| Arizona State Retirement
System
Getting ready to retire or need to know more about your State-provided
retirement benefits? Don't get confused and learn the highlights of your Arizona
retirement benefits.
The Arizona State Retirement System (ASRS) has a lot to offer. Despite the
wonderful benefits of being a public employee it is not always easy to discern
the best ways to take advantage of your employee benefits programs. Here we will
take a look at the retirement benefits available through the Arizona State
Retirement System as one of the common complaints heard throughout the state is
that there is not enough guidance. Sure, there is a website, but determining
which information is applicable to your specific circumstances can be a daunting
task.
Many questions typically arise because of the different types of retirement
plans offered through ASRS. The plan is generally considered a defined benefit
plan with a defined contribution plan component. The ASRS is considered a
qualified plan under IRS section 401(a) meaning that contributions and earnings
grow on a tax-deferred basis until withdrawals are taken at a later date.
Defined Benefit (DB) Retirement Programs
Defined benefit (DB) retirement programs cover more than 90 percent of public
employees in the United States. Most analysts believe that defined benefit plans
provide greater security for career members. General characteristics of a
defined
benefit plan are as follows:
The ASRS provides retirement, disability, health insurance,
health insurance premium supplement and survivor benefits. As a defined benefit
plan, the ASRS computes retirement benefits based on age, average monthly
compensation and
service credit according to the following formula:
MULTIPLIER* x YEARS OF CREDITED
SERVICE x FINAL AVERAGE SALARY
The formula shows that service and salary decide the member's
benefit. The dollar amount contributed to the member's retirement account in the
defined benefit plan does not affect the member's benefit as it does in a
defined contribution program.
Total Years of Service at Retirement
Graded
MultiplierFactor (as a Percent)
Graded Multiplier Factor (as a Decimal)
0.00 to 19.99 years
2.10%
0.0210
20.0 to 24.99 years
2.15%
0.0215
25.0 to 29.99 years
2.20%
0.0220
30.0 or more years
2.30%
0.0230
*The graded multiplier factor is a percentage set by statute. It is based on
the total years of service at retirement.
Defined Contribution (DC) Programs
Defined contribution (DC) programs are much more prevalent in private industry.
Under a DC plan, the employer may have some funding advantages over employers
with DB plans. Also, members of a DC plan have greater control over their own
retirement program. Provisions, as shown below, may not apply to the ASRS old
System. General characteristics of a defined contribution plan
are as follows:
- The employer's contribution is defined in the plan.
- The employee may contribute at any percentage of compensation up to
- Internal Revenue Code (IRC) limits.
- The employee may be authorized to take a loan from his individual
account. (This option is not available to ASRS members.)
- The employee's benefit depends on the amount invested and investment
performance.
- The employee assumes risk because the employee's benefit is dependent
upon the size of his or her account and the earnings from investments
credited to the account. If investment return has not been favorable, the
member may not receive an adequate benefit.
- The employee's benefit is not easily predictable before retirement.
- The employer's obligation is completed when contributions are made.
Termination Options
When a member terminates employment with an ASRS employer, the member has the
following options concerning his or her retirement account:
- Obtain a return of employee contributions (Refund)
- Rollover pre-tax contributions to an IRA or another qualified retirement
account
- Leave the retirement account on deposit with the ASRS in an inactive
membership status for a future benefit
- f eligible, retire and begin drawing a retirement benefit
- The reasons for the termination do not affect a member's rights or
options.
Return of Contributions (Refund)
A member who terminates employment may obtain a refund of his or her
contributions to the ASRS. When a member obtains a refund, the member forfeits
ASRS service credit that has accrued to the member's account. The member is no
longer eligible for a future retirement benefit for this service unless the
member returns to ASRS-covered employment and reinstates the previously
Who May Obtain a Refund?
Any member may obtain a refund of contributions after the member leaves
employment. The member must be separated from ASRS employment at least 21 days
to be eligible for a refund. If the ASRS determines that the same or different
ASRS employer rehires a member who has requested a refund within 21 days of
termination, the ASRS will reject the refund request. If the ASRS already has
paid the refund, the ASRS must attempt to recover the refunded amount.
Who is not Entitled to a Refund?
Members in the following situations are not entitled to receive a refund until
employment is terminated:
- A termination and immediately returning to work with an ASRS employer
- A termination with an intent or agreement to return to work any time in
the
future
- Change of eligibility status (reduced hours, leave of absence, medical
leave, or
other)
- Transfer from one state agency to another state agency, or from one
department to another department within an organization
- Change with the same employer to a new position that is not covered by
the ASRS or transferred by law to another state retirement program
What may be Refunded?
The refund is limited to the employee contributions and a portion of the
employer contributions made on the members behalf, based on the total years of
credited service accrued to the member’s account, plus interest on the
contribution amounts payable. Employer contributions and interest become vested
and are refunded based on the member’s accrued ASRS service credit, including
purchased service credit, according to the following table:
Total Years of ASRS Service Credit
Percent of Employer Contributions Refunded to Member
0.0 to
4.99 years
0%
5.0 to 5.99
years
25%
6.0 to 6.99
years
40%
7.0 to 7.99
years
55%
8.0 to 8.99
years
70%
9.0 to 9.99
years
85%
10.0 or more years
100%
Obtaining a refund has significant tax consequences on the employee. The
member will receive a notice required by the IRS to advise the member of his
rollover rights and the consequences of obtaining a refund.
Beginning July 1, 2005, interest accrued on contributions that are being
refunded is 4 percent. All accounts receive 8 percent interest on June 30 of
each year. If a member terminates work and refunds her account with the ASRS,
interest paid on the account balance and any contributions from July 1, 2005 to
date of refund accumulates at 4 percent. Account balances prior to July 1, 2005
accrued interest at 8 percent.
How does a Member Obtain a Refund?
The member must contact the ASRS to obtain an Application for Return or Transfer
of Contributions form. (The form may be downloaded from the ASRS website.) The
member completes the employee sections of the form. The
member must forward the form to the employer for verification of the termination
if the date of the request is within six months of the termination date. The
member or employer then returns the form to the ASRS. The ASRS
will not accept an application for a refund before a member's termination date.
In accordance with Internal Revenue Service rules, the process must be completed
within 90 days after the completed refund application is received by the ASRS.
If the refund or rollover cannot be completed with the time limitations, the IRS
rules require the ASRS to issue a new refund application.
Tax Consequences
A refund is subject to federal income tax withholding at a rate of 20 percent on
the taxable portion of the refund and state income tax withholding at 5 percent
on the entire refund (with the exception of after-tax payments to purchase
additional credited service). The employee also may be subject to an IRS penalty
of 10 percent for early withdrawal from the retirement account. (Contributions
made to the plan before July 1, 1986 are not taxable income and are not subject
to federal income tax on a refund.)
Frequently Asked Questions
Can the member receive a refund of contributions if he or she is still working
for a participating ASRS employer?
No. The member may receive a refund of contributions only after termination of
all employment from ASRS employers and is not re-employed by a Plan employer for
at least 21 days. If the employment status changes from fulltime to
part-time, the member may not receive a refund as long as he or she remains
employed by a participating employer.
When can a member request a refund of contributions?
The member may request a refund application from the ASRS no sooner than one
week before termination. The employer must complete the employer's certificate
on the refund application if termination was within six
months of the application date.
How long must a member wait to receive the refund?
A refund check will be issued no sooner than 30 days after the date of request
and normally will be issued 45 to 60 days after a completed application is
received by the ASRS. Subsequent checks will be issued monthly, if necessary,
and will represent the additional postings of contributions received after
issuance of the initial check.
How can a member expedite a refund?
Answer 4: A member may request a waiver of the IRS-required notice with its
30-day waiting period. The ASRS will issue the refund check about two weeks
after receiving completed refund and waiver requests.
Can a member obtain a refund after successfully
completing a law enforcement training program covered with the ASRS and then
being appointed to a law enforcement position covered by the Public Safety
Retirement System (PSPRS)?
No, but the member may transfer service
credit to PSPRS. Rollover of an ASRS Account to Another Eligible Program
A member may avoid the tax consequences of a refund by requesting an eligible
rollover distribution (rollover) to another retirement plan. The advantage of a
rollover is that the employee will not incur the taxes and penalties associated
with
a refund. An employee who obtained a refund may decide later (within 60 days of
check issuance) to make an eligible rollover distribution within IRS
limitations. The member should contact his or her financial institution or new
retirement plan for
instructions.
What May be Rolled Over?
The ASRS will transfer the pre-tax portion of a member's account to a qualified
retirement program or IRA. This includes employee contributions made on or after
July 1, 1986 and all employer contributions and all interest included in the
refund.
What May not be Rolled Over?
Contributions made before July 1, 1986, cannot be rolled over to an IRA or
another qualified retirement program. These were made on an after-tax basis and
cannot be rolled because there is no tax deferral to be protected. The ASRS will
refund these amounts directly to the member.
What restrictions apply to a rollover?
The member must have ended employment. The rollover must be made to an
IRS-qualified retirement plan or IRA. The amount transferred must be $200 or
more. The member must be under age 70 ½.
How is a rollover requested?
A rollover is requested on the Application for Return or Transfer of
Contributions in the "Distribution Election" section.
Can the member roll over just a portion of his or
her total amount of contributions?
Yes. The portion rolled over must be at least $500. If the member has
contributions before July 1, 1986, those contributions cannot be rolled over.
The member must enter the partial amount to be rolled over on the designated
line. The amount not rolled over to another retirement plan must be paid out to
the member.
Leaving Funds on Deposit with the ASRS
The member may find it to his or her advantage to leave the retirement
account on deposit with the ASRS. Federal law requires distribution from the
member’s account when the member reaches age 70 ½. The member is not required to
contact the ASRS to elect to leave funds on deposit. The member must, however,
keep the ASRS informed of his or her current mailing address.
When leaving the account on deposit with the ASRS, the member’s account is
considered inactive and the member is not eligible for long-term disability
benefits.
Advantages of Leaving an Account on Deposit with the
ASRS
If a member leaves the account on deposit with the ASRS after a termination
of
employment, the following provisions apply:
- Interest will accrue to the account each fiscal year, currently at 8
percent
annually
- A survivor benefit is payable to the member's beneficiary in the event
of the member's death
- The member may request a refund at any time after termination of
employment
- The member may apply for retirement benefits at any time after the
member meets retirement eligibility
- If the member returns to work with another ASRS employer, the account is
reactivated and new contributions and credited service will be added to the
existing account
NOTE: Deferring retirement to a later date can be advantageous to the member
in some situations. This is especially true when a short delay is necessary
to meet retirement eligibility or to avoid or reduce early retirement
reductions. However, a delay can cause a severe loss of benefit value
because the retirement benefit will be based on the salaries at termination.
The benefit,
therefore, loses value in relation to the increase in the cost of living.
Contact us to talk to a qualified
financial professional to help you decide.
Common Questions about Leaving Funds on Deposit or
deferring your distribution
Can the member leave money in the ASRS even if the
member quits his or her job and is no longer making contributions?
Yes. In fact, the member contributions will continue to accrue interest until
the member receives a benefit or until the member takes a refund of
contributions.
Can the member continue to make contributions after
terminating employment?
No. Only active members may contribute to an ASRS retirement account.
What are the benefits of leaving money in the account?
While in an inactive status, interest continues to accrue to the member’s
account and the member’s beneficiary is entitled to a survivor benefit on the
member’s death. The member is eligible for a retirement benefit when the member
meets the requirements for retirement. If the member has five or more years of
credited service when the member retires, the member will be eligible for a
portion of the health insurance premium benefit on retirement. Also, if the
member returns to a participating employer, the member can add new
creditedservice to existing service, which will increase the member's retirement
benefit.
Common Questions about Retirement Logistics
When should the member contact the ASRS?
Six months to one year prior to the employee's last day of work gives the
employee enough time to make important decisions and the ASRS time to resolve
any conflicts that may arise in the calculation. The application and other
paperwork should be returned to the ASRS at least three months prior to the last
day of work.
When will the member receive the first check?
If the ASRS has received the member's application and you have submitted the
"Final Salary and Lump Sum Verification" letter on time, the ASRS will issue the
first check in the beginning of the month following the first full month of
retirement.
Will the first check include the payment for the
first partial month?
Yes. It will include payment from the retirement date through the month in which
the member receives the first check. Future retirement benefits are paid the
first of the month.
Why does it take so long to receive the first
benefit payment?
The ASRS must verify information from the employer, and processing is completed
for all retirees for a specific month at one time.
Will the ASRS tell the member exactly how much the
benefit will be?
The ASRS will give the member an estimate of the monthly benefit.
Why doesn't the ASRS give an exact amount instead of
an estimate?
The final calculation is based on final payment information provided by the
employer after the member's termination. Therefore, any prior figures are based
on projected amounts from the member prior to the member's termination.
Contact us to talk to a qualified
financial professional to help you decide.
Contact Information
- Telephone
-
(602)485-3896
- Postal address
-
13835 N. Tatum Blvd. Ste. 9-422 Phoenix, AZ 85032
- Electronic mail
- General Information:
info@azmythfinancial.com
Sales:
sales@azmythfinancial.com
Customer Support:
support@azmythfinancial.com
Media Inquiries:
pr@azmythfinancial.com
- Webmaster:
web@azmythfinancial.com
- Other
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