A. The Arizona board of regents may establish optional retirement programs under which contracts providing retirement and death benefits may be purchased for members of the faculty and administrative officers of the institutions under its jurisdiction. The benefits to be provided for or on behalf of participants in the optional retirement program shall be provided through annuity contracts, fixed or variable in nature, or a combination thereof, or other retirement plans approved by the Arizona board of regents.

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B. Elections to participate in the optional retirement programs shall be made as follows:

1. Eligible employees initially appointed on or after August 9, 1974 shall elect to become members of the Arizona state retirement system or to participate in an optional retirement program established by the Arizona board of regents. The election shall be made in writing and filed with the Arizona state retirement system and the disbursing officer of the employing institution and shall be effective as of the effective date of appointment. If an eligible employee fails to make an election as provided in this paragraph, the eligible employee shall be deemed to have elected membership in the Arizona state retirement system.

2. Eligible employees initially appointed before August 9, 1974 may elect to participate in the optional retirement programs. The election shall be made in writing and filed with the Arizona state retirement system and the disbursing officer of the employing institution on or before December 14, 1974, shall become effective as of January 1, 1975 and shall constitute a waiver of all benefits provided by the Arizona state retirement system, except all such benefits as are expressly provided by law.

3. Any employee who becomes eligible may elect an optional retirement program. The election shall be made in writing and filed with the Arizona state retirement system and the disbursing officer of the employing institution within thirty days after notice in writing to the employee of the employee’s eligibility, and shall become effective on the first day of the pay period following such election, and shall constitute a waiver of all benefits provided by the Arizona state retirement system, except all such benefits as are expressly provided by law.

4. Any eligible employee who is a member of the Arizona state retirement system at the time the employee elects to participate in the optional retirement program shall leave the funds in the employee’s retirement account on deposit with the Arizona state retirement system during the continuance of employment. Additional contributions to the employee’s retirement account shall not be required and continued service with the Arizona board of regents or an institution under the jurisdiction of the Arizona board of regents while under an optional retirement program shall be deemed to be member service in the Arizona state retirement system for the purpose of determining eligibility for any benefits under such system. The amount of any such benefits under such system shall be computed only on the basis of service otherwise creditable to a member of the system and the employee’s compensation during such service. For purposes of subsection D of this section, years of member service in the Arizona state retirement system shall count as years of service under the optional retirement programs.

C. The Arizona board of regents shall contribute public funds appropriated or any other funds available for such purpose on behalf of each participant in the optional retirement programs in an amount equal to seven per cent of the participant’s compensation. Each participant shall also contribute an amount equal to seven per cent of the participant’s compensation. The appropriation to each university for purposes of enabling the Arizona board of regents to make the contribution provided in this subsection shall not exceed the employer contribution required under the Arizona state retirement system as prescribed by Title 38, Chapter 5, Article 2. Funds utilized by the board of regents or by a university to pay that portion of the contribution that represents the difference between the employer contribution as prescribed by Title 38, Chapter 5, Article 2 and the contribution rate provided in this subsection for an optional retirement program do not constitute a use of appropriated monies for supplemental retirement.

D. In the case of an electing employee initially appointed on or after August 9, 1974, contributions pursuant to subsection C of this section shall not be made by the Arizona board of regents until the employee’s completion of five years of service. Employee contributions required during this initial five year period and during continued service with an institution under the jurisdiction of the Arizona board of regents shall be promptly remitted to the optional retirement programs approved by the Arizona board of regents. At the end of an electing employee’s completion of five years of service, a single contribution in an amount determined pursuant to subsection C of this section, with interest, shall be made by the chief financial officer of the employing institution to the approved company or companies on behalf of such employee. In the case of an electing employee who does not continue in service with an institution under the jurisdiction of the Arizona board of regents for at least five years, the amount of employer contributions, with interest, shall be refunded to this state.

E. If an employee’s service is terminated by death prior to the completion of five years of service, a death benefit equal to the sums appropriated for such employee, plus interest, shall be paid to the beneficiary designated by the participant under the participant’s optional retirement program.

F. The provisions of subsection D of this section shall not apply to any electing employee who, at the time of initial appointment, owns a contract determined by the Arizona board of regents to be acceptable for use in the optional retirement program.

G. The Arizona board of regents may provide for the administration of such optional retirement programs and perform or authorize the performance of such functions as may be necessary for such purposes. The Arizona board of regents shall approve the company or companies from which benefits may be purchased under the optional retirement programs. Such optional retirement programs shall not permit loans. In giving its approval, the board shall consider:

1. The nature and extent of the rights and benefits to be provided for participants and their beneficiaries.

2. The relation of such rights and benefits to the amount of contributions to be made.

3. The suitability of such rights and benefits to the needs of the participants and the interests of the institutions under its jurisdiction in the recruitment and retention of faculty and administrative officers.

4. The ability of the approved company or companies to provide such suitable rights and benefits.

H. Any eligible employee initially appointed after August 9, 1974, electing to participate in the optional retirement programs, shall be ineligible for membership in the Arizona state retirement system as long as the employee remains continuously employed in any position by the Arizona board of regents or by an institution under its jurisdiction, except as expressly provided by law.

I. The benefits, annuities and employee and employer contributions provided for in this section, and all interest, earnings and other credits pertaining to such benefits, annuities and contributions, shall not be subject to execution or attachment and shall be nonassignable. The employee and employer contributions provided for in this section and all interest, earnings and other credits pertaining to such contributions are exempt from state, county and municipal taxes. The benefits and annuities received by an employee under this section after December 31, 1988 are subject to tax pursuant to title 43.

J. Subject to amendment of the federal-state agreement provided for in section 38-702, every eligible employee electing to participate in the optional retirement programs shall have old age, survivors and disability insurance coverage provided by the federal social security act in accordance with the provisions of Title 38, Chapter 5, Article 1.