Purpose: To explain the types of annuities that Plan 3 members may purchase at the time of retirement and the requirements and process for purchasing the annuities.
Citation of Existing Rules Affected by this Order: Amending WAC 415-111-310.
Statutory Authority for Adoption: RCW 41.50.050(5).
Other Authority: RCW 41.50.088.
Adopted under notice filed as WSR 05-21-064 on October 14, 2005.
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 1, Amended 1, Repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.
Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 0, Repealed 0.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.
Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 1, Amended 1, Repealed 0.
Date Adopted: November 23, 2005.
S. J. Matheson
AMENDATORY SECTION(Amending WSR 03-19-120, filed 9/17/03, effective 11/1/03)
WAC 415-111-310 Defined contribution account distribution (withdrawal). (1) How do I request a distribution (withdrawal) of funds from my defined contribution account?
(a) You must separate from all eligible employment;
(b) The department must receive the notice of separation from your employer(s) through the retirement transmittal system; and
(c) You must submit the appropriate, completed form requesting a defined contribution distribution to the department's designated recordkeeper as directed on the form. See WAC 415-111-110.
(2) Can I receive an expedited distribution?
(a) If you are terminally ill and eligible, the department will arrange for payment to you within ten workdays. To be eligible for an expedited payment:
(i) You must separate from all eligible employment;
(ii) The department must receive the notice of separation from your employer(s);
(iii) You or your beneficiaries must submit documentation to the department verifying your terminal illness; and
(iv) You must submit the appropriate, completed form requesting a defined contribution distribution to the department's designated recordkeeper as directed on the form (see WAC 415-111-110).
(b) If you have an emergency, the department will consider your request for expedited payment and arrange for expedited payment to you whenever possible. To be eligible for consideration:
(i) You must separate from all eligible employment;
(ii) The department must receive the notice of separation from your employer(s);
(iii) You must submit the appropriate, completed form requesting a defined contribution distribution to the department's designated recordkeeper as directed on the form (see WAC 415-111-110); and
(iv) You or your beneficiaries must submit documentation to the department verifying and explaining your emergency. The department will consider only unforeseeable emergencies or serious illnesses or death of you or a close family or household member.
(c) If you are invested in a self-directed option, the Plan 3 recordkeeper will distribute your entire self-directed account balance, less any applicable tax withholding.
(d) If you are invested in the Total Asset Portfolio (TAP), the Plan 3 recordkeeper will distribute 80% of your estimated TAP account balance, less any applicable tax withholding. You will be paid the balance of your account after the final valuation has been made.
(3) Can I still receive my defined contribution distribution if I have returned to work before receiving my funds? If you return to work in an eligible position after all the criteria in subsection (1) of this section are met, you may receive distribution from your defined contribution account.
(4) What are my options for distributing my defined
contribution funds? You have the following options for
distributions from your Plan 3 defined contribution account. Options for both the WSIB and the ((
investment programs are combined where applicable.
(a) Lump sum cash distribution. In either program, you may request the entire amount of your funds in a single lump-sum payment.
(b) Direct rollover. In either program, you may have some or all of your funds rolled over to an eligible retirement plan or individual retirement account (IRA). If you choose a partial rollover, the remaining funds that were not rolled over will be distributed to you as a lump sum, unless you create a personal payment schedule under (d) of this subsection.
(c) Scheduled payments. In either program, subject to
the distribution requirements of IRC section 401 (a)(9), you
may request that your funds be distributed in equal payments
over a specified period of time, or that a specific dollar
amount be paid on a monthly basis until the account is
exhausted. You may also request equal payments over your
lifetime or the lifetimes of you and your beneficiary. Scheduled payments for the WSIB program are made monthly only.
Scheduled payments for the ((
SELF)) self-directed program
(( are)) may be made monthly, quarterly, semiannually (( and))
or annually. Both programs have a minimum payment requirement
of one hundred dollars per month.
(d) Personalized payment plan. In either program, you may create a personalized payment plan using any part of one or more of the distribution options provided in (a), (b), and (c) of this subsection (see examples below).
(e) Annuity purchase. ((
For the SELF-directed program
only)) In either program, you may request to have your funds
used to purchase an annuity (( from an insurance company
which)) that pays a benefit for your lifetime or the lifetimes
of you and your (( beneficiary)) joint annuitant. See WAC 415-111-320 for information about purchasing an annuity and
descriptions of the various annuity contracts.
(5) Market fluctuations. Your defined contribution account is subject to actual investment earnings (both gains and losses). These gains or losses will be used to adjust the value of your account. The defined contribution payment plans are subject to the same market fluctuations. As a result, the funding of your selected payment plan may last longer than anticipated due to market gains, or end earlier than anticipated due to market losses.
EXAMPLE (WSIB - Partial rollover with payments until account exhausted):
Pat has $10,000 in the WSIB investment program. Pat wants to rollover $2,000 of the total to an IRA, but does not want to receive the remainder of the account in a lump sum payment as provided by the partial direct rollover option. Pat selects the personalized payment schedule option and requests to do a partial rollover of $2,000 and receive the remaining $8,000 in equal monthly payments of $125 until the account is exhausted (approximately 64 months).
EXAMPLE (Self - Partial rollover with payments for fixed period):
Chris has $10,000 in the self-directed investment program. Chris wants to rollover $3,000 of the total to an IRA, but does not want to receive the remainder of the account in a lump sum payment as provided by the partial direct rollover option. Chris selects the personalized payment schedule option and requests to do a partial rollover of $3,000 and receive the remaining $7,000 in quarterly payments of $250 over the next 7 years (28 quarters).
|Summary of Distribution Options|
|Lump Sum Cash Distribution or Direct Rollover||Lump Sum Cash Distribution or Direct Rollover|
|– entire account||– entire account|
|– partial amount||– partial amount|
|– remaining funds can be distributed in a lump-sum payment or by a personalized payment schedule (see below).||– remaining funds can be distributed in a lump-sum payment or by a personalized payment schedule (see below).|
|Scheduled Payments||Scheduled Payments|
|– equal payments||– equal payments|
|– monthly, quarterly, semiannual or annual||– monthly payments only|
|– specified period of time, or||– specified period of time, or|
|– until the account is exhausted||– until the account is exhausted|
|– payments can be combined life expectancy of you and a beneficiary.||– payments can be combined life expectancy of you and a beneficiary.|
|– purchase an annuity from an insurance company||– purchase an annuity, administered by the state of Washington|
|– set up to pay benefits for||– set up to pay benefits for|
|– your lifetime, or||– your lifetime, or|
|– lifetimes of you and your
||– lifetimes of you and your joint annuitant.|
|In addition to the above, you may set up:||In addition to the above, you may set up:|
|Personalized Payment Plan||Personalized Payment Plan|
|– customized for your needs||– customized for your needs|
|– available for options above.||– available for options above.|
(7) See RCW 41.34.070 for additional information.
[Statutory Authority: RCW 41.50.050(5), 41.34.070(3). 03-19-120, § 415-111-310, filed 9/17/03, effective 11/1/03. Statutory Authority: RCW 41.50.050(5) and 41.34.070. 02-03-120, § 415-111-310, filed 1/23/02, effective 3/1/02. Statutory Authority: Chapters 41.32, 41.34, 41.35, 41.50 RCW. 01-01-059, § 415-111-310, filed 12/12/00, effective 1/12/01.]
(1) What is a life annuity? A life annuity is a contract that provides a guaranteed income for the rest of your life in exchange for a lump-sum dollar amount you pay up front. The contract specifies the amount you pay to purchase the annuity, the amount you will receive each month, and any other terms and conditions.
(a) A single life annuity is based on your lifetime. It provides guaranteed payments for as long as you live. The payments stop upon your death.
(b) A joint life annuity is based on two lifetimes, yours and another person that you choose (referred to as your joint annuitant). It provides guaranteed payments for as long as you live, and then for as long as your joint annuitant lives. The payments stop when both you and your joint annuitant die.
(c) A term certain -- Single life annuity is based on your lifetime. It provides you with regular payments for as long as you live. It also guarantees the payments for a specific, predetermined period of time (term certain). If you die before the specified period of time, payments will continue to your beneficiary for the balance of the specified period.
(d) A term certain -- Joint life annuity is based on two lifetimes, yours and your joint annuitant's. It provides regular payments for as long as you or your joint annuitant live. It also guarantees those payments for a specific, predetermined period of time (term certain). If you and your joint annuitant should both die before the specified period of time, payments will continue to your beneficiary for the balance of the specified period.
Example (Term certain -- Joint life annuity):
John purchased a 20-year term certain joint life annuity. He received monthly payments until his death 10 years later. Upon John's death, Mary, John's joint annuitant, will receive payments for the duration of her life.
|•||If Mary lives for 5 years after John's death, upon her death the annuity will make payments to John's beneficiary for 5 years, the remainder of the 20-year term.|
|•||If Mary lives for 15 years after John's death, upon her death the annuity will cease. The annuity will have paid benefits for 25 years, five years beyond the 20-year guaranteed period.|
(3) How are the annuity payments calculated? Your annuity payment amount is based on:
(a) The original purchase price;
(b) Your age;
(c) The age of your joint annuitant, if any;
(d) Assumptions about life expectancy;
(e) The survivorship percentage you select on a joint annuity;
(f) Anticipated investment returns; and
(g) The specific features of the annuity you select, such as, but not limited to, COLAs or refunds of any undistributed balance upon death.
(4) May I change my mind after I purchase an annuity? Your contract will specify a period of time in which you can rescind your decision to purchase the annuity. Once the rescission period expires, your decision is irrevocable.
(5) May I change the terms of the annuity after the rescission period expires? You may not make any changes after the rescission period unless your annuity contract explicitly states otherwise. Some policies allow you to make changes in specific circumstances. For instance, you may make changes to an annuity purchased through the Washington state investment board investment program only as follows:
(a) If you name someone other than your spouse as the joint annuitant, you may convert to a single life annuity at any time after your payments begin. This option may only be used once and is irrevocable.
(b) If you marry after purchasing a single life annuity, you may convert to a joint life annuity and name your new spouse as survivor, provided that:
(i) Your monthly benefit is not subject to a property settlement agreement from a court decree of dissolution or legal separation;
(ii) The selection is made during a one-year window on or after the date of the first anniversary and before the second anniversary of your marriage; and
(iii) You provide satisfactory proof of your new marriage and your new spouse's birth date. This option may only be used once and is irrevocable.
(6) What are the tax consequences of a life annuity?
(a) You, your joint annuitant or your beneficiary may be liable for federal and/or state taxes on payments from your annuity in the year in which they are received. You will receive an annual statement indicating the taxable portion of your annuity payments.
(b) If you do not submit a tax withholding Form W-4P to the department before your first payment, taxes will be withheld according to Internal Revenue Service requirements, using a filing status of married with three exemptions.
(c) The department does not:
(i) Guarantee that payments should or should not be designated as exempt from federal income tax;
(ii) Guarantee that it was correct in withholding or not withholding taxes from benefit payments to you;
(iii) Represent or guarantee that any particular federal or state income, payroll, personal property or other tax consequence will occur because of its nontaxable determination; or
(iv) Assume any liability for your compliance with the Internal Revenue Code.
(7) How do I purchase a life annuity?
(a) The forms required to purchase an annuity and the applicable directions are available on the department's website or upon request from the department, and include:
(i) Plan 3 Request for Payment of Defined Contributions Funds Form;
(ii) Plan 3 Annuity Payment Request Form;
(iii) Spousal consent form, if married;
(iv) Proof of your birth date;
(v) Proof of your joint annuitant's birth date, if applicable; and
(vi) Tax withholding Form W-4P.
(b) You may transfer funds from one investment program to the other in order to have sufficient funds in the appropriate investment program to cover the cost of the annuity purchase.
(8) What if there is an error in my contract? Carefully examine your contract upon receipt. If there is an error or omission, you must report the error or omission immediately according to the instructions in your contract.