Reference Title: public retirement systems

AN ACT
AMENDING SECTIONS 15-1451, 38-711, 38-714, 38-718, 38-737, 38-738, 38-739, 38-740, 38-742, 38-743, 38-745, 38-747, 38-757, 38-762, 38-764, 38-766, 38-771, 38-797.07 AND 38-804, ARIZONA REVISED STATUTES; AMENDING TITLE 38, CHAPTER 5, ARTICLE 3, ARIZONA REVISED STATUTES, BY ADDING SECTION 38-821; AMENDING SECTION 38-842, ARIZONA REVISED STATUTES; AMENDING TITLE 38, CHAPTER 5, ARTICLE 4, ARIZONA REVISED STATUTES, BY ADDING SECTION 38-843.01; AMENDING SECTIONS 38-846.02, 38-847, 38-849 AND 38-884, ARIZONA REVISED STATUTES; RELATING TO PUBLIC RETIREMENT SYSTEMS.

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

Section 1. Section 15-1451, Arizona Revised Statutes, is amended to read:

15-1451 . Optional retirement plans

A. Notwithstanding section 38-729, subsection I, and pursuant to section 15-1444, subsection B, paragraph 5, a community college district board may establish an optional retirement program under which contracts providing retirement and death benefits may be purchased for employees of the institutions under its jurisdiction as designated by the community college district board.

B. An optional retirement program established pursuant to this section shall:

1. Be designed to be a qualified governmental plan under section 401(a) of the internal revenue code.

2. Comply with all requirements of the internal revenue code applicable to governmental plans.

3. Be a qualified plan under section 401(a) of the internal revenue code.

4. Apply for and maintain a current letter of determination issued by the United States internal revenue service.

5. Be a qualified pick-up plan as defined by section 414(h)(2) of the internal revenue code as confirmed by a private letter ruling issued by the United States internal revenue service.

6. Provide benefits through annuity contracts that are fixed or variable in nature or that are a combination of fixed and variable.

C. Eligible employees may elect to participate in an optional retirement plan established by the community college district board. The eligible employee shall make the election in writing and file the election with the Arizona state retirement system and the disbursing officer of the employing institution. The eligible employee shall make the election within ninety THIRTY days of the employee's effective date of employment or, if the employee is a member of the Arizona state retirement system on the date the optional retirement program becomes effective, within ninety days of the effective date of the optional retirement program. If an employee who is a member of the Arizona state retirement system elects to participate in an optional retirement program within ninety THIRTY days of the employee's effective date of employment or WITHIN NINETY DAYS OF the effective date of the optional retirement program, the Arizona state retirement system shall transfer the employee's contributions to the Arizona state retirement system and interest as determined by the board of the Arizona state retirement system to the optional retirement program within the later of ninety days after the election or ninety days after receipt by the optional retirement program of a favorable letter of determination issued by the United States internal revenue service. If an eligible employee fails to make an election as provided in this subsection, the employee is deemed to have elected to participate in the Arizona state retirement system. The election to participate in an optional retirement program is irrevocable and constitutes a waiver of all benefits provided by the Arizona state retirement system. All eligible employees who elect to participate in an optional retirement program shall remain participants in the optional retirement program during the continuance of employment with the community college district.

D. The community college district board shall make contributions from public monies appropriated or any other monies available for this purpose on behalf of each participant in the optional retirement program in an amount equal to the employer contribution prescribed in title 38, chapter 5, article 2.

E. Subject to subsection G of this section, each community college district board that establishes an optional retirement program shall establish program provisions including:

1. Categories of employees that are eligible to elect to participate in the optional retirement program.

2. The employee contribution rate. This rate may be greater than the employee contribution rate prescribed in title 38, chapter 5, article 2.

3. A vesting period for employer contributions, if any. All employee contributions that are picked up by the employer are fully vested at all times.

4. Restrictions on benefits, except that the optional retirement program shall not allow a participant to withdraw employer contributions except as retirement income payable for life or to provide for loans on retirement income.

F. A community college district board may elect to provide health or long-term disability coverage to optional retirement program participants under separate benefit plans. The community college district board may allocate a portion of its employer contribution that would otherwise be made to the optional retirement program under subsection D of this section to the separate benefit plans to provide health or long-term disability coverage.

G. Community college district boards that establish an optional retirement program under this section may enter into intergovernmental agreements appointing a single administrator or designating a single community college district board to administer the optional retirement program. A community college district board may satisfy the requirements of this section by entering into an intergovernmental agreement with another community college district board to participate in that community college district's optional retirement program. The administration shall include, without limitation, the design and implementation of the plan document establishing the optional retirement program, compliance with the qualification requirements prescribed in subsection B of this section and such other duties that are not inconsistent with this section as may be delegated to the administrator pursuant to the intergovernmental agreements entered into among the community college district boards.

H. Although designated as employee contributions, all employee contributions made to an optional retirement program shall be picked up and paid by the community college district in lieu of contributions by the employee. The contributions picked up by a community college district may be made through a reduction in the employees' salary or an offset against future salary increases, or a combination of both. The employees participating in the optional retirement program do not have the option of choosing to receive the contributed amounts directly instead of the community college district paying the amounts to the optional retirement program. It is intended that all employee contributions that are picked up by the community college district as provided in this subsection shall be treated as employer contributions under section 414(h) of the internal revenue code and shall be excluded from the employees' gross income for federal and state income tax purposes and are includable in the gross income of the employees or their beneficiaries only in the taxable year in which they are distributed.

I. A community college district board shall not be liable to any employee, retiree or other person for any reason relating to the community college district board's provision of or failure to provide for an optional retirement program or health or long-term disability coverage.

Sec. 2. Section 38-711, Arizona Revised Statutes, is amended to read:

38-711 . Definitions

In this article, unless the context otherwise requires:

1. "Active member" means a member as defined in paragraph 22, subdivision (b) or (c) of this section who satisfies the eligibility criteria prescribed in section 38-727 and who either is currently making member contributions as prescribed in section 38-736 or is receiving credited service under article 2.1 of this chapter.

2. "Actuarial equivalent" means equality in value of the aggregate amounts expected to be received under two different forms of payment, based on mortality and interest rate assumptions approved from time to time by the board.

3. "ASRS" means the Arizona state retirement system established by this article.

4. "Assets" means the resources of ASRS including all cash, investments or securities.

5. "Average monthly compensation" means:

(a) For a member whose membership in ASRS commenced before January 1, 1984 and who left the member's contributions on deposit or reinstated forfeited credited service pursuant to section 38-742 for a period of employment that commenced before January 1, 1984, the monthly average of compensation on which contributions were remitted during a period of sixty consecutive months during which the member receives the highest compensation within the last one hundred twenty months of credited service. Any month for which no contributions are reported to ASRS or that falls within a period of nonpaid or partially paid leave of absence or sabbatical leave shall be excluded from the computation. The sixty consecutive months may entirely precede, may be both before and after or may be completely after any excluded months. If the member was employed for less than sixty consecutive months, the average monthly compensation is based on the total consecutive months worked.

(b) Effective July 1, 1985, the monthly average of compensation on which contributions were remitted during a period of thirty-six consecutive months during which a member receives the highest compensation within the last one hundred twenty months of credited service. Any month for which no contributions are reported to ASRS or that falls within a period of nonpaid or partially paid leave of absence or sabbatical leave shall be excluded from the computation. The thirty-six consecutive months may entirely precede, may be both before and after or may be completely after any excluded months. If the member was employed for less than thirty-six consecutive months, the average monthly compensation shall be based on the total consecutive months worked. This subdivision applies only to members whose membership in ASRS was effective after December 31, 1983 or who agree in writing as a binding condition of eligibility for being granted the benefit advantages available under this subdivision to have their benefit computed on the basis of the definition of compensation.

6. "Board" means the ASRS board established in section 38-713.

7. "Compensation" means the gross amount paid to a member by an employer as salary or wages, including amounts that are subject to deferred compensation or tax shelter agreements, for services rendered to or for an employer, or that would have been paid to the member except for the member's election or a legal requirement that all or part of the gross amount be used for other purposes, but does not include amounts paid in excess of compensation limits established in section 38-746. COMPENSATION INCLUDES AMOUNTS PAID AS SALARY OR WAGES TO A MEMBER BY A SECOND EMPLOYER. Compensation, as provided in paragraph 5, subdivision (b) of this section, does not include:

(a) Lump sum payments, on termination of employment, for accumulated vacation or annual leave, sick leave, compensatory time or any other form of termination pay whether the payments are made in one payment or by installments over a period of time.

(b) Damages, costs, attorney fees, interest or other penalties paid pursuant to a court order or a compromise settlement or agreement to satisfy a grievance or claim even though the amount of the payment is based in whole or in part on previous salary or wage levels, except that, if the court order or compromise settlement or agreement directs salary or wages to be paid for a specific period of time, the payment is compensation for that specific period of time. If the amount directed to be paid is less than the actual salary or wages that would have been paid for the period if service had been performed, the contributions for the period shall be based on the amount of compensation that would have been paid if the service had been performed.

(c) Payment, at the member's option, in lieu of fringe benefits that are normally paid for or provided by the employer.

(d) Merit awards pursuant to section 38-613 and performance bonuses paid to assistant attorneys general pursuant to section 41-192.

8. "Contingent annuitant" means the person named by a member to receive retirement income payable following a member's death after retirement , as provided in section 38-760.

9. "Credited service" means, subject to section 38-739, the number of years standing to the member's credit on the books of ASRS during which the member made the required contributions.

10. "Early retirement" means retirement before a member's normal retirement date after five years of total credited service and attainment of age fifty.

11. "Effective date" means July 1, 1970, except with respect to employers and members whose contributions to ASRS commence thereafter, the effective date of their membership in ASRS is as specified in the applicable joinder agreement.

12. "Employer" means:

(a) This state.

(b) Participating political subdivisions.

13. "Employer contributions" means all amounts paid into ASRS by an employer on behalf of a member.

14. "Fiscal year" means the period from July 1 of any year to June 30 of the following year.

15. "Inactive member" means a member who previously made contributions to ASRS and who satisfies each of the following:

(a) Has not retired.

(b) Is not eligible for active membership in ASRS.

(c) Is not currently making contributions to ASRS.

(d) Has not withdrawn contributions from ASRS.

16. "Interest" means the assumed actuarial investment earnings rate approved by the board.

17. "Internal revenue code" means the United States internal revenue code of 1986, as amended.

18. "Investment management" means the persons, companies, banks, insurance company investment funds, mutual fund companies, management or any combinations of those entities that are appointed by ASRS and that have responsibility and authority for investment of the monies of ASRS.

19. "Late retirement" means retirement after normal retirement.

20. "Leave of absence" means any unpaid leave authorized by the employer, including leaves authorized for sickness or disability or to pursue education or training.

21. "Life annuity" means equal monthly installments payable during the member's lifetime after retirement.

22. "Member":

(a) Means any employee of an employer on the effective date.

(b) Means all employees of an employer who are eligible for membership pursuant to section 38-727 and who are engaged to work at least twenty weeks in each fiscal year and at least twenty hours each week.

(c) Means all employees of an employer who are eligible pursuant to this article and whose work for more than one employer totals at least twenty weeks in a fiscal year and at least twenty hours each week and includes work provided on a part-time basis to an employer who is not the full-time employer of the employee.

(d) (c ) Means any person receiving a benefit under ASRS.

(e) ( d ) Does not include any employee of an employer who is otherwise eligible pursuant to this article and who begins service in a limited appointment for not more than eighteen months on or after July 1, 1979. If the employment exceeds eighteen months, the employee shall be covered by ASRS as of the beginning of the nineteenth month of employment. In order to be excluded under this subdivision, classifications of employees designated by employers as limited appointments must be approved by the director.

23. "Member contributions" means all amounts paid to ASRS by a member.

24. "Normal costs" means costs of ASRS as computed under the projected unit credit method of actuarial computation that would have arisen if the benefits in effect at the time of the computation had always been in effect from the time of earliest eligibility of the current members.

25. "Normal retirement date" means the earliest of the following:

(a) A member's sixty-fifth birthday.

(b) A member's sixty-second birthday and completion of at least ten years of credited service.

(c) The first day that the sum of a member's age and years of total credited service equals eighty.

26. "Political subdivision" means any political subdivision of this state.

27. "Retired member" means a member who is receiving retirement benefits pursuant to this article.

28. "Service year" means fiscal year, except that:

(a) If the normal work year required of a member is less than the full fiscal year but is for a period of at least nine months, the service year is the normal work year.

(b) For a salaried member employed on a contract basis under one contract, or two or more consecutive contracts, for a total period of at least nine months, the service year is the total period of the contract or consecutive contracts.

(c) In determining average monthly compensation pursuant to paragraph 5 of this section, the service year is considered to be twelve months of compensation.

29. "State" means this state, including any department, office, board, commission, agency, institution or other instrumentality of this state.

30. "Vested" means that a member is eligible to receive a future retirement benefit.

Sec. 3. Section 38-714, Arizona Revised Statutes, is amended to read:

38-714 . Powers and duties of ASRS and board

A. ASRS shall have the powers and privileges of a corporation, shall have an official seal and shall transact all business in the name "Arizona state retirement system", and in that name may sue and be sued.

B. The board is responsible for supervising the administration of this article by the director of ASRS, except the investment powers and duties of investment management.

C. The board is responsible for the performance of fiduciary duties and other responsibilities required to preserve and protect the retirement trust fund established by section 38-712.

D. The board shall:

1. Prescribe investment goals, objectives and policies that are consistent with the purposes of this article and the limitations and standard of care prescribed in section 38-719, subsection B.

2. Allocate assets to meet the investment goals, objectives and policies it prescribes.

3. Adopt specific policy directives for the guidance of investment management.

4. MEET WITH EACH INVESTMENT MANAGER AT LEAST ANNUALLY OR AT THE REQUEST OF A BOARD MEMBER TO REVIEW THE INVESTMENT MANAGER'S PERFORMANCE AND THE INVESTMENT MANAGER'S ATTAINMENT OF AND ADHERENCE TO THE BOARD'S INVESTMENT GOALS, OBJECTIVES AND POLICIES.

E. The board shall not advocate for or against legislation providing for benefit modifications, except that the board shall provide technical and administrative information regarding the impact of benefit modification legislation.

F. The board may:

1. Determine the rights, benefits or obligations of any person under this article and afford any person dissatisfied with a determination a hearing on the determination.

2. Determine the amount, manner and time of payment of any benefits under this article.

3. Assign, transfer and deliver all stocks, bonds and other investments owned by ASRS if it is not inconsistent with or does not in any way contravene the authority of investment management for investing, reinvesting, purchasing and selling stocks, bonds and other investments.

4. Recommend amendments to this article and articles 2.1 and 7 of this chapter that are required for efficient and effective administration.

5. Adopt, amend or repeal rules for the administration of this article.

6. Prescribe investment diversification programs and assign investment management responsibilities regarding those programs as it deems appropriate to achieve its investment goals, objectives and policies.

G. The board shall submit to the governor and legislature for each fiscal year no later than eight months after the close of the fiscal year a report of its operations and the operations of ASRS. The report shall follow generally accepted accounting principles and generally accepted financial reporting standards and shall include:

1. A report on an actuarial valuation of ASRS assets and liabilities.

2. Any other statistical and financial data that may be necessary for the proper understanding of the financial condition of ASRS and the results of board operations.

H. The board shall:

1. Prepare and publish a synopsis of the annual report for the information of ASRS members.

2. Contract for a study of the mortality, disability, service and other experiences of the members and employers participating in ASRS. The study shall be conducted for fiscal year 1990-1991 and for at least every fifth fiscal year thereafter. A report of the study shall be completed within eight months of the close of the applicable fiscal year and shall be submitted to the governor and the legislature.

3. Conduct an annual actuarial valuation of ASRS assets and liabilities.

I. The auditor general may make an annual audit of ASRS and transmit the results to the governor and the legislature.

Sec. 4. Section 38-718, Arizona Revised Statutes, is amended to read:

38-718 . Investment management; qualifications; term; removal; general powers and duties

A. The board shall appoint investment management. Investment management shall have:

1. The highest professional and fiduciary recommendations.

2. Not less than five years' experience at handling investments of not less than ten per cent of the total assets of ASRS per year.

3. Had responsibility for investment decision making as an insurance company investment fund, an investment division of a bank, a mutual fund, an investment organization, a pension fund or an investment adviser designated as a chartered financial analyst by the institute of chartered financial analysts.

B. A bank serving as investment management does not have a conflict of interest because it is also a depository in which ASRS monies are deposited.

C. The board shall appoint the investment management for a term of one year and may appoint the investment management to succeeding terms. The board may remove investment management for not complying with this article or for failure to comply with or adhere to the board's investment goals, objectives or policies.

D. Investment management:

1. Has the sole authority to invest and reinvest in the name of ASRS all ASRS monies assigned to investment management and shall purchase and sell in the name of ASRS any of the securities and investments held by ASRS under this article.

2. Is responsible for making and executing all investment decisions.

3. Shall be multiple.

E. Investment management shall not directly or indirectly:

1. Have an interest in making an investment or purchasing annuities from a private insurer or in the gains or profits accruing from an investment or annuities.

2. As investment management or as agent or partner of others borrow monies, funds or deposits of ASRS or use monies, funds or deposits in any manner except as directed under this article.

3. Be an endorser, surety or obligor on investments made under this article.

F. The board does not have authority over investment management except in the performance of its administrative powers and duties.

G. F. Subject to the limitations in section 38-719, the board may authorize the director to make investments that are designated by the board and that do not exceed the following FIFTY per cent of the assets of the investment account measured at cost. :

1. For the period from and after June 30, 1997 through June 30, 1998, thirty per cent.

2. For the period from and after June 30, 1998 through June 30, 1999, forty per cent.

3. For the period from and after June 30, 1999, fifty per cent.

G. FOR THE PURPOSE OF EXERCISING THE INVESTMENT RESPONSIBILITIES PRESCRIBED IN THIS SECTION, THE BOARD MAY ENTER INTO CONTRACTS TO RECEIVE MARKET DATA AND OTHER MARKET INFORMATION FROM SECURITIES, COMMODITIES, OPTIONS AND MONETARY EXCHANGES. THESE CONTRACTS MAY BE INTERPRETED AND ENFORCED UNDER THE LAWS OF A JURISDICTION OTHER THAN THIS STATE AND ARE NOT SUBJECT TO SECTION 35-214 OR 38-511 OR TITLE 41, CHAPTER 23.

Sec. 5. Section 38-737, Arizona Revised Statutes, is amended to read:

38-737 . Employer contributions; definition

A. Employer contributions for the biennial period shall be a percentage of compensation of all employees of the employers, excluding the compensation of those employees who are members of the defined contribution program administered by ASRS, as determined by the ASRS actuary pursuant to this section for June 30 of the even-numbered year immediately preceding the biennial period , EXCEPT THAT BEGINNING WITH FISCAL YEAR 2001-2002 THE CONTRIBUTION RATE SHALL NOT BE LESS THAN TWO PER CENT OF COMPENSATION OF ALL EMPLOYEES OF THE EMPLOYERS . The total employer contribution shall be determined on the projected unit credit method. Except as provided in subsection D of this section, the total employer contributions shall be equal to the employer normal cost plus the amount required to amortize the past service funding requirement over a rolling thirty-year period.

B. All contributions made by the employer and allocated to the fund established by section 38-712 are irrevocable and shall be used as benefits under this article or to pay expenses of ASRS.

C. The required employer contributions shall be determined every other year by an actuary who is selected by the board and who is a fellow of the society of actuaries. ASRS shall provide a preliminary report by November 1 and a final report by December 15 of each even-numbered year to the governor, the speaker of the house of representatives and the president of the senate on the contribution rate for the two ensuing fiscal years.

D. For the fiscal years ending June 30, 1995 through June 30, 1997 and commencing with fiscal year ending June 30, 1998 through June 30, 2013 the funding period used to determine the valuation of ASRS and employer contributions payable beginning July 1 of the following year or biennial period shall be determined by the ASRS actuary using the following schedule:

Valuation for the Biennial period

Fiscal year ending Funding period ends

June 30, 1995 June 30, 2005

June 30, 1996 June 30, 2007

June 30, 1997 June 30, 2009

June 30, 1998 July 1, 1999 to June 30, 2001 June 30, 2011

June 30, 2000 July 1, 2001 to June 30, 2003 June 30, 2015

June 30, 2002 July 1, 2003 to June 30, 2005 June 30, 2019

June 30, 2004 July 1, 2005 to June 30, 2007 June 30, 2023

June 30, 2006 July 1, 2007 to June 30, 2009 June 30, 2027

June 30, 2008 July 1, 2009 to June 30, 2011 June 30, 2031

June 30, 2010 July 1, 2011 to June 30, 2013 June 30, 2035

June 30, 2012 July 1, 2013 to June 30, 2015 June 30, 2039

E. If at any time between June 30, 1995 and June 30, 2013 ASRS becomes underfunded, the funding period immediately and permanently reverts to the period provided in subsection A of this section.

F. For the purposes of this section "biennial period" means the two year period beginning on July 1 of an odd-numbered year and ending on June 30 of the next odd-numbered year.

Sec. 6. Section 38-738, Arizona Revised Statutes, is amended to read:

38-738 . Adjustment and refund

A. If more than the correct amount of employer or member contributions is paid into ASRS by an employer through a mistake of fact, ASRS shall return those contributions to the employer if the employer requests return of the contributions within one year after the date of overpayment. ASRS shall not pay an employer earnings attributable to excess contributions but shall reduce the amount returned to an employer pursuant to this section by the amount of losses attributable to the excess contributions.

B. If less than the correct amount of employer or member contributions is paid into ASRS by an employer, the following apply:

1. The member shall pay an amount that is equal to the amount that would have been paid in member contributions for the period in question. The member's payments shall be made AS PROVIDED IN SECTION 38-747. in a lump sum to the employer who shall remit the amount to ASRS. In any one fiscal year, contributions made by the member under this section shall be treated as an annual addition, shall be added to all other annual additions of the member during the limitation year and are subject to the limits prescribed in section 38-747, subsection E.

2. If the member contributions to ASRS made pursuant to this subsection exceed the limits prescribed in paragraph 1 of this subsection SECTION 38-747, SUBSECTION E when taking into account other ANNUAL ADDITIONS OF THE member contributions made to ASRS for the fiscal LIMITATION year, the amount to be paid by the member shall be ADJUSTED AS PROVIDED IN SECTION 38-747. reduced to not exceed the limits prescribed in paragraph 1 of this subsection, and the reduced amount shall be carried forward to the next fiscal year, unless the limits would be exceeded. If the limits are exceeded in the next fiscal year, the procedure prescribed by this paragraph shall be repeated until all contributions have been made.

3. The employer shall pay to ASRS an amount equal to the amount that would have been paid in employer contributions for the period in question together with accumulated interest that would have accrued on both the employer and member contributions due at the interest rate assumption approved by the board for actuarial equivalency for the period in question to the date payment is received.

4. On satisfaction of the requirements of this subsection, the member's salary history on the records of ASRS shall be adjusted and any additional service credits acquired by the member shall be reinstated.

5. If the member retires before all contributions are made pursuant to this subsection, the member's benefits shall be calculated only based on the contributions actually made.

6. "Annual additions" and "limitation year" have the same meaning prescribed in section 38-769.

Sec. 7. Section 38-739, Arizona Revised Statutes, is amended to read:

38-739 . Credited service

A. A member shall not earn more than one year of credited service in any fiscal year.

B. A member shall earn proportionate credited service for each pay period MONTH for which the member performs service and is compensated equal to the ratio that the pay period MONTH bears to the number of pay periods MONTHS in the member's service year.

C. If a member is compensated for less than a full service year, the member shall earn credited service equal to the ratio that the number of pay periods MONTHS actually compensated bears to the number of pay periods MONTHS in the full service year.

D. If a member holds two or more concurrent contracts in any fiscal year, credited service shall be determined on the basis of the terms of the contract with the longest term.

E. Members on sabbatical leave for which they are paid on a full or partial basis shall make appropriate contributions while on sabbatical leave and are considered to be employed full time.

F. The following years of service are excluded from credited service under this article:

1. Years of prior service. For the purposes of this paragraph, "prior service" has the same meaning prescribed in section 38-772.

2. Years in which the member made contributions to the defined contribution program administered by ASRS or the Arizona teachers' retirement system before membership in the defined contribution program administered by ASRS and for which those contributions were subsequently withdrawn and paid to the member.

Sec. 8. Section 38-740, Arizona Revised Statutes, is amended to read:

38-740 . Return of contributions

A. Any member who leaves employment other than by retirement or death may elect TO RECEIVE a return of the member's contributions with interest as determined by the board. AS FOLLOWS:

1. IF THE MEMBER HAS LESS THAN FIVE YEARS OF CREDITED SERVICE, THE MEMBER SHALL RECEIVE THE MEMBER'S CONTRIBUTIONS.

2. IF A MEMBER HAS FIVE OR MORE YEARS OF CREDITED SERVICE, THE MEMBER SHALL RECEIVE THE MEMBER'S CONTRIBUTIONS AND AN AMOUNT EQUAL TO A PERCENTAGE OF THE EMPLOYER CONTRIBUTIONS PAID ON BEHALF OF THE MEMBER. THE PERCENTAGE OF EMPLOYER CONTRIBUTIONS PAID ON BEHALF OF THE MEMBER SHALL BE AS FOLLOWS:

(a ) 5.0 TO 5.9 YEARS OF CREDITED SERVICE, TWENTY-FIVE PER CENT.

( b ) 6.0 TO 6.9 YEARS OF CREDITED SERVICE, FORTY PER CENT.

( c ) 7.0 TO 7.9 YEARS OF CREDITED SERVICE, FIFTY-FIVE PER CENT.

(d) 8.0 TO 8.9 YEARS OF CREDITED SERVICE, SEVENTY PER CENT.

( e) 9.0 TO 9.9 YEARS OF CREDITED SERVICE, EIGHTY-FIVE PER CENT.

( f) 10.0 OR MORE YEARS OF CREDITED SERVICE, ONE HUNDRED PER CENT.

3. INTEREST ON THE RETURNED CONTRIBUTIONS AS DETERMINED BY THE BOARD.

B. Notwithstanding any other provisions of this article, a member, within thirty days of retirement, may elect the return of the member's contributions with interest as determined by the board in lieu of all other benefits under ASRS. Withdrawal of contributions with interest constitutes a withdrawal from membership in ASRS and results in a forfeiture of all other benefits under ASRS.

C. Notwithstanding any other provision of this article, a member who has not received a return of contributions pursuant to subsection A or B THIS SECTION may combine any two or more periods of service for purposes of determining the member's vested benefits.

D. IF A MEMBER RECEIVES MORE THAN THE AMOUNT DUE TO A MEMBER PURSUANT TO THIS SECTION, THE MEMBER SHALL REPAY THE AMOUNT OF THE OVERPAYMENT TOGETHER WITH INTEREST AT THE INTEREST RATE EARNED ON ASRS INVESTMENTS AS REPORTED ON A QUARTERLY BASIS, BUT NOT LESS THAN THE VALUATION RATE ESTABLISHED BY THE BOARD, FROM THE TIME OF OVERPAYMENT TO THE SETTLEMENT OF THE DEBT.

Sec. 9. Section 38-742, Arizona Revised Statutes, is amended to read:

38-742 . Reinstatement

A. If an active member who received a return of contributions on termination of employment and by receipt of those contributions forfeited credited service earned on that employment, as provided in section 38-740, subsection A, is subsequently reemployed by an employer, the member's service shall be credited only from the date the member's most recent reemployment period commenced.

B. Notwithstanding subsection A of this section, the member may redeposit the amount of the member's accumulated contributions THE MEMBER RECEIVED at the time of the member's separation from service, with interest on that amount to the date of redeposit at the interest rate assumption approved by the board for actuarial equivalency. On satisfaction of this obligation, the member's service credits acquired by the previous employment shall be reinstated. If a member redeposits less than the amount required under this subsection, ASRS shall proportionately reduce the member's reinstated service credits.

Sec. 10. Section 38-743, Arizona Revised Statutes, is amended to read:

38-743 . Public service credit

A. An active member of ASRS who previously was a member of another public employee retirement system EMPLOYED BY THE UNITED STATES GOVERNMENT, A STATE OF THE UNITED STATES OR A POLITICAL SUBDIVISION OF A STATE OF THE UNITED STATES may receive credited service for this prior employment if the member pays into ASRS the amount prescribed in subsection B.

B. A member who elects to receive credit for service with another public employee retirement system THE UNITED STATES GOVERNMENT, A STATE OF THE UNITED STATES OR A POLITICAL SUBDIVISION OF A STATE OF THE UNITED STATES shall pay to ASRS the amount equal to the product of the member's current annual compensation times the normal cost rate for ASRS for the fiscal year during which the purchase of credited service is being made times the years or partial years of credited service being purchased.

C. A member of ASRS , who previously was a member of another public employee retirement system and who receives or is eligible to receive retirement benefits from that system for any period of employment is ineligible to receive retirement benefits from ASRS for the same period.

Sec. 11. Section 38-745, Arizona Revised Statutes, is amended to read:

38-745 . Credit for military service

A. An active member of ASRS may purchase credited service in ASRS for active military service if:

1. The member was honorably separated from the military service.

2. The member submits a copy of the member's military service record (DD-214) or its equivalent with the member's application for military service credit.

3. The period of military service for which the participant receives credited service is not on account with any other retirement system.

B. The cost to purchase military service credit is an amount equal to the product of the member's current annual compensation times the normal cost rate for ASRS for the fiscal year during which the purchase of credited service is being made times the years or partial years of credited service being purchased.

C. An active member of ASRS who is called to active military service may receive credited service for not more than forty-eight months of active military service. The member's employer shall make employer contributions and member contributions for the member if the member meets the following requirements:

1. Was an active member of ASRS on the day before the member began active military service.

2. Is a member of the Arizona national guard or is a member of the reserves of any military establishment of the United States.

3. Volunteers or is ordered into active military service of the United States as part of a presidential call-up.

4. Is honorably separated from active military service and returns to employment for the same employer from which the member left for active military service within ninety days after the date active military service is terminated, is hospitalized as a result of military service and returns to employment for the same employer from which the member left for active military service within ninety days after release from service related hospitalization or dies as a result of the military service.

D. Contributions made pursuant to subsection C shall be for the period of time beginning on the date the member began active military service and ending on one of the following dates:

1. The date the member is separated from active military service.

2. The date the member is released from service related hospitalization or one year after initiation of service related hospitalization, whichever date is earlier.

3. The date the member dies as a result of active military service.

E. Notwithstanding any other law, on payment of the contributions made pursuant to subsection C, the member shall be credited with service for retirement purposes for the period of time of active military service of not more than forty-eight months.

F. The employer shall make contributions pursuant to subsection C based on the salary being received by the member immediately before the member volunteered or was ordered into active military service in a lump sum and without penalty when the member returns to employment or on receipt of the member's death certificate. If a member suffers a service related death, the employer shall make the employer and member contributions up to and including the date of the member's death. Death benefits shall be calculated as prescribed by law.

G. In computing the length of total credited service of a member for the purpose of determining retirement benefits or eligibility, the period of military service, as prescribed by this section, shall be included.

H. Notwithstanding any other law, the member is not required to reimburse the member's employer or ASRS for any contribution made pursuant to subsection C.

I. IN ADDITION TO, BUT NOT IN DUPLICATION OF, THE PROVISIONS OF SUBSECTION C, CONTRIBUTIONS, BENEFITS AND CREDITED SERVICE PROVIDED PURSUANT TO THIS SECTION SHALL BE PROVIDED IN ACCORDANCE WITH SECTION 414( u ) OF THE INTERNAL REVENUE CODE.

Sec. 12. Section 38-747, Arizona Revised Statutes, is amended to read:

38-747 . Purchase of credited service; payment; definitions

A. A member who purchases credited service pursuant to section 38-738, 38-742, 38-743, 38-744, 38-745 or 38-922 shall either:

1. Make payments directly to ASRS as provided in subsection H of this section.

2. Elect to have the member's employer make payments as provided in subsection B of this section.

B. A member may elect to have the member's employer make payments for all or any portion of the amounts payable for the member's purchase of credited service pursuant to the sections prescribed in subsection A of this section through a salary reduction program. Employers shall implement this subsection no later than July 1, 1998. The amounts paid pursuant to a salary reduction program are in lieu of contributions by the electing member. The electing member's salary or other compensation shall be reduced by the amount paid by the employer pursuant to this subsection. The member shall make an election pursuant to this subsection at any time on or after the date the member elects to purchase credited service pursuant to the sections prescribed in subsection A of this section and before the member's termination of employment. The election shall specify the number of payroll periods that deductions will be made from the member's compensation and the dollar amount of deductions for each payroll period during the specified number of payroll periods. After an election is made pursuant to this subsection, the election is binding on and irrevocable for the member and the member's employer during the member's remaining period of current employment. After a member makes an irrevocable election pursuant to this subsection, the member does not have the option of choosing to receive the contributed amounts directly. A member who makes an irrevocable election pursuant to this subsection to have the member's employer make payments for less than all of the amounts payable for the member's purchase of credited service may irrevocably elect to have the member's employer make payments for all or any portion of the remaining amounts payable for the member's purchase of credited service. A member who makes one or more irrevocable elections pursuant to this subsection may also make other contributions to ASRS pursuant to subsection H of this section to the extent of any remaining amounts payable for which the member has not made an election pursuant to this subsection. An additional election or contribution with respect to a portion of the amounts payable for the member's purchase of credited service does not alter, amend or revoke an irrevocable election already made pursuant to this subsection for any other portion of the amounts payable for the member's purchase of credited service. If on termination of the member's current employment all amounts have not been paid to ASRS pursuant to the member's irrevocable election pursuant to this subsection, the member may pay ASRS, within thirty days after the member's termination of employment and subject to other limitations prescribed in this section, all or any portion of the unpaid amounts as provided in subsection H of this section. These payments do not alter, amend or revoke any irrevocable election already made pursuant to this subsection with respect to any amount to be paid by the member's employer while the member is employed by the member's employer. Amounts paid by an employer pursuant to this subsection shall be treated as employer contributions for the purpose of determining tax treatment under the internal revenue code. The effective date of employer payments pursuant to this subsection shall not be before the date ASRS receives notification from the United States internal revenue service that pursuant to section 414(h)(2) of the internal revenue code the amounts paid by an employer pursuant to this subsection will not be included in the member's gross income for income tax purposes until those amounts are distributed by refund or retirement benefit payments. Unless otherwise provided, member contributions paid by an employer pursuant to this subsection are treated for all other purposes under ASRS in the same manner and to the same extent as member contributions that are not paid by an employer pursuant to this subsection. ASRS shall not grant credited service for contributions made pursuant to this subsection until those contributions are received by ASRS. ASRS may assess interest or administrative charges attributable to any salary reduction election made pursuant to this subsection. The interest or administrative charges shall be added to the amount of contributions that is made to ASRS by the member each payroll period and that is paid by the member's employer. The interest or administrative charges shall not be treated as member contributions for any purposes under this article and a member or a member's beneficiary does not have a right to the return of the interest or administrative charges pursuant to any other provision of this article. Interest assessed pursuant to this subsection shall be at the rate specified by the board pursuant to section 38-711, paragraph 2.

C. A member who elects to receive retirement benefits based on section 38-771, subsection C, paragraph 2 shall either:

1. Make the member's additional contributions required pursuant to section 38-771, subsection E directly to ASRS as provided in subsection H of this section.

2. Elect to have the member's employer make payments for those additional contributions as provided in subsection D of this section.

D. A member may elect to have the member's employer make payments for all or any portion of the amounts payable for the member's contributions pursuant to section 38-771, subsection E through a salary reduction program. Employers shall implement this subsection no later than July 1, 1998. The amounts paid pursuant to a salary reduction program are in lieu of contributions by the electing member. The electing member's salary or other compensation shall be reduced by the amount paid by the employer pursuant to this subsection. The member shall make an election pursuant to this subsection at any time on or after the date the member elects to receive retirement benefits based on section 38-771, subsection C, paragraph 2 and before the member's termination of employment. The election shall specify the number of payroll periods that deductions will be made from the member's compensation and the dollar amount of deductions for each payroll period during the specified number of payroll periods. After an election is made pursuant to this subsection, the election is binding on and irrevocable for the member and the member's employer during the member's remaining period of current employment. After a member makes an irrevocable election pursuant to this subsection, the member does not have the option of choosing to receive the contributed amounts directly. A member who makes an irrevocable election pursuant to this subsection to have the member's employer make payments for less than all of the amounts payable for the member's additional contributions required by section 38-771, subsection E may irrevocably elect to have the member's employer make payments for all or any portion of the remaining amounts payable for the member's additional contributions. A member who makes one or more irrevocable elections pursuant to this subsection may also make other contributions to ASRS pursuant to subsection H of this section to the extent of any remaining amounts payable for which the member has not made an election pursuant to this subsection. An additional election or contribution with respect to a portion of the amounts payable for the member's additional contributions pursuant to section 38-771, subsection E does not alter, amend or revoke an irrevocable election already made pursuant to this subsection for any other portion of the amounts payable for the member's additional contributions required by section 38-771, subsection E. If on termination of the member's current employment all amounts have not been paid to ASRS pursuant to the member's irrevocable election pursuant to this subsection, the member may pay ASRS, within thirty days after the member's termination of employment and subject to other limitations prescribed in this section, all or any portion of the unpaid amounts as provided in subsection H of this section. These payments do not alter, amend or revoke any irrevocable election already made pursuant to this subsection with respect to any amount to be paid by the member's employer while the member is employed by the member's employer. Amounts paid by an employer pursuant to this subsection shall be treated as employer contributions for the purpose of determining tax treatment under the internal revenue code. The effective date of employer payments pursuant to this subsection shall not be before the date ASRS receives notification from the United States internal revenue service that pursuant to section 414(h)(2) of the internal revenue code the amounts paid by an employer pursuant to this subsection will not be included in the member's gross income for income tax purposes until those amounts are distributed by refund or retirement benefit payments. Unless otherwise provided, member contributions paid by an employer pursuant to this subsection are treated for all other purposes under ASRS in the same manner and to the same extent as member contributions that are not paid by an employer pursuant to this subsection.

E. The following limits apply to the purchase of credited service:

1. Except as provided in paragraphs 2 and 3 of this subsection, in any one limitation year, the annual additions credited to ASRS for or on behalf of a member who makes contributions to ASRS to purchase credited service pursuant to section 38-738, 38-743, 38-744, 38-745 or 38-922 and with respect to which an irrevocable election has not been made pursuant to subsection B of this section or who has elected to make contributions to ASRS and receive retirement benefits pursuant to section 38-771 shall not exceed the lesser of either:

(a) Thirty thousand dollars or a larger amount that is prescribed by the board and that is due to any cost of living adjustment announced by the United States secretary of the treasury pursuant to section 415(d) of the internal revenue code. The board shall increase the amount prescribed by this subdivision as of the effective date of the increase announced by the United States secretary of the treasury.

(b) Twenty-five per cent of the member's compensation for the limitation year.

2. UNLESS PARAGRAPH 4 OF THIS SUBSECTION APPLIES, for plan years beginning on or after July 1, 1998, in any one limitation year, the annual additions credited to ASRS for or on behalf of a member who makes contributions to ASRS to purchase credited service pursuant to section 38-738, 38-743, 38-744, 38-745 or 38-922 and with respect to which an irrevocable election has not been made pursuant to subsection B of this section shall not exceed the greater of either:

(a) The requirements of section 38-769. For the purposes of applying the limits prescribed in section 38-769 under this subdivision, the accrued benefit derived from the contributions shall be treated as an annual benefit and the reduced limit for certain early retirement in section 38-769, subsection C, paragraph 2 does not apply.

(b) Except as provided in paragraph 3 of this subsection, the requirements of paragraph 1 of this subsection. The contributions shall be treated as annual additions and any of the member's other annual additions for the limitation year shall be taken into account. For the purposes of applying the requirements of paragraph 1 of this subsection under this subdivision, the percentage of compensation limit in paragraph 1, subdivision (b) of this paragraph does not apply.

3. For plan years beginning on or after July 1, 1998, the requirements of paragraph 1 of this subsection shall not be applied to reduce the amount of credited service that may be purchased by an eligible member pursuant to section 38-738, 38-743, 38-744, 38-745 or 38-922 to an amount that is less than the amount of credited service allowed to be purchased pursuant to those sections on August 5, 1997 without the application of any of the limits prescribed in this section or section 415 of the internal revenue code. For the purposes of this paragraph, "eligible member" means a person who first becomes a member of ASRS before July 1, 1999.

4. CONTRIBUTIONS TO ASRS TO PURCHASE CREDITED SERVICE PURSUANT TO SECTION 38-743, 38-744, 38-745 OR 38-992 DO NOT QUALIFY FOR TREATMENT UNDER PARAGRAPH 2 OF THIS SUBSECTION IF RECOGNITION OF THAT SERVICE WOULD CAUSE A MEMBER TO RECEIVE A RETIREMENT BENEFIT FOR THE SAME SERVICE FROM ASRS AND ONE OR MORE OTHER RETIREMENT PLANS.

F. IF a member's contributions are subject to the limitations of subsection E of this section , and THE CONTRIBUTIONS shall be treated as being made to a separate defined contribution plan. If the member's contributions exceed the limits prescribed in subsection E of this section when taking into account other member and employer contributions to ASRS on behalf of the member for the limitation year, the amount to be paid by the member shall be reduced to not exceed the limits prescribed in subsection E of this section and the remaining amount shall be carried forward to the next limitation year, unless the limits are exceeded in the next limitation year. If the limits are exceeded in the next limitation year, the procedure prescribed by this subsection shall be repeated until all payments have been made.

G. If, after the application of subsection F of this section, the annual additions on behalf of a member exceed the limitations prescribed in subsection E of this section, ASRS shall dispose of excess amounts by either of the following:

1. Returning to the member any contributions that are made by the member and that are nondeductible under the internal revenue code.

2. Holding the amounts in a suspense account established pursuant to subsection J of this section and allocating the amounts as either member or employer contributions for the benefit of the member in the next limitation year and before any further member or employer contributions are made that would constitute annual additions made to a defined contribution plan pursuant to section 415 of the internal revenue code. ASRS shall allocate contributions as prescribed in this section, and the amount allocated shall reduce the amount of the member or employer contributions for the limitation year in which the allocation is made.

H. To the extent that a payment under this subsection does not alter, amend or revoke any one or more currently effective irrevocable elections made by the member pursuant to subsection B or D of this section, the board may accept CONTRIBUTIONS MADE PURSUANT TO SECTION 38-771 OR member contributions for the payment for credited service purchases pursuant to section 38-738, 38-742, 38-743, 38-744, 38-745 or 38-922, in whole or in part, by any one or a combination of the following methods:

1. In lump sum payments.

2. Subject to the limitations prescribed in sections 401(a)(31) and 402(c) of the internal revenue code, accepting eligible rollover distributions directly from one or more retirement programs that are qualified under section 401(a) of the internal revenue code or accepting rollovers directly from a member.

3. Subject to the limitations prescribed in section 408(d)(3)(A)(ii) of the internal revenue code, accepting from a member conduit rollover contributions that are received by the member from one or more conduit rollover individual retirement accounts previously established by the member.

4. Providing by rule that the contributions may be made in installment payments over a period of time.

I. ASRS shall not grant credited service under section 38-738, 38-742, 38-743, 38-744 or 38-922 for contributions made pursuant to subsection H of this section until the contributions are received by ASRS. ASRS may assess interest or administrative charges attributable to any installment payment made pursuant to subsection H, paragraph 4 of this section to purchase credited service pursuant to section 38-738, 38-742, 38-743, 38-744 or 38-922. The interest or administrative charges shall be added to the amount of contributions made to ASRS by the member. The interest or administrative charges shall not be treated as member contributions for any purposes under this article, and a member or a member's beneficiary does not have a right to the return of the interest or administrative charges pursuant to any other provision of this article. Interest assessed pursuant to this subsection shall be at the rate specified by the board pursuant to section 38-711, paragraph 2.

J. ASRS shall establish a suspense account that conforms with 26 Code of Federal Regulations section 1.415-6(b)(6) regarding excess annual additions.

K. If the member retires before all payments are made pursuant to this section, ASRS shall calculate the member's benefits based only on the payments actually made.

L. On satisfaction of the requirements of this section, ASRS shall adjust the member's credited service history and add any additional service credits acquired.

M. Annual additions on behalf of a member in any limitation year shall be the sum of:

1. The amount of the member contributions made to ASRS to purchase credited service pursuant to section 38-738, 38-743, 38-744, 38-745 or 38-922 and with respect to which an irrevocable election made pursuant to subsection B of this section is not in effect.

2. The amount of member and employer contributions made to ASRS on behalf of a member who elects to receive retirement benefits pursuant to section 38-771.

3. Any member or employer contributions made to ASRS or any other plan that are treated as being made to a defined contribution plan maintained by an employer of the member.

4. Any forfeitures, including any income attributable to forfeitures, allocated for or on behalf of a member of ASRS or any other plan that are treated as being allocated under a defined contribution plan maintained by an employer of the member.

N. Subsection M of this section shall be construed and interpreted in accordance with 26 Code of Federal Regulations section 1.415-6 to the extent that section is applicable.

O. For the purposes of this section:

1. "Compensation" has the same meaning prescribed in section 38-769, except that in determining a member's compensation for purposes of calculating the limits prescribed in subsection E of this section and effective for limitation years beginning on or after July 1, 1998, compensation includes any elective deferrals as defined in section 402(g)(3) of the internal revenue code and any amount that is contributed or deferred by an employer at the election of a member and that is not includable in the gross income of the member pursuant to section 125 or 457 of the internal revenue code.

2. "Limitation year" and "defined contribution plan" have the same meaning prescribed in section 38-769.

3. In determining the annual additions credited to a member of ASRS, "annual additions" has the same meaning prescribed in 26 Code of Federal Regulations section 1.415-6(b).

Sec. 13. Section 38-757, Arizona Revised Statutes, is amended to read:

38-757 . Normal retirement

A. After application on a form prescribed by the director, a member may retire on reaching the member's normal retirement date.

B. Except as provided in section 38-768, a member who meets the requirements for retirement benefits at normal retirement shall receive a monthly life annuity that equals the result of paragraph 1 multiplied by paragraph 2 when those paragraphs are defined as follows:

1. The number of whole and fractional years of credited service times two AND ONE-TENTH per cent.

2. The member's average monthly compensation.

C. Employers shall provide evidence of, and certify to, in a manner provided by the board, the member's average monthly compensation if that information is not already available from the records of ASRS.

Sec. 14. Section 38-762, Arizona Revised Statutes, is amended to read:

38-762 . Survivor benefits before retirement; definition

A. On the termination of employment by death of any active or inactive member before retirement, the designated beneficiary of the member shall be paid a survivor benefit equal to the sum of both of the following:

1. Two times the member's contribution to the defined benefit plan established by this article.

2. The amount of the member's employee account and the member's employer account together with supplemental credits, if any, transferred from the defined contribution program administered by ASRS to the defined benefit program established by this article.

B. Subsection A, paragraphs 1 and 2 shall be accumulated at compound interest at the valuation rate established by the board to THROUGH the first day of the month next preceding the date of death PAYMENT OF THE BENEFIT .

C. In lieu of a single payment, a designated beneficiary who is eligible for a survivor benefit pursuant to subsection A of more than five thousand dollars may elect to receive the actuarial equivalent of the survivor benefit pursuant to one of the following options:

1. A monthly income for five, ten or fifteen years certain and for life thereafter.

2. Another form of optional benefits approved by the board.

D. On the death of an active or inactive member who has reached an early retirement date applicable to the member or who has a minimum of fifteen years of credited service and whose designated beneficiary is a spouse, child under the age of twenty-one or handicapped child age twenty-one or older, including a legally adopted child or a stepchild, ASRS shall pay the designated beneficiary a survivor benefit equal to the present value, on the date following the date of the member's death, of the life annuity that would have been payable to the designated beneficiary if the member had retired on the date of the member's death and elected to receive an annuity in the form of a joint and survivor annuity providing the same amount of annuity to the surviving beneficiary as the reduced amount that would have been payable during the lifetime of the member. If there is more than one designated beneficiary under this subsection, ASRS shall determine the amount of the annuity and its present value as if the oldest of the beneficiaries was the sole beneficiary. Payment under this subsection shall be in lieu of, but not less than, any payment under subsection A. Payment under this subsection, at the election of the designated beneficiary, may be made in a single sum or may be made in accordance with subsection C. A beneficiary may not elect this option unless a benefit of twenty-five dollars or more per month is payable to the designated beneficiary or the designated beneficiary's estate.

E. If a member dies before distribution of the member's benefits commences, the member's entire benefits shall be distributed no later than five years after the member's death, except to the extent that, if any portion of the member's interest is payable to a designated beneficiary, distributions may be made in substantially equal installments over the life expectancy of the designated beneficiary or over a period not extending beyond the life expectancy of the beneficiary commencing no later than one year after the member's death.

F. If a deceased member did not designate a beneficiary, the board, in its sole discretion, may direct payment to the member's estate or to another person or persons the board determines to be lawfully entitled to receive payment.

G. Any payment pursuant to this section is payment for the account of the member or the member's beneficiary and all persons entitled to payment and, to the extent of the payment, is a full and complete discharge of all liability of the board or ASRS, or both, under or in connection with ASRS.

H. For purposes of this section, "designated beneficiary" means any individual designated by the member as the member's beneficiary.

Sec. 15. Section 38-764, Arizona Revised Statutes, is amended to read:

38-764 . Commencement of retirement; payment of retirement benefits; lump sum payments

A. Retirement is deemed to commence on a date elected by the member. That date shall not be earlier than the day following the date of termination of employment , or the date ASRS receives the member's completed retirement application OR THE DATE SPECIFIED BY THE MEMBER PURSUANT TO SUBSECTION I .

B. Except as provided in subsection C, all retirement benefits:

1. Are normally payable in monthly installments beginning on the commencement of retirement as prescribed in subsection A.

2. Continue to and include the first day of the month in which death occurs or continue until the date of their cessation in accordance with any optional method of payment that may have been elected.

C. In the case of incapacity of a retired member or contingent annuitant, or in the case of any other emergency, as determined by the board, the board may make the payment to or on behalf of the retired member or contingent annuitant or to another person or persons the board determines to be lawfully entitled to receive payment. The payment is payment for the account of the retired member or contingent annuitant and all persons entitled to payment and, to the extent of the payment, is a full and complete discharge of all liability of the board or ASRS, or both, under or in connection with ASRS.

D. Except as provided in subsection E, at the request of a retired member, a retired member's guardian or a court appointed conservator, the board may pay any increase in retirement benefits or the entire retirement benefit in a lump sum payment based on the actuarial present value of the benefit or the increase in the benefit if the payment of the benefits would result in ineligibility, reduction or elimination of social service programs provided to the member by this state, its political subdivisions or the federal government.

E. The board may pay the entire retirement benefit in a lump sum pursuant to subsection D only if continued membership in ASRS will result in additional requests for lump sum payments based on cost of living adjustments or the establishment of minimum benefit awards.

F. If any benefit that is payable as a series of periodic payments amounts to less than twenty dollars per month, the board, in its sole discretion and based on uniform rules it establishes, may order the amount to be paid quarterly, semiannually, annually or in a lump sum. A MEMBER WHO RECEIVES A LUMP SUM PAYMENT PURSUANT TO THIS SUBSECTION REMAINS A MEMBER OF ASRS.

G. All distributions of retirement benefits to a member shall be distributed either:

1. Over a period not exceeding the life of the member or over the lives of the member and the member's contingent annuitant.

2. Over a period not extending beyond the life expectancy of the member or the life expectancy of the member and the member's contingent annuitant.

H. A MEMBER MAY ELECT TO CANCEL THE EFFECTIVE DATE OF RETIREMENT WITHIN THIRTY DAYS OF RETIREMENT OR BEFORE THE MEMBER'S RECEIPT OF RETIREMENT BENEFITS, WHICHEVER IS LATER.

H. I. Notwithstanding any other provision of this article, all distributions under this article shall be made in accordance with the distribution requirements of section 401(a)(9) of the internal revenue code.

J. A MEMBER WHO ATTAINS A NORMAL RETIREMENT DATE MAY RETIRE AT ANY TIME WITHOUT TERMINATING EMPLOYMENT IF THE MEMBER IS EMPLOYED FOR LESS THAN THE HOURS REQUIRED FOR ACTIVE MEMBERSHIP PURSUANT TO SECTION 38-711, PARAGRAPH 22, SUBDIVISION ( b ).

Sec. 16. Section 38-766, Arizona Revised Statutes, is amended to read:

38-766 . Retired members; return to work; maximum benefit

A. If A retired member WHO is engaged to work by an employer for at least twenty weeks in each fiscal year and at least twenty hours per week , the retired member resumes active membership in ASRS. ASRS shall suspend payment of the member's retirement benefits until the member EITHER:

1. Terminates employment and the benefit is recomputed pursuant to subsection B of this section .

2. ATTAINS A NORMAL RETIREMENT DATE AND NO LONGER MEETS THE REQUIREMENTS FOR ACTIVE MEMBERSHIP PURSUANT TO THIS SUBSECTION.

B. On the termination of employment of a previously retired member, the A member WHO SATISFIES SUBSECTION A, PARAGRAPH 1 OR 2 OF THIS SECTION is entitled to receive an annuity recomputed to include the additional compensation and credited service. However, the recomputed annuity shall be in the original optional form chosen pursuant to section 38-760, with the same beneficiary, if applicable, as when the member first retired. A member who retired under a provision of law allowing increased benefits if the retirement occurred during a specific period of time and who subsequently becomes an employee under ASRS shall not retain the increased benefits under the prior law when benefits are computed for the member's most recent retirement.

C. Section 38-769, subsection M N applies when determining the maximum benefit that may be paid to a retired member who resumes active membership and subsequently retires.

Sec. 17. Section 38-771, Arizona Revised Statutes, is amended to read:

38-771 . Benefit options for transferred defined contribution program members; definitions

A. On or before December 31, 1995 a nonretired ASRS member who was a member of the defined contribution program administered by ASRS and who was transferred to the defined benefit program established by this article on July 1, 1981 shall elect to receive either retirement benefits provided under this section or retirement benefits as otherwise provided by this article. An election under this subsection is irrevocable. A member who fails to make an election under this subsection is deemed to have elected to receive retirement benefits provided under this section.

B. A member who elects to receive retirement benefits provided under this section is eligible only for those benefits.

C. If a member elects to receive retirement benefits provided under this section, the member shall elect to receive retirement benefits based on either of the following:

1. The contributions paid by the member and member's employer, plus all earnings attributed to the member's retirement account, through the member's retirement date.

2. Except as provided in subsections E and F of this section, contributions paid by the member and member's employer at the contribution rate in effect before July 1, 1975 and an employee and employer contribution rate of seven per cent calculated from July 1, 1975, plus all earnings attributed to the member's retirement account, through the member's retirement date.

D. Notwithstanding sections 38-736 and 38-737, members who elect to receive retirement benefits provided under this section and their employers shall each make contributions at a rate of seven per cent of the member's compensation and, beginning on July 1, 1998, employers shall make contributions to ASRS on behalf of their respective members who have elected to receive retirement benefits provided under this section to pay the actuarially determined amount necessary to provide the group health and accident insurance benefits for those retired members and their dependents as provided under section 38-783.

E. Subject to subsection F of this section, if a member desires to receive retirement benefits based on subsection C, paragraph 2 of this section, the member shall make the election on or before June 30, 1999 and during the member's active employment. The election shall be made in accordance with section 38-747, subsections C, D and H. If a member elects to receive retirement benefits based on subsection C, paragraph 2 of this section, both the member and the member's employer shall pay to ASRS the difference between the contributions made and seven per cent of the member's gross compensation from July 1, 1984 through December 31, 1995. If a member elects to have the member's employer make payments for all or a portion of the contributions pursuant to section 38-747, subsection D, the member's employer shall make the contributions as required by section 38-747, subsection D. If a member elects to make contributions pursuant to section 38-747, subsection H, both the member and the member's employer shall pay to ASRS the portion of the difference between the total required contributions and that portion of the required contributions that the member has elected to have the member's employer pay pursuant to section 38-747, subsection D. The member's employer shall make the employer's contributions at the same time and in the same manner as the member's contributions are made pursuant to section 38-747, subsection D or as are made pursuant to section 38-747, subsection H. Interest and supplemental credits for the additional contributions shall be credited to the member's retirement account and charged to the assets of ASRS at the time the additional contributions are paid. If a member elects to have contributions made or to make contributions pursuant to section 38-747, subsection D or H for less than the full amount permitted by this subsection:

1. The member's employer shall also pay only the reduced amount.

2. The member's benefits shall be calculated only with reference to the contributions actually made.

F. Contributions made to ASRS by a member and the member's employer pursuant to subsections D and E of this section shall not exceed, in any one limitation year, the limits of section 38-747. If for any reason, the member and employer contributions to ASRS made pursuant to subsections D and E of this section would, at the time such contributions are due, taking into account other employer and member contributions due to ASRS for the limitation year, exceed the limits of section 38-747, the amount to be paid by the member and the member's employer under subsection E of this section shall be proportionately reduced and such reduction shall be carried into the succeeding limitation year and paid by the member and the member's employer within thirty days of the beginning of such limitation year, unless the limits of section 38-747 would again be exceeded, in which event this procedure will be repeated until all such contributions have been made. If more than one employer is contributing on behalf of a member, the reduction and contributions in succeeding years shall be proportionately allocated among the employers. If a member retires prior to making all contributions under subsections D and E of this section because of the limitations of section 38-747, the member's benefits under this section shall be calculated only with reference to the contributions actually made. If a retired member is engaged to work and commences active membership in ASRS as provided in subsection G, paragraph 5 of this section, the member shall not be eligible to again make contributions under subsection D of this section. On the termination of employment of the member, the member's benefits under this section shall be reinstated as provided in subsection G, paragraph 6 of this section. For purposes of this subsection, "limitation year" has the same meaning prescribed in section 38-769.

G. A member who elects to receive retirement benefits provided under this section is subject to conditions that are equivalent to those imposed before the member's transfer from the defined contribution program administered by ASRS to the defined benefit program established by this article. Those conditions include the following:

1. A member who attains sixty-five years of age may retire and, on application, shall receive a life pension payable in equal installments derived from the member's prior service credit, if any, together with a life annuity derived from the member's retirement account. The annuity is payable in equal monthly installments. The amount of the installments is based on the age of the member at the date of commencement of retirement and is determined by the interest and life expectancy tables applicable at the date of the commencement of retirement. If a retired member who is receiving retirement benefits provided under this section dies before receipt of annuity payments in an amount equal to the member's retirement account balance immediately before retirement, ASRS shall pay the member's designated beneficiary or estate in a lump sum the difference between the retirement account balance and the total amount of annuity payments received.

2. A member who attains sixty-five years of age with at least five years of creditable service may retire and, on application, may elect to receive in lieu of the member's prior service pension, if any, and the annuity payments from the member's retirement account as provided in paragraph 1 of this subsection the actuarial equivalent of those retirement benefits under one of the options established by the board.

3. A member who attains sixty years of age with at least five years of creditable service may retire and, on application, receive a life annuity derived from the member's retirement account and the actuarial equivalent of the member's prior service pension payable concurrently with the life annuity. The pension and annuity shall be determined and paid in the manner set forth in this subsection.

4. In lieu of the retirement benefits provided under this subsection, on application, a member may elect to receive the actuarial equivalent of those retirement benefits under one of the options established by the board.

5. If a retired member who is receiving retirement benefits provided under this section is engaged to work by an employer for twenty or more weeks in a fiscal year and twenty hours or more per week , and is required or elects to be covered by the defined benefit program established by this article, the retired member commences active membership in the defined benefit program and the member's retirement benefit payments under this section are suspended until the member terminates employment. ON RETURN TO EMPLOYMENT, THE MEMBER SHALL ACCRUE BENEFITS PURSUANT TO THIS SECTION, UNLESS THE MEMBER ELECTS TO BE COVERED BY THE DEFINED BENEFIT PROGRAM ESTABLISHED BY THIS ARTICLE. IF A FORMERLY RETIRED MEMBER ELECTS TO BE COVERED BY THE DEFINED BENEFIT PROGRAM ESTABLISHED BY THIS ARTICLE, THE FORMERLY RETIRED MEMBER SHALL BE AN ACTIVE MEMBER IN THE DEFINED BENEFIT PROGRAM WITH RESPECT TO ALL SERVICE PERFORMED AFTER THE MEMBER'S RETURN TO WORK AND SHALL NOT ACCRUE ADDITIONAL BENEFITS UNDER THIS SECTION. NOTWITHSTANDING ANY OTHER PROVISION OF THIS PARAGRAPH, IF A RETIRED MEMBER BEGINS OR RETURNS TO EMPLOYMENT AS AN ELECTED OFFICIAL OR TO ANY OTHER TYPE OF SERVICE OR EMPLOYMENT THAT DOES NOT REQUIRE THE RETIRED MEMBER TO BEGIN ACTIVE MEMBERSHIP IN THE DEFINED CONTRIBUTION PROGRAM ADMINISTERED BY ASRS OR THE DEFINED BENEFIT PROGRAM ESTABLISHED BY THIS ARTICLE, THE PAYMENT OF RETIREMENT BENEFITS UNDER THIS SECTION SHALL NOT BE TERMINATED, WITHHELD OR INTERRUPTED BECAUSE OF BEGINNING OR RETURNING TO THE SERVICE OR EMPLOYMENT OR HOLDING THE ELECTED OFFICE, UNLESS THE FORMERLY RETIRED MEMBER ACTUALLY ELECTS TO RECOMMENCE ACTIVE PARTICIPATION IN THE DEFINED BENEFIT PROGRAM ESTABLISHED BY THIS ARTICLE OR UNDER THIS SECTION.

6. On termination of employment of a retired member previously receiving retirement benefits provided under this section, ASRS shall reinstate the member's retirement benefits provided under this section . and the member is entitled to receive retirement benefits as provided in section 38-760 for the credited service earned by the member after the member's active membership in the defined benefit program established pursuant to this article commenced. ON REINSTATEMENT OF RETIREMENT BENEFITS, THE BENEFITS SHALL BE RECOMPUTED ON THE BASIS OF THE MEMBER'S ATTAINED AGE AND SHALL BE ADJUSTED FOR RETIREMENT BENEFITS PREVIOUSLY RECEIVED AND ADDITIONAL CONTRIBUTIONS, INTEREST AND SUPPLEMENTAL CREDITS ACCRUED DURING THE PERIOD OF EMPLOYMENT. ON THIS REINSTATEMENT OF RETIREMENT BENEFITS, IF THE MEMBER ELECTED TO BE COVERED BY THE DEFINED BENEFIT PROGRAM ESTABLISHED BY THIS ARTICLE ON THE MEMBER'S RETURN TO EMPLOYMENT, THE MEMBER IS ALSO ENTITLED TO RECEIVE RETIREMENT BENEFITS PURSUANT TO THE DEFINED BENEFIT PROGRAM ESTABLISHED BY THIS ARTICLE FOR THE CREDITED SERVICE EARNED BY THE MEMBER AFTER THE MEMBER'S ACTIVE MEMBERSHIP IN THE DEFINED BENEFIT PROGRAM ESTABLISHED BY THIS ARTICLE BEGAN.

H. ASRS shall handle all retirement accounts of members who elect retirement benefits provided under this section and all member and employer contributions attributable to those members in the same manner as retirement accounts and contributions that are part of the defined contribution program administered by ASRS. Retirement accounts of members who elect to receive retirement benefits provided under this section are eligible for interest and supplemental credits on the same basis as members who retired under the defined contribution program administered by ASRS.

I. The election of retirement benefits by a member pursuant to this section is a waiver of all claims and demands by the member that the retirement benefits are less than the amount of retirement benefits payable to the member under the defined contribution program administered by ASRS if the member had remained a member of the defined contribution program administered by ASRS.

J. For purposes of this section:

1. "Creditable service" means service after April 8, 1953 in a position not subject to the defined contribution program administered by ASRS, prior service and membership service.

2. "Member's employer" means an employer who compensated the member during a period when the member's contributions were less than seven per cent.

3. "Pension" means equal monthly installments that are derived from a member's prior service credits and that are payable during the member's lifetime after retirement.

4. "Prior service" means service for this state or a political subdivision before membership in the defined contribution program administered by ASRS.

5. "Prior service credits" means the amount that is allowed for services before membership in the defined contribution program administered by ASRS and that is payable as a pension on retirement.

6. "Retirement account" means the combined member and employer contributions with interest or earnings on the contributions including any allocations credited as employer contributions.

7. "Service" means any compensated employment by the state or a political subdivision and includes periods of nonpaid leave, including military leave, provided employment has not been terminated at the commencement of the leave period and employment is state service for retirement purposes or service for any political subdivision establishing a defined contribution program administered by ASRS.

Sec. 18. Section 38-797.07, Arizona Revised Statutes, is amended to read:

38-797.07 . LTD program benefits; limitations; definitions

A. The LTD program is subject to the following limitations:

1. Except as provided in paragraph 7, monthly benefits shall not exceed two-thirds of a member's monthly compensation at the time disability commences, reduced by:

(a) Sixty-four per cent of social security disability benefits that the member or the member's dependents are eligible to receive.

(b) Eighty-three per cent of social security retirement benefits that the member is eligible to receive.

(c) All of any workers' compensation benefits.

(d) All of any payments for a veteran's disability if both of the following apply:

(i) The veteran's disability payment is for the same condition or a condition related to the condition currently causing the member's total disability.

(ii) The veteran's disability is due to, or a result of, service in the armed forces of the United States.

(e) All of any other benefits by reason of employment that are financed partly or wholly by an employer, including payments for sick leave.

(f) Fifty per cent of any salary, wages, commissions or similar pay that the member receives or is entitled to receive from any gainful employment in which the member actually engages.

2. Monthly benefits are not payable until a member has been totally disabled for a period of six consecutive months.

3. Monthly benefits are not payable to a member who is receiving retirement benefits from ASRS.

4. Monthly benefits are not payable to a member whose disability is due to, or a result of, any of the following:

(a) An intentionally self-inflicted injury.

(b) War, whether declared or not.

(c) An injury incurred while engaged in a felonious criminal act or enterprise.

(d) An injury or sickness for which the member received medical treatment within three months before the date of the member's coverage under the LTD program. This subdivision does not apply to a member who EITHER:

(i) Has been a member AN EMPLOYEE OF AN EMPLOYER for twelve continuous months . nor to a member who

(ii) Is employed by an employer as of June 30, 1988. For the purposes of this subdivision, "received medical treatment" means that the member consulted with or received the advice of a licensed medical or dental practitioner, including advice given during a routine examination, and it includes situations in which the member received medical or dental care, treatment or services, including the taking of drugs, medication, insulin or similar substances.

5. Monthly benefits cease to be payable to a member at the earliest of the following:

(a) The date the member ceases to be totally disabled.

(b) The date the member ceases to be under the direct care of a doctor or refuses to undergo any medical examination requested by the insurance company selected by the board to administer the LTD program.

(c) The date the member withdraws employee contributions with interest and ceases to be a member.

(d) The later of the following:

(i) The member's normal retirement date.

(ii) The month following sixty months of payments if disability occurs before sixty-five years of age.

(iii) The month following attainment of seventy years of age if disability occurs at sixty-five years of age or after but before sixty-nine years of age.

(iv) The month following twelve months of payments if disability occurs at or after sixty-nine years of age.

6. Monthly benefits are payable under the LTD program only for disabilities that commence on or after July 1, 1988.

7. The minimum benefit for a member who is entitled to receive benefits under the LTD program is fifty dollars per month.

8. Members are eligible to receive the benefits and payments described in paragraph 1, and the reductions provided by paragraph 1 apply even though the benefits are not actually paid as follows:

(a) For primary or dependent social security benefits, the members are eligible for the benefits until the benefits are actually awarded, or if the benefits are denied, until notice of the denial of the appeal of the first denial is received.

(b) For benefits and payments from any other source provided in paragraph 1, the members are eligible for the benefits if it is reasonable to believe that the benefits will be paid on proper completion of the claim or would have been paid except for the failure of the member to pursue the claim in time.

9. A member shall be considered totally disabled if:

(a) During the first thirty months of a period of disability, the member is unable to perform all duties of the position held by the member when the member became totally disabled.

(b) For a member who has received monthly benefits for twenty-four consecutive months, that a member is unable to perform any work for compensation or gain for which the member is reasonably qualified by education, training or experience.

B. A member who receives monthly benefits from the LTD program is entitled to receive service credit pursuant to article 2 of this chapter from the time disability commences until benefits cease to be payable, except that the number of years of service credited to a member's retirement account during the period the member receives LTD benefit payments shall not cause the member's total credited service for retirement benefits to exceed the greater of twenty-five years or the total years of service credited to the member's retirement account on the commencement of disability.

C. For the purposes of this section :

1. "RECEIVED MEDICAL TREATMENT" MEANS THAT THE MEMBER CONSULTED WITH OR RECEIVED THE ADVICE OF A LICENSED MEDICAL OR DENTAL PRACTITIONER, INCLUDING ADVICE GIVEN DURING A ROUTINE EXAMINATION, AND IT INCLUDES SITUATIONS IN WHICH THE MEMBER RECEIVED MEDICAL OR DENTAL CARE, TREATMENT OR SERVICES, INCLUDING THE TAKING OF DRUGS, MEDICATION, INSULIN OR SIMILAR SUBSTANCES.

2. "Social security" and "social security disability" includes the railroad retirement act of 1974 ( P.L. 93-445; 88 STAT. 1305; 45 United States Code sections 231 through 231u).

Sec. 19. Section 38-804, Arizona Revised Statutes, is amended to read:

38-804 . Membership; termination; reinstatement of credited service

A. All elected officials are members of the plan, except that an elected official who is subject to term limits may elect not to participate in the plan. The elected official who is subject to term limits shall make the election in writing and file the election with the fund manager within thirty days after notice in writing to the elected official of the elected official's eligibility THE ELECTED OFFICIAL ASSUMES OFFICE . The election is effective on the first day of the elected official's eligibility. The election not to participate is specific for that term of office. If an elected official who is subject to term limits fails to make an election as provided in this subsection, the elected official is deemed to have elected to participate in the plan. The election not to participate in the plan is irrevocable and constitutes a waiver of all benefits provided by the plan for the elected official's entire term, except for any benefits accrued by the elected official in the plan for periods of participation prior to being elected to an office subject to term limits or any benefits expressly provided by law. The elected official who elects not to participate in the plan shall participate in the Arizona state retirement system unless the elected official makes an irrevocable election not to participate in the Arizona state retirement system as provided in section 38-727.

B. If a member ceases to hold office for any reason other than death or retirement, WITHIN TWENTY DAYS AFTER FILING A COMPLETED APPLICATION WITH THE FUND MANAGER, the member may withdraw the member's accumulated contributions from the plan and shall be paid, within twenty days after filing an application with the fund manager, the member's accumulated contributions as of the date of termination, less any benefit payments the member has received and any amount the member may owe to the plan. IS ENTITLED TO RECEIVE THE FOLLOWING AMOUNTS, LESS ANY BENEFIT PAYMENTS THE MEMBER HAS RECEIVED AND ANY AMOUNT THE MEMBER MAY OWE TO THE PLAN:

1. IF THE MEMBER HAS LESS THAN FIVE YEARS OF CREDITED SERVICE WITH THE PLAN, THE MEMBER MAY WITHDRAW THE MEMBER'S ACCUMULATED CONTRIBUTIONS FROM THE PLAN.

2. IF THE MEMBER HAS FIVE OR MORE YEARS OF CREDITED SERVICE WITH THE PLAN, THE MEMBER MAY WITHDRAW THE MEMBER'S ACCUMULATED CONTRIBUTIONS PLUS AN AMOUNT EQUAL TO THE AMOUNT DETERMINED AS FOLLOWS:

( a ) 5.0 TO 5.9 YEARS OF CREDITED SERVICE, TWENTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-810, SUBSECTION A.

( b ) 6.0 TO 6.9 YEARS OF CREDITED SERVICE, FORTY PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-810, SUBSECTION A.

( c ) 7.0 TO 7.9 YEARS OF CREDITED SERVICE, FIFTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-810, SUBSECTION A.

( d ) 8.0 TO 8.9 YEARS OF CREDITED SERVICE, SEVENTY PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-810, SUBSECTION A.

( e ) 9.0 TO 9.9 YEARS OF CREDITED SERVICE, EIGHTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-810, SUBSECTION A.

( f ) 10.0 OR MORE YEARS OF CREDITED SERVICE, ONE HUNDRED PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-810, SUBSECTION A.

C. IF A MEMBER HAS MORE THAN TEN YEARS OF CREDITED SERVICE WITH THE PLAN, LEAVES THE MONIES PRESCRIBED IN SUBSECTION B OF THIS SECTION ON ACCOUNT WITH THE PLAN FOR MORE THAN THIRTY DAYS AFTER TERMINATION OF EMPLOYMENT AND AFTER THAT TIME PERIOD REQUESTS A REFUND OF THOSE MONIES, THE MEMBER IS ENTITLED TO RECEIVE THE AMOUNT PRESCRIBED IN SUBSECTION B OF THIS SECTION PLUS INTEREST AT A RATE DETERMINED BY THE FUND MANAGER FOR EACH YEAR COMPUTED FROM AND AFTER THE MEMBER'S TERMINATION OF EMPLOYMENT.

D. If the refund AMOUNT PRESCRIBED IN SUBSECTION B OR C OF THIS SECTION includes monies that are an eligible rollover distribution and the member elects to have the distribution paid directly to an eligible retirement plan or individual retirement account or annuity and specifies the eligible retirement plan or individual retirement account or annuity to which the distribution is to be paid, the distribution shall be made in the form of a direct trustee-to-trustee transfer to the specified eligible retirement plan. The distribution shall be made in the form and at the time prescribed by the fund manager. A member who receives a refund of the member's accumulated contributions THE AMOUNT PRESCRIBED IN SUBSECTION B OR C OF THIS SECTION from the plan or who elects a transfer pursuant to this subsection forfeits the member's credited service, and all rights to benefits under the plan and membership in the plan terminate.

C. E. If an elected official who has terminated the member's membership in the plan pursuant to subsection B of this section is subsequently elected or otherwise becomes eligible for membership in the plan pursuant to subsection A of this section, credited service only accrues from the date of the member's most recent eligibility as an elected official.

D. F. Notwithstanding subsection C E of this section, if an elected official files a written election form with the fund manager within ninety days after the day of the member's reemployment as an elected official and repays the amount of the member's accumulated contributions previously withdrawn pursuant to subsection B OR C of this section within one year after the date of the member's reemployment as an elected official, with interest on that amount at the rate of the net effective yield of the fund as published in the most recent annual report NINE PER CENT FOR EACH YEAR , compounded each year from the date of withdrawal to the date of repayment, credited service shall be restored. Credited service shall not be restored until complete repayment is made to the fund.

E. G. If a retired member subsequently becomes an elected official, contributions shall not be made by the retired member or the retired member's employer and credited service shall not accrue while the retired member is holding office, except that if a retired member subsequently becomes an elected official of the same office from which the member retired, the member shall not receive a pension, contributions shall not be made by the member or the member's employer and credited service shall not accrue while the member is holding office. If the elected official ceases to hold the same office, the elected official is entitled to receive the same pension the elected official was receiving when the elected official's pension was discontinued pursuant to this subsection. Nothing in this subsection prohibits a retired judge called by the supreme court to active duties of a judge pursuant to section 38-813 from receiving retirement benefits.

Sec. 20. Title 38, chapter 5, article 3, Arizona Revised Statutes, is amended by adding section 38-821, to read:

38-821 . Charter city retirement system service credits; transfers

A. A MEMBER OF A CHARTER CITY RETIREMENT SYSTEM WHO IS AN ELECTED OFFICIAL MAY APPLY FOR A TRANSFER OF SERVICE CREDITS FROM THE CHARTER CITY RETIREMENT SYSTEM TO THE ELECTED OFFICIALS' RETIREMENT PLAN PURSUANT TO THIS SECTION IF ALL OF THE FOLLOWING CONDITIONS ARE MET:

1. THE MEMBER INITIATES THE TRANSFER BY MAKING WRITTEN APPLICATION TO THE ELECTED OFFICIALS' RETIREMENT PLAN.

2. THE CHARTER CITY RETIREMENT SYSTEM AND THE ELECTED OFFICIALS' RETIREMENT PLAN AGREE REGARDING THE TERMS OF THE TRANSFER.

3. THE TRANSFER DOES NOT CAUSE EITHER THE CHARTER CITY RETIREMENT SYSTEM OR THE ELECTED OFFICIALS' RETIREMENT PLAN TO INCUR ANY UNFUNDED ACCRUED LIABILITIES AS A RESULT OF THE TRANSFER.

B. SERVICE CREDITS QUALIFIED IN ACCORDANCE WITH SUBSECTION A MAY BE TRANSFERRED OR REDEEMED IN ACCORDANCE WITH THE FOLLOWING:

1. IF A MEMBER'S CONTRIBUTIONS REMAIN ON DEPOSIT WITH THE CHARTER CITY RETIREMENT SYSTEM, THE FOLLOWING SHALL BE CALCULATED:

(a) THE CHARTER CITY RETIREMENT SYSTEM SHALL CALCULATE THE AMOUNT EQUAL TO THE ACTUARIAL PRESENT VALUE OF A MEMBER'S PROJECTED BENEFITS UNDER THE CHARTER CITY RETIREMENT SYSTEM AS CALCULATED BY THE SYSTEM'S ACTUARY USING THE ACTUARIAL METHOD AND ASSUMPTIONS RECOMMENDED BY THE SYSTEM'S ACTUARY AND BASED ON THE TRANSFERRING MEMBER'S SERVICE CREDITS AT THE TIME OF TRANSFER.

(b) THE ELECTED OFFICIALS' RETIREMENT PLAN SHALL CALCULATE THE INCREASE IN THE ACTUARIAL PRESENT VALUE OF THE PROJECTED BENEFITS PROVIDED AS A RESULT OF THE TRANSFER OF THE MEMBER'S SERVICE CREDITS. THIS CALCULATION SHALL BE PERFORMED BY THE PLAN'S ACTUARY USING THE ACTUARIAL METHOD AND ASSUMPTIONS RECOMMENDED BY THE PLAN'S ACTUARY AND BASED ON THE TRANSFERRING MEMBER'S SERVICE CREDITS AT THE TIME OF TRANSFER.

2. IF A MEMBER DECIDES TO TRANSFER:

(a) IF THE AMOUNT CALCULATED IN PARAGRAPH 1, SUBDIVISION (b) OF THIS SUBSECTION IS GREATER THAN THE AMOUNT CALCULATED IN PARAGRAPH 1, SUBDIVISION ( a) OF THIS SUBSECTION :

(i) THE CHARTER CITY RETIREMENT SYSTEM SHALL TRANSFER TO THE ELECTED OFFICIALS' RETIREMENT PLAN THE GREATER OF THE AMOUNT CALCULATED IN PARAGRAPH 1, SUBDIVISION ( a ) OF THIS SUBSECTION OR THE MEMBER'S ACCUMULATED CONTRIBUTION ACCOUNT BALANCE.

(ii) IF THE AMOUNT TRANSFERRED IS LESS THAN THE AMOUNT CALCULATED UNDER PARAGRAPH 1, SUBDIVISION ( b) OF THIS SUBSECTION, THE TRANSFERRING MEMBER SHALL ELECT EITHER TO PAY THE DIFFERENCE OR TO ACCEPT A REDUCED TRANSFER OF SERVICE CREDITS. IF THE MEMBER ELECTS TO PAY THE DIFFERENCE, THE AMOUNT PAID SHALL BE ADDED TO THE MEMBER'S ACCUMULATED CONTRIBUTION ACCOUNT BALANCE. IF THE MEMBER ELECTS TO ACCEPT A REDUCED TRANSFER OF SERVICE CREDITS, THE AMOUNT OF SERVICE CREDITS TRANSFERRED SHALL BE EQUAL TO THE AMOUNT OF SERVICE CREDITS USED IN MAKING THE CALCULATION UNDER PARAGRAPH 1, SUBDIVISION ( a) OF THIS SUBSECTION MULTIPLIED BY THE RATIO OF THE AMOUNT CALCULATED UNDER PARAGRAPH 1, SUBDIVISION ( a) OF THIS SUBSECTION TO THE AMOUNT CALCULATED UNDER PARAGRAPH 1, SUBDIVISION ( b) OF THIS SUBSECTION .

(b) IF THE AMOUNT CALCULATED IN PARAGRAPH 1, SUBDIVISION ( b ) OF THIS SUBSECTION IS LESS THAN OR EQUAL TO THE AMOUNT CALCULATED IN PARAGRAPH 1, SUBDIVISION ( a ) OF THIS SUBSECTION, THE CHARTER CITY RETIREMENT SYSTEM SHALL TRANSFER TO THE ELECTED OFFICIALS' RETIREMENT PLAN THE GREATER OF THE AMOUNT CALCULATED IN PARAGRAPH 1, SUBDIVISION ( b ) OF THIS SUBSECTION OR THE MEMBER'S ACCUMULATED CONTRIBUTION ACCOUNT BALANCE.

3. IF AN APPLICANT HAS WITHDRAWN MEMBER CONTRIBUTIONS FROM THE CHARTER CITY RETIREMENT SYSTEM, THE APPLICANT SHALL PAY INTO THE ELECTED OFFICIALS' RETIREMENT PLAN AN AMOUNT EQUAL TO THE INCREASE IN THE ACTUARIAL PRESENT VALUE OF THE PROJECTED BENEFITS PROVIDED BY THE SERVICE CREDITS BEING REDEEMED AND THIS AMOUNT SHALL BE INCLUDED IN THE MEMBER'S CURRENT ACCUMULATED CONTRIBUTION ACCOUNT BALANCE. THE ACTUARY OF THE ELECTED OFFICIALS' RETIREMENT PLAN SHALL PERFORM THIS CALCULATION USING THE ACTUARIAL METHOD AND ASSUMPTIONS THE ACTUARY RECOMMENDS.

C. SERVICE CREDITS SHALL NOT BE APPLIED TO THE APPLICANT'S ACCOUNT UNTIL COMPLETE PAYMENT IS MADE TO THE ELECTED OFFICIALS' RETIREMENT PLAN. ON COMPLETION OF THE TRANSFER PROVIDED FOR IN THIS SECTION, THE MEMBER'S RIGHTS IN THE CHARTER CITY RETIREMENT SYSTEM ARE EXTINGUISHED.

Sec. 21. Section 38-842, Arizona Revised Statutes, is amended to read:

38-842 . Definitions

In this article, unless the context otherwise requires:

1. "Accidental disability" means a physical or mental condition which the local board finds totally and permanently prevents an employee from performing a reasonable range of duties within the employee's job classification and was incurred in the performance of the employee's duty. A finding of accidental disability shall be based on medical evidence by a doctor or clinic appointed by the local board pursuant to section 38-847, subsection D, paragraph 9 which establishes an accidental disability. Material conflicts in medical evidence shall be resolved by the findings of the local board.

2. "Accumulated contributions" means, for each member, the sum of the amount of the member's aggregate contributions made to the fund and the amount, if any, attributable to the employee's contributions prior to the member's effective date under another public retirement system, other than the federal social security act, and transferred to the fund minus the benefits paid to or on behalf of the member.

3. "Actuarial equivalent" means equality in present value of the aggregate amounts expected to be received under two different forms of payment, based on mortality and interest assumptions adopted by the fund manager. The fund manager may from time to time change the mortality and interest assumptions.

4. "Average monthly benefit compensation" means the result obtained by dividing the total compensation paid to an employee during a considered period by the number of months, including fractional months, in which such compensation was received. The considered period shall be the three consecutive years within the last twenty completed years of credited service which yield the highest average. In the computation under this paragraph a period of nonpaid or partially paid industrial leave shall be considered based on the compensation the employee would have received in the employee's job classification if the employee was not on industrial leave.

5. "Certified peace officer" means a peace officer certified by the Arizona peace officers standards and training board.

6. "Claimant" means any member or beneficiary who files an application for benefits pursuant to this article.

7. "Compensation" means, for the purpose of computing retirement benefits, base salary, overtime pay, shift differential pay and holiday pay paid to an employee on a regular monthly, semimonthly or biweekly payroll basis and longevity pay paid to an employee at least every six months for which contributions are made to the system pursuant to section 38-843, subsection D. Compensation does not include, for the purpose of computing retirement benefits, payment for unused sick leave, payment in lieu of vacation, payment for compensatory time or any other payment for fringe benefits.

8. "Credited service" means the member's total period of service prior to the member's effective date of participation, plus those compensated periods of the member's service thereafter for which the member made contributions to the fund.

9. "Depository" means a bank in which all monies of the system are deposited and held and from which all expenditures for benefits, expenses and investments are disbursed.

10. "Effective date of participation" means July 1, 1968, except with respect to employers and their covered employees whose contributions to the fund commence thereafter, the effective date of their participation in the system is as specified in the applicable joinder agreement.

11. "Effective date of vesting" means the date a member's rights to benefits vest pursuant to section 38-844.01.

12. "Eligible child" means the unmarried child of a deceased member who is under the age of eighteen or a full-time student who is under the age of twenty-two or under a disability which began before the child attained the age of twenty-two and who remains a dependent of the surviving spouse or guardian.

13. "Eligible groups" means only the following who are regularly assigned to hazardous duty:

(a) Municipal police officers who are certified peace officers.

(b) Municipal fire fighters.

(c) Paid full-time fire fighters employed directly by a fire district organized pursuant to section 48-803 with five or more full-time fire fighters, but not including fire fighters employed by a fire district pursuant to a contract with a corporation.

(d) State highway patrol officers who are certified peace officers.

(e) State fire fighters.

(f) County sheriffs and deputies who are certified peace officers.

(g) Fish and game wardens who are certified peace officers.

(h) Police officers who are certified peace officers and fire fighters of a nonprofit corporation operating a public airport pursuant to sections 28-8423 and 28-8424. A police officer shall be designated pursuant to section 28-8426 to aid and supplement state and local law enforcement agencies and a fire fighter's sole duty shall be to perform fire fighting services, including services required by federal regulations.

(i) Police officers who are certified peace officers and who are appointed by the Arizona board of regents.

(j) Police officers who are certified peace officers and who are appointed by a community college district governing board.

(k) State attorney general investigators who are certified peace officers.

(l) County attorney investigators who are certified peace officers.

(m) Police officers who are certified peace officers and who are employed by an Indian reservation police agency.

(n) Fire fighters who are employed by an Indian reservation fire fighting agency.

(o) Police officers who are certified peace officers and who are appointed by the department of administration.

(p) Department of liquor licenses and control investigators who are certified peace officers.

(q) ARIZONA DEPARTMENT OF AGRICULTURE OFFICERS WHO ARE CERTIFIED PEACE OFFICERS.

14. "Employee" means any person who is employed by a participating employer and who is a member of an eligible group but does not include any persons compensated on a contractual or fee basis. If an eligible group requires certified peace officer status and at the option of the local board, employee may include a person who is training to become a certified peace officer.

15. "Employers" means:

(a) Cities contributing to the fire fighters' relief and pension fund as provided in sections 9-951 through 9-971 or statutes amended thereby and antecedent thereto, as of June 30, 1968 on behalf of their full-time paid fire fighters.

(b) Cities contributing under the state police pension laws as provided in sections 9-911 through 9-934 or statutes amended thereby and antecedent thereto, as of June 30, 1968 on behalf of their municipal policemen.

(c) The state highway patrol covered under the state highway patrol retirement system.

(d) The state, or any political subdivision thereof, including but not limited to towns, cities, fire districts, counties and nonprofit corporations operating public airports pursuant to sections 28-8423 and 28-8424, which has elected to participate in the system on behalf of an eligible group of public safety personnel pursuant to a joinder agreement entered into after July 1, 1968.

(e) Indian tribes which have elected to participate in the system on behalf of an eligible group of public safety personnel pursuant to a joinder agreement entered into after July 1, 1968.

16. "Fund" means the public safety personnel retirement fund, which is the fund established to receive and invest contributions accumulated under the system and from which benefits are paid.

17. "Fund manager" means the fund manager of the system, who are the persons appointed to invest and operate the fund.

18. "Local board" means the retirement board of the employer, who are the persons appointed to administer the system as it applies to their members in the system.

19. "Member" means any employee who meets all of the following qualifications:

(a) Who is either a full-time paid municipal police officer, a full-time paid fire fighter, a law enforcement officer who is employed by the state including the director thereof, a state fire fighter who is primarily assigned to fire fighting duties, a fire fighter or police officer of a nonprofit corporation operating a public airport pursuant to sections 28-8423 and 28-8424, all ranks designated by the Arizona law enforcement merit system council, a state attorney general investigator who is a certified peace officer, a county attorney investigator who is a certified peace officer, a police officer who is appointed by the department of administration and who is A certified by the Arizona peace officer standards and training board , a department of liquor licenses and control investigator who is a certified peace officer, AN ARIZONA DEPARTMENT OF AGRICULTURE OFFICER WHO IS A CERTIFIED PEACE OFFICER, a person who is A certified by the Arizona peace officer standards and training board and who is employed by an Indian reservation police agency, a fire fighter who is employed by an Indian reservation fire fighting agency or an employee included in a group designated as eligible employees under a joinder agreement entered into by their employer after July 1, 1968 and who is or was regularly assigned to hazardous duty.

(b) Who, on or after the employee's effective date of participation, is receiving compensation for personal services rendered to an employer or would be receiving compensation except for an authorized leave of absence.

(c) Whose employment with an employer commenced prior to attainment of age fifty.

(d) Whose customary employment is for more than twenty hours per week and for more than six months in a calendar year.

(e) Who has not attained age sixty-five prior to the employee's effective date of participation or who was over age sixty-five with twenty-five years or more of service prior to the employee's effective date of participation.

20. "Normal retirement date" means the first day of the calendar month immediately following an employee's completion of twenty years of service or the employee's sixty-second birthday and the employee's completion of fifteen years of service.

21. "Ordinary disability" means a physical condition which the local board determines will prevent an employee totally and permanently from performing a reasonable range of duties within the employee's department or a mental condition which the local board determines will prevent an employee totally and permanently from engaging in any substantial gainful activity. A finding of ordinary disability shall be based on medical evidence by a doctor or clinic appointed by the local board pursuant to section 38-847, subsection D, paragraph 9 satisfactory to the local board which establishes an ordinary disability. Material conflicts in medical evidence shall be resolved by the findings of the local board.

22. "Pension" means a series of monthly amounts which are payable to a person who is entitled to receive benefits under the plan.

23. "Regularly assigned to hazardous duty" means regularly assigned to duties of the type normally expected of municipal police officers, municipal or state fire fighters, eligible fire district fire fighters, state highway patrol officers, county sheriffs and deputies, fish and game wardens, fire fighters and police officers of a nonprofit corporation operating a public airport pursuant to sections 28-8423 and 28-8424, police officers who are appointed by the Arizona board of regents or a community college district governing board, state attorney general investigators who are certified peace officers, county attorney investigators who are certified peace officers, police officers who are appointed by the department of administration and who are certified by the Arizona peace officer standards and training board OFFICERS , department of liquor licenses and control investigators who are certified peace officers, ARIZONA DEPARTMENT OF AGRICULTURE OFFICERS WHO ARE CERTIFIED PEACE OFFICERS, police officers who are certified by the Arizona peace officer standards and training board OFFICERS and are employed by an Indian reservation police agency or fire fighters who are employed by an Indian reservation fire fighting agency. Those individuals who are assigned solely to support duties such as secretaries, stenographers, clerical personnel, clerks, cooks, maintenance personnel, mechanics and dispatchers are not assigned to hazardous duty regardless of their position classification title. Since the normal duties of municipal police officers, municipal or state fire fighters, eligible fire district fire fighters, state highway patrol officers, county sheriffs and deputies, fish and game wardens, fire fighters and police officers of a nonprofit corporation operating a public airport pursuant to sections 28-8423 and 28-8424, police officers who are appointed by the Arizona board of regents or a community college district governing board, state attorney general investigators who are certified peace officers, county attorney investigators who are certified peace officers, police officers who are appointed by the department of administration and who are certified by the Arizona peace officer standards and training board OFFICERS , department of liquor licenses and control investigators who are certified peace officers, ARIZONA DEPARTMENT OF AGRICULTURE OFFICERS WHO ARE CERTIFIED PEACE OFFICERS, police officers who are certified by the Arizona peace officer standards and training board OFFICERS and are employed by an Indian reservation police agency and fire fighters who are employed by an Indian reservation fire fighting agency are constantly changing, questions as to whether a person is or was previously regularly assigned to hazardous duty shall be resolved by the local board on a case-by-case basis. Resolutions by local boards are subject to rehearing and appeal.

24. "Retirement" means termination of employment after a member has fulfilled all requirements for a pension. Retirement shall be considered as commencing on the first day of the month immediately following a member's last day of employment or authorized leave of absence, if later.

25. "Service" means the last period of continuous employment of an employee by the employers prior to the employee's retirement or the employee's sixty-fifth birthday, whichever first occurs, except that if such period includes employment during which the employee would not have qualified as a member had the system then been effective, such as employment as a volunteer fire fighter, then only twenty-five per cent of such noncovered employment shall be considered as service. Any absence which is authorized by an employer shall not be considered as interrupting continuity of employment if the employee returns within the period of authorized absence. Transfers between employers also shall not be considered as interrupting continuity of employment. Any period during which a member is receiving sick leave payments or a temporary disability pension shall be considered as service. Any period during which a person was employed as a full-time paid fire fighter by a fire district pursuant to a contract with a corporation within that fire district shall be considered as service if it is part of the person's last period of continuous employment with that corporation in that fire district and the fire district has elected to treat the period as service in its applicable joinder agreement. Any reference in this system to the number of years of service of an employee shall be deemed to include fractional portions of a year.

26. "State" means the state of Arizona, including any department, office, board, commission, agency or other instrumentality of the state.

27. "System" means the public safety personnel retirement system, created by the provisions of this article.

28. "Temporary disability" means a physical or mental condition which the local board finds totally and temporarily prevents an employee from performing a reasonable range of duties within the employee's department and which was incurred in the performance of the employee's duty. A finding of disability shall be based on medical evidence by a doctor or clinic appointed by the local board pursuant to section 38-847, subsection D, paragraph 9 which establishes a temporary disability. Material conflicts in medical evidence shall be resolved by the findings of the local board.

Sec. 22. Title 38, chapter 5, article 4, Arizona Revised Statutes, is amended by adding section 38-843.01, to read:

38-843.01 . Internal revenue code section 414(h) pickup of member contributions

EACH EMPLOYER SHALL PICK UP THE CONTRIBUTIONS REQUIRED OF MEMBERS ON ACCOUNT OF COMPENSATION PAID AFTER THE EFFECTIVE DATE SPECIFIED IN THE RESOLUTION OF THE FUND MANAGER ACTIVATING THE PROVISIONS OF THIS SECTION. THE PICKED UP CONTRIBUTIONS SHALL BE TREATED AS EMPLOYER CONTRIBUTIONS FOR THE PURPOSE OF TAX TREATMENT UNDER THE UNITED STATES INTERNAL REVENUE CODE. THE SPECIFIED EFFECTIVE DATE SHALL NOT BE BEFORE THE DATE THE SYSTEM RECEIVES NOTIFICATION FROM THE INTERNAL REVENUE SERVICE THAT PURSUANT TO SECTION 414( h ) OF THE INTERNAL REVENUE CODE THE MEMBER CONTRIBUTIONS PICKED UP SHALL NOT BE INCLUDED IN GROSS INCOME FOR INCOME TAX PURPOSES UNTIL THE TIME THAT THE PICKED UP CONTRIBUTIONS ARE DISTRIBUTED BY REFUND OR PENSION PAYMENTS. THE EMPLOYERS SHALL PICK UP THE MEMBER CONTRIBUTIONS FROM MONIES ESTABLISHED AND AVAILABLE IN A RETIREMENT DEDUCTION ACCOUNT, WHICH MONIES WOULD OTHERWISE HAVE BEEN DESIGNATED AS MEMBER CONTRIBUTIONS AND PAID TO THE SYSTEM. MEMBER CONTRIBUTIONS PICKED UP PURSUANT TO THIS SECTION SHALL BE TREATED FOR ALL OTHER PURPOSES, IN THE SAME MANNER AND TO THE SAME EXTENT, AS MEMBER CONTRIBUTIONS MADE BEFORE THE EFFECTIVE DATE.

Sec. 23. Section 38-846.02, Arizona Revised Statutes, is amended to read:

38-846.02 . Termination of membership

A. Upon ON termination of employment for any reason other than death or retirement, a member shall within twenty days after filing an A COMPLETED application with the fund manager , A MEMBER IS ENTITLED TO receive a lump sum payment equal to his accumulated contributions as of the date of termination THE FOLLOWING AMOUNTS, less any benefit payments he may have THE MEMBER HAS received or any amount he THE MEMBER may owe to the system :

1. IF THE MEMBER HAS LESS THAN FIVE YEARS OF CREDITED SERVICE WITH THE SYSTEM, THE MEMBER MAY WITHDRAW THE MEMBER'S ACCUMULATED CONTRIBUTIONS FROM THE SYSTEM.

2. IF THE MEMBER HAS FIVE OR MORE YEARS OF CREDITED SERVICE WITH THE SYSTEM, THE MEMBER MAY WITHDRAW THE MEMBER'S ACCUMULATED CONTRIBUTIONS PLUS AN AMOUNT EQUAL TO THE AMOUNT DETERMINED AS FOLLOWS:

(a ) 5.0 TO 5.9 YEARS OF CREDITED SERVICE, TWENTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-843, SUBSECTION C.

( b ) 6.0 TO 6.9 YEARS OF CREDITED SERVICE, FORTY PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-843, SUBSECTION C.

( c ) 7.0 TO 7.9 YEARS OF CREDITED SERVICE, FIFTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-843, SUBSECTION C.

( d ) 8.0 TO 8.9 YEARS OF CREDITED SERVICE, SEVENTY PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-843, SUBSECTION C.

( e ) 9.0 TO 9.9 YEARS OF CREDITED SERVICE, EIGHTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-843, SUBSECTION C.

( f ) 10.0 OR MORE YEARS OF CREDITED SERVICE, ONE HUNDRED PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-843, SUBSECTION C.

B. IF A MEMBER HAS MORE THAN TEN YEARS OF CREDITED SERVICE WITH THE SYSTEM, LEAVES THE MONIES PRESCRIBED IN SUBSECTION A OF THIS SECTION ON ACCOUNT WITH THE SYSTEM FOR MORE THAN THIRTY DAYS AFTER TERMINATION OF EMPLOYMENT AND AFTER THAT TIME PERIOD REQUESTS A REFUND OF THOSE MONIES, THE MEMBER IS ENTITLED TO RECEIVE THE AMOUNT PRESCRIBED IN SUBSECTION A OF THIS SECTION PLUS INTEREST AT A RATE DETERMINED BY THE FUND MANAGER FOR EACH YEAR COMPUTED FROM AND AFTER THE MEMBER'S TERMINATION OF EMPLOYMENT.

C. If the refund AMOUNT PRESCRIBED IN SUBSECTION A OR B OF THIS SECTION includes monies that are an eligible rollover distribution and the member elects to have the distribution paid directly to an eligible retirement plan or individual retirement account or annuity and specifies the eligible retirement plan or individual retirement account or annuity to which the distribution is to be paid, the distribution shall be made in the form of a direct trustee-to-trustee transfer to the specified eligible retirement plan. The distribution shall be made in the form and at the time prescribed by the fund manager. A member who withdraws his accumulated contributions THE AMOUNT PRESCRIBED IN SUBSECTION A OR B OF THIS SECTION from the system or who elects a transfer pursuant to this section forfeits all rights to benefits under the system and his rights to rehearing and appeal, except as provided in section 38-849.

Sec. 24. Section 38-847, Arizona Revised Statutes, is amended to read:

38-847 . Local boards

A. The administration of the system and responsibility for making the provisions of the system effective for each employer are vested in a local board. The department of public safety, the ARIZONA game and fish department, the department of emergency and military affairs, the university of Arizona, Arizona state university, northern Arizona university, each county sheriff's office, each county attorney's office, each municipal fire department, each eligible fire district, each community college district, each municipal police department, the department of law, the department of administration, the department of liquor licenses and control, THE ARIZONA DEPARTMENT OF AGRICULTURE, each Indian reservation police agency and each Indian reservation fire fighting agency shall have a local board. A nonprofit corporation operating pursuant to sections 28-8423 and 28-8424 shall have one board for all of its members. Each local board shall be constituted as follows:

1. For political subdivisions or Indian tribes, the mayor or chief elected official or a designee of the mayor or chief elected official approved by the respective governing body as chairman, two members elected by secret ballot by members employed by the appropriate employer and two citizens, one of whom shall be the head of the merit system if it exists for the group of members, appointed by the mayor or chief elected official and with the approval of the governing body of the city or the governing body of the employer. The appointed two citizens shall serve on both local boards in a city or Indian tribes where both fire and police department employees are members.

2. For state agencies and nonprofit corporations operating pursuant to sections 28-8423 and 28-8424, two members elected by secret ballot by members employed by the appropriate employer and three citizens appointed by the governor. Each state agency local board shall elect a chairman.

B. Upon the taking effect of this system for an employer, the appointments and elections of board members shall take place with one elective and appointive board member serving a term ending two years after the effective date of participation for the employer and other local board members serving a term ending four years after the effective date. Thereafter, every second year, and as a vacancy occurs, an office shall be filled for a term of four years in the same manner as previously provided.

C. Each member of a local board shall, within ten days after the member's appointment or election, take an oath of office that, so far as it devolves upon the member, the member shall diligently and honestly administer the affairs of the local board and that the member shall not knowingly violate or willingly permit to be violated any of the provisions of law applicable to the system.

D. Except as limited by subsection E of this section, a local board shall have such powers as may be necessary to discharge the following duties:

1. To decide all questions of eligibility and service credits, and determine the amount, manner and time of payment of any benefits under the system.

2. To prescribe procedures to be followed by claimants in filing applications for benefits.

3. To make a determination as to the right of any claimant to a benefit and to afford any claimant or the fund manager, or both, a right to a rehearing on the original determination.

4. To request and receive from the employers and from members such information as is necessary for the proper administration of the system and action on claims for benefits and to forward such information to the fund manager.

5. To distribute, in such manner as the local board determines to be appropriate, information explaining the system received from the fund manager.

6. To furnish the employer, the fund manager, and the legislature, upon request, with such annual reports with respect to the administration of the system as are reasonable and appropriate.

7. To receive and review the actuarial valuation of the system for its group of members.

8. To receive and review reports of the financial condition and of the receipts and disbursements of the fund from the fund manager.

9. To appoint medical boards as provided in section 38-859.

10. To sue and be sued to effectuate the duties and responsibilities set forth in this article.

E. A local board shall have no power to add to, subtract from, modify or waive any of the terms of the system, change or add to any benefits provided by the system or waive or fail to apply any requirement of eligibility for membership or benefits under the system.

F. A local board shall, from time to time, establish and adopt such rules as it deems necessary or desirable for its administration. All rules and decisions of a board shall be uniformly and consistently applied to all members in similar circumstances.

G. Any action by a majority vote of the members of a local board which is not inconsistent with the provisions of the system shall be final, conclusive and binding upon all persons affected by it unless a timely application for a rehearing or appeal is filed as provided in this article.

H. A claimant or the fund manager may apply for a rehearing before the local board within the time period prescribed in this subsection. An application for a rehearing shall be filed in writing with a member of the local board or its secretary within sixty days after:

1. The applicant-claimant receives notification of the local board's original action by certified mail, by attending the meeting at which the action is taken or by receiving benefits from the system pursuant to the local board's original action, whichever occurs first.

2. The applicant-fund manager receives notification of the local board's original action by certified mail or by receipt of written directions from the local board pursuant to its original action, whichever occurs first.

I. A hearing before a local board on a matter remanded from the superior court is not subject to a rehearing before the local board.

J. Decisions of local boards are subject to judicial review pursuant to title 12, chapter 7, article 6.

K. When making a ruling, determination or calculation, the local board shall be entitled to rely upon information furnished by the employer, the fund manager, independent legal counsel, or the actuary for the system.

L. Each member of a local board is entitled to one vote. A majority of the appointed and elected members is necessary for a decision by the members of a local board at any meeting of the local board.

M. The local board shall adopt such bylaws as it deems desirable. The local board shall elect a secretary who may, but need not, be a member of the local board. The secretary of the local board shall keep a record and prepare minutes of all meetings, forward the minutes to the fund manager within forty-five days after each meeting and forward all necessary communications to the fund manager.

N. The fees of the medical board and of local legal counsel and all other expenses of the local board necessary for the administration of the system shall be paid by the employer at such rates and in such amounts as the local board shall approve.

O. The local board shall issue directions to the fund manager concerning all benefits which are to be paid from the employer's account pursuant to the provisions of the fund. The local board shall keep on file, in such manner as it may deem convenient or proper, all reports from the fund manager and the actuary.

P. The local board and the individual members of the local board shall be indemnified from the assets of the employer's account in the fund against any and all liabilities arising by reason of any act, or failure to act, made in good faith pursuant to the provisions of the system, including expenses reasonably incurred in the defense of any claim relating to the act or failure to act.

Sec. 25. Section 38-849, Arizona Revised Statutes, is amended to read:

38-849 . Limitations; violation; classification

A. If a member is discharged because of theft, embezzlement, fraud or misappropriation of an employer's property, the member shall not be entitled to receive a pension regardless of the member's age and service on the date of the member's discharge. Instead, the member shall receive a lump sum payment equal to the member's accumulated contributions as of the date of the member's discharge.

B. A person who knowingly makes any false statement or who falsifies or permits to be falsified any record of the system with an intent to defraud the system is guilty of a class 6 felony. If any change or error in the records results in any member or beneficiary receiving from the system more or less than the member or beneficiary would have been entitled to receive had the records been correct, the local board shall correct such error, and as far as practicable shall adjust the payments in such manner that the actuarial equivalent of the benefit to which such member or beneficiary was correctly entitled shall be paid. If a member is convicted of a crime specified in this subsection the member shall be entitled to receive a lump sum payment of the member's accumulated contributions but forfeits any future compensation and benefits which would otherwise accrue to the member or the member's estate under this article.

C. If a member who received a severance refund upon termination of employment, as provided in section 38-846.02, is subsequently reemployed by an employer, the member's prior service credits shall be cancelled and service shall be credited only from the date the member's most recent reemployment period commenced. Notwithstanding the foregoing, if such former member's reemployment with the same employer occurred within two years after the former member's termination date, and, within ninety days after reemployment the former member signs a written election consenting to reimburse the fund within one year, the former member shall be required to redeposit the amount of the former member's accumulated contributions WITHDRAWN at the time of the former member's separation from service, with interest thereon at the rate of the average effective yield of the fund as published in the annual report NINE PER CENT FOR EACH YEAR compounded each year from the date of withdrawal to the date of repayment. Upon satisfaction of this obligation the member's prior service credits shall be reinstated.

D. If a nondisabled retired member is reemployed by an employer, no contributions shall be made on the nondisabled retired member's account, nor any service credited, during the period of such reemployment. If a member who retired under disability is reemployed by an employer, that member shall be treated as if the member had been on an uncompensated leave of absence during the period of the member's disability retirement and shall be a contributing member of the system.

Sec. 26. Section 38-884, Arizona Revised Statutes, is amended to read:

38-884 . Membership of retirement plan; termination; credited service

A. Each employee of a participating employer is a member of the plan. A person employed shall undergo a medical examination performed by a doctor or clinic appointed by the local board or, in the case of a state correctional officer who is employed by the state department of corrections, complete a physical examination pursuant to section 41-1822, subsection B. For the purposes of subsection B of this section, the doctor or clinic appointed by the local board may be the employer's regular employee or contractor.

B. The purpose of the medical examination authorized by this section is to identify a member's physical or mental condition or injury that existed or occurred before the member's date of membership in the plan. Any employee who fails or refuses to submit to the medical examination prescribed in this section is deemed to waive all rights to disability benefits under this article. Medical examinations conducted under this article shall not be conducted or used for purposes of hiring, advancement, discharge, job training or other terms, conditions and privileges of employment unrelated to receipt or qualification for pension benefits or service credits from the fund. This subsection does not affect or impair the right of an employer to prescribe medical or physical standards for employees or prospective employees.

C. The accumulated member contributions of a member with less than ten years of credited service under the plan who ceases to be an employee for a reason other than death or retirement shall be paid to the member within twenty days after filing with the plan a written application for payment. The accumulated member contributions of a member with ten or more years of credited service under the plan who ceases to be an employee for a reason other than death or retirement, together with interest compounded annually at the rate or rates established by the fund manager, are payable to the member within twenty days after filing with the plan a written application for payment. IF A MEMBER CEASES TO BE AN EMPLOYEE FOR ANY REASON OTHER THAN DEATH OR RETIREMENT, WITHIN TWENTY DAYS AFTER FILING A COMPLETED APPLICATION WITH THE FUND MANAGER, THE MEMBER IS ENTITLED TO RECEIVE THE FOLLOWING AMOUNTS, LESS ANY BENEFIT PAYMENTS THE MEMBER HAS RECEIVED AND ANY AMOUNT THE MEMBER MAY OWE TO THE PLAN:

1. IF THE MEMBER HAS LESS THAN FIVE YEARS OF CREDITED SERVICE WITH THE PLAN, THE MEMBER MAY WITHDRAW THE MEMBER'S ACCUMULATED CONTRIBUTIONS FROM THE PLAN.

2. IF THE MEMBER HAS FIVE OR MORE YEARS OF CREDITED SERVICE WITH THE PLAN, THE MEMBER MAY WITHDRAW THE MEMBER'S ACCUMULATED CONTRIBUTIONS PLUS AN AMOUNT EQUAL TO THE AMOUNT DETERMINED AS FOLLOWS:

(a ) 5.0 TO 5.9 YEARS OF CREDITED SERVICE, TWENTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-891, SUBSECTION B.

( b ) 6.0 TO 6.9 YEARS OF CREDITED SERVICE, FORTY PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-891, SUBSECTION B.

( c ) 7.0 TO 7.9 YEARS OF CREDITED SERVICE, FIFTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-891, SUBSECTION B.

( d ) 8.0 TO 8.9 YEARS OF CREDITED SERVICE, SEVENTY PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-891, SUBSECTION B.

( e ) 9.0 TO 9.9 YEARS OF CREDITED SERVICE, EIGHTY-FIVE PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-891, SUBSECTION B.

( f ) 10.0 OR MORE YEARS OF CREDITED SERVICE, ONE HUNDRED PER CENT OF ALL MEMBER CONTRIBUTIONS DEDUCTED FROM THE MEMBER'S SALARY PURSUANT TO SECTION 38-891, SUBSECTION B.

D. IF A MEMBER HAS MORE THAN TEN YEARS OF CREDITED SERVICE WITH THE PLAN AND LEAVES THE MONIES PRESCRIBED IN SUBSECTION C OF THIS SECTION ON ACCOUNT WITH THE PLAN FOR MORE THAN THIRTY DAYS AFTER TERMINATION OF EMPLOYMENT AND AFTER THAT TIME PERIOD REQUESTS A REFUND OF THOSE MONIES, THE MEMBER IS ENTITLED TO RECEIVE THE AMOUNT PRESCRIBED IN SUBSECTION C OF THIS SECTION PLUS INTEREST AT A RATE DETERMINED BY THE FUND MANAGER FOR EACH YEAR COMPUTED FROM AND AFTER THE MEMBER'S TERMINATION OF EMPLOYMENT.

E. If the refund includes monies that are an eligible rollover distribution and the member elects to have the distribution paid directly to an eligible retirement plan or individual retirement account or annuity and specifies the eligible retirement plan or individual retirement account or annuity to which the distribution is to be paid, the distribution shall be made in the form of a direct trustee-to-trustee transfer to the specified eligible retirement plan. The distribution shall be made in the form and at the time prescribed by the fund manager.

D. F. Service shall be credited to a member's individual credited service account in accordance with rules the local board prescribes. In no case shall more than twelve months of credited service be credited on account of all service rendered by a member in any one year. In no case shall service be credited for any period during which the member is not employed in a designated position, except as provided by sections 38-921 and 38-922.

E. G. Credited service is forfeited if a member's accumulated member contributions THE AMOUNTS PRESCRIBED IN SUBSECTION C OR D OF THIS SECTION are paid or are transferred in accordance with subsection C of this section.

F. H. If a former member becomes reemployed with the same employer within two years after the former member's termination date, a member may have forfeited credited service attributable to service rendered during a prior period of service as an employee restored on satisfaction of each of the following conditions:

1. The member files with the plan a written application for reinstatement of forfeited credited service within ninety days after again becoming an employee.

2. The retirement fund is paid the total amount previously withdrawn pursuant to subsection C OR D of this section plus compound interest from the date of withdrawal to the dates of repayment. Interest shall be computed at the rate of the net effective yield of the fund as published in the most recent annual report NINE PER CENT FOR EACH YEAR COMPOUNDED EACH YEAR FROM THE DATE OF WITHDRAWAL TO THE DATE OF REPAYMENT . Forfeited credited service shall not be restored until complete payment is received by the fund.

3. The required payment is completed within one year after returning to employee status.

G. I. The following conditions apply to a retired member who becomes an employee subsequent to retirement:

1. Payment of the retired member's pension shall be suspended until the retired member again ceases to be an employee. The amount of pension shall not be changed on account of service as an employee subsequent to retirement.

2. The retired member shall not contribute to the fund and shall not accrue credited service.

Sec. 27. Withdrawal of contributions from the Arizona state retirement system

A. Beginning on January 1, 1999, an employee who transferred from the Arizona state retirement system to an optional retirement program pursuant to section 15-1628, Arizona Revised Statutes, and who was required to leave in the Arizona state retirement system contributions that were made before the transfer may withdraw the employee's contributions to the Arizona state retirement system and an amount equal to the employer contributions paid to the Arizona state retirement system on behalf of the employee plus interest as determined by the Arizona state retirement system board if the employee satisfies any one of the following conditions:

1. The employee has terminated employment by retirement or death.

2. The employee has attained a normal retirement date as defined in section 38-711, Arizona Revised Statutes.

3. If the employee is an active participant in an optional retirement program, the employee elects to transfer the lump sum value of the refunded contributions and interest as determined pursuant to this section to the optional retirement program in which the employee is enrolled pursuant to section 15-1628, Arizona Revised Statutes.

B. The Arizona board of regents shall require that the optional retirement program accept elective transfers pursuant to subsection A, paragraph 3 of this section. Each elective transfer shall be divided equally for placement in the employee's account and the employer's account in the optional retirement program.

C. Withdrawal or transfer of contributions with interest pursuant to this section constitutes a withdrawal of the employee's membership in the Arizona state retirement system and a waiver of all benefits under the Arizona state retirement system.

Sec. 28. Arizona state retirement system defined benefit retirees; benefit increase

A member or a member's beneficiary who is receiving a benefit under the Arizona state retirement system defined benefit program established by title 38, chapter 5, article 2, Arizona Revised Statutes, on July 1, 2000 is entitled to receive a one-time permanent increase of five per cent of the member's or beneficiary's monthly benefit amount.

Sec. 29. Arizona department of agriculture officers; public safety personnel retirement system

Notwithstanding sections 38-842 and 38-847, Arizona Revised Statutes, as amended by this act, appropriations to the Arizona department of agriculture shall not include monies for joinder into the public safety personnel retirement system until fiscal year 2001-2002 and the Arizona department of agriculture shall not use or transfer any monies otherwise appropriated to it for joinder into the public safety personnel retirement system until fiscal year 2001-2002.

Sec. 30. Retroactivity

A. Section 38-797.07, Arizona Revised Statutes, as amended by this act, applies retroactively to from and after June 30, 1996.

B. Section 27 of this act, relating to withdrawal of contributions from the Arizona state retirement system, is effective retroactively to from and after December 31, 1998.

Sec. 31. Delayed repeal

Section 27 of this act, relating to withdrawal of contributions from the Arizona state retirement system, is repealed from and after December 31, 2000.

Sec. 32. Delayed effective date

Section 38-757, Arizona Revised Statutes, as amended by this act, and section 28 of this act, relating to benefit increases for Arizona state retirement system defined benefits retirees, are effective from and after June 30, 2000.

APPROVED BY THE GOVERNOR MAY 19, 1999.

FILED IN THE OFFICE OF THE SECRETARY OF STATE MAY 19, 1999.