S-1647.1  _______________________________________________

                         SENATE BILL 6057

          _______________________________________________

State of Washington      56th Legislature     1999 Regular Session

By Senators T. Sheldon, Winsley, Goings, Roach, Franklin, Kline, Eide, Honeyford, Spanel and Rasmussen

Read first time 02/26/1999.  Referred to Committee on Ways & Means.

Creating the public employees' retirement system, plan 3.

    AN ACT Relating to creation of the public employees' retirement system, plan 3; amending RCW 41.40.005, 41.40.010, 41.40.054, 41.40.088, 41.45.010, 41.45.010, 41.45.020, 41.45.050, 41.45.050, 41.50.075, 41.50.075, 41.54.030, 41.05.011, 41.05.011, and 43.33A.190; reenacting and amending RCW 41.40.010, 41.40.088, 41.45.020, 41.45.060, 41.45.070, and 41.54.030; adding new sections to chapter 41.40 RCW; adding a new section to chapter 41.45 RCW; adding new chapters to Title 41 RCW; creating a new section; providing an effective date; and providing an expiration date.

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

NEW SECTION. Sec. 1.  The legislature recognizes that public employees need the ability to make transitions to other public or private sector careers, and that the retirement system should not be a barrier to the exercise of employee choice.  The legislature also recognizes that public employees need a secure and viable retirement benefit, not only for their own financial protection, but also that public funds are spent prudently for their intended purpose.

    It is the legislative intent to create a new public retirement system that balances flexibility with stability, provides both increased employee control of investments and responsible protection of the public's investment in employee benefits, and encourages the pursuit of public sector careers without preventing employees from moving into other public or private sector employment.

    Therefore, the purpose of this act is to continue to provide classified employees with a guaranteed pension at retirement age based on years of public service with an element of inflation protection.  It is further the purpose of this act to create a parallel retirement plan where employees have options regarding the investment of their retirement contributions and have the opportunity, along with the accompanying risk, to receive a full rate of return on their investments and where employees who leave public employment prior to retirement receive a fair and reasonable value from the retirement system.

    Sec. 2.  RCW 41.40.005 and 1992 c 72 s 8 are each amended to read as follows:

    RCW 41.40.010 through 41.40.112 shall apply to members of plan 1 ((and)), plan 2, and plan 3.

    Sec. 3.  RCW 41.40.010 and 1997 c 254 s 10 and 1997 c 88 s 6 are each reenacted and amended to read as follows:

    As used in this chapter, unless a different meaning is plainly required by the context:

    (1) "Retirement system" means the public employees' retirement system provided for in this chapter.

    (2) "Department" means the department of retirement systems created in chapter 41.50 RCW.

    (3) "State treasurer" means the treasurer of the state of Washington.

    (4)(a) "Employer" for plan 1 members, means every branch, department, agency, commission, board, and office of the state, any political subdivision or association of political subdivisions of the state admitted into the retirement system, and legal entities authorized by RCW 35.63.070 and 36.70.060 or chapter 39.34 RCW; and the term shall also include any labor guild, association, or organization the membership of a local lodge or division of which is comprised of at least forty percent employees of an employer (other than such labor guild, association, or organization) within this chapter.  The term may also include any city of the first class that has its own retirement system.

    (b) "Employer" for plan 2 and plan 3 members, means every branch, department, agency, commission, board, and office of the state, and any political subdivision and municipal corporation of the state admitted into the retirement system, including public agencies created pursuant to RCW 35.63.070, 36.70.060, and 39.34.030.

    (5) "Member" means any employee included in the membership of the retirement system, as provided for in RCW 41.40.023.  RCW 41.26.045 does not prohibit a person otherwise eligible for membership in the retirement system from establishing such membership effective when he or she first entered an eligible position.

    (6) "Original member" of this retirement system means:

    (a) Any person who became a member of the system prior to April 1, 1949;

    (b) Any person who becomes a member through the admission of an employer into the retirement system on and after April 1, 1949, and prior to April 1, 1951;

    (c) Any person who first becomes a member by securing employment with an employer prior to April 1, 1951, provided the member has rendered at least one or more years of service to any employer prior to October 1, 1947;

    (d) Any person who first becomes a member through the admission of an employer into the retirement system on or after April 1, 1951, provided, such person has been in the regular employ of the employer for at least six months of the twelve-month period preceding the said admission date;

    (e) Any member who has restored all contributions that may have been withdrawn as provided by RCW 41.40.150 and who on the effective date of the individual's retirement becomes entitled to be credited with ten years or more of membership service except that the provisions relating to the minimum amount of retirement allowance for the member upon retirement at age seventy as found in RCW 41.40.190(4) shall not apply to the member;

    (f) Any member who has been a contributor under the system for two or more years and who has restored all contributions that may have been withdrawn as provided by RCW 41.40.150 and who on the effective date of the individual's retirement has rendered five or more years of service for the state or any political subdivision prior to the time of the admission of the employer into the system; except that the provisions relating to the minimum amount of retirement allowance for the member upon retirement at age seventy as found in RCW 41.40.190(4) shall not apply to the member.

    (7) "New member" means a person who becomes a member on or after April 1, 1949, except as otherwise provided in this section.

    (8)(a) "Compensation earnable" for plan 1 members, means salaries or wages earned during a payroll period for personal services and where the compensation is not all paid in money, maintenance compensation shall be included upon the basis of the schedules established by the member's employer.

    (i) "Compensation earnable" for plan 1 members also includes the following actual or imputed payments, which are not paid for personal services:

    (A) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wage which the individual would have earned during a payroll period shall be considered compensation earnable and the individual shall receive the equivalent service credit;

    (B) If a leave of absence is taken by an individual for the purpose of serving in the state legislature, the salary which would have been received for the position from which the leave of absence was taken, shall be considered as compensation earnable if the employee's contribution is paid by the employee and the employer's contribution is paid by the employer or employee;

    (C) Assault pay only as authorized by RCW 27.04.100, 72.01.045, and 72.09.240;

    (D) Compensation that a member would have received but for a disability occurring in the line of duty only as authorized by RCW 41.40.038;

    (E) Compensation that a member receives due to participation in the leave sharing program only as authorized by RCW 41.04.650 through 41.04.670; and

    (F) Compensation that a member receives for being in standby status.  For the purposes of this section, a member is in standby status when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work, if the need arises, although the need may not arise.  ((Standby compensation is regular salary for the purposes of RCW 41.50.150(2).))

    (ii) "Compensation earnable" does not include:

    (A) Remuneration for unused sick leave authorized under RCW 41.04.340, 28A.400.210, or 28A.310.490;

    (B) Remuneration for unused annual leave in excess of thirty days as authorized by RCW 43.01.044 and 43.01.041.

    (b) "Compensation earnable" for plan 2 and plan 3 members, means salaries or wages earned by a member during a payroll period for personal services, including overtime payments, and shall include wages and salaries deferred under provisions established pursuant to sections 403(b), 414(h), and 457 of the United States Internal Revenue Code, but shall exclude nonmoney maintenance compensation and lump sum or other payments for deferred annual sick leave, unused accumulated vacation, unused accumulated annual leave, or any form of severance pay.

    "Compensation earnable" for plan 2 and plan 3 members also includes the following actual or imputed payments, which are not paid for personal services:

    (i) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wage which the individual would have earned during a payroll period shall be considered compensation earnable to the extent provided above, and the individual shall receive the equivalent service credit;

    (ii) In any year in which a member serves in the legislature, the member shall have the option of having such member's compensation earnable be the greater of:

    (A) The compensation earnable the member would have received had such member not served in the legislature; or

    (B) Such member's actual compensation earnable received for nonlegislative public employment and legislative service combined.  Any additional contributions to the retirement system required because compensation earnable under (b)(ii)(A) of this subsection is greater than compensation earnable under (b)(ii)(B) of this subsection shall be paid by the member for both member and employer contributions;

    (iii) Assault pay only as authorized by RCW 27.04.100, 72.01.045, and 72.09.240;

    (iv) Compensation that a member would have received but for a disability occurring in the line of duty only as authorized by RCW 41.40.038;

    (v) Compensation that a member receives due to participation in the leave sharing program only as authorized by RCW 41.04.650 through 41.04.670; and

    (vi) Compensation that a member receives for being in standby status.  For the purposes of this section, a member is in standby status when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work, if the need arises, although the need may not arise.  ((Standby compensation is regular salary for the purposes of RCW 41.50.150(2).))

    (9)(a) "Service" for plan 1 members, except as provided in RCW 41.40.088, means periods of employment in an eligible position or positions for one or more employers rendered to any employer for which compensation is paid, and includes time spent in office as an elected or appointed official of an employer.  Compensation earnable earned in full time work for seventy hours or more in any given calendar month shall constitute one service credit month except as provided in RCW 41.40.088.  Compensation earnable earned for less than seventy hours in any calendar month shall constitute one-quarter service credit month of service except as provided in RCW 41.40.088.  Only service credit months and one-quarter service credit months shall be counted in the computation of any retirement allowance or other benefit provided for in this chapter.  Any fraction of a year of service shall be taken into account in the computation of such retirement allowance or benefits.  Time spent in standby status, whether compensated or not, is not service.

    (i) Service by a state employee officially assigned by the state on a temporary basis to assist another public agency, shall be considered as service as a state employee:  PROVIDED, That service to any other public agency shall not be considered service as a state employee if such service has been used to establish benefits in any other public retirement system.

    (ii) An individual shall receive no more than a total of twelve service credit months of service during any calendar year.  If an individual is employed in an eligible position by one or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service for seventy or more hours is rendered.

    (iii) A school district employee may count up to forty-five days of sick leave as creditable service solely for the purpose of determining eligibility to retire under RCW 41.40.180 as authorized by RCW 28A.400.300.  For purposes of plan 1 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months.  Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:

    (A) Less than twenty-two days equals one-quarter service credit month;

    (B) Twenty-two days equals one service credit month;

    (C) More than twenty-two days but less than forty-five days equals one and one-quarter service credit month.

    (b) "Service" for plan 2 and plan 3 members, means periods of employment by a member in an eligible position or positions for one or more employers for which compensation earnable is paid.  Compensation earnable earned for ninety or more hours in any calendar month shall constitute one service credit month except as provided in RCW 41.40.088.  Compensation earnable earned for at least seventy hours but less than ninety hours in any calendar month shall constitute one-half service credit month of service.  Compensation earnable earned for less than seventy hours in any calendar month shall constitute one-quarter service credit month of service.  Time spent in standby status, whether compensated or not, is not service.

    Any fraction of a year of service shall be taken into account in the computation of such retirement allowance or benefits.

    (i) Service in any state elective position shall be deemed to be full time service, except that persons serving in state elective positions who are members of the teachers' retirement system or law enforcement officers' and fire fighters' retirement system at the time of election or appointment to such position may elect to continue membership in the teachers' retirement system or law enforcement officers' and fire fighters' retirement system.

    (ii) A member shall receive a total of not more than twelve service credit months of service for such calendar year.  If an individual is employed in an eligible position by one or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service for ninety or more hours is rendered.

    (iii) Up to forty-five days of sick leave may be creditable as service solely for the purpose of determining eligibility to retire under RCW 41.40.180 as authorized by RCW 28A.400.300.  For purposes of plan 2 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months.  Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:

    (A) Less than eleven days equals one-quarter service credit month;

    (B) Eleven or more days but less than twenty-two days equals one-half service credit month;

    (C) Twenty-two days equals one service credit month;

    (D) More than twenty-two days but less than thirty-three days equals one and one-quarter service credit month;

    (E) Thirty-three or more days but less than forty-five days equals one and one-half service credit month.

    (10) "Service credit year" means an accumulation of months of service credit which is equal to one when divided by twelve.

    (11) "Service credit month" means a month or an accumulation of months of service credit which is equal to one.

    (12) "Prior service" means all service of an original member rendered to any employer prior to October 1, 1947.

    (13) "Membership service" means:

    (a) All service rendered, as a member, after October 1, 1947;

    (b) All service after October 1, 1947, to any employer prior to the time of its admission into the retirement system for which member and employer contributions, plus interest as required by RCW 41.50.125, have been paid under RCW 41.40.056 or 41.40.057;

    (c) Service not to exceed six consecutive months of probationary service rendered after April 1, 1949, and prior to becoming a member, in the case of any member, upon payment in full by such member of the total amount of the employer's contribution to the retirement fund which would have been required under the law in effect when such probationary service was rendered if the member had been a member during such period, except that the amount of the employer's contribution shall be calculated by the director based on the first month's compensation earnable as a member;

    (d) Service not to exceed six consecutive months of probationary service, rendered after October 1, 1947, and before April 1, 1949, and prior to becoming a member, in the case of any member, upon payment in full by such member of five percent of such member's salary during said period of probationary service, except that the amount of the employer's contribution shall be calculated by the director based on the first month's compensation earnable as a member.

    (14)(a) "Beneficiary" for plan 1 members, means any person in receipt of a retirement allowance, pension or other benefit provided by this chapter.

    (b) "Beneficiary" for plan 2 and plan 3 members, means any person in receipt of a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer by another person.

    (15) "Regular interest" means such rate as the director may determine.

    (16) "Accumulated contributions" means the sum of all contributions standing to the credit of a member in the member's individual account, including any amount paid under RCW 41.50.165(2), together with the regular interest thereon.

    (17)(a) "Average final compensation" for plan 1 members, means the annual average of the greatest compensation earnable by a member during any consecutive two year period of service credit months for which service credit is allowed; or if the member has less than two years of service credit months then the annual average compensation earnable during the total years of service for which service credit is allowed.

    (b) "Average final compensation" for plan 2 and plan 3 members, means the member's average compensation earnable of the highest consecutive sixty months of service credit months prior to such member's retirement, termination, or death.  Periods constituting authorized leaves of absence may not be used in the calculation of average final compensation except under RCW 41.40.710(2).

    (18) "Final compensation" means the annual rate of compensation earnable by a member at the time of termination of employment.

    (19) "Annuity" means payments for life derived from accumulated contributions of a member.  All annuities shall be paid in monthly installments.

    (20) "Pension" means payments for life derived from contributions made by the employer.  All pensions shall be paid in monthly installments.

    (21)(a) "Retirement allowance" for plan 1 members means the sum of the annuity and the pension.

(b) "Retirement allowance" for plan 2 and plan 3 members means monthly payments to a retiree or beneficiary as provided in this chapter.

    (22) "Employee" or "employed" means a person who is providing services for compensation to an employer, unless the person is free from the employer's direction and control over the performance of work.  The department shall adopt rules and interpret this subsection consistent with common law.

    (23) "Actuarial equivalent" means a benefit of equal value when computed upon the basis of such mortality and other tables as may be adopted by the director.

    (24) "Retirement" means withdrawal from active service with a retirement allowance as provided by this chapter.

    (25) "Eligible position" means:

    (a) Any position that, as defined by the employer, normally requires five or more months of service a year for which regular compensation for at least seventy hours is earned by the occupant thereof.  For purposes of this chapter an employer shall not define "position" in such a manner that an employee's monthly work for that employer is divided into more than one position;

    (b) Any position occupied by an elected official or person appointed directly by the governor, or appointed by the chief justice of the supreme court under RCW 2.04.240(2) or 2.06.150(2), for which compensation is paid.

    (26) "Ineligible position" means any position which does not conform with the requirements set forth in subsection (25) of this section.

    (27) "Leave of absence" means the period of time a member is authorized by the employer to be absent from service without being separated from membership.

    (28) "Totally incapacitated for duty" means total inability to perform the duties of a member's employment or office or any other work for which the member is qualified by training or experience.

    (29) "Retiree" means any person who has begun accruing a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer while a member.

    (30) "Director" means the director of the department.

    (31) "State elective position" means any position held by any person elected or appointed to state-wide office or elected or appointed as a member of the legislature.

    (32) "State actuary" or "actuary" means the person appointed pursuant to RCW 44.44.010(2).

    (33) "Plan 1" means the public employees' retirement system, plan 1 providing the benefits and funding provisions covering persons who first became members of the system prior to October 1, 1977, and prior to the effective date of this section.

    (34) "Plan 2" means the public employees' retirement system, plan 2 providing the benefits and funding provisions covering persons who first became members of the system on and after October 1, 1977.

    (35) "Plan 3" means the public employees' retirement system, plan 3 providing the benefits and funding provisions covering persons who first became members of the system on and after January 1, 2000, or who transfer under section 8 of this act.

(36) "Index" means, for any calendar year, that year's annual average consumer price index, Seattle, Washington area, for urban wage earners and clerical workers, all items, compiled by the bureau of labor statistics, United States department of labor.

    (((36))) (37) "Index A" means the index for the year prior to the determination of a postretirement adjustment.

    (((37))) (38) "Index B" means the index for the year prior to index A.

    (((38))) (39) "Index year" means the earliest calendar year in which the index is more than sixty percent of index A.

    (((39))) (40) "Adjustment ratio" means the value of index A divided by index B.

    (((40))) (41) "Annual increase" means, initially, fifty-nine cents per month per year of service which amount shall be increased each July 1st by three percent, rounded to the nearest cent.

    (((41))) (42) "Separation from service" occurs when a person has terminated all employment with an employer.

(43) "Member account" or "member's account" for purposes of plan 3 means the sum of the contributions and earnings on behalf of the member in the defined contribution portion of plan 3.

    Sec. 4.  RCW 41.40.010 and 1998 c 341 s 601 are each amended to read as follows:

    As used in this chapter, unless a different meaning is plainly required by the context:

    (1) "Retirement system" means the public employees' retirement system provided for in this chapter.

    (2) "Department" means the department of retirement systems created in chapter 41.50 RCW.

    (3) "State treasurer" means the treasurer of the state of Washington.

    (4)(a) "Employer" for plan 1 members, means every branch, department, agency, commission, board, and office of the state, any political subdivision or association of political subdivisions of the state admitted into the retirement system, and legal entities authorized by RCW 35.63.070 and 36.70.060 or chapter 39.34 RCW; and the term shall also include any labor guild, association, or organization the membership of a local lodge or division of which is comprised of at least forty percent employees of an employer (other than such labor guild, association, or organization) within this chapter.  The term may also include any city of the first class that has its own retirement system.

    (b) "Employer" for plan 2 and plan 3 members, means every branch, department, agency, commission, board, and office of the state, and any political subdivision and municipal corporation of the state admitted into the retirement system, including public agencies created pursuant to RCW 35.63.070, 36.70.060, and 39.34.030; except that after August 31, 2000, school districts and educational service districts will no longer be employers for the public employees' retirement system plan 2.

    (5) "Member" means any employee included in the membership of the retirement system, as provided for in RCW 41.40.023.  RCW 41.26.045 does not prohibit a person otherwise eligible for membership in the retirement system from establishing such membership effective when he or she first entered an eligible position.

    (6) "Original member" of this retirement system means:

    (a) Any person who became a member of the system prior to April 1, 1949;

    (b) Any person who becomes a member through the admission of an employer into the retirement system on and after April 1, 1949, and prior to April 1, 1951;

    (c) Any person who first becomes a member by securing employment with an employer prior to April 1, 1951, provided the member has rendered at least one or more years of service to any employer prior to October 1, 1947;

    (d) Any person who first becomes a member through the admission of an employer into the retirement system on or after April 1, 1951, provided, such person has been in the regular employ of the employer for at least six months of the twelve-month period preceding the said admission date;

    (e) Any member who has restored all contributions that may have been withdrawn as provided by RCW 41.40.150 and who on the effective date of the individual's retirement becomes entitled to be credited with ten years or more of membership service except that the provisions relating to the minimum amount of retirement allowance for the member upon retirement at age seventy as found in RCW 41.40.190(4) shall not apply to the member;

    (f) Any member who has been a contributor under the system for two or more years and who has restored all contributions that may have been withdrawn as provided by RCW 41.40.150 and who on the effective date of the individual's retirement has rendered five or more years of service for the state or any political subdivision prior to the time of the admission of the employer into the system; except that the provisions relating to the minimum amount of retirement allowance for the member upon retirement at age seventy as found in RCW 41.40.190(4) shall not apply to the member.

    (7) "New member" means a person who becomes a member on or after April 1, 1949, except as otherwise provided in this section.

    (8)(a) "Compensation earnable" for plan 1 members, means salaries or wages earned during a payroll period for personal services and where the compensation is not all paid in money, maintenance compensation shall be included upon the basis of the schedules established by the member's employer.

    (i) "Compensation earnable" for plan 1 members also includes the following actual or imputed payments, which are not paid for personal services:

    (A) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wage which the individual would have earned during a payroll period shall be considered compensation earnable and the individual shall receive the equivalent service credit;

    (B) If a leave of absence is taken by an individual for the purpose of serving in the state legislature, the salary which would have been received for the position from which the leave of absence was taken, shall be considered as compensation earnable if the employee's contribution is paid by the employee and the employer's contribution is paid by the employer or employee;

    (C) Assault pay only as authorized by RCW 27.04.100, 72.01.045, and 72.09.240;

    (D) Compensation that a member would have received but for a disability occurring in the line of duty only as authorized by RCW 41.40.038;

    (E) Compensation that a member receives due to participation in the leave sharing program only as authorized by RCW 41.04.650 through 41.04.670; and

    (F) Compensation that a member receives for being in standby status.  For the purposes of this section, a member is in standby status when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work, if the need arises, although the need may not arise.

    (ii) "Compensation earnable" does not include:

    (A) Remuneration for unused sick leave authorized under RCW 41.04.340, 28A.400.210, or 28A.310.490;

    (B) Remuneration for unused annual leave in excess of thirty days as authorized by RCW 43.01.044 and 43.01.041.

    (b) "Compensation earnable" for plan 2 and plan 3 members, means salaries or wages earned by a member during a payroll period for personal services, including overtime payments, and shall include wages and salaries deferred under provisions established pursuant to sections 403(b), 414(h), and 457 of the United States Internal Revenue Code, but shall exclude nonmoney maintenance compensation and lump sum or other payments for deferred annual sick leave, unused accumulated vacation, unused accumulated annual leave, or any form of severance pay.

    "Compensation earnable" for plan 2 and plan 3 members also includes the following actual or imputed payments, which are not paid for personal services:

    (i) Retroactive payments to an individual by an employer on reinstatement of the employee in a position, or payments by an employer to an individual in lieu of reinstatement in a position which are awarded or granted as the equivalent of the salary or wage which the individual would have earned during a payroll period shall be considered compensation earnable to the extent provided above, and the individual shall receive the equivalent service credit;

    (ii) In any year in which a member serves in the legislature, the member shall have the option of having such member's compensation earnable be the greater of:

    (A) The compensation earnable the member would have received had such member not served in the legislature; or

    (B) Such member's actual compensation earnable received for nonlegislative public employment and legislative service combined.  Any additional contributions to the retirement system required because compensation earnable under (b)(ii)(A) of this subsection is greater than compensation earnable under (b)(ii)(B) of this subsection shall be paid by the member for both member and employer contributions;

    (iii) Assault pay only as authorized by RCW 27.04.100, 72.01.045, and 72.09.240;

    (iv) Compensation that a member would have received but for a disability occurring in the line of duty only as authorized by RCW 41.40.038;

    (v) Compensation that a member receives due to participation in the leave sharing program only as authorized by RCW 41.04.650 through 41.04.670; and

    (vi) Compensation that a member receives for being in standby status.  For the purposes of this section, a member is in standby status when not being paid for time actually worked and the employer requires the member to be prepared to report immediately for work, if the need arises, although the need may not arise.

    (9)(a) "Service" for plan 1 members, except as provided in RCW 41.40.088, means periods of employment in an eligible position or positions for one or more employers rendered to any employer for which compensation is paid, and includes time spent in office as an elected or appointed official of an employer.  Compensation earnable earned in full time work for seventy hours or more in any given calendar month shall constitute one service credit month except as provided in RCW 41.40.088.  Compensation earnable earned for less than seventy hours in any calendar month shall constitute one-quarter service credit month of service except as provided in RCW 41.40.088.  Only service credit months and one-quarter service credit months shall be counted in the computation of any retirement allowance or other benefit provided for in this chapter.  Any fraction of a year of service shall be taken into account in the computation of such retirement allowance or benefits.  Time spent in standby status, whether compensated or not, is not service.

    (i) Service by a state employee officially assigned by the state on a temporary basis to assist another public agency, shall be considered as service as a state employee:  PROVIDED, That service to any other public agency shall not be considered service as a state employee if such service has been used to establish benefits in any other public retirement system.

    (ii) An individual shall receive no more than a total of twelve service credit months of service during any calendar year.  If an individual is employed in an eligible position by one or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service for seventy or more hours is rendered.

    (iii) A school district employee may count up to forty-five days of sick leave as creditable service solely for the purpose of determining eligibility to retire under RCW 41.40.180 as authorized by RCW 28A.400.300.  For purposes of plan 1 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months.  Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:

    (A) Less than twenty-two days equals one-quarter service credit month;

    (B) Twenty-two days equals one service credit month;

    (C) More than twenty-two days but less than forty-five days equals one and one-quarter service credit month.

    (b) "Service" for plan 2 and plan 3 members, means periods of employment by a member in an eligible position or positions for one or more employers for which compensation earnable is paid.  Compensation earnable earned for ninety or more hours in any calendar month shall constitute one service credit month except as provided in RCW 41.40.088.  Compensation earnable earned for at least seventy hours but less than ninety hours in any calendar month shall constitute one-half service credit month of service.  Compensation earnable earned for less than seventy hours in any calendar month shall constitute one-quarter service credit month of service.  Time spent in standby status, whether compensated or not, is not service.

    Any fraction of a year of service shall be taken into account in the computation of such retirement allowance or benefits.

    (i) Service in any state elective position shall be deemed to be full time service, except that persons serving in state elective positions who are members of the Washington school employees' retirement system, teachers' retirement system, or law enforcement officers' and fire fighters' retirement system at the time of election or appointment to such position may elect to continue membership in the Washington school employees' retirement system, teachers' retirement system, or law enforcement officers' and fire fighters' retirement system.

    (ii) A member shall receive a total of not more than twelve service credit months of service for such calendar year.  If an individual is employed in an eligible position by one or more employers the individual shall receive no more than one service credit month during any calendar month in which multiple service for ninety or more hours is rendered.

    (iii) Up to forty-five days of sick leave may be creditable as service solely for the purpose of determining eligibility to retire under RCW 41.40.180 as authorized by RCW 28A.400.300.  For purposes of plan 2 "forty-five days" as used in RCW 28A.400.300 is equal to two service credit months.  Use of less than forty-five days of sick leave is creditable as allowed under this subsection as follows:

    (A) Less than eleven days equals one-quarter service credit month;

    (B) Eleven or more days but less than twenty-two days equals one-half service credit month;

    (C) Twenty-two days equals one service credit month;

    (D) More than twenty-two days but less than thirty-three days equals one and one-quarter service credit month;

    (E) Thirty-three or more days but less than forty-five days equals one and one-half service credit month.

    (10) "Service credit year" means an accumulation of months of service credit which is equal to one when divided by twelve.

    (11) "Service credit month" means a month or an accumulation of months of service credit which is equal to one.

    (12) "Prior service" means all service of an original member rendered to any employer prior to October 1, 1947.

    (13) "Membership service" means:

    (a) All service rendered, as a member, after October 1, 1947;

    (b) All service after October 1, 1947, to any employer prior to the time of its admission into the retirement system for which member and employer contributions, plus interest as required by RCW 41.50.125, have been paid under RCW 41.40.056 or 41.40.057;

    (c) Service not to exceed six consecutive months of probationary service rendered after April 1, 1949, and prior to becoming a member, in the case of any member, upon payment in full by such member of the total amount of the employer's contribution to the retirement fund which would have been required under the law in effect when such probationary service was rendered if the member had been a member during such period, except that the amount of the employer's contribution shall be calculated by the director based on the first month's compensation earnable as a member;

    (d) Service not to exceed six consecutive months of probationary service, rendered after October 1, 1947, and before April 1, 1949, and prior to becoming a member, in the case of any member, upon payment in full by such member of five percent of such member's salary during said period of probationary service, except that the amount of the employer's contribution shall be calculated by the director based on the first month's compensation earnable as a member.

    (14)(a) "Beneficiary" for plan 1 members, means any person in receipt of a retirement allowance, pension or other benefit provided by this chapter.

    (b) "Beneficiary" for plan 2 and plan 3 members, means any person in receipt of a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer by another person.

    (15) "Regular interest" means such rate as the director may determine.

    (16) "Accumulated contributions" means the sum of all contributions standing to the credit of a member in the member's individual account, including any amount paid under RCW 41.50.165(2), together with the regular interest thereon.

    (17)(a) "Average final compensation" for plan 1 members, means the annual average of the greatest compensation earnable by a member during any consecutive two year period of service credit months for which service credit is allowed; or if the member has less than two years of service credit months then the annual average compensation earnable during the total years of service for which service credit is allowed.

    (b) "Average final compensation" for plan 2 and plan 3 members, means the member's average compensation earnable of the highest consecutive sixty months of service credit months prior to such member's retirement, termination, or death.  Periods constituting authorized leaves of absence may not be used in the calculation of average final compensation except under RCW 41.40.710(2).

    (18) "Final compensation" means the annual rate of compensation earnable by a member at the time of termination of employment.

    (19) "Annuity" means payments for life derived from accumulated contributions of a member.  All annuities shall be paid in monthly installments.

    (20) "Pension" means payments for life derived from contributions made by the employer.  All pensions shall be paid in monthly installments.

    (21)(a) "Retirement allowance" means the sum of the annuity and the pension.

(b) "Retirement allowance" for plan 2 and plan 3 members means monthly payments to a retiree or beneficiary as provided in this chapter.

    (22) "Employee" or "employed" means a person who is providing services for compensation to an employer, unless the person is free from the employer's direction and control over the performance of work.  The department shall adopt rules and interpret this subsection consistent with common law.

    (23) "Actuarial equivalent" means a benefit of equal value when computed upon the basis of such mortality and other tables as may be adopted by the director.

    (24) "Retirement" means withdrawal from active service with a retirement allowance as provided by this chapter.

    (25) "Eligible position" means:

    (a) Any position that, as defined by the employer, normally requires five or more months of service a year for which regular compensation for at least seventy hours is earned by the occupant thereof.  For purposes of this chapter an employer shall not define "position" in such a manner that an employee's monthly work for that employer is divided into more than one position;

    (b) Any position occupied by an elected official or person appointed directly by the governor, or appointed by the chief justice of the supreme court under RCW 2.04.240(2) or 2.06.150(2), for which compensation is paid.

    (26) "Ineligible position" means any position which does not conform with the requirements set forth in subsection (25) of this section.

    (27) "Leave of absence" means the period of time a member is authorized by the employer to be absent from service without being separated from membership.

    (28) "Totally incapacitated for duty" means total inability to perform the duties of a member's employment or office or any other work for which the member is qualified by training or experience.

    (29) "Retiree" means any person who has begun accruing a retirement allowance or other benefit provided by this chapter resulting from service rendered to an employer while a member.

    (30) "Director" means the director of the department.

    (31) "State elective position" means any position held by any person elected or appointed to state-wide office or elected or appointed as a member of the legislature.

    (32) "State actuary" or "actuary" means the person appointed pursuant to RCW 44.44.010(2).

    (33) "Plan 1" means the public employees' retirement system, plan 1 providing the benefits and funding provisions covering persons who first became members of the system prior to October 1, 1977, and prior to the effective date of this section.

    (34) "Plan 2" means the public employees' retirement system, plan 2 providing the benefits and funding provisions covering persons who first became members of the system on and after October 1, 1977.

    (35) "Plan 3" means the public employees' retirement system, plan 3 providing the benefits and funding provisions covering persons who first became members of the system on and after January 1, 2000, or who transfer under section 8 of this act.

(36) "Index" means, for any calendar year, that year's annual average consumer price index, Seattle, Washington area, for urban wage earners and clerical workers, all items, compiled by the bureau of labor statistics, United States department of labor.

    (((36))) (37) "Index A" means the index for the year prior to the determination of a postretirement adjustment.

    (((37))) (38) "Index B" means the index for the year prior to index A.

    (((38))) (39) "Index year" means the earliest calendar year in which the index is more than sixty percent of index A.

    (((39))) (40) "Adjustment ratio" means the value of index A divided by index B.

    (((40))) (41) "Annual increase" means, initially, fifty-nine cents per month per year of service which amount shall be increased each July 1st by three percent, rounded to the nearest cent.

    (((41))) (42) "Separation from service" occurs when a person has terminated all employment with an employer.

(43) "Member account" or "member's account" for purposes of plan 3 means the sum of the contributions and earnings on behalf of the member in the defined contribution portion of plan 3.

    Sec. 5.  RCW 41.40.054 and 1997 c 103 s 3 are each amended to read as follows:

    A member shall not receive a disability retirement benefit under RCW 41.40.200, 41.40.220, 41.40.230, 41.40.235, 41.40.250, ((or)) 41.40.670, or section 20 of this act if the disability is the result of criminal conduct by the member committed after April 21, 1997.

    Sec. 6.  RCW 41.40.088 and 1991 c 343 s 9 and 1991 c 35 s 96 are each reenacted and amended to read as follows:

    (1) A plan 1 member who is employed by a school district or districts, an educational service district, the state school for the deaf, the state school for the blind, institutions of higher education, or community colleges:

    (a) Shall receive a service credit month for each month of the period from September through August of the following year if he or she is employed in an eligible position, earns compensation earnable for six hundred thirty hours or more during that period, and is employed during nine months of that period, except that a member may not receive credit for any period prior to the member's employment in an eligible position;

    (b) If a member in an eligible position does not meet the requirements of (a) of this subsection, the member is entitled to a service credit month for each month of the period he or she earns earnable compensation for seventy or more hours; and the member is entitled to a one-quarter service credit month for those calendar months during which he or she earned compensation for less than seventy hours.

    (2) Except for any period prior to the member's employment in an eligible position, a plan 2 or plan 3 member who is employed by a school district or districts, an educational service district, the state school for the blind, the state school for the deaf, institutions of higher education, or community colleges:

    (a) Shall receive a service credit month for each month of the period from September through August of the following year if he or she is employed in an eligible position, earns compensation earnable for eight hundred ten hours or more during that period, and is employed during nine months of that period;

    (b) If a member in an eligible position for each month of the period from September through August of the following year does not meet the hours requirements of (a) of this subsection, the member is entitled to one-half service credit month for each month of the period if he or she earns earnable compensation for at least six hundred thirty hours but less than eight hundred ten hours during that period, and is employed nine months of that period.

    (c) In all other instances, a member in an eligible position is entitled to service credit months as follows:

    (i) One service credit month for each month in which compensation is earned for ninety or more hours;

    (ii) One-half service credit month for each month in which compensation is earned for at least seventy hours but less than ninety hours; and

    (iii) One-quarter service credit month for each month in which compensation is earned for less than seventy hours.

    (3) The department shall adopt rules implementing this section.

    Sec. 7.  RCW 41.40.088 and 1998 c 341 s 603 are each amended to read as follows:

    (1) A plan 1 member who is employed by a school district or districts, an educational service district, the state school for the deaf, the state school for the blind, institutions of higher education, or community colleges:

    (a) Shall receive a service credit month for each month of the period from September through August of the following year if he or she is employed in an eligible position, earns compensation earnable for six hundred thirty hours or more during that period, and is employed during nine months of that period, except that a member may not receive credit for any period prior to the member's employment in an eligible position;

    (b) If a member in an eligible position does not meet the requirements of (a) of this subsection, the member is entitled to a service credit month for each month of the period he or she earns earnable compensation for seventy or more hours; and the member is entitled to a one-quarter service credit month for those calendar months during which he or she earned compensation for less than seventy hours.

    (2) Except for any period prior to the member's employment in an eligible position, a plan 2 or plan 3 member who is employed by a school district or districts, an educational service district, the state school for the blind, the state school for the deaf, institutions of higher education, or community colleges:

    (a) Shall receive a service credit month for each month of the period from September through August of the following year if he or she is employed in an eligible position, earns compensation earnable for eight hundred ten hours or more during that period, and is employed during nine months of that period;

    (b) If a member in an eligible position for each month of the period from September through August of the following year does not meet the hours requirements of (a) of this subsection, the member is entitled to one-half service credit month for each month of the period if he or she earns earnable compensation for at least six hundred thirty hours but less than eight hundred ten hours during that period, and is employed nine months of that period.

    (c) In all other instances, a member in an eligible position is entitled to service credit months as follows:

    (i) One service credit month for each month in which compensation is earned for ninety or more hours;

    (ii) One-half service credit month for each month in which compensation is earned for at least seventy hours but less than ninety hours; and

    (iii) One-quarter service credit month for each month in which compensation is earned for less than seventy hours.

    (d) After August 31, 2000, school districts and educational service districts will no longer be employers for the public employees' retirement system plan 2.

    (3) The department shall adopt rules implementing this section.

NEW SECTION. Sec. 8.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) Every plan 2 member employed by an employer in an eligible position may make an irrevocable option to transfer to plan 3.

    (2) All service credit in plan 2 shall be transferred to the defined benefit portion of plan 3.

    (3) Any plan 2 member who wishes to transfer to plan 3 after December 31, 2000, may transfer during the month of January in any following year, provided that the member earns service credit for that month.

    (4) The accumulated contributions in plan 2, less fifty percent of any contributions made pursuant to RCW 41.50.165(2) shall be transferred to the member's account in the defined contribution portion established in chapter 41.34 RCW, pursuant to procedures developed by the department and subject to RCW 41.34.090.  Contributions made pursuant to RCW 41.50.165(2) that are not transferred to the member's account shall be transferred to the fund created in RCW 41.50.075(2), except that interest earned on all such contributions shall be transferred to the member's account.

    (5) The legislature reserves the right to discontinue the right to transfer under this section.

    (6) Anyone previously retired from plan 2 is prohibited from transferring to plan 3.

NEW SECTION. Sec. 9.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) Sections 9 through 23 of this act apply only to plan 3 members.

    (2) Plan 3 consists of two separate elements:  (a) A defined benefit portion covered under this subchapter; and (b) a defined contribution portion covered under chapter 41.-- RCW (sections 24 through 38 of this act).

    (3) Unless otherwise specified, all references to "plan 3" in this subchapter refer to the defined benefit portion of plan 3.

NEW SECTION. Sec. 10.  A new section is added to chapter 41.40 RCW to read as follows:

    All public employees who first become employed by an employer in an eligible position on or after January 1, 2000, shall be members of plan 3.

NEW SECTION. Sec. 11.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) A member of the retirement system shall receive a retirement allowance equal to one percent of such member's average final compensation for each service credit year.

    (2) The retirement allowance payable under section 20 of this act to a member who separates after having completed at least twenty service credit years shall be increased by twenty-five one-hundredths of one percent, compounded for each month from the date of separation to the date that the retirement allowance commences.

NEW SECTION. Sec. 12.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) Anyone who requests to transfer under section 8 of this act before December 31, 2000, and establishes service credit for January 2001, shall have their member account increased by sixty-five percent of:

    (a) Plan 2 accumulated contributions as of January 1, 2000, less fifty percent of any payments made pursuant to RCW 41.50.165(2); or

    (b) All amounts withdrawn after January 1, 2000, which are completely restored before January 1, 2001.

    (2) If a member who requests to transfer dies before January 1, 2001, the additional payment provided by this section shall be paid to the member's estate, or the person or persons, trust, or organization the member nominated by written designation duly executed and filed with the department.

    (3) The legislature reserves the right to modify or discontinue the right to an incentive payment under this section for any plan 2 members who have not previously transferred to plan 3.

NEW SECTION. Sec. 13.  A new section is added to chapter 41.40 RCW to read as follows:

    Retirement allowances paid under the defined benefit portion of plan 3 shall have a postretirement cost-of-living allowance calculated and paid as provided in RCW 41.40.640.

NEW SECTION. Sec. 14.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) Upon retirement for service as prescribed in section 20 of this act or retirement for disability under section 21 of this act a member shall elect to have the retirement allowance paid pursuant to one of the following options, calculated so as to be actuarially equivalent to each other.

    (a) Standard allowance.  A member electing this option shall receive a retirement allowance payable throughout such member's life.  Upon the death of the retired member, all benefits shall cease.

    (b) The department shall adopt rules that allow a member to select a retirement option that pays the member a reduced retirement allowance and upon death, such portion of the member's reduced retirement allowance as the department by rule designates shall be continued throughout the life of and paid to such person or persons as the retiree shall have nominated by written designation duly executed and filed with the department at the time of retirement.  The options adopted by the department shall include, but are not limited to, a joint and one hundred percent survivor option and joint and fifty percent survivor option.

    (2) A member, if married, must provide the written consent of his or her spouse to the option selected under this section.  If a member is married and both the member and the member's spouse do not give written consent to an option under this section, the department shall pay a joint and fifty percent survivor benefit calculated to be actuarially equivalent to the benefit options available under subsection (1) of this section.

NEW SECTION. Sec. 15.  A new section is added to chapter 41.40 RCW to read as follows:

    Any member or beneficiary eligible to receive a retirement allowance under the provisions of section 20, 21, or 23 of this act shall be eligible to commence receiving a retirement allowance after having filed written application with the department.

    (1) Retirement allowances paid to members shall accrue from the first day of the calendar month immediately following such member's separation from employment.

    (2) Retirement allowances payable to eligible members no longer in service, but qualifying for such an allowance pursuant to section 20 of this act shall accrue from the first day of the calendar month immediately following such qualification.

    (3) Disability allowances paid to disabled members shall accrue from the first day of the calendar month immediately following such member's separation from employment for disability.

    (4) Retirement allowances paid as death benefits shall accrue from the first day of the calendar month immediately following the member's death.

NEW SECTION. Sec. 16.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) No retiree shall be eligible to receive such retiree's monthly retirement allowance if he or she is employed in an eligible position as defined in RCW 41.40.010 or 41.32.010, or as a law enforcement officer or fire fighter as defined in RCW 41.26.030.

    (2) If a retiree's benefits have been suspended under this section, his or her benefits shall be reinstated when the retiree terminates the employment that caused the suspension of benefits.  Upon reinstatement, the retiree's benefits shall be actuarially recomputed pursuant to the rules adopted by the department.

NEW SECTION. Sec. 17.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) A member who is on a paid leave of absence authorized by a member's employer shall continue to receive service credit.

    (2) A member who receives compensation from an employer while on an authorized leave of absence to serve as an elected official of a labor organization, and whose employer is reimbursed by the labor organization for the compensation paid to the member during the period of absence, may also be considered to be on a paid leave of absence.  This subsection shall only apply if the member's leave of absence is authorized by a collective bargaining agreement that provides that the member retains seniority rights with the employer during the period of leave.  The earnable compensation reported for a member who establishes service credit under this subsection may not be greater than the salary paid to the highest paid job class covered by the collective bargaining agreement.

    (3) Except as specified in subsection (4) of this section, a member shall be eligible to receive a maximum of two years service credit during a member's entire working career for those periods when a member is on an unpaid leave of absence authorized by an employer.  Such credit may be obtained only if:

    (a) The member makes the contribution on behalf of the employer, plus interest, as determined by the department; and

    (b) The member makes the employee contribution, plus interest, as determined by the department, to the defined contribution portion.

    The contributions required shall be based on the average of the member's earnable compensation at both the time the authorized leave of absence was granted and the time the member resumed employment.

    (4) A member who leaves the employ of an employer to enter the armed forces of the United States shall be entitled to retirement system service credit for up to five years of military service if within ninety days of the member's honorable discharge from the United States armed forces, the member applies for reemployment with the employer who employed the member immediately prior to the member entering the United States armed forces.  This subsection shall be administered in a manner consistent with the requirements of the federal uniformed services employment and reemployment rights act.

    The department shall establish the member's service credit and shall bill the employer for its contribution required under chapter 239, Laws of 1995 for the period of military service, plus interest as determined by the department.  Service credit under this subsection may be obtained only if the member makes the employee contribution to the defined contribution portion as determined by the department.

    The contributions required shall be based on the compensation the member would have earned if not on leave, or if that cannot be estimated with reasonable certainty, the compensation reported for the member in the year prior to when the member went on military leave.

NEW SECTION. Sec. 18.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) Contributions on behalf of the employer paid by the employee to purchase plan 3 service credit shall be allocated to the defined benefit portion of plan 3 and shall not be refundable when paid to the fund described in RCW 41.50.075(2).  Contributions on behalf of the employee shall be allocated to the member account.  If the member fails to meet the statutory time limitations to purchase plan 3 service credit, it may be purchased under the provisions of RCW 41.50.165(2).  One-half of the purchase payments under RCW 41.50.165(2), plus interest, shall be allocated to the member's account.

    (2) No purchased plan 3 membership service will be credited until all payments required of the member are made, with interest.  Upon receipt of all payments owed by the member, the department shall bill the employer for any contributions, plus interest, required to purchase membership service.

NEW SECTION. Sec. 19.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) The director may pay a member eligible to receive a retirement allowance or the member's beneficiary a lump sum payment in lieu of a monthly benefit if the initial monthly benefit would be less than one hundred dollars.  The one hundred dollar limit shall be increased by three percent compounded annually on January 1st.  The lump sum payment shall be the actuarial equivalent of the monthly benefit.

    (2) Persons covered under the provisions of subsection (1) of this section may upon returning to member status reinstate all previous service by depositing the lump sum payment received, with interest as computed by the director, within two years of returning to service or prior to retiring again, whichever comes first.  In computing the amount due, the director shall exclude the accumulated value of the normal payments the member would have received while in beneficiary status if the lump sum payment had not occurred.

    (3) Any member who receives a settlement under this section is deemed to be retired from this system.

NEW SECTION. Sec. 20.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) NORMAL RETIREMENT.  Any member who is at least age sixty-five and who has:

    (a) Completed ten service credit years; or

    (b) Completed five service credit years, including twelve service credit months after attaining age fifty-four; or

    (c) Completed five service credit years by January 1, 2000, under plan 2 and who transferred to plan 3 under section 8 of this act;

shall be eligible to retire and to receive a retirement allowance computed according to the provisions of section 11 of this act.

    (2) EARLY RETIREMENT.  Any member who has attained at least age fifty-five and has completed at least ten years of service shall be eligible to retire and to receive a retirement allowance computed according to the provisions of section 11 of this act, except that a member retiring pursuant to this subsection shall have the retirement allowance actuarially reduced to reflect the difference in the number of years between age at retirement and the attainment of age sixty-five.

NEW SECTION. Sec. 21.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) A member of the retirement system who becomes totally incapacitated for continued employment by an employer as determined by the department shall be eligible to receive an allowance under the provisions of plan 3.  The member shall receive a monthly disability allowance computed as provided for in section 11 of this act and shall have this allowance actuarially reduced to reflect the difference in the number of years between age at disability and the attainment of age sixty-five.

    Any member who receives an allowance under the provisions of this section shall be subject to comprehensive medical examinations as required by the department.  If these medical examinations reveal that a member has recovered from the incapacitating disability and the member is offered reemployment by an employer at a comparable compensation, the member shall cease to be eligible for the allowance.

    (2) If the recipient of a monthly retirement allowance under this section dies, any further benefit payments shall be conditioned by the payment option selected by the retiree as provided in section 14 of this act.

NEW SECTION. Sec. 22.  A new section is added to chapter 41.40 RCW to read as follows:

    (1) Any member who elects to transfer to plan 3 and has eligible unrestored withdrawn contributions in plan 2, may restore such contributions under the provisions of RCW 41.40.740(1) with interest as determined by the department.  The restored plan 2 service credit will be automatically transferred to plan 3.  Restoration payments will be transferred to the member account in plan 3.  If the member fails to meet the time limitations of RCW 41.40.740(1), they may restore such contributions under the provisions of RCW 41.50.165(2).  The restored plan 2 service credit will be automatically transferred to plan 3.  One-half of the restoration payments under RCW 41.50.165(2) plus interest shall be allocated to the member's account.

    (2) Any member who elects to transfer to plan 3 may purchase plan 2 service credit under RCW 41.40.710(3).  Purchased plan 2 service credit will be automatically transferred to plan 3.  Contributions on behalf of the employer paid by the employee shall be allocated to the defined benefit portion of plan 3 and shall not be refundable when paid to the fund described in RCW 41.50.075(2).  Contributions on behalf of the employee shall be allocated to the member account.  If the member fails to meet the time limitations of RCW 41.40.710(3), they may subsequently restore such contributions under the provisions of RCW 41.50.165(2).  Purchased plan 2 service credit will be automatically transferred to plan 3.  One-half of the payments under RCW 41.50.165(2), plus interest, shall be allocated to the member's account.

NEW SECTION. Sec. 23.  A new section is added to chapter 41.40 RCW to read as follows:

    If a member dies prior to retirement, the surviving spouse or eligible child or children shall receive a retirement allowance computed as provided in section 14 of this act actuarially reduced to reflect a joint and one hundred percent survivor option and if the member was not eligible for normal retirement at the date of death a further reduction as described in section 20 of this act.

    If the surviving spouse who is receiving the retirement allowance dies leaving a child or children under the age of majority, then such child or children shall continue to receive an allowance in an amount equal to that which was being received by the surviving spouse, share and share alike, until such child or children reach the age of majority.

    If there is no surviving spouse eligible to receive an allowance at the time of the member's death, such member's child or children under the age of majority shall receive an allowance, share and share alike.  The allowance shall be calculated with the assumption that the age of the spouse and member were equal at the time of the member's death.

NEW SECTION. Sec. 24.  The purpose of this chapter is to:

    (1) Provide a fair and reasonable value from the retirement system for those who leave public employment before retirement;

    (2) Increase flexibility for such employees to make transitions into other public or private sector employment;

    (3) Increase employee options for addressing retirement needs, personal financial planning, and career transitions; and

    (4) Continue the legislature's established policy of having employees contribute toward their retirement benefits.

NEW SECTION. Sec. 25.  As used in this chapter, the following terms have the meanings indicated:

    (1) "Actuary" means the state actuary or the office of the state actuary.

    (2) "Board" means the employee retirement benefits board authorized in chapter 41.50 RCW.

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

    (4) "Compensation" means the same as "compensation earnable" for plan 3 in chapter 41.40 RCW, except that the compensation may be reported when paid, rather than when earned.

    (5) "Employer" means the same as "employer" for plan 3 in chapter 41.40 RCW.

    (6) "Member" means any employee included in the membership of a retirement system as provided for in chapter 41.40 RCW of plan 3.

    (7) "Member account" or "member's account" means the sum of the contributions and earnings on behalf of the member.

    (8) "Retiree" means any member in receipt of an allowance or other benefit provided by this chapter resulting from service rendered to an employer by such member.

NEW SECTION. Sec. 26.  (1) This chapter applies only to members of plan 3 retirement systems created under chapter 41.40 RCW.

    (2) Plan 3 consists of two separate elements:

    (a) A defined benefit portion covered under sections 9 through 23 of this act; and

    (b) A defined contribution portion covered under this chapter.  Unless specified otherwise, all references to "plan 3" in this chapter refer to the defined contribution portion of plan 3.

NEW SECTION. Sec. 27.  (1) A member shall contribute from his or her compensation according to one of the following rate structures:

Option A Contribution Rate

    All Ages                            5.0% fixed

Option B

    Up to Age 35                            5.0%

    Age 35 to 44                            6.0%

    Age 45 and above                        7.5%

Option C

    Up to Age 35                            6.0%

    Age 35 to 44                            7.5%

    Age 45 and above                        8.5%

    (2) The board shall have the right to offer contribution rate options in addition to those listed in subsection (1) of this section, provided that no significant additional administrative costs are created.  All options offered by the board shall conform to the requirements stated in subsections (3) and (4) of this section.

    (3) Within ninety days of the date that an employee becomes a member of plan 3 or changes employers, he or she has an irrevocable option to choose one of the above contribution rate structures.  If the member does not select an option within this ninety-day period, he or she shall be assigned option A.  Such assignment shall be irrevocable.

    (4) Contributions shall begin the first day of the pay cycle in which the rate option is made, or the first day of the pay cycle in which the end of the ninety-day period occurs.

NEW SECTION. Sec. 28.  The legislature may authorize contributions to the members' accounts for a biennium through budget appropriation.

NEW SECTION. Sec. 29.  (1) Except as provided in subsection (2) of this section, the member's account shall be invested by the state investment board.  In order to reduce transaction costs and address liquidity issues, based upon recommendations of the state investment board, the department may require members to provide up to ninety days' notice prior to moving funds from the state investment board portfolio to self-directed investment options provided under subsection (2) of this section.

    For members of the retirement system as provided for in chapter 41.40 RCW of plan 3, investment shall be in the same portfolio as that of the public employees' retirement system combined plan 2 and 3 fund under RCW 41.50.075(3) for members of the retirement system under chapter 41.40 RCW plan 3.

    (2) Members may elect to self-direct their investments as set forth in section 37 of this act.

NEW SECTION. Sec. 30.  (1) If the member retires, becomes disabled, or otherwise terminates employment, the balance in the member's account may be distributed in accordance with an option selected by the member either as a lump sum or pursuant to other options authorized by the board.

    (2) If the member dies while in service, the balance of the member's account may be distributed in accordance with an option selected by the member either as a lump sum or pursuant to other options authorized by the board.  The distribution shall be made to such person or persons as the member shall have nominated by written designation duly executed and filed with the department.  If there be no such designated person or persons still living at the time of the member's death, the balance of the member's account in the retirement system, less any amount identified as owing to an obligee upon withdrawal of such account balance pursuant to a court order filed under RCW 41.50.670, shall be paid to the member's surviving spouse as if in fact such spouse had been nominated by written designation, or if there is no surviving spouse, then to such person or persons, trust, or organization as the member shall have nominated by written designation duly executed and filed with the department.

    (3) If a member has a terminal illness and terminates from employment, the member may choose to have the balance in the member's account distributed as a lump sum payment based on the most recent valuation in order to expedite the distribution.  The department shall make this payment within ten working days after receipt of notice of termination of employment, documentation verifying the terminal illness, and an application for payment.

    (4) The distribution under subsections (1), (2), or (3) of this section shall be less any amount identified as owing to an obligee upon withdrawal pursuant to a court order filed under RCW 41.50.670.

NEW SECTION. Sec. 31.  (1) Subject to subsections (2) and (3) of this section, the right of a person to a pension, an annuity, a retirement allowance, any optional benefit, any other right accrued or accruing to any person under the provisions of this chapter, and the various funds created by chapter 239, Laws of 1995, and chapter . . ., Laws of 1999 (this act) and all moneys and investments and income thereof, is hereby exempt from any state, county, municipal, or other local tax, and shall not be subject to execution, garnishment, attachment, the operation of bankruptcy or insolvency laws, or other process of law whatsoever, and shall be unassignable.

    (2) This section does not prohibit a beneficiary of a retirement allowance from authorizing deductions therefrom for payment of premiums due on any group insurance policy or plan issued for the benefit of a group comprised of public employees of the state of Washington or its political subdivisions and that has been approved for deduction in accordance with rules that may be adopted by the state health care authority and/or the department.  This section does not prohibit a beneficiary of a retirement allowance from authorizing deductions therefrom for payment of dues and other membership fees to any retirement association or organization the membership of which is composed of retired public employees, if a total of three hundred or more of such retired employees have authorized such deduction for payment to the same retirement association or organization.

    (3) Subsection (1) of this section does not prohibit the department from complying with (a) a wage assignment order for child support issued pursuant to chapter 26.18 RCW, (b) an order to withhold and deliver issued pursuant to chapter 74.20A RCW, (c) a notice of payroll deduction issued pursuant to RCW 26.23.060, (d) a mandatory benefits assignment order issued by the department, (e) a court order directing the department to pay benefits directly to an obligee under a dissolution order as defined in RCW 41.50.500(3) which fully complies with RCW 41.50.670 and 41.50.700, or (f) any administrative or court order expressly authorized by federal law.

NEW SECTION. Sec. 32.  (1) The retirement plan created by this chapter shall be administered so as to comply with the federal Internal Revenue Code, Title 26 U.S.C., and specifically with plan qualification requirements imposed on governmental plans by section 401(a) of the Internal Revenue Code.

    (2) Any section or provision of this chapter which may be susceptible to more than one construction shall be interpreted in favor of the construction most likely to satisfy requirements imposed by section 401(a) of the Internal Revenue Code.

    (3) If any section or provision of this chapter is found to be in conflict with the plan qualification requirements for governmental plans in section 401(a) of the Internal Revenue Code, the conflicting part of this chapter is hereby inoperative solely to the extent of the conflict, and such finding shall not affect the operation of the remainder of this chapter.

NEW SECTION. Sec. 33.  The benefits provided under this chapter are not provided to employees as a matter of contractual right prior to September 1, 2001.  The legislature retains the right to alter or abolish these benefits at any time prior to September 1, 2001.

NEW SECTION. Sec. 34.  A member who separates from service and then reestablishes membership may restore contributions to the member account.

NEW SECTION. Sec. 35.    (1) Beginning July 1, 1999, and on January 1st of odd-numbered years thereafter, the member account of a person meeting the requirements of this section shall be credited by the extraordinary investment gain amount.

    (2) The following persons shall be eligible for the benefit provided in subsection (1) of this section:

    (a) Any member who earned service credit during the twelve-month period from September 1st to August 30th immediately preceding the distribution and had a balance of at least one thousand dollars in their member account on August 30th of the year immediately preceding the distribution; or

    (b) Any person in receipt of a benefit pursuant to RCW 41.32.875 or section 20 of this act; or

    (c) Any person who is a retiree pursuant to RCW 41.34.020(8) and who:

    (i) Completed ten service credit years; or

    (ii) Completed five service credit years, including twelve service months after attaining age fifty-four; or

    (iii) Completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817; or

    (iv) Completed five service credit years by January 1, 2000, under plan 2 and who transferred to plan 3 under section 8 of this act; or

    (d) Any person who had a balance of at least one thousand dollars in their member account on August 30th of the year immediately preceding the distribution and who:

    (i) Completed ten service credit years; or

    (ii) Completed five service credit years, including twelve service months after attaining age fifty-four; or

    (iii) Completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817; or

    (iv) Completed five service credit years by January 1, 2000, under plan 2 and who transferred to plan 3 under section 8 of this act.

    (3) The extraordinary investment gain amount shall be calculated as follows:

    (a) One-half of the value of the net assets held in trust for pension benefits in the teachers' retirement system combined plan 2 and 3 fund at the close of the previous state fiscal year not including the amount attributable to member accounts;

    (b) Multiplied by the amount which investment returns on those assets geometrically averaged over the previous four state fiscal years exceeds ten percent;

    (c) Multiplied by the proportion of:

    (i) The sum of the service credit on August 30th of the previous year of all persons eligible for the benefit provided in subsection (1) of this section; to

    (ii) The sum of the service credit on August 30th of the previous year of:

    (A) All persons eligible for the benefit provided in subsection (1) of this section; and

    (B) Any person who earned service credit in plan 2 during the twelve-month period from September 1st to August 30th immediately preceding the distribution; and

    (C) Any person in receipt of a benefit pursuant to RCW 41.32.765 or 41.40.630; and

    (D) Any person with five or more years of service in plan 2;

    (d) Divided proportionally among persons eligible for the benefit provided in subsection (1) of this section on the basis of their service credit total on August 30th of the previous year.

    (4) On January 1, 2001, the member account of a person meeting the requirements of this section who transferred to plan 3 under section 8 of this act shall be credited by the extraordinary investment gain amount calculated for the period of the four state fiscal years beginning July 1, 1994, and ending June 30, 1998.

    (5) The legislature reserves the right to amend or repeal this section in the future and no member or beneficiary has a contractual right to receive this distribution not granted prior to that time.

NEW SECTION. Sec. 36.    All moneys in members' accounts, all property and rights purchased therewith, and all income attributable thereto, shall be held in trust by the state investment board, as set forth under RCW 43.33A.030, for the exclusive benefit of the members and their beneficiaries.

NEW SECTION. Sec. 37.    (1) The state investment board has the full authority to invest all self-directed investment moneys in accordance with RCW 43.84.150 and 43.33A.140, and cumulative investment directions received pursuant to RCW 41.34.060 and this section.  In carrying out this authority 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 members to choose from for self-directed investment.

    (2) All investment and operating costs of the state investment board associated with making self-directed investments shall be paid by members and recovered under procedures agreed to by the board and the state investment board pursuant to the principles set forth in RCW 43.33A.160 and 43.84.160.  All other expenses caused by self-directed investment shall be paid by the member in accordance with rules established by the board under RCW 41.50.088.  With the exception of these expenses, all earnings from self-directed investments shall accrue to the member's account.

    (3) The department shall keep or cause to be kept full and adequate accounts and records of each individual member's account.  Pursuant to RCW 43.33A.180, the state investment board shall account for and report on the investment of defined contribution assets under this chapter.

NEW SECTION. Sec. 38.    (1) No state board or commission, agency, or any officer, employee, or member thereof shall be liable for any loss or deficiency resulting from member defined contribution investments selected or required pursuant to RCW 41.34.060 (1) or (2).

    (2) Neither the board nor the state investment board, nor any officer, employee, or member thereof shall be liable for any loss or deficiency resulting from reasonable efforts to implement investment directions pursuant to RCW 41.34.060 (1) or (2).

NEW SECTION. Sec. 39.  The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

    (1) "Actuary" means the state actuary or the office of the state actuary.

    (2) "Board" means the employee retirement benefits board authorized in chapter 41.50 RCW.

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

    (4) "Member" means any employee included in the membership of a retirement system as provided for in chapter 41.32 RCW of plan 2 or chapter 41.40 RCW of plan 2.

    (5) "Member account" or "member's account" means the sum of any contributions as provided for in this chapter and the earnings on behalf of the member.

NEW SECTION. Sec. 40.  (1) Beginning July 1, 1999, and on January 1st of odd-numbered years thereafter, a member's account shall be credited by the extraordinary investment gain amount.

    (2) The extraordinary investment gain amount shall be calculated as follows:

    (a) One-half of the sum of the value of the net assets held in trust for pension benefits in the teachers' retirement system combined plan 2 and 3 fund and the public employees' retirement system combined plan 2 and 3 fund at the close of the previous state fiscal year not including the amount attributable to member accounts;

    (b) Multiplied by the amount which the geometric average of the rate of investment returns on those assets over the previous four state fiscal years exceeds ten percent;

    (c) Multiplied by the proportion of:

    (i) The sum of the service credit on August 30th of the previous year of all persons eligible for the benefit provided in subsection (1) of this section, to:

    (ii) The sum of the service credit on August 30th of the previous year of:

    (A) All persons eligible for the benefit provided in subsection (1) of this section;

    (B) Any person who earned service credit in plan 3 during the twelve-month period from September 1st to August 30th immediately preceding the distribution;

    (C) Any person in receipt of a benefit pursuant to RCW 41.32.765, 41.32.875, 41.40.630, or section 20 of this act; and

    (D) Any person with ten or more years of service in plan 3;

    (d) Divided proportionally among persons eligible for the benefit provided in subsection (1) of this section on the basis of their service credit total on August 30th of the previous year.

    (3) The legislature reserves the right to amend or repeal this section in the future and no member or beneficiary has a contractual right to receive this distribution not granted prior to that amendment or repeal.

NEW SECTION. Sec. 41.  The member's account shall be invested by the state investment board except that members may elect to self-direct their investments as authorized by the board.

NEW SECTION. Sec. 42.  If the member retires, becomes disabled, dies while in service, or otherwise terminates employment, the balance in the member's account may be distributed in accordance with an option selected by the member either as a lump sum or pursuant to other options authorized by the board.

NEW SECTION. Sec. 43.  (1) Subject to subsection (2) of this section, the right of a person to any benefit or right accrued or accruing to any person under this chapter is hereby exempt from any state, county, municipal, or other local tax, and shall not be subject to execution, garnishment, attachment, the operation of bankruptcy or insolvency laws, or other process of law whatsoever, and shall not be assignable.

    (2) Subsection (1) of this section does not prohibit the department from complying with (a) a wage assignment order for child support issued pursuant to chapter 26.18 RCW, (b) an order to withhold and deliver issued pursuant to chapter 74.20A RCW, (c) a notice of payroll deduction issued pursuant to RCW 26.23.060, (d) a mandatory benefits assignment order issued by the department, (e) a court order directing the department to pay benefits directly to an obligee under a dissolution order as defined in RCW 41.50.500(3) which fully complies with RCW 41.50.670 and 41.50.700, or (f) any administrative or court order expressly authorized by federal law.

NEW SECTION. Sec. 44.  (1) The benefit created by this chapter shall be administered so as to comply with the federal internal revenue code, Title 26 U.S.C., and specifically with plan qualification requirements imposed on governmental plans by section 401(a) of the internal revenue code.

    (2) Any section or provision of this chapter that may be susceptible to more than one construction shall be interpreted in favor of the construction most likely to satisfy requirements imposed by section 401(a) of the internal revenue code.

    (3) If any section or provision of this chapter is found to be in conflict with the plan qualification requirements for governmental plans in section 401(a) of the internal revenue code, the conflicting part of this chapter is hereby inoperable solely to the extent of the conflict, and such finding shall not affect the operation of the remainder of the chapter.

NEW SECTION. Sec. 45.  Sections 39 through 44 of this act constitute a new chapter in Title 41 RCW.

    Sec. 46.  RCW 41.45.010 and 1995 c 239 s 305 are each amended to read as follows:

    It is the intent of the legislature to provide a dependable and systematic process for funding the benefits provided to members and retirees of the public employees' retirement system, chapter 41.40 RCW; the teachers' retirement system, chapter 41.32 RCW; the law enforcement officers' and fire fighters' retirement system, chapter 41.26 RCW; and the Washington state patrol retirement system, chapter 43.43 RCW.

    The funding process established by this chapter is intended to achieve the following goals:

    (1) To continue to fully fund the public employees' retirement system plan 2 and plan 3, the teachers' retirement system plans 2 and 3, and the law enforcement officers' and fire fighters' retirement system plan 2 as provided by law;

    (2) To fully amortize the total costs of the public employees' retirement system plan 1, the teachers' retirement system plan 1, and the law enforcement officers' and fire fighters' retirement system plan 1 not later than June 30, 2024;

    (3) To establish predictable long-term employer contribution rates which will remain a relatively constant proportion of the future state budgets; and

    (4) To fund, to the extent feasible, benefit increases for plan 1 members and all benefits for plan 2 and 3 members over the working lives of those members so that the cost of those benefits are paid by the taxpayers who receive the benefit of those members' service.

    Sec. 47.  RCW 41.45.010 and 1998 c 341 s 401 are each amended to read as follows:

    It is the intent of the legislature to provide a dependable and systematic process for funding the benefits provided to members and retirees of the public employees' retirement system, chapter 41.40 RCW; the teachers' retirement system, chapter 41.32 RCW; the law enforcement officers' and fire fighters' retirement system, chapter 41.26 RCW; the school employees' retirement system, chapter 41.35 RCW; and the Washington state patrol retirement system, chapter 43.43 RCW.

    The funding process established by this chapter is intended to achieve the following goals:

    (1) To continue to fully fund the public employees' retirement system plan 2 and plan 3, 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 as provided by law;

    (2) To fully amortize the total costs of the public employees' retirement system plan 1, the teachers' retirement system plan 1, and the law enforcement officers' and fire fighters' retirement system plan 1 not later than June 30, 2024;

    (3) To establish predictable long-term employer contribution rates which will remain a relatively constant proportion of the future state budgets; and

    (4) To fund, to the extent feasible, benefit increases for plan 1 members and all benefits for plan 2 and 3 members over the working lives of those members so that the cost of those benefits are paid by the taxpayers who receive the benefit of those members' service.

    Sec. 48.  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" means the pension funding council created in RCW 41.45.100.

    (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," and "public employees' retirement system plan 3" 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. 49.  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" means the pension funding council created in RCW 41.45.100.

    (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," and "public employees' retirement system plan 3" 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) "Teacher" means a member of the teachers' retirement system as defined in RCW 41.32.010(15).

    Sec. 50.  RCW 41.45.050 and 1995 c 239 s 308 are each amended to read as follows:

    (1) Employers of members of the public employees' retirement system, the teachers' retirement system, and the Washington state patrol retirement system shall make contributions to those systems based on the rates established in RCW 41.45.060 and 41.45.070.

    (2) The state shall make contributions to the law enforcement officers' and fire fighters' retirement system based on the rates established in RCW 41.45.060 and 41.45.070.  The state treasurer shall transfer the required contributions each month on the basis of salary data provided by the department.

    (3) The department shall bill employers, and the state shall make contributions to the law enforcement officers' and fire fighters' retirement system, using the combined rates established in RCW 41.45.060 and 41.45.070 regardless of the level of pension funding provided in the biennial budget.  Any member of an affected retirement system may, by mandamus or other appropriate proceeding, require the transfer and payment of funds as directed in this section.

    (4) The contributions received for the public employees' retirement system shall be allocated between the public employees' retirement system plan 1 fund and the combined public employees' retirement system plan 2 and 3 fund as follows:  The contributions necessary to fully fund the public employees' retirement system plan 2 employer contribution required by RCW 41.40.650 shall first be deposited in the public employees' retirement system plan 2 fund.  All remaining public employees' retirement system employer contributions shall be deposited in the public employees' retirement system plan 1 fund.

    (5) The contributions received for the teachers' retirement system shall be allocated between the plan 1 fund and the combined plan 2 and plan 3 fund as follows:  The contributions necessary to fully fund the combined plan 2 and plan 3 employer contribution shall first be deposited in the combined plan 2 and plan 3 fund.  All remaining teachers' retirement system employer contributions shall be deposited in the plan 1 fund.

    (6) The contributions received under RCW 41.26.450 for the law enforcement officers' and fire fighters' retirement system shall be allocated between the law enforcement officers' and fire fighters' retirement system plan 1 and the law enforcement officers' and fire fighters' retirement system plan 2 fund as follows:  The contributions necessary to fully fund the law enforcement officers' and fire fighters' retirement system plan 2 employer contributions shall be first deposited in the law enforcement officers' and fire fighters' retirement system plan 2 fund.  All remaining law enforcement officers' and fire fighters' retirement system employer contributions shall be deposited in the law enforcement officers' and fire fighters' retirement system plan 1 fund.

    Sec. 51.  RCW 41.45.050 and 1998 c 341 s 403 are each amended to read as follows:

    (1) Employers of members of the public employees' retirement system, the teachers' retirement system, the school employees' retirement system, and the Washington state patrol retirement system shall make contributions to those systems based on the rates established in RCW 41.45.060 and 41.45.070.

    (2) The state shall make contributions to the law enforcement officers' and fire fighters' retirement system based on the rates established in RCW 41.45.060 and 41.45.070.  The state treasurer shall transfer the required contributions each month on the basis of salary data provided by the department.

    (3) The department shall bill employers, and the state shall make contributions to the law enforcement officers' and fire fighters' retirement system, using the combined rates established in RCW 41.45.060 and 41.45.070 regardless of the level of pension funding provided in the biennial budget.  Any member of an affected retirement system may, by mandamus or other appropriate proceeding, require the transfer and payment of funds as directed in this section.

    (4) The contributions received for the public employees' retirement system shall be allocated between the public employees' retirement system plan 1 fund and the combined public employees' retirement system plan 2 and 3 fund as follows:  The contributions necessary to fully fund the public employees' retirement system plan 2 and 3 employer contribution required by RCW 41.40.650 shall first be deposited in the public employees' retirement system plan 2 fund.  All remaining public employees' retirement system employer contributions shall be deposited in the public employees' retirement system plan 1 fund.

    (5) The contributions received for the teachers' retirement system shall be allocated between the plan 1 fund and the combined plan 2 and plan 3 fund as follows:  The contributions necessary to fully fund the combined plan 2 and plan 3 employer contribution shall first be deposited in the combined plan 2 and plan 3 fund.  All remaining teachers' retirement system employer contributions shall be deposited in the plan 1 fund.

    (6) The contributions received for the school employees' retirement system shall be allocated between the public employees' retirement system plan 1 fund and the school employees' retirement system combined plan 2 and plan 3 fund as follows:  The contributions necessary to fully fund the combined plan 2 and plan 3 employer contribution shall first be deposited in the combined plan 2 and plan 3 fund.  All remaining school employees' retirement system employer contributions shall be deposited in the public employees' retirement system plan 1 fund.

    (7) The contributions received under RCW 41.26.450 for the law enforcement officers' and fire fighters' retirement system shall be allocated between the law enforcement officers' and fire fighters' retirement system plan 1 and the law enforcement officers' and fire fighters' retirement system plan 2 fund as follows:  The contributions necessary to fully fund the law enforcement officers' and fire fighters' retirement system plan 2 employer contributions shall be first deposited in the law enforcement officers' and fire fighters' retirement system plan 2 fund.  All remaining law enforcement officers' and fire fighters' retirement system employer contributions shall be deposited in the law enforcement officers' and fire fighters' retirement system plan 1 fund.

    Sec. 52.  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 and every two years thereafter, consistent with the assumptions adopted under RCW 41.45.030, the council 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 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 and 3, 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 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.

    Sec. 53.  RCW 41.45.070 and 1998 c 340 s 10 and 1998 c 341 s 406 are each reenacted and amended to read as follows:

    (1) In addition to the basic employer contribution rate established in RCW 41.45.060, the department shall also charge employers of public employees' retirement system, teachers' retirement system, school employees' retirement system, or Washington state patrol retirement system members an additional supplemental rate to pay for the cost of additional benefits, if any, granted to members of those systems.  Except as provided in subsection (6) of this section, the supplemental contribution rates required by this section shall be calculated by the state actuary and shall be charged regardless of language to the contrary contained in the statute which authorizes additional benefits.

    (2) In addition to the basic state contribution rate established in RCW 41.45.060 for the law enforcement officers' and fire fighters' retirement system the department shall also establish a supplemental rate to pay for the cost of additional benefits, if any, granted to members of the law enforcement officers' and fire fighters' retirement system.  Except as provided in subsection (6) of this section, this supplemental rate shall be calculated by the state actuary and the state treasurer shall transfer the additional required contributions regardless of language to the contrary contained in the statute which authorizes the additional benefits.

    (3) The supplemental rate charged under this section to fund benefit increases provided to active members 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 Washington state patrol retirement system, shall be calculated as the level percentage of all members' pay needed to fund the cost of the benefit not later than June 30, 2024.

    (4) The supplemental rate charged under this section to fund benefit increases provided to active and retired members of the public employees' retirement system plan 2 and plan 3, the teachers' retirement system plan 2 and plan 3, the school employees' retirement system plan 2 and plan 3, or the law enforcement officers' and fire fighters' retirement system plan 2, shall be calculated as the level percentage of all members' pay needed to fund the cost of the benefit, as calculated under RCW 41.40.650 or 41.26.450, respectively.

    (5) The supplemental rate charged under this section to fund postretirement adjustments which are provided on a nonautomatic basis to current retirees shall be calculated as the percentage of pay needed to fund the adjustments as they are paid to the retirees.  The supplemental rate charged under this section to fund automatic postretirement adjustments for active or retired members of the public employees' retirement system plan 1 and the teachers' retirement system plan 1 shall be calculated as the level percentage of pay needed to fund the cost of the automatic adjustments not later than June 30, 2024.

    (6) A supplemental rate shall not be charged to pay for the cost of additional benefits granted to members pursuant to chapter 41.31A RCW; section 309, chapter 341, Laws of 1998; ((or)) section 701, chapter 341, Laws of 1998; chapter 340, Laws of 1998; or chapter ---, Laws of 1999 (this act).

NEW SECTION. Sec. 54.  A new section is added to chapter 41.45 RCW to read as follows:

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

    (a) Beginning January 1, 2000, 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 public employees' 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 January 1, 2000;

    (c) In addition, the employee contribution rate for plan 2 shall not be increased as a result of any distributions pursuant to section 35 of this act.

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

    Sec. 55.  RCW 41.50.075 and 1996 c 39 s 16 are each amended to read as follows:

    (1) Two funds are hereby created and established in the state treasury to be known as the Washington law enforcement officers' and fire fighters' system plan 1 retirement fund, and the Washington law enforcement officers' and fire fighters' system plan 2 retirement fund which shall consist of all moneys paid into them in accordance with the provisions of this chapter and chapter 41.26 RCW, whether such moneys take the form of cash, securities, or other assets.  The plan 1 fund shall consist of all moneys paid to finance the benefits provided to members of the law enforcement officers' and fire fighters' retirement system plan 1, and the plan 2 fund shall consist of all moneys paid to finance the benefits provided to members of the law enforcement officers' and fire fighters' retirement system plan 2.

    (2) All of the assets of the Washington state teachers' retirement system shall be credited according to the purposes for which they are held, to two funds to be maintained in the state treasury, namely, the teachers' retirement system plan 1 fund and the teachers' retirement system combined plan 2 and 3 fund.  The plan 1 fund shall consist of all moneys paid to finance the benefits provided to members of the Washington state teachers' retirement system plan 1, and the combined plan 2 and 3 fund shall consist of all moneys paid to finance the benefits provided to members of the Washington state teachers' retirement system plan 2 and 3.

    (3) There is hereby established in the state treasury two separate funds, namely the public employees' retirement system plan 1 fund and the ((public employees' retirement system)) combined plan 2 and 3 fund.  The plan 1 fund shall consist of all moneys paid to finance the benefits provided to members of the public employees' retirement system plan 1, and the combined plan 2 and 3 fund shall consist of all moneys paid to finance the benefits provided to members of the public employees' retirement system plan 2 and plan 3.

    Sec. 56.  RCW 41.50.075 and 1998 c 341 s 503 are each amended to read as follows:

    (1) Two funds are hereby created and established in the state treasury to be known as the Washington law enforcement officers' and fire fighters' system plan 1 retirement fund, and the Washington law enforcement officers' and fire fighters' system plan 2 retirement fund which shall consist of all moneys paid into them in accordance with the provisions of this chapter and chapter 41.26 RCW, whether such moneys take the form of cash, securities, or other assets.  The plan 1 fund shall consist of all moneys paid to finance the benefits provided to members of the law enforcement officers' and fire fighters' retirement system plan 1, and the plan 2 fund shall consist of all moneys paid to finance the benefits provided to members of the law enforcement officers' and fire fighters' retirement system plan 2.

    (2) All of the assets of the Washington state teachers' retirement system shall be credited according to the purposes for which they are held, to two funds to be maintained in the state treasury, namely, the teachers' retirement system plan 1 fund and the teachers' retirement system combined plan 2 and 3 fund.  The plan 1 fund shall consist of all moneys paid to finance the benefits provided to members of the Washington state teachers' retirement system plan 1, and the combined plan 2 and 3 fund shall consist of all moneys paid to finance the benefits provided to members of the Washington state teachers' retirement system plan 2 and 3.

    (3) There is hereby established in the state treasury two separate funds, namely the public employees' retirement system plan 1 fund and the ((public employees' retirement system)) combined plan 2 and 3 fund.  The plan 1 fund shall consist of all moneys paid to finance the benefits provided to members of the public employees' retirement system plan 1, and the combined plan 2 and 3 fund shall consist of all moneys paid to finance the benefits provided to members of the public employees' retirement system plan 2 and 3.

    (4) There is hereby established in the state treasury the school employees' retirement system combined plan 2 and 3 fund.  The combined plan 2 and 3 fund shall consist of all moneys paid to finance the benefits provided to members of the school employees' retirement system plan 2 and plan 3.

    Sec. 57.  RCW 41.54.030 and 1996 c 55 s 4, 1996 c 55 s 3, and 1996 c 39 s 19 are each reenacted and amended to read as follows:

    (1) A dual member may combine service in all systems for the purpose of:

    (a) Determining the member's eligibility to receive a service retirement allowance; and

    (b) Qualifying for a benefit under RCW 41.32.840(2) or section 20 of this act.

    (2) A dual member who is eligible to retire under any system may elect to retire from all the member's systems and to receive service retirement allowances calculated as provided in this section.  Each system shall calculate the allowance using its own criteria except that the member shall be allowed to substitute the member's base salary from any system as the compensation used in calculating the allowance.

    (3) The service retirement allowances from a system which, but for this section, would not be allowed to be paid at this date based on the dual member's age may be received immediately or deferred to a later date.  The allowances shall be actuarially adjusted from the earliest age upon which the combined service would have made such dual member eligible in that system.

    (4) The service retirement eligibility requirements of RCW 41.40.180 shall apply to any dual member whose prior system is plan 1 of the public employees' retirement system established under chapter 41.40 RCW.

    Sec. 58.  RCW 41.54.030 and 1998 c 341 s 703 are each amended to read as follows:

    (1) A dual member may combine service in all systems for the purpose of:

    (a) Determining the member's eligibility to receive a service retirement allowance; and

    (b) Qualifying for a benefit under RCW 41.32.840(2) ((or)), 41.35.620, or section 20 of this act.

    (2) A dual member who is eligible to retire under any system may elect to retire from all the member's systems and to receive service retirement allowances calculated as provided in this section.  Each system shall calculate the allowance using its own criteria except that the member shall be allowed to substitute the member's base salary from any system as the compensation used in calculating the allowance.

    (3) The service retirement allowances from a system which, but for this section, would not be allowed to be paid at this date based on the dual member's age may be received immediately or deferred to a later date.  The allowances shall be actuarially adjusted from the earliest age upon which the combined service would have made such dual member eligible in that system.

    (4) The service retirement eligibility requirements of RCW 41.40.180 shall apply to any dual member whose prior system is plan 1 of the public employees' retirement system established under chapter 41.40 RCW.

    Sec. 59.  RCW 41.05.011 and 1996 c 39 s 21 are each amended to read as follows:

    Unless the context clearly requires otherwise, the definitions in this section shall apply throughout this chapter.

    (1) "Administrator" means the administrator of the authority.

    (2) "State purchased health care" or "health care" means medical and health care, pharmaceuticals, and medical equipment purchased with state and federal funds by the department of social and health services, the department of health, the basic health plan, the state health care authority, the department of labor and industries, the department of corrections, the department of veterans affairs, and local school districts.

    (3) "Authority" means the Washington state health care authority.

    (4) "Insuring entity" means an insurer as defined in chapter 48.01 RCW, a health care service contractor as defined in chapter 48.44 RCW, or a health maintenance organization as defined in chapter 48.46 RCW.

    (5) "Flexible benefit plan" means a benefit plan that allows employees to choose the level of health care coverage provided and the amount of employee contributions from among a range of choices offered by the authority.

    (6) "Employee" includes all full-time and career seasonal employees of the state, whether or not covered by civil service; elected and appointed officials of the executive branch of government, including full-time members of boards, commissions, or committees; and includes any or all part-time and temporary employees under the terms and conditions established under this chapter by the authority; justices of the supreme court and judges of the court of appeals and the superior courts; and members of the state legislature or of the legislative authority of any county, city, or town who are elected to office after February 20, 1970.  "Employee" also includes:  (a) Employees of a county, municipality, or other political subdivision of the state if the legislative authority of the county, municipality, or other political subdivision of the state seeks and receives the approval of the authority to provide any of its insurance programs by contract with the authority, as provided in RCW 41.04.205; (b) employees of employee organizations representing state civil service employees, at the option of each such employee organization, and, effective October 1, 1995, employees of employee organizations currently pooled with employees of school districts for the purpose of purchasing insurance benefits, at the option of each such employee organization; and (c) employees of a school district if the authority agrees to provide any of the school districts' insurance programs by contract with the authority as provided in RCW 28A.400.350.

    (7) "Board" means the public employees' benefits board established under RCW 41.05.055.

    (8) "Retired or disabled school employee" means:

    (a) Persons who separated from employment with a school district or educational service district and are receiving a retirement allowance under chapter 41.32 or 41.40 RCW as of September 30, 1993;

    (b) Persons who separate from employment with a school district or educational service district on or after October 1, 1993, and immediately upon separation receive a retirement allowance under chapter 41.32 or 41.40 RCW;

    (c) Persons who separate from employment with a school district or educational service district due to a total and permanent disability, and are eligible to receive a deferred retirement allowance under chapter 41.32 or 41.40 RCW.

    (9) "Benefits contribution plan" means a premium only contribution plan, a medical flexible spending arrangement, or a cafeteria plan whereby state and public employees may agree to a contribution to benefit costs which will allow the employee to participate in benefits offered pursuant to 26 U.S.C. Sec. 125 or other sections of the internal revenue code.

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

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

    (12) "Plan year" means the time period established by the authority.

    (13) "Separated employees" means persons who separate from employment with an employer as defined in:

(a) RCW 41.32.010(11) on or after July 1, 1996((,)); or

(b) RCW 41.40.010(4)(b) on or after January 1, 2000;

and who are at least age fifty-five and have at least ten years of service under the teachers' retirement system plan 3 as defined in RCW 41.32.010(40).

    Sec. 60.  RCW 41.05.011 and 1998 c 341 s 706 are each amended to read as follows:

    Unless the context clearly requires otherwise, the definitions in this section shall apply throughout this chapter.

    (1) "Administrator" means the administrator of the authority.

    (2) "State purchased health care" or "health care" means medical and health care, pharmaceuticals, and medical equipment purchased with state and federal funds by the department of social and health services, the department of health, the basic health plan, the state health care authority, the department of labor and industries, the department of corrections, the department of veterans affairs, and local school districts.

    (3) "Authority" means the Washington state health care authority.

    (4) "Insuring entity" means an insurer as defined in chapter 48.01 RCW, a health care service contractor as defined in chapter 48.44 RCW, or a health maintenance organization as defined in chapter 48.46 RCW.

    (5) "Flexible benefit plan" means a benefit plan that allows employees to choose the level of health care coverage provided and the amount of employee contributions from among a range of choices offered by the authority.

    (6) "Employee" includes all full-time and career seasonal employees of the state, whether or not covered by civil service; elected and appointed officials of the executive branch of government, including full-time members of boards, commissions, or committees; and includes any or all part-time and temporary employees under the terms and conditions established under this chapter by the authority; justices of the supreme court and judges of the court of appeals and the superior courts; and members of the state legislature or of the legislative authority of any county, city, or town who are elected to office after February 20, 1970.  "Employee" also includes:  (a) Employees of a county, municipality, or other political subdivision of the state if the legislative authority of the county, municipality, or other political subdivision of the state seeks and receives the approval of the authority to provide any of its insurance programs by contract with the authority, as provided in RCW 41.04.205; (b) employees of employee organizations representing state civil service employees, at the option of each such employee organization, and, effective October 1, 1995, employees of employee organizations currently pooled with employees of school districts for the purpose of purchasing insurance benefits, at the option of each such employee organization; and (c) employees of a school district if the authority agrees to provide any of the school districts' insurance programs by contract with the authority as provided in RCW 28A.400.350.

    (7) "Board" means the public employees' benefits board established under RCW 41.05.055.

    (8) "Retired or disabled school employee" means:

    (a) Persons who separated from employment with a school district or educational service district and are receiving a retirement allowance under chapter 41.32 or 41.40 RCW as of September 30, 1993;

    (b) Persons who separate from employment with a school district or educational service district on or after October 1, 1993, and immediately upon separation receive a retirement allowance under chapter 41.32 or 41.40 RCW;

    (c) Persons who separate from employment with a school district or educational service district due to a total and permanent disability, and are eligible to receive a deferred retirement allowance under chapter 41.32 or 41.40 RCW.

    (9) "Benefits contribution plan" means a premium only contribution plan, a medical flexible spending arrangement, or a cafeteria plan whereby state and public employees may agree to a contribution to benefit costs which will allow the employee to participate in benefits offered pursuant to 26 U.S.C. Sec. 125 or other sections of the internal revenue code.

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

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

    (12) "Plan year" means the time period established by the authority.

    (13) "Separated employees" means persons who separate from employment with an employer as defined in:

    (a) RCW 41.32.010(11) on or after July 1, 1996; ((or))

    (b) RCW 41.35.010 on or after September 1, 2000; or

(c) RCW 41.40.010(4)(b) on or after January 1, 2000;

and who are at least age fifty-five and have at least ten years of service under the teachers' retirement system plan 3 as defined in RCW 41.32.010(40) or the Washington school employees' retirement system plan 3 as defined in RCW 41.35.010.

    Sec. 61.  RCW 43.33A.190 and 1998 c 341 s 707 are each amended to read as follows:

    Pursuant to RCW 41.34.130, the state investment board shall invest all self-directed investment moneys under the teachers' retirement system plan 3 ((and)), the school employees' retirement system plan 3, and the public employees' retirement system plan 3, with full power to establish investment policy, develop investment options, and manage self-directed investment funds.

NEW SECTION. Sec. 62.  Sections 24 through 38 of this act constitute a new chapter in Title 41 RCW.

NEW SECTION. Sec. 63.  Sections 3, 6, 46, 48, 50, 55, 57, and 59 of this act expire September 1, 2000.

NEW SECTION. Sec. 64.  Sections 4, 7, 47, 49, 51, 56, 58, and 60 of this act take effect September 1, 2000.

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