BILL REQ. #:  Z-1174.1 

Read first time 01/24/2006.   Referred to Committee on Ways & Means.

     AN ACT Relating to public pensions that replaces gain-sharing provisions with certain changes in benefits for the teachers' retirement system, the school employees' retirement system, and the public employees' retirement system; amending RCW 41.32.835, 41.32.840, 41.34.040, 41.34.040, 41.34.060, 41.34.110, 41.35.610, 41.35.620, 41.40.010, 41.40.790, 41.45.061, and 41.45.070; reenacting and amending RCW 41.32.010; adding new sections to chapter 41.32 RCW; adding new sections to chapter 41.35 RCW; adding a new section to chapter 41.40 RCW; creating new sections; repealing RCW 41.31.010, 41.31.020, 41.31.030, 41.31A.010, 41.31A.020, 41.31A.030, and 41.31A.040; and providing effective dates.

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

Sec. 1   RCW 41.32.010 and 2005 c 131 s 8 and 2005 c 23 s 1 are each reenacted and 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, a psychologist, a social worker, a nurse, a physical therapist, an occupational therapist, a speech language pathologist or audiologist, 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 who has not been removed from membership under RCW 41.32.878 or 41.32.768. 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 fifty-seven 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. 2   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. 3   RCW 41.32.840 and 1996 c 39 s 4 are each amended to read as follows:
     (1) A member of the retirement system shall receive a retirement allowance equal to one percent of such member's average final compensation for each service credit year.
     (2) In lieu of the retirement allowance under subsection (1) of this section, a member of the retirement system who elects to participate under section 4 of this act shall receive:
     (a) A monthly retirement allowance equal to one percent of such member's average final compensation for each service credit year; and
     (b) An additional retirement allowance equal to the excess, if any, of:
     (i) One percent of such member's average final compensation for each service credit year from the date of election; over
     (ii) The monthly annuity offset.
     (A) The monthly annuity offset from the date of election shall be the actuarial equivalent value of the member's account under chapter 41.34 RCW, at separation, from the minimum contributions required under RCW 41.34.040 as if it were paid at normal retirement as a single-life annuity with a three percent annual cost-of-living adjustment commencing one year from the date of normal retirement.
     (B) For the purposes of this subsection, "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) A member who elects to participate under section 4 of this act must, after election, earn at least ten service credit years, or five service credit years including twelve service credit months after age fifty-four, to be eligible for the benefit provided in subsection (2)(b) of this section.
     (4) The retirement allowance payable under RCW 41.32.875 to a member who separates after having completed at least twenty service credit years shall be increased by twenty-five one-hundredths of one percent, compounded for each month from the date of separation to the date that the retirement allowance commences.

NEW SECTION.  Sec. 4   A new section is added to chapter 41.32 RCW under the subchapter heading "plan 3" to read as follows:
     Beginning July 1, 2007, and through June 30, 2008, members who exercised an irrevocable option to transfer to plan 3 prior to January 1, 2007, may make an irrevocable election, filed in writing with the department, to participate in the prospective contribution and benefit provisions under RCW 41.32.840(2) and 41.34.040.

NEW SECTION.  Sec. 5   A new section is added to chapter 41.32 RCW under the subchapter heading "plan 3" to read as follows:
     Beginning July 1, 2007, and through June 30, 2008, a member who established membership under RCW 41.32.835 may make a one-time irrevocable election, filed in writing with the department, to leave any service credit earned as a member of plan 3 in plan 3 and join plan 2. A member who makes such an election shall become a dual plan member and may combine service in each plan for the purpose of determining benefit eligibility. The benefits of such members shall be administered in the same manner as benefits administered under the provisions of chapter 41.54 RCW, with such members being treated as if they were members of different systems for portability purposes. The department shall adopt rules to ensure the portability of such members' plan 2 and plan 3 benefits.

Sec. 6   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:

Sec. 7   RCW 41.34.040 and 2006 c ... s 6 (section 6 of this act) 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:

Sec. 8   RCW 41.34.060 and 2001 c 180 s 2 are each amended to read as follows:
     (1) Except as provided in subsection (3) of this section, the member's account shall be invested by the state investment board. In order to reduce transaction costs and address liquidity issues, based upon recommendations of the state investment board, the department may require members to provide up to ninety days' notice prior to moving funds from the state investment board portfolio to self-directed investment options provided under subsection (3) of this section.
     (a) For members of the retirement system as provided for in chapter 41.32 RCW of plan 3, investment shall be in the same portfolio as that of the teachers' retirement system combined plan 2 and 3 fund under RCW 41.50.075(2).
     (b) For members of the retirement system as provided for in chapter 41.35 RCW of plan 3, investment shall be in the same portfolio as that of the school employees' retirement system combined plan 2 and 3 fund under RCW 41.50.075(4).
     (c) For members of the retirement system as provided for in chapter 41.40 RCW of plan 3, investment shall be in the same portfolio as that of the public employees' retirement system combined plan 2 and 3 fund under RCW 41.50.075(3).
     (2) The state investment board shall declare monthly unit values for the portfolios or funds, or portions thereof, utilized under subsection (1)(a), (b), and (c) of this section. The declared values shall be an approximation of portfolio or fund values, based on internal procedures of the state investment board. Such declared unit values and internal procedures shall be in the sole discretion of the state investment board. The state investment board may delegate any of the powers and duties under this subsection, including discretion, pursuant to RCW 43.33A.030. Member accounts shall be credited by the department with a rate of return based on changes to such unit values.
     (3)(a) Members may elect to self-direct their investments as set forth in RCW 41.34.130 and 43.33A.190.
     (b) Members who elect to participate under sections 4, 12, and 16 of this act may elect to self-direct their investments for only that portion of their investments related to contributions above the minimum rates established under RCW 41.34.040.

Sec. 9   RCW 41.34.110 and 1996 c 39 s 12 are each amended to read as follows:
     (1) A member who separates from service and then reestablishes membership may restore contributions to the member account.
     (2) A member electing to participate under section 4, 12, or 16 of this act, who separates from service and then reestablishes membership, may continue to be eligible for benefits under RCW 41.32.840(2)(b), 41.35.620(2)(b), or 41.40.790(2)(b) by restoring all contributions to the member account made after the election, plus interest as determined by the director.

Sec. 10   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. 11   RCW 41.35.620 and 1998 c 341 s 203 are each amended to read as follows:
     (1) A member of the retirement system shall receive a retirement allowance equal to one percent of such member's average final compensation for each service credit year.
     (2) In lieu of the retirement allowance under subsection (1) of this section, a member of the retirement system who elects to participate under section 12 of this act shall receive:
     (a) A monthly retirement allowance equal to one percent of such member's average final compensation for each service credit year; and
     (b) An additional retirement allowance equal to the excess, if any, of:
     (i) One percent of such member's average final compensation for each service credit year from the date of election; over
     (ii) The monthly annuity offset.
     (A) The monthly annuity offset from the date of election shall be the actuarial equivalent value of the member's account under chapter 41.34 RCW, at separation, from the minimum contributions required under RCW 41.34.040 as if it were paid at normal retirement as a single-life annuity with a three percent annual cost-of-living adjustment commencing one year from the date of normal retirement.
     (B) For the purposes of this subsection, "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) A member who elects to participate under section 12 of this act must, after election, earn at least ten service credit years, or five service credit years including twelve service credit months after age fifty-four, to be eligible for the benefit provided in subsection (2)(b) of this section.
     (4) The retirement allowance payable under RCW 41.35.680 to a member who separates after having completed at least twenty service credit years shall be increased by twenty-five one-hundredths of one percent, compounded for each month from the date of separation to the date that the retirement allowance commences.

NEW SECTION.  Sec. 12   A new section is added to chapter 41.35 RCW under the subchapter heading "plan 3" to read as follows:
     Beginning July 1, 2007, and through June 30, 2008, members who exercised the irrevocable option to transfer to plan 3 prior to January 1, 2007, may make an irrevocable election, filed in writing with the department, to participate in the prospective contribution and benefit provisions under RCW 41.34.040 and 41.35.620(2).

NEW SECTION.  Sec. 13   A new section is added to chapter 41.35 RCW under the subchapter heading "plan 3" to read as follows:
     Beginning July 1, 2007, and through June 30, 2008, a member who established membership under RCW 41.35.610 may make a one-time irrevocable election, filed in writing with the department, to leave any service credit earned as a member of plan 3 in plan 3 and join plan 2. A member who makes such an election shall become a dual plan member and may combine service in each plan for the purpose of determining benefit eligibility. The benefits of such members shall be administered in the same manner as benefits administered under the provisions of chapter 41.54 RCW, with such members being treated as if they were members of different systems for portability purposes. The department shall promulgate rules to ensure the portability of such members' plan 2 and plan 3 benefits.

Sec. 14   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 fifty-seven 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. 15   RCW 41.40.790 and 2000 c 247 s 303 are each amended to read as follows:
     (1) A member of the retirement system shall receive a retirement allowance equal to one percent of such member's average final compensation for each service credit year.
     (2) In lieu of the retirement allowance under subsection (1) of this section, a member of the retirement system who elects to participate under section 16 of this act shall receive:
     (a) A monthly retirement allowance equal to one percent of such member's average final compensation for each service credit year; and
     (b) An additional retirement allowance equal to the excess, if any, of:
     (i) One percent of such member's average final compensation for each service credit year from the date of election; over
     (ii) The monthly annuity offset.
     (A) The monthly annuity offset from the date of election shall be the actuarial equivalent value of the member's account under chapter 41.34 RCW, at separation, from the minimum contributions required under RCW 41.34.040 as if it were paid at normal retirement as a single-life annuity with a three percent annual cost-of-living adjustment commencing one year from the date of normal retirement.
     (B) For the purposes of this subsection, "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) A member who elects to participate under section 16 of this act must, after election, earn at least ten service credit years, or five service credit years including twelve service credit months after age fifty-four, to be eligible for the benefit provided in subsection (2)(b) of this section.
     (4) The retirement allowance payable under RCW 41.40.820 to a member who separates after having completed at least twenty service credit years shall be increased by twenty-five one-hundredths of one percent, compounded for each month from the date of separation to the date that the retirement allowance commences.

NEW SECTION.  Sec. 16   A new section is added to chapter 41.40 RCW under the subchapter heading "plan 3" to read as follows:
     Beginning July 1, 2007, and through June 30, 2008, members who exercised an irrevocable option to transfer to plan 3 prior to January 1, 2007, may make an irrevocable election, filed in writing with the department, to participate in the prospective contribution and benefit provisions under RCW 41.34.040 and 41.40.790(2).

Sec. 17   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.
     (5) The required contribution rates for members of the teachers' retirement system plan 2 shall not include any increase as a result of this act.
     (6) 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)) this act.
     (7) The required contribution rates for members of the public employees' retirement system plan 2 shall not include any increase as a result of this act.
     (8) 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))) (9) 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. 18   RCW 41.45.070 and 2004 c 242 s 41 are each amended to read as follows:
     (1) In addition to the basic employer contribution rate established in RCW 41.45.060 ((or 41.45.054)), the department shall also charge employers of public employees' retirement system, teachers' retirement system, school employees' retirement system, public safety employees' retirement system, or Washington state patrol retirement system members an additional supplemental rate to pay for the cost of additional benefits, if any, granted to members of those systems. ((Except as provided in subsections (6) and (7) of this section,)) The supplemental contribution rates required by this section shall be calculated by the state actuary and shall be charged regardless of language to the contrary contained in the statute which authorizes additional benefits.
     (2) In addition to the basic member, employer, and state contribution rate established in RCW 41.45.0604 for the law enforcement officers' and fire fighters' retirement system plan 2, the department shall also establish supplemental rates to pay for the cost of additional benefits, if any, granted to members of the law enforcement officers' and fire fighters' retirement system plan 2. ((Except as provided in subsection (6) of this section,)) These supplemental rates shall be calculated by the actuary retained by the law enforcement officers' and fire fighters' board and the state actuary through the process provided in RCW 41.26.720(1)(a) and the state treasurer shall transfer the additional required contributions regardless of language to the contrary contained in the statute which authorizes the additional benefits.
     (3) The supplemental rate charged under this section to fund benefit increases provided to active members of the public employees' retirement system plan 1, the teachers' retirement system plan 1, and Washington state patrol retirement system, shall be calculated as the level percentage of all members' pay needed to fund the cost of the benefit not later than June 30, 2024.
     (4) The supplemental rate charged under this section to fund benefit increases provided to active and retired members of the public employees' retirement system plan 2 and plan 3, the teachers' retirement system plan 2 and plan 3, the public safety employees' retirement system plan 2, or the school employees' retirement system plan 2 and plan 3 shall be calculated as the level percentage of all members' pay needed to fund the cost of the benefit, as calculated under RCW 41.45.060, 41.45.061, or 41.45.067.
     (5) The supplemental rate charged under this section to fund postretirement adjustments which are provided on a nonautomatic basis to current retirees shall be calculated as the percentage of pay needed to fund the adjustments as they are paid to the retirees. The supplemental rate charged under this section to fund automatic postretirement adjustments for active or retired members of the public employees' retirement system plan 1 and the teachers' retirement system plan 1 shall be calculated as the level percentage of pay needed to fund the cost of the automatic adjustments not later than June 30, 2024.
     (6) A supplemental rate shall not be charged to pay for the cost of ((additional benefits granted to members pursuant to chapter 340, Laws of 1998.
     (7) A supplemental rate shall not be charged to pay for the cost of additional benefits granted to members pursuant to chapter 41.31A RCW; section 309, chapter 341, Laws of 1998; or section 701, chapter 341, Laws of 1998)) this act prior to July 1, 2007.

NEW SECTION.  Sec. 19   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;
     (3) RCW 41.31.030 (Contractual right to increase not granted) and 1998 c 340 s 3;
     (4) RCW 41.31A.010 (Definitions) and 2000 c 247 s 407 & 1998 c 341 s 311;
     (5) RCW 41.31A.020 (Extraordinary investment gain -- Credited to member accounts -- Persons eligible -- Calculation of amount -- Contractual right not granted) and 2003 c 294 s 4, 2000 c 247 s 408, & 1998 c 341 s 312;
     (6) RCW 41.31A.030 (Retroactive extraordinary investment gain--Credited to member accounts -- Persons eligible -- Calculation of amount--Contractual right not granted) and 1998 c 341 s 313; and
     (7) RCW 41.31A.040 (Retroactive extraordinary investment gain--Credited to member accounts -- Persons eligible -- Calculation of amount--Contractual right not granted) and 2000 c 247 s 409.

NEW SECTION.  Sec. 20   The benefits provided under 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. 21   If any part of this act is found to be in conflict with a final determination by the federal internal revenue service that is a prescribed condition to favorable tax treatment of one or more of the retirement plans, the conflicting part of this act is inoperative solely to the extent of the conflict and with respect to the individual members directly affected. This finding does not affect the operation of the remainder of this act in its application to the members concerned. The legislature reserves the right to amend or repeal this act in the future as may be required to comply with a final federal determination that amendment or repeal is necessary to maintain the favorable tax treatment of a plan.

NEW SECTION.  Sec. 22   Except for section 7 of this act which takes effect July 1, 2008, this act takes effect July 1, 2007.