On March 23, 2017, in the case of Wade and Paddock v. ASRS (No. CV-16-0087-PR), the Arizona Supreme Court held that employer-paid contributions on behalf of an employee to a tax qualified deferred compensation plan – such as a 457 or 401(k) – are compensation and therefore require ASRS contributions.
Employee-paid contributions into these plans have always been considered compensation for ASRS purposes. This ruling adds employer-paid contributions are compensation as well.
The impact of this ruling will affect employers going forward by now having to remit regular ASRS contributions on those employer-paid funds. It also means that the employees receiving those funds may have a higher overall compensation for ASRS purposes of calculating their retirement benefit. The decision applies retroactively to payments already made, as well as future payments.
The ASRS will soon communicate directly to employers the details for remitting contributions on past and future payments. The Contributions Not Withheld (CNW) process through the service purchase program will be used for collecting past unpaid contributions, which will require contributions from both the employer and employee to fully impact the employee’s ASRS salary calculation for retirement purposes.
Employees are instructed to speak directly with their employer for more details on this change in required contributions for ASRS retirement.
For frequently asked employer questions about this ruling, please visit the Compensation Ruling FAQ page for employers.
For more information about Rules, please visit the ASRS Rules page.