Representative Lee B. Perry proposes the following substitute bill:


1     
PUBLIC SAFETY AND FIREFIGHTER TIER II

2     
RETIREMENT ENHANCEMENTS

3     
2019 GENERAL SESSION

4     
STATE OF UTAH

5     
Chief Sponsor: Wayne A. Harper

6     
House Sponsor: Lee B. Perry

7     

8     LONG TITLE
9     General Description:
10          This bill modifies provisions relating to the New Public Safety and Firefighter Tier II
11     Contributory Retirement System by enhancing certain retirement benefits.
12     Highlighted Provisions:
13          This bill:
14          ▸     increases the percentage of compensation that a participating employer shall pay to
15     the office on behalf of a member for the defined benefit portion of the New Public
16     Safety and Firefighter Tier II Contributory Retirement System;
17          ▸     increases the amount of the nonelective contribution made by a participating
18     employer on behalf of each public safety service employee or fighter service
19     employee who is a member of the New Public Safety and Firefighter Tier II
20     Contributory Retirement System;
21          ▸     increases the multiplier percentage for the calculation of the retirement allowance of
22     a participant in the New Public Safety and Firefighter Tier II hybrid retirement
23     system for certain years;
24          ▸     instructs the Retirement and Independent Entities Interim Committee to carry out an
25     uncodified study; and

26          ▸     makes technical changes.
27     Money Appropriated in this Bill:
28          This bill appropriates in fiscal year 2020:
29          ▸     To Finance-Mandated-State Employee Benefits, as an ongoing appropriation:
30               •     from the General Fund, $2,200,000; and
31          ▸     To Finance-Mandated-State Employee Benefits, as a one-time appropriation:
32               •     from the General Fund, One-time ($2,200,000).
33     Other Special Clauses:
34          This bill provides a special effective date.
35     Utah Code Sections Affected:
36     AMENDS:
37          49-22-310, as enacted by Laws of Utah 2011, Chapter 439
38          49-23-301, as last amended by Laws of Utah 2016, Chapter 84
39          49-23-302, as last amended by Laws of Utah 2016, Chapter 227
40          49-23-304, as last amended by Laws of Utah 2017, Chapter 141
41          49-23-401, as last amended by Laws of Utah 2016, Chapter 227
42     Uncodified Material Affected:
43     ENACTS UNCODIFIED MATERIAL
44     

45     Be it enacted by the Legislature of the state of Utah:
46          Section 1. Section 49-22-310 is amended to read:
47          49-22-310. Defined benefit adjustments -- Conditions -- Process -- Future years
48     accrual.
49          (1) In accordance with this section and except as provided in Subsection
50     49-23-301(7)(b), the Legislature may make adjustments to the benefits provided for the defined
51     benefit portion of the Tier II Hybrid Retirement System created under this part if the member's
52     contribution required under Subsection 49-22-301(2)(b) to the certified contribution rate for the
53     defined benefit portion of this system exceeds 2% of the member's salary and:
54          (a) (i) the membership council created under Section 49-11-202 recommends an
55     adjustment to the board in accordance with Subsection (2); and
56          (ii) the board recommends specific adjustments to the Legislature in accordance with

57     Subsection (2); or
58          (b) an actuarial study that conforms with generally accepted actuarial principles and
59     practices and with the Actuarial Standards of Practice issued by the Actuarial Standards Board
60     and requested or commissioned by the board or the Legislature concludes:
61          (i) there is a significant likelihood that contribution rates will continue to rise; and
62          (ii) that participating employers are liable for system costs above the contribution rate
63     established under Subsection 49-22-301(2)(a).
64          (2) If the conditions under Subsection (1)(a) or (b) are met, the Legislature may adjust
65     benefits for the defined benefit portion of the Tier II Hybrid Retirement System accrued or
66     applied for future years of service including:
67          (a) the final average salary calculation provided under Section 49-22-102;
68          (b) the years of service required to be eligible to receive a retirement allowance under
69     Section 49-22-304;
70          (c) the years of service credit multiplier established under Subsection 49-22-305(2)(a);
71          (d) the annual cost-of-living adjustment under Section 49-22-308; or
72          (e) other provisions of the defined benefit portion of the Tier II Hybrid Retirement
73     System.
74          (3) (a) Notwithstanding the provisions of Subsections (1) and (2), the Legislature may
75     make adjustments to the benefits provided for the defined benefit portion of the Tier II Hybrid
76     Retirement System created under this part if an actuarial study described under Subsection
77     (1)(b) concludes, due to current and projected economic conditions, member participation
78     levels, and system structure, that the system:
79          (i) cannot reasonably be sustained under its current provisions;
80          (ii) is critically underfunded; and
81          (iii) has become unstable and is in risk of collapse.
82          (b) Subject to federal law, the adjustments under Subsection (3)(a) may include:
83          (i) conversion to a different type of retirement plan;
84          (ii) equitable distribution of system assets to retirees and members; and
85          (iii) a closure of the system.
86          Section 2. Section 49-23-301 is amended to read:
87          49-23-301. Contributions.

88          (1) Participating employers and members shall pay the certified contribution rates to
89     the office to maintain the defined benefit portion of this system on a financially and actuarially
90     sound basis in accordance with Subsection (2).
91          (2) (a) A participating employer shall pay up to [12%] 14% of compensation toward
92     the certified contribution rate to the office for the defined benefit portion of this system.
93          (b) A member shall only pay to the office the amount, if any, of the certified
94     contribution rate for the defined benefit portion of this system that exceeds the percent of
95     compensation paid by the participating employer under Subsection (2)(a).
96          (c) In addition to the percent specified under Subsection (2)(a), the participating
97     employer shall pay the corresponding Tier I system amortization rate of the employee's
98     compensation to the office to be applied to the employer's corresponding Tier I system liability.
99          (3) A participating employer may [not] elect to pay all or part of the required member
100     contributions under Subsection (2)(b), in addition to the required participating employer
101     contributions.
102          (4) (a) A member contribution is credited by the office to the account of the individual
103     member.
104          (b) This amount, together with refund interest, is held in trust for the payment of
105     benefits to the member or the member's beneficiaries.
106          (c) A member contribution is vested and nonforfeitable.
107          (5) (a) Each member is considered to consent to payroll deductions of member
108     contributions.
109          (b) The payment of compensation less these payroll deductions is considered full
110     payment for services rendered by the member.
111          (6) Except as provided under Subsection (7), benefits provided under the defined
112     benefit portion of the Tier II hybrid retirement system created under this part:
113          (a) may not be increased unless the actuarial funded ratios of all systems under this title
114     reach 100%; and
115          (b) may be decreased only in accordance with the provisions of Section 49-23-309.
116          (7) (a) The Legislature authorizes an increase to the death benefit provided to a Tier II
117     public safety service employee or firefighter member's surviving spouse effective on May 12,
118     2015, as provided in Section 49-23-503.

119          (b) (i) The Legislature authorizes an increase to the multiplier for the calculation of the
120     retirement allowance provided to a member of the New Public Safety and Firefighter Tier II
121     hybrid retirement system effective July 1, 2020, as provided in Section 49-23-304.
122          (ii) The requirements of Section 49-22-310 do not apply to the benefit adjustment
123     described in this Subsection (7)(b).
124          Section 3. Section 49-23-302 is amended to read:
125          49-23-302. Defined contribution benefit established -- Contribution by employer
126     and employee -- Vesting of contributions -- Plans to be separate -- Tax-qualified status of
127     plans.
128          (1) (a) A participating employer shall make a nonelective contribution on behalf of
129     each public safety service employee or firefighter service employee who is a member of this
130     system in an amount equal to [12%] 14% minus the contribution rate paid by the employer
131     under Subsection 49-23-301(2)(a) of the member's compensation to a defined contribution plan
132     qualified under Section 401(k) of the Internal Revenue Code which:
133          (i) is sponsored by the board; and
134          (ii) has been grandfathered under Section 1116 of the Federal Tax Reform Act of 1986.
135          (b) The member may make voluntary deferrals to:
136          (i) the qualified 401(k) plan which receives the employer contribution described in this
137     Subsection (1); or
138          (ii) at the member's option, another defined contribution plan established by the
139     participating employer.
140          (2) (a) The total amount contributed by the participating employer under Subsection
141     (1)(a), including associated investment gains and losses, vests to the member upon accruing
142     four years of service credit under this title.
143          (b) The total amount contributed by the member under Subsection (1)(b) vests to the
144     member's benefit immediately and is nonforfeitable.
145          (c) (i) Years of service credit under Subsection (2)(a) includes any fraction of a year to
146     which the member may be entitled.
147          (ii) At the time of vesting, if a member's years of service credit is within one-tenth of
148     one year of the total years required for vesting, the member shall be considered to have the total
149     years of service credit required for vesting.

150          (3) (a) Contributions made by a participating employer under Subsection (1)(a) shall be
151     invested in a default option selected by the board until the member is vested in accordance with
152     Subsection (2)(a).
153          (b) A member may direct the investment of contributions made by a participating
154     employer under Subsection (1)(a) only after the contributions have vested in accordance with
155     Subsection (2)(a).
156          (c) A member may direct the investment of contributions made by the member under
157     Subsection (1)(b).
158          (4) No loans shall be available from contributions made by a participating employer
159     under Subsection (1)(a).
160          (5) No hardship distributions shall be available from contributions made by a
161     participating employer under Subsection (1)(a).
162          (6) (a) Except as provided in Subsection (6)(b), if a member terminates employment
163     with a participating employer prior to the vesting period described in Subsection (2)(a), all
164     contributions, including associated investment gains and losses, made by a participating
165     employer on behalf of the member under Subsection (1)(a) are subject to forfeiture.
166          (b) If a member who terminates employment with a participating employer prior to the
167     vesting period described in Subsection (2)(a) subsequently enters employment with the same or
168     another participating employer within 10 years of the termination date of the previous
169     employment:
170          (i) all contributions made by the previous participating employer on behalf of the
171     member, including associated investment gains and losses, shall be reinstated upon the
172     member's employment as a regular full-time employee; and
173          (ii) the length of time that the member worked with the previous employer shall be
174     included in determining whether the member has completed the vesting period under
175     Subsection (2)(a).
176          (c) The office shall establish a forfeiture account and shall specify the uses of the
177     forfeiture account, which may include an offset against administrative costs or employer
178     contributions made under this section.
179          (7) The office may request from any other qualified 401(k) plan under Subsection (1)
180     or (2) any relevant information pertaining to the maintenance of its tax qualification under the

181     Internal Revenue Code.
182          (8) The office may take any action which in its judgment is necessary to maintain the
183     tax-qualified status of its 401(k) defined contribution plan under federal law.
184          Section 4. Section 49-23-304 is amended to read:
185          49-23-304. Defined benefit service retirement plans -- Calculation of retirement
186     allowance -- Social security limitations.
187          (1) (a) The retirees of this system may choose from the six retirement options described
188     in this section.
189          (b) Options Two, Three, Four, Five, and Six are modifications of the Option One
190     calculation.
191          (2) The Option One benefit is an annual allowance calculated as follows:
192          (a) If the retiree is at least 65 years of age or has accrued at least 25 years of service
193     credit, the allowance is an amount equal to:
194          (i) 1.5% of the retiree's final average salary multiplied by the number of years of
195     service credit accrued on and after July 1, 2011[.], but before July 1, 2020; plus
196          (ii) 2% of the retiree's final average salary multiplied by the number of years of service
197     credit accrued on and after July 1, 2020.
198          (b) If the retiree is less than 65 years of age, the allowance shall be reduced by the full
199     actuarial amount for each year of retirement from age 60 to age 65, unless the member has 25
200     or more years of accrued credit in which event no reduction is made to the allowance.
201          (c) (i) Years of service includes any fractions of years of service to which the retiree
202     may be entitled.
203          (ii) At the time of retirement, if a retiree's combined years of actual, not purchased,
204     service credit is within 1/10 of one year of the total years of service credit required for
205     retirement, the retiree shall be considered to have the total years of service credit required for
206     retirement.
207          (d) An Option One allowance is only payable to the member during the member's
208     lifetime.
209          (3) The allowance payable under Options Two, Three, Four, Five, and Six is calculated
210     by reducing an Option One benefit based on actuarial computations to provide the following:
211          (a) Option Two is a reduced allowance paid to and throughout the lifetime of the

212     retiree, and, if the retiree receives less in annuity payments than the amount of the retiree's
213     member contributions, the remaining balance of the retiree's member contributions shall be
214     paid in accordance with Sections 49-11-609 and 49-11-610.
215          (b) Option Three is a reduced allowance paid to and throughout the lifetime of the
216     retiree, and, upon the death of the retiree, the same reduced allowance is paid to and throughout
217     the lifetime of the retiree's lawful spouse at the time of retirement.
218          (c) Option Four is a reduced allowance paid to and throughout the lifetime of the
219     retiree, and upon the death of the retiree, an amount equal to 1/2 of the retiree's allowance is
220     paid to and throughout the lifetime of the retiree's lawful spouse at the time of retirement.
221          (d) Option Five is a modification of Option Three so that if the lawful spouse at the
222     time of retirement predeceases the retiree, an allowance equivalent to the amount payable at the
223     time of initial retirement under Option One shall be paid to the retiree for the remainder of the
224     retiree's life, beginning on the first day of the month following the month in which the:
225          (i) spouse died, if notification and supporting documentation for the death are received
226     by the office within 90 days of the spouse's death; or
227          (ii) notification and supporting documentation for the death are received by the office,
228     if the notification and supporting documentation are received by the office more than 90 days
229     after the spouse's death.
230          (e) Option Six is a modification of Option Four so that if the lawful spouse at the time
231     of retirement predeceases the retiree, an allowance equivalent to the amount payable at the time
232     of initial retirement under Option One shall be paid to the retiree for the remainder of the
233     retiree's life, beginning on the first day of the month following the month in which the:
234          (i) spouse died, if notification and supporting documentation for the death are received
235     by the office within 90 days of the spouse's death; or
236          (ii) notification and supporting documentation for the death are received by the office,
237     if the notification and supporting documentation are received by the office more than 90 days
238     after the spouse's death.
239          (4) (a) If a retiree under Option One dies within 120 days after the retiree's retirement
240     date, the retirement is canceled and the death shall be considered as that of a member before
241     retirement.
242          (b) Any payments made to the retiree shall be deducted from the amounts due to the

243     beneficiary.
244          (5) (a) If a retiree retires under either Option Five or Six and subsequently divorces, the
245     retiree may elect to convert the benefit to an Option One benefit at the time of divorce, if there
246     is no court order filed in the matter.
247          (b) A conversion to an Option One benefit under this Subsection (5) begins on the first
248     day of the month following the month in which the notification and supporting documentation
249     for the divorce are received by the office.
250          Section 5. Section 49-23-401 is amended to read:
251          49-23-401. Contributions -- Rates.
252          (1) Up to the amount allowed by federal law, the participating employer shall make a
253     nonelective contribution of [12%] 14% of the participant's compensation to a defined
254     contribution plan.
255          (2) (a) The participating employer shall contribute the [12%] 14% nonelective
256     contribution described in Subsection (1) to a defined contribution plan qualified under Section
257     401(k) of the Internal Revenue Code which:
258          (i) is sponsored by the board; and
259          (ii) has been grandfathered under Section 1116 of the Federal Tax Reform Act of 1986.
260          (b) The member may make voluntary deferrals to:
261          (i) the qualified 401(k) plan which receives the employer contribution described in this
262     Subsection (2); or
263          (ii) at the member's option, another defined contribution plan established by the
264     participating employer.
265          (c) In addition to the percent specified under Subsection (2)(a), the participating
266     employer shall pay the corresponding Tier I system amortization rate of the employee's
267     compensation to the office to be applied to the employer's corresponding Tier I system liability.
268          (3) (a) Except as provided under Subsection (3)(c), the total amount contributed by the
269     participating employer under Subsection (2)(a) vests to the member upon accruing four years of
270     service credit under this title.
271          (b) The total amount contributed by the member under Subsection (2)(b) vests to the
272     member's benefit immediately and is nonforfeitable.
273          (c) Upon filing a written request for exemption with the office, an eligible employee is

274     exempt from the vesting requirements of Subsection (3)(a) in accordance with Section
275     49-23-203.
276          (d) (i) Years of service credit under Subsection (3)(a) includes any fraction of a year to
277     which the member may be entitled.
278          (ii) At the time of vesting, if a member's years of service credit is within one-tenth of
279     one year of the total years required for vesting, the member shall be considered to have the total
280     years of service credit required for vesting.
281          (4) (a) Contributions made by a participating employer under Subsection (2)(a) shall be
282     invested in a default option selected by the board until the member is vested in accordance with
283     Subsection (3)(a).
284          (b) A member may direct the investment of contributions, including associated
285     investment gains and losses, made by a participating employer under Subsection (2)(a) only
286     after the contributions have vested in accordance with Subsection (3)(a).
287          (c) A member may direct the investment of contributions made by the member under
288     Subsection (3)(b).
289          (5) No loans shall be available from contributions made by a participating employer
290     under Subsection (2)(a).
291          (6) No hardship distributions shall be available from contributions made by a
292     participating employer under Subsection (2)(a).
293          (7) (a) Except as provided in Subsection (7)(b), if a member terminates employment
294     with a participating employer prior to the vesting period described in Subsection (3)(a), all
295     contributions made by a participating employer on behalf of the member under Subsection
296     (2)(a), including associated investment gains and losses are subject to forfeiture.
297          (b) If a member who terminates employment with a participating employer prior to the
298     vesting period described in Subsection (3)(a) subsequently enters employment with the same or
299     another participating employer within 10 years of the termination date of the previous
300     employment:
301          (i) all contributions made by the previous participating employer on behalf of the
302     member, including associated investment gains and losses, shall be reinstated upon the
303     member's employment as a regular full-time employee; and
304          (ii) the length of time that the member worked with the previous employer shall be

305     included in determining whether the member has completed the vesting period under
306     Subsection (3)(a).
307          (c) The office shall establish a forfeiture account and shall specify the uses of the
308     forfeiture account, which may include an offset against administrative costs of employer
309     contributions made under this section.
310          (8) The office may request from any other qualified 401(k) plan under Subsection (2)
311     any relevant information pertaining to the maintenance of its tax qualification under the
312     Internal Revenue Code.
313          (9) The office may take any action which in its judgment is necessary to maintain the
314     tax-qualified status of its 401(k) defined contribution plan under federal law.
315          Section 6. Study.
316          (1) During the 2019 Legislative interim, the Retirement and Independent Entities
317     Interim Committee shall study:
318          (a) modifications to the New Public Safety and Firefighter Tier II Contributory
319     Retirement System;
320          (b) the appropriate allocation of funding for the 2% multiplier increase;
321          (c) the appropriate proportional share of funding between the state, employers, and
322     members for changes to the New Public Safety and Firefighter Tier II Contributory Retirement
323     System; and
324          (d) other related issues.
325          (2) The Retirement and Independent Entities Interim Committee may make
326     recommendations for the 2020 General Legislative Session based on the study described in
327     Subsection (1).
328          Section 7. Appropriation.
329          The following sums of money are appropriated for the fiscal year beginning July 1,
330     2019, and ending June 30, 2020. These are additions to amounts previously appropriated for
331     fiscal year 2020. Under the terms and conditions of Title 63J, Chapter 1, Budgetary Procedures
332     Act, the Legislature appropriates the following sums of money from the funds or accounts
333     indicated for the use and support of the government of the state of Utah.
334     ITEM 1
335          To Finance-Mandated-State Employee Benefits

336               From General Fund
$2,200,000

337               From General Fund, One-time
($2,200,000)

338          Section 8. Effective date.
339          (1) Except as provided in Subsection (2), this bill takes effect May 14, 2019.
340          (2) The actions affecting the following sections take effect July 1, 2020:
341          (a) Section 49-22-310;
342          (b) Section 49-23-301;
343          (c) Section 49-23-302;
344          (d) Section 49-23-304; and
345          (e) Section 49-23-401.