AN ACT Relating to dependent care; adding new sections to chapter 41.04 RCW; and making an appropriation.

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

NEW SECTION. Sec. 1. (1) The state of Washington may enter into salary reduction agreements with employees pursuant to the Internal Revenue Code, 26 U.S.C. Sec. 129 for the purpose of making it possible for employees to select on a "before-tax basis" certain taxable and nontaxable benefits pursuant to 26 U.S.C. Sec. 129. The purpose of the salary redirection plan established in this chapter is to attract and retain individuals in governmental service by permitting them to enter into agreements with the state to provide for benefits.

(2) Nothing in the salary redirection plan constitutes an employment agreement between the participant and the state, and nothing contained in the participant's salary redirection agreement, the plan, or sections 2 through 9 of this act gives a participant any right to be retained in state employment.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout sections 3 through 8 of this act.

(1) "Salary redirection plan" means a plan whereby state employees and officers may agree to a reduction of salary which reduction will allow the employee to pay for preselected flexible benefit choices under 26 U.S.C. Sec. 129.

(2) "Committee" means the salary redirection plan committee.

(3) "Salary" means a state employee's or officer's monthly salary or wages.

(4) "Flex-cash accounts" means the flexible spending accounts established in the salary redirection revolving fund for the purpose of holding and disbursing the participants' funds under the auspices of the salary redirection plan.

(5) "Participant" means an individual who fulfills the eligibility and enrollment requirements under the plan.

(6) "Plan year" means January 1 to December 31 of each year.

NEW SECTION. Sec. 3. (1) The salary redirection plan committee is created consisting of seven members appointed by the governor. Members shall be employees or officers of state government. The majority of the members of the committee shall be participants in the plan, or shall become participants at the beginning of the next plan year following their appointments. The committee shall have as its principal responsibility the formulation and adoption of a plan and policies and procedures designed to guide, direct, and administer the plan. The attorney general or his or her designee shall serve as an ex officio nonvoting member of the committee. The committee members' terms of office shall be three years, and committee members shall be eligible for reappointment.

(2) Members of the committee shall be reimbursed in accordance with RCW 43.03.240 and shall receive travel expenses as provided in RCW 43.03.050 and 43.03.060.

(3) The committee shall hire two full-time employees.

NEW SECTION. Sec. 4. (1) A plan document describing the salary redirection plan shall be adopted and administered by the committee. The committee shall represent the state in all matters concerning the administration of the plan. The state through the committee, may engage the services of a professional consultant or administrator on a contractual basis to serve as an agent to assist the committee in carrying out the purposes of this chapter.

(2) The committee shall formulate and establish policies and procedures for the administration of the plan that are consistent with existing state law, the internal revenue code, and the regulations adopted by the internal revenue service as they may apply to the benefits offered to participants under the plan.

(3) The funds held by the state in flex-cash accounts shall be deposited in the salary redirection revolving fund in the custody of the state treasurer. Any interest in excess of the amount used to defray the cost of administering the plan shall become a part of the general fund as shall unclaimed moneys remaining in the flex-cash accounts at the end of a plan year. The committee may assess each participant a fee for administering the plan. Except for initial costs, moneys shall not be appropriated from the general fund for any expense relating to the administration of the plan, except that the cost of administering the plan may be financed by appropriation from the general fund of an amount equivalent to actually realized savings experienced due to reductions in employer contributions required for the retirement plan, under the social security act, and other similar savings.

(4) Every action taken by the committee shall be presumed to be a fair and reasonable exercise of the authority vested in or the duties imposed upon it. The committee shall be presumed to have exercised reasonable care, diligence, and prudence and to have acted impartially as to all persons interested unless the contrary be proved by clear and convincing affirmative evidence.

NEW SECTION. Sec. 5. (1) Elected officials and all permanent and temporary officers and employees of the state are eligible to participate in the plan and reduce their salary by agreement with the committee.

(2) Persons eligible under subsection (1) of this section may enter into salary reduction agreements with the state.

(3)(a) In the initial year of the plan, an eligible person may become a participant after the adoption of the plan and before its effective date by agreeing to have a portion of his or her gross salary reduced and deposited into a flex-cash account to be used for reimbursement of expenses covered by the plan.

(b) After the initial year of the plan, an eligible person may become a participant for a full plan year, with annual benefit selection for each new plan year made before January 1, or upon becoming eligible.

(c) Once an eligible person elects to participate and determines the amount his or her salary shall be reduced and the benefit for which the funds are to be used during the plan year, the agreement shall be irrevocable and may not be amended during the plan year except as provided in (d) of this subsection.

(d) The committee shall provide in the plan that a participant may enroll, terminate, or change his or her election if there is a significant change in a participant's status, as provided by 26 U.S.C. Sec. 129 and the regulations adopted under that section.

(4) The committee shall establish as part of the plan the procedures for and effect of withdrawal from the plan by reason of retirement, death, leave of absence, or termination of employment. To the extent possible under federal law, the committee shall protect participants from forfeiture of rights under the plan.

NEW SECTION. Sec. 6. (1) The salary redirection revolving fund is established in the state treasury. All expenses of the committee including staffing and administrative expenses shall be paid from the salary redirection revolving fund.

(2) The state investment board, at the request of the committee, may invest moneys in the salary redirection revolving fund in accordance with RCW 43.84.150. Except as provided in RCW 43.33A.160, one hundred percent of all earnings from these investments shall accrue directly to the salary redirection revolving fund. The earnings on any surplus balances in the salary redirection revolving fund shall be credited to the salary redirection revolving fund.

NEW SECTION. Sec. 7. (1) The committee shall keep or cause to be kept full and adequate accounts and records of the assets, obligations, transactions, and affairs of a salary redirection plan created under section 4 of this act.

(2) The committee shall file an annual report of the financial condition, transactions, and affairs of the salary redirection plan under the committee's jurisdiction. A copy of the annual report shall be filed with the speaker of the house of representatives, the president of the senate, the governor, and the state auditor.

(3) Members of the committee shall be deemed to stand in a fiduciary relationship to the employees participating in the salary redirection plan and shall discharge the duties of their respective positions in good faith and with that diligence, care, and skill which ordinary prudent persons would exercise under similar circumstances in like positions.

NEW SECTION. Sec. 8. (1) The state may at any time terminate the plan. Upon such termination, the participants in the plan shall be deemed to have withdrawn from the plan as of the date of such termination. Balances remaining in the participants' flex-cash accounts shall be returned to the participants pursuant to policies established by the committee.

(2) The committee may amend the plan at any time if the amendment does not affect the rights of the participants to receive eligible reimbursement from the participants' flex-cash accounts.

NEW SECTION. Sec. 9. The department of personnel, in consultation with the committee, shall adopt rules to implement sections 3 through 8 of this act.

NEW SECTION. Sec. 10. Sections 1 through 9 of this act are each added to chapter 41.04 RCW.

NEW SECTION. Sec. 11. The sum of .......... dollars, or as much thereof as may be necessary, is appropriated for the biennium ending June 30, 1989, from the general fund to the department of personnel for the purposes of this act.