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ARIZONA STATE SENATE
Fifty-Fifth Legislature, Second Regular Session
REVISED
PSPRS; funded ratio; asset transfers
Purpose
Prescribes procedures for a Public Safety Personnel Retirement System (PSPRS) employer to request an asset transfer. Outlines employer contribution reductions if an employer's funded ratio is 100 percent or more and removes minimum employer contribution rates.
Background
Each PSPRS employer must make contributions sufficient under the actuarial valuations to meet the normal cost for members plus the actuarially determined amount required to amortize the unfunded accrued liability on a level percent of compensation basis for all employees over a closed period of not more than 20 years. Statute prohibits the employer contribution rate from being less than 8 percent of compensation or, if the employer's contribution rate for FY 2007 was less than 8 percent of compensation, less than 5 percent of compensation.
An employer's contribution, in combination with member contributions, may not be less than the actuarially determined normal cost for the fiscal year. The amount of the member's contribution that exceeds 7.65 percent of the member's compensation may not be used to reduce the employer's contributions. The PSPRS Board may not suspend contributions to PSPRS unless: 1) the actuary determines that continuing to accrue excess earnings could result in disqualification of PSPRS's tax-exempt status; and 2) the PSPRS Board determines that the receipt of any additional contributions would conflict with its fiduciary responsibility (A.R.S. § 38-843).
The Joint Legislative Budget Committee fiscal note estimates no immediate fiscal impact as no state PSPRS employer group is more than 100 percent funded. If a state PSPRS employer group reaches a funded status of 100 percent, S.B. 1085 would reduce the level of required employer contributions but any savings cannot be estimated in advance (JLBC fiscal note).
Provisions
1. Prohibits the amount of a member's contribution that exceeds 7.65 percent of compensation from being used to reduce the employer's contributions only until the employer's funded ratio is 100 percent or more.
2. Requires, if an employer's funded ratio falls below 100 percent, the amount of a member's contributions above 7.65 percent to accumulate from that time and not be used to reduce the employer's contribution rate until the employer's funded ratio returns to 100 percent.
3. Allows an employer to request the PSPRS Board to transfer excess assets of an account that has no liabilities or beneficiaries to another PSPRS-managed employer account.
4. Requires, for an employer to be eligible to request an asset transfer, an employer's governing body to adopt a resolution requesting the transfer of assets in an open session where public comment is allowed and requires the employer to submit a written request to the PSPRS Board along with the adopted resolution.
5. Allows the PSPRS Board to authorize the asset transfer if:
a) the PSPRS Board verifies that the employer's liabilities have been reconciled and there are no remaining or potential liabilities or beneficiaries;
b) the PSPRS Board and PSPRS bear no liability that the proposed transfer conforms with any use or transfer restrictions; and
c) the transfer does not violate the U.S. Internal Revenue Code or impair PSPRS's status as a qualified plan.
6. Allows the Joint Legislative Budget Committee (JLBC), for a state employer that meets the asset transfer eligibility requirements, to request confirmation from the PSPRS Administrator that an employer's account meets the requirements for an asset transfer.
7. Directs the Legislature to pass a bill directing the PSPRS Board to transfer assets from the eligible state employer account to another account of the employer.
8. Directs the JLBC, before the Legislature passes the bill, to confirm with the PSPRS Administrator that the state employer's assets are eligible for transfer to another employer account and to discuss the matter in a scheduled public meeting.
9. Prohibits the PSPRS Board from suspending contributions to PSPRS, unless:
a) the actuary determines the stabilization reserve of an employer's account is funded to 100 percent of present value of all future benefits of the employer; and
b) the PSPRS Board determines that suspending the normal cost of contributions would not be in conflict with its fiduciary responsibility.
10. Requires the PSPRS Board, if the actuarial valuation of an employer's account contains excess valuation assets and is more than 100 percent funded, to account for the excess valuation assets up to 100 percent of present value of all future benefits of the employer, rather than 50 percent of the excess valuation assets.
11. Removes the minimum employer contribution rate of 8 percent and removes the minimum employer contribution rate of 5 percent for employers whose actual contribution rate in FY 2007 was less than 8 percent.
12. Makes technical and conforming changes.
13. Becomes effective on the general effective date.
Revision
· Updates the fiscal impact statement.
Prepared by Senate Research
February 2, 2022
MG/slp