Assigned to FIN FOR
CAUCUS & FLOOR ACTION
ARIZONA STATE SENATE
Forty-seventh Legislature, Second Regular Session
AMENDED
FACT SHEET FOR H.B. 2482
CORP; return to work
Purpose
Allows a retired member of the Corrections Officer Retirement Plan (CORP) to return to work and receive a pension at the same time and establishes a reverse deferred retirement option plan for members of CORP.
Background
CORP Return to Work
CORP is a special retirement plan for certain full-time state and county detention officers. CORP provides a uniform, consistent and equitable statewide retirement program to these correctional officers and is designed to meet the special needs of personnel engaged in the prison environment. Correctional officers employed by the Arizona Department of Corrections (ADC) or youth correctional officers employed by the Arizona Department of Juvenile Corrections (ADJC) are members of CORP. Certain other designated positions within ADC or ADJC are members of CORP.
An active member of CORP earns credited service by making contributions to the retirement plan. Credited service can also be earned by transferring service credits from another retirement system or plan for public employees of the State of Arizona to CORP. The amount of credited service attributed to a member can affect the amount of the member’s retirement benefit. The more years of credited service, the greater the benefit. A member is credited with service only during the time period a member is employed in a CORP-designated position and receiving compensation. Normal retirement occurs on the first day of the calendar month following a member’s completion of 20 years of service, the member attains age 62 with 10 or more years of service or the sum of the member’s age and years of credited service equals at least 80. For dispatchers, a normal retirement requires the completion of 25 years of service, age 62 with 10 or more years of service or the sum of the member’s age and years of credited service equals at least 80. Pension payments begin on the last day of the retirement month. The monthly pension amount is determined by years of credited service, based upon a formula. The formula is 2.5 percent multiplied by the years of credited service times average monthly salary. The average monthly salary is the highest consecutive three-year salary within the last ten years.
According to a Joint Legislative Budget Committee fiscal note, H.B. 2482 has no FY 2006-2007 state General Fund impact. This bill could generate an annual state General Fund cost of as much as $6.3 million in future years, based on FY 2006-2007 salary levels.
CORP Reverse DROP
Laws 2005, Chapter 258 established a reverse deferred retirement option plan (reverse DROP) for Public Safety Personnel Retirement System members through July 1, 2010. Eligibility in the reverse DROP is limited to those members who are eligible for normal retirement.
A member who elects to participate in the reverse DROP must designate a reverse DROP date, on which the member agrees to terminate employment and receive retirement benefits at the same time. The reverse DROP period is limited to a period of a maximum of 60 months prior to the date the member elects to participate in the program. The participating member is provided with a lump sum, which is based on the member’s monthly pension calculated based upon the years of credited service and average monthly compensation at the beginning of the reverse DROP period. The amount is computed as a normal retirement benefit in effect on the reverse DROP date and the amount credited as though accrued monthly that represents interest at a rate of three and one-half percent.
The actual impact on the reverse DROP provision will depend in part upon utilization and the compensation history during the years used to compute the average monthly compensation. In general, the reverse DROP results in higher costs for members with low salary increases, but can generate a savings for the plan if members electing it have high salary increases during the reverse DROP period. If the reverse DROP results in members retiring later than assumed, the effect on the plan will be positive.
Provisions
CORP Return to Work
1. Allows a retired member of CORP to be reemployed by a CORP-participating employer and receive pension benefits at the same time if the reemployment occurs at least 90 days after retirement and involves substantial direct inmate contact, except that the return to work provision does not apply to retired members who are reemployed before 90 days after retirement or the reemployment does not involve substantial direct inmate supervision.
2. Prohibits contributions to the members account and accrual of additional years of credited service during the period of reemployment.
3. Repeals the CORP return to work option on June 30, 2008.
CORP Reverse DROP
4. Establishes a reverse DROP for members of CORP, beginning July 1, 2006, through June 30, 2011.
5. Stipulates that the purpose of the reverse DROP is to add flexibility to CORP and to provide members who elect to participate access to a lump sum benefit in addition to the member’s normal monthly retirement benefit.
6. Requires the Fund Manager to offer the reverse DROP to CORP members on a voluntary basis as an alternative method of benefit accrual.
7. Requires a member who elects to participate in the reverse DROP to:
a) designate a reverse DROP date on the first day of the month following the member’s completion of 24 years of credited service or a date not more than 60 months before the date the member elects to participate in the reverse DROP, whichever is later.
b) agree to terminate employment on the date the member elects to participate in the reverse DROP.
c) receive retirement benefits at the same time.
8. Establishes a reverse DROP account for participating members.
9. Requires all retirement benefits accrued by the member be accounted for in the account.
10. Stipulates that the participating member does not have a claim on the CORP assets and prohibits assets from being set aside that are separate from all other CORP assets.
11. Stipulates that all amounts credited to the participating member’s account are fully vested.
12. Credits the participating member’s reverse DROP with:
a) an amount credited as though accrued monthly from the reverse DROP date to the date the member elected to participate in the reverse DROP and computed as a normal retirement benefit in effect on the reverse DROP date.
b) an amount credited as though accrued monthly that represents interest at a rate equal to the yield on a five-year Treasury note.
13. Disqualifies employer and employee contributions deposited during the period of the reverse DROP from being refunded to the employer or the member.
14. Requires the payment to be a lump sum distribution.
15. Allows the lump sum amount, if allowed by the Internal Revenue Service, to be paid in a lump sum distribution to an eligible retirement plan or individual retirement account.
16. Stipulates that the reverse DROP is prohibited from jeopardizing the tax qualified status of the system under the rules of the Internal Revenue Service.
17. Allows the Fund Manager to adopt additional provisions for the reverse DROP to comply with applicable federal laws or rules.
18. Repeals the reverse DROP on July 1, 2011.
19. Becomes effective on the general effective date.
Amendments Adopted by Committee
1. Establishes a reverse DROP for members of CORP.
2. Prescribes guidelines for members participating in the reverse DROP program.
House Action Senate Action
PIR 2/13/06 DPA 8-0-0-1 FIN 3/9/06 DPA 6-1-2
APPROP(P) 2/15/06 DPA 6-2-1-6-0
3rd Read 2/28/06 55-1-4-0
Prepared by Senate Research
March 13, 2006
SL/GC/jas