Arizona Court of Appeals Division One holds that the definition of “compensation” under A.R.S. § 38-711(7) includes money paid by an employer to a deferred compensation plan.

City employees were members of the state retirement system and deferred compensation plan.  By contract, the employees were provided a salary and an annual deferred compensation paid by the city into the deferred compensation plan.  In 2011, the city stopped including the annual deferred compensation in its calculation of the employees’ annual “compensation” used to determine employer and employee contributions to the state retirement system.  The employees challenged this decision, and the trial court granted the city’s summary judgment motion, holding that the definition of “compensation” under A.R.S. § 38-711(7) did not include annual deferred compensation paid by the city.

The Court of Appeals disagreed, holding that the term “compensation” specifically includes “amounts subject to deferred compensation,” and therefore the deferred compensation must be included unless otherwise specifically excluded by another provision in the statute.  The Court then held that no other provision of A.R.S. § 38-711(7) excluded deferred compensation, and explained that the Legislature could have specifically excluded it, but chose not to do so. 

Presiding Judge Swann authored the opinion; Judges Winthrop and Kessler concurred.