AN ACT Relating to postretirement adjustments for public employees; and adding a new chapter to Title 41 RCW.

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

NEW SECTION. Sec. 1. The definitions in this section apply throughout this chapter.

(1) "Department" means the department of retirement systems.

(2) "Director" means the director of retirement systems.

(3) "Retirement plan" means a retirement plan described in RCW 41.32.005 or 41.40.005.

NEW SECTION. Sec. 2. (1) The postretirement investment fund is established for the purpose of providing an investment vehicle for the reserves for the retirement annuities and benefits. The assets of the postretirement investment fund shall consist of the money representing the reserves for the retirement annuities and benefits payable by the retirement plans that have been certified to and received by the state investment board from the retirement plans.

(2) The postretirement investment fund shall be managed by the state investment board. The assets of the postretirement investment fund shall be invested by the state investment board subject to chapter 43.33A RCW.

NEW SECTION. Sec. 3. There is established a deferred yield adjustment account which shall be increased by the sale or disposition of any debt securities at less than book value and shall be decreased by the sale or disposition of debt securities at more than book value. At the end of each fiscal year, a portion of the balance of this account shall be offset against the investment income for that year. The annual portion of the balance to be offset shall be proportional to the reciprocal of the average remaining life of the bonds sold, unless the amounts are offset by gains on the future sales of these securities. The amount of this account shall be included in the recognized value of assets other than corporate stocks and all other equity investments. In any fiscal year in which the gains on the sales of debt securities exceed the discounts realized on the sales of such securities, the excess shall be used to reduce the balance of the account. If the realized capital gains are sufficient to reduce the balance of the account to zero, any excess gains shall be available for the calculation of postretirement adjustments made according to section 6 of this act.

NEW SECTION. Sec. 4. (1) The department shall, no later than the commencement of a benefit payment from the postretirement investment fund, certify and transfer to the fund an amount equal to the actuarially determined reserves required for those retirement annuities and benefits which are payable by the retirement plans. The state investment board shall confirm in writing each certification and transfer of moneys made by a retirement plan. Each retirement plan shall maintain adequate records to account for money transferred to the postretirement investment fund.

(2) Each retirement plan that has transferred money to the postretirement investment fund shall have an undivided participation in the fund. The participation on any valuation date shall be determined by adding to the participation on the prior valuation date: (a) Funds transferred in accordance with subsection (1) of this section; (b) the amount of required investment income on its participation as defined in section 6(1)(c) of this act; and (c) the reserves for any benefit adjustments made as of the current valuation date with the result adjusted for any mortality gains or losses determined pursuant to section 8 of this act.

NEW SECTION. Sec. 5. Upon certification that a portion of the certified money representing the required reserves is required for the payment of a retirement annuity or benefit, the director shall transfer the amount of money certified as required to the appropriate retirement system fund.

NEW SECTION. Sec. 6. Annually, following June 30, the state actuary shall determine whether a postretirement adjustment is payable and shall determine the amount of the postretirement adjustment.

(1) The state actuary shall determine whether a postretirement adjustment is payable using the following procedure:

(a) The state investment board shall provide the amount of dividends, interest, accruals, and realized capital gains or losses applicable to the most recent fiscal year ending June 30;

(b) The state actuary shall determine the amount of reserves required for every annuitant and benefit recipient as of the current June 30. Every annuitant or benefit recipient who has been receiving an annuity or benefit for at least one year as of the current June 30 is eligible to receive a postretirement adjustment. The state actuary shall separately determine the amount of the reserves for those annuitants and benefit recipients who are eligible to receive a postretirement benefit adjustment and those annuitants and benefit recipients who are not eligible to receive a postretirement adjustment;

(c) The state actuary shall determine the amount of investment income required to equal seven percent of the required reserves as of the preceding June 30 adjusted by seven percent of each transfer in or transfer out multiplied by the fraction of a year from the date of transfer to the current June 30. This amount of required investment income shall be subtracted from the actual amount of investment income determined according to (a) of this subsection, to determine the amount of excess investment income. If this amount is positive, then a postretirement adjustment may be paid.

(2) The state actuary shall determine the amount of any postretirement adjustment that is payable using the following procedure:

(a) The state actuary shall determine the amount of excess investment income by the method indicated in subsection (1) of this section;

(b) The state actuary shall determine the total required reserves as of the first of January next following the end of the fiscal year for the annuitants and benefit recipients eligible to receive the postretirement adjustment as determined by subsection (1)(b) of this section. The required reserves shall be determined on the assumption that all annuitants and benefit recipients eligible to receive the postretirement adjustment will be alive on the January 1 in question;

(c) If the state actuary determines that the book value of the assets of the fund is less than an amount equal to one hundred percent of the current June 30 required reserves, with the book value and required reserves to be determined after the adjustments provided for in section 8 of this act, then the state investment board shall allocate five percent of the excess investment income as an asset of the fund. The excess investment income allocated as an asset of the fund shall not exceed the difference between book value and required reserves. The remaining amount shall be available for distribution. The book value of assets on any given date shall be the net assets at cost less the excess investment income determined pursuant to subsection (1)(c) of this section;

(d) The resulting total amount available for distribution shall be increased by three and one-half percent, and the result shall be stated as a percentage of the total required reserves pursuant to (b) of this subsection and, if the percentage is equal to or greater than one percent, the amount shall be certified to each retirement plan as the amount of the postretirement adjustment. If the percentage is less than one percent, the amount shall be credited to a separate reserve established for this purpose. The reserve shall be invested in the same manner as all other assets of the fund and shall be credited with any investment income as specified in subsection (1)(a) of this section. Amounts credited to the reserve shall be utilized in determining the postretirement adjustment in the subsequent year. The amount certified shall be carried to five decimal places and stated as a percentage.

NEW SECTION. Sec. 7. Upon receiving the certification of the amount of the postretirement adjustment from the state actuary, each retirement plan shall determine the amount of the postretirement adjustment payable to each eligible annuitant and benefit recipient. The dollar amount of the postretirement adjustment payable to each annuitant or benefit recipient shall be calculated by applying the certified postretirement adjustment percentage to the amount of the monthly annuity or benefit payable to each eligible annuitant or benefit recipient. The postretirement adjustment shall commence to be paid on January 1 following the calculations required pursuant to this section and shall thereafter be included in the monthly annuity or benefit paid to the recipient. Any adjustment pursuant to this section shall be paid automatically unless the intended recipient files a written notice with the applicable retirement plan requesting that the adjustment not be paid.

NEW SECTION. Sec. 8. As of June 30 of each odd-numbered year, the state actuary shall calculate the amount of required reserves representing any mortality gains and any mortality losses incurred by a retirement plan during the fiscal year. The state actuary shall report separately the amount of the reserves for annuitants and benefit recipients who are eligible for a postretirement benefit adjustment and the amount of reserves for annuitants and benefit recipients who are not eligible for a postretirement benefit adjustment. If the net amount of required reserves represents a mortality gain, the department shall transfer sufficient available funds to the appropriate retirement system fund to equal the amount of money certified. If the amount of required reserves represents a mortality loss, the retirement plan shall transfer to the postretirement investment fund an amount equal to the amount of the net mortality loss. The amount of the transfers shall be determined before any postretirement benefit adjustments have been made. All transfers resulting from mortality adjustments shall be completed annually by December 31 for the preceding June 30. All book values of the assets of the fund for the purposes of section 6 of this act shall be determined only after all adjustments for mortality gains and losses for the fiscal year have been made.

NEW SECTION. Sec. 9. Sections 1 through 8 of this act shall constitute a new chapter in Title 41 RCW.