BILL REQ. #:  Z-0483.2 



_____________________________________________ 

HOUSE BILL 1324
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State of Washington59th Legislature2005 Regular Session

By Representatives Fromhold, Conway, Crouse, Simpson and Linville; by request of Select Committee on Pension Policy

Read first time 01/20/2005.   Referred to Committee on Appropriations.



     AN ACT Relating to public pensions that replaces gain-sharing provisions with certain changes in benefits and sets contribution rates for the public employees' retirement system, the teachers' retirement system, the school employees' retirement system, and the public safety employees' retirement system; amending RCW 41.40.630, 41.40.820, 41.32.765, 41.32.875, 41.35.420, 41.35.680, 41.32.835, 41.35.610, 41.31A.010, 41.31A.020, 41.45.061, 41.34.040, 41.32.010, 41.32.4851, 41.32.489, 41.40.010, 41.40.010, 41.40.197, and 41.40.1984; adding new sections to chapter 41.45 RCW; creating a new section; decodifying RCW 41.31A.030, 41.31A.040, and 41.45.054; repealing RCW 41.31.010, 41.31.020, and 41.31.030; providing effective dates; providing an expiration date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 41.40.630 and 2000 c 247 s 901 are each amended to read as follows:
     (1) NORMAL RETIREMENT. Any member with at least five service credit years who has attained at least age sixty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.40.620.
     (2) UNREDUCED RETIREMENT. Any member who has completed at least five service credit years and has attained age sixty, and for whom the sum of the number of years of the member's age and the number of years of the member's service credit equals ninety or more, shall be eligible to retire. For the portion of the member's benefit that is based on service credit earned after July 1, 2007, the member shall receive an unreduced retirement allowance computed according to the provisions of RCW 41.40.620. For the portion of the member's benefit that is based on service credit earned prior to July 1, 2007, the retirement allowance shall be reduced under subsection (3) or (4) of this section as applicable.
     (3)
EARLY RETIREMENT. Any member who has completed at least twenty service credit years and has attained age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.40.620, except that a member retiring pursuant to this subsection shall have the retirement allowance actuarially reduced to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.
     (((3))) (4) ALTERNATE EARLY RETIREMENT. Any member who has completed at least thirty service credit years and has attained age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.40.620, except that a member retiring pursuant to this subsection shall have the retirement allowance reduced by three percent per year to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.

Sec. 2   RCW 41.40.820 and 2000 c 247 s 309 are each amended to read as follows:
     (1) NORMAL RETIREMENT. Any member who is at least age sixty-five and who has:
     (a) Completed ten service credit years; or
     (b) Completed five service credit years, including twelve service credit months after attaining age fifty-four; or
     (c) Completed five service credit years by the transfer payment date specified in RCW 41.40.795, under the public employees' retirement system plan 2 and who transferred to plan 3 under RCW 41.40.795;
shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.40.790.
     (2) UNREDUCED RETIREMENT. Any member who has completed the number of service credit years required in subsection (1) of this section and has attained age sixty, and for whom the sum of the number of years of the member's age and the number of years of the member's service credit equals ninety or more, shall be eligible to retire. For the portion of the member's benefit that is based on service credit earned after July 1, 2007, the member shall receive an unreduced retirement allowance computed according to the provisions of RCW 41.40.790. For the portion of the member's benefit that is based on service credit earned prior to July 1, 2007, the retirement allowance shall be reduced under subsection (3) or (4) of this section as applicable.
     (3)
EARLY RETIREMENT. Any member who has attained at least age fifty-five and has completed at least ten years of service shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.40.790, except that a member retiring pursuant to this subsection shall have the retirement allowance actuarially reduced to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.
     (((3))) (4) ALTERNATE EARLY RETIREMENT. Any member who has completed at least thirty service credit years and has attained age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.40.790, except that a member retiring pursuant to this subsection shall have the retirement allowance reduced by three percent per year to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.

Sec. 3   RCW 41.32.765 and 2000 c 247 s 902 are each amended to read as follows:
     (1) NORMAL RETIREMENT. Any member with at least five service credit years of service who has attained at least age sixty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.32.760.
     (2) UNREDUCED RETIREMENT. Any member who has completed at least five service credit years and has attained age sixty, and for whom the sum of the number of years of the member's age and the number of years of the member's service credit equals ninety or more, shall be eligible to retire. For the portion of the member's benefit that is based on service credit earned after July 1, 2007, the member shall receive an unreduced retirement allowance computed according to the provisions of RCW 41.32.760. For the portion of the member's benefit that is based on service credit earned prior to July 1, 2007, the retirement allowance shall be reduced under subsection (3) or (4) of this section as applicable.
     (3)
EARLY RETIREMENT. Any member who has completed at least twenty service credit years of service who has attained at least age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.32.760, except that a member retiring pursuant to this subsection shall have the retirement allowance actuarially reduced to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.
     (((3))) (4) ALTERNATE EARLY RETIREMENT. Any member who has completed at least thirty service credit years and has attained age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.32.760, except that a member retiring pursuant to this subsection shall have the retirement allowance reduced by three percent per year to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.

Sec. 4   RCW 41.32.875 and 2000 c 247 s 903 are each amended to read as follows:
     (1) NORMAL RETIREMENT. Any member who is at least age sixty-five and who has:
     (a) Completed ten service credit years; or
     (b) Completed five service credit years, including twelve service credit months after attaining age fifty-four; or
     (c) Completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817;
shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.32.840.
     (2) UNREDUCED RETIREMENT. Any member who has completed the number of service credit years required in subsection (1) of this section and has attained age sixty, and for whom the sum of the number of years of the member's age and the number of years of the member's service credit equals ninety or more, shall be eligible to retire. For the portion of the member's benefit that is based on service credit earned after July 1, 2007, the member shall receive an unreduced retirement allowance computed according to the provisions of RCW 41.32.840. For the portion of the member's benefit that is based on service credit earned prior to July 1, 2007, the retirement allowance shall be reduced under subsection (3) or (4) of this section as applicable.
     (3)
EARLY RETIREMENT. Any member who has attained at least age fifty-five and has completed at least ten years of service shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.32.840, except that a member retiring pursuant to this subsection shall have the retirement allowance actuarially reduced to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.
     (((3))) (4) ALTERNATE EARLY RETIREMENT. Any member who has completed at least thirty service credit years and has attained age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.32.840, except that a member retiring pursuant to this subsection shall have the retirement allowance reduced by three percent per year to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.

Sec. 5   RCW 41.35.420 and 2000 c 247 s 905 are each amended to read as follows:
     (1) NORMAL RETIREMENT. Any member with at least five service credit years who has attained at least age sixty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.35.400.
     (2) UNREDUCED RETIREMENT. Any member who has completed at least five service credit years and has attained age sixty, and for whom the sum of the number of years of the member's age and the number of years of the member's service credit equals ninety or more, shall be eligible to retire. For the portion of the member's benefit that is based on service credit earned after July 1, 2007, the member shall receive an unreduced retirement allowance computed according to the provisions of RCW 41.35.400. For the portion of the member's benefit that is based on service credit earned prior to July 1, 2007, the retirement allowance shall be reduced under subsection (3) or (4) of this section as applicable.
     (3)
EARLY RETIREMENT. Any member who has completed at least twenty service credit years and has attained age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.35.400, except that a member retiring pursuant to this subsection shall have the retirement allowance actuarially reduced to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.
     (((3))) (4) ALTERNATE EARLY RETIREMENT. Any member who has completed at least thirty service credit years and has attained age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.35.400, except that a member retiring pursuant to this subsection shall have the retirement allowance reduced by three percent per year to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.

Sec. 6   RCW 41.35.680 and 2000 c 247 s 906 are each amended to read as follows:
     (1) NORMAL RETIREMENT. Any member who is at least age sixty-five and who has:
     (a) Completed ten service credit years; or
     (b) Completed five service credit years, including twelve service credit months after attaining age fifty-four; or
     (c) Completed five service credit years by September 1, 2000, under the public employees' retirement system plan 2 and who transferred to plan 3 under RCW 41.35.510;
shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.35.620.
     (2) UNREDUCED RETIREMENT. Any member who has completed the number of service credit years required in subsection (1) of this section and has attained age sixty, and for whom the sum of the number of years of the member's age and the number of years of the member's service credit equals ninety or more, shall be eligible to retire. For the portion of the member's benefit that is based on service credit earned after July 1, 2007, the member shall receive an unreduced retirement allowance computed according to the provisions of RCW 41.35.620. For the portion of the member's benefit that is based on service credit earned prior to July 1, 2007, the retirement allowance shall be reduced under subsection (3) or (4) of this section as applicable.
     (3)
EARLY RETIREMENT. Any member who has attained at least age fifty-five and has completed at least ten years of service shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.35.620, except that a member retiring pursuant to this subsection shall have the retirement allowance actuarially reduced to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.
     (((3))) (4) ALTERNATE EARLY RETIREMENT. Any member who has completed at least thirty service credit years and has attained age fifty-five shall be eligible to retire and to receive a retirement allowance computed according to the provisions of RCW 41.35.620, except that a member retiring pursuant to this subsection shall have the retirement allowance reduced by three percent per year to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.

Sec. 7   RCW 41.32.835 and 1995 c 239 s 105 are each amended to read as follows:
     (1) All teachers who first become employed by an employer in an eligible position on or after ((July 1, 1996, shall be members of plan 3)) July 1, 2007, shall have a period of ninety days to make an irrevocable choice to become a member of plan 2 or plan 3. At the end of ninety days, if the member has not made a choice to become a member of plan 2, he or she becomes a member of plan 3.
     (2) For administrative efficiency, until a member elects to become a member of plan 3, or becomes a member of plan 3 by default under subsection (1) of this section, the member shall be reported to the department in plan 2, with member and employer contributions. Upon becoming a member of plan 3 by election or by default, all service credit shall be transferred to the member's plan 3 defined benefit, and all employee accumulated contributions shall be transferred to the member's plan 3 defined contribution account
.

Sec. 8   RCW 41.35.610 and 1998 c 341 s 202 are each amended to read as follows:
     (1) All classified employees who first become employed by an employer in an eligible position on or after ((September 1, 2000, shall be members of plan 3)) July 1, 2007, shall have a period of ninety days to make an irrevocable choice to become a member of plan 2 or plan 3. At the end of ninety days, if the member has not made a choice to become a member of plan 2, he or she becomes a member of plan 3.
     (2) For administrative efficiency, until a member elects to become a member of plan 3, or becomes a member of plan 3 by default under subsection (1) of this section, the member shall be reported to the department in plan 2, with member and employer contributions. Upon becoming a member of plan 3 by election or by default, all service credit shall be transferred to the member's plan 3 defined benefit, and all employee accumulated contributions shall be transferred to the member's plan 3 defined contribution account
.

Sec. 9   RCW 41.31A.010 and 2000 c 247 s 407 are each amended to read as follows:
     The definitions in this section apply throughout this chapter unless the context requires otherwise.
     (1) "Actuary" means the state actuary or the office of the state actuary.
     (2) "Department" means the department of retirement systems.
     (3) (("Teacher" means any employee included in the membership of the teachers' retirement system as provided for in chapter 41.32 RCW.
     (4)
)) "Member account" or "member's account" means the sum of any contributions as provided for in chapter 41.34 RCW and the earnings on behalf of the member.
     (((5))) (4) "Classified employee" means the same as in RCW 41.35.010.
     (((6) "Public employee" means the same as "member" as defined in RCW 41.40.010(5).))
     (5) "Terminated vested member" means a member who separates or has separated from service after having completed enough service credit years to be vested in the defined benefit portion of the members' plan and who remains a member during the period of absence from service for the exclusive purpose of receiving a future retirement allowance.

Sec. 10   RCW 41.31A.020 and 2003 c 294 s 4 are each amended to read as follows:
     (1) On January 1, ((2004)) 2008, and on January 1st of ((even-numbered years)) each year thereafter, the member account of a person meeting the requirements of this section shall be credited by the extraordinary investment gain amount.
     (2) ((The following persons)) Members, retirees, and terminated vested members of the school employees' retirement system plan 3 as of June 30, 2007, who also meet the criteria in any of (a) through (f) of this subsection shall be eligible for the benefit provided in subsection (1) of this section:
     (a) Any member of the ((teachers' retirement system plan 3, the)) Washington school employees' retirement system plan 3((, or the public employees' retirement system plan 3)) who earned service credit during the twelve-month period from September 1st to August 31st immediately preceding the distribution and had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution; or
     (b) Any person in receipt of a benefit pursuant to RCW ((41.32.875,)) 41.35.680((, or 41.40.820)); or
     (c) Any person who is a retiree pursuant to RCW 41.34.020(8) and who:
     (i) Completed ten service credit years; or
     (ii) Completed five service credit years, including twelve service months after attaining age fifty-four; or
     (d) ((Any teacher who is a retiree pursuant to RCW 41.34.020(8) and who has completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817; or
     (e)
)) Any classified employee who is a retiree pursuant to RCW 41.34.020(8) and who has completed five service credit years by September 1, 2000, and who transferred to plan 3 under RCW 41.35.510; or
     (((f) Any public employee who is a retiree pursuant to RCW 41.34.020(8) and who has completed five service credit years by March 1, 2002, and who transferred to plan 3 under RCW 41.40.795; or
     (g)
)) (e) Any person who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who:
     (i) Completed ten service credit years; or
     (ii) Completed five service credit years, including twelve service months after attaining age fifty-four; or
     (((h) Any teacher who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817; or
     (i)
)) (f) Any classified employee who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by September 1, 2000, and who transferred to plan 3 under RCW 41.35.510((; or
     (j) Any public employee who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by March 1, 2002, and who transferred to plan 3 under RCW 41.40.795
)).
     (3) The extraordinary investment gain amount shall be calculated as follows:
     (((a) One-half of the sum of the value of the net assets held in trust for pension benefits in the teachers' retirement system combined plan 2 and 3 fund, the Washington school employees' retirement system combined plan 2 and 3 fund, and the public employees' retirement system combined plan 2 and 3 fund at the close of the previous state fiscal year not including the amount attributable to member accounts;
     (b) Multiplied by the amount which the compound average of investment returns on those assets over the previous four state fiscal years exceeds ten percent;
     (c) Multiplied by the proportion of:
     (i) The sum of the service credit on August 31st of the previous year of all persons eligible for the benefit provided in subsection (1) of this section; to
     (ii) The sum of the service credit on August 31st of the previous year of:
     (A) All persons eligible for the benefit provided in subsection (1) of this section;
     (B) Any person who earned service credit in the teachers' retirement system plan 2, the Washington school employees' retirement system plan 2, or the public employees' retirement system plan 2 during the twelve-month period from September 1st to August 31st immediately preceding the distribution;
     (C) Any person in receipt of a benefit pursuant to RCW 41.32.765, 41.35.420, or 41.40.630; and
     (D) Any person with five or more years of service in the teachers' retirement system plan 2, the Washington school employees' retirement system plan 2, or the public employees' retirement system plan 2;
     (d) Divided proportionally among persons eligible for the benefit provided in subsection (1) of this section on the basis of their
)) Ten dollars, which shall be increased by three percent per year rounded to the nearest cent, multiplied by the member's service credit total on August 31st of the previous year.
     (((4) The legislature reserves the right to amend or repeal this section in the future and no member or beneficiary has a contractual right to receive this distribution not granted prior to that time.))

NEW SECTION.  Sec. 11   RCW 41.31A.030 is decodified.

NEW SECTION.  Sec. 12   RCW 41.31A.040 is decodified.

Sec. 13   RCW 41.45.061 and 2004 c 242 s 40 are each amended to read as follows:
     (1) The required contribution rate for members of the ((plan 2)) teachers' retirement system plan 2 shall be ((fixed at the rates in effect on July 1, 1996, subject to the following:
     (a) Beginning September 1, 1997, except as provided in (b) of this subsection, the employee contribution rate shall not exceed the employer plan 2 and 3 rates adopted under RCW 41.45.060, 41.45.054, and 41.45.070 for the teachers' retirement system;
     (b) In addition, the employee contribution rate for plan 2 shall be increased by fifty percent of the contribution rate increase caused by any plan 2 benefit increase passed after July 1, 1996;
     (c) In addition, the employee contribution rate for plan 2 shall not be increased as a result of any distributions pursuant to section 309, chapter 341, Laws of 1998 and RCW 41.31A.020
)) set at the same rate as the employer combined plan 2 and plan 3 rate.
     (2) The required contribution rate for members of the school employees' retirement system plan 2 shall ((equal the school employees' retirement system employer plan 2 and 3 contribution rate adopted under RCW 41.45.060, 41.45.054, and 41.45.070, except as provided in subsection (3) of this section.
     (3) The member contribution rate for the school employees' retirement system plan 2 shall be increased by fifty percent of the contribution rate increase caused by any plan 2 benefit increase passed after September 1, 2000
)) be set at the same rate as the employer combined plan 2 and plan 3 rate.
     (((4))) (3) The required contribution rate for members of the public employees' retirement system plan 2 shall be set at the same rate as the employer combined plan 2 and plan 3 rate.
     (((5))) (4) The required contribution rate for members of the law enforcement officers' and fire fighters' retirement system plan 2 shall be set at fifty percent of the cost of the retirement system.
     (((6))) (5) The ((employee)) required contribution rates for members of the school employees' retirement system plan 2 ((under subsections (3) and (4) of this section)) shall not include any increase as a result of any distributions pursuant to RCW 41.31A.020 ((and 41.31A.030)).
     (((7))) (6) The required plan 2 and 3 contribution rates for employers shall be adopted in the manner described in RCW 41.45.060((, 41.45.054,)) and 41.45.070.
     (((8))) (7) The required contribution rate for members of the public safety employees' retirement system plan 2 shall be set at fifty percent of the cost of the retirement system.

Sec. 14   RCW 41.34.040 and 2003 c 156 s 1 are each amended to read as follows:
     (1) A member shall contribute from his or her compensation according to one of the following rate structures in addition to the mandatory minimum five percent:

Option AContribution Rate
All Ages0.0% fixed
Option B
Up to Age 350.0%
Age 35 to 441.0%
Age 45 and above 2.5%
Option C
Up to Age 351.0%
Age 35 to 442.5%
Age 45 and above3.5%
Option D
All Ages2.0%
Option E
All Ages5.0%
Option F
All Ages10.0%

     (2) The board shall have the right to offer contribution rate options in addition to those listed in subsection (1) of this section, provided that no significant additional administrative costs are created. All options offered by the board shall conform to the requirements stated in subsections (3) and (5) of this section.
     (3)(a) For members of the teachers' retirement system entering plan 3 under RCW 41.32.835 or members of the school employees' retirement system entering plan 3 under RCW 41.35.610, within ninety days of becoming a member he or she has an option to choose one of the above contribution rate structures. If the member does not select an option within the ninety-day period, he or she shall be assigned option A.
     (b) For members of the public employees' retirement system entering plan 3 under RCW 41.40.785, within the ninety days described in RCW 41.40.785 an employee who irrevocably chooses plan 3 shall select one of the above contribution rate structures. If the member does not select an option within the ninety-day period, he or she shall be assigned option A.
     (c) For members of the teachers' retirement system transferring to plan 3 under RCW 41.32.817, members of the school employees' retirement system transferring to plan 3 under RCW 41.35.510, or members of the public employees' retirement system transferring to plan 3 under RCW 41.40.795, upon election to plan 3 he or she must choose one of the above contribution rate structures.
     (d) Within ninety days of the date that an employee changes employers, he or she has an option to choose one of the above contribution rate structures. If the member does not select an option within this ninety-day period, he or she shall be assigned option A.
     (4) ((Each year, members may change their contribution rate option by notifying their employer in writing during the month of January.
     (5)
)) Contributions shall begin the first day of the pay cycle in which the rate option is made, or the first day of the pay cycle in which the end of the ninety-day period occurs.

NEW SECTION.  Sec. 15   The benefits provided pursuant to sections 1 through 16 of this act are not provided to employees as a matter of contractual right prior to July 1, 2007. The legislature retains the right to alter or abolish these benefits at any time prior to July 1, 2007.

NEW SECTION.  Sec. 16   Sections 1 through 14 of this act take effect July 1, 2007.

NEW SECTION.  Sec. 17   A new section is added to chapter 41.45 RCW to read as follows:
     The basic employer and state contribution rates and required plan 2 member contribution rates are changed to reflect the 2003 actuarial valuation and actuarial projections of the 2005 actuarial valuation, both of which incorporate the 2002 actuarial experience study conducted by the office of the state actuary for 1995-2000. This contribution rate schedule departs from the normal biennial process for setting contribution rates by requiring four annual increases in rates. The rates are lower in the first two years than required by the 2003 actuarial valuation and higher in the second two years than required by the projected 2005 actuarial valuation. Upon completion of the 2005 actuarial valuation, the pension funding council and the state actuary shall review the appropriateness of the contribution rates for 2007-2008 and 2008-2009 and by September 30, 2006, the pension funding council shall recommend to the legislature any adjustments as may be needed due to material changes in benefits or actuarial assumptions, methods, or experience. This contribution rate schedule also requires a departure from the allocation formula for contributions in RCW 41.45.050.
     (1) Beginning July 1, 2005, the following employer contribution rate shall be charged: 2.50 percent for the public employees' retirement system, of which .75 percent shall be allocated to the unfunded actuarial accrued liability for the public employees' retirement system plan 1.
     (2) Beginning September 1, 2005, the following employer contribution rates shall be charged:
     (a) 3.00 percent for the school employees' retirement system, of which .75 percent shall be allocated to the unfunded actuarial accrued liability for the public employees' retirement system plan 1; and
     (b) 3.50 percent for the teachers' retirement system, of which 1.50 percent shall be allocated to the unfunded actuarial accrued liability for the teachers' retirement system plan 1.
     (3) Beginning July 1, 2005, the following member contribution rate shall be charged: 1.75 percent for the public employees' retirement system plan 2.
     (4) Beginning September 1, 2005, the following member contribution rates shall be charged:
     (a) 2.25 percent for the school employees' retirement system plan 2; and
     (b) 1.75 percent for the teachers' retirement system plan 2.
     (5) The contribution rates in subsections (1) through (4) of this section shall be collected through June 30, 2006, for the public employees' retirement system, and August 31, 2006, for the school employees' retirement system and the teachers' retirement system.
     (6) Beginning July 1, 2006, the following employer contribution rate shall be charged: 5.00 percent for the public employees' retirement system, of which 1.75 percent shall be allocated to the unfunded actuarial accrued liability for the public employees' retirement system plan 1.
     (7) Beginning September 1, 2006, the following employer contribution rates shall be charged:
     (a) 5.25 percent for the school employees' retirement system, of which 1.75 percent shall be allocated to the unfunded actuarial accrued liability for the public employees' retirement system plan 1; and
     (b) 5.25 percent for the teachers' retirement system, of which 2.25 percent shall be allocated to the unfunded actuarial accrued liability for the teachers' retirement system plan 1.
     (8) Beginning July 1, 2006, the following member contribution rate shall be charged: 3.25 percent for the public employees' retirement system plan 2.
     (9) Beginning September 1, 2006, the following member contribution rates shall be charged:
     (a) 3.50 percent for the school employees' retirement system plan 2; and
     (b) 2.75 percent for the teachers' retirement system plan 2.
     (10) The contribution rates in subsections (6) through (9) of this section shall be collected through June 30, 2007, for the public employees' retirement system, and August 31, 2007, for the school employees' retirement system and the teachers' retirement system.
     (11) Beginning July 1, 2007, the following employer contribution rate shall be charged: 7.25 percent for the public employees' retirement system, of which 2.50 percent shall be allocated to the unfunded actuarial accrued liability of the public employees' retirement system plan 1.
     (12) Beginning September 1, 2007, the following employer contribution rates shall be charged:
     (a) 7.25 percent for the school employees' retirement system, of which 2.50 percent shall be allocated to the unfunded actuarial accrued liability of the public employees' retirement system plan 1; and
     (b) 7.37 percent for the teachers' retirement system, of which 3.50 percent shall be allocated to the unfunded actuarial accrued liability of the teachers' retirement system plan 1.
     (13) Beginning July 1, 2007, the following member contribution rate shall be charged: 4.75 percent for the public employees' retirement system plan 2.
     (14) Beginning September 1, 2007, the following member contribution rates shall be charged:
     (a) 4.75 percent for the school employees' retirement system plan 2; and
     (b) 3.75 percent for the teachers' retirement system plan 2.
     (15) The contribution rates in subsections (11) through (14) of this section shall be collected through June 30, 2008, for the public employees' retirement system, and August 31, 2008, for the school employees' retirement system and the teachers' retirement system.
     (16) Beginning July 1, 2008, the following employer contribution rate shall be charged: 8.62 percent for the public employees' retirement system, of which 2.82 percent shall be allocated to the unfunded actuarial accrued liability of the public employees' retirement system plan 1.
     (17) Beginning September 1, 2008, the following employer contribution rates shall be charged:
     (a) 8.94 percent for the school employees' retirement system, of which 2.82 percent shall be allocated to the unfunded actuarial accrued liability of the public employees' retirement system plan 1; and
     (b) 9.21 percent for the teachers' retirement system, of which 4.18 percent shall be allocated to the unfunded actuarial accrued liability of the teachers' retirement system plan 1.
     (18) Beginning July 1, 2008, the following member contribution rate shall be charged: 5.80 percent for the public employees' retirement system plan 2.
     (19) Beginning September 1, 2008, the following member contribution rates shall be charged:
     (a) 6.12 percent for the school employees' retirement system plan 2; and
     (b) 4.91 percent for the teachers' retirement system plan 2.
     (20) The contribution rates in subsections (16) through (19) of this section shall be collected through June 30, 2009, for the public employees' retirement system, and August 31, 2009, for the school employees' retirement system and the teachers' retirement system.

NEW SECTION.  Sec. 18   A new section is added to chapter 41.45 RCW to read as follows:
     Beginning July 1, 2009, for the public employees' retirement system and the public safety employees' retirement system, and September 1, 2009, for the school employees' retirement system and the teachers' retirement system, minimum basic employer and state contribution rates and minimum required plan 2 member contribution rates are established. In establishing these minimum rates, it is the intent of the legislature to promote contribution rate stability over time. The basic employer and state contribution rates and required plan 2 member contribution rates as recommended by the pension funding council and adopted by the legislature may exceed, but shall not drop below, these minimum rates. Upon completion of each biennial actuarial valuation, the pension funding council and the state actuary shall review the appropriateness of the minimum contribution rates and the pension funding council shall recommend to the legislature any adjustments as may be needed due to material changes in benefits or actuarial assumptions, methods, or experience.
     (1) Beginning July 1, 2009, the following minimum employer contribution rate shall be charged: 4.00 percent for the public employees' retirement system.
     (2) Beginning September 1, 2009, the following minimum employer contribution rates shall be charged:
     (a) 4.25 percent for the school employees' retirement system; and
     (b) 5.00 percent for the teachers' retirement system.
     (3) Beginning July 1, 2009, the following minimum member contribution rate shall be charged: 4.00 percent for the public employees' retirement system plan 2.
     (4) Beginning September 1, 2009, the following minimum member contribution rates shall be charged:
     (a) 4.25 percent for the school employees' retirement system plan 2; and
     (b) 5.00 percent for the teachers' retirement system plan 2.
     (5) Beginning July 1, 2009, an additional minimum 2.75 percent is added to the minimum employer contribution rate of 4.00 percent for the public employees' retirement system until the actuarial value of assets equals one hundred twenty-five percent of the actuarial accrued liability for the public employees' retirement system plan 1 or June 30, 2024, whichever comes first.
     (6) Beginning July 1, 2009, an additional minimum 2.75 percent is added to the basic employer contribution rate for the public safety employees' retirement system until the actuarial value of public employees' retirement system plan 1 assets equals one hundred twenty-five percent of the actuarial accrued liability for the public employees' retirement system plan 1 or June 30, 2024, whichever comes first.
     (7) Beginning September 1, 2009, an additional minimum 2.75 percent is added to the minimum employer contribution rate of 4.25 percent for the school employees' retirement system until the actuarial value of public employees' retirement system plan 1 assets equals one hundred twenty-five percent of the actuarial accrued liability for the public employees' retirement system plan 1 or June 30, 2024, whichever comes first.
     (8) Beginning September 1, 2009, an additional 5.75 percent is added to the minimum employer contribution rate of 5.00 percent for the teachers' retirement system until the actuarial value of assets equals one hundred twenty-five percent of the actuarial accrued liability for the teachers' retirement system plan 1 or June 30, 2024, whichever comes first.

NEW SECTION.  Sec. 19   RCW 41.45.054 is decodified, effective September 1, 2005.

NEW SECTION.  Sec. 20   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 July 1, 2005.

NEW SECTION.  Sec. 21   Section 18 of this act takes effect July 1, 2009.

Sec. 22   RCW 41.32.010 and 2003 c 31 s 1 are each amended to read as follows:
     As used in this chapter, unless a different meaning is plainly required by the context:
     (1)(a) "Accumulated contributions" for plan 1 members, means the sum of all regular annuity contributions and, except for the purpose of withdrawal at the time of retirement, any amount paid under RCW 41.50.165(2) with regular interest thereon.
     (b) "Accumulated contributions" for plan 2 members, means the sum of all contributions standing to the credit of a member in the member's individual account, including any amount paid under RCW 41.50.165(2), together with the regular interest thereon.
     (2) "Actuarial equivalent" means a benefit of equal value when computed upon the basis of such mortality tables and regulations as shall be adopted by the director and regular interest.
     (3) "Annuity" means the moneys payable per year during life by reason of accumulated contributions of a member.
     (4) "Member reserve" means the fund in which all of the accumulated contributions of members are held.
     (5)(a) "Beneficiary" for plan 1 members, means any person in receipt of a retirement allowance or other benefit provided by this chapter.
     (b) "Beneficiary" for plan 2 and plan 3 members, means any person in receipt of a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer by another person.
     (6) "Contract" means any agreement for service and compensation between a member and an employer.
     (7) "Creditable service" means membership service plus prior service for which credit is allowable. This subsection shall apply only to plan 1 members.
     (8) "Dependent" means receiving one-half or more of support from a member.
     (9) "Disability allowance" means monthly payments during disability. This subsection shall apply only to plan 1 members.
     (10)(a) "Earnable compensation" for plan 1 members, means:
     (i) All salaries and wages paid by an employer to an employee member of the retirement system for personal services rendered during a fiscal year. In all cases where compensation includes maintenance the employer shall fix the value of that part of the compensation not paid in money.
     (ii) For an employee member of the retirement system teaching in an extended school year program, two consecutive extended school years, as defined by the employer school district, may be used as the annual period for determining earnable compensation in lieu of the two fiscal years.
     (iii) "Earnable compensation" for plan 1 members also includes the following actual or imputed payments, which are not paid for personal services:
     (A) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wages which the individual would have earned during a payroll period shall be considered earnable compensation and the individual shall receive the equivalent service credit.
     (B) If a leave of absence, without pay, is taken by a member for the purpose of serving as a member of the state legislature, and such member has served in the legislature five or more years, the salary which would have been received for the position from which the leave of absence was taken shall be considered as compensation earnable if the employee's contribution thereon is paid by the employee. In addition, where a member has been a member of the state legislature for five or more years, earnable compensation for the member's two highest compensated consecutive years of service shall include a sum not to exceed thirty-six hundred dollars for each of such two consecutive years, regardless of whether or not legislative service was rendered during those two years.
     (iv) For members employed less than full time under written contract with a school district, or community college district, in an instructional position, for which the member receives service credit of less than one year in all of the years used to determine the earnable compensation used for computing benefits due under RCW 41.32.497, 41.32.498, and 41.32.520, the member may elect to have earnable compensation defined as provided in RCW 41.32.345. For the purposes of this subsection, the term "instructional position" means a position in which more than seventy-five percent of the member's time is spent as a classroom instructor (including office hours), a librarian, or a counselor. Earnable compensation shall be so defined only for the purpose of the calculation of retirement benefits and only as necessary to insure that members who receive fractional service credit under RCW 41.32.270 receive benefits proportional to those received by members who have received full-time service credit.
     (v) "Earnable compensation" does not include:
     (A) Remuneration for unused sick leave authorized under RCW 41.04.340, 28A.400.210, or 28A.310.490;
     (B) Remuneration for unused annual leave in excess of thirty days as authorized by RCW 43.01.044 and 43.01.041.
     (b) "Earnable compensation" for plan 2 and plan 3 members, means salaries or wages earned by a member during a payroll period for personal services, including overtime payments, and shall include wages and salaries deferred under provisions established pursuant to sections 403(b), 414(h), and 457 of the United States Internal Revenue Code, but shall exclude lump sum payments for deferred annual sick leave, unused accumulated vacation, unused accumulated annual leave, or any form of severance pay.
     "Earnable compensation" for plan 2 and plan 3 members also includes the following actual or imputed payments which, except in the case of (b)(ii)(B) of this subsection, are not paid for personal services:
     (i) Retroactive payments to an individual by an employer on reinstatement of the employee in a position or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wages which the individual would have earned during a payroll period shall be considered earnable compensation, to the extent provided above, and the individual shall receive the equivalent service credit.
     (ii) In any year in which a member serves in the legislature the member shall have the option of having such member's earnable compensation be the greater of:
     (A) The earnable compensation the member would have received had such member not served in the legislature; or
     (B) Such member's actual earnable compensation received for teaching and legislative service combined. Any additional contributions to the retirement system required because compensation earnable under (b)(ii)(A) of this subsection is greater than compensation earnable under (b)(ii)(B) of this subsection shall be paid by the member for both member and employer contributions.
     (11) "Employer" means the state of Washington, the school district, or any agency of the state of Washington by which the member is paid.
     (12) "Fiscal year" means a year which begins July 1st and ends June 30th of the following year.
     (13) "Former state fund" means the state retirement fund in operation for teachers under chapter 187, Laws of 1923, as amended.
     (14) "Local fund" means any of the local retirement funds for teachers operated in any school district in accordance with the provisions of chapter 163, Laws of 1917 as amended.
     (15) "Member" means any teacher included in the membership of the retirement system. Also, any other employee of the public schools who, on July 1, 1947, had not elected to be exempt from membership and who, prior to that date, had by an authorized payroll deduction, contributed to the member reserve.
     (16) "Membership service" means service rendered subsequent to the first day of eligibility of a person to membership in the retirement system: PROVIDED, That where a member is employed by two or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service is rendered. The provisions of this subsection shall apply only to plan 1 members.
     (17) "Pension" means the moneys payable per year during life from the pension reserve.
     (18) "Pension reserve" is a fund in which shall be accumulated an actuarial reserve adequate to meet present and future pension liabilities of the system and from which all pension obligations are to be paid.
     (19) "Prior service" means service rendered prior to the first date of eligibility to membership in the retirement system for which credit is allowable. The provisions of this subsection shall apply only to plan 1 members.
     (20) "Prior service contributions" means contributions made by a member to secure credit for prior service. The provisions of this subsection shall apply only to plan 1 members.
     (21) "Public school" means any institution or activity operated by the state of Washington or any instrumentality or political subdivision thereof employing teachers, except the University of Washington and Washington State University.
     (22) "Regular contributions" means the amounts required to be deducted from the compensation of a member and credited to the member's individual account in the member reserve. This subsection shall apply only to plan 1 members.
     (23) "Regular interest" means such rate as the director may determine.
     (24)(a) "Retirement allowance" for plan 1 members, means monthly payments based on the sum of annuity and pension, or any optional benefits payable in lieu thereof.
     (b) "Retirement allowance" for plan 2 and plan 3 members, means monthly payments to a retiree or beneficiary as provided in this chapter.
     (25) "Retirement system" means the Washington state teachers' retirement system.
     (26)(a) "Service" for plan 1 members means the time during which a member has been employed by an employer for compensation.
     (i) If a member is employed by two or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service is rendered.
     (ii) As authorized by RCW 28A.400.300, up to forty-five days of sick leave may be creditable as service solely for the purpose of determining eligibility to retire under RCW 41.32.470.
     (iii) As authorized in RCW 41.32.065, service earned in an out-of-state retirement system that covers teachers in public schools may be applied solely for the purpose of determining eligibility to retire under RCW 41.32.470.
     (b) "Service" for plan 2 and plan 3 members, means periods of employment by a member for one or more employers for which earnable compensation is earned subject to the following conditions:
     (i) A member employed in an eligible position or as a substitute shall receive one service credit month for each month of September through August of the following year if he or she earns earnable compensation for eight hundred ten or more hours during that period and is employed during nine of those months, except that a member may not receive credit for any period prior to the member's employment in an eligible position except as provided in RCW 41.32.812 and 41.50.132;
     (ii) If a member is employed either in an eligible position or as a substitute teacher for nine months of the twelve month period between September through August of the following year but earns earnable compensation for less than eight hundred ten hours but for at least six hundred thirty hours, he or she will receive one-half of a service credit month for each month of the twelve month period;
     (iii) All other members in an eligible position or as a substitute teacher shall receive service credit as follows:
     (A) A service credit month is earned in those calendar months where earnable compensation is earned for ninety or more hours;
     (B) A half-service credit month is earned in those calendar months where earnable compensation is earned for at least seventy hours but less than ninety hours; and
     (C) A quarter-service credit month is earned in those calendar months where earnable compensation is earned for less than seventy hours.
     (iv) Any person who is a member of the teachers' retirement system and who is elected or appointed to a state elective position may continue to be a member of the retirement system and continue to receive a service credit month for each of the months in a state elective position by making the required member contributions.
     (v) When an individual is employed by two or more employers the individual shall only receive one month's service credit during any calendar month in which multiple service for ninety or more hours is rendered.
     (vi) As authorized by RCW 28A.400.300, up to forty-five days of sick leave may be creditable as service solely for the purpose of determining eligibility to retire under RCW 41.32.470. For purposes of plan 2 and plan 3 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months. Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:
     (A) Less than eleven days equals one-quarter service credit month;
     (B) Eleven or more days but less than twenty-two days equals one-half service credit month;
     (C) Twenty-two days equals one service credit month;
     (D) More than twenty-two days but less than thirty-three days equals one and one-quarter service credit month;
     (E) Thirty-three or more days but less than forty-five days equals one and one-half service credit month.
     (vii) As authorized in RCW 41.32.065, service earned in an out-of-state retirement system that covers teachers in public schools may be applied solely for the purpose of determining eligibility to retire under RCW 41.32.470.
     (viii) The department shall adopt rules implementing this subsection.
     (27) "Service credit year" means an accumulation of months of service credit which is equal to one when divided by twelve.
     (28) "Service credit month" means a full service credit month or an accumulation of partial service credit months that are equal to one.
     (29) "Teacher" means any person qualified to teach who is engaged by a public school in an instructional, administrative, or supervisory capacity. The term includes state, educational service district, and school district superintendents and their assistants and all employees certificated by the superintendent of public instruction; and in addition thereto any full time school doctor who is employed by a public school and renders service of an instructional or educational nature.
     (30) "Average final compensation" for plan 2 and plan 3 members, means the member's average earnable compensation of the highest consecutive sixty service credit months prior to such member's retirement, termination, or death. Periods constituting authorized leaves of absence may not be used in the calculation of average final compensation except under RCW 41.32.810(2).
     (31) "Retiree" means any person who has begun accruing a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer while a member.
     (32) "Department" means the department of retirement systems created in chapter 41.50 RCW.
     (33) "Director" means the director of the department.
     (34) "State elective position" means any position held by any person elected or appointed to statewide office or elected or appointed as a member of the legislature.
     (35) "State actuary" or "actuary" means the person appointed pursuant to RCW 44.44.010(2).
     (36) "Substitute teacher" means:
     (a) A teacher who is hired by an employer to work as a temporary teacher, except for teachers who are annual contract employees of an employer and are guaranteed a minimum number of hours; or
     (b) Teachers who either (i) work in ineligible positions for more than one employer or (ii) work in an ineligible position or positions together with an eligible position.
     (37)(a) "Eligible position" for plan 2 members from June 7, 1990, through September 1, 1991, means a position which normally requires two or more uninterrupted months of creditable service during September through August of the following year.
     (b) "Eligible position" for plan 2 and plan 3 on and after September 1, 1991, means a position that, as defined by the employer, normally requires five or more months of at least seventy hours of earnable compensation during September through August of the following year.
     (c) For purposes of this chapter an employer shall not define "position" in such a manner that an employee's monthly work for that employer is divided into more than one position.
     (d) The elected position of the superintendent of public instruction is an eligible position.
     (38) "Plan 1" means the teachers' retirement system, plan 1 providing the benefits and funding provisions covering persons who first became members of the system prior to October 1, 1977.
     (39) "Plan 2" means the teachers' retirement system, plan 2 providing the benefits and funding provisions covering persons who first became members of the system on and after October 1, 1977, and prior to July 1, 1996.
     (40) "Plan 3" means the teachers' retirement system, plan 3 providing the benefits and funding provisions covering persons who first become members of the system on and after July 1, 1996, or who transfer under RCW 41.32.817.
     (41) "Index" means, for any calendar year, that year's annual average consumer price index, Seattle, Washington area, for urban wage earners and clerical workers, all items compiled by the bureau of labor statistics, United States department of labor.
     (42) "Index A" means the index for the year prior to the determination of a postretirement adjustment.
     (43) "Index B" means the index for the year prior to index A.
     (44) "Index year" means the earliest calendar year in which the index is more than sixty percent of index A.
     (45) "Adjustment ratio" means the value of index A divided by index B.
     (46) "Annual increase" means((, initially, fifty-nine)) one dollar and forty-five cents per month per year of service which amount shall be increased each July 1st by three percent, rounded to the nearest cent.
     (47) "Member account" or "member's account" for purposes of plan 3 means the sum of the contributions and earnings on behalf of the member in the defined contribution portion of plan 3.
     (48) "Separation from service or employment" occurs when a person has terminated all employment with an employer.
     (49) "Employed" or "employee" means a person who is providing services for compensation to an employer, unless the person is free from the employer's direction and control over the performance of work. The department shall adopt rules and interpret this subsection consistent with common law.

Sec. 23   RCW 41.32.4851 and 2004 c 85 s 1 are each amended to read as follows:
     (1) No one who becomes a beneficiary after June 30, 1995, shall receive a monthly retirement allowance of less than twenty-four dollars and twenty-two cents times the number of years of service creditable to the person whose service is the basis of such retirement allowance.
     (2) If the retirement allowance payable was adjusted at the time benefit payments to the beneficiary commenced, the minimum allowance provided in this section shall be adjusted in a manner consistent with that adjustment.
     (3) Beginning July 1, 1996, the minimum benefit set forth in subsection (1) of this section shall be adjusted annually by the annual increase.
     (4) Those receiving a temporary disability benefit under RCW 41.32.540 shall not be eligible for the benefit provided by this section.
     (5) Beginning July 1, 2004, the minimum benefit set forth in subsection (1) of this section, prior to adjustments set forth in subsection (2) of this section, for a beneficiary with at least twenty-five years of service and who has been retired at least twenty years shall be one thousand dollars per month((. The minimum benefit in this subsection shall not be adjusted by the annual increase provided in subsection (3) of this section)) which shall be increased each July 1st by three percent, rounded to the nearest cent.
     (6) Beginning July 1, 2005, the minimum benefit set forth in subsection (1) of this section, prior to adjustments set forth in subsection (2) of this section, for a beneficiary with at least twenty years of service and who has been retired at least twenty-five years shall be one thousand dollars per month which shall be increased each July 1st by three percent, rounded to the nearest cent
.

Sec. 24   RCW 41.32.489 and 1995 c 345 s 2 are each amended to read as follows:
     (1) Beginning July 1, 1995, and annually thereafter, the retirement allowance of a person meeting the requirements of this section shall be increased by the annual increase amount.
     (2) The following persons shall be eligible for the benefit provided in subsection (1) of this section:
     (a) A beneficiary who has received a retirement allowance for at least one year by July 1st in the calendar year in which the annual increase is given and has attained at least age sixty-six by ((July 1st)) December 31st in the calendar year in which the annual increase is given; or
     (b) A beneficiary whose retirement allowance is lower than the minimum benefit provided under RCW 41.32.4851.
     (3) The following persons shall also be eligible for the benefit provided in subsection (1) of this section:
     (a) A beneficiary receiving the minimum benefit on June 30, 1995, under RCW 41.32.485; or
     (b) A recipient of a survivor benefit on June 30, 1995, which has been increased by RCW 41.32.575.
     (4) If otherwise eligible, those receiving an annual adjustment under RCW 41.32.530(1)(d) shall be eligible for the annual increase adjustment in addition to the benefit that would have been received absent this section.
     (5) Those receiving a temporary disability benefit under RCW 41.32.540 shall not be eligible for the benefit provided by this section.
     (6) The legislature reserves the right to amend or repeal this section in the future and no member or beneficiary has a contractual right to receive this postretirement adjustment not granted prior to that time.

Sec. 25   RCW 41.40.010 and 2003 c 412 s 4 are each amended to read as follows:
     As used in this chapter, unless a different meaning is plainly required by the context:
     (1) "Retirement system" means the public employees' retirement system provided for in this chapter.
     (2) "Department" means the department of retirement systems created in chapter 41.50 RCW.
     (3) "State treasurer" means the treasurer of the state of Washington.
     (4)(a) "Employer" for plan 1 members, means every branch, department, agency, commission, board, and office of the state, any political subdivision or association of political subdivisions of the state admitted into the retirement system, and legal entities authorized by RCW 35.63.070 and 36.70.060 or chapter 39.34 RCW; and the term shall also include any labor guild, association, or organization the membership of a local lodge or division of which is comprised of at least forty percent employees of an employer (other than such labor guild, association, or organization) within this chapter. The term may also include any city of the first class that has its own retirement system.
     (b) "Employer" for plan 2 and plan 3 members, means every branch, department, agency, commission, board, and office of the state, and any political subdivision and municipal corporation of the state admitted into the retirement system, including public agencies created pursuant to RCW 35.63.070, 36.70.060, and 39.34.030; except that after August 31, 2000, school districts and educational service districts will no longer be employers for the public employees' retirement system plan 2.
     (5) "Member" means any employee included in the membership of the retirement system, as provided for in RCW 41.40.023. RCW 41.26.045 does not prohibit a person otherwise eligible for membership in the retirement system from establishing such membership effective when he or she first entered an eligible position.
     (6) "Original member" of this retirement system means:
     (a) Any person who became a member of the system prior to April 1, 1949;
     (b) Any person who becomes a member through the admission of an employer into the retirement system on and after April 1, 1949, and prior to April 1, 1951;
     (c) Any person who first becomes a member by securing employment with an employer prior to April 1, 1951, provided the member has rendered at least one or more years of service to any employer prior to October 1, 1947;
     (d) Any person who first becomes a member through the admission of an employer into the retirement system on or after April 1, 1951, provided, such person has been in the regular employ of the employer for at least six months of the twelve-month period preceding the said admission date;
     (e) Any member who has restored all contributions that may have been withdrawn as provided by RCW 41.40.150 and who on the effective date of the individual's retirement becomes entitled to be credited with ten years or more of membership service except that the provisions relating to the minimum amount of retirement allowance for the member upon retirement at age seventy as found in RCW 41.40.190(4) shall not apply to the member;
     (f) Any member who has been a contributor under the system for two or more years and who has restored all contributions that may have been withdrawn as provided by RCW 41.40.150 and who on the effective date of the individual's retirement has rendered five or more years of service for the state or any political subdivision prior to the time of the admission of the employer into the system; except that the provisions relating to the minimum amount of retirement allowance for the member upon retirement at age seventy as found in RCW 41.40.190(4) shall not apply to the member.
     (7) "New member" means a person who becomes a member on or after April 1, 1949, except as otherwise provided in this section.
     (8)(a) "Compensation earnable" for plan 1 members, means salaries or wages earned during a payroll period for personal services and where the compensation is not all paid in money, maintenance compensation shall be included upon the basis of the schedules established by the member's employer.
     (i) "Compensation earnable" for plan 1 members also includes the following actual or imputed payments, which are not paid for personal services:
     (A) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wage which the individual would have earned during a payroll period shall be considered compensation earnable and the individual shall receive the equivalent service credit;
     (B) If a leave of absence is taken by an individual for the purpose of serving in the state legislature, the salary which would have been received for the position from which the leave of absence was taken, shall be considered as compensation earnable if the employee's contribution is paid by the employee and the employer's contribution is paid by the employer or employee;
     (C) Assault pay only as authorized by RCW 27.04.100, 72.01.045, and 72.09.240;
     (D) Compensation that a member would have received but for a disability occurring in the line of duty only as authorized by RCW 41.40.038;
     (E) Compensation that a member receives due to participation in the leave sharing program only as authorized by RCW 41.04.650 through 41.04.670; and
     (F) Compensation that a member receives for being in standby status. For the purposes of this section, a member is in standby status when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work, if the need arises, although the need may not arise.
     (ii) "Compensation earnable" does not include:
     (A) Remuneration for unused sick leave authorized under RCW 41.04.340, 28A.400.210, or 28A.310.490;
     (B) Remuneration for unused annual leave in excess of thirty days as authorized by RCW 43.01.044 and 43.01.041.
     (b) "Compensation earnable" for plan 2 and plan 3 members, means salaries or wages earned by a member during a payroll period for personal services, including overtime payments, and shall include wages and salaries deferred under provisions established pursuant to sections 403(b), 414(h), and 457 of the United States Internal Revenue Code, but shall exclude nonmoney maintenance compensation and lump sum or other payments for deferred annual sick leave, unused accumulated vacation, unused accumulated annual leave, or any form of severance pay.
     "Compensation earnable" for plan 2 and plan 3 members also includes the following actual or imputed payments, which are not paid for personal services:
     (i) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wage which the individual would have earned during a payroll period shall be considered compensation earnable to the extent provided above, and the individual shall receive the equivalent service credit;
     (ii) In any year in which a member serves in the legislature, the member shall have the option of having such member's compensation earnable be the greater of:
     (A) The compensation earnable the member would have received had such member not served in the legislature; or
     (B) Such member's actual compensation earnable received for nonlegislative public employment and legislative service combined. Any additional contributions to the retirement system required because compensation earnable under (b)(ii)(A) of this subsection is greater than compensation earnable under (b)(ii)(B) of this subsection shall be paid by the member for both member and employer contributions;
     (iii) Assault pay only as authorized by RCW 27.04.100, 72.01.045, and 72.09.240;
     (iv) Compensation that a member would have received but for a disability occurring in the line of duty only as authorized by RCW 41.40.038;
     (v) Compensation that a member receives due to participation in the leave sharing program only as authorized by RCW 41.04.650 through 41.04.670; and
     (vi) Compensation that a member receives for being in standby status. For the purposes of this section, a member is in standby status when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work, if the need arises, although the need may not arise.
     (9)(a) "Service" for plan 1 members, except as provided in RCW 41.40.088, means periods of employment in an eligible position or positions for one or more employers rendered to any employer for which compensation is paid, and includes time spent in office as an elected or appointed official of an employer. Compensation earnable earned in full time work for seventy hours or more in any given calendar month shall constitute one service credit month except as provided in RCW 41.40.088. Compensation earnable earned for less than seventy hours in any calendar month shall constitute one-quarter service credit month of service except as provided in RCW 41.40.088. Only service credit months and one-quarter service credit months shall be counted in the computation of any retirement allowance or other benefit provided for in this chapter. Any fraction of a year of service shall be taken into account in the computation of such retirement allowance or benefits. Time spent in standby status, whether compensated or not, is not service.
     (i) Service by a state employee officially assigned by the state on a temporary basis to assist another public agency, shall be considered as service as a state employee: PROVIDED, That service to any other public agency shall not be considered service as a state employee if such service has been used to establish benefits in any other public retirement system.
     (ii) An individual shall receive no more than a total of twelve service credit months of service during any calendar year. If an individual is employed in an eligible position by one or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service for seventy or more hours is rendered.
     (iii) A school district employee may count up to forty-five days of sick leave as creditable service solely for the purpose of determining eligibility to retire under RCW 41.40.180 as authorized by RCW 28A.400.300. For purposes of plan 1 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months. Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:
     (A) Less than twenty-two days equals one-quarter service credit month;
     (B) Twenty-two days equals one service credit month;
     (C) More than twenty-two days but less than forty-five days equals one and one-quarter service credit month.
     (b) "Service" for plan 2 and plan 3 members, means periods of employment by a member in an eligible position or positions for one or more employers for which compensation earnable is paid. Compensation earnable earned for ninety or more hours in any calendar month shall constitute one service credit month except as provided in RCW 41.40.088. Compensation earnable earned for at least seventy hours but less than ninety hours in any calendar month shall constitute one-half service credit month of service. Compensation earnable earned for less than seventy hours in any calendar month shall constitute one-quarter service credit month of service. Time spent in standby status, whether compensated or not, is not service.
     Any fraction of a year of service shall be taken into account in the computation of such retirement allowance or benefits.
     (i) Service in any state elective position shall be deemed to be full time service, except that persons serving in state elective positions who are members of the Washington school employees' retirement system, teachers' retirement system, or law enforcement officers' and fire fighters' retirement system at the time of election or appointment to such position may elect to continue membership in the Washington school employees' retirement system, teachers' retirement system, or law enforcement officers' and fire fighters' retirement system.
     (ii) A member shall receive a total of not more than twelve service credit months of service for such calendar year. If an individual is employed in an eligible position by one or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service for ninety or more hours is rendered.
     (iii) Up to forty-five days of sick leave may be creditable as service solely for the purpose of determining eligibility to retire under RCW 41.40.180 as authorized by RCW 28A.400.300. For purposes of plan 2 and plan 3 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months. Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:
     (A) Less than eleven days equals one-quarter service credit month;
     (B) Eleven or more days but less than twenty-two days equals one-half service credit month;
     (C) Twenty-two days equals one service credit month;
     (D) More than twenty-two days but less than thirty-three days equals one and one-quarter service credit month;
     (E) Thirty-three or more days but less than forty-five days equals one and one-half service credit month.
     (10) "Service credit year" means an accumulation of months of service credit which is equal to one when divided by twelve.
     (11) "Service credit month" means a month or an accumulation of months of service credit which is equal to one.
     (12) "Prior service" means all service of an original member rendered to any employer prior to October 1, 1947.
     (13) "Membership service" means:
     (a) All service rendered, as a member, after October 1, 1947;
     (b) All service after October 1, 1947, to any employer prior to the time of its admission into the retirement system for which member and employer contributions, plus interest as required by RCW 41.50.125, have been paid under RCW 41.40.056 or 41.40.057;
     (c) Service not to exceed six consecutive months of probationary service rendered after April 1, 1949, and prior to becoming a member, in the case of any member, upon payment in full by such member of the total amount of the employer's contribution to the retirement fund which would have been required under the law in effect when such probationary service was rendered if the member had been a member during such period, except that the amount of the employer's contribution shall be calculated by the director based on the first month's compensation earnable as a member;
     (d) Service not to exceed six consecutive months of probationary service, rendered after October 1, 1947, and before April 1, 1949, and prior to becoming a member, in the case of any member, upon payment in full by such member of five percent of such member's salary during said period of probationary service, except that the amount of the employer's contribution shall be calculated by the director based on the first month's compensation earnable as a member.
     (14)(a) "Beneficiary" for plan 1 members, means any person in receipt of a retirement allowance, pension or other benefit provided by this chapter.
     (b) "Beneficiary" for plan 2 and plan 3 members, means any person in receipt of a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer by another person.
     (15) "Regular interest" means such rate as the director may determine.
     (16) "Accumulated contributions" means the sum of all contributions standing to the credit of a member in the member's individual account, including any amount paid under RCW 41.50.165(2), together with the regular interest thereon.
     (17)(a) "Average final compensation" for plan 1 members, means the annual average of the greatest compensation earnable by a member during any consecutive two year period of service credit months for which service credit is allowed; or if the member has less than two years of service credit months then the annual average compensation earnable during the total years of service for which service credit is allowed.
     (b) "Average final compensation" for plan 2 and plan 3 members, means the member's average compensation earnable of the highest consecutive sixty months of service credit months prior to such member's retirement, termination, or death. Periods constituting authorized leaves of absence may not be used in the calculation of average final compensation except under RCW 41.40.710(2).
     (18) "Final compensation" means the annual rate of compensation earnable by a member at the time of termination of employment.
     (19) "Annuity" means payments for life derived from accumulated contributions of a member. All annuities shall be paid in monthly installments.
     (20) "Pension" means payments for life derived from contributions made by the employer. All pensions shall be paid in monthly installments.
     (21) "Retirement allowance" means the sum of the annuity and the pension.
     (22) "Employee" or "employed" means a person who is providing services for compensation to an employer, unless the person is free from the employer's direction and control over the performance of work. The department shall adopt rules and interpret this subsection consistent with common law.
     (23) "Actuarial equivalent" means a benefit of equal value when computed upon the basis of such mortality and other tables as may be adopted by the director.
     (24) "Retirement" means withdrawal from active service with a retirement allowance as provided by this chapter.
     (25) "Eligible position" means:
     (a) Any position that, as defined by the employer, normally requires five or more months of service a year for which regular compensation for at least seventy hours is earned by the occupant thereof. For purposes of this chapter an employer shall not define "position" in such a manner that an employee's monthly work for that employer is divided into more than one position;
     (b) Any position occupied by an elected official or person appointed directly by the governor, or appointed by the chief justice of the supreme court under RCW 2.04.240(2) or 2.06.150(2), for which compensation is paid.
     (26) "Ineligible position" means any position which does not conform with the requirements set forth in subsection (25) of this section.
     (27) "Leave of absence" means the period of time a member is authorized by the employer to be absent from service without being separated from membership.
     (28) "Totally incapacitated for duty" means total inability to perform the duties of a member's employment or office or any other work for which the member is qualified by training or experience.
     (29) "Retiree" means any person who has begun accruing a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer while a member.
     (30) "Director" means the director of the department.
     (31) "State elective position" means any position held by any person elected or appointed to statewide office or elected or appointed as a member of the legislature.
     (32) "State actuary" or "actuary" means the person appointed pursuant to RCW 44.44.010(2).
     (33) "Plan 1" means the public employees' retirement system, plan 1 providing the benefits and funding provisions covering persons who first became members of the system prior to October 1, 1977.
     (34) "Plan 2" means the public employees' retirement system, plan 2 providing the benefits and funding provisions covering persons who first became members of the system on and after October 1, 1977, and are not included in plan 3.
     (35) "Plan 3" means the public employees' retirement system, plan 3 providing the benefits and funding provisions covering persons who:
     (a) First become a member on or after:
     (i) March 1, 2002, and are employed by a state agency or institute of higher education and who did not choose to enter plan 2; or
     (ii) September 1, 2002, and are employed by other than a state agency or institute of higher education and who did not choose to enter plan 2; or
     (b) Transferred to plan 3 under RCW 41.40.795.
     (36) "Index" means, for any calendar year, that year's annual average consumer price index, Seattle, Washington area, for urban wage earners and clerical workers, all items, compiled by the bureau of labor statistics, United States department of labor.
     (37) "Index A" means the index for the year prior to the determination of a postretirement adjustment.
     (38) "Index B" means the index for the year prior to index A.
     (39) "Index year" means the earliest calendar year in which the index is more than sixty percent of index A.
     (40) "Adjustment ratio" means the value of index A divided by index B.
     (41) "Annual increase" means((, initially, fifty-nine)) one dollar and forty-five cents per month per year of service which amount shall be increased each July 1st by three percent, rounded to the nearest cent.
     (42) "Separation from service" occurs when a person has terminated all employment with an employer. Separation from service or employment does not occur, and if claimed by an employer or employee may be a violation of RCW 41.40.055, when an employee and employer have a written or oral agreement to resume employment with the same employer following termination.
     (43) "Member account" or "member's account" for purposes of plan 3 means the sum of the contributions and earnings on behalf of the member in the defined contribution portion of plan 3.

Sec. 26   RCW 41.40.010 and 2004 c 242 s 53 are each amended to read as follows:
     As used in this chapter, unless a different meaning is plainly required by the context:
     (1) "Retirement system" means the public employees' retirement system provided for in this chapter.
     (2) "Department" means the department of retirement systems created in chapter 41.50 RCW.
     (3) "State treasurer" means the treasurer of the state of Washington.
     (4)(a) "Employer" for plan 1 members, means every branch, department, agency, commission, board, and office of the state, any political subdivision or association of political subdivisions of the state admitted into the retirement system, and legal entities authorized by RCW 35.63.070 and 36.70.060 or chapter 39.34 RCW; and the term shall also include any labor guild, association, or organization the membership of a local lodge or division of which is comprised of at least forty percent employees of an employer (other than such labor guild, association, or organization) within this chapter. The term may also include any city of the first class that has its own retirement system.
     (b) "Employer" for plan 2 and plan 3 members, means every branch, department, agency, commission, board, and office of the state, and any political subdivision and municipal corporation of the state admitted into the retirement system, including public agencies created pursuant to RCW 35.63.070, 36.70.060, and 39.34.030; except that after August 31, 2000, school districts and educational service districts will no longer be employers for the public employees' retirement system plan 2.
     (5) "Member" means any employee included in the membership of the retirement system, as provided for in RCW 41.40.023. RCW 41.26.045 does not prohibit a person otherwise eligible for membership in the retirement system from establishing such membership effective when he or she first entered an eligible position.
     (6) "Original member" of this retirement system means:
     (a) Any person who became a member of the system prior to April 1, 1949;
     (b) Any person who becomes a member through the admission of an employer into the retirement system on and after April 1, 1949, and prior to April 1, 1951;
     (c) Any person who first becomes a member by securing employment with an employer prior to April 1, 1951, provided the member has rendered at least one or more years of service to any employer prior to October 1, 1947;
     (d) Any person who first becomes a member through the admission of an employer into the retirement system on or after April 1, 1951, provided, such person has been in the regular employ of the employer for at least six months of the twelve-month period preceding the said admission date;
     (e) Any member who has restored all contributions that may have been withdrawn as provided by RCW 41.40.150 and who on the effective date of the individual's retirement becomes entitled to be credited with ten years or more of membership service except that the provisions relating to the minimum amount of retirement allowance for the member upon retirement at age seventy as found in RCW 41.40.190(4) shall not apply to the member;
     (f) Any member who has been a contributor under the system for two or more years and who has restored all contributions that may have been withdrawn as provided by RCW 41.40.150 and who on the effective date of the individual's retirement has rendered five or more years of service for the state or any political subdivision prior to the time of the admission of the employer into the system; except that the provisions relating to the minimum amount of retirement allowance for the member upon retirement at age seventy as found in RCW 41.40.190(4) shall not apply to the member.
     (7) "New member" means a person who becomes a member on or after April 1, 1949, except as otherwise provided in this section.
     (8)(a) "Compensation earnable" for plan 1 members, means salaries or wages earned during a payroll period for personal services and where the compensation is not all paid in money, maintenance compensation shall be included upon the basis of the schedules established by the member's employer.
     (i) "Compensation earnable" for plan 1 members also includes the following actual or imputed payments, which are not paid for personal services:
     (A) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wage which the individual would have earned during a payroll period shall be considered compensation earnable and the individual shall receive the equivalent service credit;
     (B) If a leave of absence is taken by an individual for the purpose of serving in the state legislature, the salary which would have been received for the position from which the leave of absence was taken, shall be considered as compensation earnable if the employee's contribution is paid by the employee and the employer's contribution is paid by the employer or employee;
     (C) Assault pay only as authorized by RCW 27.04.100, 72.01.045, and 72.09.240;
     (D) Compensation that a member would have received but for a disability occurring in the line of duty only as authorized by RCW 41.40.038;
     (E) Compensation that a member receives due to participation in the leave sharing program only as authorized by RCW 41.04.650 through 41.04.670; and
     (F) Compensation that a member receives for being in standby status. For the purposes of this section, a member is in standby status when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work, if the need arises, although the need may not arise.
     (ii) "Compensation earnable" does not include:
     (A) Remuneration for unused sick leave authorized under RCW 41.04.340, 28A.400.210, or 28A.310.490;
     (B) Remuneration for unused annual leave in excess of thirty days as authorized by RCW 43.01.044 and 43.01.041.
     (b) "Compensation earnable" for plan 2 and plan 3 members, means salaries or wages earned by a member during a payroll period for personal services, including overtime payments, and shall include wages and salaries deferred under provisions established pursuant to sections 403(b), 414(h), and 457 of the United States Internal Revenue Code, but shall exclude nonmoney maintenance compensation and lump sum or other payments for deferred annual sick leave, unused accumulated vacation, unused accumulated annual leave, or any form of severance pay.
     "Compensation earnable" for plan 2 and plan 3 members also includes the following actual or imputed payments, which are not paid for personal services:
     (i) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wage which the individual would have earned during a payroll period shall be considered compensation earnable to the extent provided above, and the individual shall receive the equivalent service credit;
     (ii) In any year in which a member serves in the legislature, the member shall have the option of having such member's compensation earnable be the greater of:
     (A) The compensation earnable the member would have received had such member not served in the legislature; or
     (B) Such member's actual compensation earnable received for nonlegislative public employment and legislative service combined. Any additional contributions to the retirement system required because compensation earnable under (b)(ii)(A) of this subsection is greater than compensation earnable under (b)(ii)(B) of this subsection shall be paid by the member for both member and employer contributions;
     (iii) Assault pay only as authorized by RCW 27.04.100, 72.01.045, and 72.09.240;
     (iv) Compensation that a member would have received but for a disability occurring in the line of duty only as authorized by RCW 41.40.038;
     (v) Compensation that a member receives due to participation in the leave sharing program only as authorized by RCW 41.04.650 through 41.04.670; and
     (vi) Compensation that a member receives for being in standby status. For the purposes of this section, a member is in standby status when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work, if the need arises, although the need may not arise.
     (9)(a) "Service" for plan 1 members, except as provided in RCW 41.40.088, means periods of employment in an eligible position or positions for one or more employers rendered to any employer for which compensation is paid, and includes time spent in office as an elected or appointed official of an employer. Compensation earnable earned in full time work for seventy hours or more in any given calendar month shall constitute one service credit month except as provided in RCW 41.40.088. Compensation earnable earned for less than seventy hours in any calendar month shall constitute one-quarter service credit month of service except as provided in RCW 41.40.088. Only service credit months and one-quarter service credit months shall be counted in the computation of any retirement allowance or other benefit provided for in this chapter. Any fraction of a year of service shall be taken into account in the computation of such retirement allowance or benefits. Time spent in standby status, whether compensated or not, is not service.
     (i) Service by a state employee officially assigned by the state on a temporary basis to assist another public agency, shall be considered as service as a state employee: PROVIDED, That service to any other public agency shall not be considered service as a state employee if such service has been used to establish benefits in any other public retirement system.
     (ii) An individual shall receive no more than a total of twelve service credit months of service during any calendar year. If an individual is employed in an eligible position by one or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service for seventy or more hours is rendered.
     (iii) A school district employee may count up to forty-five days of sick leave as creditable service solely for the purpose of determining eligibility to retire under RCW 41.40.180 as authorized by RCW 28A.400.300. For purposes of plan 1 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months. Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:
     (A) Less than twenty-two days equals one-quarter service credit month;
     (B) Twenty-two days equals one service credit month;
     (C) More than twenty-two days but less than forty-five days equals one and one-quarter service credit month.
     (b) "Service" for plan 2 and plan 3 members, means periods of employment by a member in an eligible position or positions for one or more employers for which compensation earnable is paid. Compensation earnable earned for ninety or more hours in any calendar month shall constitute one service credit month except as provided in RCW 41.40.088. Compensation earnable earned for at least seventy hours but less than ninety hours in any calendar month shall constitute one-half service credit month of service. Compensation earnable earned for less than seventy hours in any calendar month shall constitute one-quarter service credit month of service. Time spent in standby status, whether compensated or not, is not service.
     Any fraction of a year of service shall be taken into account in the computation of such retirement allowance or benefits.
     (i) Service in any state elective position shall be deemed to be full time service, except that persons serving in state elective positions who are members of the Washington school employees' retirement system, teachers' retirement system, public safety employees' retirement system, or law enforcement officers' and fire fighters' retirement system at the time of election or appointment to such position may elect to continue membership in the Washington school employees' retirement system, teachers' retirement system, public safety employees' retirement system, or law enforcement officers' and fire fighters' retirement system.
     (ii) A member shall receive a total of not more than twelve service credit months of service for such calendar year. If an individual is employed in an eligible position by one or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service for ninety or more hours is rendered.
     (iii) Up to forty-five days of sick leave may be creditable as service solely for the purpose of determining eligibility to retire under RCW 41.40.180 as authorized by RCW 28A.400.300. For purposes of plan 2 and plan 3 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months. Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:
     (A) Less than eleven days equals one-quarter service credit month;
     (B) Eleven or more days but less than twenty-two days equals one-half service credit month;
     (C) Twenty-two days equals one service credit month;
     (D) More than twenty-two days but less than thirty-three days equals one and one-quarter service credit month;
     (E) Thirty-three or more days but less than forty-five days equals one and one-half service credit month.
     (10) "Service credit year" means an accumulation of months of service credit which is equal to one when divided by twelve.
     (11) "Service credit month" means a month or an accumulation of months of service credit which is equal to one.
     (12) "Prior service" means all service of an original member rendered to any employer prior to October 1, 1947.
     (13) "Membership service" means:
     (a) All service rendered, as a member, after October 1, 1947;
     (b) All service after October 1, 1947, to any employer prior to the time of its admission into the retirement system for which member and employer contributions, plus interest as required by RCW 41.50.125, have been paid under RCW 41.40.056 or 41.40.057;
     (c) Service not to exceed six consecutive months of probationary service rendered after April 1, 1949, and prior to becoming a member, in the case of any member, upon payment in full by such member of the total amount of the employer's contribution to the retirement fund which would have been required under the law in effect when such probationary service was rendered if the member had been a member during such period, except that the amount of the employer's contribution shall be calculated by the director based on the first month's compensation earnable as a member;
     (d) Service not to exceed six consecutive months of probationary service, rendered after October 1, 1947, and before April 1, 1949, and prior to becoming a member, in the case of any member, upon payment in full by such member of five percent of such member's salary during said period of probationary service, except that the amount of the employer's contribution shall be calculated by the director based on the first month's compensation earnable as a member.
     (14)(a) "Beneficiary" for plan 1 members, means any person in receipt of a retirement allowance, pension or other benefit provided by this chapter.
     (b) "Beneficiary" for plan 2 and plan 3 members, means any person in receipt of a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer by another person.
     (15) "Regular interest" means such rate as the director may determine.
     (16) "Accumulated contributions" means the sum of all contributions standing to the credit of a member in the member's individual account, including any amount paid under RCW 41.50.165(2), together with the regular interest thereon.
     (17)(a) "Average final compensation" for plan 1 members, means the annual average of the greatest compensation earnable by a member during any consecutive two year period of service credit months for which service credit is allowed; or if the member has less than two years of service credit months then the annual average compensation earnable during the total years of service for which service credit is allowed.
     (b) "Average final compensation" for plan 2 and plan 3 members, means the member's average compensation earnable of the highest consecutive sixty months of service credit months prior to such member's retirement, termination, or death. Periods constituting authorized leaves of absence may not be used in the calculation of average final compensation except under RCW 41.40.710(2).
     (18) "Final compensation" means the annual rate of compensation earnable by a member at the time of termination of employment.
     (19) "Annuity" means payments for life derived from accumulated contributions of a member. All annuities shall be paid in monthly installments.
     (20) "Pension" means payments for life derived from contributions made by the employer. All pensions shall be paid in monthly installments.
     (21) "Retirement allowance" means the sum of the annuity and the pension.
     (22) "Employee" or "employed" means a person who is providing services for compensation to an employer, unless the person is free from the employer's direction and control over the performance of work. The department shall adopt rules and interpret this subsection consistent with common law.
     (23) "Actuarial equivalent" means a benefit of equal value when computed upon the basis of such mortality and other tables as may be adopted by the director.
     (24) "Retirement" means withdrawal from active service with a retirement allowance as provided by this chapter.
     (25) "Eligible position" means:
     (a) Any position that, as defined by the employer, normally requires five or more months of service a year for which regular compensation for at least seventy hours is earned by the occupant thereof. For purposes of this chapter an employer shall not define "position" in such a manner that an employee's monthly work for that employer is divided into more than one position;
     (b) Any position occupied by an elected official or person appointed directly by the governor, or appointed by the chief justice of the supreme court under RCW 2.04.240(2) or 2.06.150(2), for which compensation is paid.
     (26) "Ineligible position" means any position which does not conform with the requirements set forth in subsection (25) of this section.
     (27) "Leave of absence" means the period of time a member is authorized by the employer to be absent from service without being separated from membership.
     (28) "Totally incapacitated for duty" means total inability to perform the duties of a member's employment or office or any other work for which the member is qualified by training or experience.
     (29) "Retiree" means any person who has begun accruing a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer while a member.
     (30) "Director" means the director of the department.
     (31) "State elective position" means any position held by any person elected or appointed to statewide office or elected or appointed as a member of the legislature.
     (32) "State actuary" or "actuary" means the person appointed pursuant to RCW 44.44.010(2).
     (33) "Plan 1" means the public employees' retirement system, plan 1 providing the benefits and funding provisions covering persons who first became members of the system prior to October 1, 1977.
     (34) "Plan 2" means the public employees' retirement system, plan 2 providing the benefits and funding provisions covering persons who first became members of the system on and after October 1, 1977, and are not included in plan 3.
     (35) "Plan 3" means the public employees' retirement system, plan 3 providing the benefits and funding provisions covering persons who:
     (a) First become a member on or after:
     (i) March 1, 2002, and are employed by a state agency or institute of higher education and who did not choose to enter plan 2; or
     (ii) September 1, 2002, and are employed by other than a state agency or institute of higher education and who did not choose to enter plan 2; or
     (b) Transferred to plan 3 under RCW 41.40.795.
     (36) "Index" means, for any calendar year, that year's annual average consumer price index, Seattle, Washington area, for urban wage earners and clerical workers, all items, compiled by the bureau of labor statistics, United States department of labor.
     (37) "Index A" means the index for the year prior to the determination of a postretirement adjustment.
     (38) "Index B" means the index for the year prior to index A.
     (39) "Index year" means the earliest calendar year in which the index is more than sixty percent of index A.
     (40) "Adjustment ratio" means the value of index A divided by index B.
     (41) "Annual increase" means((, initially, fifty-nine)) one dollar and forty-five cents per month per year of service which amount shall be increased each July 1st by three percent, rounded to the nearest cent.
     (42) "Separation from service" occurs when a person has terminated all employment with an employer. Separation from service or employment does not occur, and if claimed by an employer or employee may be a violation of RCW 41.40.055, when an employee and employer have a written or oral agreement to resume employment with the same employer following termination.
     (43) "Member account" or "member's account" for purposes of plan 3 means the sum of the contributions and earnings on behalf of the member in the defined contribution portion of plan 3.

Sec. 27   RCW 41.40.197 and 1995 c 345 s 5 are each amended to read as follows:
     (1) Beginning July 1, 1995, and annually thereafter, the retirement allowance of a person meeting the requirements of this section shall be increased by the annual increase amount.
     (2) The following persons shall be eligible for the benefit provided in subsection (1) of this section:
     (a) A beneficiary who has received a retirement allowance for at least one year by July 1st in the calendar year in which the annual increase is given and has attained at least age sixty-six by ((July 1st)) December 31st in the calendar year in which the annual increase is given; or
     (b) A beneficiary whose retirement allowance is lower than the minimum benefit provided under RCW 41.40.1984.
     (3) The following persons shall also be eligible for the benefit provided in subsection (1) of this section:
     (a) A beneficiary receiving the minimum benefit on June 30, 1995, under RCW 41.40.198; or
     (b) A recipient of a survivor benefit on June 30, 1995, which has been increased by RCW 41.40.325.
     (4) If otherwise eligible, those receiving an annual adjustment under RCW 41.40.188(1)(c) shall be eligible for the annual increase adjustment in addition to the benefit that would have been received absent this section.
     (5) Those receiving a benefit under RCW 41.40.220(1), or a survivor of a disabled member under RCW 41.44.170(5) shall be eligible for the benefit provided by this section.
     (6) The legislature reserves the right to amend or repeal this section in the future and no member or beneficiary has a contractual right to receive this postretirement adjustment not granted prior to that time.

Sec. 28   RCW 41.40.1984 and 2004 c 85 s 2 are each amended to read as follows:
     (1) Except as provided in subsections (4) and (5) of this section, no one who becomes a beneficiary after June 30, 1995, shall receive a monthly retirement allowance of less than twenty-four dollars and twenty-two cents times the number of years of service creditable to the person whose service is the basis of such retirement allowance.
     (2) Where the retirement allowance payable was adjusted at the time benefit payments to the beneficiary commenced, the minimum allowance provided in this section shall be adjusted in a manner consistent with that adjustment.
     (3) Beginning July 1, 1996, the minimum benefit set forth in subsection (1) of this section shall be adjusted annually by the annual increase.
     (4) Those receiving a benefit under RCW 41.40.220(1) or under RCW 41.44.170 (3) and (5) shall not be eligible for the benefit provided by this section.
     (5) For persons who served as elected officials and whose accumulated employee contributions and credited interest was less than seven hundred fifty dollars at the time of retirement, the minimum benefit under subsection (1) of this section shall be ten dollars per month per each year of creditable service.
     (6) Beginning July 1, 2004, the minimum benefit set forth in subsection (1) of this section, prior to adjustments set forth in subsection (2) of this section, for a beneficiary with at least twenty-five years of service and who has been retired at least twenty years shall be one thousand dollars per month((. The minimum benefit in this subsection shall not be adjusted by the annual increase provided in subsection (3) of this section)) which shall be increased each July 1st by three percent, rounded to the nearest cent.
     (7) Beginning July 1, 2005, the minimum benefit set forth in subsection (1) of this section, prior to adjustments set forth in subsection (2) of this section, for a beneficiary with at least twenty years of service and who has been retired at least twenty-five years shall be one thousand dollars per month which shall be increased each July 1st by three percent, rounded to the nearest cent
.

NEW SECTION.  Sec. 29   The following acts or parts of acts are each repealed:
     (1) RCW 41.31.010 (Annual pension increases -- Increased by gain-sharing increase amount) and 1998 c 340 s 1;
     (2) RCW 41.31.020 (Gain-sharing increase amount calculated) and 1998 c 340 s 2; and
     (3) RCW 41.31.030 (Contractual right to increase not granted) and 1998 c 340 s 3.

NEW SECTION.  Sec. 30   Sections 22 through 25 and 27 through 29 of this act are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and take effect immediately.

NEW SECTION.  Sec. 31   Section 25 of this act expires July 1, 2006.

NEW SECTION.  Sec. 32   Section 26 of this act takes effect July 1, 2006.

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