[atlas:bill]

AN ACT Relating to state pension policy and funding; amending RCW 41.45.020, 41.45.030, 41.40.650, 41.26.450, 41.45.061, 41.45.061, 44.44.010, 44.44.030, 44.44.040, and 44.44.060; reenacting and amending RCW 41.45.020 and 41.45.060; adding new sections to chapter 43.33A RCW; adding new sections to chapter 41.50 RCW; adding a new section to chapter 43.41 RCW; adding a new section to chapter 44.04 RCW; adding a new section to chapter 43.09 RCW; adding a new chapter to Title 43 RCW; creating a new section; recodifying RCW 44.44.010, 44.44.030, and 44.44.040; repealing RCW 41.45.100, 41.45.110, 41.45.120, 41.52.010, 41.52.020, 41.52.030, 41.52.040, 41.52.050, 41.52.060, and 41.52.070; making an appropriation; providing an effective date; providing an expiration date; and declaring an emergency.

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

NEW SECTION. Sec. 1. It is the intent of the legislature to articulate the fiduciary responsibilities of the trustees and others who oversee the public retirement systems. The legislature also intends to promote effective monitoring of public retirement systems by requiring regular and significant disclosure of the financial and actuarial status of the systems to participants and their beneficiaries and to the public.

NEW SECTION. Sec. 2. A new section is added to chapter 43.33A RCW to read as follows:

(1) The state retirement funds established by RCW 41.50.075, 43.43.130, 2.10.080, and 2.12.050, and the state deferred compensation accounts established by RCW 41.50.780, shall be held in trust by the state investment board, as set forth under RCW 43.33A.030.

(2) The state investment board shall discharge duties with respect to the retirement funds and the state deferred compensation accounts:

(a) Solely in the interest of the participants and beneficiaries;

(b) For the exclusive purpose of providing benefits to participants and beneficiaries and paying reasonable expenses of administering the system;

(c) With the care, skill, and caution under the circumstances then prevailing which a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an activity of like character and purpose;

(d) Impartially, taking into account any differing interests of participants and beneficiaries;

(e) Incurring only costs that are appropriate and reasonable; and

(f) In accordance with a good faith interpretation of this chapter and the law governing the retirement and deferred compensation programs and systems.

NEW SECTION. Sec. 3. (1)(a) The state pension oversight board is created and consists of the following members:

(i) Four active members of the state retirement system appointed by the governor for staggered three-year terms with initial appointments of one, two, and three years;

(ii) Three retired members of the state retirement system appointed by the governor for staggered three-year terms with initial appointments of one, two, and three years, with no two members from the same system;

(iii) The director of the department of retirement systems, the director of financial management, and the executive director of the state investment board; and

(iv) Four members of the legislature, with one member each representing the two largest caucuses in the senate and house of representatives, appointed by the president of the senate and the speaker of the house of representatives.

(b) The board shall establish policies and procedures for its internal management.

(2) The board shall provide open and balanced review of state pension policy issues, establish state retirement system contribution rates and the long-term assumptions used in developing those rates, and provide oversight and set priorities for the office of the state actuary.

(a) The board shall set pension contribution rates as set forth in chapter 41.45 RCW.

(b) The board shall advise and recommend proposed changes in pension policy and legislation to the legislature.

(c) The board shall advise the department of retirement systems on the preparation of the summary level and consolidated annual financial report.

(d) The board shall appoint or remove the state actuary.

(3) The board shall from time to time make written recommendations to the legislature concerning deficiencies, conflicts, or obsolete provisions in, and need for reorganization or revision of, the statutes governing pension policy, and shall prepare for submission to the legislature, legislation for the correction or removal of those deficiencies, conflicts, or obsolete provisions, or to otherwise improve the form or substance of any portion of the statute law of this state as the public interest or the administration of pension policy may require.

(4)The board shall discharge its duties:

(a) Solely in the interest of the participants and beneficiaries;

(b) Impartially, taking into account any differing interests of participants and beneficiaries; and

Sec. 4. RCW 41.45.020 and 1998 c 283 s 1 are each amended to read as follows:

As used in this chapter, the following terms have the meanings indicated unless the context clearly requires otherwise.

(1) ((~~"Council"~~)) "Board" means the state pension ((~~funding council~~)) oversight board created in ((~~RCW 41.45.100~~)) section 3 of this act.

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

(3) "Law enforcement officers' and fire fighters' retirement system plan 1" and "law enforcement officers' and fire fighters' retirement system plan 2" mean the benefits and funding provisions under chapter 41.26 RCW.

(4) "Public employees' retirement system plan 1" and "public employees' retirement system plan 2" mean the benefits and funding provisions under chapter 41.40 RCW.

(5) "Teachers' retirement system plan 1," "teachers' retirement system plan 2," and "teachers' retirement system plan 3" mean the benefits and funding provisions under chapter 41.32 RCW.

(6) "Washington state patrol retirement system" means the retirement benefits provided under chapter 43.43 RCW.

(7) "Unfunded liability" means the unfunded actuarial accrued liability of a retirement system.

(8) "Actuary" or "state actuary" means the state actuary employed under chapter 44.44 RCW.

(9) "State retirement systems" means the retirement systems listed in RCW 41.50.030.

((~~(10) "Work group" means the pension funding work group created in RCW 41.45.120.~~))

Sec. 5. RCW 41.45.020 and 1998 c 341 s 402 and 1998 c 283 s 1 are each reenacted and amended to read as follows:

As used in this chapter, the following terms have the meanings indicated unless the context clearly requires otherwise.

(1) ((~~"Council"~~)) "Board" means the state pension ((~~funding council~~)) oversight board created in ((~~RCW 41.45.100~~)) section 3 of this act.

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

(4) "Public employees' retirement system plan 1" and "public employees' retirement system plan 2" mean the benefits and funding provisions under chapter 41.40 RCW.

(5) "Teachers' retirement system plan 1," "teachers' retirement system plan 2," and "teachers' retirement system plan 3" mean the benefits and funding provisions under chapter 41.32 RCW.

(6) "School employees' retirement system plan 2" and "school employees' retirement system plan 3" mean the benefits and funding provisions under chapter 41.35 RCW.

(7) "Washington state patrol retirement system" means the retirement benefits provided under chapter 43.43 RCW.

(8) "Unfunded liability" means the unfunded actuarial accrued liability of a retirement system.

(9) "Actuary" or "state actuary" means the state actuary employed under chapter 44.44 RCW.

(10) "State retirement systems" means the retirement systems listed in RCW 41.50.030.

(11) ((~~"Work group" means the pension funding work group created in RCW 41.45.120.~~

~~(12)~~)) "Classified employee" means a member of the Washington school employees' retirement system plan 2 or plan 3 as defined in RCW 41.35.010.

((~~(13)~~)) (12) "Teacher" means a member of the teachers' retirement system as defined in RCW 41.32.010(15).

Sec. 6. RCW 41.45.030 and 1995 c 233 s 1 are each amended to read as follows:

(1) Beginning September 1, 1995, and every two years thereafter, the state actuary shall submit to the ((~~council~~)) board information regarding the experience and financial condition of each state retirement system. The ((~~council~~)) board shall review this and such other information as it may require.

(2) By December 31, 1995, and every two years thereafter, the ((~~council~~)) board, by affirmative vote of ((~~five councilmembers~~)) ten board members, shall adopt the following long-term economic assumptions:

(a) Growth in system membership;

(b) Growth in salaries, exclusive of merit or longevity increases;

(d) Investment rate of return.

The ((~~council~~)) board shall work with the department of retirement systems, the state actuary, and the executive director of the state investment board, and shall consider long-term historical averages, in developing the economic assumptions.

(3) The assumptions adopted by the ((~~council~~)) board shall be used by the state actuary in conducting all actuarial studies of the state retirement systems.

Sec. 7. RCW 41.45.060 and 1998 c 341 s 404, 1998 c 340 s 11, and 1998 c 283 s 6 are each reenacted and amended to read as follows:

(1) The state actuary shall provide actuarial valuation results based on the assumptions adopted under RCW 41.45.030.

(2) Not later than September 30, ((~~1998~~)) 2000 and every two years thereafter, consistent with the assumptions adopted ((~~under RCW 41.45.030~~)) by the board, the ((~~council~~)) board, by an affirmative vote of ten board members, shall adopt changes to:

(a) A basic state contribution rate for the law enforcement officers' and fire fighters' retirement system; ((~~and~~))

(b) Basic employer contribution rates for the public employees' retirement system plan 1, the teachers' retirement system plan 1, and the Washington state patrol retirement system to be used in the ensuing biennial period; and

(c) A basic employer contribution rate for the school employees' retirement system for funding the public employees' retirement system plan 1.

(3) The employer and state contribution rates adopted by the ((~~council~~)) board shall be the level percentages of pay that are needed:

(a) To fully amortize the total costs of the public employees' retirement system plan 1, the teachers' retirement system plan 1, the law enforcement officers' and fire fighters' retirement system plan 1, and the unfunded liability of the Washington state patrol retirement system not later than June 30, 2024, except as provided in subsection (5) of this section; and

(b) To also continue to fully fund the public employees' retirement system plan 2, the teachers' retirement system plans 2 and 3, the school employees' retirement system plans 2 and 3, and the law enforcement officers' and fire fighters' retirement system plan 2 in accordance with RCW 41.40.650, 41.26.450, and this section.

(4) The aggregate actuarial cost method shall be used to calculate a combined plan 2 and 3 employer contribution rate.

(5) An amount equal to the amount of extraordinary investment gains as defined in RCW 41.31.020 shall be used to shorten the amortization period for the public employees' retirement system plan 1 and the teachers' retirement system plan 1.

(6) The ((~~council~~)) board shall immediately notify the directors of the office of financial management and department of retirement systems of the state and employer contribution rates adopted.

(7) The director of the department of retirement systems shall collect those rates adopted by the ((~~council~~)) board.

NEW SECTION. Sec. 8. The following acts or parts of acts are each repealed:

(1) RCW 41.45.100 (Pension funding council--Created) and 1998 c 283 s 2;

(2) RCW 41.45.110 (Pension funding council--Audits required) and 1998 c 283 s 3; and

(3) RCW 41.45.120 (Pension funding work group) and 1998 c 283 s 4.

Sec. 9. RCW 41.40.650 and 1989 c 273 s 24 are each amended to read as follows:

The required contribution rates to the retirement system for both members and employers shall be established by the ((~~director~~)) state pension oversight board from time to time as may be necessary upon the advice of the state actuary. The state actuary shall use the aggregate actuarial cost method to calculate contribution rates. The employer contribution rate calculated under this section shall be used only for the purpose of determining the amount of employer contributions to be deposited in the plan 2 fund from the total employer contributions collected under RCW 41.40.048.

Contribution rates required to fund the costs of the retirement system shall always be equal for members and employers, except as herein provided. Effective January 1, 1987, however, no member or employer contributions are required for any calendar month in which the member is not granted service credit. Any adjustments in contribution rates required from time to time for future costs shall likewise be shared equally by the members and employers.

Any increase in the contribution rate required as the result of a failure of an employer to make any contribution required by this section shall be borne in full by the employer not making the contribution.

The director shall notify all employers of any pending adjustment in the required contribution rate and such increase shall be announced at least thirty days prior to the effective date of the change.

Members contributions required by this section shall be deducted from the members compensation earnable each payroll period. The members contribution and the employers contribution shall be remitted directly to the department within fifteen days following the end of the calendar month during which the payroll period ends.

Sec. 10. RCW 41.26.450 and 1996 c 38 s 3 are each amended to read as follows:

(1) The required contribution rates to the plan 2 system for members, employers, and the state of Washington shall be established by the ((~~director~~)) state pension oversight board from time to time as may be necessary upon the advice of the state actuary. The state actuary shall use the aggregate actuarial cost method to calculate contribution rates.

(2) Except as provided in subsection (3) of this section, the member, the employer and the state shall each contribute the following shares of the cost of the retirement system:

Member 50%

Employer 30%

State 20%

(3) Port districts established under Title 53 RCW and institutions of higher education as defined in RCW 28B.10.016 shall contribute both the employer and state shares of the cost of the retirement system for any of their employees who are law enforcement officers. Institutions of higher education shall contribute both the employer and the state shares of the cost of the retirement system for any of their employees who are fire fighters.

(4) Effective January 1, 1987, however, no member or employer contributions are required for any calendar month in which the member is not granted service credit.

(5) Any adjustments in contribution rates required from time to time for future costs shall likewise be shared proportionally by the members, employers, and the state.

(6) Any increase in the contribution rate required as the result of a failure of the state or of an employer to make any contribution required by this section shall be borne in full by the state or by that employer not making the contribution.

(7) The director shall notify all employers of any pending adjustment in the required contribution rate and such increase shall be announced at least thirty days prior to the effective date of the change.

(8) Members' contributions required by this section shall be deducted from the members basic salary each payroll period. The members contribution and the employers contribution shall be remitted directly to the department within fifteen days following the end of the calendar month during which the payroll period ends. The state's contribution required by this section shall be transferred to the plan 2 fund from the total contributions transferred by the state treasurer under RCW 41.45.060 and 41.45.070.

Sec. 11. RCW 41.45.061 and 1997 c 10 s 2 are each amended to read as follows:

(1) The required contribution rate for members of the plan 2 teachers' retirement system shall be established by the board from time to time as may be necessary upon the advice of the state actuary.

(2) The required rate shall be fixed at the rates in effect on July 1, 1996, subject to the following:

(a) Beginning September 1, 1997, except as provided in (b) of this subsection, the employee contribution rate shall not exceed the employer plan 2 and 3 rates adopted under RCW 41.45.060 and 41.45.070 for the teachers' retirement system;

(b) In addition, the employee contribution rate for plan 2 shall be increased by fifty percent of the contribution rate increase caused by any plan 2 benefit increase passed after July 1, 1996.

((~~(2)~~)) (3) The required plan 2 and 3 contribution rates for employers shall be adopted in the manner described in RCW 41.45.060.

Sec. 12. RCW 41.45.061 and 1998 c 341 s 405 are each amended to read as follows:

(1) The required contribution rate for members of the plan 2 teachers' retirement system shall be established by the board from time to time as may be necessary upon the advice of the state actuary.

(2) The required rate shall be fixed at the rates in effect on July 1, 1996, subject to the following:

(b) In addition, the employee contribution rate for plan 2 shall be increased by fifty percent of the contribution rate increase caused by any plan 2 benefit increase passed after July 1, 1996;

(c) In addition, the employee contribution rate for plan 2 shall not be increased as a result of any distributions pursuant to section 309, chapter 341, Laws of 1998 and RCW 41.31A.020.

((~~(2)~~)) (3) The required contribution rate for members of the school employees' retirement system plan 2 shall be established by the board from time to time as may be necessary upon the advice of the state actuary.

(4) The required rate shall be fixed at the rates in effect on September 1, 2000, for members of the public employees' retirement system plan 2, subject to the following:

(a) Except as provided in (b) of this subsection, the member contribution rate shall not exceed the school employees' retirement system employer plan 2 and 3 contribution rate adopted under RCW 41.45.060 and 41.45.070;

(b) The member contribution rate for the school employees' retirement system plan 2 shall be increased by fifty percent of the contribution rate increase caused by any plan 2 benefit increase passed after September 1, 2000.

((~~(3)~~)) (5) The employee contribution rate for plan 2 shall not be increased as a result of any distributions pursuant to RCW 41.31A.020 and 41.31A.030.

((~~(4)~~)) (6) The required plan 2 and 3 contribution rates for employers shall be adopted in the manner described in RCW 41.45.060.

NEW SECTION. Sec. 13. RCW 44.44.010, 44.44.030, and 44.44.040 are recodified as a new chapter in Title 43 RCW.

Sec. 14. RCW 44.44.010 and 1987 c 25 s 1 are each amended to read as follows:

(1) There is hereby created an office within the ((~~legislative~~)) executive branch to be known as the office of the state actuary.

(2) The executive head of the office shall be the state actuary who shall be qualified by education and experience in the field of actuarial science.

Sec. 15. RCW 44.44.030 and 1987 c 25 s 2 are each amended to read as follows:

(1) The state actuary shall have the authority to select and employ such research, technical, clerical personnel, and consultants as ((~~the actuary deems~~)) necessary, whose salaries shall be fixed by the actuary and approved by the ((~~joint committee on pension policy~~)) state pension oversight board, and who ((~~shall be~~)) are exempt from the provisions of the state civil service law, chapter 41.06 RCW.

(2) All actuarial valuations and experience studies performed by the office of the state actuary shall be signed by a member of the American academy of actuaries. If the state actuary is not such a member, the state actuary, after approval by the ((~~committee~~)) state pension oversight board, shall contract for a period not to exceed two years with a member of the American academy of actuaries to assist in developing actuarial valuations and experience studies.

Sec. 16. RCW 44.44.040 and 1987 c 25 s 3 are each amended to read as follows:

The office of the state actuary ((~~shall have~~)) has the following powers and duties:

(1) Perform ((~~all~~)) actuarial services for the department of retirement systems, including all studies required by law. Reimbursement for such services shall be made to the state actuary pursuant to the provisions of RCW 39.34.130 as now or hereafter amended.

(2) Advise the legislature and the governor regarding pension benefit provisions, and funding policies and investment policies of the state investment board.

(3) Consult with the ((~~legislature and the governor~~)) state pension oversight board concerning determination of actuarial assumptions used by the department of retirement systems.

(4) Prepare a report, to be known as the actuarial fiscal note, on each pension bill introduced in the legislature which briefly explains the financial impact of the bill. The actuarial fiscal note shall include: (a) The statutorily required contribution for the biennium and the following twenty-five years; (b) the biennial cost of the increased benefits if these exceed the required contribution; and (c) any change in the present value of the unfunded accrued benefits. An actuarial fiscal note shall also be prepared for all amendments which are offered in committee or on the floor of the house of representatives or the senate to any pension bill. However, a majority of the members present may suspend the requirement for an actuarial fiscal note for amendments offered on the floor of the house of representatives or the senate.

((~~(5) Provide such actuarial services to the legislature as may be requested from time to time.~~

~~(6) Provide staff and assistance to the committee established under RCW 46.44.050.~~))

Sec. 17. RCW 44.44.060 and 1987 c 25 s 5 are each amended to read as follows:

The joint committee on pension policy shall have the following powers and duties:

(1) Study pension issues, develop pension policies for public employees in state retirement systems, and make recommendations to the legislature;

(2) Study the financial condition of the state pension systems, develop funding policies, and make recommendations to the legislature; and

(3) ((~~Appoint or remove the state actuary by a two-thirds vote of the committee.~~)) Employ staff and assistance as necessary.

NEW SECTION. Sec. 18. A new section is added to chapter 41.50 RCW to read as follows:

The director of retirement systems may retain actuarial services to support the administration of the state retirement systems and deferred compensation plan through private contract or departmental employment.

NEW SECTION. Sec. 19. A new section is added to chapter 43.33A RCW to read as follows:

The state investment board may retain actuarial services through private contract or office employment.

NEW SECTION. Sec. 20. A new section is added to chapter 43.41 RCW to read as follows:

The director of financial management may retain actuarial services through private contract or office employment.

NEW SECTION. Sec. 21. A new section is added to chapter 44.04 RCW to read as follows:

The legislature may hire actuarial services through private contract or employment as joint committee staff, under chapter 44.44 RCW.

NEW SECTION. Sec. 22. A new section is added to chapter 43.09 RCW to read as follows:

The state auditor shall conduct actuarial audits of valuations used to administer the state's pension systems every two years beginning in the year 2000.

NEW SECTION. Sec. 23. The existing governance structure of the public employees' retirement systems that distributes responsibilities for administering the systems in both the legislative and executive branches over at least eight entities places significant responsibility on all parties to establish structured systems of communication and organization, so that members and beneficiaries are satisfied that their interests are being properly protected. The legislature recognizes that the state auditor has recommended that an annual consolidated report on the public employees' retirement systems be issued. Current reports from the department of retirement systems, the state investment board, and the office of the state actuary contain redundant and, in certain respects, confusing information. While serving their individual purposes quite well, the current reports do not address the need for a user-friendly report that would empower interested parties in assessing accountability.

NEW SECTION. Sec. 24. A new section is added to chapter 41.50 RCW to read as follows:

The department of retirement systems is to produce a summary level and consolidated annual financial report with the focus of presenting information about the status of the various retirement plans to active and retired members, policy makers, and other interested parties. Information included in the report is to be provided by the office of the state actuary, the state investment board, and the department of retirement systems. The department shall consult with the state investment board and the office of the state actuary during the preparation of this report. The report shall be concise and understandable as determined by the users of this information. The department shall meet with the department's advisory board in order to ensure the usability of the report. In addition, the department shall give annual notice of report review and then accept and consider input on the style and substance of the report from interested parties.

NEW SECTION. Sec. 25. A new section is added to chapter 41.50 RCW to read as follows:

Beginning in 1999 and every four years thereafter, the department of retirement systems shall convene a task force comprised of representatives of the department of retirement systems, the office of the state actuary, the state investment board, the office of financial management, and the office of the state auditor, and the advisory committee to the department of retirement systems. This task force shall review all the major reports prepared by state agencies concerning the state retirement systems and examine the best practices from other states. The goals of the task force are to determine what information needs to be reported and to seek ways to: Promote more effective monitoring of the public retirement systems, streamline reporting, become more efficient in the production and distribution of the information, minimize redundancies and confusion, and maximize the public's investment in these reports. The task force shall report by the end of October in each year the task force is convened to the state pension oversight board with their recommendations for changing and consolidating these reports. Any changes in current state law that may be required to accomplish these recommendations shall be noted.

NEW SECTION. Sec. 26. The sum of three hundred two thousand dollars, or as much thereof as may be necessary, is appropriated for the biennium ending June 30, 1999, from the department of retirement systems expense account to the department of retirement systems for the purposes of the annual report required in section 25 of this act.

NEW SECTION. Sec. 27. The following acts or parts of acts are each repealed:

(1) RCW 41.52.010 (Created--Composition--Qualifications and appointment of members) and 1980 c 87 s 16, 1969 c 10 s 2, & 1963 ex.s. c 17 s 1;

(2) RCW 41.52.020 (Terms--Vacancies) and 1963 ex.s. c 17 s 2;

(3) RCW 41.52.030 (Expenses--Officers--Personnel--Quorum) and 1967 c 128 s 1 & 1963 ex.s. c 17 s 3;

(4) RCW 41.52.040 (Powers and duties) and 1998 c 245 s 43, 1967 c 128 s 2, & 1963 ex.s. c 17 s 4;

(5) RCW 41.52.050 (Right of access to files and records of public pension systems--Minutes, reports, etc., to be forwarded to commission) and 1967 c 128 s 3;

(6) RCW 41.52.060 (Examination of records--Subpoena of witnesses, fees) and 1967 c 128 s 4; and

(7) RCW 41.52.070 (Appointment of investment counsel--Qualifications--Duties) and 1998 c 245 s 44 & 1967 c 160 s 1.

NEW SECTION. Sec. 28. Sections 1 and 3 of this act are each added to the chapter created in section 13 of this act.

NEW SECTION. Sec. 29. Sections 4 and 11 of this act expire September 1, 2000.

NEW SECTION. Sec. 30. Sections 5 and 12 of this act take effect September 1, 2000.

NEW SECTION. Sec. 31. Sections 23 through 26 of this act are necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and take effect immediately.

NEW SECTION. Sec. 32. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.