Assigned to FIN AS PASSED BY COW
ARIZONA STATE SENATE
Fifty-Fifth Legislature, Second Regular Session
AMENDED
FACT SHEET FOR S.B. 1082
ASRS; employer contributions; prepayment
(NOW: ASRS; lease-purchase agreements; contributions; prepayment)
Purpose
An emergency measure that allows an Arizona State Retirement System (ASRS) employer
to prepay the employer's required pension contributions directly to ASRS for deposit in the ASRS
Trust Fund or a section 115 trust managed by ASRS. Outlines pension prefunding payment and
written agreement requirements.
Background
Employers that participate in ASRS are the State of Arizona and participating political
subdivisions and political subdivision entities. Employer contributions are all amounts paid into
ASRS by an employer on behalf of a member (A.R.S. § 38-711). Current statute requires ASRS
employer contributions to be a percentage of the compensation of the employer's employees as
annually determined by the ASRS actuary. Contributions are allocated to the ASRS Trust Fund to
be used as benefits or to pay expenses (A.R.S. § 38-737).
Statute allows an employer who participates in ASRS and has established a defined benefit
plan to prefund the employer's required defined benefit pension payments by authorizing the State
Treasurer to invest pension prefunding plan monies in a pension prefunding plan investment
account (A.R.S. § 35-314.04).
There is no anticipated fiscal impact to the state General Fund associated with this
legislation.
Provisions
1. Allows an ASRS employer to prepay the employer's required pension contributions directly to
ASRS according to a written agreement between the employer and ASRS.
2. Allows prepaid pension contributions to be deposited in the ASRS Trust Fund or a section 115
trust, as determined by the employer and managed by ASRS.
3. Allows any ASRS employer who has entered into a pension prepayment agreement to borrow
to fund the amounts outlined in the agreement to be paid by any means legally available to the
employer.
4. Requires ASRS to determine options available to the employer, including:
a) the earnings accrual rate;
b) the amortization time periods; FACT SHEET – Amended
S.B. 1082
Page 2
c) the frequency and dates that prepayments can be made;
d) the maximum and minimum amounts of pension contributions allowed for prepayment;
and
e) any other obligations the employer may have when entering into a written agreement.
5. Allows a school district governing board to enter into lease-purchase agreements of school
buildings or grounds for periods up to the maximum amortization period determined by the
ASRS Board.
6. Allows a school district governing board to apply amounts received under a lease-purchase
agreement as lessor to pay amounts to ASRS for prepayment of required pension contributions
and create reserves to supplement the payments as deemed necessary by the governing board.
7. Requires prepaid pension contributions and the accrued earnings to be managed at the
discretion of ASRS.
8. Requires an ASRS employer to determine when to use prepaid pension contributions and the
accrued earnings from those contributions and allows the prepayments and accrued earnings
to be used solely to reduce the employer's future pension contributions.
9. Requires ASRS to provide an annual statement of prepaid pension contributions and accrued
earnings to the employer.
10. Prohibits an ASRS employer from prepaying pension contributions after reporting no net
pension liability on the employer's most recent applicable governmental accounting standards
report.
11. Requires an ASRS employer, after reporting no net pension liability, to elect an amortization
schedule by written agreement with ASRS and requires the amortization period to begin the
following fiscal year.
12. Requires ASRS, after an employer elects amortization terms, to provide the employer an
annual amortization schedule that is current and based on the employer's election.
13. Requires, if ASRS no longer offer the option of prepaying pension contributions, any
remaining prepayments and accrued earnings on account to be used for future obligations
according to the written agreement between the employer and ASRS.
14. Requires school district governing board lease payments payable as lessee under the
lease-purchase agreements to be budgeted and payable from the same source that payments to
ASRS are otherwise made and any other legally available sources.
15. Specifies that authorization by school district electors is not required for ASRS prepayment
lease-purchase agreements.
16. Requires school district governing board lease payments for pension prepayments to ASRS to
be associated with the functional spending category of the Arizona school district spending
report prepared by the Office of the Auditor General in the same proportion as the school
district's retirement contributions. FACT SHEET – Amended
S.B. 1082
Page 3
17. Exempts, from state, county and municipal taxes, the accrued earnings and any assets
transferred in or out of or held in the ASRS Trust Fund or a section 115 trust.
18. States that it is the Legislature's intent that accrued earnings not be subject to federal income
tax and allows ASRS to adopt rules, policies and procedures to fulfill the Legislature's intent.
19. Negates any portion of this legislation that jeopardizes the tax-exempt status of prepaid pension
contributions and accrued earnings, if ASRS receives notification from the U.S. Internal
Revenue Service of status jeopardization.
20. Defines 401(a) pension contributions and section 115 trust.
21. Makes technical and conforming changes.
22. Becomes effective on signature of the Governor, if the emergency clause is enacted.
Amendments Adopted by Committee
1. Allows any ASRS employer who has entered into a pension prepayment agreement to borrow
to fund the payment amounts by any means legally available to the employer.
2. Allows a school district governing board to enter into lease-purchase agreements of school
buildings or grounds for periods up to the maximum amortization period.
3. Allows a school district governing board to apply amounts under a lease-purchase agreement
to pay amounts for prepayment of required pension contributions and create reserves.
4. Requires school district governing board lease payments payable as lessee under the
lease-purchase agreements to be budgeted and payable from the same source that payments to
ASRS are otherwise made.
5. Specifies that authorization by the school district electors is not required for ASRS prepayment
lease-purchase agreements.
6. Requires school district governing board lease payments for pension prepayments to ASRS to
be associated with the functional spending category of the school district spending report
prepared by the Office of the Auditor General in the same proportion as the school district's
retirement contributions.
7. Makes technical and conforming changes.
Senate Action
FIN 1/12/22 DP 8-0-2
Prepared by Senate Research
February 8, 2022
MG/slp