SB1045 - 551R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 38-651.01, Arizona Revised Statutes, is amended to read:

START_STATUTE38-651.01. Group health and accident coverage for retired public employees and elected officials and their dependents

A. The department of administration, by rule, shall adopt standards to establish group health and accident coverage for former employees who worked for the this state of Arizona and who opt on retirement to enroll or continue enrollment in the group health and accident coverage for active employees working for the this state of Arizona, or with a disability, and receiving either income from a retirement program of this state or long-term disability income benefits pursuant to section 38-651.03 or chapter 5, article 2.1 of this title and their dependents and to establish eligibility for retired state employees or state employees with a disability to participate in the coverage. The department of administration may adopt rules that provide that if a retired insured or insured person with a disability dies before an insured surviving dependent, the insured surviving dependent is entitled to extended coverage at group rates if the insured surviving dependent elects to continue in the coverage within six months of the death of the retired insured or insured person with a disability and the insured surviving dependent agrees to pay the cost of the premium for group health and accident insurance. On notification of the death, the department of administration shall immediately notify an insured surviving dependent of the provisions of this section. The department of administration may enter into agreements with former state employees with a disability and their dependents who elect to obtain the coverage provided by this section. The agreements may include provisions for the payment of amounts sufficient to pay for the premium and administrative expense of providing the coverage. The department of administration may adopt rules that provide that on the death of a state employee who at the time of death was eligible for normal retirement pursuant to section 38-757 under the Arizona state retirement system, the insured surviving spouse and eligible dependent children are entitled to continue coverage under group rates provided that the deceased insured state employee, spouse and dependent children were insured at the time of the employee's death. The insured surviving spouse shall be charged an amount sufficient to pay the full premium for the coverage.

B. The department of administration, by rule, may adopt standards to establish group health and accident coverage for former elected officials of this state or its political subdivisions and their dependents and to establish eligibility for former elected officials to participate in the coverage. Qualifications for eligibility shall include that the former elected official has at least five years of credited service in the elected officials' retirement plan pursuant to chapter 5 of this title, had been covered under a group health or group health and accident plan while serving as an elected official and had been serving as an elected official on or after January 1, 1983. The department of administration may adopt rules that provide that on the death of an elected official or insured former elected official, the insured surviving spouse is entitled to coverage at group rates provided that the deceased insured former elected official met or would have met the qualifications for eligibility pursuant to this subsection or that the deceased elected official would have met the qualifications for eligibility had the deceased not been in office at the time of death. Except as provided in subsection J of this section, the insured former elected official or the insured surviving spouse shall be charged amounts that are sufficient to pay for the premium and state administrative expense of providing coverage. Notwithstanding subsection J of this section, the standards shall provide that all or any portion of the former state employees or former elected officials or their dependents shall be grouped with officers and employees of the this state and its departments and agencies or their dependents as necessary to obtain health and accident coverage at favorable rates.

C. The Arizona state retirement system board may enter into agreements with state employee members of the system and plan who are retired or who have a disability, retired members of the elected officials' defined contribution retirement system established pursuant to chapter 5, article 3.1 of this title and retired participants of the public safety personnel defined contribution retirement plan established pursuant to chapter 5, article 4.1 of this title who elect to obtain the coverage provided pursuant to subsection A of this section. The agreements may include provision for the deduction from the retirement benefits of participants of a retirement program of this state who elect to obtain coverage of amounts sufficient to pay for the premium not covered under retirement benefits and state administrative expense of providing coverage.

D. Retired state employee members or state employee members with a disability of the public safety personnel retirement system, the public safety personnel defined contribution retirement plan established pursuant to chapter 5, article 4.1 of this title, the elected officials' retirement plan, the elected officials' defined contribution retirement system established pursuant to chapter 5, article 3.1 of this title, the corrections officer retirement plan or the optional retirement programs authorized pursuant to section 15-1628 who opt on retirement to enroll or continue enrollment in the group health and accident coverage for active employees working for the this state of Arizona and their dependents and who are receiving benefits from the public safety personnel retirement system, the public safety personnel defined contribution retirement plan established pursuant to chapter 5, article 4.1 of this title, the elected officials' retirement plan, the elected officials' defined contribution retirement system established pursuant to chapter 5, article 3.1 of this title, the corrections officer retirement plan or the optional retirement programs authorized pursuant to section 15-1628 may participate in group health and accident coverage provided pursuant to this section. The department of administration shall adopt rules that are necessary for the implementation of this subsection.

E. The board of trustees of the public safety personnel retirement system may enter into agreements with retired state employee members and their dependents who elect to obtain the coverage provided pursuant to this section. The agreements may include provision for the deduction from the retirement benefits of participants of a retirement program of this state who elect to obtain coverage of amounts sufficient to pay for the premium not covered under retirement benefits and state administrative expense of providing coverage.

F. The board of trustees of the public safety personnel retirement system may enter into agreements with retired judges and retired elected officials and their dependents who elect to obtain the coverage provided pursuant to this section. The agreements may include provision for the deduction from the retirement benefits of participants of a retirement program of this state who elect to obtain coverage of amounts sufficient to pay for the premium not covered under retirement benefits and state administrative expense of providing coverage.

G. The board of trustees of the public safety personnel retirement system may contract with an insurance carrier and adopt standards to establish a group health and accident insurance coverage program for retired members of the public safety personnel retirement system, their dependents and their spouses. Any members or spouses who elect to obtain the group health and accident coverage provided under this subsection shall agree to a deduction from their monthly retirement benefits of an amount sufficient to pay for the premium not covered under retirement benefits and the administrative expense of providing coverage.

H. A county board of supervisors may enter into agreements to establish group health and accident coverage for retired county employees or county employees with a disability and their dependents who elect to obtain the coverage provided pursuant to section 11-263, subsection B. The agreements may include provision for the deduction from the retirement benefits of participants of a retirement program of this state who elect to obtain the coverage of amounts sufficient to pay for the premium not covered under retirement benefits and the administrative expense of providing for the coverage.

I. Nonmedicare eligible retirees who live in this state, who enroll in a qualifying plan under this section and who reside outside the area of a qualifying health maintenance organization shall be offered the option to enroll with a qualified health maintenance organization offered through their provider under the same premiums as if they lived within the area boundaries of the qualified health maintenance organization provided that:

1. All medical services are rendered and received at an office designated by the qualifying health maintenance organization or at a facility referred by the health maintenance organization.

2. All nonemergency or nonurgent travel, ambulatory and other expenses from the residence area of the retiree to the designated office of the qualifying health maintenance organization or the facility referred by the health maintenance organization are the responsibility of and at the expense of the retiree.

3. All emergency or urgent travel, ambulatory and other expenses from the residence area of the retiree to the designated office of the qualifying health maintenance organization or the facility referred by the health maintenance organization shall be paid pursuant to any agreement between the health maintenance organization and the retiree living outside the area of the qualifying health maintenance organization.

J. Public funds shall not be expended to pay all or any part of the premium of insurance pursuant to this section except for monies authorized to be paid for any insured from the retirement plan from which the insured is receiving benefits.

K. A retired member of the elected officials' defined contribution retirement system established pursuant to chapter 5, article 3.1 of this title may elect to obtain the coverage provided pursuant to subsection A of this section, but shall pay the premium for the coverage selected and is not eligible for benefits pursuant to section 38-783 or 38-817.

L. A retired participant of the public safety personnel defined contribution retirement plan established pursuant to chapter 5, article 4.1 of this title may elect to obtain the coverage provided pursuant to subsection A of this section, but shall pay the premium for the coverage selected. and is not eligible for benefits pursuant to section 38-783 or 38-857 A retired participant that makes an election pursuant to section 38-869 may be eligible for group health benefits as specified in section 38-869. END_STATUTE

Sec. 2. Section 38-845, Arizona Revised Statutes, is amended to read:

START_STATUTE38-845. Amount of retirement benefit

A. A member who meets the requirements for a normal pension, who becomes a member of the system before January 1, 2012 and who has twenty years of credited service shall receive a monthly amount that equals fifty percent of the member's average monthly benefit compensation. If the member retires with other than twenty years of credited service, the foregoing amount shall be:

1. Reduced by four percent for each year of credited service under twenty years, with pro rata reduction for any fractional year.

2. Increased by a monthly amount equal to two percent of the member's average monthly benefit compensation multiplied by the number of the member's years of credited service in excess of twenty years, with pro rata increase for any fractional year, except that if a member retires with twenty-five or more years of credited service the amount shall be increased by a monthly amount equal to two and one-half percent of the member's average monthly benefit compensation multiplied by the number of the member's years of credited service in excess of twenty years, with pro rata increase for any fractional year.

B. A member who meets the requirements for an accidental disability pension shall receive a monthly amount, which shall be computed in the same manner as a normal pension, using the member's average monthly benefit compensation before termination of employment and the member's actual credited service or twenty years of credited service, whichever is greater. Notwithstanding any other provision of this section, the accidental disability pension for a member shall be a monthly amount that equals not less than fifty percent of the member's average monthly benefit compensation.

C. A member who meets the requirements for an ordinary disability pension shall receive a monthly amount that is equal to a fraction times the member's normal pension that is computed according to subsection A, G or H of this section if the member had twenty years of credited service. The fraction is the result obtained by dividing the member's actual years of credited service, not to exceed twenty years of credited service, by twenty the member's required credited service for the applicable normal retirement date.

D. A member who meets the requirements for a temporary disability pension shall receive a monthly amount that is equal to one-twelfth of fifty percent of the member's annual compensation received immediately prior to the date on which the member's disability was incurred.

E. A member who meets the requirements for a catastrophic disability pension is entitled to receive a monthly amount computed as follows:

1. For the first sixty months, ninety percent of the member's average monthly benefit compensation before termination of employment.

2. After sixty months, sixty-two and one-half percent of the member's average monthly benefit compensation before termination of employment or computed in the same manner as a normal pension using the member's average monthly benefit compensation before termination of employment and the member's actual credited service, whichever is greater.

F. A member who was employed before September 15, 1989 by an employer participating in the system and who retires on or after November 1, 2001 is entitled to receive a tax equity benefit allowance consisting of a permanent increase of two percent of the member's base benefit retroactive to the day of retirement.

G. A member who meets the requirements for a normal pension, who becomes a member of the system on or after January 1, 2012 and before July 1, 2017 and who has twenty-five years of credited service shall receive a monthly amount that equals sixty-two and one-half percent of the member's average monthly benefit compensation. If the member has at least fifteen years of credited service, but less than twenty-five years of service, the monthly amount shall be equal to the member's average monthly benefit compensation multiplied by the number of whole and fractional years of credited service multiplied by the appropriate percentage specified in subsection H of this section. If the member has twenty-five years of service and retires with other than twenty-five years of credited service, the foregoing amount shall be:

1. Reduced by four percent for each year of credited service under twenty-five years, with pro rata reduction for any fractional year.

2. Increased by a monthly amount equal to two and one-half percent of the member's average monthly benefit compensation multiplied by the number of the member's years of credited service in excess of twenty-five years, with pro rata increase for any fractional year.

H. A member who becomes a member of the system on or after July 1, 2017 and who retires on or after the member's normal retirement date shall receive a monthly amount equal to the member's average monthly benefit compensation multiplied by the number of whole and fractional years of credited service multiplied by the following:

1. 1.50 percent if the member has at least fifteen years of credited service but less than seventeen years of credited service.

2. 1.75 percent if the member has at least seventeen years of credited service but less than nineteen years of credited service.

3. 2.00 percent if the member has at least nineteen years of credited service but less than twenty-two years of credited service.

4. 2.25 percent if the member has at least twenty-two years of credited service but less than twenty-five years of credited service.

5. 2.50 percent if the member has at least twenty-five years of credited service.

I. Notwithstanding subsections A, G and H of this section, the maximum amount payable as a normal pension is eighty percent of the average monthly benefit compensation. END_STATUTE

Sec. 3. Section 38-867, Arizona Revised Statutes, is amended to read:

START_STATUTE38-867. Contributions; member; employer; pickup

A. Each participant in the defined contribution plan shall contribute the following percentage of the participant's gross pensionable compensation by salary reduction that shall be deposited in the participant's annuity account:

1. For a participant as defined in section 38-865, paragraph 7, subdivision (a), item (ii), three percent.

2. For a participant as defined in section 38-865, paragraph 7, subdivision (a), item (i), nine percent.

3. For a participant as defined in section 38-865, paragraph 7, subdivision (b), seven percent.

B. A participant as defined in section 38-865 may make a one-time onetime irrevocable election, before the participant is eligible to participate in any qualified plan of the employer, to contribute more than the percentage of the participant's gross pensionable compensation specified in this section, up to the amount allowable under section 415(c) of the internal revenue code. A participant as defined in section 38-865, paragraph 7, subdivision (b) may make a onetime irrevocable election, before the participant is eligible to participate in any qualified plan of the employer, to contribute less than the percentage of the participant's gross pensionable compensation specified in this section but may not elect to contribute less than five percent of the participant's gross pensionable compensation. The election made pursuant to this subsection shall be the participant's contribution rate for the remainder of the participant's employment with any employer under the system or the corrections officer retirement plan, as applicable.

C. Although designated as employee contributions, all participant contributions made to the defined contribution plan shall be picked up and paid by the employer in lieu of contributions by the employee. The contributions picked up by an employer may be made through a reduction in the participant's compensation. A participant in the defined contribution plan may not choose to receive the contributed amounts directly instead of the employer paying the amounts to the defined contribution plan. All participant contributions that are picked up by the employer as provided in this subsection shall be treated as employer contributions under section 414(h) of the internal revenue code, shall be excluded from the participant's gross income for federal and state income tax purposes and are includable in the gross income of the participant or the participant's beneficiaries only in the taxable year in which they are distributed.

D. Each employer shall annually make a contribution equal to the following percentages of each participant's gross pensionable compensation:

1. For a participant as defined in section 38-865, paragraph 7, subdivision (a), item (ii), three percent.

2. For a participant as defined in section 38-865, paragraph 7, subdivision (a), item (i), nine percent.

3. For a participant as defined in section 38-865, paragraph 7, subdivision (b), five percent.

E. The pro rata share of the amount paid in subsection D of this section shall be paid on each date that a participant contribution is made and shall be credited to the participant's annuity account.

F. A participant of the defined contribution plan may not take loans on any portion of the accumulated assets in the participant's annuity account.

G. Each participant as defined in section 38-865, paragraph 7, subdivision (a), item (i) and subdivision (b) and each employer shall contribute:

1. To the public safety personnel defined contribution retirement plan disability program established by article 4.2 of this chapter.

2. For participants who make an election pursuant to section 38-869, An equal amount for the group health benefits plan payments as specified in section 38-869 as determined by actuarial valuations reported by the board to the employer and local board, which shall be deposited in a separate account established pursuant to section 38-869.

H. A participant's contributions and earnings on those contributions are immediately vested.

I. A participant as defined in section 38-865, paragraph 7, subdivision (a) or section 38-865.01 is fully vested in the defined contribution plan after ten years of service, with employer contributions vesting at a rate of ten percent per year. If a participant described in this subsection dies or is determined to be eligible for an accidental or catastrophic disability pension pursuant to section 38-844 before completing ten years of service, the employer contributions are immediately fully vested.

J. A participant as defined in section 38-865, paragraph 7, subdivision (b) is fully vested in the defined contribution plan after three years of service, with the employer contributions vesting at the following rates:

1. Twenty-five percent after the first year of service.

2. Fifty percent after the second year of service.

3. One hundred percent after the third year of service.

K. If a participant as defined in section 38-865, paragraph 7, subdivision (b) dies or is determined to be eligible for an accidental or total and permanent disability pension pursuant to section 38-886 before completing three years of service, the employer contributions are immediately fully vested. END_STATUTEEND_STATUTE

Sec. 4. Title 38, chapter 5, article 4.1, Arizona Revised Statutes, is amended by adding section 38-869, to read:

START_STATUTE38-869. Group health benefits plan; retired participants; definition

A. The board shall establish, design and administer a group health benefits plan to provide group health benefits as prescribed in sections 38-857 and 38-906 for retired participants who make an election pursuant to this section. Monies collected pursuant to section 38-867, subsection G, paragraph 2 shall be deposited in a separate account solely to pay for group health benefits provided under this section and the amounts shall be held by the board in trust for the purpose of providing the group health benefits.

B. The purpose of this section is to provide a group health benefits plan that is fully funded on a current basis from employer and participant contributions. The board shall subject the account to actuarial analysis and manage the account in an actuarially sound manner.

C. Contributions made to the account are nonrefundable and are separate assets for the purposes of funding the group health benefits plan.

D. The legislature intends that the group health benefits plan for participants constitutes the exercise by the board of an essential governmental function as provided in section 115(1) of the internal revenue code, as amended, or successor provisions of law and that the trust created pursuant to this section is exempt from federal and state income tax. Notwithstanding subsection A of this section, If the board dissolves the trust created pursuant to this section, any remaining assets shall be returned to the employers that have contributed to the trust in such amounts as the board determines. The board may adopt any additional provisions to the group health benefits plan that is necessary to fulfill this intent.

E. For ninety days after the effective date of this section, existing participants shall have the opportunity to participate in the group health benefits plan by opting in through an irrevocable election to pay the required costs of the group health benefits plan through payroll deduction. For ninety days after employment, participants who are hired after the effective date of this section may participate in the group health benefits plan by making an irrevocable election to pay the required costs of the group health benefits plan through payroll deduction. If a participant fails to make an irrevocable election within the ninety-day period specified in this subsection, the participant shall be excluded from receiving any benefits specified in this section during the participant's retirement and may not again have an election to participate if the participant is ever reemployed in a position in which the participant may again participate in the defined contribution plan.

F. Each participant who makes an election pursuant to subsection E of this section and the participant's employer shall pay an equal amount for costs, as actuarially determined, for the group health benefits plan pursuant to section 38-867.

G. Each employer shall transfer to the board the employer and participant contributions paid pursuant to section 38-867, subsection G, paragraph 2 within ten working days after each payroll date. Contributions transferred after that date shall include a penalty to be paid by the employer of ten percent per year, compounded annually, for each day the contributions are late. Delinquent payments due under this subsection, together with interest charges as provided in this subsection, may be recovered by an action in a court of competent jurisdiction against an employer that is liable for the payments or, at the request of the board, may be deducted from any other monies, including excise revenue taxes, payable to such an employer by any department or agency of this state.

H. Notwithstanding any other law, the board may authorize the system to administer the group health benefits plan, to pay costs from the account to the system for administrative expenses and to allocate costs on a pro rata basis consistent with subsection F of this section.

I. The group health benefit plan established pursuant to this section shall provide a retired participant who has made an election pursuant to this section payments prescribed in section 38-857, subsection A or B, or section 38-906, subsection A or B, as applicable, if the retired participant both:

1. Meets the requirements of the normal retirement date as defined in section 38-842, paragraph 32, subdivision (c) or section 38-881, paragraph 28, subdivision (c), as applicable.

2. Has elected either:

(a) To participate in the group health and accident coverage provided by section 38-651.01 or 38-782 or any other retiree health and accident insurance coverage provided or administered by a participating employer.

(b) To purchase individual health care coverage and receive a payment pursuant to this section through the retired participant's former employer if that former employer assumes the administrative functions associated with the payment, including verification that the payment is used to pay for health insurance coverage if the payment is made to the retired participant.

J. For the purposes of this section, "participant" means a participant as defined in section 38-865, paragraph 7, subdivision (a), item (i) and subdivision (b).END_STATUTE

Sec. 5. Effective date

Sections 38-651.01 and 38-867, Arizona Revised Statutes, as amended by this act, and section 38-869, Arizona Revised Statutes, as added by this act, are effective from and after June 30, 2022."