WSR 10-13-151

PROPOSED RULES

DEPARTMENT OF

RETIREMENT SYSTEMS

[ Filed June 23, 2010, 8:30 a.m. ]

Original Notice.

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

Title of Rule and Other Identifying Information: WAC 415-02-300 How does the department use actuarial tables, schedules, and factors? and 415-111-320 May I purchase a life annuity with my Plan 3 deferred contribution account?

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: Chapter 41.45 RCW for WAC 415-02-300.

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 02-18-048, filed 8/28/02, effective 9/1/02)

WAC 415-02-300   How does the department use actuarial tables, schedules, and factors?   (1) The department uses actuarial tables, schedules, and factors ((to calculate optional retirement allowances)) for, but not limited to, benefit calculations, annuitizing benefits, and calculating cost to purchase service credit for members, retirees, and beneficiaries.

(2) The department adopted ((these)) tables, schedules, and factors upon the office of the state actuary's (OSA) recommendation, following OSA's investigation into the mortality, service, compensation, and other experience of retirement plan members, retirees, and beneficiaries.

(3) ((These)) The tables, schedules, and factors may be amended from time to time, based upon subsequent actuarial investigation.

(4) The department uses the tables, schedules, and factors:

(a) ((in)) In effect at the time of the member's effective retirement date to calculate the member's retirement ((allowance)) benefit.

(((5) The department will use these tables, schedules, and factors to process any payments when there is a death in service)) (b) In effect at the time of the annuitizing to calculate an annuitized benefit.

(((6) The tables, schedules, and factors in this chapter apply to the calculation of retirement allowances for those who retire on or after September 1, 2002, (until subsequent amendment).)) (c) In effect at the time of purchase to determine a member's cost to purchase service credit.

[Statutory Authority: RCW 41.50.050(5) and chapter 41.45 RCW. 02-18-048, 415-02-300, filed 8/28/02, effective 9/1/02.]

Reviser's note: RCW 34.05.395 requires the use of underlining and deletion marks to indicate amendments to existing rules. The rule published above varies from its predecessor in certain respects not indicated by the use of these markings.
AMENDATORY SECTION(Amending WSR 05-24-050, filed 12/1/05, effective 1/1/06)

WAC 415-111-320   May I purchase a life annuity with my Plan 3 defined contribution account?   Any time after you become eligible to withdraw funds from your Plan 3 account, you may use part or all of your funds to purchase a life annuity according to this section. To purchase a Total Allocation Portfolio (TAP) Annuity that is administered by the state of Washington, you must use funds that are in the Washington state investment board (WSIB) investment program. To purchase an annuity through an insurance company that is offered by the self-directed investment program, you must use funds that are in the self-directed investment program.

(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)) to you during your lifetime, and then, if your joint annuitant survives you, to your joint annuitant for the remainder of his/her lifetime. The payments stop when both you and your joint annuitant die.

(c) A ((term certain)) 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))) (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)) 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 lives. It also guarantees those payments for a specific, predetermined period of time (((term certain))) (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)) (Term-certain -- Joint life annuity):

John purchased a 20-year ((term certain)) 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.
(2) Are the life annuities offered by each investment program different? The life annuities offered through the WSIB investment program and the self-directed investment program have distinct features and options. Each program may offer some or all of the annuities described in subsection (1) of this section. Minimum purchase price, payment frequency, survivorship percentages, length of ((term certain)) term-certain annuities, and other optional features differ between programs as well.

(3) How is the original purchase price of the life annuity determined? You will choose how much of your defined contribution funds to use as your original purchase price. The minimum purchase price depends on the type of annuity you purchase: the minimum purchase price for a TAP annuity is $25,000 and the minimum purchase price for an annuity through a self-directed investment program insurance company is $5,000.

The minimum purchase price for a life annuity is subject to change.

(((3))) (4) How are the monthly annuity payments calculated? ((Your)) The amount of your monthly annuity payment ((amount)) is based on various actuarial assumptions, including without limitation, assumptions about life expectancy and anticipated investment returns. The amount of your monthly annuity payment will vary depending 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 if any; and

(((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)) (e) other features of your specific annuity, including, but not limited to, COLAs or refunds of undistributed balances upon your death.

For more information about the factors used in calculating a TAP annuity, see WAC 415-02-390. For more information about the factors used in calculating an annuity through a self-directed investment program insurance company, contact the Plan 3 recordkeeper.

(((4))) (5) May I ((change my mind after I purchase an annuity)) cancel my purchase of an annuity contract? Your contract will specify a period of time in which you can ((rescind)) cancel your decision to purchase the annuity. Once the rescission period expires, your decision is irrevocable.

(((5) May I change the terms of the annuity)) (6) Can the terms of the annuity be changed after the rescission period expires? You may not make any changes after the rescission period unless your annuity contract explicitly states otherwise. Some ((policies)) contracts 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)) joint annuitant, provided that:

(i) ((Your monthly benefit is not subject to a property settlement agreement from a court decree of dissolution or legal separation)) Your monthly annuity payment is not subject to property division pursuant to a dissolution order (definition of dissolution order in RCW 41.50.500 includes orders of 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))) (7) 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)) For a TAP annuity, 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)) the department's determination of the taxable status of a distribution; or

(iv) Assume any liability for your compliance with the Internal Revenue Code.

(((7))) (8) 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 web site 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))) (9) 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.

[Statutory Authority: RCW 41.50.050(5) and 41.50.088. 05-24-050, 415-111-320, filed 12/1/05, effective 1/1/06.]

Reviser's note: RCW 34.05.395 requires the use of underlining and deletion marks to indicate amendments to existing rules. The rule published above varies from its predecessor in certain respects not indicated by the use of these markings.

Reviser's note: The typographical errors in the above section occurred in the copy filed by the agency and appear in the Register pursuant to the requirements of RCW 34.08.040.

Washington State Code Reviser's Office