What is the ACR this year, and how is it determined?
For Fiscal Year 2024-25, which began July 1, 2024, the ACR is 10.19%. The ACR is determined on an annual basis along with the regular contribution rates (pension and LTD) for eligible employees and employers. The rates are typically approved by the ASRS Board of Trustees in November for the following fiscal year (beginning July 1), following a presentation by the ASRS actuary on the annual actuarial valuation of the plan. The ACR shall not be less than 2% in any fiscal year or greater than the regular contribution rate set for employers and is the result of a calculation that determines an amortization of the plan’s deficit, if any.
How is the ACR applied?
The ACR will be applied to the compensation, gross salary, or contract fee of an ASRS retiree who returns to work for an ASRS employer. These terms are used to describe the payments made to direct hires, employees of a leasing company, and independent contractors, respectively. Though “compensation,” as it pertains to a direct hire, is not defined in § 38-766.02, the term is defined in § 38-711 and shares the same meaning. A.R.S. §38-766.02 defines “gross salary” as the gross amount paid to a retired member by a leasing company as salary or wages, including amounts that are subject to deferred compensation or tax shelter agreements, for services rendered or that would have been paid to the retired member except for the member’s election or a legal requirement that all or part of the gross amount be used for other purposes. Also, in this statute, “contract fee” is defined as the gross amount paid to a retired member as an independent contractor minus an amount, not to exceed ten percent, for an administrative fee.
Since compensation, as it pertains to ACR, is the same as compensation for regular contributions, the ASRS Compensation Quick Reference Guide can be used to determine what compensation is subject to ACR. The guide can be found on the Contribution Reporting page of our public website or you can click here.
The retiree elected to suspend their pension and return to active contributions; why do we have to take a credit?
There are a few scenarios where a retiree returning to work for an ASRS employer cannot return to active contributions. The most common scenario is a timing issue. Retirees must submit their return to work (RTW) form to their employer within 30 days of their employment start date and the employer must make a determination within 14 days of receiving an RTW form. If the retiree has already returned to work and they elect to suspend their pension, the suspension does not occur until the date the employer approves the RTW form. Retirees cannot contribute to their retirement account in the same month they already received their pension – so a retiree that has already returned to work does not resume active contributions until the pay period ending date that is in the month following the employer’s submission of the RTW form, and ACR is owed for the hours worked after retirement until they are able to resume active contributions.
Another scenario that will result in an employer needing to take a credit for regular contributions and remitting as ACR, is related to Internal Revenue Code 401(a)(9)(c) which establishes a required beginning date (RBD) for when payments to a plan participant must start. As of fiscal year 2025, the RBD date will not apply to any retiree who is returning to work under the age of 71. Don’t worry about identifying which retirees are subject to this requirement; the age requirement has changed multiple times in the last five years and will depend on what year the retiree aged into the applicable requirement. When our member benefits team discovers contributions remitted for a retiree that is past their RBD date, they will inform the employer to take a credit.
* For more information on hiring retired workers or the ACR, visit Hiring Retired Workers and our Alternate Contribution Rate webpages.
By Aaron Bernardino, Employer Relations
Published 8.29.24
