H-0717.1 _______________________________________________
HOUSE BILL 2083
_______________________________________________
State of Washington 57th Legislature 2001 Regular Session
By Representatives Linville, Roach, O'Brien, Cooper, Fromhold, Dunn, Armstrong and Boldt
Read first time 02/14/2001. Referred to Committee on Appropriations.
AN ACT Relating to the Washington state public pension protection act; amending RCW 41.50.020, 41.45.020, 41.45.030, 41.45.090, 41.40.650, and 41.26.450; reenacting and amending RCW 41.45.020 and 41.45.060; adding a new section to chapter 42.17 RCW; adding a new chapter to Title 41 RCW; creating new sections; decodifying RCW 41.45.0602; repealing RCW 41.45.100, 41.45.110, and 41.45.120; providing effective dates; providing an expiration date; and declaring an emergency.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
WASHINGTON STATE PENSION BOARD
NEW SECTION. Sec. 1. The Washington state pension board, which may be known as the pension board, is created as an independent governing board to manage all of the public retirement systems of the state of Washington. Members shall serve in a trustee capacity and with fiduciary responsibility in administrating the assets of the public retirement systems which are declared a trust.
NEW SECTION. Sec. 2. The pension board consists of eleven members as follows: One retired and one active member from the public employees' retirement system; one retired and one active member from the teachers' or school employees' retirement systems; one retired and one active member from the law enforcement officers' and fire fighters', state patrol, and judges' retirement systems; the state treasurer; the director of financial management; one employer member representing city, county, and municipal governments; and two members at large appointed by the governor. All pension board members are voting members.
NEW SECTION. Sec. 3. The retired and active pension board members shall be elected by the membership from their respective retirement systems and the department of retirement systems shall conduct the elections. The employer member from city, county, and municipal governments shall be appointed by the governor from a list of three names collectively submitted by the association of Washington cities and the Washington state association of counties. Terms of office for retired and active members are five years. In order to stagger the terms, the initial term for the (1) public employees' retirement system members is one year; (2) teachers' or school employees' retirement systems' members is three years; (3) law enforcement officers' and fire fighters', state patrol, and judges' retirement systems' members is five years; and (4) member representing city, county, and municipal governments is five years. The two members appointed by the governor have five-year appointments with one member serving an initial term of three years.
NEW SECTION. Sec. 4. The pension board shall establish an operational budget sufficient to perform its duties and, as appropriate and reasonable, the department of retirement systems shall provide resources and staff assistance.
NEW SECTION. Sec. 5. The pension board has the authority to obtain by employment or contract the services necessary to exercise its trustee powers and duties, including hiring the director of the department of retirement systems, actuarial, auditing and legal services, and procuring and disposing of the goods and property necessary to exercise the pension board's authority in performing its duties. In exercising their authority under this section, pension board members are subject to the fiduciary duties under this chapter.
NEW SECTION. Sec. 6. The pension board may delegate functions that a prudent trustee or administrator acting in a like capacity and familiar with those matters could properly delegate under the circumstances. In doing so, the pension board shall exercise reasonable care, skill, and caution in:
(1) Selecting an agent;
(2) Establishing scope and terms of the delegation consistent with the purpose and terms of the retirement program; and
(3) Periodically reviewing the agent's performance and compliance with the terms of the delegation.
In performing a delegated function, an agent owes a duty to the retirement systems and to its participants and beneficiaries to comply with the duties imposed by section 7 of this act. The pension board, if in compliance with this section, is not liable to the retirement system or its participants or beneficiaries for the decisions or actions of the agent to whom the function was delegated. By accepting the delegation of a function from the pension board, an agent submits to the jurisdiction of the courts of this state. The pension board may limit the authority of an administrator to delegate.
NEW SECTION. Sec. 7. The pension board shall discharge its duties with respect to the retirement system:
(1) Solely in the interest of the participants and beneficiaries;
(2) For the exclusive purpose of providing benefits to participants and beneficiaries and paying reasonable expenses of administrating the system;
(3) With the care, skill, and caution under the circumstances then prevailing which a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an activity of like character and purpose;
(4) Impartially taking into account any differing interests of participants and beneficiaries;
(5) Incurring only costs that are appropriate and reasonable; and
(6) In accordance with a good-faith interpretation of the law governing the retirement program and system.
NEW SECTION. Sec. 8. In managing the assets of the retirement system pursuant to section 7 of this act, the pension board must consider the following:
(1) General economic conditions;
(2) Possible effect of inflation and deflation;
(3) Expected total return on investments, including income and appreciation of capital;
(4) Needs for liquidity, regular income, and preservation of capital;
(5) Making a reasonable effort to verify facts relevant to the investment of assets as reported by the state investment board.
NEW SECTION. Sec. 9. The pension board's primary duties include adopting actuarial assumptions, setting contribution rates needed to keep the pension system properly funded, and proposing necessary legislation. The pension board has no authority to invest the pension funds.
NEW SECTION. Sec. 10. The state auditor may conduct a performance audit as necessary but not less than once every four years. The pension board shall pay for necessary expenses incurred by the state auditor in performing this function from the trust funds.
NEW SECTION. Sec. 11. The state investment board shall provide the pension board with in-depth quarterly reports and its annual report that shall be combined with the pension board's annual and consolidated summary reports. The pension board shall also prepare a condensed version of its annual report, in layman's terms, for distribution to all participants and beneficiaries of the pension systems.
NEW SECTION. Sec. 12. A pension board member or other fiduciary who breaches a duty under this chapter, as determined under section 14 of this act, is personally liable to the public retirement systems for any losses resulting from the breach and any profits made by the pension board member or other fiduciary through use of assets of the system by the pension board member or fiduciary. An agreement that purports to limit the liability of the board member or fiduciary for a breach of duty is void. The public retirement systems may insure itself against liability or losses occurring because of a breach of duty by a pension board member or other fiduciary. A pension board member or other fiduciary may insure against liability or losses occurring because of a breach of duty if the insurance is purchased or provided either by the pension board member or fiduciary personally, or, on the pension board member or fiduciary's behalf by the state of Washington, the public retirement systems, a public employer whose employees participate in the retirement program served by the pension board or fiduciary, an employee representative whose members participate in the retirement program served by the pension board or fiduciary, or the pension board or fiduciary's employer.
NEW SECTION. Sec. 13. The pension board, when managing the assets of the public retirement systems, may deliberate about, or make tentative final decisions, in executive session if disclosure of the deliberations or decisions would jeopardize the ability to implement them. A record of the public retirement system that discloses deliberations, or a tentative or final decision, made in an executive session is not an open or public record under chapter 42.17 RCW.
NEW SECTION. Sec. 14. An action may be maintained in superior court of Thurston county by a public employer, participant, beneficiary, or fiduciary:
(1) To enjoin an act, practice, or omission that is a violation under this chapter;
(2) For appropriate equitable relief for a breach of trust under section 12 of this act; or
(3) For other appropriate equitable relief to redress the violation of or to enforce this chapter.
In an action under this section by a participant, beneficiary, or fiduciary, the court may award reasonable attorneys' fees and costs to either party.
NEW SECTION. Sec. 15. A new section is added to chapter 42.17 RCW to read as follows:
Chapter 41.-- RCW (sections 1 through 14 and 27 through 49 of this act) is exempt from the disclosure requirements under this chapter.
Sec. 16. RCW 41.50.020 and 1975-'76 2nd ex.s. c 105 s 4 are each amended to read as follows:
There is created a
department of state government to be known as the department of retirement
systems. The executive and administrative head of the department shall be the
director, who shall be appointed by the ((governor)) Washington state
pension board with the consent of the senate. The director shall serve at
the pleasure of the ((governor)) pension board and may be removed
upon written notification by the ((governor)) pension board to
the respective retirement boards.
The director shall have
complete charge of and supervisory powers over the department and shall be paid
a salary fixed by the governor in accordance with the provisions of RCW
43.03.040. If a vacancy occurs in the position of director while the senate is
not in session, the ((governor)) pension board shall make a
temporary appointment until the next meeting of the senate at which time ((he))
the pension board shall present to that body the name of the person
appointed to the position of director.
NEW SECTION. Sec. 17. The director of retirement systems shall conduct an election among retirement systems members for the election of pension board members as set forth under section 3 of this act.
Sec. 18. RCW 41.45.020 and 1998 c 341 s 402 and 1998 c 283 s 1 are each reenacted and amended to read as follows:
As used in this chapter, the following terms have the meanings indicated unless the context clearly requires otherwise.
(1) (("Council"))
"Pension board" means the Washington state pension ((funding
council)) board created in ((RCW 41.45.100)) section 1 of
this act.
(2) "Department" means the department of retirement systems.
(3) "Law enforcement officers' and fire fighters' retirement system plan 1" and "law enforcement officers' and fire fighters' retirement system plan 2" mean the benefits and funding provisions under chapter 41.26 RCW.
(4) "Public employees' retirement system plan 1" and "public employees' retirement system plan 2" mean the benefits and funding provisions under chapter 41.40 RCW.
(5) "Teachers' retirement system plan 1," "teachers' retirement system plan 2," and "teachers' retirement system plan 3" mean the benefits and funding provisions under chapter 41.32 RCW.
(6) "School employees' retirement system plan 2" and "school employees' retirement system plan 3" mean the benefits and funding provisions under chapter 41.35 RCW.
(7) "Washington state patrol retirement system" means the retirement benefits provided under chapter 43.43 RCW.
(8) "Unfunded liability" means the unfunded actuarial accrued liability of a retirement system.
(9) "Actuary" or "state actuary" means the state actuary employed under chapter 44.44 RCW.
(10) "State retirement systems" means the retirement systems listed in RCW 41.50.030.
(11) (("Work
group" means the pension funding work group created in RCW 41.45.120.
(12))) "Classified employee" means a member
of the Washington school employees' retirement system plan 2 or plan 3 as
defined in RCW 41.35.010.
(((13))) (12)
"Teacher" means a member of the teachers' retirement system as
defined in RCW 41.32.010(15).
Sec. 19. RCW 41.45.020 and 2000 c 247 s 502 are each amended to read as follows:
As used in this chapter, the following terms have the meanings indicated unless the context clearly requires otherwise.
(1) (("Council"))
"Pension board" means the Washington state pension ((funding
council)) board created in ((RCW 41.45.100)) section 1 of
this act.
(2) "Department" means the department of retirement systems.
(3) "Law enforcement officers' and fire fighters' retirement system plan 1" and "law enforcement officers' and fire fighters' retirement system plan 2" mean the benefits and funding provisions under chapter 41.26 RCW.
(4) "Public employees' retirement system plan 1," "public employees' retirement system plan 2," and "public employees' retirement system plan 3" mean the benefits and funding provisions under chapter 41.40 RCW.
(5) "Teachers' retirement system plan 1," "teachers' retirement system plan 2," and "teachers' retirement system plan 3" mean the benefits and funding provisions under chapter 41.32 RCW.
(6) "School employees' retirement system plan 2" and "school employees' retirement system plan 3" mean the benefits and funding provisions under chapter 41.35 RCW.
(7) "Washington state patrol retirement system" means the retirement benefits provided under chapter 43.43 RCW.
(8) "Unfunded liability" means the unfunded actuarial accrued liability of a retirement system.
(9) "Actuary" or "state actuary" means the state actuary employed under chapter 44.44 RCW.
(10) "State retirement systems" means the retirement systems listed in RCW 41.50.030.
(11) (("Work
group" means the pension funding work group created in RCW 41.45.120.
(12))) "Classified employee" means a member
of the Washington school employees' retirement system plan 2 or plan 3 as
defined in RCW 41.35.010.
(((13))) (12)
"Teacher" means a member of the teachers' retirement system as
defined in RCW 41.32.010(15).
Sec. 20. RCW 41.45.030 and 1995 c 233 s 1 are each amended to read as follows:
(1) Beginning ((September
1, 1995)) on the effective date of this section, and every two years
thereafter, the state actuary shall submit to the ((council)) pension
board information regarding the experience and financial condition of each
state retirement system. The ((council)) pension board shall
review this and such other information as it may require.
(2) By December 31, ((1995))
2001, and every two years thereafter, the ((council)) pension
board, by affirmative vote of ((five councilmembers)) six pension
board members, shall adopt the following long-term economic assumptions:
(a) Growth in system membership;
(b) Growth in salaries, exclusive of merit or longevity increases;
(c) Growth in inflation; and
(d) Investment rate of return.
The ((council)) pension
board shall ((work with the department of retirement systems, the state
actuary, and the executive director of the state investment board, and shall))
consider long-term historical averages, in developing the economic assumptions.
(3) The assumptions
adopted by the ((council)) pension board shall be used by the
state actuary in conducting all actuarial studies of the state retirement
systems.
Sec. 21. RCW 41.45.060 and 2000 2nd sp.s. c 1 s 905 and 2000 c 247 s 504 are each reenacted and amended to read as follows:
(1) The state actuary shall provide actuarial valuation results based on the assumptions adopted under RCW 41.45.030.
(2) Not later than ((September
30, 1998)) December 31, 2001, and every two years thereafter,
consistent with the assumptions adopted under RCW 41.45.030, the ((council))
pension board shall adopt and may make changes to:
(a) A basic state contribution rate for the law enforcement officers' and fire fighters' retirement system;
(b) Basic employer contribution rates for the public employees' retirement system, the teachers' retirement system, and the Washington state patrol retirement system to be used in the ensuing biennial period; and
(c) A basic employer contribution rate for the school employees' retirement system for funding the public employees' retirement system plan 1.
((For the 1999-2001
fiscal biennium, the rates adopted by the council shall be effective for the
period designated in section 902, chapter 1, Laws of 2000 2nd sp. sess. and RCW
41.45.0602.))
(3) The employer and
state contribution rates adopted by the ((council)) pension board
shall be the level percentages of pay that are needed:
(a) To fully amortize the total costs of the public employees' retirement system plan 1, the teachers' retirement system plan 1, the law enforcement officers' and fire fighters' retirement system plan 1, and the unfunded liability of the Washington state patrol retirement system not later than June 30, 2024, except as provided in subsection (5) of this section;
(b) To also continue to fully fund the public employees' retirement system plans 2 and 3, the teachers' retirement system plans 2 and 3, the school employees' retirement system plans 2 and 3, and the law enforcement officers' and fire fighters' retirement system plan 2 in accordance with RCW 41.45.061, 41.45.067, and this section; and
(c) For the law enforcement officers' and fire fighters' system plan 2 the rate charged to employers, except as provided in RCW 41.26.450, shall be thirty percent of the cost of the retirement system and the rate charged to the state shall be twenty percent of the cost of the retirement system.
(4) The aggregate actuarial cost method shall be used to calculate a combined plan 2 and 3 employer contribution rate.
(5) An amount equal to the amount of extraordinary investment gains as defined in RCW 41.31.020 shall be used to shorten the amortization period for the public employees' retirement system plan 1 and the teachers' retirement system plan 1.
(6) The ((council))
pension board shall immediately notify the directors of the office of
financial management and department of retirement systems of the state and
employer contribution rates adopted.
(7) The director of the
department of retirement systems shall collect those rates adopted by the ((council))
pension board.
NEW SECTION. Sec. 22. RCW 41.45.0602 (Washington state patrol basic employer contribution rate) is decodified.
Sec. 23. RCW 41.45.090 and 1998 c 283 s 7 are each amended to read as follows:
The department shall
collect and keep in convenient form such data as shall be necessary for an
actuarial valuation of the assets and liabilities of the state retirement
systems, and for making an actuarial investigation into the mortality, service,
compensation, and other experience of the members and beneficiaries of those
systems. The department and state actuary shall enter into a memorandum of
understanding regarding the specific data the department will collect, when it
will be collected, and how it will be maintained. The department shall notify
the ((state actuary)) pension board of any changes it makes, or
intends to make, in the collection and maintenance of such data.
At least once in each
six-year period, the state actuary shall conduct an actuarial experience study
of the mortality, service, compensation and other experience of the members and
beneficiaries of each state retirement system, and into the financial condition
of each system. The results of each investigation shall be filed with the
department, the office of financial management, the budget writing committees
of the Washington house of representatives and senate, and the pension ((funding
council)) board. Upon the basis of such actuarial investigation the
department, with approval of the pension board, shall adopt such tables,
schedules, factors, and regulations as are deemed necessary in the light of the
findings of the actuary or the pension board for the proper operation of
the state retirement systems.
NEW SECTION. Sec. 24. The following acts or parts of acts are each repealed:
(1) RCW 41.45.100 (Pension funding council--Created) and 1998 c 283 s 2;
(2) RCW 41.45.110 (Pension funding council--Audits required) and 1998 c 283 s 3; and
(3) RCW 41.45.120 (Pension funding work group) and 1998 c 283 s 4.
Sec. 25. RCW 41.40.650 and 1989 c 273 s 24 are each amended to read as follows:
The required
contribution rates to the retirement system for both members and employers
shall be established by the ((director)) Washington state pension
board from time to time as may be necessary ((upon the advice of the state
actuary. The state actuary shall use the aggregate actuarial cost method to
calculate contribution rates)). The employer contribution rate calculated
under this section shall be used only for the purpose of determining the amount
of employer contributions to be deposited in the plan 2 fund from the total
employer contributions collected under RCW 41.40.048.
Contribution rates required to fund the costs of the retirement system shall always be equal for members and employers, except as herein provided. Effective January 1, 1987, however, no member or employer contributions are required for any calendar month in which the member is not granted service credit. Any adjustments in contribution rates required from time to time for future costs shall likewise be shared equally by the members and employers.
Any increase in the contribution rate required as the result of a failure of an employer to make any contribution required by this section shall be borne in full by the employer not making the contribution.
The director shall notify all employers of any pending adjustment in the required contribution rate and such increase shall be announced at least thirty days prior to the effective date of the change.
Members contributions required by this section shall be deducted from the members compensation earnable each payroll period. The members contribution and the employers contribution shall be remitted directly to the department within fifteen days following the end of the calendar month during which the payroll period ends.
Sec. 26. RCW 41.26.450 and 1996 c 38 s 3 are each amended to read as follows:
(1) The required
contribution rates to the plan 2 system for members, employers, and the state
of Washington shall be established by the ((director)) Washington
state pension board from time to time as may be necessary ((upon the
advice of the state actuary. The state actuary shall use the aggregate
actuarial cost method to calculate contribution rates)).
(2) Except as provided in subsection (3) of this section, the member, the employer and the state shall each contribute the following shares of the cost of the retirement system:
Member 50%
Employer 30%
State 20%
(3) Port districts established under Title 53 RCW and institutions of higher education as defined in RCW 28B.10.016 shall contribute both the employer and state shares of the cost of the retirement system for any of their employees who are law enforcement officers. Institutions of higher education shall contribute both the employer and the state shares of the cost of the retirement system for any of their employees who are fire fighters.
(4) Effective January 1, 1987, however, no member or employer contributions are required for any calendar month in which the member is not granted service credit.
(5) Any adjustments in contribution rates required from time to time for future costs shall likewise be shared proportionally by the members, employers, and the state.
(6) Any increase in the contribution rate required as the result of a failure of the state or of an employer to make any contribution required by this section shall be borne in full by the state or by that employer not making the contribution.
(7) The director shall notify all employers of any pending adjustment in the required contribution rate and such increase shall be announced at least thirty days prior to the effective date of the change.
(8) Members' contributions required by this section shall be deducted from the members basic salary each payroll period. The members contribution and the employers contribution shall be remitted directly to the department within fifteen days following the end of the calendar month during which the payroll period ends. The state's contribution required by this section shall be transferred to the plan 2 fund from the total contributions transferred by the state treasurer under RCW 41.45.060 and 41.45.070.
UNIFORM MANAGEMENT OF PUBLIC EMPLOYEE RETIREMENT SYSTEMS
NEW SECTION. Sec. 27. SHORT TITLE. This subchapter may be cited as the uniform management of public employee retirement systems act.
NEW SECTION. Sec. 28. Sections 27 through 49 of this act apply to the management of public employee retirement systems unless they conflict with other statutes, in which case the other statutes control.
NEW SECTION. Sec. 29. DEFINITIONS. The definitions in this section apply throughout this subchapter unless the context clearly requires otherwise.
(1) "Administrator" means a person primarily responsible for the management of a retirement system or, if no person is clearly designated, the trustee of the system who has the ultimate authority to manage the system.
(2) "Agent group of programs" means a group of retirement programs which shares administrative and investment functions but maintains a separate account for each retirement program so that assets accumulated for a particular program may be used to pay benefits only for that program's participants and beneficiaries.
(3) "Appropriate grouping of programs" means:
(a) For defined benefit plans, a cost-sharing program or an agent group of programs; and
(b) For defined contribution plans, a group of retirement programs which shares administrative and investment functions.
(4) "Beneficiary" means a person, other than the participant, who is designated by a participant or by a retirement program to receive a benefit under the program.
(5) "Code" means the federal internal revenue code of 1986, as amended.
(6) "Cost-sharing program" means a retirement program for the employees of more than one public employer in which all assets accumulated for the payment of benefits may be used to pay benefits to any participants or beneficiaries of the program.
(7) "Defined benefit plan" means a retirement program other than a defined contribution plan.
(8) "Defined contribution plan" means a retirement program that provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account; any income, expenses, gains, and losses credited or charged to the account; and any forfeitures of accounts of other participants that may be allocated to the participant's account.
(9) "Employee" includes an officer of a public employer.
(10) "Fair value" means the amount that a willing buyer would pay a willing seller for an asset in a current sale, as determined in good faith by a fiduciary.
(11) "Fiduciary" means a person who:
(a) Exercises any discretionary authority to manage a retirement system;
(b) Exercises any authority to invest or manage assets of a system;
(c) Provides investment advice for a fee or other direct or indirect compensation with respect to assets of a system or has any authority or responsibility to do so; or
(d) Is a trustee or a member of a board of trustees.
(12) "Furnish" means:
(a) To deliver personally, to mail to the last known place of employment or home address of the intended recipient, or, if reasonable grounds exist to believe that the intended recipient would receive it in ordinary course, to transmit by any other usual means of communication; or
(b) To provide to the intended recipient's public employer if reasonable grounds exist to believe that the employer will make a good faith effort to deliver personally, by mail, or by other usual means of communication.
(13) "Governing law" means state and local laws establishing or authorizing the creation of a retirement program or system and the principal state and local laws and regulations governing the management of a retirement program or system or assets of either.
(14) "Guaranteed benefit policy" means an insurance policy or contract to the extent the policy or contract provides for benefits in a guaranteed amount. The term includes any surplus in a separate account, but excludes any other portion of a separate account.
(15) "Insurer" means a company, service, or organization qualified to engage in the business of insurance in this state.
(16) "Nonforfeitable benefit" means an immediate or deferred benefit that arises from a participant's service, is unconditional, and is enforceable against the retirement system.
(17) "Participant" means an individual who is or has been an employee enrolled in a retirement program and who is or may become eligible to receive, or is currently receiving, a benefit under the program, or whose beneficiaries are or may become eligible to receive a benefit. The term does not include an individual who is no longer an employee of a public employer and has not accrued any nonforfeitable benefits under the program.
(18) "Public employer" means this state or any political subdivision, or any agency or instrumentality of this state or any political subdivision, whose employees are participants in a retirement program.
(19) "Retirement program" means a program of rights and obligations which a public employer establishes or maintains and which, by its express terms or as a result of surrounding circumstances:
(a) Provides retirement income to employees; or
(b) Results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.
(20) "Retirement system" means an entity established or maintained by a public employer to manage one or more retirement programs, or to invest or manage the assets of one or more retirement programs.
(21) "State" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
(22) "Trustee" means a person who has ultimate authority to manage a retirement system or to invest or manage its assets.
NEW SECTION. Sec. 30. SCOPE. This subchapter applies to all retirement programs and retirement systems, except:
(1) A retirement program that is unfunded and is maintained by a public employer solely for the purpose of providing deferred compensation for a select group of management employees or employees who rank in the top five percent of employees of that employer based on compensation;
(2) A severance-pay arrangement under which:
(a) Payments are made solely on account of the termination of an employee's service and are not contingent upon the employee's retiring;
(b) The total amount of the payments does not exceed the equivalent of twice the employee's total earnings from the public employer during the year immediately preceding the termination of service; and
(c) All payments are completed within twenty-four months after the termination of service;
(3) An arrangement or payment made on behalf of an employee because the employee is covered by Title II of the social security act, as amended;
(4) A qualified governmental excess benefit arrangement within the meaning of section 415(m) of the code;
(5) An individual retirement account or individual retirement annuity within the meaning of section 408 of the code;
(6) A retirement program consisting solely of annuity contracts or custodial accounts satisfying the requirements of section 403(b) of the code; or
(7) A program maintained solely for the purpose of complying with workers' compensation laws or disability insurance laws.
NEW SECTION. Sec. 31. ESTABLISHMENT OF TRUST. (1) Except as otherwise provided in subsection (2) of this section, all assets of a retirement system are held in trust. The trustee has the exclusive authority, subject to this subchapter, to invest and manage those assets.
(2) Assets of a retirement system which consist of insurance contracts or policies issued by an insurer, assets of an insurer, and assets of the system held by an insurer need not be held in trust.
(3) If an insurer issues a guaranteed benefit policy to a retirement system, assets of the system include the policy but not assets of the insurer.
(4) If a retirement system invests in a security issued by an investment company registered under the investment company act of 1940, the assets of the system include the security but not the assets of the investment company.
NEW SECTION. Sec. 32. POWERS OF TRUSTEE. (1) In addition to other powers conferred by the governing law, a trustee has exclusive authority, consistent with the trustee's duties under this subchapter, to:
(a) Establish an administrative budget sufficient to perform the trustee's duties and, as appropriate and reasonable, draw upon assets of the retirement system to fund the budget;
(b) Obtain by employment or contract the services necessary to exercise the trustee's powers and perform the trustee's duties, including actuarial, auditing, custodial, investment, and legal services; and
(c) Procure and dispose of goods and property necessary to exercise the trustee's powers and perform the trustee's duties.
(2) In exercising its authority under this section, a trustee is subject to the fiduciary duties of this subchapter, but not to civil service, personnel, procurement, or similar general laws relating to subsection (1) of this section.
NEW SECTION. Sec. 33. DELEGATION OF FUNCTIONS. (1) A trustee or administrator may delegate functions that a prudent trustee or administrator acting in a like capacity and familiar with those matters could properly delegate under the circumstances.
(2) The trustee or administrator shall exercise reasonable care, skill, and caution in:
(a) Selecting an agent;
(b) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the retirement program; and
(c) Periodically reviewing the agent's performance and compliance with the terms of the delegation.
(3) In performing a delegated function, an agent owes a duty to the retirement system and to its participants and beneficiaries to comply with the terms of the delegation and, if a fiduciary, to comply with the duties imposed by section 34 of this act.
(4) A trustee or administrator who complies with subsections (1) and (2) of this section is not liable to the retirement system or to its participants or beneficiaries for the decisions or actions of the agent to whom the function was delegated.
(5) By accepting the delegation of a function from the trustee or administrator, an agent submits to the jurisdiction of the courts of this state.
(6) A trustee may limit the authority of an administrator to delegate functions under this section.
NEW SECTION. Sec. 34. GENERAL FIDUCIARY DUTIES. A trustee or other fiduciary shall discharge duties with respect to a retirement system:
(1) Solely in the interest of the participants and beneficiaries;
(2) For the exclusive purpose of providing benefits to participants and beneficiaries and paying reasonable expenses of administering the system;
(3) With the care, skill, and caution under the circumstances then prevailing which a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an activity of like character and purpose;
(4) Impartially, taking into account any differing interests of participants and beneficiaries;
(5) Incurring only costs that are appropriate and reasonable; and
(6) In accordance with a good-faith interpretation of the law governing the retirement program and system.
NEW SECTION. Sec. 35. DUTIES OF TRUSTEE IN INVESTING AND MANAGING ASSETS OF RETIREMENT SYSTEM. (1) In investing and managing assets of a retirement system pursuant to section 34 of this act, a trustee with authority to invest and manage assets:
(a) Shall consider among other circumstances:
(i) General economic conditions;
(ii) The possible effect of inflation or deflation;
(iii) The role that each investment or course of action plays within the overall portfolio of the retirement program or appropriate grouping of programs;
(iv) The expected total return from income and the appreciation of capital;
(v) Needs for liquidity, regularity of income, and preservation or appreciation of capital; and
(vi) For defined benefit plans, the adequacy of funding for the plan based on reasonable actuarial factors;
(b) Shall diversify the investments of each retirement program or appropriate grouping of programs unless the trustee reasonably determines that, because of special circumstances, it is clearly prudent not to do so;
(c) Shall make a reasonable effort to verify facts relevant to the investment and management of assets of a retirement system;
(d) May invest in any kind of property or type of investment consistent with this subchapter; and
(e) May consider benefits created by an investment in addition to investment return only if the trustee determines that the investment providing these collateral benefits would be prudent even without the collateral benefits.
(2) A trustee with authority to invest and manage assets of a retirement system shall adopt a statement of investment objectives and policies for each retirement program or appropriate grouping of programs. The statement must include the desired rate of return on assets overall, the desired rates of return and acceptable levels of risk for each asset class, asset-allocation goals, guidelines for the delegation of authority, and information on the types of reports to be used to evaluate investment performance. At least annually, the trustee shall review the statement and change or reaffirm it.
NEW SECTION. Sec. 36. SPECIAL APPLICATION OF DUTIES. (1) A trustee may return a contribution, with interest, to a public employer or employee, or make alternative arrangements for reimbursement, if the trustee determines the contribution was made because of a mistake of fact or law.
(2) Upon termination of a retirement program, a trustee may return to a public employer any assets of the program remaining after all liabilities of the program to participants and beneficiaries have been satisfied.
(3) If a retirement program provides for individual accounts and permits a participant or beneficiary to exercise control over the assets in such an account and a participant or beneficiary exercises control over those assets:
(a) The participant or beneficiary is not a fiduciary by reason of the exercise of control; and
(b) A person who is otherwise a fiduciary is not liable for any loss, or by reason of any breach of fiduciary duty, resulting from the participant's or beneficiary's exercise of control.
(4) If an insurer issues to a retirement system a contract or policy that is supported by the insurer's general account but is not a guaranteed benefit policy, the insurer complies with section 34 of this act if it manages the assets of the general account with the care, skill, and caution under the circumstances then prevailing which a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an activity of like character and purpose, taking into account all obligations supported by the general account.
NEW SECTION. Sec. 37. REVIEWING COMPLIANCE. In evaluating performance of a trustee or other fiduciary:
(1) Compliance by the trustee or other fiduciary with sections 33 through 36 of this act must be determined in light of the facts and circumstances existing at the time of the trustee or fiduciary's decision or action and not by hindsight.
(2) The trustee's investment and management decisions must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the program or appropriate grouping of programs.
NEW SECTION. Sec. 38. FIDUCIARY LIABILITY. (1) A trustee or other fiduciary who breaches a duty imposed by this subchapter is personally liable to a retirement system for any losses resulting from the breach and any profits made by the trustee or other fiduciary through use of assets of the system by the trustee or other fiduciary. The trustee or other fiduciary is subject to other equitable remedies as the court considers appropriate, including removal.
(2) An agreement that purports to limit the liability of a trustee or other fiduciary for a breach of duty under this subchapter is void.
(3) A retirement system may insure itself against liability or losses occurring because of a breach of duty under this subchapter by a trustee or other fiduciary.
(4) A trustee or other fiduciary may insure against liability or losses occurring because of a breach of duty under this subchapter if the insurance is purchased or provided either by the trustee or fiduciary personally or, on the trustee or fiduciary's behalf, by this state, the retirement system, a public employer whose employees participate in a retirement program served by the trustee or fiduciary, an employee representative whose members participate in a retirement program served by the trustee or fiduciary, or the trustee or fiduciary's employer.
NEW SECTION. Sec. 39. OPEN OR PUBLIC MEETINGS AND RECORDS. (1) A multimember body having authority to invest or manage assets of a retirement system may deliberate about, or make tentative or final decisions on, investments or other financial matters in executive session if disclosure of the deliberations or decisions jeopardizes the ability to implement a decision or to achieve investment objectives.
(2) A record of a retirement system that discloses deliberations about, or a tentative or final decision on, investments or other financial matters is not an open or public record under chapter 42.30 RCW to the extent and so long as its disclosure jeopardizes the ability to implement an investment decision or program or to achieve investment objectives.
NEW SECTION. Sec. 40. DISCLOSURE TO PUBLIC. (1) An administrator shall prepare and disseminate:
(a) A summary plan description of each retirement program;
(b) A summary description of any material modification in the terms of the program and any material change in the information required to be contained in the summary plan description, to the extent the modification or change has not been integrated into an updated summary plan description;
(c) An annual disclosure of financial and actuarial status; and
(d) An annual report.
(2) An administrator shall make available for public examination in the principal office of the administrator and in other places if necessary to make the information reasonably available to participants:
(a) The governing law of the retirement program and system;
(b) The most recent summary plan description;
(c) Summary descriptions of modifications or changes described in subsection (1)(b) of this section that have been provided to participants and beneficiaries but have not yet been integrated into the summary plan description;
(d) The most recent annual disclosure of financial and actuarial status; and
(e) The most recent annual report.
(3) Upon written request by a participant, beneficiary, or member of the public, an administrator shall provide a copy of any publication described in subsection (1)(b) of this section. Except as otherwise provided in section 41(1) of this act, the administrator may charge a reasonable fee to cover the cost of providing copies. The administrator shall provide the copies within thirty days after the request or, if a fee is charged, within thirty days after receiving payment.
NEW SECTION. Sec. 41. DISCLOSURE TO PARTICIPANTS AND BENEFICIARIES. (1) An administrator shall furnish to each participant and to each beneficiary who is receiving benefits under a retirement program:
(a) A copy of the most recent summary plan description, along with any summary descriptions of modifications or changes described in section 40(1)(b) of this act, within three months after a person becomes a participant or, in the case of a beneficiary, within three months after a person first receives benefits, or, if later, within four months after the retirement program becomes subject to this subchapter;
(b) The summary description of any modifications or changes described in section 40(1)(b) of this act, within seven months after the end of the fiscal year in which a modification or change has been made;
(c) A copy of an updated summary plan description that integrates all modifications and changes at intervals not exceeding five years; and
(d) The annual report within seven months after the end of each fiscal year.
(2) An administrator shall provide to a participant or beneficiary a statement containing information that would permit the participant or beneficiary to estimate projected benefits reasonably, to the extent the information is regularly maintained by the retirement system. The information must be provided with the annual report or upon written request of the participant or beneficiary. The information need not be provided to a participant or beneficiary who is currently receiving benefits.
(3) A participant who is not currently receiving benefits is entitled without charge to one statement under subsection (2) of this section during any fiscal year. An administrator may charge a reasonable fee to cover the cost of providing other statements. The administrator shall provide the statements within thirty days after the participant or beneficiary's request or, if a fee is charged, within thirty days after receiving payment.
NEW SECTION. Sec. 42. REPORTS TO AGENCY. An administrator shall file with the department of retirement systems a copy of:
(1) The governing law of the retirement program and system within four months after the system becomes subject to this subchapter and an updated copy at least once every year thereafter;
(2) The summary plan description within four months after the system becomes subject to this subchapter and of updated summary plan descriptions at the same time they are first furnished to any participant or beneficiary under section 41(1)(c) of this act;
(3) Any summary description of modifications or changes within seven months after the end of the fiscal year in which a modification or change has been made; and
(4) The annual disclosure of financial and actuarial status and annual report within seven months after the end of each fiscal year.
NEW SECTION. Sec. 43. SUMMARY PLAN DESCRIPTION. (1) A summary plan description and a summary description of modifications or changes under section 40(1)(b) of this act must be written in a manner calculated to be understood by the average participant and be accurate and sufficiently comprehensive reasonably to inform the participants and beneficiaries of their rights and obligations under the retirement program.
(2) A summary plan description must contain:
(a) The name of the retirement program and system and type of administration;
(b) The name and business address of the administrator;
(c) The name and business address of each agent for service of process;
(d) Citations to the governing law of the retirement program and system;
(e) A description of the program's requirements respecting eligibility for participation and benefits;
(f) A description of the program's provisions providing for nonforfeitable benefits;
(g) A description of circumstances that may result in disqualification, ineligibility, or denial or loss of benefits;
(h) A description of the benefits provided by the program, including the manner of calculating benefits and any benefits provided for spouses and survivors;
(i) The source of financing for the program;
(j) The identity of any organization through which benefits are provided;
(k) The date the fiscal year ends;
(l) The procedures to claim benefits under the program and the administrative procedures available under the program for the redress of claims that are denied in whole or in part; and
(m) Notice of the availability of additional information pursuant to sections 40 (2) and (3), 41 (2) and (3), and 42 of this act.
NEW SECTION. Sec. 44. ANNUAL DISCLOSURE OF FINANCIAL AND ACTUARIAL STATUS. (1) As used in this section, "qualified public accountant" means:
(a) An auditing agency of this state, or a political subdivision of this state, which has no direct relationship with the functions or activities of a retirement system or its fiduciaries other than:
(i) Functions relating to this subchapter; or
(ii) A relationship between the system and the agency's employees as participants or beneficiaries on the same basis as other participants and beneficiaries; or
(b) A person who is an independent public accountant, certified or licensed by a regulatory authority of a state.
(2) As used in this section, "related person" of an individual means:
(a) The individual's spouse or a parent or sibling of the spouse;
(b) The individual's descendant, sibling, or parent, or the spouse of the individual's descendant, sibling, or parent;
(c) Another individual residing in the same household as the individual;
(d) A trust or estate in which an individual described in (a) through (c) of this subsection has a substantial interest;
(e) A trust or estate for which the individual has fiduciary responsibilities; or
(f) An incompetent, ward, or minor for whom the individual has fiduciary responsibilities.
(3) An annual disclosure of financial and actuarial status must contain:
(a) The name of the retirement system and identification of each retirement program and, if programs are in an appropriate grouping of programs, of each appropriate grouping of programs;
(b) The name and business address of the administrator;
(c) The name and business address of each trustee and each member of a board of trustees and a brief description of how the trustee or member was selected;
(d) The name and business address of each agent for service of process;
(e) The number of employees covered by each retirement program not in an appropriate grouping of programs, or by each appropriate grouping of programs, or both;
(f) The name and business address of each fiduciary;
(g) The current statement of investment objectives and policies required by section 35(2) of this act;
(h) Financial statements and notes to the financial statements in conformity with generally accepted accounting principles;
(i) An opinion on the financial statements by a qualified public accountant in conformity with generally accepted auditing standards;
(j) In the case of a defined benefit plan, actuarial schedules and notes to the actuarial schedules in conformity with generally accepted actuarial principles and practices for measuring pension obligations;
(k) In the case of a defined benefit plan, an opinion by a qualified actuary that the actuarial schedules are complete and accurate to the best of the actuary's knowledge, that each assumption and method used in preparing the schedules is reasonable, that the assumptions and methods in the aggregate are reasonable, and that the assumptions and methods in combination offer the actuary's best estimate of anticipated experience;
(l) A description of any material interest, other than the interest in the retirement program itself, held by any public employer participating in the system or any employee organization representing employees covered by the system in any material transaction with the system within the last three years or proposed to be effected;
(m) A description of any material interest held by any trustee, administrator, or employee who is a fiduciary with respect to the investment and management of assets of the system, and, if the fiduciary is an individual, by a related person of the beneficiary, in any material transaction with the system within the last three years or proposed to be effected;
(n) A schedule of the rates of return, net of total investment expense, on assets of the system overall and on assets aggregated by category over the most recent one-year, three-year, five-year, and ten‑year periods, to the extent available, and the rates of return on appropriate benchmarks for assets of the system overall and for each category over each period;
(o) A schedule of the sum of total investment expense and total general administrative expense for the fiscal year expressed as a percentage of the fair value of assets of the system on the last day of the fiscal year, and an equivalent percentage for the preceding five fiscal years; and
(p) A schedule of all assets held for investment purposes on the last day of the fiscal year aggregated and identified by issuer, borrower, lessor, or similar party to the transaction stating, if relevant, the asset's maturity date, rate of interest, par or maturity value, number of shares, cost, and fair value and identifying any asset that is in default or classified as uncollectible.
NEW SECTION. Sec. 45. ANNUAL REPORT. An annual report must contain:
(1) The name and business address of each trustee and each member of a board of trustees;
(2) The financial statements, but not the notes, required by section 44(3)(h) of this act;
(3) For defined benefit plans, the actuarial schedules, but not the notes, required by section 44(3)(j) of this act;
(4) The schedules described in section 44(3) (n) and (o) of this act;
(5) A brief description of and information about how to interpret the statements and schedules;
(6) Other material necessary to summarize fairly and accurately the annual disclosure of financial and actuarial status; and
(7) Notice of the availability of additional information pursuant to sections 40 (2) and (3), 41 (2) and (3), and 42 of this act.
NEW SECTION. Sec. 46. ENFORCEMENT. (1) A public employer, participant, beneficiary, or fiduciary may maintain an action:
(a) To enjoin an act, practice, or omission that violates this subchapter;
(b) For appropriate equitable relief for breach of trust under section 38 of this act; or
(c) For other appropriate equitable relief to redress the violation of or to enforce this subchapter.
(2) The department of retirement systems may maintain an action to enjoin a violation of section 42 of this act.
(3) In an action under this section by a participant, beneficiary, or fiduciary, the court may award reasonable attorneys' fees and costs to either party.
NEW SECTION. Sec. 47. STATUTE OF LIMITATIONS. An action under section 46 of this act must be commenced within the period of limitations in this state, if any, for actions for breach of trust or, if none, within three years.
NEW SECTION. Sec. 48. ALIENATION OF BENEFITS. Benefits of a retirement program may not be assigned or alienated and are exempt from claims of creditors, except to the extent expressly permitted by other law of this state.
NEW SECTION. Sec. 49. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In applying and construing this subchapter, consideration must be given to the need to promote uniformity of the law with respect to its subject among states that enact it.
NEW SECTION. Sec. 50. Captions and subchapter headings used in this act are not any part of the law.
NEW SECTION. Sec. 51. Sections 1 through 14 and 27 through 49 of this act constitute a new chapter in Title 41 RCW. Sections 1 through 14 of this act are under subchapter heading "Pension Board." Sections 27 through 49 of this act are under subchapter heading "Uniform Management of Public Employee Retirement Systems."
NEW SECTION. Sec. 52. (1) Section 17 of this act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.
(2) Sections 1 through 16 and 27 through 49 of this act take effect December 1, 2001.
(3) Section 19 of this act takes effect March 1, 2002.
NEW SECTION. Sec. 53. Sections 18, 25, and 26 of this act expire March 1, 2002.
NEW SECTION. Sec. 54. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.
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