PROPOSED RULES
RETIREMENT SYSTEMS
Original Notice.
Preproposal statement of inquiry was filed as WSR 10-06-031.
Title of Rule and Other Identifying Information: Public safety employees' retirement system rules related to Internal Revenue Code requirements: WAC 415-106-050 How does the department comply with Internal Revenue Code distribution rules?, 415-106-051 (new) How does the department comply with Internal Revenue Code rollover rules?, 415-106-052 (new) How does the department comply with Internal Revenue Code compensation limit rules?, 415-106-053 (new) How does the department comply with Internal Revenue Code vesting rules?, 415-106-054 (new) How does the department comply with Internal Revenue Code definitely determinable benefit rules?, 415-106-055 (new) How does the department comply with Internal Revenue Code USERRA rules?, 415-106-060 What are the IRS limitations on maximum benefits and maximum contributions?, 415-106-070, Assets for exclusive benefit of members and beneficiaries, and 415-106-600 What are my retirement benefit options?
Hearing Location(s): Department of Retirement Systems, 6835 Capitol Boulevard, Conference Room 115, Tumwater, WA, on October 8, 2010, at 1:30 p.m.
Date of Intended Adoption: October 11, 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 October 8, 2010.
Assistance for Persons with Disabilities: Contact Ken Goolsby, rules coordinator, by September 30, 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, rewrite, and create rules as necessary to ensure compliance with Internal Revenue Code compliance.
Statutory Authority for Adoption: RCW 41.50.050(5).
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 effect 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.
August 25, 2010
Ken Goolsby
Rules Coordinator
OTS-3521.1
AMENDATORY SECTION(Amending WSR 08-02-046, filed 12/27/07,
effective 1/27/08)
WAC 415-106-050
How does the department comply with
Internal Revenue Code distribution rules?
(1) ((This section
applies only to the public safety employees' retirement system
(PSERS).
(2))) All benefits paid from the ((PSERS)) retirement
plan shall be distributed in accordance with a reasonable and
good faith interpretation of the requirements of ((IRC))
section 401 (a)(9) ((and the regulations under that section))
of the Internal Revenue Code, as applicable to a governmental
plan within the meaning of section 414(d) of the Internal
Revenue Code. In order to meet these requirements, the
retirement plan 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 ((of the year)) following the
calendar year in which a member attains age seventy and
one-half or ((the)) April 1 of the year following the calendar
year in which the member retires;
(b) ((The member's entire benefit must be distributed
over the member's life or the lives of the member and a
designated beneficiary;
(c))) The life expectancy of a member or the member's spouse or beneficiary may not be recalculated after the benefits commence;
(((d))) (c) If a member dies before the required
distribution of the member's benefits has begun,
((distribution of)) the member's entire interest must be
((distributed in accordance to IRC section 401 (a)(9) and the
regulations implementing that section. Distributions must
occur)) either:
(i) Distributed (in accordance with federal regulations)
over the life or life expectancy of the designated beneficiary
((and must begin)), with the distributions beginning no later
than December 31 of the calendar year ((immediately))
following the calendar year ((in which the member died;
(e))) of the member's death; or
(ii) Distributed within five years of the member's death.
(d) The amount of ((benefits payable)) an annuity paid to
a member's beneficiary may not exceed the maximum determined
under the incidental death benefit requirement of section 401
(a)(9)(G) of the ((Federal)) Internal Revenue Code, and the
minimum distribution incidental benefit rule under Treasury
Regulation Section 1.401 (a)(9)-6, Q&A 2; and
(((f))) (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. ((Death benefits must be
distributed in accordance with IRC section 409 (a)(9) and the
regulations implementing that section.
(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 IRC section 401 (a)(31).
(a) An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include:
(i) Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more;
(ii) Any distribution to the extent such distribution is required under IRC section 401 (a)(9);
(iii) The portion of any distribution that is not includible in gross income; and
(iv) Any other distribution that is reasonably expected to total less than two hundred dollars during the year.
(b) A portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions that are not includible in gross income. However, effective for taxable years beginning prior to January 1, 2007, this portion may be paid only to an individual retirement account or annuity described in IRC section 408 (a) or (b), or to a qualified defined contribution plan described in IRC section 401(a) or 403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. Provided, however, effective for taxable years beginning after December 31, 2006, this portion may be paid only to:
(i) An individual retirement account or annuity described in IRC section 408 (a) or (b);
(ii) A qualified defined contribution plan described in IRC section 401(a);
(iii) A qualified plan described in IRC section 403(a);
(iv) A qualified defined benefit plan described in IRC section 401(a); or
(v) An annuity contract described in IRC section 403(b), and such trust or contract provides for separate accounting for amounts so transferred (and earnings thereon), including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.
(c) An eligible retirement plan for a distributee is:
(i) An individual retirement account described in IRC section 408(a);
(ii) An individual retirement annuity described in IRC section 408(b);
(iii) An annuity plan described in IRC section 403(a);
(iv) A qualified trust described in IRC section 401(a), that accepts the distributee's eligible rollover distribution;
(v) An annuity contract described in IRC section 403(b);
(vi) An eligible plan under IRC section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan; or
(vii) Effective January 1, 2008, an eligible retirement plan shall also mean a Roth IRA described in IRC section 408A.
(d) The definition of eligible retirement plan in (c) of this subsection shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in IRC section 414(p).
(e) A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the code, are distributees with regard to the interest of the spouse or former spouse.
(f) A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee.
(g) Effective for distributions after December 31, 2006, if, with respect to any distribution from the account of a deceased PSERS member, a direct trustee-to-trustee transfer is made to an individual retirement plan (an individual retirement account or annuity described in IRC section 408 (a) or (b)) established to receive distributions for the designated beneficiary of the deceased PSERS member, and the designated beneficiary is not the surviving spouse, then:
(i) The transfer shall be treated as an eligible rollover distribution;
(ii) The individual retirement plan shall be treated as an inherited individual retirement account or individual retirement annuity (within the meaning of IRC 408 (d)(3)(C)); and
(iii) The distribution requirements of IRC section 401 (a)(9)(B) (other than clause (iv) thereof), as clarified by IRS Notice 2007-7 for this purpose, shall apply to the individual retirement plan.
To the extent provided in federal regulations, a trust maintained for the benefit of one or more designated beneficiaries shall be treated in the same manner as a trust designated beneficiary.)) (2) The retirement system pursuant to a valid dissolution order as defined in RCW 41.50.500 may establish separate benefits for a member and nonmember.
(3) The death and disability benefits provided by the plan are limited by the incidental benefit rule set forth in section 401 (a)(9)(G) of the Internal Revenue Code and Treasury Regulation Section 1.401-1 (b)(1)(i) or any successor regulation thereto. As a result, the total death or disability benefits payable may not exceed twenty-five percent of the cost for all of the members' benefits received from the plan.
[Statutory Authority: RCW 41.50.050(5), chapter 41.37 RCW and IRS regulations. 08-02-046, § 415-106-050, filed 12/27/07, effective 1/27/08.]
OTS-3520.1
NEW SECTION
WAC 415-106-051
How does the department comply with
Internal Revenue Code rollover rules?
(1) 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.
(2) "Eligible rollover distribution" means any distribution of all or any portion of the balance to the distributee with the following exceptions:
(a) Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or the life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more;
(b) Any distribution to the extent such distribution is required under section 401 (a)(9) of the Internal Revenue Code;
(c) The portion of any distribution that is not includible in gross income; and
(d) Any other distribution that is reasonably expected to total less than two hundred dollars during the year.
Effective January 1, 2002, a portion of a distribution will not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions that are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in section 408 (a) or (b) of the Internal Revenue Code, or to a qualified defined contribution plan described in section 401(a) of the Internal Revenue Code, or on or after January 1, 2007, to a qualified defined benefit plan described in section 401(a) of the Internal Revenue Code or to an annuity contract described in section 403(b) of the Internal Revenue Code, that agrees to separately account for amounts so transferred (and earnings thereon), including separately accounting for the portion of the distribution that is includible in gross income and the portion of the distribution that is not so includible.
Effective January 1, 2002, the definition of eligible rollover distribution also includes a distribution to a surviving spouse, or to a spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Internal Revenue Code.
(3) "Eligible retirement plan" means any of the following that accepts the distributee's eligible rollover distribution:
(a) An individual retirement account described in section 408(a) of the Internal Revenue Code;
(b) An individual retirement annuity described in section 408(b) of the Internal Revenue Code;
(c) An annuity plan described in section 403(a) of the Internal Revenue Code;
(d) A qualified trust described in section 401(a) of the Internal Revenue Code;
(e) Effective January 1, 2002, an annuity contract described in section 403(b) of the Internal Revenue Code;
(f) Effective January 1, 2002, a plan eligible under section 457(b) of the Internal Revenue Code that is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or a political subdivision of a state that agrees to separately account for amounts transferred into such 457(b) plan from this plan; or
(g) Effective January 1, 2008, a Roth IRA described in section 408A of the Internal Revenue Code.
(4) "Distributee" means an employee or former employee. It also includes the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Internal Revenue Code. Effective January 1, 2007, a distributee further includes a nonspouse beneficiary who is a designated beneficiary as defined by section 401 (a)(9)(E) of the Internal Revenue Code. However, a nonspouse beneficiary may rollover the distribution only to an individual retirement account or individual retirement annuity established for the purpose of receiving the distribution, and the account or annuity will be treated as an "inherited" individual retirement account or annuity.
(5) "Direct rollover" means a payment by the plan to the eligible retirement plan specified by the distributee.
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(2) Effective with respect to plan years beginning on and after July 1, 1996, and before July 1, 2002, the annual compensation of a plan member (who is not an eligible member) which exceeds one hundred fifty thousand dollars (as adjusted for cost-of-living increases under section 401 (a)(17)(B) of the Internal Revenue Code) shall be ignored for purposes of computing employee and employer contributions to or benefits due from the plan. Effective only for the 1996 plan year, in determining the compensation of an employee eligible for consideration under this provision, the rules of section 414 (g)(6) of the Internal Revenue Code shall apply, except that in applying such rules, the term "family" shall include only the spouse of the member and any lineal descendants of the employee who have not attained age nineteen before the close of the year.
(3) Effective with respect to plan years beginning on and after July 1, 2002, the annual compensation of a plan member (who is not an eligible member) which exceeds two hundred thousand dollars (as adjusted for cost-of-living increases in accordance with section 401 (a)(17)(B) of the Internal Revenue Code) may not be used in determining benefits or contributions due for any plan year. Annual compensation means compensation during the plan year or such other consecutive twelve-month period over which compensation is otherwise determined under the plan (the determination period). The cost-of-living adjustment in effect for a calendar year applies to annual compensation for the determination period that begins with or within such calendar year. If the determination period consists of fewer than twelve months, the annual compensation limit is an amount equal to the otherwise applicable annual compensation limit multiplied by a fraction, the numerator of which is the number of months in the short determination period, and the denominator of which is twelve. If the compensation for any prior determination period is used in determining a plan member's contributions or benefits for the current plan year, the compensation for such prior determination period is subject to the applicable annual compensation limit in effect for that prior period.
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(2) A plan member shall be one hundred percent vested in his or her accumulated contributions at all times.
(3) The plan may only be terminated by action of the legislature and employer contributions must be paid in accordance with state law. In the event the legislature took action to terminate a plan or discontinue employer contributions to the plan, any applicable state law and constitutional protections would apply to accrued benefits.
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(2) In conformity with section 401 (a)(25) of the Internal Revenue Code, actuarial equivalence for purposes of calculating benefit options is determined using the following assumptions and without employer discretion:
(a) Interest rate: Five percent.
(b) GAR 94, the mortality table specified in Revenue Ruling 2001-62 or any subsequent revenue ruling modifying the applicable provisions of Revenue Ruling 2001-62.
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OTS-3522.2
AMENDATORY SECTION(Amending WSR 08-02-046, filed 12/27/07,
effective 1/27/08)
WAC 415-106-060
What are the IRS limitations on maximum
benefits and maximum contributions?
(1) ((This section
applies only to the public safety employees' retirement system
(PSERS).)) Basic Internal Revenue Code (IRC) section 415
limitations. Subject to the provisions of this section,
benefits paid from, and employee contributions made to, the
plan shall not exceed the maximum benefits and the maximum
annual addition, respectively, as applicable under IRC section
415.
(2) ((A participant may not receive an annual benefit
that exceeds the dollar amount specified in IRC section 415
(b)(1)(A), subject to the applicable adjustments in IRC
section 415. For purposes of applying IRC 415(b) when a
participant retires before age sixty-two or after age
sixty-five, the determination as to whether the benefit
satisfies IRC section 415(b) limitations is made by comparing
the equivalent annual benefit, determined in Step 1, (a) of
this subsection, with the age-adjusted dollar limit,
determined in Step 2, (b) of this subsection. The plan will
satisfy IRC section 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.
(a) 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)(i) or (ii) of this subsection. This step applies only to a benefit that is required to be converted to a straight life annuity under IRC section 415 (b)(2)(B), for example, a qualified joint and survivor annuity.
(i) 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).
(ii) The equivalent annual benefit computed using a five percent interest rate assumption and the applicable mortality table.
(b) 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).
(i) If the age at which the benefit is payable is less than sixty-two, 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 (b)(i)(A) or (B) of this subsection.
(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 five percent interest and the applicable mortality table described in the Federal Internal Revenue Service's (IRS) Revenue Ruling 2001-62. (This is used only to the extent described in Q&A 6 of Revenue Ruling 98-1. Q&A 6 states that for purposes of adjusting any limitation under IRC 415 (b)(2)(C) or (D), if forfeiture does not occur upon death, the mortality decrement may be ignored prior to age sixty-two and must be ignored after the Federal Social Security Retirement Age.)
(ii) If the age at which the benefit is payable is greater than age sixty-five, the age-adjusted dollar limit is determined by increasing the IRC section 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 (b)(ii)(A) or (B) of this subsection.
(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 five 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. For example, if you have five years of service the IRC section 415(b) limit is reduced to 5/10 (fifty percent) of the limit.
(3) 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) Forty thousand dollars, which limit shall be adjusted for increases in the cost-of-living under IRC section 415(d); or
(b) One hundred percent of the member's compensation, within the meaning of IRC section 415 (c)(3), 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 plan if the amount of the contributions would exceed the limits under IRC section 415(c) or 415(n).
(5) The definition of compensation, earnable compensation or other similar term when used for purposes of determining compliance with IRC section 415 includes the amount of any elective deferral, as defined in IRC section 402 (g)(3), or any contribution which is made 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 IRC sections 125, 132 (f)(4), or 457, but excludes member contributions picked under IRC section 414 (h)(2).
(6) The annual compensation taken into account in calculating retiree benefits under this system must not exceed the limits imposed by IRC section 401 (a)(17) for qualified trusts. This limitation shall be adjusted for cost of living increases in accordance with IRC section 401 (a)(17)(B).)) Definitions. As used in this section:
(a) "IRC section 415(b) limit" refers to the limitation on benefits established by IRC section 415(b);
(b) "IRC section 415(c) limit" refers to the limitation on annual additions established by IRC section 415(c); and
(c) Limitation year is the calendar year.
(3) Participation in other qualified plans: Aggregation of limits.
(a) The IRC section 415(b) limit with respect to any member who at any time has been a member in any other defined benefit plan as defined in IRC section 414(j) maintained by the member's employer shall apply as if the total benefits payable under all such defined benefit plans in which the member has been a member were payable from one plan.
(b) The IRC section 415(c) limit with respect to any member who at any time has been a member in any other defined contribution plan as defined in IRC section 414(i) maintained by the member's employer shall apply as if the total annual additions under all such defined contribution plans in which the member has been a member were payable from one plan.
(4) Basic IRC section 415(b) limitation. Before January 1, 1995, a member may not receive an annual benefit that exceeds the limits specified in IRC section 415(b), subject to the applicable adjustments in that section. On and after January 1, 1995, a member may not receive an annual benefit that exceeds the dollar amount specified in IRC section 415 (b)(1)(A), subject to the applicable adjustments in IRC section 415(b) and subject to any additional limits that may be specified in this section. In no event shall a member's annual benefit payable in any limitation year from this plan be greater than the limit applicable at the annuity starting date, as increased in subsequent years pursuant to IRC section 415(d) and the regulations thereunder.
(5) Annual benefit definition. For purposes of IRC section 415(b), the "annual benefit" means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) without regard to the benefit attributable to the after-tax employee contributions (except pursuant to IRC section 415(n)) and to all rollover contributions (as defined in IRC section 415 (b)(2)(A)). The "benefit attributable" shall be determined in accordance with treasury regulations.
(6) Adjustments to basic IRC section 415(b) limitation for form of benefit. If the benefit under this plan is other than a straight life annuity with no ancillary benefit, then the benefit shall be adjusted so that it is the equivalent of the straight life annuity, using factors prescribed in treasury regulations.
If the form of benefit without regard to the automatic benefit increase feature is not a straight life annuity or a qualified joint and survivor annuity, then the preceding sentence is applied by either reducing the IRC section 415(b) limit applicable at the annuity starting date or adjusting the form of benefit to an actuarially equivalent amount (determined using the assumptions specified in Treasury Regulation section 1.415 (b)-1(c)(2)(ii)) that takes into account the additional benefits under the form of benefits as follows:
(a) For a benefit paid in a form to which IRC section 417 (e)(3) does not apply (a monthly benefit), the actuarially equivalent straight life annuity benefit that is the greater of (or the reduced IRC section 415(b) limit applicable at the annuity starting date which is the "lesser of" when adjusted in accordance with the following assumptions):
(i) The annual amount of the straight life annuity (if any) payable to the member under the plan commencing at the same annuity starting date as the form of benefit to the member; or
(ii) The annual amount of the straight life annuity commencing at the same annuity starting date that has the same actuarial present value as the form of benefit payable to the member, computed using a five percent interest assumption (or the applicable statutory interest assumption) and the applicable mortality tables described in Treasury Regulation section 1.417 (e)-1(d)(2) (Revenue Ruling 2001-62 or any subsequent revenue ruling modifying the applicable provisions of Revenue Ruling 2001-62).
(b) For a benefit paid in a form to which IRC section 417 (e)(3) applies (a lump sum benefit), the actuarially equivalent straight life annuity benefit that is the greatest of (or the reduced IRC section 415(b) limit applicable at the annuity starting date which is the "least of" when adjusted in accordance with the following assumptions):
(i) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable, computed using the interest rate and mortality table, or tabular factor, specified in the plan for actuarial experience;
(ii) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable, computed using a five and one-half percent interest assumption (or the applicable statutory interest assumption) and the applicable mortality table for the distribution under Treasury Regulation section 1.417 (e)-1(d)(2) (the mortality table specified in Revenue Ruling 2001-62 or any subsequent revenue ruling modifying the applicable provisions of Revenue Ruling 2001-62); or
(iii) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable (computed using the applicable interest rate for the distribution under Treasury Regulation section 1.417 (e)-1(d)(3) (the thirty-year treasury rate (prior to January 1, 2007, using the rate in effect for the month prior to retirement, and on and after January 1, 2007, using the rate in effect for the first day of the plan year with a one-year stabilization period)) and the applicable mortality rate for the distribution under Treasury Regulation section 1.417 (e)-1(d)(2) (the mortality table specified in Revenue Ruling 2001-62 or any subsequent revenue ruling modifying the applicable provisions of Revenue Ruling 2001-62), divided by 1.05.
(7) Benefits not taken into account for IRC section 415(b) limit. For purposes of this section, the following benefits shall not be taken into account in applying these limits:
(a) Any ancillary benefit which is not directly related to retirement income benefits;
(b) That portion of any joint and survivor annuity that constitutes a qualified joint and survivor annuity; and
(c) Any other benefit not required under IRC section 415(b)(2) and treasury regulations thereunder to be taken into account for purposes of the limitation of IRC section 415 (b)(1).
(8) Other adjustments in IRC section 415(b) limitation.
(a) In the event the member's retirement benefits become payable before age sixty-two, the limit prescribed by this section shall be reduced in accordance with regulations issued by the Secretary of the Treasury pursuant to the provisions of IRC section 415(b), so that such limit (as so reduced) equals an annual straight life benefit (when such retirement income benefit begins) which is equivalent to a one hundred sixty thousand dollar (as adjusted) annual benefit beginning at age sixty-two.
(b) In the event the member's benefit is based on at least fifteen years of service as a full-time employee of any police or fire department or on fifteen years of military service, the adjustments provided for in (a) of this subsection shall not apply.
(c) The reductions provided for in (a) of this subsection shall not be applicable to preretirement disability benefits or preretirement death benefits.
(9) Less than ten years of service adjustment for IRC section 415(b) limitation. The maximum retirement benefits payable to any member who has completed less than ten years of service shall be the amount determined under subsection (1) of this section multiplied by a fraction, the numerator of which is the number of the member's years of service and the denominator of which is ten. The reduction provided by this subsection cannot reduce the maximum benefit below ten percent. The reduction provided by this subsection shall not be applicable to preretirement disability benefits or preretirement death benefits.
(10) Effect of cost-of-living adjustment (COLA) without a lump sum component on IRC section 415(b) testing. Effective on and after January 1, 2003, for purposes of applying the IRC section 415(b) limit to a member with no lump sum benefit, the following will apply:
(a) A member's applicable IRC section 415(b) limit will be applied to the member's annual benefit in the member's first limitation year without regard to any automatic COLAs;
(b) To the extent that the member's annual benefit equals or exceeds the limit, the member will no longer be eligible for COLA increases until such time as the benefit plus the accumulated increases are less than the IRC section 415(b) limit; and
(c) Thereafter, in any subsequent limitation year, a member's annual benefit, including any automatic COLA increases, shall be tested under the then applicable IRC section 415(b) limit including any adjustment to the IRC section 415 (b)(1)(A) dollar limit under IRC section 415(d), and the treasury regulations thereunder.
(11) Effect of COLA with a lump sum component on IRC section 415(b) testing. On and after January 1, 2009, with respect to a member who receives a portion of the member's annual benefit in a lump sum, a member's applicable limit will be applied taking into consideration COLA increases as required by IRC section 415(b) and applicable treasury regulations.
(12) IRC section 415(c) limit. After-tax member contributions or other annual additions with respect to a member may not exceed the lesser of forty thousand dollars (as adjusted pursuant to IRC section 415(d)) or one hundred percent of the member's compensation.
(a) Annual additions are defined to mean the sum (for any year) of employer contributions to a defined contribution plan, member contributions, and forfeitures credited to a member's individual account. Member contributions are determined without regard to rollover contributions and to picked-up employee contributions that are paid to a defined benefit plan.
(b) For purposes of applying the IRC section 415(c) limits only and for no other purpose, the definition of compensation where applicable will be compensation actually paid or made available during a limitation year, except as noted below and as permitted by Treasury Regulation section 1.415 (c)-2, or successor regulation; provided; however, that member contributions picked up under IRC section 414(h) shall not be treated as compensation.
(c) Unless another definition of compensation that is permitted by Treasury Regulation section 1.415 (c)-2, or successor regulation, is specified by the plan, compensation will be defined as wages within the meaning of IRC section 3401(a) and all other payments of compensation to an employee by an employer for which the employer is required to furnish the employee a written statement under IRC sections 6041(d), 6051 (a)(3), and 6052 and will be determined without regard to any rules under IRC section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in IRC section 3401 (a)(2)).
(i) However, for limitation years beginning on and after January 1, 1998, compensation will also include amounts that would otherwise be included in compensation but for an election under IRC sections 125(a), 402 (e)(3), 402 (h)(1)(B), 402(k), or 457(b). For limitation years beginning on and after January 1, 2001, compensation will also include any elective amounts that are not includible in the gross income of the employee by reason of IRC section 132 (f)(4).
(ii) For limitation years beginning on and after January 1, 2009, compensation for the limitation year will also include compensation paid by the later of two and one-half months after an employee's severance from employment or the end of the limitation year that includes the date of the employee's severance from employment if:
(A) The payment is regular compensation for services during the employee's regular working hours, or compensation for services outside the employee's regular working hours (such as overtime or shift differential), commissions, bonuses or other similar payments, and, absent a severance from employment, the payments would have been paid to the employee while the employee continued in employment with the employer; or
(B) The payment is for unused accrued bona fide sick, vacation or other leave that the employee would have been able to use if employment had continued.
(iii) Back pay, within the meaning of Treasury Regulation section 1.415 (c)-2(g)(8), shall be treated as compensation for the limitation year to which the back pay relates to the extent the back pay represents wages and compensation that would otherwise be included under this definition.
(13) Service purchases under IRC section 415(n). Effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, if a member makes one or more contributions to purchase permissive service credit under the plan, then the requirements of IRC section 415(n) will be treated as met only if:
(a) The requirements of IRC section 415(b) are met, determined by treating the accrued benefit derived from all such contributions as an annual benefit for purposes of IRC section 415(b); or
(b) The requirements of IRC section 415(c) are met, determined by treating all such contributions as annual additions for purposes of IRC section 415(c).
(c) For purposes of applying this subsection, the plan will not fail to meet the reduced limit under IRC section 415 (b)(2)(C) solely by reason of this subsection and will not fail to meet the percentage limitation under IRC section 415 (c)(1)(B) solely by reason of this subsection.
(d) For purposes of this subsection the term "permissive service credit" means service credit:
(i) Recognized by the plan for purposes of calculating a member's benefit under the plan;
(ii) Which such member has not received under the plan; and
(iii) Which such member may receive only by making a voluntary additional contribution, in an amount determined under the plan, which does not exceed the amount necessary to fund the benefit attributable to such service credit.
Effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, such term may include service credit for periods for which there is no performance of service, and, notwithstanding (d)(ii) of this subsection, may include service credited in order to provide an increased benefit for service credit which a member is receiving under the plan.
(e) The plan will fail to meet the requirements of this section if:
(i) More than five years of nonqualified service credit are taken into account for purposes of this subsection; or
(ii) Any nonqualified service credit is taken into account under this subsection before the member has at least five years of participation under the plan.
(f) For purposes of (e) of this subsection, effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, the term "nonqualified service credit" means permissive service credit other than that allowed with respect to:
(i) Service (including parental, medical, sabbatical, and similar leave) as an employee of the government of the United States, any state or political subdivision thereof, or any agency or instrumentality of any of the foregoing (other than military service or service for credit which was obtained as a result of a repayment described in IRC section 415 (k)(3));
(ii) Service (including parental, medical, sabbatical, and similar leave) as an employee (other than as an employee described in subparagraph (i)) of an education organization described in IRC section 170 (b)(1)(A)(ii) which is a public, private, or sectarian school which provides elementary or secondary education (through grade 12), or a comparable level of education, as determined under the applicable law of the jurisdiction in which the service was performed;
(iii) Service as an employee of an association of employees who are described in subparagraph (i); or
(iv) Military service (other than qualified military service under section 414(u)) recognized by the plan.
(g) In the case of service described in (f)(i), (ii), or (iii) of this subsection, such service will be nonqualified service if recognition of such service would cause a member to receive a retirement benefit for the same service under more than one plan.
(h) In the case of a trustee-to-trustee transfer after December 31, 2001, to which IRC section 403 (b)(13)(A) or 457 (e)(17)(A) applies (without regard to whether the transfer is made between plans maintained by the same employer):
(i) The limitations of (e) of this subsection will not apply in determining whether the transfer is for the purchase of permissive service credit; and
(ii) The distribution rules applicable under federal law to the plan will apply to such amounts and any benefits attributable to such amounts.
(i) For an eligible member, the limitation of IRC section 415 (c)(1) shall not be applied to reduce the amount of permissive service credit which may be purchased to an amount less than the amount which was allowed to be purchased under the terms of the plan as in effect on August 5, 1997. For purposes of this paragraph an eligible member is an individual who first became a member in the plan before January 1, 1998.
(14) Modification of contributions for IRC sections 415(c) and 415(n) purposes. Notwithstanding any other provision of law to the contrary, the department may modify a request by a member to make a contribution to the plan if the amount of the contribution would exceed the limits provided in IRC section 415 by using the following methods:
(a) If the law requires a lump sum payment for the purchase of service credit, the department may establish a periodic payment plan for the member to avoid a contribution in excess of the limits under IRC sections 415(c) or 415(n).
(b) If payment pursuant to (a) of this subsection will not avoid a contribution in excess of the limits imposed by IRC sections 415(c) or 415(n), the department may either reduce the member's contribution to an amount within the limits of those sections or refuse the member's contribution.
(15) Repayments of cashouts. Any repayment of contributions (including interest thereon) to the plan with respect to an amount previously refunded upon a forfeiture of service credit under the plan or another governmental plan maintained by the state or a local government within the state shall not be taken into account for purposes of IRC section 415, in accordance with applicable treasury regulations.
(16) Reduction of benefits priority. Reduction of benefits and/or contributions to all plans, where required, shall be accomplished by first reducing the member's defined benefit component under any defined benefit plans in which the member participated, such reduction to be made first with respect to the plan in which the member most recently accrued benefits and thereafter in such priority as shall be determined by the plan and the plan administrator of such other plans; and next, by reducing the member's defined contribution component benefit under any defined benefit plans; and next by reducing or allocating excess forfeitures for defined contribution plans in which the member participated, such reduction to be made first with respect to the plan in which the member most recently accrued benefits and thereafter in such priority as shall be established by the plan and the plan administrator for such other plans provided; however, that necessary reductions may be made in a different manner and priority pursuant to the agreement of the plan and the plan administrator of all other plans covering such member.
[Statutory Authority: RCW 41.50.050(5), chapter 41.37 RCW and IRS regulations. 08-02-046, § 415-106-060, filed 12/27/07, effective 1/27/08.]
OTS-3523.1
AMENDATORY SECTION(Amending WSR 08-02-046, filed 12/27/07,
effective 1/27/08)
WAC 415-106-070
((Assets for exclusive benefit of
members and beneficiaries.)) How does the department comply
with the Internal Revenue Code exclusive benefit rules?
No
assets of the ((public safety employees')) retirement system
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.
[Statutory Authority: RCW 41.50.050(5), chapter 41.37 RCW and IRS regulations. 08-02-046, § 415-106-070, filed 12/27/07, effective 1/27/08.]
OTS-3524.2
AMENDATORY SECTION(Amending WSR 08-02-046, filed 12/27/07,
effective 1/27/08)
WAC 415-106-600
What are my retirement benefit options?
Upon retirement for service under RCW 41.37.210 or retirement
for disability under RCW 41.37.230, you must choose to have
your retirement ((allowance)) benefit paid to you by one of
the options described in this section.
(1) Which option will pay my beneficiary a monthly
((allowance)) benefit after my death? Options two, three, and
four described in subsection (((2))) (3)(b) through (d) of
this section, include a survivor feature. The person you name
at the time of retirement to receive a monthly ((allowance))
benefit after your death is referred to as your "survivor
beneficiary." Upon your death your survivor beneficiary will
be entitled to receive a monthly ((allowance)) benefit for the
duration of his or her life. ((Your monthly retirement
allowance will be actuarially reduced to offset the cost of
the survivor feature. The factors used to determine the
amount of the reduction are in WAC 415-02-380.))
(2) How is my monthly benefit affected if I choose an option with a survivor feature? If you choose Option two, three, or four, your monthly benefit will be actuarially reduced from the amount you would have received under Option one. The reduction factors are found in WAC 415-02-380. Your reduction factor will be determined based on the age difference between you and your survivor beneficiary.
(3) What are my benefit options?
(a) Option one: ((Standard allowance)) Single life (no
survivor feature). The department will pay you a monthly
retirement ((allowance)) benefit throughout your lifetime. Your monthly retirement ((allowance)) benefit will cease upon
your death.
(b) Option two: Joint and ((whole allowance)) 100
percent survivorship. The department will pay you ((a)) an
actuarially reduced monthly retirement ((allowance)) benefit
throughout your lifetime. After your death, the department
will pay your survivor beneficiary a monthly ((allowance))
benefit equal to the ((gross monthly retirement allowance you
were receiving)) amount of your benefit as reduced by factors
in WAC 415-02-380.
(c) Option three: Joint and ((one-half allowance)) 50
percent survivorship. The department will pay you ((a)) an
actuarially reduced monthly retirement ((allowance)) benefit
throughout your lifetime. After your death, the department
will pay your survivor beneficiary a monthly ((allowance))
benefit equal to one-half (50%) of the ((gross monthly
retirement allowance you were receiving)) amount of your
benefit as reduced by the factors in WAC 415-02-380.
(d) Option four: Joint and ((two-thirds allowance))
66.67 percent survivorship. The department will pay you ((a))
an actuarially reduced monthly retirement ((allowance))
benefit throughout your lifetime. After your death, the
department will pay your survivor beneficiary a monthly
((allowance)) benefit equal to two-thirds (((66.667%)))
(66.67%) of the ((gross monthly retirement allowance you were
receiving)) amount of your benefit as reduced by the factors
in WAC 415-02-380.
If you choose Options two, three, or four, and your benefit is limited by IRC § 415(b), your survivor's benefit will be calculated based on the amount of your actuarially reduced benefit, prior to the application of IRC § 415(b). However, in these circumstances, the monthly amount payable to your survivor beneficiary may not exceed your actual monthly benefit.
(((3))) (4) Do I need my spouse's consent on the option I
choose? If you are married, you must provide your spouse's
notarized signature indicating consent to the retirement
option you select. If you do not provide spousal consent, the
department will pay you a monthly retirement ((allowance))
benefit based on Option three (joint and ((one-half
allowance)) 50 percent survivorship) and record your spouse as
the survivor beneficiary as required by RCW 41.37.170(2). If
your survivor beneficiary has been designated by a dissolution
order according to subsection (((4))) (5) of this section,
which was filed with the department at least thirty days
before your retirement date, spousal consent is not required.
(((4))) (5) Can a dissolution order require that a former
spouse be designated as a survivor beneficiary? Yes. A
dissolution order may require that a former spouse be
designated as a survivor beneficiary. The department is
required to pay survivor benefits to a former spouse pursuant
to a dissolution order that complies with RCW 41.50.790.
(((5))) (6) What happens if I choose a benefit option
with a survivor feature and my survivor beneficiary dies
before I do? Your monthly retirement ((allowance)) benefit
will increase, provided you submit proof of your survivor
beneficiary's death to the department. The increase will
((accrue from)) begin accruing the first day of the month
following the death. Your increased ((monthly allowance))
benefit will be:
(a) The amount you would have received had you chosen the
((standard allowance)) single life option at the time of
retirement; plus
(b) Any cost-of-living adjustments (COLAs) you received prior to your survivor beneficiary's death, based on your original option selection.
| Example: | John retires (( |
| Year | (( |
Survivor Option plus COLAs | COLA incr. (3% max) |
$ Increase | |||
| 2006 | 2,000.00 | 1,750.00 | 0.00 | ||||
| 2007 | 1,750.00 | .02 | 35.00 | ||||
| 2008 | 1,785.00 | .03 | 53.55 | ||||
| 2009 | 1,838.55 | .025 | 45.96 | ||||
| 2010 | 1,884.51 | .03 | 56.54 | ||||
| 2011 | 2,000.00 | 1,941.05 | — | — | |||
| Total COLAs | 191.05 | ||||||
| Original Option One
Monthly
(( |
+ Total COLAs | = New Monthly
(( |
|||||
| $2000 | + $191.05 | = $2,191.05* | |||||
| * | In the future, John's COLA will be based on his increased monthly benefit. |
(a) Return to membership. If you retire and then return to membership for at least two years of uninterrupted service, you may choose a different retirement option upon your subsequent retirement. See RCW 41.37.050(3).
(b) Postretirement marriage option. If you select the
((standard allowance)) single life option at the time of
retirement and marry after retirement, you may select a
benefit option with a survivor feature and name your current
spouse as survivor beneficiary, provided that:
(i) Your benefit is not subject to a property division obligation pursuant to a dissolution order. See WAC 415-02-500;
(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 postretirement marriage;
(iii) You provide a copy of your certified marriage certificate to the department; and
(iv) You provide proof of your current spouse's birth
date((; and
(v) You exercise this option one time only)).
(c) Removal of a nonspouse survivor option. If you
select a benefit option with a survivor feature and name a
nonspouse as survivor beneficiary at the time of retirement,
you may remove that survivor beneficiary designation and have
your benefit adjusted to ((a standard allowance. You may
exercise this option one time only)) the single life option.
(((7))) (8) Who will receive the balance of my
accumulated contributions, if any, after my death? The
department will pay remaining accumulated contributions per
the last properly completed form on file with the department
prior to your death. See WAC 415-106-900 for additional
information.
(a) If you do not have a survivor beneficiary at the time
of your death, and you die before the total of the retirement
((allowance)) benefit paid equals the amount of your
accumulated contributions at the time of retirement, the
balance will be paid:
(i) To the person or entity (i.e., trust, organization, or estate) you have nominated by written designation, executed and filed with the department.
(ii) If you have not designated a beneficiary, or if your designated beneficiary is no longer living or in existence, then to your surviving spouse.
(iii) If not paid according to (a)(i) or (ii) of this subsection, then to your estate.
(b) If you have a survivor beneficiary at the time of
your death, and your survivor beneficiary dies before the
total of the retirement ((allowance)) benefit paid equals the
amount of your accumulated contributions at the time of
retirement, the balance will be paid:
(i) To the person or entity (i.e., trust, organization, or estate) your survivor beneficiary has nominated by written designation, executed and filed with the department.
(ii) If your survivor beneficiary has not designated a beneficiary, or if the designated beneficiary is no longer living or in existence, then to your survivor beneficiary's spouse.
(iii) If not paid according to (b)(i) or (ii) of this
subsection, then to your survivor beneficiary's estate. ((See
RCW 41.37.170.))
(9) For more information, see RCW 41.37.170, 41.37.230, and 41.37.250.
[Statutory Authority: RCW 41.37.170, 41.50.050(5), 41.37.050, 41.37.170, 41.37.210, 41.37.230, and 41.50.790. 08-02-046, § 415-106-600, filed 12/27/07, effective 1/27/08.]