HOUSE BILL REPORT

HB 2890

BYRepresentative Belcher

Changing provisions relating to payment of deferred compensation.

House Committe on Judiciary

Majority Report:  Do pass.  (18)

      Signed by Representatives Appelwick, Chair; Crane, Vice Chair; Padden, Ranking Republican Member; Belcher, Dellwo, Forner, Hargrove, Inslee, P. King, Locke, R. Meyers, Moyer, H. Myers, Schmidt, Scott, D. Sommers, Tate and Wineberry.

House Staff:Pat Shelledy (786-7149)

AS PASSED HOUSE FEBRUARY 12, 1990

BACKGROUND:

In recent years, public employees have been able to defer part of their income under deferred compensation plans which can supplement or be an alternative to state pension plans.  The deferred compensation program may be administered by the state deferred compensation committee, the employer, or the employer may hire another administrator including an out-of-state administrator. When an employee who is married defers income through a deferred compensation plan, the money deferred is community property and the nonemployee spouse has a community property interest in the fund. If the couple gets a divorce, the court may award a portion of the deferred compensation proceeds to the non-participating spouse as that spouse's community share of the proceeds.  Under federal and state law, money that is deferred remains the property of the employer and not the employee until the employee terminates from service or otherwise may withdraw the funds.  The current statute is silent on the duty of plan administrators to abide by court orders awarding a portion of the proceeds to the non-participating spouse.

SUMMARY:

Proceeds payable under a deferred compensation plan are payable to a spouse or ex-spouse as expressly provided for in any court decree of dissolution or legal separation.  The public entity providing a deferred compensation plan to its employees must comply with court orders that direct the disbursement of a specified portion of the proceeds to a spouse or ex-spouse at the time the proceeds become distributable to the participating spouse.  The proceeds may not be distributed to the spouse or ex-spouse before the participating spouse elects to withdraw the proceeds.

The court order must be certified and served upon the plan administrator.  If the administrator observes the court order, the employer and administrator shall be immune from liability for disbursing the funds to the ex-spouse or spouse.  The administrator must have 20 days notice before the order is effective against the administrator.  The administrator may be held liable to the non-participating spouse for failure to disburse the sums as ordered but the administrator may recover the sums from the participant.  The administrator must notify a non-participant spouse when the participant begins receiving proceeds if the non-participant spouse asks to be notified. Payments shall cease upon the death of the non-participant.  A party to a dissolution may serve a temporary restraining order upon an administrator restraining them from distributing the proceeds until further court order.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    Lee Dreisbach, Committee for Deferred Compensation (with concerns).

House Committee - Testified Against:      No one.

House Committee - Testimony For:    The community property interests of the non-participant spouse need to be protected and this bill may help avoid some of the problems faced by retirement plans.  However, numerous administrative problems and potential liability for the administrators could arise as well as conflicts with federal regulations.

House Committee - Testimony Against:      None.