Termination Incentive Plans; A.R.S. § 38-749

The ASRS employs a number of safeguards to ensure final pension payments made to members are fair and accurate.  One of the final steps in the process is a full audit of a member’s account to ensure the correct figures were used in calculating the final benefit payment.


The ASRS reviews all contributions submitted by employers to determine if the member received a substantial increase in salary that may fall under a termination incentive program.  This type of program requires employers to notify the ASRS before implementing a program that may affect ASRS funding.  Termination Incentive Programs are outlined in A.R.S. § 38-749 below:


A.R.S. § 38-749(A) states: If a termination incentive program that is offered by an employer results in an actuarial unfunded liability to the ASRS, the employer shall pay to the ASRS the amount of the unfunded liability.  ASRS shall determine the amount of the unfunded liability in consultation with the actuary.


A.R.S. § 38-749(D)(1) means a total increase in compensation of thirty percent or more that is given to a member in any one or more years before termination that are used to calculate the member’s average monthly compensation if that increase in compensation is used to calculate the member’s retirement benefit and that increase in compensation is not attributed to a promotion.


The ASRS is in the process of proposing rules that identify how A.R.S. §38-749 will be enforced.  A Notice of Final Rulemaking was filed with the Governor’s Regulatory Review Council (GRRC) on May 11, 2017 and the ASRS has requested the rules be scheduled to be heard by GRRC on August 29, 2017.  If the rule is reviewed as requested, GRRC will vote to approve or deny the rules on September 6, 2017, with a delayed effective date of January 1, 2018.


Currently, this law and the proposed rules are covered in the Basics for Employers meetings to provide ASRS employers with information on what to expect from the ASRS, beginning in January 2018.  More information will be shared with you as we progress through this process.  If you have any questions, please contact the ASRS.

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