SB1375 - 552R

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

Section 1. Section 35-311, Arizona Revised Statutes, is amended to read:

START_STATUTE35-311. State board of investment; membership; powers and duties

A. The state board of investment is established consisting of the state treasurer, the director of the department of administration or the director of the department of administration's designee, the director of the department of insurance and financial institutions or the director of the department of insurance and financial institutions' designee and two individuals appointed by the state treasurer, one of whom has verifiable expertise in investment management and one of whom represents a public entity with current deposits in a local government investment pool. The state treasurer is chairperson of the board. The board shall keep an accurate record of its proceedings. A certified copy of the record is prima facie evidence of the matters appearing in the record in any court. A meeting of the board may be called at any time by the chairperson or a majority of the board members.

B. The state board of investment shall:

1. Hold regular monthly meetings.

2. Review investments of treasury monies.

3. Serve as trustee of the permanent state land funds and manage the assets of the funds consistent with the requirements of article X, section 7, Constitution of Arizona.

4. Serve as trustee of any endowments established pursuant to section 35-314.03.

5. Serve as trustee of AZ529, Arizona's education savings plan established by title 15, chapter 14, article 7.

6. Serve as trustee of any pension prefunding plan investment accounts established pursuant to section 35-314.04.

7. Serve as trustee of the Arizona work and save program established pursuant to chapter 11 of this title.

C. The state treasurer shall furnish to the board of investment at its regular monthly meeting a report of the performance of current investments and a report of the current investments as of the close of business of the preceding month. The state treasurer shall make these reports available for inspection by the public during normal working hours at the office of the state treasurer for a period of time of not less than at least two years after the date of the report.

D. The board of investment may order the state treasurer to sell any of the securities, and any order shall specifically describe the securities and fix the time period during which they are to be sold. Securities so ordered to be sold shall be sold for cash by the state treasurer at the current market price. The state treasurer and the members of the board are not accountable for any loss occasioned by sales of securities at prices lower than their book value. Any loss shall be charged against earnings received from interest or capital gains on the applicable treasury monies.

E. The board may establish standards in addition to those established by section 35-317, subsection A for the qualification of agents acting pursuant to section 35-317, subsection B. END_STATUTE

Sec. 2. Title 35, Arizona Revised Statutes, is amended by adding chapter 11, to read:

CHAPTER 11

ARIZONA WORK AND SAVE PROGRAM

ARTICLE 1. GENERAL PROVISIONS

START_STATUTE35-1301. Definitions

iN THIS ARTICLE, UNLESS THE CONTEXT OTHERWISE REQUIRES:

1. "Board" means the state board of investment.

2. "Covered Employee":

(a) Means an individual who is employed by a covered employer, who has wages or other compensation that is allocable to the State and who is at least eighteen years of age.

(b) does not include:

(i) Any employee covered under the Railway Labor Act (44 Stat. 577; 45 United States code section 151).

(ii) Any employee on whose behalf an employer makes contributions to a Taft-Hartley multiemployer pension trust fund.

(iii) Any individual who is an employee of the federal government, this state or any other state, any county or municipal corporation or any of this state's, any other state's or the federal government's units or instrumentalities.

3. "Covered employer":

(a) Means a person or entity engaged in a business, industry, profession, trade or other enterprise in this state, whether for profit or not for profit, excluding the federal government, this state, any county, any municipal corporation or any of this state's units or instrumentalities.

(b) Does not include either:

(i) An employer that maintains a specified tax-favored retirement plan for its employees or has done so effective in form and operation at any time within the current or two preceding calendar years.

(ii) For the portion of the calendar year in which the employer adopts a tax-favored retirement plan, an employer that does not maintain a specified tax-favored retirement plan for a portion of a calendar year ending on or after the effective date of this section and adopts a tax-favored retirement plan effective for the remainder of that calendar year.

4. "ERISA" means the employee retirement income security act of 1974.

5. "Fund" means the work and save fund established by section 35-1302.

6. "IRA" means a traditional or roth individual retirement account or individual retirement annuity under 26 United States Code section 408(a), 408(b) or 408A.

7. "Participant" means an individual who is contributing to an IRA under the program or has an IRA account balance under the program.

8. "Participating employer" means a covered employer that provides for covered employees ACCESS to a payroll deduction IRA provided for by this article.

9. "payroll deduction IRA" means an arrangement by which an employer allows employees to contribute to an IRA by means of payroll deduction.

10. "Program" or "Arizona work and save program" means the retirement savings program established by this article.

11. "Roth IRA" means a roth individual retirement account or individual retirement annuity under 26 United States code section 408A.

12. "Specified tax-favored retirement plan" means a retirement plan that is tax-qualified under or is described in and satisfies the requirements of 26 United States Code section 401(a), 401(k), 403(a), 403(b), 408(k) or 408(p).

13. "Total fees and expenses" means all fees, costs and expenses, including administrative expenses, investment expenses, investment advice expenses, accounting costs, actuarial costs, legal costs, marketing expenses, education expenses, trading costs, insurance annuitization costs and other miscellaneous costs.

14. "Traditional IRA" means a traditional individual retirement account or traditional individual retirement annuity under 26 United States code section 408(a) or 408(b).

15. "Treasurer" means the state treasurer. END_STATUTE

START_STATUTE35-1302. Arizona work and save program; state treasurer; program development and implementation; work and save fund

A. The treasurer shall:

1. Develop and implement the program in a manner consistent with this article by adopting rules, guidelines and procedures that Establish the processes for enrollment and contributions to payroll deduction IRAs under the program, including elections by covered employees, withholding by covered employers of employee payroll deduction contributions from wages and remittance for deposit to IRAs and voluntary enrollment and contributions by others, including self-employed individuals and independent contractors, through payroll deduction or otherwise.

2. Cause the program, fund and arrangements and accounts established under the program to be designed, established and operated:

(a) In accordance with best practices for retirement saving vehicles.

(b) To encourage participation, saving, sound investment practices and appropriate selection of investment options, including any default investments.

(d) To minimize costs, including by collective investment and other measures to achieve economies of scale and other efficiencies in program design and administration.

(e) To promote portability of benefits.

(f) To avoid preemption of the program by federal law.

3. Arrange for collective, common and pooled investment of assets of the program and fund, including investments in conjunction with other funds with which these assets are allowed by law to be collectively invested, to achieve economies of scale and other efficiencies designed to minimize costs for the program and its participants.

4. Develop and disseminate educational information designed to educate participants and citizens about the benefits of planning and saving for retirement and information to help the participants and citizens decide the level of participation and savings strategies that may be appropriate for the participants and citizens, including information to further financial capability and financial literacy.

5. Conduct outreach to individuals, employers, other stakeholders and the public regarding the Program and to Specify the contents, frequency, timing and means of required disclosures from the program to covered employees, participants, other individuals eligible to participate in the program, covered employers and other interested parties.

6. If necessary, determine the eligibility of an employer, employee or other individual to participate in the program.

7. Establish the processes for withdrawals, rollovers and direct transfers from IRAs under the program to facilitate portability and maximize benefits.

8. Arrange for and facilitate compliance by the program or arrangements established under the program with all applicable requirements for the program under the internal revenue code, including requirements for favorable tax treatment of the IRAs, and under any other applicable federal or state law and accounting requirements, including using its best efforts to implement procedures minimizing the risk that covered employees will contribute to an IRA more than the eligible amount allowed under the internal revenue code to contribute to the IRA on a tax-favored basis, and provide for or arrange for assistance to covered employers and covered employees to comply with applicable law and tax-related requirements in a cost-effective manner. The board may establish any processes that the board reasonably deems to be necessary or advisable to verify whether an employer is a covered employer, including reference to online data and possible use of questions in employer state tax filings.

9. Retain professional services, if necessary, including accountants, auditors, consultants and other experts.

10. Seek rulings and other guidance from the United States department of the treasury and the internal revenue service relating to the program.

11. Interpret, in rules, policies, guidelines and procedures, this article broadly to consider its purpose and objectives, including to ensure that the program and arrangements established under the program satisfy all criteria for favorable federal tax treatment and complies, to the extent necessary, with any other applicable federal or state law.

12. Charge, impose and collect administrative fees and service charges in connection with any agreement, contract or transaction relating to the program.

13. Negotiate and select the financial institution or institutions to act as the depository and manager of the program in accordance with this article. On approval by the board, the treasurer may use existing investment funds established pursuant to sections 35-314.03, 35-316 and 35-326 for this purpose.

14. On or before July 1, 2024, enter into participant agreements with participants pursuant to this article.

15. Develop and implement an investment policy that defines the program's investment objectives, consistent with the objectives of the program, and that provides for policies and procedures consistent with those investment objectives. The Board shall designate appropriate default investments that must include a mix of asset classes, such as target date and balanced funds. The board shall seek to minimize participant fees and expenses of investment and administration. The board shall strive to design and implement investment options that are available to holders of accounts established as part of the program and other program features that are intended to achieve maximum possible income replacement and that are balanced with an appropriate level of risk in an IRA-based environment that is consistent with the investment objectives under the policy. The investment options may encompass a range of risk and return opportunities and allow for a rate of return commensurate with an appropriate level of risk with consideration to the investment objectives under the policy. The menu of investment options shall be determined by taking into account the nature and objectives of the program, the desirability, based on behavioral research findings, of limiting investment choices under the program to a reasonable number and the extensive investment choices available to participants if they roll over to an IRA outside the program.

16. Ensure that all contributions to IRAs under the program are used only to do the following:

(a) Pay benefits to participants under the program.

(b) pay the cost of administering the program.

(c) make investments for the benefit of the program, and that assets of the program or fund monies are not transferred to the state general fund or to any other fund of this state or are otherwise encumbered or used for any purpose other than those specified in this article.

17. Develop audit requirements. Financial audits of the program shall be prepared in accordance with generally accepted accounting principles, that detail the activities, operations, receipts and expenditures of the program. The treasurer shall make audit reports and program performance reports publicly available on the treasurer's website.

B. In order to fulfill the requirements of this section and to minimize costs for the program and its participants, the treasurer may enter into contracts, agreements, memoranda of understanding or other arrangements to collaborate or combine resources, investments or administrative functions with other governmental entities, including other states or their agencies or instrumentalities that maintain or are establishing retirement savings programs that are compatible with the program. An arrangement may include collective or pooled investments with other monies of other states' programs with which the assets of the program and trust are allowed by law to be collectively invested and are consistent with the purposes set forth in this article.

C. The work and save fund is established consisting of the assets of the Arizona work and save program. The treasurer shall administer the fund, and the board shall act as the trustee of the fund. Monies in the fund are continuously appropriated. The fund is designated a public instrumentality of this state that is established for an essential public purpose. The treasurer shall designate trust interests in the fund for each account owner. The fund shall be separated into a trust account and an operating account. The trust account shall include amounts received by the Arizona work and save program from participants pursuant to agreements and interest and investment income earned by the fund. The treasurer shall make transfers from the trust account to the operating account as necessary to immediately pay obligations under agreements and for the operating expenses and administrative costs of the program. The treasurer shall deposit and invest monies or other amounts in the fund with financial institutions in a process equivalent to section 15-1874, as applicable. The board shall accept any grants, gifts, appropriations or other monies from this state, any unit of federal, state or local government or any other person, firm, partnership, corporation or other entity solely for deposit in the fund, whether for investment or administrative expenses. END_STATUTE

START_STATUTE35-1303. Program requirements

The program developed and implemented by the state treasurer pursuant to this article must:

1. Allow eligible individuals in this state to voluntarily choose whether to contribute to an IRA under the program, including allowing covered employees in this state the choice to contribute to an IRA through payroll deduction under the program.

2. Allow each covered employer to offer its employees the voluntary choice whether to contribute to a payroll deduction IRA by allowing automatic enrollment where employees may opt out of participation.

3. Provide that the account owner is solely responsible for investment performance, including market gains and losses, and that IRA accounts and rates of return are not guaranteed by any employer, this state, the board, any board member or state official or the program.

4. Provide that the IRA to which contributions are made must be a roth IRA, except that the board shall have the authority at any time to add an option for all participants to affirmatively elect to contribute to a traditional IRA as an alternative to the roth IRA.

5. Provide that the board or its delegate shall design a standard or default package that provides for a particular contribution rate and investment to be presented to covered employees as the most prominent combination of options, if covered employees are free to elect any other options, including nonparticipation or a different contribution rate, which could be as low as one percent of salary or wages, and a different investment, offered under the program, that in all cases is subject to the IRA eligibility conditions and contribution dollar limits applicable under the internal revenue code.

6. Provide for direct deposit of contributions into investments under the program.

7. Be professionally managed.

8. Not allow any employer contributions by covered employers.

9. Provide at least annually to each participant a report on the status of the participant's account.

10. Provide that each account holder owns the contributions to or earnings on amounts contributed to the account holder's account under the program and that this state and employers have no proprietary interest in those contributions or earnings.

11. Be designed and implemented in a manner consistent with federal law, including favorable federal tax treatment, to the extent that it applies and is consistent that the program is not preempted by ERISA.

12. Allow for individuals who are not employees to participate in the program, including individuals who are self-employed or independent contractors.

13. Keep total fees and expenses as low as practicable.

14. Establish rules and procedures governing the distribution of monies from the program, including distributions as may be allowed or required by the program and any applicable provisions of tax laws, with the objectives to maximize financial security in retirement, help protect spousal rights and assist participants with the challenges of decumulation of savings. The board may provide for one or more reasonably priced distribution options to provide a source of fixed regular retirement income, including income for life or for the participant's life expectancy or for joint lives and life expectancies, as applicable.

15. Establish rules and procedures promoting portability of benefits, including the ability to make tax-free rollovers or transfers from IRAs under the program to other IRAs or to tax-qualified plans that accept these rollovers or transfers provided that any rollover is initiated by participants and not solicited by agents or brokers.

16. Determine whether annual increases of participant's contribution rates should be included in the program and allow a participant to choose not to participate in the increases.

17. Address the failure of a covered employer to transmit a payroll deduction contribution to the program on the earliest date the amount withheld from the covered employee's compensation can reasonably be segregated from the covered employer's assets, but not later than the fifteenth day of the month following the month in which the covered employee's contribution amounts are withheld from the employee's paycheck. END_STATUTE

START_STATUTE35-1304. Employers; protection from liability

A. A covered employer or other employer is not liable for or does not bear responsibility for:

1. An employee's decision whether to participate in the program or a participant's specific elections under the program.

2. a Participant's or the board's investment decisions.

3. The administration, investment, investment returns or investment performance of the program, including any interest rate or other rate of return on any contribution or account balance if the employer does not play a role.

4. The program design or the benefits paid to participants.

5. An individual's awareness of or compliance with the conditions and other provisions of the tax laws that determine which individuals are eligible to make tax-favored contributions to IRAs, in what amount and in what time frame and manner.

6. Any loss, failure to realize any gain or any other adverse consequences, including any adverse tax consequences or loss of favorable tax treatment, public assistance or other benefits incurred by any person who participates in the program.

B. A covered employer or other employer is not, and is not considered to be, a fiduciary in relation to the program or fund or any other arrangement under the program. END_STATUTE

START_STATUTE35-1305. Protection from liability

A. This state, the board, each member of the board or other state official, other state boards, commissions or agencies, or any member, officer or employee thereof and the program:

1. Have no responsibility for individuals to comply with the conditions and other provisions of the internal revenue code that determine which individuals are eligible to make tax-favored contributions to IRAs, in what amount and in what time frame and manner.

2. Have no duty, responsibility or liability to any party for the payment of any benefits under the program, regardless of whether sufficient monies are available under the program to pay those benefits.

3. Do not and may not guarantee any interest rate or other rate of return on or investment performance of any contribution or account balance.

4. Are not and may not be liable or responsible for any loss, deficiency, failure to realize any gain or any other adverse consequences, including any adverse tax consequences or loss of favorable tax treatment, public assistance or other benefits, incurred by any person as a result of participating in the program.

B. The debts, contracts and obligations of the program or the board are not the debts, contracts and obligations of this state, and neither the faith and credit nor the taxing power of this state is pledged directly or indirectly to the payment of the debts, contracts and obligations of the program or the board. END_STATUTE

START_STATUTE35-1306. Confidentiality of participant and account information; exception

Individual account information relating to accounts under the program and relating to individual participants, including names, addresses, telephone numbers, email addresses, personal identification information, investments, contributions and earnings, is confidential and must be maintained as confidential:

1. Except to the extent necessary to administer the program in a manner consistent with this article, the tax laws of this state and the internal revenue code.

2. Unless the individual who provides the information or is the subject of the information expressly agrees in writing to the information disclosure. END_STATUTE

START_STATUTE35-1307. Intergovernmental agreement and memorandum of understanding

The board may enter into an intergovernmental agreement or memorandum of understanding with this state and any agency of this state to receive outreach, technical assistance, enforcement and compliance services, collection or dissemination of information pertinent to the Program, subject to the obligations of confidentiality as may be agreed or required by law, or other services or assistance. This state and any agencies of this state that enter into an agreement or memorandum of understanding shall collaborate to provide the outreach, assistance, information and compliance or other services or assistance to the board. The memorandum of understanding may cover the sharing of costs incurred in gathering and disseminating information and the reimbursement of costs for any enforcement activities or assistance. END_STATUTE

Sec. 3. Implementation

A. The state treasurer shall establish the program so that individuals can begin contributing under the program not later than July 1, 2024.

B. The state treasurer may in its discretion phase in the program so that the ability to contribute first applies on different dates for different classes of individuals, including employees of employers of different sizes or types and individuals who are not employees, including self-employed and independent contractors. Any such staged or phased-in implementation schedule must be substantially completed not later than January 1, 2025.

Sec. 4. Appropriation; state treasurer; exemption

A. The sum of $400,000 is appropriated from the state general fund in fiscal year 2022-2023 to the state treasurer to implement the Arizona work and save program established pursuant to title 35, chapter 11, Arizona Revised Statutes, as added by this act.

B. The appropriation made in subsection A of this section is exempt from the provisions of section 35-190, Arizona Revised Statutes, relating to lapsing of appropriations.

Sec. 5. Severability

If a provision of this act or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the act that can be given effect without the invalid provision or application, and to this end the provisions of this act are severable.