WSR 97-01-014

PERMANENT RULES

DEPARTMENT OF

RETIREMENT SYSTEMS

[Filed December 6, 1996, 4:44 p.m.]

Date of Adoption: December 6, 1996.

Purpose: To comply with the rule adoption requirement in RCW 41.50.165 regarding the method for determining the actuarial value of an increase to a member's benefit should he or she choose to purchase service credit under RCW 41.50.165.

Statutory Authority for Adoption: RCW 41.50.050, 41.50.165.

Adopted under notice filed as WSR 96-21-047 on October 11, 1996.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, amended 0, repealed 0; Federal Rules or Standards: New 0, amended 0, repealed 0; or Recently Enacted State Statutes: New 10, amended 0, repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, amended 0, repealed 0.

Number of Sections Adopted on the Agency's own Initiative: New 10, amended 0, repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 10, amended 0, repealed 0.

Number of Sections Adopted using Negotiated Rule Making: New 0, amended 0, repealed 0; Pilot Rule Making: New 0, amended 0, repealed 0; or Other Alternative Rule Making: New 0, amended 0, repealed 0.

Effective Date of Rule: Thirty-one days after filing.

December 6, 1996

Sheryl Wilson

Director

PURCHASE OF SERVICE CREDIT AFTER STATUTORY DEADLINE

RCW 41.50.165

NEW SECTION

WAC 415-10-010 Can I purchase service credit after the statutory deadline? RCW 41.50.165 generally allows you to purchase service credit you failed to establish or reestablish within the statutory deadline.

(1) You must pay the actuarial value of the increase to your retirement allowance. The actuarial value of the increase to your benefit means the cost to the retirement system trust fund of:

(a) Including the additional service credit in your retirement allowance calculation; and

(b) Commencing your retirement allowance at an earlier age, if applicable. This second factor will not apply if your retirement system is LEOFF I, LEOFF II, PERS II, or TRS II, because length of service is not a factor in determining eligibility to retire in those systems.

(2) The valuation is based upon economic assumptions. The cost to the retirement system trust fund for the increased value to your benefit is calculated based upon interest rate assumptions adopted by the economic and revenue forecast council and actuarial factors adopted or approved by the state actuary.

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NEW SECTION

WAC 415-10-020 Definitions. As used in this chapter:

(1) "Average earnings" means:

(a) The average of your two highest consecutive years of compensation as of the date of your service credit purchase if you are purchasing service credit in PERS Plan I, TRS Plan I or WSPRS;

(b) The average of your five highest consecutive years of compensation as of the date of your service credit purchase if you are purchasing service credit in Plan II.

(c) The basic salary attached to your position at the date of your service credit purchase if you are purchasing service credit in LEOFF Plan I.

(2) "Factor 1" means the actuarial cost factor calculated by the state actuary and adopted by the department. The actual factor used varies depending upon the time between the date of payment and the projected date of retirement. Generally, the longer the gap between date of payment and date of retirement the lower the factor.

(3) "Factor 2" is the actuarial factor calculated by the state actuary based upon demographic differences between the membership of the different retirement systems. Those factors are: .00788 (PERS I); .00698 (TRS I); and .00908 (WSPRS).

(4) "Factor 3" means the interest factor calculated by the state actuary and adopted by the department. This factor is used only when the service credit purchase lowers the projected retirement age and is based upon the higher cost to the system of the earlier retirement.

(5) "LEOFF" means the law enforcement officers' and fire fighters' retirement system established under chapter 41.26 RCW.

(6) "PERS" means the public employees' retirement system established under chapter 41.40 RCW.

(7) "Plan I" means the retirement system plan that includes persons who established membership before October 1, 1977. PERS, TRS and LEOFF are divided into Plan I and Plan II. WSPRS has only one plan.

(8) "Plan II" means the retirement system plan that includes persons who established membership on or after October 1, 1977. PERS, TRS and LEOFF are divided into Plan I and Plan II. WSPRS has only one plan.

(9) "Plan III" means the teachers' retirement system plan III established by RCW 41.32.831.

(10) "Service credit being purchased" means the number of service credit months or service credit years you are purchasing.

(11) "TRS" means the teachers' retirement system established under chapter 41.32 RCW.

(12) "WSPRS" means the Washington state patrol retirement system established under chapter 43.43 RCW.

(13) "Years of earlier retirement" equals the number of years or fractions of years you will be able to retire earlier as a result of your purchase of service credit.

(14) "Years of service" equals the total anticipated years of service you will have accrued at retirement, including the additional service credit you purchase under this section.

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NEW SECTION

WAC 415-10-030 Calculation of cost to purchase service credit in LEOFF Plan I, LEOFF Plan II, PERS Plan II, or TRS Plan II. If you are a member of LEOFF Plan I, LEOFF Plan II, PERS Plan II or TRS Plan II, the department will calculate the actuarial value of the service credit you purchase under RCW 41.50.165(2) using the following formula:

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NEW SECTION

WAC 415-10-040 Calculation of cost to purchase service credit for members of PERS I, TRS I or WSPRS. If you are a member of PERS I, TRS I or WSPRS, the department will calculate the actuarial value of the service credit you purchase under RCW 41.50.165(2) using the following three part formula:

Part 1 Cost = Part 2 Cost =

Service Credit Being Purchased Years of Service

x x

Average Earnings Average Earnings

x x

Factor 1 Factor 2

x

Years of Earlier Retirement

x

Factor 3

Cost to purchase service credit = Part 1 Cost + Part 2 Cost.

The Part 1 Cost represents the cost of including the additional service in your retirement allowance calculation. The Part 2 Cost represents the cost of commencing your retirement allowance at the earliest possible age.

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NEW SECTION

WAC 415-10-050 Restrictions on purchasing service credit. (1) You may not purchase service credit under RCW 41.50.165(2) if your deadline to establish or reestablish the service credit has not expired.

(2) If you are reestablishing credit you must purchase at least the service credit you earned in any one calendar month of employment.

(3) If you are establishing credit for the first time you must purchase the entire period of service. If you are not reestablishing credit canceled by a withdrawal of contributions, you must purchase the entire period of service.

(4) Your ability to purchase service credit may be limited by Internal Revenue Code restrictions. The department may limit the amount of service credit you may purchase in any calendar year in order to stay within the maximum employee contribution limits established by the Internal Revenue Code for 401(a) tax qualified plans.

(5) You may not make installment payments. If you purchase service credit under this section, you must make payment in a single lump-sum as determined by the department for each unit of service credit purchased.

(6) Purchasing service credit for periods prior to October 1, 1977, will not move you from Plan I to Plan II. Plan membership is based upon the date your retirement system membership was established. Purchasing prior service credit does not change the date you first established membership and therefore does not change your plan membership.

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NEW SECTION

WAC 415-10-060 Crediting service credit purchases. If you do not purchase all of your previously withdrawn service credit, the department will recredit your purchased service beginning with the oldest month of service canceled by your withdrawal.

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NEW SECTION

WAC 415-10-070 Requesting an estimate--Requesting a bill. (1) The department will provide you a service credit purchase estimate upon request. If, after receiving the estimate, you wish to purchase some or all of the available credit you must request a bill in writing. Your request must identify the amount of service credit you wish to purchase.

(2) Your bill will be based on a specific date of payment. The cost to purchase the service credit could change if you attempt to pay after the specific payment date listed on the bill. If you do not make payment by the bill's due date but still wish to purchase service credit, you must request a new bill from the department.

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NEW SECTION

WAC 415-10-080 If I purchase service credit, can I receive a refund of my payments? (1) You may not receive a refund unless you separate from service and withdraw your contributions. Except as provided under subsections (2) and (3) of this section, your payments to purchase service credit under RCW 41.50.165(2) qualify as a part of your accumulated contributions. As with other accumulated contributions, you may not receive a refund of your payments unless you separate from service and withdraw all your contributions.

(2) Additional restrictions for TRS I members. If you are a TRS I member, 41.32.498(2) prohibits you from withdrawing payments made to purchase service credit under RCW 41.50.165(2) at the time of retirement.

(3) Additional restrictions for LEOFF II members. If you are a LEOFF Plan II member, payments made to purchase service credit under RCW 41.50.165(2) and interest on those payments may be refunded. However, such payments may not be included when calculating the one hundred fifty percent refund of contributions under RCW 41.26.540.

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NEW SECTION

WAC 415-10-090 If I reenter employment after separating from service and withdrawing my plan contributions, must I restore all periods of service? If you separate from service, withdraw your plan contributions and then become reemployed with an employer and wish to restore your withdrawn contributions, you must restore all periods of service by repaying the accumulated contributions you withdrew plus interest, if applicable. This includes any payments you made under RCW 41.50.165(2) to purchase service credit plus any interest attributed to those payments.

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NEW SECTION

WAC 415-10-100 Can I purchase TRS Plan II credit in TRS Plan III? Yes. (1) Transferring purchased TRS Plan II credit into TRS Plan III. If you purchase TRS Plan II service credit under this chapter and later elect to enter TRS Plan III, that credit will also transfer to TRS Plan III. Fifty percent of the money you paid to purchase the service credit will be credited to the TRS Plan III defined contribution account established under chapter 41.34 RCW. The other fifty percent will be credited to the TRS Plan III defined benefit portion established under RCW 41.32.831.

(2) Purchasing TRS Plan II service credit after transferring to TRS Plan III. You may purchase service credit initially available under TRS Plan II after you transfer to TRS Plan III. The service will be credited in TRS Plan III. Fifty percent of the money you pay to purchase the service credit will be credited to the TRS Plan III defined contribution account established under chapter 41.34 RCW. The other fifty percent will be credited to the TRS Plan III defined benefit portion established under RCW 41.32.831.

(3) Service earned after transferring to TRS Plan III cannot be purchased. Service earned as a Plan III member is automatically recredited if the member reenters membership and earns at least twelve service credit months. Plan III does not have any deadlines on establishing optional service. Because there are no deadlines for establishing or reestablishing service credit there is no provision for purchasing service credit earned in Plan III under RCW 41.50.165