ARIZONA HOUSE OF REPRESENTATIVES FIRST REGULAR SESSION - 1999

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_DP__ For Committee on GOVERNMENT OPERATIONS

_____ For Committee on ______________________________________

_X___ For Caucus and COW

_____ As Passed the House

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Abstract for HB 2605 (PSPRS; deferred retirement option plan) Sponsors: Marsh, Carpenter

Purpose

HB 2605 permits PSPRS members to participate in the deferred retirement option plan (DROP) for the period beginning July 1, 2000 through July 1, 2005. A DROP program allows a member who is eligible to effectively retire to continue to work with their employer.

History

Public Safety Personnel Retirement System (PSPRS) provides retirement benefits to municipal, county, state, and Indian reservation public safety officials and fire fighters. As of December 1998, it consists of 167 employer groups with 13,635 active members. Furthermore, there are 3,461 retirees and beneficiaries receiving retirement benefits. The plan has an actuarial assets value of $3,192,627,000 and an accrued liability of $2,743,998,000 and is 116.3% funded.

Currently, participating members in the PSPRS who meet the requirements for a normal pension are entitled to receive a monthly payment that equals 50% of the member's average monthly compensation. Members who retire with more than twenty years of credited service receive an increase of 2 per cent of the member's average monthly compensation multiplied by the number of years of credited service. Whereas, members with more than twenty-five years of credited service receive an increase of two and one-half per cent in excess of twenty years (i.e., members with more than twenty-five years of credited service are entitled to a pension of sixty-two and one-half per cent of their average monthly compensation).

HB 2605 allows a member of the system to "freeze" service credits and average annual salary as of the DROP election date for retirement calculation purposes. The member elects to have the retirement pension that would have been paid (if the member had retired) credited to a DROP account while the member continued to work and draw a salary from the employer. The member and employer would no longer make contributions to the system. At the end of the DROP period (five years), the member would terminate employment, begin receiving the monthly pension amount at the rate calculated at the time of the DROP election, and receive the accumulated DROP account either as a lump sum amount or as an additional annuity. If a member became disabled or died during the DROP period, the member would be entitled to a disability retirement or in the case of death, the survivor is entitled to the DROP account. This option would terminate after five years.

Provisions

1. Requires the fund manager to offer DROP to members beginning July 1, 2000 through June 30, 2005 and to evaluate the costs of DROP.

2. Establishes that members participating in DROP voluntarily and irrevocably agree to a participation period of no more than sixty consecutive months (i.e., 5 years) and to terminate the employment upon the completion of the DROP participation period. Members electing to continue their employment after the specified participation period are not allowed to receive any interest accumulated in the DROP.

3. States that participation in DROP can be terminated by the completion of the participation period, voluntary termination of employment or death of a member before the completion of the participation period, or upon the approval for a member to receive disability benefits.

4. Requires the amount credited monthly into a member's DROP account to be computed in the same manner as a normal retirement benefit that will be annually increased as determined by the benefit increase provisions under current law.

5. Permits the fund manager to adopt any rules deemed necessary to conform DROP with federal laws.

6. Provides a delayed repeal date of June 30, 2005. However, members participating in DROP before July 1, 2005 may continue to participate until the participation period expires.

HB 2605 passed the Government Operations Committee unamended.

Prepared by: Tami Stowe, Lisette Flores

hb2605.cow 2/12/99 bh

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