SENATE BILL REPORT

                   HB 1297

              As Reported By Senate Committee On:

                  Ways & Means, April 3, 1995

Title:  An act relating to complying with federal limits on the maximum compensation used to calculate state retirement system benefits.

Brief Description:  Calculating retiree benefits.

Sponsors:  Representatives Sehlin, Sommers and Carlson; by request of Department of Retirement Systems.

Brief History:

Committee Activity:  Ways & Means:  3/23/95, 4/3/95 [DP].

SENATE COMMITTEE ON WAYS & MEANS

Majority Report:  Do pass.

  Signed by Senators Rinehart, Chair; Loveland, Vice Chair; Bauer, Cantu, Drew, Finkbeiner, Fraser, Gaspard, Hargrove, Hochstatter, Johnson, Long, McDonald, Pelz, Roach, Snyder, Spanel, Strannigan, Sutherland, West, Winsley and Wojahn.

Staff:  Denise Graham (786-7715)

Background:  Federal tax laws establish requirements for becoming a "qualified retirement trust fund."  In the early 1980s, the state's retirement systems became "qualified trusts" under these requirements, allowing two major federal tax benefits: 1) no federal taxes are owed on employer contributions; and 2) member contributions can be made with pre-tax income.  To continue as a qualified trust, the state retirement systems must comply with federal tax laws.

The federal tax laws place a ceiling on the amount of compensation that can be used in calculating benefits.  Until 1993, that ceiling was $235,840 per year;  in 1993 the limit was lowered to $150,000, indexed to inflation.  This limit applies to public systems beginning January 1, 1996.

Summary of Bill:  The state retirement systems are brought into compliance with the $150,000 federal limit on annual compensation used to calculate retirement benefits.  The limit applies only to members hired after January 1, 1996; there is no impact on existing members.

Appropriation:  None.

Fiscal Note:  Available.

Effective Date:  Ninety days after adjournment of session in which bill is passed.

Testimony For:  This bill is necessary to bring state law into compliance with federal tax law.

Testimony Against:  None.

Testified:  Sheryl Wilson, Department of Retirement Systems (pro).