WSR 02-10-098

PROPOSED RULES

DEPARTMENT OF

RETIREMENT SYSTEMS

[ Filed April 30, 2002, 8:16 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 01-23-077.

Title of Rule: Technical additions to PERS, SERS, and TRS Plans 2 and 3.

Purpose: The Internal Revenue Service (IRS) has requested that the Department of Retirement Systems (DRS) make technical additions to its Public Employees' Retirement System, School Employees' Retirement System, and Teachers' Retirement System Plans 2 and 3.

Statutory Authority for Adoption: RCW 41.50.050(5).

Statute Being Implemented: Chapters 41.32, 41.35, and 41.40 RCW; IRS Regulations.

Summary: Technical additions to PERS, SERS, and TRS Plans 2 and 3.

Reasons Supporting Proposal: The IRS has requested that DRS make the technical additions reflected in the new WACs shown below.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Merry A. Kogut, P.O. Box 48380, Olympia, WA 98504-8380, (360) 664-7291.

Name of Proponent: Department of Retirement Systems, governmental.

Rule is necessary because of federal law, the IRS has requires that DRS adopt these new rules.

Explanation of Rule, its Purpose, and Anticipated Effects: Technical additions to PERS, SERS, and TRS Plans 2 and 3.

PERS, add WAC 415-108-181, 415-108-182, and 415-107-183.

SERS, add WAC 415-110-050, 415-110-060, and 415-110-070.

TRS, add WAC 415-112-050, 415-112-060, and 415-112-070.

IRS Note: The IRS has requested that DRS adopt these new rules.

Proposal does not change existing rules.

No small business economic impact statement has been prepared under chapter 19.85 RCW. These amendments have no affect on businesses.

RCW 34.05.328 does not apply to this rule adoption. The Department of Retirement Systems is not one of the named departments in RCW 34.05.328.

Hearing Location: Department of Retirement Systems, 6835 Capitol Boulevard, Conference Room 115, Tumwater, WA, on June 4, 2002, at 9:00 a.m.

Assistance for Persons with Disabilities: Contact the rules coordinator by seven days before the hearing, if possible, phone (360) 664-7291, TTY (360) 586-5450, e-mail merryk@drs.wa.gov.

Submit Written Comments to: Identify WAC Numbers, Merry A. Kogut, Rules Coordinator, Department of Retirement Systems, P.O. Box 48380, Olympia, WA 98504-8380, e-mail Merryk@drs.wa.gov, fax (360) 753-3166, by 5:00 p.m. on June 4, 2002.

Date of Intended Adoption: No sooner than June 5, 2002.

April 30, 2002

Merry A. Kogut

Rules Coordinator

OTS-5652.1


NEW SECTION
WAC 415-108-181   How does the department comply with Internal Revenue Code distribution rules?   (1) This section applies only to the public employees' retirement system (PERS) Plans 2 and 3.

(2) All benefits paid from the PERS Plans 2 and 3 retirement plans shall be distributed in accordance with the requirements of section 401 (a)(9) of the Federal Internal Revenue Code and the regulations under that section. In order to meet these requirements, these retirement plans shall be administered in accordance with the following provisions:

(a) Distribution of a member's benefit must begin by the later of the April 1 following the calendar year in which a participant attains age 70 1/2 or the April 1 of the year following the calendar year in which the member retires;

(b) The life expectancy of a member or the member's spouse may not be recalculated after the benefits commence;

(c) If a member dies before the distribution of the member's benefits has begun, distributions to beneficiaries must begin no later than December 31 of the calendar year immediately following the calendar year in which the member died;

(d) The amount of benefits payable to a member's beneficiary may not exceed the maximum determined under the incidental death benefit requirement of the Federal Internal Revenue Code; and

(e) 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.

(3) 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.

[]


NEW SECTION
WAC 415-108-182   What are the IRS limitations on maximum benefits and maximum contributions?   (1) This section applies only to the public employees' retirement system (PERS) Plans 2 and 3. Subject to the provisions of this section, benefits paid from, and employee contributions made to, these plans shall not exceed the maximum benefits and the maximum annual addition, respectively, as applicable under section 415 of the Federal Internal Revenue Code.

(2) A participant may not receive an annual benefit that exceeds the dollar amount specified in section 415 (b)(1)(A) of the Federal Internal Revenue Code, subject to the applicable adjustments in section 415 of the Federal Internal Revenue Code. For purposes of applying IRC 415(b) when a participant retires before age 62 or after age 65, the determination as to whether the benefit satisfies the IRC 415(b) limitations is made by comparing the equivalent annual benefit determined in Step 1 below with the age-adjusted dollar limit determined in Step 2 below.

Step 1: Under IRC 415 (b)(2)(B), determine the annual benefit in the form of a straight life annuity commencing at the same age that is actuarially equivalent to the plan benefit. In general, IRC 415 (b)(2)(E)(i) and (v) require that the equivalent annual benefit be the greater of (a) or (b) below.

(a) The equivalent annual benefit computed using the interest rate and mortality table, or tabular factor, specified in the plan for actuarial equivalence for the particular form of benefit payable (plan rate and plan mortality table, or plan tabular factor, respectively).

(b) The equivalent annual benefit computed using a 5 percent interest rate assumption and the applicable mortality table.

This step does not apply to a benefit that is not required to be converted to a straight life annuity under IRC 415 (b)(2)(B), for example, a qualified joint and survivor annuity.

Step 2: Under IRC 415 (b)(2)(C) or (D), determine the IRC 415(b) dollar limitation that applies at the age the benefit is payable (age-adjusted dollar limit).

If the age at which the benefit is payable is less than 62, the age-adjusted dollar limit is determined by reducing the dollar limit on an actuarially equivalent basis. In general, IRC 415 (b)(2)(E)(i) and (v) require that the age-adjusted dollar amount be the lesser of (a) or (b) below.

(a) The equivalent amount computed using the plan rate and plan mortality table (or plan tabular factor) used for actuarial equivalence for early retirement benefits under the plan.

(b) The amount computed using 5 percent interest and the applicable mortality table described in Revenue Ruling 95-6. (This is used only to the extent described in Q & A 6 of Revenue Ruling 98-1, which provides that, for purposes of adjusting any limitation under IRC 415 (b)(2)(C) or (D), to the extent a forfeiture does not occur upon death, the mortality decrement may be ignored prior to age 62 and must be ignored after SSRA.)

If the age at which the benefit is payable is greater than age 65, the age-adjusted dollar limit is determined by increasing the IRC 415(b) dollar limitation on an actuarially equivalent basis. In general, IRC 415 (b)(2)(E)(i) and (v) require that the increased age-adjusted dollar limit be the lesser of (a) or (b) below.

(a) The equivalent amount computed using the plan rate and plan mortality table (or plan tabular factor) used for actuarial equivalence for early retirement benefits under the plan.

(b) The equivalent amount computed using 5 percent interest and the applicable mortality table (used to the extent described in Q&A 6, as described in the prior paragraph).

The dollar limit will be reduced proportionally for less than ten years of participation.

The plan will satisfy the IRC 415(b) limitations only if the equivalent annual benefit determined in Step 1 is less than the age-adjusted dollar limit determined in Step 2.

(3) Effective for limitation years beginning after December 31, 2001, the maximum annual addition that may be contributed or allocated to a participant's account for any limitation year may not exceed the lesser of (a) $40,000, as adjusted for increases in the cost-of-living under section 415(d) of the Federal Internal Revenue Code, or (b) one hundred percent of the member's compensation, within the meaning of section 415 (c)(3) of the Federal Internal Revenue Code, for the limitation year.

(4) Notwithstanding any other provision of law to the contrary, the department may modify a request by a participant to make a contribution to the retirement plans if the amount of the contributions would exceed the limits under section 415(c) or 415(n) of the Federal Internal Revenue Code. An eligible participant in a retirement plan, as defined by section 1526 of the Federal Taxpayer Relief Act of 1997, may purchase service credit as provided by state law in effect on August 5, 1997, without regard to the limitations of section 415 (c)(1) of the Federal Internal Revenue Code.

(5) Prior to January 1, 1998, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code does not include the amount of any elective deferral, as defined in section 402 (g)(3) of the Federal Internal Revenue Code, or any contribution which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125 or 457 of the Federal Internal Revenue Code.

(6) For limitation years beginning on and after January 1, 1998, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code does include the amount of any elective deferral, as defined in section 402 (g)(3) of the Federal Internal Revenue Code, or any contribution which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125 or 457 of the Federal Internal Revenue Code.

(7) For limitation years beginning on and after January 1, 2001, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code shall also include elective amounts that are not includible in the gross income of the employee by reason of section 132 (f)(4).

[]


NEW SECTION
WAC 415-108-183   Assets for exclusive benefit of members and beneficiaries.   No assets of the public employees' retirement system Plans 2 and 3 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.

[]

OTS-5653.1


NEW SECTION
WAC 415-110-050   How does the department comply with Internal Revenue Code distribution rules?   (1) This section applies only to the school employees' retirement system (SERS) Plans 2 and 3.

(2) All benefits paid from the SERS Plans 2 and 3 retirement plans shall be distributed in accordance with the requirements of section 401 (a)(9) of the Federal Internal Revenue Code and the regulations under that section. In order to meet these requirements, these retirement plans shall be administered in accordance with the following provisions:

(a) Distribution of a member's benefit must begin by the later of the April 1 following the calendar year in which a participant attains age 70 1/2 or the April 1 of the year following the calendar year in which the member retires;

(b) The life expectancy of a member or the member's spouse may not be recalculated after the benefits commence;

(c) If a member dies before the distribution of the member's benefits has begun, distributions to beneficiaries must begin no later than December 31 of the calendar year immediately following the calendar year in which the member died;

(d) The amount of benefits payable to a member's beneficiary may not exceed the maximum determined under the incidental death benefit requirement of the Federal Internal Revenue Code; and

(e) 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.

(3) 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.

[]


NEW SECTION
WAC 415-110-060   What are the IRS limitations on maximum benefits and maximum contributions?   (1) This section applies only to the school employees' retirement system (SERS) Plans 2 and 3. Subject to the provisions of this section, benefits paid from, and employee contributions made to, these plans shall not exceed the maximum benefits and the maximum annual addition, respectively, as applicable under section 415 of the Federal Internal Revenue Code.

(2) A participant may not receive an annual benefit that exceeds the dollar amount specified in section 415 (b)(1)(A) of the Federal Internal Revenue Code, subject to the applicable adjustments in section 415 of the Federal Internal Revenue Code. For purposes of applying IRC 415(b) when a participant retires before age 62 or after age 65, the determination as to whether the benefit satisfies the IRC 415(b) limitations is made by comparing the equivalent annual benefit determined in Step 1 below with the age-adjusted dollar limit determined in Step 2 below.

Step 1: Under IRC 415 (b)(2)(B), determine the annual benefit in the form of a straight life annuity commencing at the same age that is actuarially equivalent to the plan benefit. In general, IRC 415 (b)(2)(E)(i) and (v) require that the equivalent annual benefit be the greater of (a) or (b) below.

(a) The equivalent annual benefit computed using the interest rate and mortality table, or tabular factor, specified in the plan for actuarial equivalence for the particular form of benefit payable (plan rate and plan mortality table, or plan tabular factor, respectively).

(b) The equivalent annual benefit computed using a 5 percent interest rate assumption and the applicable mortality table.

This step does not apply to a benefit that is not required to be converted to a straight life annuity under IRC 415 (b)(2)(B), for example, a qualified joint and survivor annuity.

Step 2: Under IRC 415 (b)(2)(C) or (D), determine the IRC 415(b) dollar limitation that applies at the age the benefit is payable (age-adjusted dollar limit).

If the age at which the benefit is payable is less than 62, the age-adjusted dollar limit is determined by reducing the dollar limit on an actuarially equivalent basis. In general, IRC 415 (b)(2)(E)(i) and (v) require that the age-adjusted dollar amount be the lesser of (a) or (b) below.

(a) The equivalent amount computed using the plan rate and plan mortality table (or plan tabular factor) used for actuarial equivalence for early retirement benefits under the plan.

(b) The amount computed using 5 percent interest and the applicable mortality table described in Revenue Ruling 95-6. (This is used only to the extent described in Q & A 6 of Revenue Ruling 98-1, which provides that, for purposes of adjusting any limitation under IRC 415 (b)(2)(C) or (D), to the extent a forfeiture does not occur upon death, the mortality decrement may be ignored prior to age 62 and must be ignored after SSRA.)

If the age at which the benefit is payable is greater than age 65, the age-adjusted dollar limit is determined by increasing the IRC 415(b) dollar limitation on an actuarially equivalent basis. In general, IRC 415 (b)(2)(E)(i) and (v) require that the increased age-adjusted dollar limit be the lesser of (a) or (b) below.

(a) The equivalent amount computed using the plan rate and plan mortality table (or plan tabular factor) used for actuarial equivalence for early retirement benefits under the plan.

(b) The equivalent amount computed using 5 percent interest and the applicable mortality table (used to the extent described in Q&A 6, as described in the prior paragraph).

The dollar limit will be reduced proportionally for less than ten years of participation.

The plan will satisfy the IRC 415(b) limitations only if the equivalent annual benefit determined in Step 1 is less than the age-adjusted dollar limit determined in Step 2.

(3) Effective for limitation years beginning after December 31, 2001, the maximum annual addition that may be contributed or allocated to a participant's account for any limitation year may not exceed the lesser of (a) $40,000, as adjusted for increases in the cost-of-living under section 415(d) of the Federal Internal Revenue Code, or (b) one hundred percent of the member's compensation, within the meaning of section 415 (c)(3) of the Federal Internal Revenue Code, for the limitation year.

(4) Notwithstanding any other provision of law to the contrary, the department may modify a request by a participant to make a contribution to the retirement plans if the amount of the contributions would exceed the limits under section 415(c) or 415(n) of the Federal Internal Revenue Code. An eligible participant in a retirement plan, as defined by section 1526 of the Federal Taxpayer Relief Act of 1997, may purchase service credit as provided by state law in effect on August 5, 1997, without regard to the limitations of section 415 (c)(1) of the Federal Internal Revenue Code.

(5) Prior to January 1, 1998, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code does not include the amount of any elective deferral, as defined in section 402 (g)(3) of the Federal Internal Revenue Code, or any contribution which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125 or 457 of the Federal Internal Revenue Code.

(6) For limitation years beginning on and after January 1, 1998, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code does include the amount of any elective deferral, as defined in section 402 (g)(3) of the Federal Internal Revenue Code, or any contribution which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125 or 457 of the Federal Internal Revenue Code.

(7) For limitation years beginning on and after January 1, 2001, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code shall also include elective amounts that are not includible in the gross income of the employee by reason of section 132 (f)(4).

[]


NEW SECTION
WAC 415-110-070   Assets for exclusive benefit of members and beneficiaries.   No assets of the school employees' retirement system Plans 2 and 3 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.

[]

OTS-5654.1


NEW SECTION
WAC 415-112-050   How does the department comply with Internal Revenue Code distribution rules?   (1) This section applies only to the teachers' retirement system (TRS) Plans 2 and 3.

(2) All benefits paid from the TRS Plans 2 and 3 retirement plans shall be distributed in accordance with the requirements of section 401 (a)(9) of the Federal Internal Revenue Code and the regulations under that section. In order to meet these requirements, these retirement plans shall be administered in accordance with the following provisions:

(a) Distribution of a member's benefit must begin by the later of the April 1 following the calendar year in which a participant attains age 70 1/2 or the April 1 of the year following the calendar year in which the member retires;

(b) The life expectancy of a member or the member's spouse may not be recalculated after the benefits commence;

(c) If a member dies before the distribution of the member's benefits has begun, distributions to beneficiaries must begin no later than December 31 of the calendar year immediately following the calendar year in which the member died;

(d) The amount of benefits payable to a member's beneficiary may not exceed the maximum determined under the incidental death benefit requirement of the Federal Internal Revenue Code; and

(e) 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.

(3) 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.

[]


NEW SECTION
WAC 415-112-060   What are the IRS limitations on maximum benefits and maximum contributions?   (1) This section applies only to the teachers' retirement system (TRS) Plans 2 and 3. Subject to the provisions of this section, benefits paid from, and employee contributions made to, these plans shall not exceed the maximum benefits and the maximum annual addition, respectively, as applicable under section 415 of the Federal Internal Revenue Code.

(2) A participant may not receive an annual benefit that exceeds the dollar amount specified in section 415 (b)(1)(A) of the Federal Internal Revenue Code, subject to the applicable adjustments in section 415 of the Federal Internal Revenue Code. For purposes of applying IRC 415(b) when a participant retires before age 62 or after age 65, the determination as to whether the benefit satisfies the IRC 415(b) limitations is made by comparing the equivalent annual benefit determined in Step 1 below with the age-adjusted dollar limit determined in Step 2 below.

Step 1: Under IRC 415 (b)(2)(B), determine the annual benefit in the form of a straight life annuity commencing at the same age that is actuarially equivalent to the plan benefit. In general, IRC 415 (b)(2)(E)(i) and (v) require that the equivalent annual benefit be the greater of (a) or (b) below.

(a) The equivalent annual benefit computed using the interest rate and mortality table, or tabular factor, specified in the plan for actuarial equivalence for the particular form of benefit payable (plan rate and plan mortality table, or plan tabular factor, respectively).

(b) The equivalent annual benefit computed using a 5 percent interest rate assumption and the applicable mortality table.

This step does not apply to a benefit that is not required to be converted to a straight life annuity under IRC 415 (b)(2)(B), for example, a qualified joint and survivor annuity.

Step 2: Under IRC 415 (b)(2)(C) or (D), determine the IRC 415(b) dollar limitation that applies at the age the benefit is payable (age-adjusted dollar limit).

If the age at which the benefit is payable is less than 62, the age-adjusted dollar limit is determined by reducing the dollar limit on an actuarially equivalent basis. In general, IRC 415 (b)(2)(E)(i) and (v) require that the age-adjusted dollar amount be the lesser of (a) or (b) below.

(a) The equivalent amount computed using the plan rate and plan mortality table (or plan tabular factor) used for actuarial equivalence for early retirement benefits under the plan.

(b) The amount computed using 5 percent interest and the applicable mortality table described in Revenue Ruling 95-6. (This is used only to the extent described in Q & A 6 of Revenue Ruling 98-1, which provides that, for purposes of adjusting any limitation under IRC 415 (b)(2)(C) or (D), to the extent a forfeiture does not occur upon death, the mortality decrement may be ignored prior to age 62 and must be ignored after SSRA.)

If the age at which the benefit is payable is greater than age 65, the age-adjusted dollar limit is determined by increasing the IRC 415(b) dollar limitation on an actuarially equivalent basis. In general, IRC 415 (b)(2)(E)(i) and (v) require that the increased age-adjusted dollar limit be the lesser of (a) or (b) below.

(a) The equivalent amount computed using the plan rate and plan mortality table (or plan tabular factor) used for actuarial equivalence for early retirement benefits under the plan.

(b) The equivalent amount computed using 5 percent interest and the applicable mortality table (used to the extent described in Q&A 6, as described in the prior paragraph).

The dollar limit will be reduced proportionally for less than ten years of participation.

The plan will satisfy the IRC 415(b) limitations only if the equivalent annual benefit determined in Step 1 is less than the age-adjusted dollar limit determined in Step 2.

(3) Effective for limitation years beginning after December 31, 2001, the maximum annual addition that may be contributed or allocated to a participant's account for any limitation year may not exceed the lesser of (a) $40,000, as adjusted for increases in the cost-of-living under section 415(d) of the Federal Internal Revenue Code, or (b) one hundred percent of the member's compensation, within the meaning of section 415 (c)(3) of the Federal Internal Revenue Code, for the limitation year.

(4) Notwithstanding any other provision of law to the contrary, the department may modify a request by a participant to make a contribution to the retirement plans if the amount of the contributions would exceed the limits under section 415(c) or 415(n) of the Federal Internal Revenue Code. An eligible participant in a retirement plan, as defined by section 1526 of the Federal Taxpayer Relief Act of 1997, may purchase service credit as provided by state law in effect on August 5, 1997, without regard to the limitations of section 415 (c)(1) of the Federal Internal Revenue Code.

(5) Prior to January 1, 1998, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code does not include the amount of any elective deferral, as defined in section 402 (g)(3) of the Federal Internal Revenue Code, or any contribution which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125 or 457 of the Federal Internal Revenue Code.

(6) For limitation years beginning on and after January 1, 1998, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code does include the amount of any elective deferral, as defined in section 402 (g)(3) of the Federal Internal Revenue Code, or any contribution which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125 or 457 of the Federal Internal Revenue Code.

(7) For limitation years beginning on and after January 1, 2001, the definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with section 415 of the Federal Internal Revenue Code shall also include elective amounts that are not includible in the gross income of the employee by reason of section 132 (f)(4).

[]


NEW SECTION
WAC 415-112-070   Assets for exclusive benefit of members and beneficiaries.   No assets of the teachers' retirement system Plans 2 and 3 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.

[]

Washington State Code Reviser's Office