PROPOSED RULES
RETIREMENT SYSTEMS
Original Notice.
Preproposal statement of inquiry was filed as WSR 06-12-045.
Title of Rule and Other Identifying Information: Amending WAC 415-02-030 Definitions, and new sections WAC 415-02-740 What are the IRS limitations on maximum benefits and maximum contributions?, 415-02-750 How does the department comply with Internal Revenue Code distribution rules?, 415-02-751 How does the department comply with Internal Revenue Code rollover rules?, 415-02-752 How does the department comply with Internal Revenue Code compensation limit rules?, 415-02-753 How does the department comply with Internal Revenue Code vesting rules?, 415-02-754 How does the department comply with Internal Revenue Code definitely determinable benefit rules?, 415-02-755 How does the department comply with Internal Revenue Code USERRA rules?, and 415-02-756 How does the department comply with Internal Revenue Code exclusive benefit rules?
Hearing Location(s): Department of Retirement Systems, 6835 Capitol Boulevard, Conference Room 115, Tumwater, WA, on November 23, 2010, at 2:00 p.m.
Date of Intended Adoption: December 1, 2010.
Submit Written Comments to: Ken Goolsby, Rules Coordinator, Department of Retirement Systems, P.O. Box 48380, Olympia, WA 98504-8380, e-mail rules@drs.wa.gov, fax (360) 753-5397, by 5:00 p.m. on November 23, 2010.
Assistance for Persons with Disabilities: Contact Ken Goolsby, Rules Coordinator, by November 12, 2010, TDD (360) 664-7291, TTY (360) 586-5450, phone (360) 664-7291.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The purpose of this proposal is to update and rewrite rules to comply with the federal Internal Revenue Code.
Reasons Supporting Proposal: The new rules ensure compliance with the federal Internal Revenue Code on a global level for the department. The new global rules replace outdated system level rules.
Statutory Authority for Adoption: RCW 41.50.050(5).
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Department of retirement systems, governmental.
Name of Agency Personnel Responsible for Drafting: Ken Goolsby, P.O. Box 48380, Olympia, WA 98504-8380, (360) 664-7291; Implementation and Enforcement: Shawn Merchant, P.O. Box 48380, Olympia, WA 98504-8380, (360) 664-7303.
No small business economic impact statement has been prepared under chapter 19.85 RCW. These rules have no effect on businesses.
A cost-benefit analysis is not required under RCW 34.05.328. The department of retirement systems is not one of the named departments in RCW 34.05.328.
October 18, 2010
Ken Goolsby
Rules Coordinator
OTS-3734.2
AMENDATORY SECTION(Amending WSR 09-01-021, filed 12/8/08,
effective 1/8/09)
WAC 415-02-030
Definitions.
This section contains
definitions of words and phrases commonly used in the
department of retirement systems' rules. It also serves as a
directory for finding definitions within the RCWs and WACs.
(1) Accumulated contributions means the sum of all contributions paid into a member's defined benefit account, including interest.
(2) Appeal means the proceeding through which a party obtains review of a department action in an adjudicative proceeding conducted under chapter 34.05 RCW (the Administrative Procedure Act) and chapter 415-08 WAC (the department's appeal rules).
(3) Average final compensation is defined in RCW 41.32.010(30) (TRS); RCW 41.35.010(14) (SERS); RCW 41.40.010(17) (PERS); and RCW 41.37.010(14) (PSERS).
(4) Average final salary for WSPRS is defined in RCW 43.43.120(15).
(5) Cafeteria plan means a "qualified" employee benefit program under IRC section 125, such as certain health and welfare plans.
(6) Calendar month.
(a) Refers to one of the twelve named months of the year, extending from the first day of the named month through the last day. For example: January 1st through January 31st is a calendar month. February 1st through February 29th is a calendar month in a leap year. March 13th through April 12th is not a calendar month.
(b) Exception: For the purpose of administering the break in employment required by RCW 41.32.570, 41.32.802, 41.32.862, 41.35.060, 41.37.050 and 41.40.037 for retirees returning to work, one calendar month means thirty consecutive calendar days. For example: Kim's retirement date is August 1. August 31 would be the earliest Kim could return to work and meet the requirement for a one calendar month break in employment.
(7) Compensation earnable or earnable compensation definitions can be found in RCW 41.32.010(10) and 41.32.345 (TRS); RCW 41.35.010(6) (SERS); RCW 41.37.010(6) (PSERS); and RCW 41.40.010(8) (PERS).
(8) Contribution rate is:
(a) For employees: The fraction (percent) of compensation a member contributes to a retirement system each month.
(b) For employers: The fraction (percent) of payroll a member's employer contributes to a retirement system each month. Contribution rates vary for the different systems and plans.
(9) Deferred compensation refers to the amount of the participant's compensation, which the participant voluntarily defers from earnings before taxes to a deferred compensation program.
(10) Defined benefit plan is a pension plan in which a lifetime retirement allowance is available, based on the member's service credit and compensation.
(11) Defined contribution plan is a plan in which part of members' or participants' earnings are deferred into an investment account in which tax is deferred until funds are withdrawn. The benefit is based on the contribution rate and the amount of return from the investment of the contributions. Members or participants receive the full market rate of return minus expenses. There is no guaranteed rate of return and the value of an account will increase or decrease based upon market fluctuations.
(12) Department means the department of retirement systems.
(13) Director means the director of the department of retirement systems.
(14) Employee means a worker who performs labor or services for a retirement systems employer under the control and direction of the employer as determined under WAC 415-02-110(2). An employee may be eligible to participate as a member of one of the state-administered retirement systems according to eligibility requirements specified under the applicable retirement system.
(15) Employer is defined in RCW 41.26.030(2) (LEOFF), 41.32.010(11) (TRS), 41.34.020(5) (Plan 3), 41.35.010(4) (SERS), 41.37.010(4) (PSERS) and 41.40.010(4) (PERS).
(16) Ex-spouse refers to a person who is a party to a "dissolution order" as defined in RCW 41.50.500(3).
(17) Final average salary for LEOFF is defined in RCW 41.26.030(12).
(18) Gainsharing is the process through which members of certain plans share in the extraordinary investment gains on earnings on retirement assets under chapters 41.31 and 41.31A RCW.
(19) Independent contractor means a contract worker who is not under the direction or control of the employer as determined under WAC 415-02-110 (2) and (3).
(20) IRC means the Federal Internal Revenue Code of 1986, as subsequently amended.
(21) JRF means the judges' retirement fund created by chapter 2.12 RCW.
(22) JRS means the Washington judicial retirement system created by chapter 2.10 RCW.
(23) LEOFF means the Washington law enforcement officers' and firefighters' retirement system created by chapter 41.26 RCW.
(24) Member means a person who is included in the membership of one of the retirement systems created by chapters 2.10, 2.12, 41.26, 41.32, 41.34, 41.35, 41.37, 41.40, or 43.43 RCW.
(25) Participant means an eligible employee who participates in a deferred compensation or dependent care assistance plan.
(26) Participation agreement means an agreement that an eligible employee signs to become a participant in a deferred compensation or dependent care assistance plan.
(27) Pension plan is a plan that provides a lifelong post retirement payment of benefits to employees.
(28) PERS means the Washington public ((employee's))
employees' retirement system created by chapter 41.40 RCW.
(29) Petition means the method by which a party requests a review of an administrative determination prior to an appeal to the director. The department's petitions examiner performs the review under chapter 415-04 WAC.
(30) Plan 1 means the retirement plans in existence prior to the enactment of chapters 293, 294 and 295, Laws of 1977 ex. sess.
(31) Plan 2 means the retirement plans established by chapters 293, 294 and 295, Laws of 1977 ex. sess., chapter 341, Laws of 1998, and chapter 329, Laws of 2001.
(32) Plan 3 means the retirement plans established by chapter 239, Laws of 1995, chapter 341, Laws of 1998, and chapter 247, Laws of 2000.
(33) Plan year is the twelve-month period that begins on January 1st and ends on December 31st of the same calendar year.
(34) Portability is the ability to use membership in more than one Washington state retirement system in order to qualify for retirement benefits. See chapters 41.54 RCW and 415-113 WAC.
(((34))) (35) PSERS means the Washington public safety
employees' retirement system created by chapter 41.37 RCW.
(((35))) (36) Public record is defined in RCW 42.17.020(41).
(((36))) (37) Restoration is the process of restoring a
member's service credit for prior periods.
(((37))) (38) Retirement system employer - see
"employer."
(((38))) (39) Rollover means a distribution that is paid
to or from an eligible retirement plan within the statutory
time limit allowed.
(((39))) (40) Separation date is the date a member ends
employment in a position eligible for retirement or disability
benefit coverage.
(((40))) (41) SERS means the Washington school employees'
retirement system created by chapter 41.35 RCW.
(((41))) (42) Split account is the account the department
establishes for a member or retiree's ex-spouse.
(((42))) (43) Surviving spouse refers to a person who was
married to the member at the time of the member's death and
who is receiving or is eligible to receive a survivor benefit.
(((43))) (44) Survivor beneficiary means a person
designated by the member to receive a monthly benefit
allowance after the member dies.
(((44))) (45) Survivor benefit is a feature of a
retirement plan that provides continuing payments to a
beneficiary after the death of a member or retiree.
(((45))) (46) TRS means the Washington state teachers'
retirement system created by chapter 41.32 RCW.
(((46))) (47) The Uniform Services Employment and
Reemployment Rights Act of 1994 (USERRA) is the federal law
that requires employers to reemploy and preserve job security,
pension and welfare benefits for qualified employees who
engage in military service.
(((47))) (48) WSPRS means the Washington state patrol
retirement system created by chapter 43.43 RCW.
[Statutory Authority: RCW 41.50.050(5) and 41.04.640. 09-01-021, § 415-02-030, filed 12/8/08, effective 1/8/09. Statutory Authority: RCW 41.50.050(5). 06-18-009, § 415-02-030, filed 8/24/06, effective 9/24/06. Statutory Authority: RCW 41.50.050(5), 41.40.010(42), 41.40.037. 04-04-037, § 415-02-030, filed 1/29/04, effective 3/1/04. Statutory Authority: RCW 41.50.050(5). 02-23-037, § 415-02-030, filed 11/13/02, effective 1/1/03; 02-01-120, § 415-02-030, filed 12/19/01, effective 1/19/02. Statutory Authority: RCW 41.50.050. 00-10-016, § 415-02-030, filed 4/21/00, effective 5/22/00; 94-09-039, § 415-02-030, filed 4/19/94, effective 5/20/94; Order 4, § 415-02-030, filed 7/27/77.]
OTS-3671.2
NEW SECTION
WAC 415-02-740
What are the IRS limitations on maximum
benefits and maximum contributions?
(1) Basic Internal
Revenue Code (IRC) section 415 limitations. Subject to the
provisions of this section, benefits paid from, and employee
contributions made to, the plan shall not exceed the maximum
benefits and the maximum annual addition, respectively, as
applicable under IRC section 415.
(2) Definitions. As used in this section:
(a) "IRC section 415(b) limit" refers to the limitation on benefits established by IRC section 415(b);
(b) "IRC section 415(c) limit" refers to the limitation on annual additions established by IRC section 415(c); and
(c) Limitation year is the calendar year.
(3) Basic IRC section 415(b) limitation. Before January 1, 1995, a member may not receive an annual benefit that exceeds the limits specified in IRC section 415(b), subject to the applicable adjustments in that section. On and after January 1, 1995, a member may not receive an annual benefit that exceeds the dollar amount specified in IRC section 415 (b)(1)(A), subject to the applicable adjustments in IRC section 415(b) and subject to any additional limits that may be specified in this section. In no event shall a member's annual benefit payable in any limitation year from this plan be greater than the limit applicable at the annuity starting date, as increased in subsequent years pursuant to IRC section 415(d) and the regulations thereunder.
(4) Annual benefit definition. For purposes of IRC section 415(b), the "annual benefit" means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) without regard to the benefit attributable to the after-tax employee contributions (except pursuant to IRC section 415(n)) and to all rollover contributions as defined in IRC section 415 (b)(2)(A). The "benefit attributable" shall be determined in accordance with treasury regulations.
(5) Adjustments to basic IRC section 415(b) limitation for form of benefit. If the benefit under this plan is other than a straight life annuity with no ancillary benefit, then the benefit shall be adjusted so that it is the equivalent of the straight life annuity, using factors prescribed in treasury regulations.
If the form of benefit without regard to the automatic benefit increase feature is not a straight life annuity or a qualified joint and survivor annuity, then the preceding sentence is applied by either reducing the IRC section 415(b) limit applicable at the annuity starting date or adjusting the form of benefit to an actuarially equivalent amount (determined using the assumptions specified in Treasury Regulation section 1.415 (b)-1(c)(2)(ii)) that takes into account the additional benefits under the form of benefits as follows:
(a) For a benefit paid in a form to which IRC section 417 (e)(3) does not apply (a monthly benefit), the actuarially equivalent straight life annuity benefit that is the greater of (or the reduced IRC section 415(b) limit applicable at the annuity starting date which is the "lesser of" when adjusted in accordance with the following assumptions):
(i) The annual amount of the straight life annuity (if any) payable to the member under the plan commencing at the same annuity starting date as the form of benefit to the member; or
(ii) The annual amount of the straight life annuity commencing at the same annuity starting date that has the same actuarial present value as the form of benefit payable to the member, computed using a five percent interest assumption (or the applicable statutory interest assumption); and
(A) For years prior to January 1, 2009, the applicable mortality tables described in Treasury Regulation section 1.417 (e)-1(d)(2) (Revenue Ruling 2001-62 or any subsequent revenue ruling modifying the applicable provisions of Revenue Ruling 2001-62); or
(B) For years after December 31, 2008, the applicable mortality tables described in section 417 (e)(3)(B) of the Internal Revenue Code (Notice 2008-85 or any subsequent Internal Revenue Service guidance implementing section 417 (e)(3)(B) of the Internal Revenue Code).
(b) For a benefit paid in a form to which IRC section 417 (e)(3) applies (a lump sum benefit), the actuarially equivalent straight life annuity benefit that is the greatest of (or the reduced IRC section 415(b) limit applicable at the annuity starting date which is the "least of" when adjusted in accordance with the following assumptions):
(i) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable, computed using the interest rate and mortality table, or tabular factor, specified in the plan for actuarial experience;
(ii) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable, computed using a five and one-half percent interest assumption (or the applicable statutory interest assumption); and
(A) For years prior to January 1, 2009, the applicable mortality tables described in Treasury Regulation section 1.417 (e)-1(d)(2) (Revenue Ruling 2001-62 or any subsequent revenue ruling modifying the applicable provisions of Revenue Ruling 2001-62); or
(B) For years after December 31, 2008, the applicable mortality tables described in section 417 (e)(3)(B) of the Internal Revenue Code (Notice 2008-85 or any subsequent Internal Revenue Service guidance implementing section 417 (e)(3)(B) of the Internal Revenue Code).
(iii) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable (computed using the applicable interest rate for the distribution under Treasury Regulation section 1.417 (e)-1(d)(3) (the thirty-year treasury rate (prior to January 1, 2007, using the rate in effect for the month prior to retirement, and on and after January 1, 2007, using the rate in effect for the first day of the plan year with a one-year stabilization period)) and the applicable mortality rate for the distribution under Treasury Regulation section 1.417 (e)-1(d)(2) (the mortality table specified in Revenue Ruling 2001-62 or any subsequent revenue ruling modifying the applicable provisions of Revenue Ruling 2001-62), divided by 1.05.
(6) Benefits not taken into account for IRC section 415(b) limit. For purposes of this section, the following benefits shall not be taken into account in applying these limits:
(a) Any ancillary benefit which is not directly related to retirement income benefits;
(b) That portion of any joint and survivor annuity that constitutes a qualified joint and survivor annuity; and
(c) Any other benefit not required under IRC section 415 (b)(2) and treasury regulations thereunder to be taken into account for purposes of the limitation of IRC section 415 (b)(1).
(7) Other adjustments in IRC section 415(b) limitation.
(a) In the event the member's retirement benefits become payable before age sixty-two, the limit prescribed by this section shall be reduced in accordance with regulations issued by the Secretary of the Treasury pursuant to the provisions of IRC section 415(b), so that such limit (as so reduced) equals an annual straight life benefit (when such retirement income benefit begins) which is equivalent to a one hundred sixty thousand dollar (as adjusted) annual benefit beginning at age sixty-two.
(b) In the event the member's benefit is based on at least fifteen years of service as a full-time employee of any police or fire department or on fifteen years of military service, the adjustments provided for in (a) of this subsection shall not apply.
(c) The reductions provided for in (a) of this subsection shall not be applicable to preretirement disability benefits or preretirement death benefits.
(8) Less than ten years of service adjustment for IRC section 415(b) limitation. The maximum retirement benefits payable to any member who has completed less than ten years of service shall be the amount determined under subsection (1) of this section multiplied by a fraction, the numerator of which is the number of the member's years of service and the denominator of which is ten. The reduction provided by this subsection cannot reduce the maximum benefit below ten percent. The reduction provided by this subsection shall not be applicable to preretirement disability benefits or preretirement death benefits.
(9) Effect of cost-of-living adjustment (COLA) without a lump sum component on IRC section 415(b) testing. Effective on and after January 1, 2009, for purposes of applying the IRC section 415(b) limit to a member with no lump sum benefit, the following will apply:
(a) A member's applicable IRC section 415(b) limit will be applied to the member's annual benefit in the member's first limitation year without regard to any automatic COLAs;
(b) To the extent that the member's annual benefit equals or exceeds the limit, the member will no longer be eligible for COLA increases until such time as the benefit plus the accumulated increases are less than the IRC section 415(b) limit; and
(c) Thereafter, in any subsequent limitation year, a member's annual benefit, including any automatic COLA increases, shall be tested under the then applicable IRC section 415(b) limit including any adjustment to the IRC section 415 (b)(1)(A) dollar limit under IRC section 415(d), and the treasury regulations thereunder.
(10) Effect of COLA with a lump sum component on IRC section 415(b) testing. On and after January 1, 2009, with respect to a member who receives a portion of the member's annual benefit in a lump sum, a member's applicable limit will be applied taking into consideration COLA increases as required by IRC section 415(b) and applicable treasury regulations.
(11) IRC section 415(c) limit. After-tax member contributions or other annual additions with respect to a member may not exceed the lesser of forty thousand dollars, as adjusted pursuant to IRC section 415(d), or one hundred percent of the member's compensation.
(a) Annual additions are defined to mean the sum (for any year) of employer contributions to a defined contribution plan, member contributions, and forfeitures credited to a member's individual account. Member contributions are determined without regard to rollover contributions and to picked-up employee contributions that are paid to a defined benefit plan.
(b) For purposes of applying the IRC section 415(c) limits only and for no other purpose, the definition of compensation where applicable will be compensation actually paid or made available during a limitation year, except as noted below and as permitted by Treasury Regulation section 1.415(c)-2, or successor regulation; provided; however, that member contributions picked up under IRC section 414(h) shall not be treated as compensation.
(c) Unless another definition of compensation that is permitted by Treasury Regulation section 1.415(c)-2, or successor regulation, is specified by the plan, compensation will be defined as wages within the meaning of IRC section 3401(a) and all other payments of compensation to an employee by an employer for which the employer is required to furnish the employee a written statement under IRC sections 6041(d), 6051 (a)(3), and 6052 and will be determined without regard to any rules under IRC section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in IRC section 3401 (a)(2)).
(i) However, for limitation years beginning on and after January 1, 1998, compensation will also include amounts that would otherwise be included in compensation but for an election under IRC sections 125(a), 402 (e)(3), 402 (h)(1)(B), 402(k), or 457(b). For limitation years beginning on and after January 1, 2001, compensation will also include any elective amounts that are not includible in the gross income of the employee by reason of IRC section 132 (f)(4).
(ii) For limitation years beginning on and after January 1, 2009, compensation for the limitation year will also include compensation paid by the later of two and one-half months after an employee's severance from employment or the end of the limitation year that includes the date of the employee's severance from employment if:
(A) The payment is regular compensation for services during the employee's regular working hours, or compensation for services outside the employee's regular working hours (such as overtime or shift differential), commissions, bonuses or other similar payments, and, absent a severance from employment, the payments would have been paid to the employee while the employee continued in employment with the employer; or
(B) The payment is for unused accrued bona fide sick, vacation or other leave that the employee would have been able to use if employment had continued.
(iii) Back pay, within the meaning of Treasury Regulation section 1.415 (c)-2(g)(8), shall be treated as compensation for the limitation year to which the back pay relates to the extent the back pay represents wages and compensation that would otherwise be included under this definition.
(iv) Beginning January 1, 2009, to the extent required by IRC sections 3401(h) and 414 (u)(2), an individual receiving a differential wage payment (as defined in section 3401 (h)(2) of the Internal Revenue Code) from an employer shall be treated as employed by that employer, and the differential wage payment shall be treated as compensation for purposes of applying the limits on annual additions under section 415(c) of the Internal Revenue Code. This provision shall be applied to all similarly situated individuals in a reasonably equivalent manner.
(12) Service purchases under IRC section 415(n). Effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, if a member makes one or more contributions to purchase permissive service credit under the plan, then the requirements of IRC section 415(n) will be treated as met only if:
(a) The requirements of IRC section 415(b) are met, determined by treating the accrued benefit derived from all such contributions as an annual benefit for purposes of IRC section 415(b); or
(b) The requirements of IRC section 415(c) are met, determined by treating all such contributions as annual additions for purposes of IRC section 415(c).
(c) For purposes of applying this subsection, the plan will not fail to meet the reduced limit under IRC section 415 (b)(2)(C) solely by reason of this subsection and will not fail to meet the percentage limitation under IRC section 415 (c)(1)(B) solely by reason of this subsection.
(d) For purposes of this subsection the term "permissive service credit" means service credit:
(i) Recognized by the plan for purposes of calculating a member's benefit under the plan;
(ii) Which such member has not received under the plan; and
(iii) Which such member may receive only by making a voluntary additional contribution, in an amount determined under the plan, which does not exceed the amount necessary to fund the benefit attributable to such service credit.
Effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, such term may include service credit for periods for which there is no performance of service, and, notwithstanding (d)(ii) of this subsection, may include service credited in order to provide an increased benefit for service credit which a member is receiving under the plan.
(e) The plan will fail to meet the requirements of this section if:
(i) More than five years of nonqualified service credit are taken into account for purposes of this subsection; or
(ii) Any nonqualified service credit is taken into account under this subsection before the member has at least five years of participation under the plan.
(f) For purposes of (e) of this subsection, effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, the term "nonqualified service credit" means permissive service credit other than that allowed with respect to:
(i) Service (including parental, medical, sabbatical, and similar leave) as an employee of the government of the United States, any state or political subdivision thereof, or any agency or instrumentality of any of the foregoing (other than military service or service for credit which was obtained as a result of a repayment described in IRC section 415 (k)(3));
(ii) Service (including parental, medical, sabbatical, and similar leave) as an employee (other than as an employee described in (f)(i) of this subsection) of an education organization described in IRC section 170 (b)(1)(A)(ii) which is a public, private, or sectarian school which provides elementary or secondary education through grade twelve, or a comparable level of education, as determined under the applicable law of the jurisdiction in which the service was performed;
(iii) Service as an employee of an association of employees who are described in (f)(i) of this subsection; or
(iv) Military service, other than qualified military service under section 414(u), recognized by the plan.
(g) In the case of service described in (f)(i), (ii), or(iii) of this subsection, such service will be nonqualified service if recognition of such service would cause a member to receive a retirement benefit for the same service under more than one plan.
(h) In the case of a trustee-to-trustee transfer after December 31, 2001, to which IRC section 403 (b)(13)(A) or 457 (e)(17)(A) applies, without regard to whether the transfer is made between plans maintained by the same employer:
(i) The limitations of (e) of this subsection will not apply in determining whether the transfer is for the purchase of permissive service credit; and
(ii) The distribution rules applicable under federal law to the plan will apply to such amounts and any benefits attributable to such amounts.
(i) For an eligible member, the limitation of IRC section 415 (c)(1) shall not be applied to reduce the amount of permissive service credit which may be purchased to an amount less than the amount which was allowed to be purchased under the terms of the plan as in effect on August 5, 1997. For purposes of this subsection (12)(i), an eligible member is an individual who first became a member in the plan before January 1, 1998.
(13) Modification of contributions for IRC sections 415(c) and 415(n) purposes. Notwithstanding any other provision of law to the contrary, the department may modify a request by a member to make a contribution to the plan if the amount of the contribution would exceed the limits provided in IRC section 415 by using the following methods:
(a) If the law allows, the department may establish either a lump sum or a periodic payment plan for the member to avoid a contribution in excess of the limits under IRC sections 415(c) or 415(n).
(b) If payment pursuant to (a) of this subsection will not avoid a contribution in excess of the limits imposed by IRC sections 415(c) or 415(n), the department may either reduce the member's contribution to an amount within the limits of those sections or refuse the member's contribution.
(14) Repayments of cash outs. Any repayment of contributions, including interest thereon, to the plan with respect to an amount previously refunded upon a forfeiture of service credit under the plan or another governmental plan maintained by the state or a local government within the state shall not be taken into account for purposes of IRC section 415, in accordance with applicable treasury regulations.
(15) Participation in other qualified plans: Aggregation of limits.
(a) The IRC section 415(b) limit with respect to any member who at any time has been a member in any other defined benefit plan as defined in IRC section 414(j) maintained by the member's employer shall apply as if the total benefits payable under all such defined benefit plans in which the member has been a member were payable from one plan.
(b) The IRC section 415(c) limit with respect to any member who at any time has been a member in any other defined contribution plan as defined in IRC section 414(i) maintained by the member's employer shall apply as if the total annual additions under all such defined contribution plans in which the member has been a member were payable from one plan.
(16) Reduction of benefits priority. Reduction of benefits and/or contributions to all plans, where required, shall be accomplished by first reducing the member's defined benefit component under any defined benefit plans in which the member participated, such reduction to be made first with respect to the plan in which the member most recently accrued benefits and thereafter in such priority as shall be determined by the plan and the plan administrator of such other plans; and next, by reducing the member's defined contribution component benefit under any defined benefit plans; and next by reducing or allocating excess forfeitures for defined contribution plans in which the member participated, such reduction to be made first with respect to the plan in which the member most recently accrued benefits and thereafter in such priority as shall be established by the plan and the plan administrator for such other plans provided; however, that necessary reductions may be made in a different manner and priority pursuant to the agreement of the plan and the plan administrator of all other plans covering such member.
[]
OTS-3672.1
NEW SECTION
WAC 415-02-750
How does the department comply with
Internal Revenue Code distribution rules?
(1) All benefits
paid from the retirement plan shall be distributed in
accordance with a reasonable and good faith interpretation of
the requirements of section 401 (a)(9) of the Internal Revenue
Code, as applicable to a governmental plan within the meaning
of section 414(d) of the Internal Revenue Code. In order to
meet these requirements, the retirement plan shall be
administered in accordance with the following provisions:
(a) Distribution of a member's benefit must begin by the later of April 1st following the calendar year in which a member attains age seventy and one-half or April 1st of the year following the calendar year in which the member retires;
(b) Unless distributed in a lump sum, the member's entire interest must be distributed over the member's life or the lives of the member and a designated beneficiary, or over a period not extending beyond the life expectancy of the member or of the member and designated beneficiary;
(c) The life expectancy of a member or the member's spouse or beneficiary may not be recalculated after the benefits commence;
(d) If a member dies before the required distribution of the member's benefits has begun, the member's entire interest must be either:
(i) Distributed (in accordance with federal regulations) over the life or life expectancy of the designated beneficiary, with the distributions beginning no later than December 31st of the calendar year following the calendar year of the member's death; or
(ii) Distributed within five years of the member's death.
(e) The amount of an annuity paid to a member's beneficiary may not exceed the maximum determined under the incidental death benefit requirement of section 401 (a)(9)(G) of the Internal Revenue Code, and the minimum distribution incidental benefit rule under Treasury Regulation section 1.401 (a)(9)-6, Q&A 2; and
(f) If a member dies after the distribution of the member's benefits has begun, the remaining portion of the member's interest will be distributed at least as rapidly as under the method of distribution being used for the member as of the date of the member's death.
(2) The retirement system pursuant to a valid dissolution order as defined in RCW 41.50.500 may establish separate benefits for a member and nonmember.
(3) The death and disability benefits provided by the plan are limited by the incidental benefit rule set forth in section 401 (a)(9)(G) of the Internal Revenue Code and Treasury Regulation section 1.401-1 (b)(1)(i) or any successor regulation thereto. As a result, the total death or disability benefits payable may not exceed twenty-five percent of the cost for all of the members' benefits received from the plan.
[]
OTS-3673.1
NEW SECTION
WAC 415-02-751
How does the department comply with
Internal Revenue Code rollover rules?
(1) A distributee may
elect to have eligible rollover distributions paid in a direct
rollover to an eligible retirement plan the distributee
specifies, pursuant to section 401 (a)(31) of the federal
Internal Revenue Code.
(2) "Eligible rollover distribution" means any distribution of all or any portion of the balance to the distributee with the following exceptions:
(a) Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or the life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more;
(b) Any distribution to the extent such distribution is required under section 401 (a)(9) of the Internal Revenue Code;
(c) The portion of any distribution that is not includible in gross income; and
(d) Any other distribution that is reasonably expected to total less than two hundred dollars during the year.
Effective January 1, 2002, a portion of a distribution will not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions that are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in section 408 (a) or (b) of the Internal Revenue Code, or to a qualified defined contribution plan described in section 401(a) of the Internal Revenue Code, or on or after January 1, 2007, to a qualified defined benefit plan described in section 401(a) of the Internal Revenue Code or to an annuity contract described in section 403(b) of the Internal Revenue Code, that agrees to separately account for amounts so transferred (and earnings thereon), including separately accounting for the portion of the distribution that is includible in gross income and the portion of the distribution that is not so includible.
Effective January 1, 2002, the definition of eligible rollover distribution also includes a distribution to a surviving spouse, or to a spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Internal Revenue Code.
(3) "Eligible retirement plan" means any of the following that accepts the distributee's eligible rollover distribution:
(a) An individual retirement account described in section 408(a) of the Internal Revenue Code;
(b) An individual retirement annuity described in section 408(b) of the Internal Revenue Code;
(c) An annuity plan described in section 403(a) of the Internal Revenue Code;
(d) A qualified trust described in section 401(a) of the Internal Revenue Code;
(e) Effective January 1, 2002, an annuity contract described in section 403(b) of the Internal Revenue Code;
(f) Effective January 1, 2002, a plan eligible under section 457(b) of the Internal Revenue Code that is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or a political subdivision of a state that agrees to separately account for amounts transferred into such 457(b) plan from this plan; or
(g) Effective January 1, 2008, a Roth IRA described in section 408A of the Internal Revenue Code.
(4) "Distributee" means an employee or former employee. It also includes the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Internal Revenue Code. Effective January 1, 2007, a distributee further includes a nonspouse beneficiary who is a designated beneficiary as defined by section 401 (a)(9)(E) of the Internal Revenue Code. However, a nonspouse beneficiary may rollover the distribution only to an individual retirement account or individual retirement annuity established for the purpose of receiving the distribution, and the account or annuity will be treated as an "inherited" individual retirement account or annuity.
(5) "Direct rollover" means a payment by the plan to the eligible retirement plan specified by the distributee.
[]
OTS-3674.2
NEW SECTION
WAC 415-02-752
How does the department comply with
Internal Revenue Code compensation limit rules?
(1) As used
in this section, the term "eligible member" means a person who
first became a member of the plan prior to the plan year
beginning after December 31, 1995. Pursuant to section 13212
(d)(3)(A) of OBRA '93, and the regulations issued under that
section, eligible members are not subject to the limits of
section 401 (a)(17) of the Internal Revenue Code, and the
maximum compensation used in computing employee and employer
contributions to or benefits due from the plan for eligible
members shall be the maximum amount allowed by the plan to be
so used on July 1, 1993. The limits referenced in subsections
(2) and (3) of this section apply only to years beginning
after December 31, 1995, and only to individuals who first
became plan members in plan years beginning on and after
January 1, 1996.
(2) Effective with respect to plan years beginning on and after January 1, 1996, and before January 1, 2002, the annual compensation of a plan member (who is not an eligible member) which exceeds one hundred fifty thousand dollars (as adjusted for cost-of-living increases under section 401 (a)(17)(B) of the Internal Revenue Code) shall be ignored for purposes of computing employee and employer contributions to or benefits due from the plan. Effective only for the 1996 plan year, in determining the compensation of an employee eligible for consideration under this provision, the rules of section 414 (g)(6) of the Internal Revenue Code shall apply, except that in applying such rules, the term "family" shall include only the spouse of the member and any lineal descendants of the employee who have not attained age nineteen before the close of the year.
(3) Effective with respect to plan years beginning on and after January 1, 2002, the annual compensation of a plan member (who is not an eligible member) which exceeds two hundred thousand dollars (as adjusted for cost-of-living increases in accordance with section 401 (a)(17)(B) of the Internal Revenue Code) may not be used in determining benefits or contributions due for any plan year. Annual compensation means compensation during the plan year or such other consecutive twelve-month period over which compensation is otherwise determined under the plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year. If the determination period consists of fewer than twelve months, the annual compensation limit is an amount equal to the otherwise applicable annual compensation limit multiplied by a fraction, the numerator of which is the number of months in the short determination period, and the denominator of which is twelve. If the compensation for any prior determination period is used in determining a plan member's contributions or benefits for the current plan year, the compensation for such prior determination period is subject to the applicable annual compensation limit in effect for that prior period. The determination period for testing contributions is the calendar year.
[]
OTS-3675.2
NEW SECTION
WAC 415-02-753
How does the department comply with
Internal Revenue Code vesting rules?
(1) In addition to
protections provided by state law, a plan member shall be one
hundred percent vested in all plan benefits upon attainment of
the normal retirement age and service requirements.
(2) A plan member shall be one hundred percent vested in his or her accumulated contributions at all times.
(3) The plan may only be terminated by action of the legislature and employer contributions must be paid in accordance with state law. In the event the legislature took action to terminate a plan, in whole or in part, or discontinue employer contributions to the plan, any applicable state law and constitutional protections would apply to accrued benefits. In such event, pursuant to federal rules, a plan member's accrued benefit under the plan in nonforfeitable to the extent funded.
[]
OTS-3676.1
NEW SECTION
WAC 415-02-754
How does the department comply with
Internal Revenue Code definitely determinable benefit rules?
(1) In conformity with section 401 (a)(8) of the Internal
Revenue Code, any forfeitures of benefits by members or former
members of the plan will not be used to pay benefit increases.
However, such forfeitures shall be used to reduce employer
contributions.
(2) In conformity with section 401 (a)(25) of the Internal Revenue Code, actuarial equivalence for purposes of calculating benefit options is determined using the following assumptions and without employer discretion:
Interest rate: Five percent; and
(a) For years prior to January 1, 2009, the mortality table specified in Revenue Ruling 2001-62 or any subsequent revenue ruling modifying the applicable provisions of Revenue Ruling 2001-62; or
(b) For years after December 31, 2008, the applicable mortality tables described in section 417 (e)(3)(B) of the Internal Revenue Code, Notice 2008-85, or any subsequent Internal Revenue Service guidance implementing section 417 (e)(3)(B) of the Internal Revenue Code.
[]
OTS-3677.1
NEW SECTION
WAC 415-02-755
How does the department comply with
Internal Revenue Code USERRA rules?
Effective December 12,
1994, notwithstanding any other provisions of state law,
contributions, benefits and service credit with respect to
qualified military service are governed by section 414(u) of
the Internal Revenue Code and the Uniformed Services
Employment and Reemployment Rights Act (USERRA) of 1994.
Effective with respect to deaths occurring on and after January 1, 2007, while a member is performing qualified military service (as defined in chapter 43 of Title 38 of the United States Code), to the extent required by section 401 (a)(37) of the Internal Revenue Code, survivors of a member of a retirement system are entitled to any additional benefits that the system would provide if the member had resumed employment and then died, such as accelerated vesting or survivor benefits that are contingent on the member's death while employed. In any event, a deceased member's period of qualified service must be counted for vesting purposes.
[]
OTS-3678.2
NEW SECTION
WAC 415-02-756
How does the department comply with
Internal Revenue Code exclusive benefit rules?
No assets of
the retirement system may be used for or diverted to a purpose
other than the exclusive benefit of the members and their
beneficiaries at any time prior to the satisfaction of all
liabilities with respect to members and their beneficiaries.
[]
The following sections of the Washington Administrative Code are repealed:
| WAC 415-106-050 | How does the department comply with Internal Revenue Code distribution rules? |
| WAC 415-106-060 | What are the IRS limitations on maximum benefits and maximum contributions? |
| WAC 415-106-070 | Assets for exclusive benefit of members and beneficiaries. |
| WAC 415-108-181 | How does the department comply with Internal Revenue Code distribution rules? |
| WAC 415-108-182 | What are the IRS limitations on maximum benefits and maximum contributions? |
| WAC 415-108-183 | Assets for exclusive benefit of members and beneficiaries. |
| WAC 415-110-050 | How does the department comply with Internal Revenue Code distribution rules? |
| WAC 415-110-060 | What are the IRS limitations on maximum benefits and maximum contributions? |
| WAC 415-110-070 | Assets for exclusive benefit of members and beneficiaries. |
| WAC 415-112-050 | How does the department comply with Internal Revenue Code distribution rules? |
| WAC 415-112-060 | What are the IRS limitations on maximum benefits and maximum contributions? |
| WAC 415-112-070 | Assets for exclusive benefit of members and beneficiaries. |