Original Notice.

     Preproposal statement of inquiry was filed as WSR 11-07-066.

     Title of Rule and Other Identifying Information: New WAC 415-02-250 Retiree medical accounts established under Internal Revenue Code (IRC) Section 401(h).

     Hearing Location(s): Department of Retirement Systems, 6835 Capitol Boulevard, Conference Room 115, Tumwater, WA, on August 23, 2011, at 2:00 p.m.

     Date of Intended Adoption: August 26, 2011.

     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 August 23, 2011.

     Assistance for Persons with Disabilities: Contact Ken Goolsby, rules coordinator, by August 12, 2011, 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 Washington state legislature has enacted legislation providing for the payment of medical benefits for retirees of the Law Enforcement Officers and Firefighters' (LEOFF) Plan 2 who are totally disabled in the line of duty and survivors of LEOFF Plan 2 and the Washington State Patrol Retirement System Plans 1 and 2 who are killed in the line of duty. The department is creating a rule to implement retiree medical accounts established under Internal Revenue Code Section 401(h).

     Reasons Supporting Proposal: The new rule ensures compliance with the Federal Internal Revenue Code Section 401(h) regarding retiree medical accounts.

     Statutory Authority for Adoption: RCW 41.50.050(5) and chapter 43.43 RCW.

     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: Shawn Merchant, P.O. Box 48380, Olympia, WA 98504-8380, (360) 664-7303; and Enforcement: Jennifer Dahl, P.O. Box 48380, Olympia, WA 98504-8380, (360) 664-7219.

     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.

July 7, 2011

Ken Goolsby

Rules Coordinator

OTS-4105.2

NEW SECTION
WAC 415-02-250   Retiree medical accounts established under Internal Revenue Code (IRC) section 401(h).   RCW 41.26.470(10), 41.26.510(5), and 43.43.285 (2)(b) authorizes LEOFF Plan 2 and WSPRS Plan 1/2 to provide reimbursement to eligible retirees and/or to their eligible survivors for certain medical insurance premiums. These reimbursements are authorized by IRC section 401(h), subject to the IRC and federal regulations.

     (1) How is the money to fund these benefits held by the state? The money to fund these reimbursements is held in a "retiree medical account" within the trust funds for the respective plans. The trust funds for LEOFF Plan 2 and WSPRS Plan 1/2 each have a separate retiree medical account. The assets in each of these retiree medical accounts shall be accounted for separately. There are no individual member accounts.

     (2) How are the assets in the retiree medical accounts invested? The assets in the retiree medical accounts may be commingled with other trust fund accounts for investment purposes. Portions of the investment expenses and investment earnings for the commingled investments will be allocated to the retiree medical accounts on a reasonable basis.

     (3) How are assets in the retiree medical accounts used?

     (a) Assets in the retiree medical accounts are held in trust for the exclusive benefit of eligible retirees and their eligible survivors.

     (b) The assets of the respective retiree medical accounts shall be used only for the payment of the benefits provided in RCW 41.26.470(10), 41.26.510(5), and 43.43.285 (2)(b), and the expenses of administering these sections. Assets in the retiree medical accounts may not be used for any other retirement benefit provided by chapters 41.26 and 43.43 RCW or any other purpose.

     (c) Upon satisfaction of all liabilities under RCW 41.26.470(10), 41.26.510(5), and 43.43.285 (2)(b), any assets in a retiree medical account that are not used as provided in (b) of this subsection shall be transferred to the department of retirement systems' (DRS) expense fund for the benefit of employers, as required by IRC section 401 (h)(5).

     (d) These benefits are subordinate to the retirement benefits provided by the plan.

     (4) How are the retiree medical accounts funded?

     (a) The retiree medical accounts are funded by designated retirement contributions, appropriations, and any other sources. The funding structure and the process for determining the contributions for the accounts are set out in chapter 41.45 RCW, in particular RCW 41.45.050, 41.45.060, 41.45.0604, 41.45.0631, and 41.45.070.

     (b) At no time shall the total contributions to a retiree medical account plus the total contributions to its respective plan for the one-time duty-related death benefit be in excess of twenty-five percent of the total contributions to its respective plan (not including contributions to fund past service credits). This comparison is made by comparing all contributions (to the retiree medical account and to the respective plan) that have been made after the effective date of the retiree medical account.

     (c) DRS will review the total contributions annually to ensure that the twenty-five percent limit has not been exceeded.

     (5) In adopting this section, DRS intends to comply in all respects with IRC sections 401(a) and 401(h) and to preserve the status of LEOFF Plan 2 and WSPRS Plan 1/2 as tax-qualified governmental plans.

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