Arizona Supreme Court holds that an employer’s contributions into a deferred compensation plan are “compensation” for purposes of the Arizona State Retirement System.

The Arizona State Retirement System (“ASRS”) requires participating employers to make contributions based on the amount of “compensation” they pay to covered employees.  Two city of Chandler employees signed a yearly contract that entitled them to a base salary plus periodic contributions by the city into a deferred compensation plan.  The city historically reported such employer contributions as compensation but stopped doing so based on advice from ASRS.  There was no dispute that an employee’s elective contributions to the deferred benefit plan were compensation under ASRS.  

The employees filed a declaratory judgment action against ASRS.  The superior court held that the statute was ambiguous but that employer contributions were not compensation.  The court of appeals reversed, holding that the statutory definition was not ambiguous and that employer contributions were compensation under the plain language of the statute.  ASRS petitioned for review.

The Supreme Court found the definition of “compensation” under the ASRS statute is ambiguous.  It “includ[es] amounts subject to deferred compensation,” which seems to encompass both employer and employee contributions.  A.R.S. § 38-711(7).  However, compensation is also the amount “paid to” a member, which could refer only to elective employee contributions that would otherwise have been paid to the employee.  Id. 

The Court turned to secondary principles of statutory interpretation.  First, the contributions fit within the common meaning of the word “salary” as fixed compensation paid at regular intervals.  Second, limiting the language about deferred compensation to mean only employee-deferred amounts would render that language superfluous because employee contributions are already included based on other language in the statute.  Third, the legislature could have clearly excluded employer contributions as it did in a related statute but did not do here.  Finally, the Court declined to defer to ASRS’s interpretation because the legislature’s intent was ascertainable using the above interpretive principles.

Justice Timmer authored the unanimous opinion.