H-4939.1  _______________________________________________

                    SUBSTITUTE HOUSE BILL 2922

          _______________________________________________

State of Washington      55th Legislature     1998 Regular Session

By House Committee on Appropriations (originally sponsored by Representatives Carlson, H. Sommers, Alexander and Huff; by request of Department of Retirement Systems)

Read first time 02/05/98.  Referred to Committee on .

Administering the deferred compensation plan.

    AN ACT Relating to clarifying the trusteeship role of the state investment board and the employee retirement benefits board; amending RCW 41.04.020, 41.04.340, 41.04.605, 41.04.610, 41.04.615, 41.04.620, 41.04.630, 41.04.635, 41.04.640, 41.50.088, 41.50.770, 41.50.780, and 28B.50.874; and adding a new section to chapter 43.33A RCW.

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

    Sec. 1.  RCW 41.04.020 and 1982 c 107 s 1 are each amended to read as follows:

    Any employee or group of employees of the state of Washington or any of its political subdivisions, or of any institution supported, in whole or in part, by the state or any of its political subdivisions, may authorize the deduction from his or ((their)) her salaries or wages and payment to another, the amount or amounts of his or ((their)) her subscription payments or contributions to any person, firm, or corporation administering, furnishing, or providing (1) medical, surgical, and hospital care or either of them, or (2) life insurance or accident and health disability insurance, or (3) any individual retirement account selected by the employee or the employee's spouse established under applicable state or federal law((, or (4) any individual retirement account which is (a) offered through the committee for deferred compensation, (b) selected by the employee, and (c) established under applicable state or federal law)):  PROVIDED, That such authorization by said employee or group of employees, shall be first approved by the head of the department, division office or institution of the state or any political subdivision thereof, employing such person or group of persons, and filed with the department of personnel; or in the case of political subdivisions of the state of Washington, with the auditor of such political subdivision or the person authorized by law to draw warrants against the funds of said political subdivision.

    Sec. 2.  RCW 41.04.340 and 1997 c 232 s 2 are each amended to read as follows:

    (1) An attendance incentive program is established for all eligible employees.  As used in this section the term "eligible employee" means any employee of the state, other than eligible employees of the community and technical colleges and the state board for community and technical colleges identified in RCW 28B.50.553, and teaching and research faculty at the state and regional universities and The Evergreen State College, entitled to accumulate sick leave and for whom accurate sick leave records have been maintained.  No employee may receive compensation under this section for any portion of sick leave accumulated at a rate in excess of one day per month.  The state and regional universities and The Evergreen State College shall maintain complete and accurate sick leave records for all teaching and research faculty.

    (2) In January of the year following any year in which a minimum of sixty days of sick leave is accrued, and each January thereafter, any eligible employee may receive remuneration for unused sick leave accumulated in the previous year at a rate equal to one day's monetary compensation of the employee for each four full days of accrued sick leave in excess of sixty days.  Sick leave for which compensation has been received shall be deducted from accrued sick leave at the rate of four days for every one day's monetary compensation.

    (3) At the time of separation from state service due to retirement or death, an eligible employee or the employee's estate may elect to receive remuneration at a rate equal to one day's current monetary compensation of the employee for each four full days of accrued sick leave.

    (4) ((Pursuant to this subsection, in lieu of cash remuneration the state may, with equivalent funds, provide eligible employees with a benefit plan providing for reimbursement of medical expenses.  The committee for deferred compensation shall develop any benefit plan established under this subsection, but may offer and administer the plan only if (a) each eligible employee has the option of whether to receive cash remuneration or to have his or her employer transfer equivalent funds to the plan; and (b) the committee has received an opinion from the United States internal revenue service stating that participating employees, prior to the time of receiving reimbursement for expenses, will incur no United States income tax liability on the amount of the equivalent funds transferred to the plan.

    (5))) Remuneration or benefits received under this section shall not be included for the purpose of computing a retirement allowance under any public retirement system in this state.

    (((6) With the exception of subsection (4) of this section,)) (5) This section shall be administered, and rules shall be adopted to carry out its purposes, by the Washington personnel resources board for persons subject to chapter 41.06 RCW:  PROVIDED, That determination of classes of eligible employees shall be subject to approval by the office of financial management.

    (((7))) (6) Should the legislature revoke any remuneration or benefits granted under this section, no affected employee shall be entitled thereafter to receive such benefits as a matter of contractual right.

    Sec. 3.  RCW 41.04.605 and 1987 c 475 s 2 are each amended to read as follows:

    Unless the context clearly requires otherwise, the definitions in this section apply throughout RCW 41.04.610 through 41.04.635.

    (1) "Salary reduction plan" means a plan whereby state employees and officers may agree to a reduction of salary which reduction will allow the employee to participate in benefits offered pursuant to 26 U.S.C. Sec. 125.

    (2) (("Committee")) "Department" means the ((committee for deferred compensation)) department of retirement systems.

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

    (4) "Dependent care program" means the program for the care of dependents pursuant to 26 U.S.C. Sec. 129 financed from funds deposited in the salary reduction account in the state treasury for the purpose of holding and disbursing the funds deposited under the auspices of the salary reduction plan.

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

    (6) "Plan year" means the time period established by the ((committee)) department.

    Sec. 4.  RCW 41.04.610 and 1987 c 475 s 3 are each amended to read as follows:

    The ((committee)) department shall have responsibility for the formulation and adoption of a plan and policies and procedures designed to guide, direct, and administer the salary reduction plan.

    Sec. 5.  RCW 41.04.615 and 1993 c 34 s 1 are each amended to read as follows:

    (1) A plan document describing the salary reduction plan shall be adopted and administered by the ((committee)) department.  The ((committee)) department shall represent the state in all matters concerning the administration of the plan.  The state through the ((committee)) department, may engage the services of a professional consultant or administrator on a contractual basis to serve as an agent to assist the ((committee)) department in carrying out the purposes of RCW 41.04.600 through 41.04.645.

    (2) The ((committee)) department shall formulate and establish policies and procedures for the administration of the salary reduction 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 for the dependent care program shall be deposited in the salary reduction account in the state treasury.  Any interest in excess of the amount used to defray the cost of administering the salary reduction plan shall become a part of the general fund.  Unclaimed moneys remaining in the salary reduction account at the end of a plan year after all timely submitted claims for that plan year have been processed shall become a part of the dependent care administrative account.  The ((committee)) department may assess each participant a fee for administering the salary reduction plan.  In addition to moneys for initial costs, moneys may be appropriated from the general fund or dependent care administrative account for any expense relating to the administration of the salary reduction plan. 

    (4) The dependent care administrative account is created in the state treasury.  The ((committee)) department may periodically bill agencies for employer savings experienced as the result of dependent care program participation by employees.  All receipts from the following shall be deposited in the account:  (a) Charges to agencies for all or a portion of the estimated savings due to reductions in employer contributions under the social security act; (b) charges for other similar savings; (c) unclaimed moneys in the salary reduction account at the end of the plan year after all timely submitted claims for that plan year have been processed; and (d) fees charged to participants.  Moneys in the account may be spent only after appropriation.  Expenditures from the account may be used only for any expense related to the administration of the salary reduction plan.

    (5) Every action taken by the ((committee)) department in administering RCW 41.04.600 through 41.04.645 shall be presumed to be a fair and reasonable exercise of the authority vested in or the duties imposed upon it.  The ((committee)) department 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.

    Sec. 6.  RCW 41.04.620 and 1987 c 475 s 5 are each amended to read as follows:

    (1) Elected officials and all permanent officers and employees of the state are eligible to participate in the salary reduction plan and reduce their salary by agreement with the ((committee)) department.  The ((committee)) department may adopt rules to permit participation in the plan by temporary employees of the state.

    (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 salary reduction 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 dependent care account to be used for reimbursement of expenses covered by the plan.

    (b) After the initial year of the salary reduction plan, an eligible person may become a participant for a full plan year, with annual benefit selection for each new plan year made before the beginning of the plan year, as determined by the ((committee)) department, 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.  Prior to making an election to participate in the salary reduction plan, the eligible person shall be informed in writing of all the benefits and reductions that will occur as a result of such election.

    (d) The ((committee)) department shall provide in the salary reduction plan that a participant may enroll, terminate, or change his or her election after the plan year has begun if there is a significant change in a participant's status, as provided by 26 U.S.C. Sec. 125 and the regulations adopted under that section.

    (4) The ((committee)) department shall establish as part of the salary reduction 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)) department shall protect participants from forfeiture of rights under the plan.

    (5) Any salary reduced under the salary reduction plan shall continue to be included as regular compensation for the purpose of computing the state retirement and pension benefits earned by the employee.

    Sec. 7.  RCW 41.04.630 and 1987 c 475 s 7 are each amended to read as follows:

    (1) The ((committee)) department shall keep or cause to be kept full and adequate accounts and records of the assets, obligations, transactions, and affairs of a salary reduction plan created under RCW 41.04.615.

    (2) The ((committee)) department shall file an annual report of the financial condition, transactions, and affairs of the salary reduction plan under the ((committee's)) department'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 reduction plan and shall discharge their duties in good faith and with that diligence, care, and skill which ordinary prudent persons would exercise under similar circumstances in like positions.))

    Sec. 8.  RCW 41.04.635 and 1987 c 475 s 8 are each amended to read as follows:

    (1) The state may terminate the salary reduction plan at the end of the plan year or upon notification of federal action affecting the status of the plan.

    (2) The ((committee)) department may amend the salary reduction plan at any time if the amendment does not affect the rights of the participants to receive eligible reimbursement from the participants' dependent care accounts.

    Sec. 9.  RCW 41.04.640 and 1987 c 475 s 9 are each amended to read as follows:

    The ((committee)) department shall adopt rules to implement RCW 41.04.610 through 41.04.635.

    Sec. 10.  RCW 41.50.088 and 1995 c 239 s 302 are each amended to read as follows:

(1) The board shall adopt rules as necessary and exercise all the powers and perform all duties prescribed by law with respect to:

    (((1))) (a) The preselection of options for members to choose from for self-directed investment deemed by the board to be in the best interest of the member.  At the board's request, the state investment board may provide investment options for purposes of this subsection;

    (((2))) (b) The selection of optional benefit payment schedules available to members and survivors of members upon the death, disability, retirement, or termination of the member.  The optional benefit payments may include but not be limited to:  Fixed and participating annuities, joint and survivor annuities, and payments that bridge to social security or defined benefit plan payments;

    (((3))) (c) Approval of actuarially equivalent annuities that may be purchased from the combined plan II and plan III funds under RCW 41.50.075 (2) or (3); and

    (((4))) (d) Determination of the basis for administrative charges to the self-directed investment fund to offset self-directed account expenses((; and

    (5) Selection of investment options for the deferred compensation program)).

(2) The board shall recommend to the state investment board types of options for participant self-directed investment in the state deferred compensation plan, as deemed by the board to be reflective of the participants' preferences.

    Sec. 11.  RCW 41.50.770 and 1995 c 239 s 314 are each amended to read as follows:

    (1) "Employee" as used in this section and RCW 41.50.780 includes all full-time, part-time, and career seasonal employees of the state, a county, a municipality, or other political subdivision of the state, whether or not covered by civil service; elected and appointed officials of the executive branch of the government, including full-time members of boards, commissions, or committees; justices of the supreme court and judges of the court of appeals and of the superior and district courts; and members of the state legislature or of the legislative authority of any county, city, or town.

    (2) The state, through the department, and any county, municipality, or other political subdivision of the state acting through its principal supervising official or governing body is authorized to contract with an employee to defer a portion of that employee's income, which deferred portion shall in no event exceed the amount allowable under 26 U.S.C. Sec. 457, and deposit or invest such deferred portion in a credit union, savings and loan association, bank, or mutual savings bank or purchase life insurance, shares of an investment company, or fixed and/or variable annuity contracts from any insurance company or any investment company licensed to contract business in this state.

    (3) Employees participating in the state deferred compensation plan administered by the department shall self-direct the investment of the deferred portion of their income through the selection of investment options as set forth in subsection (4) of this section.

(4) The department can provide such plans as ((the employee retirement benefits board, established under RCW 41.50.086,)) it deems are in the interests of state employees.  In addition to the types of investments described in this section, the ((department may)) state investment board, with respect to the state deferred compensation plan, shall invest the deferred portion of an employee's income, without limitation as to amount, ((in any of the class of investments described in RCW 43.84.150 as in effect on January 1, 1981)) in accordance with RCW 43.84.150, 43.33A.140, and 41.50.780, and pursuant to investment policy established by the state investment board for the state deferred compensation plans.  The state investment board, after consultation with the employee retirement benefits board regarding any recommendations made pursuant to RCW 41.50.088(2), shall provide a set of options for participants to choose from for investment of the deferred portion of their income.  Any income deferred under such a plan shall continue to be included as regular compensation, for the purpose of computing the state or local retirement and pension benefits earned by any employee.

    (((4))) (5) Coverage of an employee under a deferred compensation plan under this section shall not render such employee ineligible for simultaneous membership and participation in any pension system for public employees.

    Sec. 12.  RCW 41.50.780 and 1995 c 239 s 315 are each amended to read as follows:

    (1) The deferred compensation principal account is hereby created in the state treasury.  Any deficiency in the deferred compensation administrative account caused by an excess of administrative expenses disbursed from that account over ((earnings of investments of)) balances credited to that account shall be eliminated by transferring moneys to that account from the deferred compensation principal account.

    (2) The amount of compensation deferred by employees under agreements entered into under the authority contained in RCW 41.50.770 shall be paid into the deferred compensation principal account and shall be sufficient to cover costs of administration and staffing in addition to such other amounts as determined by the department.  The deferred compensation principal account shall be used to carry out the purposes of RCW 41.50.770.  All eligible state employees shall be given the opportunity to participate in agreements entered into by the department under RCW 41.50.770.  State agencies shall cooperate with the department in providing employees with the opportunity to participate.

    (3) Any county, municipality, or other subdivision of the state may elect to participate in any agreements entered into by the department under RCW 41.50.770, including the making of payments therefrom to the employees participating in a deferred compensation plan upon their separation from state or other qualifying service.  Accordingly, the deferred compensation principal account shall be considered to be a public pension or retirement fund within the meaning of Article XXIX, section 1 of the state Constitution, for the purpose of determining eligible investments and deposits of the moneys therein.

    (4) All moneys in the state deferred compensation principal account and the state deferred compensation administrative account, all property and rights purchased therewith, and all income attributable thereto, shall ((remain (until made available to the participating employee or other beneficiary) solely the money, property, and rights of the state and participating counties, municipalities, and subdivisions (without being restricted to the provision of benefits under the plan) subject only to the claims of the state's and participating jurisdictions' general creditors.  Participating jurisdictions shall each retain property rights separately)) be held in trust by the state investment board, as set forth under RCW 43.33A.030, for the exclusive benefit of the state deferred compensation plan's participants and their beneficiaries.  Neither the participant, nor the participant's beneficiary or beneficiaries, nor any other designee, has any right to commute, sell, assign, transfer, or otherwise convey the right to receive any payments under the plan.  These payments and right thereto are nonassignable and nontransferable.  Unpaid accumulated deferrals are not subject to attachment, garnishment, or execution and are not transferable by operation of law in event of bankruptcy or insolvency, except to the extent otherwise required by law.

    (5) The state investment board((, at the request of the employee retirement benefits board as established under RCW 41.50.086, is authorized to invest)) has the full power to invest moneys in the state deferred compensation principal account and the state deferred compensation administrative account in accordance with RCW 43.84.150((.  Except as provided in RCW 43.33A.160)), 43.33A.140, and 41.50.770, and cumulative investment directions received pursuant to RCW 41.50.770.  All investment and operating costs of the state investment board associated with the investment of the deferred compensation plan assets shall be paid pursuant to RCW 43.33A.160 and 43.84.160.  With the exception of these expenses, one hundred percent of all earnings from these investments shall accrue directly to the deferred compensation principal account.

    (6)(a) No state board or commission, agency, or any officer, employee, or member thereof is liable for any loss or deficiency resulting from participant investments selected pursuant to RCW 41.50.770(3).

(b) Neither the employee retirement benefits board nor the state investment board, nor any officer, employee, or member thereof is liable for any loss or deficiency resulting from reasonable efforts to implement investment directions pursuant to RCW 41.50.770(3).

(7) The deferred compensation administrative account is hereby created in the state treasury.  All expenses of the department pertaining to the deferred compensation plan including staffing and administrative expenses shall be paid out of the deferred compensation administrative account.  Any excess ((of earnings of investments of)) balances credited to this account over administrative expenses disbursed from this account shall be transferred to the deferred compensation principal account at such time and in such amounts as may be determined by the department with the approval of the office of financial management.  Any deficiency in the deferred compensation administrative account caused by an excess of administrative expenses disbursed from this account ((over earnings of investments of balances credited to this account)) shall be transferred to this account from the deferred compensation principal account.

    (((7))) (8) In addition to the duties specified in this section and RCW 41.50.770, the department shall administer the salary reduction plan established in RCW 41.04.600 through 41.04.645.

    (((8))) (9) The department shall keep or cause to be kept full and adequate accounts and records of the assets of each individual participant, obligations, transactions, and affairs of any deferred compensation plans created under RCW 41.50.770 and this section.  The department shall account for and report on the investment of state deferred compensation plan assets or may enter into an agreement with the state investment board for such accounting and reporting.

    (((9))) (10) The department shall file an annual report of the financial condition, transactions, and affairs of the deferred compensation plans under its 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.

    (((10) Members of the employee retirement benefits board established under RCW 41.50.086 shall be deemed to stand in a fiduciary relationship to the employees participating in the deferred compensation plans created under RCW 41.50.770 and this section 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.))

    (11) The department may adopt rules necessary to carry out the purposes of RCW 41.50.770 and this section.

NEW SECTION. Sec. 13.  A new section is added to chapter 43.33A RCW to read as follows:

    The state investment board has the full power to establish investment policy, develop participant investment options, and manage investment funds for the state deferred compensation plan, consistent with the provisions of RCW 41.50.770 and 41.50.780.  The board may continue to offer the investment options provided as of the effective date of this act until the board establishes a deferred compensation plan investment policy and adopts new investment options after considering the recommendations of the employee retirement benefits board.

    Sec. 14.  RCW 28B.50.874 and 1991 c 238 s 83 are each amended to read as follows:

    When the state system of community and technical colleges assumes administrative control of the vocational-technical institutes, personnel employed by the vocational-technical institutes shall:

    (1) Suffer no reduction in compensation, benefits, seniority, or employment status.  After September 1, 1991, classified employees shall continue to be covered by chapter 41.56 RCW and faculty members and administrators shall be covered by chapter 28B.50 RCW;

    (2) To the extent applicable to faculty members, any faculty currently employed on a "continuing contract" basis under RCW 28A.405.210 be awarded tenure pursuant to RCW 28B.50.851 through 28B.50.873, except for any faculty members who are provisional employees under RCW 28A.405.220;

    (3) Be eligible to participate in the health care and other insurance plans provided by the health care authority and the state employee benefits board pursuant to chapter 41.05 RCW;

    (4) Be eligible to participate in old age annuities or retirement income plans under the rules of the state board for community and technical colleges pursuant to RCW 28B.10.400 or the teachers' retirement system plan I for personnel employed before July 1, 1977, or plan II for personnel employed after July 1, 1977, under chapter 41.32 RCW; however, no affected vocational-technical institute employee shall be required to choose from among any available retirement plan options prior to six months after September 1, 1991;

    (5) Have transferred to their new administrative college district all accrued sick and vacation leave and thereafter shall earn and use all such leave under the rule established pursuant to RCW 28B.50.551;

    (6) Be eligible to participate in the deferred compensation plan ((pursuant to RCW 41.04.250)) and the dependent care program pursuant to RCW 41.04.600 under the applicable rules ((established by the state deferred compensation committee)).

    An exclusive bargaining representative certified to represent a bargaining unit covering employees of a vocational technical institute on September 1, 1991, shall remain the exclusive representative of such employees thereafter until and unless such representative is replaced or decertified in accordance with state law.

    Any collective bargaining agreement in effect on June 30, 1991, shall remain in effect as it applies to employees of vocational technical institutes until its expiration or renewal date or until renegotiated or renewed in accordance with chapter 28B.52 or 41.56 RCW.  After the expiration date of a collective bargaining agreement, all of the terms and conditions specified in the collective bargaining agreement, as it applies to employees of vocational-technical institutes, shall remain in effect until the effective date of a subsequent agreement, not to exceed one year from the termination date stated in the agreement.  The board of trustees and the employees may mutually agree to continue the terms and conditions of the agreement beyond the one year extension.  However, nothing in this section shall be construed to deny any employee right granted under chapter 28B.52 or 41.56 RCW.  Labor relations processes and agreements covering faculty members of vocational technical institutes after September 1, 1991, shall be governed by chapter 28B.52 RCW.  Labor relations processes and agreements covering classified employees of vocational technical institutes after September 1, 1991, shall continue to be governed by chapter 41.56 RCW.

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