑related hospitalization or two years after initiation of service related service‑related hospitalization, whichever date is earlier.
3. The date the member dies as a result of or during military service.
D. Notwithstanding any other law, on payment of the contributions made pursuant to subsection B of this section, the member shall be credited with service for retirement purposes for the period of military service of not more than sixty months. The member shall submit a copy of the military discharge certificate (DD-256A) and a copy of the military service record (DD-214) or its equivalent with the member's application when applying for credited service corresponding to the period of military service.
E. The employer and the member shall make contributions pursuant to subsection B of this section as follows:
1. Contributions shall be based on the compensation that the member would have received but for the period that the member was ordered into active military service.
2. If the employer cannot reasonably determine the member's rate of compensation for the period that the member was ordered into military service, contributions shall be based on the member's average rate of compensation during the twelve-month period immediately preceding the period of military service.
3. If a member has been employed less than twelve months before being ordered into military service, contributions shall be based on the member's compensation being earned immediately preceding the period of military service.
4. The member has up to three times the length of military service, not to exceed sixty months, to make the member contributions. Once the member has made the member contributions or on receipt of the member's death certificate, the employer shall make the employer contributions in a lump sum. Death benefits shall be calculated as prescribed by law.
5. If the member's employer pays military differential wage pay to members serving in the military, contributions shall be paid to the system pursuant to section 38‑843 for any military differential wage pay paid to the member while performing military service.
F. In computing the length of total credited service of a member for the purpose of determining retirement benefits or eligibility, the period of military service, as prescribed by this section, shall be included.
G. If a member performs military service due to a presidential call‑up, not to exceed forty-eight months, the employer shall make the employer and member contributions computed pursuant to subsection E of this section on the member's return and in compliance with subsection B of this section.
H. In addition to, but not in duplication of, the provisions of subsection B of this section, beginning December 12, 1994 contributions, benefits and credited service provided pursuant to this section shall be provided pursuant to section 414(u) of the internal revenue code, and this section shall be interpreted in a manner consistent with that internal revenue code section.
I. For plan years beginning after December 31, 2008, a member who does not currently perform services for an employer by reason of qualified military service as defined in section 414(u)(5) of the internal revenue code is not considered having a severance from employment during that qualified military service. Any payments by the employer to the member during the qualified military service shall be considered compensation to the extent those payments do not exceed the amounts the member would have received if the member had continued to perform services for the employer rather than entering qualified military service.
J. For deaths occurring from and after December 31, 2006, in the case of a member who dies while performing qualified military service as defined in section 414(u)(5) of the internal revenue code, the survivors of the member are entitled to any benefits, other than benefit accruals relating to the period of qualified military service, provided under the system as though the member resumed and then terminated employment on account of death.
Sec. 13. Section 38-866, Arizona Revised Statutes, is amended to read:
38-866. Defined contribution plan design; purpose; powers and duties of the board; administration
A. The board shall establish, design and administer a defined contribution plan to provide for the retirement of specified participants beginning July 1, 2017.
B. The purpose of this article is to provide a defined contribution plan that is fully funded on a current basis from employer and participant contributions.
C. The legislature intends that the defined contribution plan for participants under this article be designed to be a qualified governmental plan under section 401(a) of the internal revenue code, as amended, or successor provisions of law, and be exempt from taxation under section 501 of the internal revenue code. The board may adopt any additional provision to the defined contribution plan that is necessary to fulfill this intent. Consistent with this intent, the board may submit to the internal revenue service a request for a determination letter that the defined contribution plan is a plan qualified under section 401(a) of the internal revenue code and a private letter ruling that all participant contributions that are picked up by the employer as provided in section 38‑867 shall be treated as employer contributions pursuant to section 414(h) of the internal revenue code.
D. The board shall:
1. Enter into a contract with a provider or providers to provide retirement plan investments, plan administration and services to participants in the defined contribution plan. The plan shall provide for appropriate long‑term retirement‑oriented investments and shall include both fixed and variable deferred annuity options. The board shall consider all of the following when determining a company with which to contract:
(a) The financial stability of the company and the ability of the company to provide the contracted rights and benefits to the participants.
(b) The cost of the investments, plan administration and services to the participants.
(c) The experience of the company in providing defined contribution retirement plans in lieu of defined benefit plan participation to public employees.
(d) The experience of the company in paying retirement income to public employees.
(e) The experience of the company in providing plan education, counseling and advice to participants in public employee retirement plans that are offered in lieu of state defined benefit plan participation.
2. Require under a contract that a provider provide education, counseling and objective participant‑specific plan advice to participants. Any participant‑specific advice and counseling shall be administered by a federally registered investment advisor. The federally registered investment advisor shall act as a fiduciary to participants and is required to act in the participant's best interest.
3. Require under the contract that the defined contribution plan include not less than five and not more than twenty‑five predetermined investment portfolio options to participants. The predetermined investment portfolio options shall include options that reflect different risk profiles and options that automatically reallocate and rebalance contributions as a participant ages. In addition, the defined contribution plan may permit participants to construct investment portfolios using some or all of the investment options comprising the predetermined investment portfolio options.
4. Require under a contract that the defined contribution retirement plan offer participants a menu of lifetime annuity options, either fixed or variable or a combination of both.
E. The board may:
1. Employ other services it deems necessary, including legal services, for the operation and administration of the defined contribution plan.
2. Perform all acts, whether or not expressly authorized, that it deems necessary and proper for the operation and protection of the plan.
F. The board shall adopt policies regarding the defined contribution plan, including the administration of the participant and employer contributions, investment options, termination of participation in the defined contribution plan, administration of the payout options under the defined contribution plan and administration of the participant distributions.
G. The board shall participate in a competitive bid process at least once every five years to contract with a private person or any qualified company or companies to administer the defined contribution plan established pursuant to this article.
H. Any contract for a third‑party administrator of the defined contribution plan shall include competitive fees and provisions requiring quarterly meetings with the system, annual updates to the board on the status of the defined contribution plan and quarterly statements to each participant. On or before December 1 31 of each year, the board shall report the status of the defined contribution plan to the governor, the president of the senate, the speaker of the house of representatives and the joint legislative budget committee.
Sec. 14. Title 38, chapter 5, article 4.1, Arizona Revised Statutes, is amended by adding section 38-868.01, to read:
38-868.01. Credit for military service
A. An active member of the defined contribution system who volunteers or is ordered to perform military service may receive years of service for not more than sixty months of military service as provided by the uniformed services employment and reemployment rights act of 1994 (38 United States Code part III, chapter 43). The member's employer shall make employer contributions and the member shall make the member contributions pursuant to subsection B of this section if the member meets the following requirements:
1. Was an active member of the defined contribution system on the day before the member began military service.
2. Entered into and served in the armed forces of the United States or any military reserve unit of any branch of the armed forces of the United States or is a member of the national guard.
3. Complies with the notice and return to work provisions of 38 United States Code section 4312.
B. Contributions made pursuant to subsection A of this section are for the period of time beginning on the date the member began military service and ending on the later of one of the following dates:
1. The date the member is separated from military service.
2. The date the member is released from service-related hospitalization or two years after initiation of service-related hospitalization, whichever date is earlier.
3. The date the member dies as a result of or during military service.
C. Notwithstanding any other law, on payment of the contributions made pursuant to subsection B of this section, the member shall be credited with service for vesting purposes for the period of military service of not more than sixty months. The member shall submit a copy of the military discharge certificate (DD-256A) and a copy of the military service record (DD-214) or its equivalent with the member's application when applying for service corresponding to the period of military service.
D. The employer and the member shall make contributions pursuant to subsection A of this section as follows:
1. Contributions are based on the compensation that the member would have received but for the period that the member was ordered into or volunteered for military service.
2. If the employer cannot reasonably determine the member's rate of compensation for the period that the member was ordered into or volunteered for military service, contributions are based on the member's average rate of compensation during the twelve‑month period immediately preceding the period of military service.
3. If a member has been employed less than twelve months before being ordered into or volunteering for military service, contributions are based on the member's compensation being earned immediately preceding the period of military service.
4. The member has up to three times the length of military service, not to exceed sixty months, to make the member contributions. Once the member has made the member contributions or on receipt of the member's death certificate, the employer shall make the employer contributions in a lump sum. Death benefits shall be calculated as prescribed by law.
5. If the member's employer pays military differential wage pay to members serving in the military, contributions are paid to the defined contribution system pursuant to section 38‑843 for any military differential wage pay paid to the member while performing military service.
E. In computing the length of total credited service of a member for the purpose of determining vesting pursuant to section 38‑867 or disability pursuant to article 4.2 of this chapter, the period of military service, as prescribed by this section, is included.
F. If a member performs military service due to a presidential call‑up, not to exceed forty‑eight months, the employer shall make the employer and member contributions computed pursuant to subsection D of this section on the member's return and in compliance with subsection A of this section.
G. In addition to, but not in duplication of, the provisions of subsection A of this section, beginning July 1, 2017, contributions, benefits and credited service provided pursuant to this section are provided pursuant to section 414(u) of the internal revenue code, and this section shall be interpreted in a manner consistent with that internal revenue code section.
H. For plan years beginning after July 1, 2017, a member who does not currently perform services for an employer by reason of qualified military service as defined in section 414(u)(5) of the internal revenue code is not considered having a severance from employment during that qualified military service. Any payments by the employer to the member during the qualified military service shall be considered compensation to the extent those payments do not exceed the amounts the member would have received if the member had continued to perform services for the employer rather than entering qualified military service.
I. For deaths occurring from and after July 1, 2017, in the case of a member who dies while performing qualified military service as defined in section 414(u)(5) of the internal revenue code, the survivors of the member are entitled to any benefits, other than benefit accruals relating to the period of qualified military service, provided under the defined contribution system as though the member resumed and then terminated employment on account of death.
Sec. 15. Title 38, chapter 5, Arizona Revised Statutes, is amended by adding article 5.1, to read:
ARTICLE 5.1. PSPRS DEFERRED COMPENSATION PLAN
38-875. Definitions
In this article, unless the context otherwise requires:
1. "Board" means the board of trustees of the public safety personnel retirement system established by section 38‑848.
2. "Deferred compensation plan" means an eligible deferred compensation plan as defined in section 457(b) of the internal revenue code.
3. "Employer" means any entity that participates as an employer in a retirement system or plan that is administered by the board.
4. "Participant" means any individual who is employed by an employer and who is enrolled in one of the retirement systems or plans administered by the board.
38-876. Deferred compensation plan; administration
A. The board shall establish, design and administer a deferred compensation plan in which a participant may participate.
B. The board, in the administration, management and operation of the deferred compensation plan, may:
1. Employ services as it deems necessary, including legal services, for the operation and administration of the deferred compensation plan.
2. Administer the deferred compensation plan through contracts with multiple vendors.
3. Perform all acts that it deems necessary and proper for the operation and protection of the deferred compensation plan.
38-877. Voluntary participation; authorization; payroll salary deductions; employer contributions
A. A participant may participate in the deferred compensation plan established pursuant to this article. A participant in the deferred compensation plan shall authorize the participant's employer in writing to make reductions or deductions in the participant's remuneration as provided in an executed deferred compensation agreement.
B. Each employer shall initiate payroll salary reductions or deductions for the deferred compensation plan as directed by their employees who are participating in the deferred compensation plan.
C. An employer may make contributions to the deferred compensation plan as selected by the employer and allowed by law.
38-878. Effect of participation
A. Any benefits provided pursuant to this article are in addition to any other benefits provided for the participants and are supplemental to any other retirement plan under which such participants participate.
B. Any income deferred under the deferred compensation plan are included as regular compensation for the purpose of computing the retirement and pension benefits earned by an employee participating in the deferred compensation plan and in any other plan maintained by the employee's employer, unless specifically excluded under the other plan or the state laws governing such other plan.
Sec. 16. Section 38-881.01, Arizona Revised Statutes, is amended to read:
38-881.01. Employees hired on or after July 1, 2018; defined contribution plan; benefit election; disability
A. Except as provided in subsection B of this section, an employee who is hired on or after July 1, 2018, who is a member as defined in section 38‑881, paragraph 27, subdivision (a) and who was not an active, an inactive or a retired member of the plan or a member of the plan with a disability on June 30, 2018 shall participate in the public safety personnel defined contribution retirement plan established pursuant to article 4.1 of this chapter. for an employee who is hired on or after September 1, 2019, the employee's participation in the public safety personnel defined contribution retirement plan established pursuant to article 4.1 of this chapter begins ninety days after the date the employee is hired.
B. An employee who is hired on or after July 1, 2018, who is in a designated position as defined in section 38‑881, paragraph 13, subdivision (g) and who was not an active, an inactive or a retired member of the plan or a member of the plan with a disability on June 30, 2018 is eligible to participate in the corrections officer retirement plan or the public safety personnel defined contribution retirement plan established pursuant to article 4.1 of this chapter, depending on the employee's election under this section. During the first sixty days of an employee's employment and before the employee makes a decision regarding the individual's retirement plan, the board shall provide each probation and surveillance officer who is hired on or after July 1, 2018 live interactive, objective educational training, counseling and participant‑specific plan information about both the corrections officer retirement plan and the public safety personnel defined contribution retirement plan options. The employee's participation in either the plan or the public safety personnel defined contribution retirement plan established pursuant to article 4.1 of this chapter begins ninety days after the date the employee is hired. Unless the elections made under this section are made before the ninetieth day after the date of employment, the employee is automatically enrolled in the plan for the remainder of the employee's employment with any employer under the plan. Any election made under this section is irrevocable and is the employee's election for the remainder of the employee's employment with any employer under the plan, regardless of whether the employee's employment is continuous. The employee may make one of the following irrevocable elections:
1. To participate solely in the corrections officer retirement plan.
2. To participate solely in the public safety personnel defined contribution retirement plan established pursuant to article 4.1 of this chapter.
C. If an employee specified in subsection B of this section in the employee's first ninety days of employment is determined to be eligible for an accidental or total and permanent disability pension pursuant to section 38‑886, the employee shall be automatically enrolled in the corrections officer retirement plan for the remainder of the employee's employment with any employer under the plan commencing on the employee's date of disability and shall receive an accidental or total and permanent disability pension as prescribed in this article.
D. If an employee specified in subsection B of this section in the employee's first ninety days of employment is killed in the line of duty or dies from injuries suffered in the line of duty, the employee shall be considered as having been enrolled in the corrections officer retirement plan and the surviving spouse of the deceased employee is eligible for survivor benefits as prescribed in this article.
Sec. 17. Section 38-883, Arizona Revised Statutes, is amended to read:
38-883. Board of trustees; powers and duties
A. The board shall:
1. Maintain records of the operation and administration of the plan and fund.
2. Contract on a fee basis for an independent annual audit of the accounting records of the plan and fund and file a copy of the audit report with the auditor general.
3. Employ on a fee basis an independent firm of actuaries to perform annual actuarial valuations for each participating employer of the plan and fund based on an actuarial cost method and actuarial assumptions recommended by the actuary and adopted by the board. The actuarial valuations shall be performed by or under the direct supervision of an actuary who is a member of the American academy of actuaries. By November 1 of each year, the board shall provide a preliminary report and by December 1 31 of each year provide a final report to the governor, the speaker of the house of representatives and the president of the senate on the contribution rate for the ensuing fiscal year.
4. Invest and reinvest the monies and assets of the fund in accordance with the investment provisions of the public safety personnel retirement system. The board may commingle securities and monies of the fund subject to the crediting of receipts and earnings and charging of payments to the account of the appropriate employer.
5. Submit a detailed annual report of the operation and investment performance of the plan and fund to the governor, the legislature and the members of the plan. The board shall submit the annual report no later than six months after the end of the fiscal year to which it pertains.
B. The board of trustees may:
1. Employ services it deems necessary, including legal services, for the operation and administration of the plan and fund.
2. Utilize separate or commingled investment vehicles.
3. Delegate authority to the administrator employed pursuant to section 38‑848, subsection M, paragraph 6.
4. Appear before local boards and the courts and political subdivisions of this state through counsel or appointed representatives to protect the fund. The board of trustees is not responsible for the actions or omissions of the local boards under this plan but may seek review or a rehearing of actions or omissions of local boards. The board of trustees does not have a duty to review actions of the local boards but may do so, in its discretion, in order to protect the fund.
5. Perform all acts, whether or not expressly authorized, that it deems necessary and proper for the protection of the plan and fund.
Sec. 18. Section 38-884.01, Arizona Revised Statutes, is amended to read:
38-884.01. Reinstatement of credited service; effect of prior law
A. A member who received a severance refund on termination of employment as provided in section 38‑884, who is subsequently reemployed by an employer and who redeposits may have redeposited the amount withdrawn with interest as provided in section 38‑884 or a member who redeems prior service pursuant to statute is subject to the benefits and duties in effect at the time of the member's most recent reemployment. This subsection does not apply if a court of competent jurisdiction orders reinstatement of benefits and duties under a prior law. following times for the specified situations:
1. At the time of the member's reemployment if the member is reemployed by an employer other than the same employer.
2. At the time of the member's reemployment if the member is reemployed by the same employer at least ninety days after the date of termination.
3. At the time of the member's most recent termination if the member is reemployed by the same employer in any capacity within ninety days after the date of termination.
B. Subsection A of this section does not apply if a court of competent jurisdiction orders reinstatement of benefits and duties under a prior law.
C. If a member was initially employed on or after July 1, 2018, regardless of whether the member received a severance refund or redeposits the amount withdrawn with interest, the member shall return to the plan as irrevocably elected pursuant to section 38‑881.01.
B. D. A member who transfers credited service from one employer to another employer pursuant to section 38‑908 retains the benefits and duties in effect at the time of the member's transfer.
Sec. 19. Section 38-895.01, Arizona Revised Statutes, is amended to read:
38-895.01. Compensation limitation; adjustments; definition
A. The annual compensation of each member taken into account for purposes of the plan shall not exceed the following:
1. Beginning January 1, 1996 through December 31, 2001, one hundred fifty thousand dollars $150,000.
2. Except for members hired on or after July 1, 2018, beginning January 1, 2002, two hundred thousand dollars $200,000. The board shall adjust the two hundred thousand dollar $200,000 annual compensation limit under this paragraph at the same time and in the same manner as adjusted by the United States secretary of the treasury under section 401(a)(17)(B) of the internal revenue code. The adjustment under this paragraph for a calendar year applies to annual compensation for the plan year that begins with or within the that calendar year.
3. For members who are hired on or after July 1, 2018, seventy thousand dollars $70,000. The board shall adjust the seventy thousand dollar $70,000 annual compensation limit under this paragraph as prescribed in subsection C of this section. Notwithstanding the adjustments made under subsection C of this section, the limit under this paragraph, as adjusted by the board, may not exceed the maximum compensation limit of section 401(a)(17) of the internal revenue code, as adjusted by the United States secretary of the treasury.
B. If compensation under the plan is determined on a period of time that contains fewer than twelve calendar months, the compensation limit for that period of time is equal to the dollar limit for the calendar year during which the period of time begins, multiplied by the fraction in which the numerator is the number of full months in that period of time and the denominator is twelve.
C. Beginning in fiscal year 2021‑2022, and every third fiscal year thereafter, the board shall adjust the annual compensation limit specified in subsection A, paragraph 3 of this section by the average change in the probation wage index as determined pursuant to this subsection. The board shall annually publish the probation wage index in January. The annual compensation limit adjustment under this subsection for a calendar year applies to the annual compensation for that calendar year. To determine the probation wage index:
1. The administrative office of the courts shall provide to the board pay scales for the month of July for the classifications of probation officers, by county, annually in July.
2. The board shall determine the weighted average of the change in the top of the pay scale for probation officers. The average change shall be weighted by measuring each county's total number of members divided by the total number of members of all counties represented in the probation wage index.
D. The board shall establish a probation wage index that reflects the calculation made pursuant to subsection C of this section.
E. For the purposes of this section, "probation officers" means the classifications of probation officers or surveillance officers or their equivalent classifications.
Sec. 20. Section 38-907, Arizona Revised Statutes, is amended to read:
38-907. Credit for military service
A. A member of the plan who has at least five years of credited service with the plan may receive credited service for periods of active military service performed before employment with the member's current employer if:
1. The member was honorably separated from the military service.
2. The period of military service for which the member receives credited service does not exceed sixty months.
3. The period of military service for which the member receives credited service is not on account with any other retirement system, except as provided by 10 United States Code section 12736 or except if the member is not yet eligible for a military retirement benefit.
4. The member pays the cost to purchase the prior active military service. The cost is the amount necessary to equal the increase in the actuarial present value of projected benefits resulting from the additional credited service.
5. The amount of benefits purchased pursuant to this subsection is subject to limits established by section 415 of the internal revenue code.
B. An active member of the plan who volunteers or is ordered to perform military service may receive credited service for not more than sixty months of military service as provided by the uniformed services employment and reemployment rights act of 1994 (38 United States Code part III, chapter 43). The member's employer shall make employer contributions and the member shall make the member contributions pursuant to subsection C of this section if the member meets the following requirements:
1. Was an active member of the plan on the day before the member began military service.
2. Entered into and served in the armed forces of the United States or any military reserve unit of any branch of the armed forces of the United States or is a member of the national guard.
3. Complies with the notice and return to work provisions of 38 United States Code section 4312.
C. Contributions made pursuant to subsection B of this section shall be for the period of time beginning on the date the member began military service and ending on the later of one of the following dates:
1. The date the member is separated from military service.
2. The date the member is released from service related service‑related hospitalization or two years after initiation of service related service‑related hospitalization, whichever date is earlier.
3. The date the member dies as a result of or during military service.
D. Notwithstanding any other law, on payment of the contributions made pursuant to subsection B of this section, the member shall be credited with service for retirement purposes for the period of military service of not more than sixty months. The member shall submit a copy of the military discharge certificate (DD-256A) and a copy of the military service record (DD-214) or its equivalent with the member's application when applying for credited service corresponding to the period of military service.
E. The employer and the member shall make contributions pursuant to subsection B of this section as follows:
1. Contributions shall be based on the compensation that the member would have received but for the period that the member was ordered into active military service.
2. If the employer cannot reasonably determine the member's rate of compensation for the period that the member was ordered into military service, contributions shall be based on the member's average rate of compensation during the twelve-month period immediately preceding the period of military service.
3. If a member has been employed less than twelve months before being ordered into military service, contributions shall be based on the member's compensation being earned immediately preceding the period of military service.
4. The member has up to three times the length of military service, not to exceed sixty months, to make the member contributions. Once the member has made the member contributions or on receipt of the member's death certificate, the employer shall make the employer contributions in a lump sum. Death benefits shall be calculated as prescribed by law.
5. If the member's employer pays military differential wage pay to members serving in the military, contributions shall be paid to the plan pursuant to section 38‑891 for any military differential wage pay paid to the member while performing military service.
F. In computing the length of total credited service of a member for the purpose of determining retirement benefits or eligibility, the period of military service, as prescribed by this section, shall be included.
G. If a member performs military service due to a presidential call‑up, not to exceed forty-eight months, the employer shall make the employer and member contributions computed pursuant to subsection E of this section on the member's return and in compliance with subsection B of this section.
H. In addition to, but not in duplication of, subsection B of this section, beginning December 12, 1994 contributions, benefits and credited service provided pursuant to this section shall be provided pursuant to section 414(u) of the internal revenue code, and this section shall be interpreted in a manner consistent with that internal revenue code section.
I. For plan years beginning after December 31, 2008, a member who does not currently perform services for an employer by reason of qualified military service as defined in section 414(u)(5) of the internal revenue code is not considered having a severance from employment during that qualified military service. Any payments by the employer to the member during the qualified military service shall be considered compensation to the extent those payments do not exceed the amounts the member would have received if the member had continued to perform services for the employer rather than entering qualified military service.
J. For deaths occurring from and after December 31, 2006 in the case of a member who dies while performing qualified military service as defined in section 414(u)(5) of the internal revenue code, the survivors of the member are entitled to any benefits, other than benefit accruals relating to the period of qualified military service, provided under the plan as though the member resumed and then terminated employment on account of death.
Sec. 21. Retroactivity
A. Section 38-834, Arizona Revised Statutes, as amended by this act, applies retroactively to from and after December 31, 2013.
B. Section 38-868.01, Arizona Revised Statutes, as added by this act, applies retroactively to from and after June 30, 2017.
C. Section 38-884.01, Arizona Revised Statutes, as amended by this act, applies retroactively to from and after June 30, 2018.
APPROVED BY THE GOVERNOR MARCH 26, 2019.
FILED IN THE OFFICE OF THE SECRETARY OF STATE MARCH 26, 2019.
