BILL REQ. #:  Z-0785.1 

Read first time 01/12/2006.   Referred to Committee on Ways & Means.

     AN ACT Relating to purchasing service credit in plan 2 and plan 3 of the teachers' retirement system for public education experience performed as a teacher in a public school in another state or with the federal government; adding new sections to chapter 41.32 RCW; and providing an effective date.

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

NEW SECTION.  Sec. 1   A new section is added to chapter 41.32 RCW under the subchapter heading "plan 2" to read as follows:
     (1) An active member who has completed a minimum of five years of creditable service in the teachers' retirement system may, upon written application to the department, make a one-time purchase of up to seven years of service credit for public education experience outside the Washington state retirement system, subject to the following limitations:
     (a) The public education experience being claimed must have been performed as a teacher in a public school in another state or with the federal government;
     (b) The public education experience being claimed must have been covered by a retirement or pension plan provided by a state or political subdivision of a state, or by the federal government;
     (c) The member is not currently receiving a benefit or currently eligible to receive an unreduced retirement benefit from a retirement or pension plan of a state or political subdivision of a state or the federal government that includes the service credit to be purchased;
     (d) The member has less than ten years of creditable service in the retirement system; and
     (e) The purchase will not result in the purchase of service credit years that exceed the member's total years of creditable service in the retirement system at the time of purchase.
     (2) The service credit purchased shall be membership service, and may be used to qualify the member for retirement.
     (3) The member shall pay the product of the sum of the employer and employee contribution rates multiplied by the member's annualized salary at the time of purchase and further multiplied by the total number of years of service credit to be purchased, plus compounded interest for the period for which the service credit is purchased at a rate equal to the investment rate of return assumption set forth in chapter 41.45 RCW. Compounded interest shall be applied to each year of service credit purchased as follows: No interest for the first year, one years' interest for the second year, two years' interest for the third year, three years' interest for the fourth year, four years' interest for the fifth year, five years' interest for the sixth year, and six years' interest for the seventh year. The applicable employer and employee contribution rates shall be based on the member's age at entry into the retirement system and calculated under the entry age normal cost method.
     (4) The member may pay all or part of the cost of the service credit to be purchased with a lump sum payment, eligible rollover, direct rollover, or trustee-to-trustee transfer from an eligible retirement plan. The department shall adopt rules to ensure that all lump sum payments, rollovers, and transfers comply with the requirements of the internal revenue code and regulations adopted by the internal revenue service. The rules adopted by the department may condition the acceptance of a rollover or transfer from another plan on the receipt of information necessary to enable the department to determine the eligibility of any transferred funds for tax-free rollover treatment or other treatment under federal income tax law.
     (5) The employer may pay all or a portion of the member's cost of the service credit purchased under this section.

NEW SECTION.  Sec. 2   A new section is added to chapter 41.32 RCW under the subchapter heading "plan 3" to read as follows:
     (1) An active member who has completed a minimum of five years of creditable service in the teachers' retirement system may, upon written application to the department, make a one-time purchase of up to seven years of service credit for public education experience outside the Washington state retirement system, subject to the following limitations:
     (a) The public education experience being claimed must have been performed as a teacher in a public school in another state or with the federal government;
     (b) The public education experience being claimed must have been covered by a retirement or pension plan provided by a state or political subdivision of a state, or by the federal government;
     (c) The member is not currently receiving a benefit or currently eligible to receive an unreduced retirement benefit from a retirement or pension plan of a state or political subdivision of a state or the federal government that includes the service credit to be purchased;
     (d) The member has less than ten years of creditable service in the retirement system; and
     (e) The purchase will not result in the purchase of service credit years that exceed the member's total years of creditable service in the retirement system at the time of purchase.
     (2) The service credit purchased shall be membership service, and may be used to qualify the member for retirement.
     (3) The member shall pay the product of the employer contribution rate multiplied by the member's annualized salary at the time of purchase and further multiplied by the total number of years of service credit to be purchased, plus compounded interest for the period for which the service credit is purchased at a rate equal to the investment rate of return assumption set forth in chapter 41.45 RCW. Compounded interest shall be applied to each year of service credit purchased as follows: No interest for the first year, one years' interest for the second year, two years' interest for the third year, three years' interest for the fourth year, four years' interest for the fifth year, five years' interest for the sixth year, and six years' interest for the seventh year. The total amount paid by the member shall be deemed a contribution on behalf of the employer for the purpose of RCW 41.32.867, and shall not be refundable. The applicable employer contribution rate shall be based on the member's age at entry into the retirement system and calculated under the entry age normal cost method.
     (4) The member may pay all or part of the cost of the service credit to be purchased with a lump sum payment, eligible rollover, direct rollover, or trustee-to-trustee transfer from an eligible retirement plan. The department shall adopt rules to ensure that all lump sum payments, rollovers, and transfers comply with the requirements of the internal revenue code and regulations adopted by the internal revenue service. The rules adopted by the department may condition the acceptance of a rollover or transfer from another plan on the receipt of information necessary to enable the department to determine the eligibility of any transferred funds for tax-free rollover treatment or other treatment under federal income tax law.
     (5) The employer may pay all or a portion of the member's cost of the service credit purchased under this section.

NEW SECTION.  Sec. 3   This act takes effect January 1, 2007.