May 9, 2012 Arizona State Retirement System AASBO Bi-Monthly Membership Meeting 0

Arizona State Retirement System ASRS Contribution Rate Split  SB1614  Barnes vs. ASRS and State of Arizona  HB2264 Alternate Contribution Rate  SB1609 1

Arizona State Retirement System Senate Bill 1614  Became effective 07/20/2011  Retroactive to 07/01/2011  Changed the contribution rate split from 50/50 to 53/47  Transfers the employer savings to the General Fund for the state, university, school district and charter schools 2

Arizona State Retirement System Barnes vs. ASRS and State of Arizona  Judgment entered 04/12/2012  Directs that the 53/47 split for pre-July, 2011 members be returned to 50/50  Judgment did not amend the 53/47 split for LTD  Judgment did not amend the 53/47 split for post-June, 2011 members  Judgment did not require refunding employee contributions paid in excess of 50% 3 (In Maricopa County Superior Court)

Arizona State Retirement System House Bill 2264  Directs a reversion to the 50/50 split beginning 07/01/2011 for pension and LTD contributions  On or before 09/30/2012, employer to return employee contributions in excess of 50% except for forfeited members  Returned pension contributions are to be considered taxable wages in 2012  Returned LTD contributions are not taxable wages  Adjustment transactions shall be reported to the ASRS on or before 06/30/2012  The state and the Department of Education are to receive appropriated funds for purposes of refunding ASRS eligible members for excess contributions  HB 2264 has an emergency clause 4

Arizona State Retirement System Rate Split Resolution 5 IMPORTANT INFORMATION ON ASRS CONTRIBUTIONS Dear ASRS Employer: This is the latest in a series of updates on the ASRS contribution rate and the rate split between employees and employers brought about by litigation and legislation over the past several months. Please review carefully. House Bill 2264, which calls for a reversion of the ASRS contribution rate back to an equal 50/50 split between members and employers, was signed into law by Governor Jan Brewer on May 7, 2012 and is effective immediately. This new law reverses legislation passed last year that mandated a 53/47 percent member/employer split of the total ASRS contribution rate for the defined benefit plan and the long term disability income plan for all ASRS members. The new legislation also calls for employers to refund employees the excess contributions paid above the 50 percent rate since enactment of last year’s legislation, which was July 1, Refunds are to be paid by employers, not the ASRS. The legislation includes an appropriation to cover the reimbursement to state employees and education employees, which includes public schools and charter schools. Other employers, including municipal and county governments and special districts, are expected to reimburse eligible employees from their own budgets. Be sure to note that the refund of excess retirement contributions is taxable wages, but the refund of excess LTD contributions is not taxable (this is opposite from the “normal” reporting structure). Additionally, the refunds should not have ASRS contributions withheld from them, but they are subject to any other garnishment or withholding in place for the employee. The refunds will be reported on W-2s for calendar year HB 2264 goes further than a recent court Judgment entered on April 12, 2012 in Maricopa County Superior Court in the case Barnes vs. ASRS and the State of Arizona. That Judgment directed that the ASRS retirement contribution (not LTD) rate split, for pre-July 2011 ASRS members only, return to a 50/50 percent member/employer split prospectively. The new law applies to all ASRS members regardless of membership date, includes the LTD plan contributions, and applies the 50/50 percent split retroactively.

Arizona State Retirement System Rate Split Resolution (cont.) The revised contribution rate, retroactive to July 1, 2011 and effective through June 30, 2012, now is: IMPORTANT INFORMATION: Employers must provide rebalancing records to the ASRS no later than June 30, Employers will be able to utilize 1) the standard contributions reporting method if their payroll system is capable of generating a file for upload, 2) the adjustment template for non-ASRS web-based reporting users, or 3) the adjustment entry module for web-based reporting users. The adjustments can be sent by an off-cycle payroll or be included in your regular pay period. In the comment section of either the file upload page or the ACH payment page, type in “FY 2012 rate adjustment.” Remember, all rebalancing records must be submitted to the ASRS by June 30, 2012, regardless if the employer reimburses the employee at a later date. HB 2264 requires that employers reimburse eligible employees no later than September 30, If you are an employer who uses a third party payroll company, please advise them of these changes. An employer may refer to Chapter 6 of the ASRS Employer Manual available on the ASRS website for additional information on adjustments. A file listing those employees who have already been made whole through an ASRS disbursement process and are not eligible for a refund will be sent in a separate by close of business Wednesday, May 9 to your employer’s designated administrator on file with the ASRS. Be sure that your contact information with the ASRS is up-to-date. An information sheet for members has been posted to the ASRS website, should you receive inquiries from your employees. Employers may direct questions to Sincerely, Employer Relations Arizona State Retirement System 6 Retirement Pension & Health Insurance Benefit Long Term Disability Income Plan TOTAL Employee10.50%0.24%10.74% Employee10.50%0.24%10.74%

Arizona State Retirement System Alternate Contribution Rate Senate Bill 1609  Becomes effective 07/01/2012  Establishes an Alternate Contribution Rate (ACR) that employers pay for return to work retirees  Required to be assessed regardless of hours worked or the 12-month grace period  Assessed against salary, compensation, or fee paid for direct hire, contractor, or leased  Assessed against any retiree who returns to work with an ASRS employer and who fills a position normally filled by an employee  Employer responsible for remitting ACR contributions using the ASRS contribution remittance program on the secure ASRS website ●ACR will be 8.64% effective 07/01/2012 7

Arizona State Retirement System 8 Questions? ? ? ? ? ? ? ? ?