WSR 10-13-150

PROPOSED RULES

DEPARTMENT OF

RETIREMENT SYSTEMS

[ Filed June 23, 2010, 8:28 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 10-07-152.

Title of Rule and Other Identifying Information: WAC 415-02-177 May I purchase additional service credit?

Hearing Location(s): Department of Retirement Systems, 6835 Capitol Boulevard, Conference Room 115, Tumwater, WA, on July 29, 2010, at 1:30 p.m.

Date of Intended Adoption: July 29, 2010.

Submit Written Comments to: Ken Goolsby, Rules Coordinator, Department of Retirement Systems, P.O. Box 48380, Olympia, WA 98504-8380, e-mail rules@drs.wa.gov, fax (360) 753-5397, by 5:00 p.m. on July 29, 2010.

Assistance for Persons with Disabilities: Contact Ken Goolsby, rules coordinator, by May 20, 2010, TDD (360) 664-7291, TTY (360) 586-5450, phone (360) 664-7291.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The purpose of this proposal is to update the department's administrative rules with new administrative factors provided by the state actuary.

Reasons Supporting Proposal: The office of the state actuary (OSA) has provided the department with new actuarial projections. The department must amend its rules to update administrative factors for the law enforcement officers' and firefighters' retirement system (LEOFF), public employees' retirement system (PERS), public safety employees' retirement system (PSERS), school employees' retirement system (SERS), teachers' retirement system (TRS), Washington state patrol retirement system (WSPRS), and judicial retirement system (JRS).

Statutory Authority for Adoption: RCW 41.50.050(5).

Statute Being Implemented: RCW 41.26.199, 41.26.432, 41.40.034, 41.37.265, 41.35.183, 41.32.066, and 43.43.233.

Rule is not necessitated by federal law, federal or state court decision.

Name of Proponent: Department of retirement systems, governmental.

Name of Agency Personnel Responsible for Drafting: Ken Goolsby, P.O. Box 48380, Olympia, WA 98504-8380, (360) 664-7291; Implementation and Enforcement: Cathy Cale, P.O. Box 48380, Olympia, WA 98504-8380, (360) 664-7305.

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

A cost-benefit analysis is not required under RCW 34.05.328. The department of retirement systems is not one of the named departments in RCW 34.05.328.

June 23, 2010

Ken Goolsby

Rules Coordinator


AMENDATORY SECTION(Amending WSR 06-16-043, filed 7/26/06, effective 8/26/06)

WAC 415-02-177   May I purchase additional service credit?   (1) What is the option for purchasing additional service credit? The following statutes provide an option for eligible members to purchase additional service credit that provides a guaranteed, lifetime increase to their monthly retirement ((allowance:)) benefit:

(a) ((Section 5, chapter 214, Laws of 2006)) RCW 41.26.199 for LEOFF Plan 1 members;

(b) RCW 41.26.432 for LEOFF Plan 2 members;

(c) ((Section 1, chapter 214, Laws of 2006)) RCW 41.40.034 for PERS Plan 1, 2, and 3 members;

(d) ((Section 4, chapter 214, Laws of 2006)) RCW 41.37.265 for PSERS Plan 2 members;

(e) ((Section 3, chapter 214, Laws of 2006)) RCW 41.35.183 for SERS Plan 2 and 3 members;

(f) ((Section 2, chapter 214, Laws of 2006)) RCW 41.32.066 for TRS Plan 1, 2, and 3 members; and

(g) ((Section 6, chapter 214, Laws of 2006)) RCW 43.43.233 for WSPRS Plan 1 and 2 members.

(2) Am I eligible to purchase additional service credit?

(a) You may purchase additional service credit if you are eligible to retire from one or more of the following plans and you ((take your benefit as)) elect a monthly ((allowance)) benefit rather than a lump sum payment:

(i) LEOFF Plan 1 or 2 under RCW 41.26.090 or 41.26.430;

(ii) PERS Plan 1, 2 or 3 under RCW 41.40.180, 41.40.630, or 41.40.820;

(iii) PSERS Plan 2 under RCW 41.37.210;

(iv) SERS Plan 2 or 3 under RCW 41.35.420 or 41.35.680;

(v) TRS Plan 1, 2, or 3 under RCW 41.32.480, 41.32.765, or 41.32.875; or

(vi) WSPRS Plan 1 or 2 under RCW 43.43.250.

(b) If you retire as a result of a disability, you may purchase additional service credit if you meet the requirements in (a) of this section.

(3) How much additional service credit may I purchase? If you are eligible, you may purchase from one to sixty months of additional service credit in whole month increments.

(4) May I use the additional purchased service credit to qualify for normal retirement((, or to qualify for the three percent reduction instead of the actuarial reduction for)) or an early retirement? No. You may not use the purchased service credit to qualify for normal retirement or to qualify for ((a three percent reduction factor instead of an actuarial reduction for)) an early retirement.

(5) When must I apply to purchase additional service credit? You must submit your request to purchase additional service credit to the department at the same time you submit your application for retirement.

(6) How much will my monthly retirement ((allowance)) benefit increase if I purchase additional service credit? The increase in your monthly retirement ((allowance)) benefit will be calculated using the benefit formula for your system and plan, with a reduction for early retirement, if applicable. ((If your monthly allowance will be reduced for early retirement, the same early reduction factor will be used to calculate the increase due to the additional service credit.))

PERS Plan 2 example 1: John is a member of PERS Plan 2. He applies for retirement, effective the first month after his 62nd birthday. His AFC is $4000 per month. If he purchases sixty months of additional service credit, his monthly retirement ((allowance)) benefit will increase by (($292)) $289.60 per month, calculated as follows:


Additional service credit: 60 months 12 = 5 yearsEarly retirement factor (WAC 415-02-320(5)): ((.7300000)) .7240000
Amount of increase = 2% x additional service credit years x AFC x early retirement factor
= 2% x 5 years x $4000 x ((.7300000)) .7240000
= (($292)) $289.60

TRS Plan 3 example 2: Jane is a member of TRS Plan 3. She applies for retirement, effective the first month after her 62nd birthday. Her AFC is $4000 per month. If she purchases sixty months of additional service credit, her monthly retirement ((allowance)) benefit will increase by (($146)) $144.80 per month, calculated as follows:

Additional service credit: 60 months 12 = 5 yearsEarly retirement factor (WAC 415-02-320(5)): ((.7300000)) .7240000
Amount of increase = 1% x additional service credit years x AFC x early retirement factor
= 1% x 5 years x $4000 x ((.7300000)) .7240000
= (($146)) $144.80

LEOFF Plan 2 example 3: Jim is a member of LEOFF Plan 2. He applies for retirement, effective the first month after his 53rd birthday. His FAS is $4000 per month. If he purchases sixty months of additional service credit, his monthly retirement ((allowance)) benefit will increase by $400 per month, calculated as follows:


Additional service credit: 60 months 12 = 5 years
Amount of increase = 2% x additional service credit years x FAS
= 2% x 5 years x $4000
= $400

(7) How is the cost of the additional purchased service credit calculated? The cost to purchase additional service credit is calculated by dividing the amount of the increase in subsection (6) of this section by the age-based annuity factor in WAC 415-02-340.

Example. In subsection (6) of this section, Example 1, it was determined that John's retirement ((allowance)) benefit would increase by (($292)) $289.60 per month. The cost to purchase the five years of additional service credit would be (($43,558.68)) $44,542.88, calculated as follows:


Age-based annuity factory (WAC 415-02-340): .0065016
Cost = Amount of increase age-based annuity factor
= (($292)) $289.60 ((.0067036)) .0065016
= (($43,558.68)) $44542.88

(8) How and when do I pay for the additional service credit? The department will generate a bill to you for the cost of the additional service credit.

(a) Payment may be made with an eligible rollover, a direct rollover or a trustee-to-trustee transfer, if allowed by the transferring plan. ((You)) Payment may also ((use)) be made with after-tax dollars, such as ((those)) money from a personal savings account((; however,)). However, IRS regulations limit the amount of after-tax dollars you ((can use for this type of purchase)) may use to purchase additional service credit.

(b) Payment must be made in full within ninety days after the bill issue date.

(9) If I choose a benefit option with a survivor feature, will my survivor beneficiary's monthly ((allowance)) benefit reflect the additional purchased service credit? Yes. Depending upon the rules for your retirement system and plan and the benefit option you choose at retirement, your survivor beneficiary's monthly ((allowance)) benefit will be a percentage of the gross monthly retirement ((allowance)) benefit you were receiving at the time of your death. If you choose a benefit option with a survivor feature and your survivor beneficiary dies before you, your monthly retirement ((allowance)) benefit will increase to the amount it would have been had you not selected a survivor option.

(10) Will I receive a cost of living adjustment (COLA) on the portion of my ((allowance)) benefit that is based on the additional purchased service credit?

(a) For all systems and plans, except ((PERS Plan 1 and TRS Plan 1)) as noted in subsection (b), your COLA will be based on your gross monthly retirement ((allowance)) benefit, including the increase due to the purchased service credit.

(b) If you ((retired)) retire from PERS Plan 1 or TRS Plan 1 and you ((did not elect the COLA option)) do not elect the optional auto COLA, you will not receive a COLA on the additional purchased service credit amount.

(11) If I purchase additional service credit and then return to work, how will my retirement ((allowance)) benefit be affected?

(a) If you return to work with an employer that participates with the department:

(i) Elect to return to membership - ((and your)) Your entire retirement ((allowance)) benefit is suspended, including the portion of your retirement ((allowance)) benefit attributable to service credit purchased under this section ((will also be suspended. When your retirement allowance resumes, the portion attributable to service credit purchased under this section will also resume)).

(ii) Do not elect to return to membership - If your retirement benefit is suspended due to working over the hours allowed annually, the portion of your retirement benefit attributable to service credit purchased under this section will not be suspended.

(b) If you return to work with an employer that does not participate with the department, your retirement benefit and the portion of your retirement benefit attributable to service credit purchased under this section will not be suspended.

(12) If I retire and purchase less than sixty months of additional service credit, may I purchase more at a later time? If you retire and purchase less than sixty months of additional service credit, you may not purchase additional months of service credit from the same plan unless you return to membership and reretire from the same system and plan. You must meet the eligibility requirements provided in subsection (2) of this section at the time you reretire. You may not purchase more than a total of sixty months of service credit regardless of how many times you reretire from the same system and plan.

(13) May I purchase service credit from more than one retirement plan?

(a) If you are a dual member under chapter 415-113 WAC, Portability of public employment benefits, and you combine service credit to retire ((from two retirement plans)) as a dual member, you may purchase up to sixty months of additional service credit from each ((plan)) of your dual member plans.

(b) If you retire from more than one plan, but are not a dual member under chapter 415-113 WAC, you may purchase up to sixty months of additional service credit from each plan in which you meet the eligibility requirements in subsection (2) of this section.

(14) ((Will the money I paid to purchase the additional service credit be distributed to my beneficiary or estate if I die?

(a) If you have a survivor beneficiary at the time of your death, your survivor beneficiary will receive a monthly allowance according to subsection (9) of this section.

(b) If you do not have a survivor beneficiary at the time of your death, and you die before the total of the retirement allowance paid equals the amount of your accumulated contributions at the time of retirement (including the money you paid for additional service credit):

(i) Plan 1 members: The balance will be distributed according to RCW 41.26.160 and 41.26.161 (LEOFF), 41.40.188 (PERS), 41.32.530 (TRS), or WAC 415-103-215 (WSPRS).

(ii) Plan 2 members and PSERS: The balance will be distributed according to RCW 41.26.460 (LEOFF), 41.40.660 (PERS), 41.35.220 (SERS), 41.37.170 (PSERS), 41.32.785 or 41.32.790 (TRS), or 43.43.271 (WSPRS).

(iii) Plan 3 members: The balance will be retained by the Plan 3 trust fund. Money paid for additional service credit is posted directly to the Plan 3 trust fund to cover the increased cost of defined benefits, and is not distributable.)) How are the funds I paid to purchase the additional service credit treated upon my death (and the death of my survivor beneficiary, if applicable)?

(a) Plans 1 and 2. The amount paid to purchase the additional service credit is credited to your individual account as part of your accumulated contributions. Distribution of accumulated contributions after your death (and the death of your survivor beneficiary, if any) is governed by the statutes and rules applicable to your plan. See:

(i) WAC 415-108-326 for PERS Plans 1 and 2;

(ii) WAC 415-112-504(8) for TRS Plan 1;

(iii) WAC 415-112-505(7) for TRS Plan 2;

(iv) WAC 415-110-610(7) for SERS Plan 2;

(v) WAC 415-106-600(7) for PSERS Plan 2;

(vi) WAC 415-103-215 for WSPRS Plan 1;

(vii) WAC 415-103-225(7) for WSPRS Plan 2;

(viii) WAC 415-104-202 for LEOFF Plan 1; or

(ix) WAC 415-104-215(7) for LEOFF Plan 2.

(b) Plan 3. The amount paid to purchase the additional service credit is credited to the Plan 3 trust fund and not to your member account. There are no circumstances under which the amount will be distributed upon your death.

[Statutory Authority: RCW 41.50.050(5), 2006 c 214, and RCW 41.26.432. 06-16-043, 415-02-177, filed 7/26/06, effective 8/26/06.]

Washington State Code Reviser's Office