WSR 98-15-098

PROPOSED RULES

DEPARTMENT OF

RETIREMENT SYSTEMS

[Filed July 17, 1998, 10:21 a.m.]



Original Notice.

Exempt from preproposal statement of inquiry under RCW 34.05.310(4).

Title of Rule: Deferred compensation plan amendments of 1998.

Purpose: To amend the department's rules implementing the deferred compensation law codified in chapters 41.04 and 41.50 RCW in order to make those rules consistent with the 1998 amendments to chapter 41.50 RCW and to recent amendments to the Internal Revenue Code Section 457.

Statutory Authority for Adoption: RCW 41.50.050.

Statute Being Implemented: Chapter 116, Laws of 1998, all sections.

Summary: The proposed rules amend the department's deferred compensation plan rules so that they conform to the amendments to the deferred compensation law enacted in chapter 116, Laws of 1998 and to recent amendments to Section 457 of the Internal Revenue Code.

Reasons Supporting Proposal: To bring the department's rules into conformity with chapters 41.04 and 41.50 RCW as amended by chapter 116, Laws of 1998.

Name of Agency Personnel Responsible for Drafting: Elyette Weinstein, 1025 East Union Avenue, Olympia, WA 98504-8380, (360) 709-4747; Implementation and Enforcement: Anne Holdren, 2600 Martin Way, Olympia, WA 98504-0931, (360) 753-1829.

Name of Proponent: Department of Retirement Systems, governmental.

Rule is necessary because of federal law, [Title 26 U.S.C. Sec. 457 Internal Revenue Code].

Explanation of Rule, its Purpose, and Anticipated Effects: The proposed rule is an amendment to provisions of chapters 415-512, 415-524, 415-544, 415-548, and 415-560 WAC governing the department's implementation of the deferred compensation plan law codified in chapters 41.04 and 41.50 RCW. The amendments are necessary to reflect the changes to chapters 41.04 and 41.50 RCW enacted in chapter 116, Laws of 1998. The statutes were amended to bring them into compliance with recent changes to the Internal Revenue Code. The purpose of the rule and its anticipated effects are to bring the rules into conformity with the statutes as amended to ensure that there are no conflicts between the rules and the authorizing statutes.

Proposal Changes the Following Existing Rules: WAC 415-512-075, 415-548-010, and 415-560-010 conform to the Internal Revenue Code's requirement that deferred compensation plans hold funds in trust for the exclusive benefit of employees. The State Investment Board is trustee.

WAC 415-512-015 clarifies that transfers between 457 plans of different political subdivisions are allowed.

WAC 415-512-020 and 415-512-030 conform to the Internal Revenue Code requirement that deferral limits be indexed.

WAC 415-512-050 removes limits on the number of times per year participants can change deferral or investment options.

WAC 415-512-070 limits resumption of deferrals to a request for cessation due to an unforeseeable emergency payment.

WAC 415-512-080 adds documentation requirements if a member chooses to designate a trust as beneficiary.

WAC 415-512-090 adds changes that apply to participants who, after separating from service, are again hired by an employer and reenrolled in the plan before payment is scheduled to begin. Requirements for minor beneficiary payments.

WAC 415-512-110 minimum amounts needed to establish lump sum or annuity payout. Amended to comply with Internal Revenue Code.

WAC 415-524-010 clarifies that a divorce does not amount to a hardship withdrawal in conformance with Internal Revenue Code.

WAC 415-544-010 regarding nonassignability of the right to receive deferrals is rewritten in clear language.

New WAC 415-512-095 clarifies how and when the plan will honor domestic relations orders.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The rules apply to public employers and employees participating in the retirement systems administered by the Department of Retirement Systems (DRS). No private businesses are affected by the rules, therefore, no small business [economic] impact statement is required.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. DRS is not one of the agencies that RCW 34.05.328 applies to. DRS does not opt to voluntarily bring itself within the coverage of that statute.

Hearing Location: Boardroom, 2nd Floor, 1025 East Union Avenue, Olympia, WA 98504-8380, on August 26, 1998, at 2:00 p.m.

Assistance for Persons with Disabilities: Contact Elyette Weinstein by August 26, TDD (360) 586-5450, or (360) 709-4747.

Submit Written Comments to: Elyette Weinstein, P.O. Box 48380, Olympia, WA 98504-8380, fax (360) 753-3166, by August 12, 1998.

Date of Intended Adoption: September 14, 1998.

July 17, 1998

Elyette M. Weinstein

Rules Coordinator

OTS-2095.5

AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-512-015  Plan to plan transfers. (1) Transfers to the plan following a change in employment. If a participant was formerly a participant in an eligible ((state)) deferred compensation plan (within the meaning of Section 457 of the code and ((the)) its regulations ((thereunder))), ((and if such a plan)) which permits the direct transfer of the participant's interest ((therein)) to ((the)) another plan, then the transferee plan shall accept assets representing the value of such interest((; provided,)). However, the department may require in its sole discretion that some or all of such interest be transferred in cash or its equivalent. Such amount shall be held, accounted for, administered, and otherwise treated in the same manner as compensation deferred by the participant under the plan except that:

(a) Only the amount, if any, transferred to the plan which was deferred under the transferor plan in the taxable year when transfer occurs shall be treated as compensation deferred under the plan in such year.

(b) Such amount shall remain subject to, and shall be administered in accordance with, any irrevocable elections made under the transferor plan with respect to such amount.

(2) Transfers from the plan following a change in employment. The only rollovers or transfers allowable under Section 457 of the Internal Revenue Code are from one eligible Section 457 plan to another eligible Section 457 plan.

If a participant, prior to making a final election under WAC 415-512-090(2) regarding the method of payment, accepts employment with an employer who offers an eligible Section 457 plan, and the participant becomes a participant in that plan, then accumulated deferrals may, at the election of the participant and after written notice to the department, be transferred to the other plan, provided that plan provides for the acceptance of such transfers.

(3) Transfers by employees of participating political subdivisions. Transfers of funds by an employee of a participating political subdivision are allowed to and from other IRC Section 457 plans maintained by the political subdivision, but only if the other plan also allows transfers to and from its plan and the participant has not made an irrevocable payout election relating to either plan.

(4) Application for transfer. If the conditions in subsection((s)) (1) ((and)), (2), or (3) of this section are met and the participant wishes to transfer his/her account, he/she shall complete ((any)) an application form and/or other documents as may be required by the department.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-015, filed 7/29/96, effective 7/29/96.]



AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-512-020  Deferral ((limitation)) limit. (1) Except as provided in WAC 415-512-030, relating to catch-up, the maximum that may be deferred under the plan for any taxable year of a participant shall not exceed the lesser of seven thousand five hundred dollars indexed to the extent authorized in Section 457 of the Internal Revenue Code (dollar deferral limit) or thirty-three and one-third percent of the participant's includible compensation, each reduced:

(a) By any amount excludable from the participant's gross income for that taxable year under Section 403(b) of the Internal Revenue Code; and

(b) By any amount:

(i) Excluded from gross income under Section 402 (e)(3) or 402 (h)(1)(B) of the Internal Revenue Code (relating to a participant's elective deferrals to simplified employee pensions) for that taxable year;

(ii) For which a deduction is allowable for that taxable year by reason of a contribution to an organization described in Section 501 (c)(18) of the Internal Revenue Code (relating to pension trusts created before June 25, 1959, forming part of a plan for payment of benefits under a pension plan funded only by contributions of employees); or

(iii) Which is deferred by a participant under Section 401(k) of the Internal Revenue Code (relating to qualified cash or deferred arrangement) during that taxable year; and

(c) By any amount the participant contributes to any other Section 457 of the Internal Revenue Code plan (relating to deferred compensation plan(s)) during the taxable year.

(2) "Includible compensation" for purposes of this section means includible compensation as defined in Section 457 (e)(5) of the Internal Revenue Code and as further defined by Treasury Department Regulation 1.457-2 (e)(2) interpreting that section, and is determined without regard to community property laws. Includible compensation for a taxable year includes only compensation from the employer that is attributable to services performed for the employer and that is includible in the participant's gross income for the taxable year for federal income tax purposes. Accordingly, a participant's includible compensation for a taxable year does not include an amount payable by the employer that is excludable from the employee's gross income under:

(a) Section 457 of the Internal Revenue Code;

(b) Section 403(b) of the Internal Revenue Code (relating to annuity contracts purchased by Section 501 (c)(3) of the Internal Revenue Code organizations or public schools);

(c) Section 105(d) of the Internal Revenue Code (relating to wage continuation plans);

(d) Section 911 of the Internal Revenue Code (relating to citizens or residents of the United States living abroad);

(e) Section 402 (e)(3) or 402 (h)(1)(B) or 402(k) of the Internal Revenue Code (relating to simplified employee pensions);

(f) Section 501 (c)(18) of the Internal Revenue Code (relating to certain pension trusts); or

(g) Section 401(k) of the Internal Revenue Code (relating to qualified cash or deferred arrangements).

(3) In computing includible compensation, total gross compensation as shown on state earnings statements must be reduced by:

(a) Section 414(h) of the Internal Revenue Code, before tax contributions to retirement plans (including those described in RCW 41.04.440, 41.04.445, and 41.04.450); and

(b) Any Section 125 of the Internal Revenue Code contributions to cafeteria plans (including those which include such items as dependent care salary reduction plans) before excluding the items listed in subsection (2)(a) through (g) of this section.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-020, filed 7/29/96, effective 7/29/96.]



AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-512-030  Catch-up provision. For one or more of the participant's last three taxable years ending before attaining normal retirement age under the plan, the maximum deferral shall be the lesser of:

(1) Fifteen thousand dollars for the taxable year, reduced in the same manner as the ((seven thousand five hundred)) dollar((s limitation)) deferral limit is reduced in WAC 415-512-020(1); or

(2) The sum of:

(a) The ((limitations)) limits established for purposes of WAC 415-512-020 of the plan for the taxable year (determined without regard to this section), plus

(b) So much of the ((limitation)) limit established under WAC 415-512-020 for taxable years before the taxable year as has not theretofore been used under WAC 415-512-020 or 415-512-030. A prior taxable year shall be taken into account only if:

(i) It begins after December 31, 1978;

(ii) The participant was eligible to participate in the plan during all or any portion of the taxable year, and;

(iii) Compensation deferred (if any) under the plan during the taxable year was subject to a maximum ((limitation)) limit (as established under WAC 415-512-020).

A prior taxable year includes a taxable year in which the participant was eligible to participate in an eligible plan sponsored by another entity. In no event can the participant elect to have the catch-up provision apply more than once whether or not the full catch-up had been utilized.

"Normal retirement age," as used in chapters 415-501 through 415-568 WAC, means the range of ages:

Ending not later than age seventy and one-half; and

Beginning not earlier than the earliest age at which the participant has the right to retire under a state authorized pension for which the participant is eligible without consent of the state and under which the participant will receive immediate retirement benefits without actuarial adjustment due to retirement prior to some later specified age in a state authorized pension plan.

This catch-up provision may not be used in the year in which the participant attains age seventy and one-half, and may not be used in any year thereafter.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-030, filed 7/29/96, effective 7/29/96.]



AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-512-050  Modification of deferral or investment option(s). A participant may change his/her deferral or investment option(s) ((not more than four times in any calendar year)) by executing a participation agreement. Changes in the amount of deferral must equal at least ten dollars or more per month. (Beneficiaries entitled to receive accumulated deferrals may also change investment options ((not more than four times per year)).)

((An increase (or an increase and a change in investment option(s) which are effective the same date) shall not be counted as a change. Only a decrease in the amount of deferral, a transfer, or a change in investment option(s) not accompanied by an increase, shall be counted as a change.

Any combination of a decrease, a transfer, or a change in investment option(s) effective the same date, shall be considered one change.

A change (whether counted as such or not) shall be effective for any calendar month only if the participant signs a new participation agreement and it is approved by the department or its designee before the beginning of that calendar month. All participation agreements indicating changes in investment option(s) must be filed with the department no later than fifteen days prior to the established pay date for which the change will occur. The department reserves the right to defer the effective date of any change.)) A change in the deferral amount shall be effective for any calendar month only if the participant signs a new participation agreement prior to the earning period for which the change is requested. All participation agreements indicating changes in investment option(s) and transfer request forms indicating a transfer from one investment option to another must be filed with the department no later than twelve days prior to the established pay date for which the change will occur.

During the payout process, the department may periodically liquidate mutual fund shares in amounts necessary to meet distribution requirements for a six-month period.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-050, filed 7/29/96, effective 7/29/96.]



AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-512-070  Suspension and reinstatement of deferrals. Suspension. A participant may at any time direct that deferrals under the participant's participation agreement cease by completing the proper form and filing it with the department no later than the last day of the payroll period prior to the payroll period during which the deferrals are to cease; however, accumulated deferrals shall only be paid as provided in WAC 415-512-080 through 415-512-110.

Reinstatement. A participant who has directed the cessation of deferrals as part of an unforeseeable emergency payment request may resume deferrals ((for any calendar month commencing no)) by executing a new participation agreement to defer compensation. The deferrals cannot resume sooner than six months after ((such)) deferrals ceased ((by executing a new participation agreement to defer compensation)). Deferrals will begin the month immediately following the month that the participation agreement is signed. The six-month waiting period shall not apply to participants who are on leave without pay as discussed in WAC 415-528-010.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-070, filed 7/29/96, effective 7/29/96.]



AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-512-075  Investment options. Each participant shall designate on his/her participation agreement the investment option(s) in which he/she wishes to have funds invested. The investment option(s) shall be selected from those options made available for this purpose from time to time by the ((employee retirement benefits board, in its sole discretion)) state investment board after consultation with the employee retirement benefits board.

The ((employee retirement benefits)) state investment board may make available as options for investment:

(1) A fixed rate investment or pool of investments including deposits with a credit union, savings and loan association, mutual savings bank and fixed annuities;

(2) Specified mutual fund shares, shares of an investment company, or variable annuities; or

(3) Fixed or variable life insurance, or other options permitted by law ((and selected by the employee retirement benefits board)). In the event that a selected investment option experiences a loss, the participant's benefits payable hereunder shall likewise reflect a loss, rather than income, for the period.

Nothing in this section shall require the ((employer)) state investment board or the department as plan administrator to invest any amount in the investments selected ((and whether or not the employer so invests, no participant shall have any right, title, or interest in the amounts deferred or assets so invested)). The state investment board may open, change or close investment options according to its investment policy.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-075, filed 7/29/96, effective 7/29/96.]



AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-512-080  Designation of beneficiaries. Each participant shall have the right to designate a beneficiary or beneficiaries to receive accumulated deferrals in the event of the participant's death. If no such designation is in effect on a participant's death, the beneficiary shall be the surviving spouse. If there be no such surviving spouse, then the beneficiary shall be the participant's estate. A participant may change his/her beneficiary designation at any time by filing a change of beneficiary form with the department. A participant may also change his/her beneficiary designation by completing the beneficiary designation portion of a participation agreement form.

The participant may name:

(1) A designated organization or person (including without limitation his/her unborn or later adopted children). If unborn or later adopted children are to be included, the designation must so indicate. The date of birth must be furnished for any living person who is named ((and who is under the age of eighteen)) as a beneficiary.

(2) His or her estate.

(3) A trust which is in existence, or which is to be established under the participant's last will. For an existing trust, the participant must provide ((the name of the trust and the date it was established)) a copy of the trust document and the name, address, and telephone number of the current trustee, and the tax identification number.

The participant may name contingent beneficiaries in addition to primary beneficiaries.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-080, filed 7/29/96, effective 7/29/96.]



AMENDATORY SECTION (Amending WSR 97-05-009, filed 2/7/97, effective 3/10/97)



WAC 415-512-090  Elections regarding distribution. Each participant (or in the event of death, each beneficiary other than an organization, an estate, or a trust) shall elect when his/her payout will begin and the payout period.

(1) Election ((regarding time of payment)) preconditions and irrevocability. The election regarding the date when payment will begin shall be made when a participant separates from service (or dies having separated from service and having previously elected when payment will begin).

Once made, the election regarding when payout will begin is irrevocable as to the participant or beneficiary making the election, unless:

(a) The participant or beneficiary, more than thirty days prior to the elected date payment is to begin, elects to postpone the original date. Only one such postponement is allowed; or

(b) The participant, after separating from service is again hired by the employer and, before the originally elected date payment is to begin, reenrolls in the plan.

((The)) (2) Timing of election ((regarding when payment will begin:)).

(a) ((By)) A participant who separates from service other than by reason of death, must ((be made not)) make an election no later than sixty days after separation from service. Payment may begin on the central payroll date nearest the twenty-fifth day of the month following the month in which an election is filed with the department on forms provided for that purpose, and payment must begin within the time prescribed by WAC 415-512-110;

(b) ((By)) A beneficiary, other than an organization, estate or trust, where the participant was not already receiving payments, must ((be made not)) make an election no later than sixty days after the participant's death. Payment may begin on the central payroll date nearest the twenty-fifth day of the month following the month in which an election is filed with the department on forms provided for that purpose, and payment must begin within the time prescribed by WAC 415-512-110. The plan will not distribute to a minor beneficiary if it does not receive proof that the minor has either:

(i) A court-appointed guardian; or

(ii) A custodian whom the participant during his or her lifetime designated in a beneficiary designation, will, trust or other instrument exercising a power of appointment, followed in substance by the words: "As custodian for . . . . . . . . (name of minor) under the Washington Uniform Transfers to Minors Act."

Where a legal guardianship is not obtained, and where the participant has not previously named a custodian under the Washington Uniform Transfers to Minors Act as described above, or if such custodian has been named but dies or is unable or unwilling to serve, the plan may, following the expiration of one hundred eighty days after the participant's death, request a court of competent jurisdiction to establish a custodianship under the Washington Uniform Transfers to Minors Act, chapter 11.114 RCW, irrespective of the amount at issue.

Once a custodianship has been established either by the participant's prior designation or by court order, the plan will transfer the funds in the deceased participant's account to the named custodian.

A transfer may be made only for one minor, and only one person may be the custodian, as set forth in the Washington Uniform Transfers to Minors Act. Written confirmation of delivery by the custodian constitutes a sufficient receipt and discharge of the plan for the deceased participant's account balance transferred to the custodian.

The custodian will have sixty days after the date of transfer to make an election regarding the payout period and when the payout will begin under this section.

(((2))) (3) Election regarding method of payment. The participant (or beneficiary) who makes an election regarding the date payment will begin, may also elect the period over which payments will be made. The payout period election may be made either at the time he/she elects a beginning date for payout or at any time not later than sixty days prior to the date payout is to begin. Once having made this election, the participant (or beneficiary, other than an organization, estate, or trust) may change the payout period election not later than thirty days prior to the date payout is to begin. Such a beneficiary may also make this election where the participant was already receiving payments but, as provided in WAC 415-512-110 (3)(a), must receive distribution at least as rapidly as it was being distributed to the participant. Such a beneficiary must make the payout period election not later than sixty days after the death of the participant and payout will be suspended following the participant's death until the beneficiary either makes a payout period election or begins receiving payment as provided in subsection (((4))) (5) of this section. Provided, if the participant was receiving payout in the form of an annuity contract, then the successor's right shall be limited by the terms of that contract.

(((3))) (4) How elections are made. A participant or beneficiary makes elections allowed under this section by completing and filing applicable payment request forms with the department. Only a court-appointed guardian may elect between a monthly and a lump sum benefit on behalf of the minor.

(((4))) (5) Consequences in absence of a timely election regarding time of payment. Absent a timely election regarding when payout is to begin, payout will begin on the central payroll date nearest the twenty-fifth day of the month following the month in which the election period ends, and will be made, in a lump sum if the accumulated deferrals as of the end of the election period are less than twenty-five thousand dollars or, if the accumulated deferrals are twenty-five thousand dollars or more, in equal monthly installments over a period of one hundred twenty months or such lesser period:

(a) As may be necessary under the minimum payout requirements of Section 457 (d)(2)(B)(i)(I) of the Internal Revenue Code, requiring amounts to be paid not later than as determined under Section 401 (a)(9)(G) of the Internal Revenue Code; or

(b) As may be necessary under Section 457 (d)(2)(B)(i)(II) of the Internal Revenue Code, requiring amounts not distributed to the participant during his/her life to be distributed at least as rapidly as they were being distributed as of the participant's death.

(((5))) (6) Effects of certain employment changes. Transfers from the plan are allowed in the circumstances described in WAC 415-512-015(2).

(((6))) (7) Consequences in absence of a timely election regarding method of payment. In the absence of a timely election regarding the period of time over which payment will be made, payment will be made in the manner described in subsection (((4))) (5) of this section.

(((7))) (8) Payment to an organization, estate, or trust. Any amount payable to an organization, estate, or trust shall be paid in a lump sum as prescribed in WAC 415-512-110(3).



[Statutory Authority: RCW 41.50.780(1) and 41.50.050. 97-05-009, 415-512-090, filed 2/7/97, effective 3/10/97. Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-090, filed 7/29/96, effective 7/29/96.]



NEW SECTION



WAC 415-512-095  Domestic relations orders. (1) Domestic relation orders, which establish a right of the nonparticipant to a portion of a participant's account after the participant separates from service, will be honored at the discretion of the department:

(a) Only if the plan participant is eligible for, or is in actual payout status; and

(b) Based upon the capabilities of the deferred compensation program recordkeeping system.

(2) The plan will honor domestic relation orders by either:

(a) Recognizing that there is a lien against the plan's assets (provided the order establishes a fixed or determinable future amount to be paid); or

(b) Establishing a separate account for the nonparticipant spouse.



[]



AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-512-110  Distribution of deferrals. (1) General rule. Assuming a timely election is allowed and has been made pursuant to WAC 415-512-090, payment will be made in at least annual, substantially nonincreasing amounts. Payments are also subject to the limitations in subsections (2) through (((5))) (7) of this section.

(2) Distribution to participant. A participant must either:

(a) Receive his/her entire interest prior to the ((latest)) later of:

(i) The April 1st immediately following the close of the calendar year in which the participant attains age seventy and one-half; or

(ii) The April 1st immediately following the close of the calendar year in which the participant separates from service with the employer; or

(b) Begin receiving his/her interest not later than the time specified in (a) of this subsection and receive it over a period not longer than ((either)) one of the following:

(i) The life of the participant;

(ii) The life of the participant and a beneficiary designated by the participant;

(iii) The life expectancy of the participant; or

(iv) The life expectancy of the participant and a designated beneficiary.

Payment must be sufficiently rapid to satisfy the requirements of Section 457 (d)(2)(B)(i)(I) and Section 401 (a)(9)(G) of the Internal Revenue Code. ((Provided, that until tables are issued by the Secretary of the Treasury, if provision is made for the payment of a portion of the benefits to a beneficiary, the amount payable to the participant actuarially must exceed two-thirds of the maximum amount payable to the participant had no provision been made for payments to the beneficiary (determined as of the commencement of the distribution).))

Once payments to a participant begin, the participant may accelerate the payment schedule only in the event of an unforeseeable emergency (and subject to the provisions of WAC 415-524-010 regarding such emergencies).

(3) Distribution to beneficiaries.

(a) When distribution begins prior to the participant's death, then payout must be made at least as rapidly as it was being made to the participant. When the beneficiary is an organization, estate or trust, then payment will be payable in a lump sum on the twenty-fifth day of the second month following the participant's death.

(b) When distribution does not begin prior to the participant's death, and is to be made:

(i) To an organization, estate or trust, then payment will be payable in a lump sum on the twenty-fifth day of the second month following the participant's death;

(ii) To a living beneficiary designated by the participant other than the participant's surviving spouse, and, by election, not to begin within one year of the participant's death, then payment must be made within five years of the participant's death. The plan will not distribute to a minor beneficiary if it does not receive proof that the minor has either:

(A) A court-appointed guardian; or

(B) A custodian whom the participant during his or her lifetime designated in a beneficiary designation, will, trust or other instrument exercising a power of appointment, followed in substance by the words: "As custodian for . . . . . . . . (name of minor) under the Washington Uniform Transfers to Minors Act." See WAC 415-512-090 (2)(b);

(iii) To a living beneficiary designated by the participant other than the participant's surviving spouse, and, by election, beginning within one year of the participant's death, then payment must be made within fifteen years of the participant's death. The plan will not distribute to a minor beneficiary if it does not receive proof that the minor has either:

(A) A court-appointed guardian; or

(B) A custodian whom the participant during his or her lifetime designated in a beneficiary designation, will, trust or other instrument exercising a power of appointment, followed in substance by the words: "As custodian for . . . . . . . . (name of minor) under the Washington Uniform Transfers to Minors Act." See WAC 415-512-090 (2)(b);

(iv) To the participant's surviving spouse, whether as designated beneficiary, or by default, then payment must begin prior to the April 1st immediately following the ((later)) latter of the close of the plan year in which the participant would have attained age seventy and one-half or, if later, the year in which the participant separated from service((, and)). Payment may be made over the lifetime of the surviving spouse or over a period not longer than the life expectancy of the surviving spouse.

(4) For purposes of this section, life expectancies will be computed by use of the expected return multiples in Treasury Department Regulation 1.72-9 or, if distribution is to be effected through a contract issued by an insurance company, by use of the mortality tables of such company. ((Where payment is being made over the joint lives of the participant and the participant's surviving spouse, the life expectancy of the participant and the participant's surviving spouse may be recalculated annually.))

(5) The minimum payment amount (not including any amount paid out from an annuity) is fifty dollars per month (if payments are made monthly) and six hundred dollars per year (if payments are made annually).

(6) The minimum amount to establish a payout annuity administered by the department and paid monthly is one hundred thousand dollars. The minimum amount for an annuity paid quarterly is twenty-five thousand dollars.

(7) Notwithstanding anything in this plan to the contrary, distributions from the plan will be made in compliance with the minimum distribution rules of Section 457 (d)(2) of the Internal Revenue Code, and in compliance with Treasury Department Regulations issued under Sections 401 (a)(9) and 457 (d)(2) of the Internal Revenue Code.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-512-110, filed 7/29/96, effective 7/29/96.]

OTS-2096.3

AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-524-010  Unforeseeable emergency. (1) Payout request. Notwithstanding any other provisions in plan chapters 415-501 through 415-568 WAC, in the event of an unforeseeable emergency, a participant (or a beneficiary entitled to accumulated deferrals) may request the department to pay out all or a portion of accumulated deferrals. If the application for payment is approved by the department, payment will be made within sixty days following such an approval. The amount paid shall be limited strictly to that amount reasonably necessary to satisfy the emergency need.

For purposes of this plan, an unforeseeable emergency shall be severe financial hardship to the participant resulting from:

(a) A sudden and unexpected illness or accident of the participant or of a dependent (as defined in Section 152(a) of the Internal Revenue Code) of the participant,

(b) Loss of the participant's property due to casualty, or

(c) Other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, payment shall not be made to the extent that such hardship is or may be relieved:

(i) Through reimbursement or compensation by insurance or otherwise;

(ii) By liquidation of the participant's assets, to the extent liquidation of such assets would not itself cause severe financial hardship; or

(iii) By cessation of deferrals under the plan.

Examples of what shall not be considered to be unforeseeable emergencies include the need to send a participant's child to college or the desire to purchase a home.

A divorce does not constitute an "unforeseeable emergency" or "severe financial hardship."

(2) Applications for review. All applications for review of decisions on requests for pay out of accumulated deferrals due to an unforeseeable emergency shall follow the procedure established in WAC 415-08-015.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-524-010, filed 7/29/96, effective 7/29/96.]

OTS-2275.1

AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-544-010  Accumulated deferrals not assignable. ((It is agreed that neither the participant, nor the participant's beneficiary or beneficiaries, nor any other designee, shall have any right to commute, sell, assign, transfer, or otherwise convey the right to receive any payments hereunder, which payments and right thereto are expressly declared to be nonassignable and nontransferable; and in the event of attempt to assign or transfer, the employer shall have no further liability hereunder, nor shall any unpaid accumulated deferrals be subject to attachment, garnishment or execution, or be transferable by operation of law in event of bankruptcy, insolvency, except to the extent otherwise required by law.)) Neither the participant, nor the participant's beneficiary or beneficiaries, nor any other designee, has any right to sell, assign, transfer, or otherwise convey the right to receive any payments under the plan. These payments and right thereto are nonassignable and nontransferable. Unpaid accumulated deferrals are not subject to attachment, garnishment, or execution and are not transferable by operation of law in event of bankruptcy or insolvency, except to the extent otherwise required by law. In the event of any attempt to assign or transfer, the state investment board and the department will have no liability.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-544-010, filed 7/29/96, effective 7/29/96.]

OTS-2097.3

AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-548-010  Plan assets. (1) All ((amounts of compensation deferred under the plan, all property and rights to property (including rights as a beneficiary of a contract providing life insurance protection) purchased with such amounts, and all income attributable to such amounts, property or rights to property shall remain (until paid or made available to the participant or the participant's beneficiary or beneficiaries under the plan) solely the property and rights of the employer, (without being restricted to the benefits under the plan) and shall be subject only to the claims of general creditors of the employer)) moneys in the deferred compensation principal account, all property and rights purchased therewith, and all income attributable thereto, shall be held in trust for the exclusive benefit of the state deferred compensation plan's participants and their beneficiaries. Under RCW 41.50.780(4) and chapter 43.33A RCW, the state investment board is made trustee of state deferred compensation plan assets.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-548-010, filed 7/29/96, effective 7/29/96.]

OTS-2210.2

AMENDATORY SECTION (Amending WSR 96-16-020, filed 7/29/96, effective 7/29/96)



WAC 415-560-010  Investment responsibility. ((The employer and department may, but are not required to, invest funds held pursuant to participation agreements between participants and the employer in accordance with the requests made by each participant. The department shall retain the right to approve or disapprove such investment requests.)) Any action by the department in investing funds, or by the ((department or employee retirement benefits)) state investment board approving of any such investment of funds, shall not be considered to be either an endorsement or guarantee of any investment, nor shall it be considered to attest to the financial soundness or the suitability of any investment for the purpose of meeting future obligations.



[Statutory Authority: RCW 41.50.050 and 41.50.780(11). 96-16-020, 415-560-010, filed 7/29/96, effective 7/29/96.]

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