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2019 ASRS Legislation Relevant to Employers

The Arizona Legislature adjourned its regular session on May 28, 2019.  Several bills passed which affect the ASRS and its employers and members.  The general effective date for these bills is August 27, 2019.  

Employer Relations will provide a legislative update at the annual Employer Conference, which is required attendance for every ASRS employer.  Keep reading for a preview of what’s to come at the Employer Conference.  Visit the ASRS Legislation page for the full summary of retirement related legislation.

HB2007 – ASRS; Political Subdivision Plans; Adjustments

Two statutes were modified by this bill.

A.R.S. § 38-729 is about political subdivision retirement plans.  When a new employer joins the ASRS it has the option to purchase the prior service of its current employees on its ASRS effective date.  The change effected by HB2007 makes the language consistent with existing laws governing ASRS service purchase.

A.R.S. § 38-738 details the handling of adjustments and refunds in scenarios where less than or more than the correct amount of contributions have been paid.  This bill made a small change to the statute which allows employers to correct a current-year “CNW” error through an adjustment in the contribution reporting system instead of the CNW process.  The missed contributions must be made up within the same fiscal year that they were due, and the employer must obtain written consent of the employee to make the adjustment to the employee’s paycheck.

SB1016 – ASRS; Ineligible Contributions; Unfunded Liability

A.R.S. § 38-748 requires an employer to pay to ASRS any unfunded liability that results from the ASRS providing benefits or service credit to a person if the employer paid contributions for that person and they were ineligible for ASRS membership by statute.  SB1016 made some changes to this statute.

If the person was ineligible for ASRS membership by rule, this law will still apply.

If the person was eligible for ASRS membership, but the employer paid contributions for that member on monies which were not ASRS eligible compensation, then this law will apply.

The bill adds a definition of unfunded liability to be used in situations where the ASRS provides benefits based on ineligible compensation.

SB1018 – ASRS; Compensation; Definition

Of all the ASRS related bills this legislative session, this one will have the largest impact on employers.  It redefines ASRS compensation for members whose ASRS membership begins on or after January 1, 2020.  The bill modifies A.R.S. § 38-711 (7).

It is important to remember that those members whose membership began (or will begin) prior to January 1, 2020 will still have the same definition of compensation that we have today, through the remainder of their active membership.

Beginning January 1, 2020, new ASRS members will have a simplified definition of compensation.  It will only include the gross wages paid to the member, by the employer, for services rendered to the employer during the period considered as credited service.

This will include pay for overtime, pay for using leave time, bonuses and performance pay (including Proposition 301 monies for teachers).  It includes anything listed on the member’s W-2 as wages, tips, and other compensation.

There are some types of pay that will NOT be compensation for new ASRS members, although they will continue to be compensation for pre-2020 members.  These include:

      • Non-accountable allowances, such as a vehicle or phone allowance
      • Payouts of unused leave, even if paid due to a mandatory employer program
      • Employer-only payments to a member’s deferred compensation plan (see the Contribution Reporting page, and specifically the FAQ regarding the March 2017 Arizona Supreme Court ruling for more information)

SB1079 – ASRS; Long-Term Disability Program 

This bill modified A.R.S. § 38-797.07 regarding the ASRS Long Term Disability (LTD) program.  The changes affect the definition of disability, the minimum LTD benefit, and investigation.

Definition of Disability

Some of the language regarding the definition of disability was updated:

      • Former: “member is unable to perform all duties of the position
      • New: “member is unable to perform one or more duties of the occupation held by the member when the member developed a disability”

In order to implement this updated definition, employers must continue to provide the employee’s written job description.  Broadspire will use language from that job description and the Dictionary of Occupational Titles (DOT) supplied by the US Department of Labor to determine the appropriate Occupation title.

Minimum LTD Benefit

Another change is the removal of the requirement for LTD members to receive a minimum monthly benefit of $50 if they are receiving 100% of their pre-disability monthly compensation.  

Investigation

SB1079 also authorizes the ASRS or LTD Administrator to investigate information that indicates a possibility that a member falsified records or information related to their eligibility or benefits.

SB1213 – ASRS; Return To Work

A.R.S. § 38-766.02 is the law regarding the Alternate Contribution Rate, or ACR, that employers pay when they hire an ASRS retiree who does not suspend retirement.

This bill created an exemption so that ACR would not be due for a retiree who works in a position which is currently filled by an active, contributing member.  Consider this example:

      • An active, contributing member employee is out on paid leave.  Because the employee is on paid leave, active employee and employer contributions are being paid.  While they are out, someone must fill in for them, and the person filling in is an ASRS retiree.  
      • In this limited scenario, ACR would not be due for the retiree who is filling in for the active member, because the active member is making contributions while they are out on paid leave.  

Employers have the option of managing this as it occurs, and not remitting ACR when an ASRS retiree fills in for an active member. 

Or, employers may pay ACR as they would have in the past.  Then, later in the fiscal year or at the end of the fiscal year, employers will review the ACR paid during that year to determine if that scenario has occurred.  Employers have up to 90 days after the end of the fiscal year to request a credit for ACR that was paid and met this exemption.

Employers must maintain documentation to demonstrate a valid exemption of ACR. 

This exemption is expected to occur most often in schools and employers who have positions that must be filled every day, such as teachers and receptionists.  For employers who do not have any positions that must be filled every day, this change will likely have less impact. 

Written by Wendy Tobin, Employer Liaison

This article appeared in "Employer Relations News" (2019-Q3), a digital publication of the ASRS.

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