Bill Text: AZ SB1034 | 2020 | Fifty-fourth Legislature 2nd Regular | Engrossed
Bill Title: ASRS; required distributions; nonparticipatory employers
Spectrum: Partisan Bill (Republican 1-0)
Status: (Engrossed - Dead) 2020-03-12 - House GOV Committee action: Do Pass, voting: (9-0-0-2-0-0) [SB1034 Detail]
Download: Arizona-2020-SB1034-Engrossed.html
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Senate Engrossed |
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State of Arizona Senate Fifty-fourth Legislature Second Regular Session 2020
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SENATE BILL 1034 |
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AN ACT
Amending sections 38-751, 38-759 and 38‑775, Arizona Revised Statutes; relating to the Arizona state retirement system.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 38-751, Arizona Revised Statutes, is amended to read:
38-751. Nonparticipatory employer liability allocation; exemption; definitions
A. ASRS shall establish a separate fund for an employer other than a charter school that is:
1. no longer participating in ASRS as a result of any of the following:
(a) 1. The character of the employer changes from a public entity to a private entity.
(b) 2. An employer, other than this state, dissolves.
(c) 3. Through legislative action, the employer is no longer enrolling new employees in ASRS or no longer contributing to ASRS on behalf of current employees or groups of employees who otherwise would be eligible for ASRS membership.
2. Based on the number of contributing employees as of August 3, 2018 both of the following apply:
(a) Considered to employ a minimum of fifty employees as of one year preceding the employer's nonparticipation date.
(b) Is no longer participating in ASRS as a result of reducing the number of actively contributing employees by thirty percent or more over a three‑year period or by fifty percent or more over any period of time by filling a position ordinarily filled by an employee of the employer with an employee who is not otherwise actively contributing, unless the employee participates in another Arizona retirement plan specified in article 3, 4 or 6 of this chapter, or an optional retirement plan specified in title 15, chapter 12, article 3.
B. Subsection A, paragraph 2 of this section does not apply to this state unless the reduction of actively contributing employees is the result of hiring one or more leased employees.
C. B. For a nonparticipating employer described in subsection A of this section, ASRS shall allocate an actuarial accrued liability and a designated asset amount to the nonparticipating employer's separate fund as of the nonparticipation date, which shall be calculated as follows:
1. The actuarial accrued liability shall equal the sum of the plan employer actuarial accrued liability and the LTD program employer actuarial accrued liability. Actuarial accrued liability shall be calculated based on the same actuarial assumptions and methods as the actuarial valuation performed immediately preceding the nonparticipating employer's nonparticipation date.
2. The designated asset amount shall equal the sum of the following:
(a) The plan employer actuarial accrued liability multiplied by the plan funded percentage.
(b) The LTD program employer actuarial accrued liability multiplied by the LTD program funded percentage.
D. C. All monies and securities transferred to the nonparticipating employer's separate fund shall be credited to that fund. A record of the market value and the cost value of such transferred contributions shall be maintained for actuarial and investment purposes. ASRS shall make all decisions regarding the nonparticipating employer's separate fund.
E. D. After establishing the nonparticipating employer's separate fund, the fund shall be adjusted for all of the following:
1. All contributions made by employees of the nonparticipating employer.
2. All contributions made by the nonparticipating employer.
3. All plan, all LTD program and any other benefits paid to the nonparticipating employer's members who are active, inactive, retired or on long-term disability.
4. All plan, all LTD program and any other benefits paid to the survivors of the nonparticipating employer's members.
5. The applicable share of the investment gains and losses.
6. Expenses associated with the administration of the nonparticipating employer's separate fund, including any administrative, development, actuarial, legal, custodial and investment management costs associated with the fund. These expenses shall be paid directly by the nonparticipating employer or included in the employer's liability for the purposes of determining the employer's contribution rate.
F. E. After establishing the nonparticipating employer's separate fund, the nonparticipating employer and any employees of that employer who are enrolled in ASRS shall continue to have contribution requirements to the nonparticipating employer's separate fund. The contribution requirements shall be calculated as follows:
1. All employees of the nonparticipating employer who are enrolled in ASRS shall continue to make contributions through payroll deductions based on the contribution rate determined for the employees of participating employers of ASRS pursuant to section 38‑736.
2. The nonparticipating employer shall continue to make contributions through lump sum payments in accordance with section 38‑735, equal to the sum of:
(a) Contributions owed through payroll deductions based on the contribution rate determined for participating employers pursuant to section 38‑737.
(b) The amount required to amortize the past service funding requirement in the nonparticipating employer's separate fund over a period that is determined by the board and that is consistent with generally accepted actuarial standards. In determining the past service funding period, the board shall seek to improve the funded status whenever the nonparticipating employer's separate fund is less than one hundred percent funded.
G. F. The ASRS actuary shall determine the actuarial assumptions used to determine the contribution requirements for the nonparticipating employer under subsection F of this section. Notwithstanding section 38‑737, the contribution for the nonparticipating employer may not be determined as a percentage of compensation due to the anticipated decline of compensation for employees of the nonparticipating employer participating in ASRS. The nonparticipating employer shall certify on each payroll the amount to be contributed and shall remit that amount to ASRS at a rate that is consistent with the rate paid by the participating employers. Each fiscal year, amounts that are not remitted through payroll contributions pursuant to this section shall be invoiced to the employer and shall be paid within the same fiscal year the nonparticipating employer is invoiced.
H. G. This section does not permit an employer to alter the irrevocable agreement approved by the board under section 38‑729.
I. H. For the purposes of calculating an employer's liability under this section, members who are active, inactive, retired or on long‑term disability are considered employees of the nonparticipating employer if the member's most recent employer was the nonparticipating employer as of the nonparticipation date.
J. An employer that is no longer participating pursuant to this section is not eligible to participate in ASRS after the employer's nonparticipation date.
K. i. This section does not apply to an employer whose existence was terminated by legislative action or otherwise became a nonparticipating employer as described in subsection A of this section on or before January 1, 2013.
L. J. For the purposes of this section:
1. "LTD program" means the program established by article 2.1 of this chapter.
2. "LTD program employer actuarial accrued liability" means the actuarial accrued liability for the employer's active and inactive members and the open LTD program claims for the employees of the employer as of the nonparticipation date.
3. "LTD program funded percentage" means the total market value of LTD program assets divided by the total LTD program actuarial accrued liabilities, as of the actuarial valuation performed immediately preceding the nonparticipation date. If the percentage is greater than one hundred percent, the LTD program funded percentage is one hundred percent.
4. "Nonparticipation date" means the date on which the employer is no longer participating in ASRS.
5. "Plan" means the retirement plan established by this article.
6. "Plan employer actuarial accrued liability" means the plan's actuarial accrued liability for all benefits provided under this article, including benefits established in section 38‑783, for the employer's active, inactive or retired members as of the actuarial valuation performed immediately preceding the nonparticipation date.
7. "Plan funded percentage" means the plan's total market value of assets divided by the plan's actuarial accrued liability for all benefits provided under this article, including benefits established in section 38‑783, for all active, inactive or retired members as of the actuarial valuation performed immediately preceding the nonparticipation date. If the percentage is greater than one hundred percent, the plan funded percentage is one hundred percent.
Sec. 2. Section 38-759, Arizona Revised Statutes, is amended to read:
38-759. Late retirement; definition
A. A member who is eligible for normal retirement benefits on the member's normal retirement date may elect to defer receiving retirement benefits.
B. Notwithstanding this section, payment of a member's deferred benefits shall not commence later than the April 1 following the calendar year in which the member attains seventy and one‑half years of age or the calendar year in which the member terminates employment, whichever occurs later member's required beginning date.
C. For the purposes of this section, "required beginning date" has the same meaning prescribed in section 38‑775.
Sec. 3. Section 38-775, Arizona Revised Statutes, is amended to read:
38-775. Required distributions; definitions
A. This section applies for purposes of determining required minimum distributions for calendar years beginning on and after January 1, 2006. In applying the requirements of this section, the following operational provisions govern:
1. Except as provided in the following sentence, the requirements of this section take precedence over any inconsistent provisions of this article. The rules of this section shall not restrict any form, calculation, adjustment or payment of benefit provided under this article in effect on April 17, 2002, if the form, calculation, adjustment or payment of benefit satisfied section 401(a)(9) of the internal revenue code based on a reasonable and good faith interpretation of that section.
2. All distributions required under this section shall be determined and made pursuant to section 401(a)(9) of the internal revenue code and the regulations that are issued under that section by the United States secretary of the treasury.
3. Notwithstanding this section, other than paragraph 2 of this subsection, distributions may be made under a designation made before January 1, 1984, pursuant to section 242(b)(2) of the tax equity and fiscal responsibility act of 1982 (P.L. 97-248) and the provisions of this article that relate to that section.
B. The member's entire interest shall be distributed, or begin to be distributed, to the member no not later than the member's required beginning date.
C. If the member dies before distributions begin, the member's entire interest shall be distributed, or begin to be distributed, no not later than as follows:
1. If the member's surviving spouse is the member's sole designated beneficiary, except as provided in paragraph 6 of this subsection, distributions to the surviving spouse shall begin by December 31 of the calendar year immediately following the calendar year in which the member died, or by December 31 of the calendar year in which the member would have attained seventy and one-half seventy-two years of age, if later.
2. If the member's surviving spouse is not the member's sole designated beneficiary, except as provided in paragraph 6 of this subsection, distributions to the designated beneficiary shall begin by December 31 of the calendar year immediately following the calendar year in which the member died.
3. If there is no designated beneficiary as of September 30 of the year following the year of the member's death, the member's entire interest shall be distributed by December 31 of the calendar year containing the fifth anniversary of the member's death.
4. If the member's surviving spouse is the member's sole designated beneficiary and the surviving spouse dies after the member but before distributions to the surviving spouse begin, this subsection, other than paragraph 1 of this subsection, applies as if the surviving spouse were the member.
5. For purposes of this subsection and subsection G, distributions are considered to begin on the member's required beginning date or, if paragraph 4 of this subsection applies, the date distributions are required to begin to the surviving spouse under paragraph 1 of this subsection. If annuity payments irrevocably commence to the member before the member's required beginning date, or to the member's surviving spouse before the date distributions are required to begin to the surviving spouse under paragraph 1 of this subsection, the date distributions are considered to begin is the date distributions actually commence.
6. If the member dies before distributions begin and there is a designated beneficiary, distribution to the designated beneficiary is not required to begin by the date prescribed in paragraph 1 or 2 of this subsection as long as the member's entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the member's death. If the member's surviving spouse is the member's sole designated beneficiary and the surviving spouse dies after the member but before distributions to either the member or the surviving spouse begin, this paragraph applies as if the surviving spouse were the member.
D. Unless the member's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution, calendar year distributions shall be made pursuant to subsections E, F and G. If the member's interest is distributed in the form of an annuity purchased from an insurance company, distributions shall be made pursuant to the requirements of section 401(a)(9) of the internal revenue code and the regulations that are issued under that section by the United States secretary of the treasury. Any part of the member's interest that is in the form of an individual account described in section 414(k) of the internal revenue code shall be distributed in a manner satisfying the requirements of section 401(a)(9) of the internal revenue code and the regulations that are issued under that section by the United States secretary of the treasury that apply to individual accounts.
E. The following provisions govern the determination of the amount to be distributed each calendar year:
1. If the member's interest is paid in the form of annuity distributions, payments under the annuity shall satisfy the following requirements:
(a) The annuity distributions shall be paid in periodic payments made at intervals not longer than one year.
(b) The distribution period shall be over a life or lives or over a period certain not longer than the period described in subsection F or G.
(c) Once payments have begun over a period certain, the period certain shall not be changed even if the period certain is shorter than the maximum permitted allowed.
(d) Payments shall either be nonincreasing or increase only as follows:
(i) By an annual percentage increase that does not exceed the annual percentage increase in a cost-of-living index that is based on prices of all items and issued by the bureau of labor statistics.
(ii) To the extent of the reduction in the amount of the member's payments to provide for a survivor benefit on death, but only if the beneficiary whose life was being used to determine the distribution period described in subsection F dies or is no longer the member's beneficiary pursuant to a qualified domestic relations order within the meaning of section 414(p) of the internal revenue code.
(iii) To provide cash refunds of employee contributions on the member's death.
(iv) To pay increased benefits that result from a plan amendment.
2. The amount that must be distributed on or before the member's required beginning date or, if the member dies before distributions begin, the date distributions are required to begin under subsection C, paragraph 1 or 2, is the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. Payment intervals are the periods for which payments are received, such as bimonthly, monthly, semiannually or annually. All of the member's benefit accruals as of the last day of the first distribution calendar year shall be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the member's required beginning date.
3. Any additional benefits accruing to the member in a calendar year after the first distribution calendar year shall be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which the amount accrues.
F. The following provisions govern annuity distributions that commence during a member's lifetime:
1. If the member's interest is being distributed in the form of a joint and survivor annuity for the joint lives of the member and a nonspouse beneficiary, annuity payments to be made on or after the member's required beginning date to the designated beneficiary after the member's death must not at any time exceed the applicable percentage of the annuity payment for the period that would have been payable to the member using the table set forth in question and answer number 2 of section 1.401(a)(9)-6 of the regulations issued by the United States secretary of the treasury. If the form of distribution combines a joint and survivor annuity for the joint lives of the member and a nonspouse beneficiary and a period certain annuity, the requirement in the preceding sentence applies to annuity payments to be made to the designated beneficiary after the expiration of the period certain.
2. Unless the member's spouse is the sole designated beneficiary and the form of distribution is a period certain and no life annuity, the period certain for an annuity distribution commencing during the member's lifetime may not exceed the applicable distribution period for the member under the uniform lifetime table prescribed in section 1.401(a)(9)-9 of the regulations issued by the United States secretary of the treasury for the calendar year that contains the annuity starting date. If the annuity starting date precedes the year in which the member reaches seventy years of age, the applicable distribution period for the member is the distribution period for seventy years of age under the uniform lifetime table set forth in section 1.401(a)(9)-9 of the regulations issued by the United States secretary of the treasury plus the excess of seventy over the age of the member as of the member's birthday in the year that contains the annuity starting date. If the member's spouse is the member's sole designated beneficiary and the form of distribution is a period certain and no life annuity, the period certain may not exceed the longer of the member's applicable distribution period, as determined under this paragraph, or the joint life and last survivor expectancy of the member and the member's spouse as determined under the joint and last survivor table prescribed in section 1.401(a)(9)-9 of the regulations issued by the United States secretary of the treasury, using the member's and spouse's attained ages as of the member's and spouse's birthdays in the calendar year that contains the annuity starting date.
G. The following provisions govern minimum distributions if a member dies before the date distributions begin:
1. Except as provided in subsection C, paragraph 6, if the member dies before the date distribution of the member's interest begins and there is a designated beneficiary, the member's entire interest shall be distributed, beginning no not later than the time prescribed in subsection C, paragraph 1 or 2, over the life of the designated beneficiary or over a period certain not exceeding either of the following:
(a) Unless the annuity starting date is before the first distribution calendar year, the life expectancy of the designated beneficiary determined using the beneficiary's age as of the beneficiary's birthday in the calendar year immediately following the calendar year of the member's death.
(b) If the annuity starting date is before the first distribution calendar year, the life expectancy of the designated beneficiary determined using the beneficiary's age as of the beneficiary's birthday in the calendar year that contains the annuity starting date.
2. If the member dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the member's death, distribution of the member's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the member's death.
3. If the member dies before the date distribution of the member's interest begins, the member's surviving spouse is the member's sole designated beneficiary and the surviving spouse dies before distributions to the surviving spouse begin, this subsection applies as if the surviving spouse were the member, except that the time by which distributions must begin shall be determined without regard to subsection C, paragraph 1.
H. If a member dies after the member's required beginning date and the member had not commenced distribution of retirement benefits, ASRS shall treat the member as having commenced distribution of retirement benefits on the member's required beginning date. Notwithstanding section 38‑776, ASRS shall determine the member's retirement benefit as a straight annuity as of the date of the member's required beginning date. The member's estate is entitled to the member's benefit payments and any remaining member contributions on account shall be disbursed pursuant to section 38‑763.
H. I. For the purposes of this section:
1. "Designated beneficiary" means the individual who is designated as the member's beneficiary to receive benefits under this article and is the designated beneficiary under section 401(a)(9) of the internal revenue code and question and answer number 1 of section 1.401(a)(9)-4 of the regulations issued by the United States secretary of the treasury.
2. "Distribution calendar year" means a calendar year for which a minimum distribution is required. For distributions beginning before the member's death, the first distribution calendar year is the calendar year immediately preceding the calendar year that contains the member's required beginning date. For distributions beginning after the member's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to subsection C.
3. "Life expectancy" means life expectancy as computed by use of the single life table in section 1.401(a)(9)-9 of the regulations issued by the United States secretary of the treasury.
4. "Required beginning date" means the date payment of a member's benefits shall commence, which shall not be later than the April 1 following the calendar year in which the member attains seventy and one‑half years of age or the calendar year in which the member terminates employment, whichever occurs later in accordance with section 401(a)(9)(C) of the internal revenue code.
