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SB1504 - 572R - I Ver
REFERENCE TITLE:
PSPRS; service requirement; cost-of-living adjustment
State of Arizona
Senate
Fifty-seventh Legislature
Second Regular Session
2026
SB 1504
Introduced by
Senator
Gowan
AN
ACT
Amending sections 38-842, 38-846.01
and 38-856.06, Arizona Revised Statutes; relating to the public safety
personnel retirement system.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 38-842, Arizona Revised
Statutes, is amended to read:
START_STATUTE
38-842.
Definitions
In this article, unless the context otherwise requires:
1. "Accidental disability" means a
physical or mental condition that the local board finds totally and permanently
prevents an employee from performing a reasonable range of duties within the
employee's job classification and that was incurred in the performance of the
employee's duty.
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 before 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 board.
4. "Alternate payee" means the spouse or
former spouse of a participant as designated in a domestic relations order.
5. "Alternate payee's portion" means
benefits that are payable to an alternate payee pursuant to a plan approved
domestic relations order.
6. "Annuitant" means a person who is
receiving a benefit pursuant to section 38-846.01.
7. "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. For an
employee who becomes a member of the system:
(a) Before January 1, 2012, the considered period
shall be the three consecutive years within the last twenty completed years of
credited service that yield the highest average. In the computation
under this subdivision, 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.
(b) On or after January 1, 2012 and before July 1,
2017, the considered period is the five consecutive years within the last
twenty completed years of credited service that yield the highest
average. In the computation under this subdivision, 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.
(c) On or after July 1, 2017, the considered period
is the five consecutive years within the last fifteen completed years of
credited service that yield the highest average. In the computation
under this subdivision, 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.
8. "Board" means the board of trustees of
the system, who are the persons appointed to invest and operate the fund.
9. "Catastrophic disability" means a
physical and not a psychological condition that the local board determines
prevents the employee from totally and permanently engaging in any gainful
employment and that results from a physical injury incurred in the performance
of the employee's duty.
10. "Certified peace officer" means a
peace officer certified by the Arizona peace officer standards and training
board.
11. "Claimant" means any member or
beneficiary who files an application for benefits pursuant to this article.
12. "Compensation" means, for the purpose
of computing retirement benefits, base salary, overtime pay, shift differential
pay, military differential wage pay, compensatory time used by an employee in
lieu of overtime not otherwise paid by an employer and holiday pay paid to an
employee by the employer for the employee's performance of services in an
eligible group 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 unused compensatory time or payment for any fringe
benefits. In addition, compensation does not include, for the
purpose of computing retirement benefits, payments made directly or indirectly
by the employer to the employee for work performed for a third party on a
contracted basis or any other type of agreement under which the third party
pays or reimburses the employer for the work performed by the employee for that
third party, except for third-party contracts between public agencies for
law enforcement, criminal, traffic and crime suppression activities training or
fire, wildfire, emergency medical or emergency management activities or where
the employer supervises the employee's performance of law enforcement,
criminal, traffic and crime suppression activities training or fire, wildfire,
emergency medical or emergency management activities. For the
purposes of this paragraph, "base salary" means the amount of
compensation each employee is regularly paid for personal services rendered to
an employer before the addition of any extra monies, including overtime pay,
shift differential pay, holiday pay, longevity pay, fringe benefit pay and
similar extra payments.
13. "Credited service":
(a) Means the member's total period of service
before 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.
(b) Includes those compensated periods of the
member's part-time service, calculated on a pro rata basis, during which
the member made contributions to the fund.
14. "Cure period" means the ninety-day
period in which a participant or alternate payee may submit an amended domestic
relations order and request a determination, calculated from the time the
system issues a determination finding that a previously submitted domestic
relations order did not qualify as a plan approved domestic relations order.
15. "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.
16. "Determination" means a written
document that indicates to a participant and alternate payee whether a domestic
relations order qualifies as a plan approved domestic relations order.
17. "Determination period" means the
ninety-day period in which the system must review a domestic relations
order that is submitted by a participant or alternate payee to determine
whether the domestic relations order qualifies as a plan approved domestic
relations order, calculated from the time the system mails a notice of receipt
to the participant and alternate payee.
18. "Direct rollover" means a payment by
the system to an eligible retirement plan that is specified by the distributee.
19. "Distributee" means a member, a
member's surviving spouse or a member's spouse or former spouse who is the
alternate payee under a plan approved domestic relations order.
20. "Domestic relations order" means an
order of a court of this state that is made pursuant to the domestic relations
laws of this state and that creates or recognizes the existence of an alternate
payee's right to, or assigns to an alternate payee the right to, receive a
portion of the benefits payable to a participant.
21. "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.
22. "Effective date of vesting" means the
date a member's rights to benefits vest pursuant to section 38-844.01.
23. "Eligible child" means an unmarried
child of a deceased member or retired member who meets one of the following
qualifications:
(a) Is under eighteen years of age.
(b) Is at least eighteen years of age and under
twenty-three years of age only during any period that the child is a full-time
student.
(c) Is under a disability that began before the
child attained twenty-three years of age and remains a dependent of the
surviving spouse or guardian.
24. "Eligible groups" means only the
following who are regularly assigned to hazardous duty:
(a) Municipal police officers who are certified
peace officers.
(b) Municipal firefighters.
(c) Paid full-time firefighters employed
directly by a fire district organized pursuant to section 48-803 or 48-804
or a joint powers authority pursuant to section 48-805.01 with three or
more full-time firefighters, but not including firefighters employed by a
fire district pursuant to a contract with a corporation.
(d) State highway patrol officers who are certified
peace officers.
(e) State firefighters.
(f) County sheriffs and deputies who are certified
peace officers.
(g) Game and fish wardens who are certified peace
officers.
(h) Police officers who are certified peace officers
and firefighters 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 firefighter's sole duty shall be to
perform firefighting 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) Firefighters who are employed by an Indian
reservation firefighting agency.
(o) Department of liquor licenses and control
investigators who are certified peace officers.
(p) Arizona department of agriculture officers who
are certified peace officers.
(q) Arizona state parks board rangers and managers
who are certified peace officers.
(r) County park rangers who are certified peace
officers.
(s) Game rangers who are certified peace officers
and who are employed by an Indian reservation.
25. "Eligible retirement plan" means any
of the following that accepts a distributee's eligible rollover distribution:
(a) An individual retirement account described in
section 408(a) of the internal revenue code.
(b) An individual retirement annuity described in
section 408(b) of the internal revenue code.
(c) An annuity plan described in section 403(a) of
the internal revenue code.
(d) A qualified trust described in section 401(a) of
the internal revenue code.
(e) An annuity contract described in section 403(b)
of the internal revenue code.
(f) An eligible deferred compensation plan described
in section 457(b) of the internal revenue code that is maintained by a state, a
political subdivision of a state or any agency or instrumentality of a state or
a political subdivision of a state and that agrees to separately account for
amounts transferred into the eligible deferred compensation plan from this
plan.
(g) A Roth individual retirement account that
satisfies the requirements of section 408A of the internal revenue code.
(h) For distributions made after December 18, 2015,
a simple retirement account as defined in section 408(p) of the internal
revenue code.
26. "Eligible rollover distribution" means
a payment to a distributee, but does not include any of the following:
(a) Any distribution that is one of a series of
substantially equal periodic payments made not less frequently than annually
for the life or life expectancy of the member or the joint lives or joint life
expectancies of the member and the member's beneficiary or for a specified
period of ten years or more.
(b) Any distribution to the extent the distribution
is required under section 401(a)(9) of the internal revenue code.
(c) The portion of any distribution that may not be
included in gross income.
(d) Any distribution made to satisfy the
requirements of section 415 of the internal revenue code.
(e) Hardship distributions.
(f) Similar items designated by the commissioner of
the United States internal revenue service in revenue rulings, notices and
other guidance published in the internal revenue bulletin.
27. "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
or firefighter certification and at the option of the local board, employee may
include a person who is training to become a certified peace officer or
firefighter.
28. "Employers" means:
(a) Cities contributing to the fire fighters' relief
and pension fund as provided in sections 9-951 through 9-973 or
statutes amended thereby and antecedent thereto, as of June 30, 1968 on behalf
of their full-time paid firefighters.
(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 of this
state, including towns, cities, fire districts, joint powers authorities,
counties and nonprofit corporations operating public airports pursuant to
sections 28-8423 and 28-8424, that 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 that 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.
29. "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.
30. "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.
31. "Member":
(a) Means any full-time employee who meets all
of the following qualifications:
(i) Who is either a paid municipal police officer, a
paid firefighter, a law enforcement officer who is employed by this state
including the director thereof, a state firefighter who is primarily assigned
to firefighting duties, a firefighter 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 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,
an Arizona state parks board ranger or manager who is a certified peace
officer, a county park ranger who is a certified peace officer, a person who is
a certified peace officer and who is employed by an Indian reservation police
agency, a game ranger who is a certified peace officer and who is employed by
an Indian reservation, a firefighter who is employed by an Indian reservation
firefighting 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 or, beginning
retroactively to January 1, 2009, who is a police chief or a fire chief.
(ii) 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.
(iii) Whose customary employment is at least forty
hours per week or, for those employees who customarily work fluctuating
workweeks, whose customary employment averages at least forty hours per week.
(iv) Who is engaged to work for more than six months
in a calendar year.
(v) Who, if economic conditions exist, is required
to take furlough days or reduce the hours of the employee's normal workweek
below forty hours but not less than thirty hours per pay cycle, and maintain
the employee's active member status within the system as long as the hour
change does not extend beyond twelve consecutive months.
(vi) Who has not attained age sixty-five
before 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.
(b) Beginning from and after June 30, 2026, includes
any part-time employee whose employer has chosen to allow part-time
employees to participate in the system and to whom all of the following apply:
(i) Is hired in an eligible group as defined in
paragraph 24, subdivision (a), (d) or (f) of this section.
(ii) Has at least three years of credited service in
either the system or the public safety personnel defined contribution
retirement plan established pursuant to article 4.1 of this chapter before the
employee is hired as a part-time employee for the purposes of this
subdivision.
(iii) Is engaged to work as a patrol officer and is
scheduled to work for at least twenty hours per week but not more than thirty
hours per week following a consistent schedule, as determined by the employer.
(iv) Meets the requirements of section 38-842.03.
(c) Does not include an employee who is hired on or
after July 1, 2017, who makes the irrevocable election to participate solely in
the public safety personnel defined contribution retirement plan established
pursuant to article 4.1 of this chapter and who was not an active, an inactive
or a retired member of the system or a member of the system with a disability
on June 30, 2017.
32. "Normal
retirement date" means:
(a) For an employee
who becomes a member of the system before January 1, 2012, the first day
of the calendar month immediately following the 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.
(b) For an employee who becomes a member of the
system on or after January 1, 2012 and before July 1, 2017, the first day of
the calendar month immediately following the employee's completion of either
:
(
i
)
Twenty-five
years of service
.
or
(
ii
)
Fifteen
years of credited service if the employee is at least fifty-two and one-half
years of age.
(c) For an employee who becomes a member of the
system on or after July 1, 2017, the first day of the calendar month
immediately following the employee's completion of
either:
(
i
) twenty-five
years of service.
(
ii
)
Fifteen
years of credited service if the employee is at least fifty-five years of
age.
33. "Notice of receipt" means a written
document that is issued by the system to a participant and alternate payee and
that states that the system has received a domestic relations order and a
request for a determination that the domestic relations order is a plan
approved domestic relations order.
34. "Ordinary disability" means a physical
condition that 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 that the local board determines will prevent
an employee totally and permanently from engaging in any substantial gainful
activity.
35. "Participant" means a member who is
subject to a domestic relations order.
36. "Participant's portion" means benefits
that are payable to a participant pursuant to a plan approved domestic
relations order.
37. "Pension" means a series of monthly
amounts that are payable to a person who is entitled to receive benefits under
the plan but does not include an annuity that is payable pursuant to section 38-846.01.
38. "Personal representative" means the
personal representative of a deceased alternate payee.
39. "Physician" means a physician who is
licensed pursuant to title 32, chapter 13 or 17.
40. "Plan approved domestic relations
order" means a domestic relations order that the system approves as
meeting all the requirements for a plan approved domestic relations order as
otherwise prescribed in this article.
41. "Plan year" or "fiscal year"
means the period beginning on July 1 of any year and ending on June 30 of
the next succeeding year.
42. "Regularly assigned to hazardous duty"
means regularly assigned to duties of the type normally expected of municipal
police officers, municipal or state firefighters, eligible fire district
firefighters, state highway patrol officers, county sheriffs and deputies, fish
and game wardens, firefighters 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, department of liquor licenses and control
investigators who are certified peace officers, Arizona department of
agriculture officers who are certified peace officers, Arizona state parks
board rangers and managers who are certified peace officers, county park
rangers who are certified peace officers, police officers who are certified
peace officers and who are employed by an Indian reservation police agency,
firefighters who are employed by an Indian reservation firefighting agency or
game rangers who are certified peace officers and who are employed by an Indian
reservation. 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 those jobs described in this paragraph 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.
43. "Retirement" or "retired"
means termination of employment after a member has fulfilled all requirements
for a pension, for an employee who becomes a member of the system on or after
January 1, 2012 and before July 1, 2017, attains the
service
requirements or the
age and
credited
service
requirements for a normal retirement date or for an employee who becomes a
member of the system on or after July 1, 2017 attains the
service
requirements or the
age and credited service requirements for a normal
retirement date. 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.
44. "Segregated funds" means the amount of
benefits that would currently be payable to an alternate payee pursuant to a
domestic relations order under review by the system, or a domestic relations
order submitted to the system that failed to qualify as a plan approved
domestic relations order, if the domestic relations order were determined to be
a plan approved domestic relations order.
45. "Service" means the last period of
continuous employment of an employee by the employers before the employee's
retirement, 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 firefighter, then only twenty-five
percent of such noncovered employment shall be considered as
service. Any absence that 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. Notwithstanding any other provision of this paragraph, any
period during which a person was employed as a full-time paid firefighter
for a corporation that contracted with an employer to provide firefighting
services on behalf of the employer shall be considered as service if the
employer has elected at its option to treat part or all of the period the
firefighter worked for the company 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.
46. "State" means the state of Arizona,
including any department, office, board, commission, agency or other
instrumentality of this state.
47. "System" means the public safety
personnel retirement system established by this article.
48. "Temporary disability" means a
physical or mental condition that the local board finds totally and temporarily
prevents an employee from performing a reasonable range of duties within the
employee's department and that was incurred in the performance of the
employee's duty.
END_STATUTE
Sec. 2. Section 38-846.01, Arizona Revised
Statutes, is amended to read:
START_STATUTE
38-846.01.
Deferred annuity; exception
A. If any member who has at least ten years of
credited service terminates employment for reasons other than retirement or
disability, the member may elect to receive a deferred annuity, except that if
the annuitant withdraws all or part of the annuitant's accumulated
contributions in the system all rights in and to a deferred annuity shall be
forfeited by the annuitant.� A deferred annuity is a lifetime monthly payment
actuarially equivalent to the annuitant's accumulated contributions in the
system plus an equal amount paid by the employer and shall commence on
application on or after the sixty-second birthday of the annuitant.� The
annuity is not a retirement benefit and annuitants are not entitled to receive
any amount prescribed by section 38-845, subsection G or section 38-846,
38-856.05 or 38-857.
B. This section does not apply to a member who
becomes a member of the system on or after January 1, 2012.� For a member who
is hired on or after January 1, 2012 and before July 1, 2017, a member who
attains a normal retirement date is eligible for retirement and a retirement
benefit even if the member terminates employment with an employer before the
age requirement for normal retirement if the member attains the service
requirement for normal retirement.� For a member who is hired on or after July
1, 2017, a member who attains a normal retirement date is eligible for
retirement and a retirement benefit even if the member terminates employment
with an employer before the age requirement for normal retirement if the member
attains the credited service requirement for normal retirement.� Once a member
described in this subsection reaches the normal retirement
age
date
, the member may receive payments made under section 38-845.
END_STATUTE
Sec. 3. Section 38-856.06, Arizona Revised
Statutes, is amended to read:
START_STATUTE
38-856.06.
Cost-of-living adjustment; members hired on or after July 1,
2017; definition
A. For members who are hired on or after July 1,
2017, each eligible retired member or survivor of a retired member may receive
a compounding cost-of-living adjustment in the base benefit as
provided in this section.
B. A retired member or survivor of a retired member
is eligible to receive a cost-of-living adjustment under this
section beginning the earlier of the first calendar year after the
seventh
third
anniversary of the retired
member's retirement or when the retired member is or would have been sixty
years of age.
C. A cost-of-living adjustment shall be
paid on July 1 each year that the funded ratio for members who are hired on or
after July 1, 2017 is seventy percent or more, as reported in the most recent
actuarial valuation.
D. An eligible retired member or survivor of a
retired member shall receive annually a cost-of-living adjustment in the base benefit
based on the average annual percentage change in the metropolitan Phoenix-Mesa
consumer price index published by the United States department of labor, bureau
of labor statistics, with the immediately preceding year as the base year for
making the determination, not to exceed annually the following:
1. Two percent of the retired member's or survivor's
base benefit if the funded ratio for members who are hired on or after July 1,
2017 is ninety percent or more, as reported in the most recent actuarial
valuation.
2. One and one-half percent of the retired
member's or survivor's base benefit if the funded ratio for members who are
hired on or after July 1, 2017 is eighty percent or more but less than ninety
percent, as reported in the most recent actuarial valuation.
3. One percent of the retired member's or survivor's
base benefit if the funded ratio for members who are hired on or after July 1,
2017 is seventy percent or more but less than eighty percent, as reported in
the most recent actuarial valuation.
E. The system actuary shall include the projected
cost of providing the cost-of-living adjustment specified in
subsection D of this section in the calculation of normal cost and accrued
liability.
F. For the purposes of this section, "funded
ratio" means the ratio of the market value of assets to the actual accrued
liabilities.
END_STATUTE