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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
ASRS; termination incentive programs
Purpose
Defines unfunded liability for the purposes of assessing a cost for an unfunded liability resulting from a termination incentive program.
Background
The Arizona State Retirement System (ASRS) administers a public pension program for state employees. ASRS: 1) provides an incentive in the recruitment and retention of employees; 2) contributes toward providing a compensation package as prescribed; 3) provides a retirement system that encourages employees to remain in service to provide public employers with the full benefit of the training and experience gained by the employees; and 4) provides an orderly method of promoting and maintaining a high level of service to the public (A.R.S. § 38-712).
ASRS employs several safeguards to ensure final pension payments made to
members are fair and accurate, including a full audit of the member's account
to ensure the correct figures were used in calculating the final benefit
payment. 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. A termination incentive program is: 1) a
total increase in compensation of 30 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 is used to calculate the
member's retirement benefit and is not attributed to promotion; or
2) anything of value, including monies, credited service or points that the
employer provides to or on behalf of a member that is conditioned on the
member's termination except for payments to an employee for accrued vacation,
sick leave or compensatory time, unless the payment is enhanced beyond the
employer's customary payment. If an employer chooses to implement a termination
incentive program, the employer must notify ASRS before implementation. If a termination
incentive program offered by the employer results in an actuarial
unfunded liability, the employer must pay to ASRS the amount of the unfunded
liability which is determined by ASRS in consultation with its actuary (ASRS
and A.R.S.
§ 38-749).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Defines unfunded liability, for the purposes of assessing a cost for an unfunded liability from a termination incentive program, as either:
a) the increase in accrued liability attributable to the portion of the benefit that is based on the member's average monthly compensation at the time of retirement in excess of the 30 percent threshold as calculated using the lump sum actuarial factors in effect at the time of calculation, as provided by the ASRS actuary; or
b) the difference between the accrued liability using the ASRS valuation assumptions calculated for the member, assuming the member retires under the termination incentive program and the accrued liability using the ASRS valuation assumptions, which may be modified by the ASRS actuary, calculated for the member assuming the member is still an active member.
2. Makes technical changes.
3. Becomes effective on the general effective date.
House Action
WM 2/5/25 DP 8-0-0-1
3rd Read 2/13/25 53-0-7
Prepared by Senate Research
February 27, 2025
MG/KP/ci