Termination Incentive Programs (TIPs)

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.

Effective January 1, 2018, two rules that identify how A.R.S. §38-749 will be enforced will be implemented.  A report will be generated on a monthly basis.  This report will identify members who retired the preceding month and received a 30% or greater increase in their compensation and the compensation was used to calculate their pension benefit.  A letter will be forwarded to the employer of members who received these increases.  If the increase was due to a promotion and not a termination incentive, documentation confirming the promotion will be required.  If a response is not received or, if the documentation submitted by the employer supports an increase is due to a TIP, then an invoice letter will be forwarded to the employer for payment of the unfunded liability.

This law and the proposed rules were covered in the Basics for Employers meetings and were covered in detail during this year’s Employer Conference to ensure ASRS employers have the information on what to expect from the ASRS, beginning in January 2018.  If you have any questions, please contact your employer liaison.

Written by Marina Keith, Employer Liaison

This article appeared in "Employer Relations News" (Q1-2018), a digital publication of the ASRS.

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