A. Employees of school districts, accommodation school employees, employees of the community college districts, employees of the universities and all other certificated and noncertificated employees of the schools of this state, including those located at state institutions, may participate in federal retirement or deferred compensation plans as provided in 26 United States Code sections 401(a), 403(b) and 457(b), if the governing body approves.

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B. Upon election by an employee to participate through salary reduction contributions if permitted under federal law or by election of the governing board to make nonelective employer contributions, the governing board of a school district, the county school superintendent, the community college district governing board, the Arizona board of regents or other governing body or employer of the employee shall:

1. Invest such an amount as authorized by the employee, to be reduced from the regular annual salary of the employee, in a 26 United States Code section 403(b) tax sheltered annuity or custodial account or a 26 United States Code § 457(b) deferred compensation plan.

2. Invest nonelective employer contributions in a 26 United States Code § 401(a) defined contribution plan or a 26 United States Code § 403(b) tax sheltered annuity or custodial account.

C. The amount to be invested shall be determined by the employee not less than fifteen days before the employee’s first payday in the school year, or at any time during the school year at the option of the governing body. The employing body or county school superintendent shall assume no responsibility other than to make the requested payments during the actual time of the employment of the employee. The employer shall transfer to the fund manager the employee contributions within ten working days after each and every payroll date. Contributions transferred after that date shall include a penalty of six per cent a year for each day the contributions are late. The penalty shall be paid by the employer. If the employee changes the employee’s employment to another school or school district, the employee may authorize the employee’s new employer to continue the payments if the governing body approves.

D. State, county, district or other public monies shall not be used in the purchase of any annuity or payment of any deferred compensation authorized by this article, except for monies authorized for the following purposes:

1. The recruitment and retention of selected employees, including teachers when there are shortages of teachers.

2. As a benefit to encourage teachers specifically selected by the governing board or the board’s authorized designee to teach in an underperforming school.

3. For the reduction of the unfunded liabilities of unused leave pay accruals with in-service nonelective employer contributions.

4. For the replacement of unused leave pay or other types of severance pay at the time of severance of employment.

5. To buy out the individually negotiated contracts of key employees.

6. To provide incentives for the early retirement of selected employees as determined by the governing board.

E. If monies are contributed pursuant to subsection D, paragraph 4, 5 or 6, at the discretion of the governing board, those monies may be contributed pursuant to 26 United States Code § 401(a) only in the final year of service, or pursuant to 26 United States Code § 403(b) both in the final year of service and for up to five tax years following the tax year of the final year of service.