06 Mar Arizona State Retirement System Member Retirement
Leaving ASRS (Arizona State Retirement System) Employment before Retirement
When a ASRS (Arizona State Retirement System) member terminates employment with an ASRS employer before retirement, the member has the following options concerning their retirement account:
- Leave the retirement account on deposit with the ASRS
- Take a refund of all contributions and forfeit current and future ASRS benefits
- If eligible, apply for early or normal retirement benefits
- The reason for the termination with the employer does not affect a member’s ASRS options.
Leaving Funds on Deposit with the ASRS
Upon leaving employment, a member may choose to leave the retirement account on deposit with the ASRS. The member is not required to contact the ASRS to elect to leave funds on deposit; however, the member must provide the ASRS with a current mailing address, phone number and email address to enable communication regarding the status of the account and benefits.
Although the member is not contributing to the account (and is considered inactive), the member retains rights to several of the benefits of ASRS membership including:
- Interest will accrue to the account each fiscal year at the percentage set forth by the ASRS Board of Trustees
- 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; upon retirement, the member may be eligible for ASRS retiree health insurance and other benefits. NOTE: Deferring retirement to a later date may allow the member to meet normal retirement criteria for an unreduced retirement benefit. However, in some cases, when a member has stopped contributing and has reached a normal retirement date, delaying retirement will not result in an increased benefit amount.
- If the member returns to work with another ASRS employer, the account is reactivated and new contributions and credited service will be added.
NOTE: Federal law requires a member who has terminated, is no longer contributing, and is age 70½ to take a minimum distribution from the retirement account. The ASRS will communicate with these members to advise them of their benefit payment options. An inactive member may not voluntarily make contributions to an ASRS account.
Refund of Contributions
A member who terminates employment may obtain a refund of contributions from the ASRS. The term “refund” is interchangeable with “forfeiture” and “withdrawal of contributions.” For simplicity we will use “refund” in this blog post.
When a member obtains a refund, the member forfeits and waives:
- Any service credit that has accrued to the retirement account
- Any rights to a future retirement benefit for this service unless the member returns to ASRS-participating employment and reinstates the previously forfeited service credit
- Any rights to ASRS retiree health insurance benefits
- Any rights to LTD benefits. If the member is currently receiving an LTD benefit and obtains a refund, LTD benefit will stop.
Eligibility for a Refund
A member may request and receive a refund of contributions only if the member has terminated employment with all ASRS employers and has no verbal or written agreement (or contract) for future employment with any ASRS employer.
This means members who meet any of the following circumstances are not entitled to receive a refund:
- A member terminates and immediately returns to work with an ASRS employer
- A member terminates but has the intent or an agreement to return to work with an ASRS employer.
- A member has a change in membership eligibility status due to a reduction in hours, a leave of absence, or other reason but does not terminate employment
- A member transfers from one state agency to another state agency or from one department to another department within an organization
- A member changes to a new position at the same employer that is not covered by the ASRS, or participates in another state retirement program with the same or another ASRS employer. NOTE: The member may be eligible to transfer the ASRS service credit to the new retirement system.
In all of these cases, the member has not terminated employment or ended the employment relationship with all ASRS employers.
NOTE: A court may order the forfeiture of retirement benefits if a member is convicted of or pleads no contest to a felony that was committed in the course of public employment.
Amount of Refund
A member who began contributing to the ASRS prior to July 1, 2011, terminates employment, and chooses to apply for a refund is entitled to receive:
- All member contributions
- Interest payable for a refund. Under the ASRS, all accounts earn eight percent interest on contributions, which is applied to account balances at the end of each fiscal year (June 30). For purposes of withdrawal only, interest of four percent is applied to balances accumulated after July 1, 2005, and interest of two percent is applied to balances accumulated after July 1, 2013.
- All monies paid for service purchase
- A portion of the employer contributions made on the member’s behalf, based on the total years of credited service accrued to the member’s account (A.R.S. § 38-740)
NOTE: The amount of employer contributions excludes payments made by the employer to correct a Contributions Not Withheld error unless the member also made the required payments. The employer’s contributions remain in the trust fund.
A member who began contributing to the ASRS on or after July 1, 2011, terminates employment, and chooses to apply for a refund is entitled to receive:
- All member contributions
- Interest payable at four percent applied to balances accumulated after July 1, 2005, and two percent applied to balances accumulated after July 1, 2013.
- All monies paid for service purchase
NOTE: These members are not entitled to receive any employer contributions except in the case of a termination due to an employer reduction in force or position elimination. (A.R.S. § 38-740) The employer’s contributions remain in the trust fund.
In order to provide a member with a refund, the ASRS must receive:
- A completed Online Refund Application for withdrawal of contributions and termination of membership from the member. To complete the process, the member may log in to the secure ASRS member account directly from the ASRS website homepage or by selecting the Refund/Forfeiture link under the Members section on the homepage. NOTE: A request for a refund cannot be submitted prior to a member’s termination date.
- A completed Ending Payroll Verification (EPV) for a refund from the employer. This is required from all employers through which the member has contributed to the ASRS within the past six (6) months.
After an employee submits a refund request, an authorized employer representative who has the Ending Payroll Verification Specialist role may log in to the secure employer account on the ASRS website to view and submit the EPV to the ASRS. Employers have the ability to access reports that show a list and the status of all requests that are current and that have been submitted within the past six months.
On the EPV for a refund, the employer will confirm the employee’s termination date and provide information about final contributions. Detailed instructions for submitting an EPV can be found in the Ending Payroll Verification – Employer User Guide, which is available on the ASRS website under the Employers tab.
NOTE: If a member has not terminated and the employer has not submitted contributions for the member within the past six months (e.g., due to a change in membership status in a new fiscal year), the employer should indicate “Not Applicable” on the EPV. Arizona Revised Statutes and the Internal Revenue Code prohibit giving a refund to a member while the member is still employed, and it is a violation of state and federal law to knowingly falsify a termination of employment form. In some cases, employers may be contacted by an ASRS benefit advisor to confirm termination, particularly for employees who may be contributing to another retirement system but who have an account balance at the ASRS. Because these
employees are still working for an ASRS employer, they are not eligible to receive a refund.
Upon receipt of all accurately completed required documentation, a refund is generally issued within ten business days; there are no provisions to expedite the process. The member will receive a payment of all balances due; there are no provisions to receive only a partial payment or to request a hardship loan.
Refund Distribution Options
Members who apply for a refund may indicate one of the following distribution options:
100% Payment to the Member
The entire refund amount may be paid to the member via check or a direct deposit to a checking or savings account.
Tax Consequences: A refund is subject to federal income tax withholding at a rate of 20 percent on the taxable portion (i.e., member contributions made after 1986, employer contributions, and interest paid) of the refund and Arizona state income tax withholding at 5 percent on the entire refund.
The member also may be subject to an IRS penalty of 10 percent for early withdrawal from the retirement account. Early withdrawal occurs when the member is younger than age 59 ½.
Because of the significant tax consequences of obtaining a refund, a member should consult with financial institution or advisor.
100% Direct Rollover to an Eligible Retirement Plan
The entire refund amount may be rolled over to an eligible retirement plan, in accordance with the requirements of the selected plan.
A rollover may allow the member to avoid the tax consequences and possible penalties associated with a refund.
Depending on the plan, both the taxable and nontaxable portions (i.e., any money on account that was paid as after-tax monies, such as payments made by check for service purchase or pre-1986 deposits) of the refund may be rolled over. For example, nontaxable contributions may be rolled over to defined contribution plans described under the Internal Revenue Code (IRC) 401(a), annuities described under IRC 403(a), or an IRA; nontaxable contributions may not be rolled over to a 457(b) plan or a 403(b) annuity. Any nontaxable portion of the member’s refund that cannot be rolled over into a plan will be sent directly to the member.
NOTE: Federal law requires a member who is age 70 ½ to take a minimum distribution from the retirement account; a member who is age 70 ½ may not roll over the required minimum distribution. The ASRS will communicate with these members to advise them of their benefit payment options.
Combination of Direct Rollover and Payment to Member
The member will specify an amount to be rolled over; any remaining funds may be paid directly to the member via check or direct deposit.
Leaving Employment to Retire
If the member has met the eligibility requirements, a member who is leaving employment may want to apply for retirement benefits.
Eligibility for Retirement
A member who qualifies for “normal retirement” receives a lifetime monthly benefit determined by the ASRS benefit formula.
For members who began contributing to the ASRS prior to July 1, 2011, a normal retirement date occurs on meeting the earliest of the following criteria:
- Age 65 with any amount of credited service
- Age 62 with 10 or more years of credited service
- 80 points; points being a combination of age and years of credited service (e.g., Age 49 + Years of Credited Service 31 = 80 points)
A member may choose to continue employment beyond the first normal retirement date in order to earn a larger retirement benefit based on additional years and the graded multiplier.
For members who began contributing to the ASRS on or after July 1, 2011, a normal retirement date occurs on meeting the earliest of the following criteria:
- Age 65 with any amount of credited service
- Age 62 with 10 or more years of credited service
- Age 60 with 25 or more years of credited service
- Age 55 with 30 or more years of credited service
NOTE: There is no point-based normal retirement criterion for members who begin contributing to the ASRS on or after July 1, 2011.
A member may retire before reaching normal retirement but will receive a reduced lifetime monthly benefit determined by age and credited service. See the Retirement link on the ASRS website under the Members tab for more details.
To be eligible for a reduced early retirement benefit, a member must meet the following criteria:
- Age 50 with at least 5 years of credited service
Retirement Benefit Calculation
ASRS – Plan Description and Benefits, the retirement benefit is calculated using a member’s average monthly compensation, years of credited service, and a multiplier. The average monthly compensation is determined by one of three calculation methods and is based on the member’s initial membership date.
- 60-month calculation for members who began contributing to the ASRS on or after July 1, 2011. The ASRS averages the highest 60 consecutive months of compensation within the last 120 months of service. This calculation excludes any termination payments, such as sick leave or vacation payouts.
- 36-month calculation for members who began contributing to the ASRS before July 1, 2011. The ASRS averages the highest 36 consecutive months of compensation within the last 120 months of service. This calculation excludes any termination payments, such as sick leave or vacation payouts.
- 60-month calculation for members who began contributing to the ASRS prior to January 1, 1984. The ASRS averages the highest 60 consecutive months of compensation within the last 120 months of service. This calculation includes termination payments, such as sick leave (except for state and county employees) or vacation leave payouts, and other types of payments. A pre-1984 member may opt to have this calculation performed. The ASRS will calculate a benefit using this 60-month calculation and also calculate a benefit using the 36-month calculation; whichever provides the greater benefit will be the calculation used to finalize the member’s lifetime monthly benefit.
The last 120 months of compensation is the time period used to determine the average monthly compensation for either the highest 36 or 60 consecutive months. Any month(s) for which no contributions are reported to ASRS are excluded from the consecutive months. Any months that fall within a period of reduced pay such as for a partially paid leave of absence, sabbatical, medical leave, or workers’ compensation period may be included in the consecutive months and have an effect on a retirement benefit. However, if the employer provides written documentation for these types of situations, listing the dates and compensation paid, the ASRS may exclude these months from the calculation.
In order for an eligible member to receive a retirement benefit, the ASRS must receive:
- A completed Application for Retirement Benefit from the member. A retirement application must be received by the ASRS no later than the desired effective date of retirement. The ASRS recommends submitting the online application three to six months before the member’s expected retirement date.
The ASRS automatically provides an Application for Retirement Benefit if a member requests a retirement benefit estimate within three months of the expected retirement date. The member may apply for retirement using the online application found in the Members section of the ASRS website.
The retirement date indicated on the application does not guarantee the member will be paid a retirement benefit beginning on that date. If a member submits retirement paperwork to the ASRS after the chosen retirement date, the retirement date will be moved to reflect the date ASRS received the completed paperwork. The retirement effective date cannot be back-dated.
- A completed Ending Payroll Verification (EPV) for a retirement from the employer. This is required from all employers for whom the member worked within the past three years.
After an employee submits a retirement application, an authorized employer representative who has the Ending Payroll Verification Specialist role may log in to the secure employer account on the ASRS website to view and submit the EPV to the ASRS. EPV Specialists have the ability to access a list and the status of all current requests and those that have been submitted within the past six months.
On the EPV for a retirement, the employer will certify relevant dates, provide final payment information, and report retirement contributions submitted for additional payments. Instructions for submitting an EPV can be found in the Ending Payroll Verification – Employer User Guide, which is available on the ASRS website under the Employers tab.
Initially, the EPV is used to verify a member’s termination date or the last date of ASRS membership in order to establish the effective date of retirement. Then, the payment information is used to determine final contributions and eligible compensation to be used in the benefit calculation. To accurately complete the EPV, please adhere to the following guidelines.
Member Information – For ASRS purposes, the termination date is the last date the member actually worked prior to retiring. Although some payroll systems list the following day (when the employee does not work) as the termination date, please use the last day worked as the termination date on the ASRS forms.
The last date of ASRS membership should only be completed if the member is retiring without terminating employment. The EPV must indicate either the termination date or the last date of ASRS membership; if the member is terminating prior to retirement, there is no difference between the termination date and the last date of ASRS membership, but you must use the Termination Date to indicate termination.
Total Salary – List the total eligible compensation paid to the employee for any pay periods in the fiscal year they last worked. For example, if an employee retires December 31, 2014, list the total eligible compensation only for pay periods reported from July 1, 2014 to the last pay period for which they were paid.
Regular (Base) Compensation – List the regular wages and contributions submitted for the last three pay period ending dates, including any balance of contract payments. This provides the ASRS with information about contributions that may be or will be submitted but may not yet have posted to the member’s account to ensure all eligible contributions are considered.
Other Compensation – List all payments, including incentive, leave payouts, performance (including educational Proposition 301 monies), or termination payments, whether paid in a lump sum or in installments over the past five years. This allows the ASRS to determine whether any contributions are eligible compensation for benefit calculation purposes. For example, if the retiree is a pre-1984 member, the ASRS needs to know that the payments were for termination pay and not regular salary in order to perform a 60- versus 36-month calculation.
NOTE: Any ineligible contributions will be returned to the employer.
The ASRS requires the EPV be submitted within ten business days of the retiree’s termination date. We encourage employers to submit the EPV with any information they have available within that time frame. Understanding that subsequent payments or adjustments may be made to the retiring employee, employers may always resubmit an amended or updated EPV to identify any additional payments made to the retiree after the initial EPV is submitted.
Upon receipt of accurate and completed required forms, the ASRS will issue a retirement check to a retiree in the beginning of the month following the first full month of retirement. The first full check will include payment from the retirement date through the month in which the first check is paid.
The retiree may receive an Estimated Benefit Check within ten days after the retirement date. Estimate checks will only be processed if all forms have been submitted in a timely manner. The benefit amount is calculated with the lowest possible compensation to prevent an inadvertent overpayment.
Excess Contributions and Excess Benefits
If an employer lists Other Compensation payments on the EPV, the ASRS will complete a 60-month average calculation for pre-1984 members. If the 60-month average with eligible termination and other payments included does not provide a greater benefit for the member than a 36-month calculation, or if the member is not eligible for the 60-month average (i.e., not a pre-1984 member), the ASRS will return to the employer both the member and employer contributions received for the payments. These are called “excess contributions.” The ASRS will only send the excess contributions to the employer. The employer should reimburse the employee through payroll adjustment procedures for the pre-tax amounts reported to the ASRS.
Because it may take several months for the ASRS to finalize a retirement benefit calculation, employers may receive excess contributions several months after an employee has terminated and retired. The excess contributions situation can be minimized by ensuring that such contributions are withheld only for eligible compensation and members. For pre-1984 members, provide the member with as much information as possible regarding expected termination payments so that the member can provide the information to the ASRS when requesting an estimate of retirement benefits. An ASRS benefit advisor can take the information on the termination payment and advise the member of the effect on the benefit. The member should then inform the employer whether to withhold retirement contributions.
After the ASRS completes a retirement benefit calculation, it may be determined that the benefit amount exceeds IRC Section 415(b) limits, which prescribe the maximum amount that qualified pension plans, including the ASRS, may pay retirees. Generally, an “excess benefit” is the difference between the full amount of a member’s pension (as provided by state law) and the maximum benefit allowed under limitations imposed by the IRC Section 415.
If a retiree’s pension benefit exceeds the IRC Section 415 limit, any portion that the ASRS cannot pay directly to the retiree will be paid to the retiree’s most recent ASRS employer to distribute to the retiree. The ASRS will pay the member’s monthly retirement annuity up to the IRC Section 415(b) limit; the employer will pay the member any amount over the IRS limit after receiving a check from the ASRS excess benefit arrangement fund. The result is that the member will receive a full retirement benefit according to the ASRS benefit formula.
The former employer will be notified by the ASRS if they have a former employee in an excess benefit situation and will be provided additional instructions. Contact the Employer Relations Department with any questions about this program.
Cancelling or Suspending Retirement
A member may cancel the retirement application within 30 days after the retirement date, or before the member’s receipt of retirement benefits, whichever is later. This may be accomplished by written notification to the ASRS.
A retired member who returns to employment with an ASRS employer and meets membership criteria must suspend retirement. By returning to active membership, the member may increase future retirement benefits by adding credited service, increasing average monthly compensation if the new salary is higher, purchasing service time, or reaching normal retirement criteria or a higher multiplier.
The member may resume retirement status when the member again terminates employment or, if at a normal retirement age, reduces the work schedule to a level that does not meet the 20/20 criteria. The member must file a Re-Retirement Application.
The retirement annuity option must be in the same payment option form as the original benefit, except that:
- A member who originally retired before July 1, 2008 and who chose either a joint and survivor benefit option or a term certain option may elect to rescind that option in favor of a straight life annuity
- A member who originally retired on or after July 1, 2008 and who chose either a joint and survivor benefit option or a term certain option may elect to rescind that option in favor of a straight life annuity one time and only if the member’s beneficiary has died or beneficiary status has been cancelled as a result of qualified domestic relations order
- A former retiree who has worked and contributed to ASRS for at least 60 months before re-retiring may elect any option
The member’s retirement benefit will be recalculated to include:
- The additional service credited from the post-retirement active member period of service
- Any additional service credit purchased through the service purchase program
- A re-computation of the final average compensation, taking into consideration compensation paid during the post-retirement active member period of service
- A re-computation of the graded multiplier, as the new service credit may increase the multiplier
- A determination of normal retirement status or an early retirement reduction based on the member’s attained age on the date resuming retired status
University and Community College Optional Retirement Programs
The Arizona State Legislature created the University Optional Retirement Program (ORP) effective January 1, 1975 pursuant to A.R.S. § 15-1628. Administrators, academic and service professionals, and faculty who meet membership criteria are required to participate in a retirement system but may choose to participate in either the ASRS or the ORP.
Per the Board of Regents’ rules, ORP eligible employees have a period of 30 days from the date they first become eligible for the ORP to make an election and complete the necessary enrollment requirements. If a retirement plan election is not made within the 30-day election period, retirement plan participation will default to the ASRS. The election is irrevocable as long as the employee remains in an ORP eligible position and is continuously employed within the university system.
In 1995, the legislature allowed community college districts to also establish an ORP pursuant to A.R.S. § 15-1451, if approved by their board of directors. If a retirement plan election is not made within 30 days of the employee’s hire date or within 90 days of a district’s adoption of an ORP, retirement plan participation will default to the ASRS. The election is irrevocable as long as the employee remains in an ORP eligible position and is continuously employed within the community college district.
Any monies on account at the ASRS for members who become eligible for and elect the university ORP remain on account at the ASRS until the member terminates employment and applies for an ASRS benefit. Any member monies on account at the ASRS for members who become eligible for and elect a community college district ORP must be transferred to the community college ORP within 90 days of election.
There are some circumstances, such as dual employment, where a member may be eligible or required to participate in both an ORP and the ASRS. Please contact the ASRS Employer Relations Department to determine eligibility for participation in the ASRS.
Supplemental Savings Plans
The ASRS offers a voluntary Supplemental Retirement Savings Plan (SRSP) and a voluntary Supplemental Salary Deferral Plan (SSDP) that participating employers may choose to offer to their employees as a separate and additional way to save for retirement. Both the SRSP and the SSDP are managed by contracted administrators.
The SRSP is qualified under Section 401(a) of the Internal Revenue Code; the SSDP is qualified under Sections 403(b) and 457(b). Both plans allow eligible members to contribute tax-deferred money into an account that can be drawn upon in retirement.
ASRS members are eligible to participate in either or both of these plans only if their employer adopts the plan(s). All ASRS participating employers are eligible to select an SRSP and/or SSDP except for the State of Arizona and the state universities.
Additional information about these plans is available on the ASRS website, by selecting the Members tab and the Supplement Your Retirement link.
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