House of Representatives

HB 2215

ASRS; actuarial computation method

Sponsors: Representatives Brimhall and Graf

X	Committee on Retirement and Government Operations
	Committee on Appropriations
	Caucus and COW
	Third Read
	As Passed the House

HB 2215 changes the actuarial funding method for determining Arizona State Retirement System (ASRS) contribution rates from the projected unit credit (PUC) method to the entry age normal (EAN) cost method. In addition, this legislation changes the amortization-funding period to a rolling 20-year period.

History

Laws 2000, Chapter 341, established the ASRS Actuarial Computation Method Study Committee. This committee was charged with examining and comparing actuarial computation methods that may be appropriate for ASRS, including the EAN cost method and the PUC method. This legislation is a result of the discussions and study of the ASRS Actuarial Computation Method Study Committee.

Funding Methodology:

Different assumptions are being calculated regarding employee tenure under the EAN cost method versus the PUC method that result in different contribution rates. For example, contribution rates under the EAN cost method are level over a person’s career, because it assumes the employee will be with the employer for a length of time. In other words, the EAN cost method calculates anticipated future service in the computation of required contribution rates. The result is a contribution rate that is stable over the employee’s career, rather than one that increases with years of service.

In contrast, contribution rates are lower at the beginning of a person’s career, which increases over time with the PUC method, because the PUC method calculates the required contribution rate based only on the actual service rendered. This results in a contribution rate that will increase over time as length of service continues.

Status of ASRS contribution rate:

Even though ASRS currently uses the PUC funding method, contribution rates have been decreasing over the years, rather than increasing due to the PUC funding method. This is the result of investment performance that exceeds 8% in returns, which has created a surplus that is then used to reduce the contribution rate paid by employers and employees. Additionally, having a young retirement system contributes to the decreased contribution rates, because the continued entrance of younger people into the workforce that participates in ASRS also has a downward effect on the contribution rates.

Provisions

· Requires the Board to begin phasing in the use of the EAN cost method of actuarial computation with the June 30, 2003 valuation of ASRS and the contribution rate payable beginning on July 1, 2004. Therefore, beginning with the July 1, 2011 valuation of ASRS the contribution rate payable beginning on July 1, 2012 will be determined under the EAN cost method.

· Designates the amortization-funding period as a rolling twenty-year period, rather than the incremental increased target of thirty-years.

· Repeals the statutory incremental increased amortization-funding period. Currently, the ASRS amortization-funding period is set at 17-years. It increases 2-years every fiscal year.

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45th Legislature

Second Regular Session 2 March 25, 2002

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