WSR 13-15-171 PROPOSED RULES DEPARTMENT OF RETIREMENT SYSTEMS [Filed July 24, 2013, 9:34 a.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 13-12-056.
Title of Rule and Other Identifying Information: WAC 415-02-300 How does the department use actuarial tables, schedules and factors?, this rule-making activity also revises thirty-two other rules that include or refer to actuarial factors in chapter 415-02 WAC, General provisions; chapter 415-103 WAC, Washington state patrol retirement system (WSPRS); chapter 415-104 WAC, Law enforcement officers' and firefighters' retirement system; chapter 415-106 WAC, Public safety employees' retirement system; chapter 415-108 WAC, Public employees' retirement system; chapter 415-110 WAC, School employees' retirement system; chapter 415-111 WAC, Plan 3—Defined contribution plans; and chapter 415-112 WAC, Teachers' retirement system.
Hearing Location(s): Department of Retirement Systems, Conference Room 115, 6835 Capitol Boulevard S.E., Tumwater, WA 98502, on Tuesday, August 27, 2013, at 2:00 p.m.
Date of Intended Adoption: August 28, 2013.
Submit Written Comments to: Jilene Siegel, Department of Retirement Systems, P.O. Box 48380, Olympia, WA 98504-8380, e-mail jilenes@drs.wa.gov, fax (360) 753-5397, by August 27, 2013, 1:00 p.m.
Assistance for Persons with Disabilities: Contact Jilene Siegel by August 26, 2013, TTY (866) 377-8895 or (360) 586-5450.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: Legislation passed in 2012 (SB 6378) gradually lowers the long-term assumed rate of return for most of the pension systems over the next three biennia, which may result in more frequent updates to actuarial factors used in the calculation of retirement costs and benefits. Removing the factors from WAC, and establishing in rule a process for adopting and publishing the factors, will allow the department to maintain transparency and remain responsive to its customers' and stakeholders' interests while updating the factors as necessary.
Statutory Authority for Adoption: RCW 41.50.050(5).
Rule is not necessitated by federal law, federal or state court decision.
Name of Agency Personnel Responsible for Drafting and Implementation: Shawn Merchant, P.O. Box 48380, Olympia, WA 98504-8380, (360) 664-7303.
No small business economic impact statement has been prepared under chapter 19.85 RCW. Not applicable. These rules do not impact small businesses and are not being submitted by the state board of education.
A cost-benefit analysis is not required under RCW 34.05.328. The department of retirement systems is not listed in RCW 34.05.328 as required to prepare a cost-benefit analysis.
July 24, 2013
Jilene Siegel
Rules Coordinator
AMENDATORY SECTION (Amending WSR 13-06-025, filed 2/27/13, effective 4/1/13)
WAC 415-02-177 May I purchase additional service credit?
(1) What is the option for purchasing additional service credit? The following statutes provide an option for eligible members to purchase additional service credit that provides a guaranteed, lifetime increase to their monthly retirement benefit: (a) RCW 41.26.199 for LEOFF Plan 1 members; (b) RCW 41.26.432 for LEOFF Plan 2 members; (c) RCW 41.40.034 for PERS Plan 1, 2, and 3 members; (d) RCW 41.37.265 for PSERS Plan 2 members; (e) RCW 41.35.183 for SERS Plan 2 and 3 members; (f) RCW 41.32.066 for TRS Plan 1, 2, and 3 members; and (g) RCW 43.43.233 for WSPRS Plan 1 and 2 members. (2) Am I eligible to purchase additional service credit? (a) You may purchase additional service credit if you are eligible to retire from one or more of the following plans and you elect a monthly benefit rather than a lump sum payment: (iii) PSERS Plan 2 under RCW 41.37.210; (vi) WSPRS Plan 1 or 2 under RCW 43.43.250. (b) If you retire as a result of a disability, you may purchase additional service credit if you meet the requirements in (a) of this section. (3) How much additional service credit may I purchase? If you are eligible, you may purchase from one to sixty months of additional service credit in whole month increments. (4) May I use the additional purchased service credit to qualify for normal retirement or an early retirement? No. You may not use the purchased service credit to qualify for normal retirement or to qualify for an early retirement. (5) When must I apply to purchase additional service credit? You must submit your request to purchase additional service credit to the department at the same time you submit your application for retirement. (6) How much will my monthly retirement benefit increase if I purchase additional service credit? The increase in your monthly retirement benefit will be calculated using the benefit formula for your system and plan, with a reduction for early retirement, if applicable. Example 1 (PERS Plan 2): John is a member of PERS Plan 2. He applies for retirement, effective the first month after his 62nd birthday and chooses to purchase an additional sixty months (five years) of service credit. His average final compensation (AFC) is $4000 per month. ((If he purchases sixty months of additional service credit, his monthly retirement)) For illustration purposes in this example only, we will use .7240000 as the corresponding early retirement factor (ERF) for retiring three years early (actuarial factors change periodically). As a result, John's monthly benefit will increase by $289.60 per month, calculated as follows: ((Additional service credit: 60 months ÷ 12 = 5 years Early retirement factor (WAC 415-02-320(5)): .7240000))
Example 2 (TRS Plan 3): Jane is a member of TRS Plan 3. She applies for retirement, effective the first month after her 62nd birthday and chooses to purchase an additional sixty months (five years) of service credit. Her AFC is $4000 per month. ((If she purchases sixty months of additional service credit, her)) For illustration purposes in this example only, we will use .7240000 as the corresponding ERF for retiring three years early (actuarial factors change periodically). As a result, Jane's monthly retirement benefit will increase by $144.80 per month, calculated as follows: ((Additional service credit: 60 months ÷ 12 = 5 years Early retirement factor (WAC 415-02-320(5)): .7240000))
Example 3 (LEOFF Plan 2): Jim is a member of LEOFF Plan 2. He applies for retirement, effective the first month after his 53rd birthday and chooses to purchase an additional sixty months (five years) of service credit. His final average salary (FAS) is $4000 per month. ((If he purchases sixty months of additional service credit, his)) No ERF is needed for this calculation as Jim has already reached normal retirement age for LEOFF Plan 2. Jim's monthly retirement benefit will increase by $400 per month, calculated as follows: ((Additional service credit: 60 months ÷ 12 = 5 years))
(7) How is the cost of the additional purchased service credit calculated? The cost to purchase additional service credit is calculated by dividing the amount of the increase in subsection (6) of this section by the age-based annuity factor in effect at the time of retirement. (See WAC 415-02-340((.)) for more information.) Example. In subsection (6) of this section, Example 1, it was determined that John's retirement benefit would increase by $289.60 per month. ((The)) For illustration purposes in this example only, we will use .0065016 as the annuity factor for John's retirement date (actuarial factors change periodically). As a result, John's cost to purchase the five years of additional service credit would be $44,542.88, calculated as follows:
(8) How and when do I pay for the additional service credit? The department will generate a bill to you for the cost of the additional service credit. (a) Payment may be made with an eligible rollover, a direct rollover or a trustee-to-trustee transfer, if allowed by the transferring plan. Payment may also be made with after-tax dollars, such as money from a personal savings account. However, IRS regulations limit the amount of after-tax dollars you may use to purchase additional service credit. (b) Payment must be made in full within ninety days after the bill issue date. (9) If I choose a benefit option with a survivor feature, will my survivor beneficiary's monthly benefit reflect the additional purchased service credit? Yes. Depending upon the rules for your retirement system and plan and the benefit option you choose at retirement, your survivor beneficiary's monthly benefit will be a percentage of the gross monthly retirement benefit you were receiving at the time of your death. If you choose a benefit option with a survivor feature and your survivor beneficiary dies before you, your monthly retirement benefit will increase to the amount it would have been had you not selected a survivor option. (10) Will I receive a cost of living adjustment (COLA) on the portion of my benefit that is based on the additional purchased service credit? (a) For all systems and plans, except as noted in (b) of this subsection, your COLA will be based on your gross monthly retirement benefit, including the increase due to the purchased service credit. (b) If you retire from PERS Plan 1 or TRS Plan 1 and you do not elect the optional auto COLA, you will not receive a COLA on the additional purchased service credit amount. (11) If I purchase additional service credit and then return to work, how will my retirement benefit be affected? (((a) If you return to work with an employer that participates with the department: (i) Elect to return to membership - Your entire retirement benefit is suspended, including the portion of your retirement benefit attributable to service credit purchased under this section. (ii) Do not elect to return to membership - If your retirement benefit is suspended due to working over the hours allowed annually, the portion of your retirement benefit attributable to service credit purchased under this section will be suspended. (b) If you return to work with an employer that does not participate with the department, your retirement benefit and the portion of your retirement benefit attributable to service credit purchased under this section will not be suspended.)) Your entire retirement benefit, including the amount attributable to purchased service credit, is subject to the return to work provisions of your system and plan. The following rules describe the impact on your benefit if you return to work as a retiree of the referenced systems and plans:
(12) If I retire and purchase less than sixty months of additional service credit, may I purchase more at a later time? ((If you retire and purchase less than sixty months of additional service credit,)) No. You may not purchase additional months of service credit from the same plan unless you return to membership and ((reretire)) retire again from the same system and plan. You must meet the eligibility requirements provided in subsection (2) of this section at the time you ((reretire)) retire again. You may not purchase more than a total of sixty months of service credit regardless of how many times you ((reretire)) retire again from the same system and plan. (13) May I purchase service credit from more than one retirement plan? (a) If you are a dual member under chapter 415-113 WAC, Portability of public employment benefits, and you combine service credit to retire as a dual member, you may purchase up to sixty months of additional service credit from each of your dual member plans. (b) If you retire from more than one plan, but are not a dual member under chapter 415-113 WAC, you may purchase up to sixty months of additional service credit from each plan in which you meet the eligibility requirements in subsection (2) of this section. (14) How are the funds I paid to purchase the additional service credit treated upon my death (and the death of my survivor beneficiary, if applicable)? (a) Plans 1 and 2. The amount paid to purchase the additional service credit is credited to your individual account as part of your accumulated contributions. Distribution of accumulated contributions after your death (and the death of your survivor beneficiary, if any) is governed by the statutes and rules applicable to your plan. See: (i) WAC 415-108-326 for PERS Plan 1 and 2; (ii) WAC 415-112-504(9) for TRS Plan 1; (iii) WAC 415-112-505(7) for TRS Plan 2; (iv) WAC 415-110-610(7) for SERS Plan 2; (v) WAC 415-106-600(7) for PSERS Plan 2; (vi) WAC 415-103-215 for WSPRS Plan 1; (vii) WAC 415-103-225(7) for WSPRS Plan 2; (viii) WAC 415-104-202 for LEOFF Plan 1; or (ix) WAC 415-104-215(7) for LEOFF Plan 2. (b) Plan 3. The amount paid to purchase the additional service credit is credited to the Plan 3 trust fund and not to your member account. There are no circumstances under which the amount will be distributed upon your death.
AMENDATORY SECTION (Amending WSR 10-16-086, filed 7/30/10, effective 9/1/10)
WAC 415-02-300 How does the department adopt and use actuarial ((tables, schedules, and)) factors?
(1) The department uses actuarial ((tables, schedules, and)) factors for, but not limited to, benefit calculations, annuitizing benefits, and calculating cost to purchase service credit for members, retirees, and beneficiaries. (2) The department ((adopted tables, schedules, and)) adopts actuarial factors upon the office of the state actuary's (OSA) recommendation, following OSA's investigation into the mortality, service, compensation, and other experience of retirement plan members, retirees, and beneficiaries. (3) The ((tables, schedules, and)) actuarial factors may be amended from time to time, based upon subsequent actuarial investigations. (((4) The department uses the tables, schedules, and factors: (a) In effect at the time of the member's effective retirement date to calculate the member's retirement benefit. (b) In effect at the time of the annuitizing to calculate an annuitized benefit. (c) In effect at the time of purchase to determine a member's cost to purchase service credit.)) (a) Prior to any amendment, the department will post OSA's recommended changes on its web site. The process and timeline for public comment before adoption of the new factors will also be posted. (b) If the department adopts new factors, they will be available in the department's systems before the effective date, so that benefit estimates can be provided to assist members in retirement planning. (c) Actuarial factors displayed on the department's web site will be updated with new factors when they become effective.
AMENDATORY SECTION (Amending WSR 10-16-086, filed 7/30/10, effective 9/1/10)
WAC 415-02-320 Early retirement factors.
(1) What are early retirement factors? Early retirement factors (ERFs) are actuarial factors used by the department to reduce a monthly retirement benefit when that payment begins before the member has qualified for normal retirement based on age and service. This reduction offsets the cost to the plan of paying the monthly benefit for a longer time. (2) In what situations will the department use an ERF? (a) The department will use an ERF to reduce a monthly benefit in any of the following situations, subject to the law governing your plan, and subject to the exceptions in (b) of this subsection: (i) You choose to retire early. (ii) You retire due to a disability before you are eligible for normal retirement. (iii) You die before you are eligible for normal retirement, and your beneficiary is eligible for a monthly benefit. (b) An ERF is not used in the following circumstances, although another method may be used to reduce benefits as required by the laws governing each plan: (i) You meet your plan's requirements for "alternate early retirement"; (ii) You meet PSERS requirements for "early retirement"; (iii) You retire for service or due to a disability, from PERS Plan 1 or TRS Plan 1; (iv) You are a member of LEOFF Plan 1; (v) You retire due to a duty-related disability from LEOFF Plan 2; (vi) You retire due to a disability or die before retirement from WSPRS Plan 1; or (vii) You retire due to a disability from WSPRS Plan 2. (c) The following table shows the law governing plans that use an ERF:
(3) How does the department determine the number of years on which to base the ERF? The calculation varies among plans: (a) ERFs are based on the number of years between the age at which you retire, or die, and the age at which you would have qualified for normal retirement based on age and service. Example - Early retirement: Sandy, a PERS Plan 2 member, applies for retirement at age 56 years and one month with a total of 21.11 years of service. Her average final compensation (AFC) is $3,500.00. PERS Plan 2 provides for two percent (.02) of AFC per year of service. A PERS Plan 2 member must be age 65 to retire with an unreduced benefit (i.e., normal retirement), but is eligible to retire with an actuarially reduced benefit (i.e., early retirement) at age 55 with 20 years of service credit. The difference between Sandy's age now (56) and the age at which she would have qualified for normal retirement (age 65) is 8 years and 11 months. For illustration purposes in this example only, we will use 0.3987 as the corresponding ERF ((is 0.3987)) for retiring 8 years and 11 months early (actuarial factors change periodically). As a result, Sandy's monthly benefit will be $589.16. ((Therefore,)) The department will ((multiply Sandy's AFC of)) use the following formula to determine Sandy's monthly benefit: $3,500 (AFC) x .02 x 21.11 (service credit years) x 0.3987 (ERF). ((Sandy's monthly retirement benefit will be $589.16.)) (b) WSPRS Plan 2 only: The ERF used to calculate your survivor's monthly benefit if you die before retirement is based on the number of years between the age at which you die and age fifty-five (55) or when you could have attained twenty-five (25) years of service, whichever is less. See RCW 43.43.295. Example - Early retirement: The survivor benefit, in this example, will also have a reduction applied for 100% joint and survivor option, based on the difference between John's age and his survivor's age. John, a WSPRS Plan 2 member dies prior to retirement. John is age 40 and has 15 years of service at the time of his death. John's Average Final Salary (AFS) is $4,000. John's surviving spouse, Emily, is also age 40. Since John would have attained 25 years of service before he would have attained age 55, the ERF used to calculate ((his survivor's)) Emily's benefit will be based on the 10 years it would have taken ((him)) John to reach 25 years of service. For illustration purposes in this example only, we will use 0.403 as the corresponding ERF for retiring 10 years early ((retirement is 0.403.)), and 0.889 as the corresponding joint and survivor (J&S) factor ((that will also be applied to the benefit is 0.889. Therefore, the department will multiply John's AFS of)) (actuarial factors change periodically). As a result, Emily will receive a monthly benefit of $429.92. The department will use the following formula to determine Emily's monthly benefit: $4,000 (AFS) x .02 x 15 (service credit years) x 0.403 (ERF) x 0.889 (J&S). ((John's survivor will receive a monthly benefit of $429.92.)) (c) TRS Plan 1 only: The ERF used to calculate your survivor's monthly benefit if you die before retirement is based on the number of years between the age at which you die and the age at which you would have first become eligible to retire under RCW 41.32.480. See RCW 41.32.520. Example - Death before retirement: Robert, a 56 year-old TRS Plan 1 member, died ((April 1, 2006,)) with 23.17 years of service credit. His AFC is $3,171.74. TRS Plan 1 provides an unreduced benefit (i.e., normal retirement) at age 55 with 25 years of service credit. Robert's wife, Karen, is two years younger than Robert. Karen will receive an actuarially reduced benefit based on the date Robert would have first qualified for an unreduced benefit (i.e., normal retirement). If Robert had continued in service, he would have met eligibility requirements in one year and 10 months, when he earned 25 years of service credit. ((The)) For illustration purposes in this example only, we will use 0.8410 as the corresponding ERF for retiring one year and 10 months ((is 0.8410)) early, and 0.918 as the corresponding J&S Option 2 factor (actuarial factors change periodically). As a result, Karen's monthly benefit will be $1,134.73. ((Karen's monthly benefit will be further reduced by the Option 2 survivor factor, which is based on the age difference between her and Robert. Karen is age 58, two years older than Robert. The Option 2 survivor factor for a beneficiary two years older is 0.918 (see WAC 415-02-380(12)).)) The department will ((multiply)) use the following formula to determine Karen's monthly benefit: 23.17 (Robert's service credit years) x .02 x $3,171.74 (AFC) x 0.8410 (ERF) x 0.918 (the Option 2 factor). ((Karen's monthly benefit will be $1,134.73. (4) Table - This table contains the early retirement factors (ERFs) for members who retire from active service in PERS Plan 1, TRS Plan 1, and WSPRS Plan 2. The ERFs are effective September 1, 2010.
(5) Table - The following early retirement factors (ERFs) for PERS Plans 2 and 3, SERS Plans 2 and 3, and TRS Plans 2 and 3 are effective September 1, 2010.
(6) Table - The following table contains early retirement factors (ERFs) for members who do not retire from active service in PERS Plan 1, PSERS Plan 2, and WSPRS Plans 1 and 2. The ERFs are effective September 1, 2010.
(7) Table - This table contains the early retirement factors (ERFs) for members who retire from active service in LEOFF Plan 2. The ERFs are effective January 1, 2010.
AMENDATORY SECTION (Amending WSR 10-16-086, filed 7/30/10, effective 9/1/10)
WAC 415-02-340 Monthly benefit per $1.00 of accumulation for defined benefit plans.
(1) ((How does the department use the information in the table called)) What does the phrase "monthly benefit per $1.00 of accumulation for defined benefit plans" mean? ((The department uses this information)) It refers to an actuarially equivalent value that the department uses to: (a) Determine what a future lifetime monthly benefit is worth in present-day dollars; (b) Determine the equivalent value of a lump sum when compared with monthly payments; (c) Determine the cost of purchasing additional service credit as described in WAC 415-02-177(7); and (d) For TRS Plan 1 only: Determine the reduction in the monthly retirement benefit if some or all of the accumulated contributions in a member's individual account are withdrawn at retirement pursuant to RCW 41.32.498. (2) What ((type of information is in this table)) information is used to determine the "monthly benefit per $1.00 of accumulation for defined benefit plans" values? The ((information in this table is)) values, which change periodically, are based on the expected duration of lifetime payments for recipients over a range of ages. These values differ by system and plan((, and all reflect an assumed rate of return of 8.0%)). The younger a person is at retirement, the longer the anticipated lifetime of payments would be, and the greater the sum required to provide for these payments. The amount of monthly lifetime benefit that a present-day dollar buys increases as the remaining life expectancy of the recipient decreases. (a) Example: Celina is a 65-year-old PERS Plan 2 member who is eligible to receive $45.00 per month. She wants to know how much money she would receive if she accepted a lump sum payment instead. ((Celina looks at the row in the table for age 65 in the PERS Plan 2 column and learns)) For illustration purposes in this example only, we will assume that $.0069798 per month for life has a present day cash value of one dollar ($1.00) for ((this)) Celina's system, plan, and age class. Celina divides $45.00 by .0069798 and learns that her lump sum payment would be $6,447.18. (b) Example: Fred is a 58-year-old TRS Plan 1 member. The balance in Fred's account is $124,934.00. Upon retirement, Fred chooses to withdraw the $124,934.00 (as only members of TRS Plan 1 can do and still receive a monthly benefit). ((From the row in the table for age 58 in the TRS Plan 1 column, Fred learns)) For illustration purposes in this example only, we will assume that $.0077298 per month for life has a present day cash value of one dollar ($1.00) for ((this)) Fred's system, plan, and age class. Fred multiplies $124,934.00 by .0077298, and learns that his monthly retirement benefit will be reduced by $965.71 per month if he withdraws his account balance. (((3) Table - Monthly benefit per $1.00 of accumulation for defined benefit plans. The rates contained in this table are effective: (a) January 1, 2010, for LEOFF Plan 2. (b) September 1, 2010, for LEOFF Plan 1, PSERS Plan 2, PERS Plans 1, 2, and 3, SERS Plans 2 and 3, TRS Plans 1, 2, and 3, and WSPRS Plans 1 and 2.
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