BILL REQ. #:  H-3772.1 

Read first time 01/24/08.   Referred to Committee on Appropriations.

     AN ACT Relating to the Washington state patrol retirement system; amending RCW 41.45.050, 41.45.060, 41.45.030, 41.45.070, 41.04.281, and 41.04.278; reenacting and amending RCW 44.44.040; adding a new chapter to Title 43 RCW; and providing an effective date.

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

NEW SECTION.  Sec. 1   The legislature intends to:
     (1) Establish a board of trustees responsible for the adoption of actuarial standards to be applied to the plan;
     (2) Direct the board to zealously manage the trust funds for the benefit of the members and beneficiaries of the plan, including exercising a preference for enhancing plan benefits rather than decreasing contribution rates;
     (3) Exercise fiduciary responsibility in the oversight of those pension management functions assigned to the board;
     (4) Provide effective monitoring of the plan by providing an annual report to the legislature, to the members and beneficiaries of the plan, and to the public;
     (5) Establish contribution rates for employees and the state of Washington that will guaranty viability of the plan, subject to the limitations provided for in this chapter;
     (6) Require the department of retirement systems to provide staff and resources for the board; and
     (7) Enable the board to retain professional and technical advisors as necessary for the fulfillment of their statutory responsibilities.

NEW SECTION.  Sec. 2   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Member" has the same meaning as that provided in RCW 43.43.120 and also includes separated vested members of the plan who are not currently receiving benefits.
     (2) "Plan" means the Washington state patrol retirement system established under chapter 43.43 RCW.
     (3) "Actuary" means the actuary employed by the board of trustees.
     (4) "State actuary" means the actuary employed under chapter 44.44 RCW.
     (5) "Board" or "board of trustees" means the Washington state patrol retirement system board of trustees.
     (6) "Board member" means a member of the Washington state patrol retirement system board of trustees.
     (7) "Department" means the department of retirement systems.
     (8) "Enrolled actuary" means an actuary who is enrolled under the employee retirement income security act of 1974 (Subtitle C of Title III) and who is a member of the society of actuaries or the American academy of actuaries.
     (9) "Trust" means the assets of the Washington state patrol retirement system.
     (10) "Benefits" means the age or service or combination thereof required for retirement, the level of service benefits, survivorship benefits, payment options including a deferred retirement option plan, average final compensation, postretirement cost-of-living adjustments, including health care and the elements of compensation. "Benefits" does not include the classifications of employment eligible to participate in the plan.
     (11) "Actuarially sound" means the plan is sufficiently funded to meet its projected liabilities and to defray the reasonable expenses of its operation based upon commonly accepted, sound actuarial principles.
     (12) "Beneficiary" has the same meaning as provided in RCW 43.43.120.

NEW SECTION.  Sec. 3   (1) A nine member board of trustees is hereby created. Representation on the board is as follows:
     (a) Two active members of the plan appointed by the Washington state patrol troopers association;
     (b) One active member of the plan appointed by the chief of the Washington state patrol;
     (c) One retired member of the plan appointed by the Washington state patrol troopers association;
     (d) One member appointed by the director of financial management;
     (e) Two members of the house of representatives transportation committee, one appointed by the speaker of the house of representatives and one appointed by the leader of the largest minority caucus of the house of representatives; and
     (f) Two members of the senate transportation committee, one appointed by the senate majority leader and one appointed by the leader of the largest minority caucus of the senate.
     (2) The initial retirement system board members shall serve staggered terms of four and two years, respectively. Thereafter, retirement system board members serve terms of four years. Board members may be reappointed to succeeding terms without limitation. Board members shall serve until their successors are appointed and seated.
     (3) In the event of a vacancy on the board, the vacancy shall be filled in the same manner as prescribed for an initial appointment.
     (4) If a board member appointed under subsection (1)(a) of this section is promoted to the rank of lieutenant or higher, he or she ceases to be a board member and subsection (3) of this section applies.

NEW SECTION.  Sec. 4   (1) The board of trustees has the following powers and duties and shall:
     (a) Adopt actuarial tables, assumptions, and cost methodologies in consultation with the state actuary. The state actuary shall utilize the aggregate actuarial cost method, or other recognized actuarial cost method based on a level percentage of payroll, as that term is employed by the American academy of actuaries. The board may employ an independent actuary to evaluate or supplement the state actuary's work for the board. If the independent actuary and the state actuary cannot agree, they shall appoint a third, independent enrolled actuary who shall review the calculations of the actuary retained by the board and the state actuary. Thereafter, contributions shall be based on the methodology most closely following that of the third actuary;
     (b) Recommend to the legislature changes in statutes governing benefits or administration of the system. The governor shall submit a request for legislation necessary to implement the changes recommended by the board under this subsection. Requests for legislation may not be submitted to the legislature by the governor unless the requests:
     (i) Have been submitted to the director of financial management by October 1st before the legislative session at which the requests are to be considered; and
     (ii) Have been certified by the director of financial management as being feasible financially for the state;
     (c) Retain professional and technical advisors necessary for the accomplishment of its duties;
     (d) Consult with the department for the purpose of improving benefit administration and member services;
     (e) Provide an annual report to the governor and the legislature setting forth the actuarial funding status of the plan and making recommendations for improvements in those aspects of retirement administration directed by the legislature or administered by the department;
     (f) Establish uniform administrative rules and operating policies in the manner prescribed by law;
     (g) Engage administrative staff and acquire office space in conjunction with the department. The department shall provide funding from its budget for these purposes:
     (i) The board, in consultation with the department, shall hire an executive director who serves at the pleasure of the board;
     (ii) The executive director shall hire staff into positions authorized by the board;
     (h) Publish on an annual basis a schedule of benefits together with a summary of the benefits as established by the legislature which shall constitute the official plan document;
     (i) Be the fiduciary of the plan and discharge the board's duties solely in the interest of the members and beneficiaries of the plan; and
     (j) Render final decisions under chapter 34.05 RCW on adjudicative proceedings arising out of the administration of the plan.
     (2) Meetings of the board of trustees shall be conducted as follows:
     (a) All board meetings are open to the public, preceded by timely public notice;
     (b) All actions of the board shall be taken in open public session, except for those matters which may be considered in executive session as provided under chapter 42.17 RCW;
     (c) The board shall retain minutes of each meeting setting forth the names of those board members present and absent, and their voting record on any voted issue; and
     (d) The board may establish, with the assistance of the department, an internet web site providing for interactive communication with state government, members and beneficiaries of the plan, and the public.
     (3) A quorum of the board is five board members. All board actions require five concurring votes.
     (4) The decisions of the board shall be made in good faith and are final, binding, and conclusive on all parties. The decisions of the board shall be subject to judicial review as provided by law.
     (5) The board shall prepare and submit an annual budget consistent with the requirements of chapter 43.88 RCW to the department. The department shall include the board's budget in its budget submittal under chapter 43.88 RCW. Board members and staff shall be reimbursed for travel and education expenses as provided in RCW 43.03.050 and 43.03.060. The board shall make an annual report to the governor, legislature, and state auditor setting forth a summary of the costs and expenditures of the plan for the preceding year. The board shall also retain the services of an independent, certified public accountant who shall annually audit the expenses of the fund and whose report shall be included in the board's annual report.

NEW SECTION.  Sec. 5   (1) The board of trustees shall establish contributions and set economic assumptions. The cost of the benefits as defined in this plan shall be funded on a sound actuarial basis in accordance with the actuarial standards adopted by the board.
     (2) The board shall manage the trust in a manner that maintains reasonable contributions and administrative costs. Providing additional benefits to members and beneficiaries is the board's priority.

Sec. 6   RCW 44.44.040 and 2003 c 295 s 4 and 2003 c 92 s 2 are each reenacted and amended to read as follows:
     The office of the state actuary shall have the following powers and duties:
     (1) Perform all actuarial services for the department of retirement systems, including all studies required by law.
     (2) Advise the legislature and the governor regarding pension benefit provisions, and funding policies and investment policies of the state investment board.
     (3) Consult with the legislature and the governor concerning determination of actuarial assumptions used by the department of retirement systems.
     (4) Prepare a report, to be known as the actuarial fiscal note, on each pension bill introduced in the legislature which briefly explains the financial impact of the bill. The actuarial fiscal note shall include: (a) The statutorily required contribution for the biennium and the following twenty-five years; (b) the biennial cost of the increased benefits if these exceed the required contribution; and (c) any change in the present value of the unfunded accrued benefits. An actuarial fiscal note shall also be prepared for all amendments which are offered in committee or on the floor of the house of representatives or the senate to any pension bill. However, a majority of the members present may suspend the requirement for an actuarial fiscal note for amendments offered on the floor of the house of representatives or the senate.
     (5) Provide such actuarial services to the legislature as may be requested from time to time.
     (6) Provide staff and assistance to the committee established under RCW 41.04.276.
     (7) Provide actuarial assistance to the law enforcement officers' and firefighters' plan 2 retirement board as provided in chapter 2, Laws of 2003. Reimbursement for services shall be made to the state actuary under RCW 39.34.130 and section 5(5), chapter 2, Laws of 2003.
     (8) Provide actuarial assistance to the Washington state patrol retirement system board of trustees under sections 4 and 5 of this act.

Sec. 7   RCW 41.45.050 and 2004 c 242 s 38 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 public safety 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 firefighters' retirement system plan 2 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 firefighters' retirement system plan 2, using the combined rates established in RCW 41.45.060 and 41.45.070 regardless of the level of appropriation 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 public employees' retirement system combined plan 2 and plan 3 fund as follows: The contributions necessary to fully fund the public employees' retirement system combined plan 2 and plan 3 employer contribution shall first be deposited in the public employees' retirement system combined plan 2 and plan 3 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 for the law enforcement officers' and firefighters' retirement system plan 2 shall be deposited in the law enforcement officers' and firefighters' retirement system plan 2 fund.
     (8) The contributions received for the public safety employees' retirement system shall be allocated between the public employees' retirement system plan 1 fund and the public safety employees' retirement system plan 2 fund as follows: The contributions necessary to fully fund the plan 2 employer contribution shall first be deposited in the plan 2 fund. All remaining public safety employees' retirement system employer contributions shall be deposited in the public employees' retirement system plan 1 fund.
     (9) The employer of the members of the Washington state patrol retirement system shall make contributions to that system based on the rates established under section 5 of this act regardless of the level of appropriation provided in the biennial budget. The contributions received for the Washington state patrol retirement system shall be deposited in the Washington state patrol retirement fund.

Sec. 8   RCW 41.45.060 and 2007 c 280 s 2 are each amended to read as follows:
     (1) The state actuary shall provide preliminary actuarial valuation results based on the economic assumptions and asset value smoothing technique included in RCW 41.45.035 or adopted under RCW 41.45.030 or 41.45.035.
     (2) Not later than July 31, 2008, and every two years thereafter, consistent with the economic assumptions and asset value smoothing technique included in RCW 41.45.035 or adopted under RCW 41.45.030 or 41.45.035, the council shall adopt and may make changes to:
     (a) A basic state contribution rate for the law enforcement officers' and firefighters' retirement system plan 1;
     (b) Basic employer contribution rates for the public employees' retirement system((,)) and the teachers' retirement system((, and the Washington state patrol retirement system)); and
     (c) Basic employer contribution rates for the school employees' retirement system and the public safety employees' retirement system for funding both those systems and the public employees' retirement system plan 1.
     The council may adopt annual rate changes for any plan for any rate-setting period. The contribution rates adopted by the council shall be subject to revision by the legislature.
     (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, and the law enforcement officers' and firefighters' retirement system plan 1 not later than June 30, 2024; and
     (b) To fully fund the public employees' retirement system plans 2 and 3, the teachers' retirement system plans 2 and 3, the public safety employees' retirement system plan 2, and the school employees' retirement system plans 2 and 3 in accordance with RCW 41.45.061, 41.45.067, and this section.
     (4) The aggregate actuarial cost method shall be used to calculate a combined plan 2 and 3 employer contribution rate ((and a Washington state patrol retirement system contribution rate)).
     (5) 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. The rates shall be effective for the ensuing biennial period, subject to any legislative modifications.
     (6) The director shall collect those rates adopted by the council. The rates established in RCW 41.45.062, or by the council, shall be subject to revision by the legislature.
     (7) The state actuary shall prepare final actuarial valuation results based on the economic assumptions, asset value smoothing technique, and contribution rates included in or adopted under RCW 41.45.030, 41.45.035, and this section.

Sec. 9   RCW 41.45.030 and 2007 c 280 s 1 are each amended to read as follows:
     (1) Beginning September 1, 2007, and every two years thereafter, the state actuary shall:
     (a) Submit to the council information regarding the experience and financial condition of each state retirement system, and make recommendations regarding the long-term economic assumptions set forth in RCW 41.45.035. The council shall review this and such other information as it may require; and
     (b) Submit to the Washington state patrol retirement system board information regarding the experience and financial condition of each state retirement system, and make recommendations regarding the long-term economic growth assumptions under RCW 41.45.035.
     (2)(a) By October 31, 2007, and every two years thereafter((,)):
     (i) The council, by affirmative vote of four councilmembers, may adopt changes to the long-term economic assumptions established in RCW 41.45.035. Any changes adopted by the council shall be subject to revision by the legislature; and
     (ii) The Washington state patrol retirement system board shall consider and may adopt changes to the long-term economic assumptions under RCW 41.45.035.
     (b) The council and the Washington state patrol retirement system board shall consult with the economic and revenue forecast supervisor and the executive director of the state investment board, and shall consider long-term historical averages, in reviewing possible changes to the economic assumptions.
     (3) The assumptions and the asset value smoothing technique established in RCW 41.45.035, as modified in the future by the council or legislature, shall be used by the state actuary in conducting all actuarial studies of the state retirement systems, including actuarial fiscal notes under RCW 44.44.040. The assumptions shall also be used for the administration of benefits under the retirement plans listed in RCW 41.45.020, pursuant to timelines and conditions established by department rules.

Sec. 10   RCW 41.45.070 and 2007 c 491 s 12 are each amended to read as follows:
     (1) In addition to the basic employer contribution rate established in RCW 41.45.060 ((or 41.45.054)), the department shall also charge employers of public employees' retirement system, teachers' retirement system, school employees' retirement system, public safety 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 subsections (6), (7), and (9) 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 member, employer, and state contribution rate established in RCW 41.45.0604 for the law enforcement officers' and firefighters' retirement system plan 2, the department shall also establish supplemental rates to pay for the cost of additional benefits, if any, granted to members of the law enforcement officers' and firefighters' retirement system plan 2. Except as provided in subsection (6) of this section, these supplemental rates shall be calculated by the actuary retained by the law enforcement officers' and firefighters' board and the state actuary through the process provided in RCW 41.26.720(1)(a) 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, 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 public safety employees' retirement system plan 2, or the school employees' retirement system plan 2 and plan 3 shall be calculated as the level percentage of all members' pay needed to fund the cost of the benefit, as calculated under RCW 41.45.060, 41.45.061, or 41.45.067.
     (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 340, Laws of 1998.
     (7) 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.
     (8) A supplemental rate shall not be charged to pay for the cost of additional benefits granted to members and survivors pursuant to chapter 94, Laws of 2006.
     (9) A supplemental rate shall not be charged to pay for the cost of the additional benefits granted to members of the teachers' retirement system and the school employees' retirement system plans 2 and 3 in sections 2, 4, 6, and 8, chapter 491, Laws of 2007 until September 1, 2008. A supplemental rate shall not be charged to pay for the cost of the additional benefits granted to members of the public employees' retirement system plans 2 and 3 under sections 9 and 10, chapter 491, Laws of 2007 until July 1, 2008.
     (10) In addition to the basic member and employer contribution rates established in section 5 of this act for the Washington state patrol retirement system, the board shall also establish supplemental rates to pay for the cost of additional benefits, if any, granted to members of the Washington state patrol retirement system. Except as provided in subsection (8) of this section, these supplemental rates shall be calculated by the actuary retained by the Washington state patrol retirement system board and the state actuary through the process provided in section 4 of this act 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.

Sec. 11   RCW 41.04.281 and 2003 c 295 s 5 are each amended to read as follows:
     The select committee on pension policy has the following powers and duties:
     (1) Study pension issues, develop pension policies for public employees in state retirement systems, other than the Washington state patrol retirement system, and make recommendations to the legislature;
     (2) Study the financial condition of the state pension systems, develop funding policies, and make recommendations to the legislature;
     (3) Consult with the chair and vice-chair on appointing members to the state actuary appointment committee upon the convening of the state actuary appointment committee established under RCW 44.44.013; and
     (4) Receive the results of the actuarial audits of the actuarial valuations and experience studies administered by the pension funding council pursuant to RCW 41.45.110. The select committee on pension policy shall study and make recommendations on changes to assumptions or contribution rates to the pension funding council prior to adoption of changes under RCW 41.45.030, 41.45.035, or 41.45.060.

Sec. 12   RCW 41.04.278 and 2006 c 309 s 4 are each amended to read as follows:
     (1) The select committee on pension policy may form three function-specific subcommittees, as set forth under subsection (2) of this section, from the members under RCW 41.04.276(1) (a) through (e), as follows:
     (a) A public safety subcommittee with one member from each group under RCW 41.04.276(1) (a) through (e);
     (b) An education subcommittee with one member from each group under RCW 41.04.276(1) (a) through (e); and
     (c) A state and local government subcommittee, with one retiree member under RCW 41.04.276(1)(d) and two members from each group under RCW 41.04.276(1) (a) through (c) and (e).
     The retiree members may serve on more than one subcommittee to ensure representation on each subcommittee.
     (2)(a) The public safety subcommittee shall focus on pension issues affecting public safety employees who are members of the law enforcement officers' and firefighters'((,)) and public safety employees'((, and Washington state patrol)) retirement systems.
     (b) The education subcommittee shall focus on pension issues affecting educational employees who are members of the public employees', teachers', and school employees' retirement systems.
     (c) The state and local government subcommittee shall focus on pension issues affecting state and local government employees who are members of the public employees' retirement system.

NEW SECTION.  Sec. 13   The select committee on pension policy established in RCW 41.04.276 and the pension funding council created in RCW 41.45.100 has no applicability or authority over matters relating to this plan.

NEW SECTION.  Sec. 14   Assets of the plan shall be managed by the state investment board as provided by law.

NEW SECTION.  Sec. 15   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 16   Sections 1 through 5 and 13 through 15 of this act constitute a new chapter in Title 43 RCW.

NEW SECTION.  Sec. 17   This act takes effect July 1, 2008.