BILL REQ. #:  Z-0572.1 

Read first time 01/31/2007.   Referred to Committee on Ways & Means.

     AN ACT Relating to public pensions that revises gain-sharing provisions and makes certain changes in benefits for the teachers' retirement system, the school employees' retirement system, and the public employees' retirement system; amending RCW 41.34.020, 41.34.040, 41.34.060, 41.31A.020, 41.34.110, 41.32.835, 41.32.840, 41.35.610, 41.35.620, 41.40.790, 41.31.010, and 41.31.020; adding new sections to chapter 41.32 RCW; adding a new section to chapter 41.35 RCW; adding new sections to chapter 41.40 RCW; adding new sections to chapter 41.34 RCW; creating a new section; decodifying RCW 41.31A.020, 41.31.010, and 41.31.020; providing an effective date; and declaring an emergency.

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

Sec. 1   RCW 41.34.020 and 2000 c 247 s 401 are each amended to read as follows:
     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) "Assured benefit program" means the provisions of this chapter allowing certain members the option to contribute a specified percentage of their compensation, invest that contribution in the Washington state investment board investment program, and receive a specified benefit.
     (3) "Assured benefit subaccount" means a portion of a member account that must be directed to the Washington state investment board investment program.
     (4) "Board" means the employee retirement benefits board authorized in chapter 41.50 RCW.
     (((3))) (5) "Department" means the department of retirement systems.
     (((4))) (6)(a) "Compensation" for teachers for purposes of this chapter is the same as "earnable compensation" for plan 3 in chapter 41.32 RCW except that the compensation may be reported when paid, rather than when earned.
     (b) "Compensation" for classified employees for purposes of this chapter is the same as "compensation earnable" for plan 3 in RCW 41.35.010, except that the compensation may be reported when paid, rather than when earned.
     (c) "Compensation" for public employees for purposes of this chapter is the same as "compensation earnable" for plan 3 in RCW 41.40.010, except that the compensation may be reported when paid, rather than when earned.
     (((5))) (7)(a) "Employer" for teachers for purposes of this chapter means the same as "employer" for plan 3 in chapter 41.32 RCW.
     (b) "Employer" for classified employees for purposes of this chapter means the same as "employer" for plan 3 in RCW 41.35.010.
     (c) "Employer" for public employees for purposes of this chapter means the same as "employer" for plan 3 in RCW 41.40.010.
     (((6))) (8) "Member" means any employee included in the membership of a retirement system as provided for in chapter 41.32 RCW of plan 3, chapter 41.35 RCW of plan 3, or chapter 41.40 RCW of plan 3.
     (((7))) (9) "Member account" or "member's account" means the sum of the contributions and earnings on behalf of the member.
     (((8))) (10) "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.
     (((9))) (11) "Teacher" means a member of the teachers' retirement system plan 3 as defined in RCW 41.32.010(29).
     (((10))) (12) "Classified employee" means a member of the school employees' retirement system plan 3 as defined in RCW 41.35.010.
     (((11))) (13) "Public employee" means a member of the public employees' retirement system plan 3 as defined in RCW 41.40.010.

Sec. 2   RCW 41.34.040 and 2003 c 156 s 1 are each amended to read as follows:
     (1)(a) Members of the public employees', school employees', and teachers' retirement systems participating in the assured benefit program shall contribute from his or her compensation according to one of the rate structures in (c) of this subsection in addition to the mandatory minimum of five percent. However, the total contribution rate must be at least equal to his or her system's assured benefit base rate in (d) of this subsection. The assured benefit base rate contributions are deposited in the member's assured benefit subaccount and are directed to the Washington state investment board investment program.
     (b) A member not participating in the assured benefit program shall contribute from his or her compensation according to one of the ((following)) rate structures in (c) of this subsection in addition to the mandatory minimum five percent((:)).
     (c)

Sec. 3   RCW 41.34.060 and 2001 c 180 s 2 are each amended to read as follows:
     (1) Except as provided in subsection (3) 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 (3) of this section.
     (a) For members of the retirement system as provided for in chapter 41.32 RCW of plan 3, investment shall be in the same portfolio as that of the teachers' retirement system combined plan 2 and 3 fund under RCW 41.50.075(2).
     (b) For members of the retirement system as provided for in chapter 41.35 RCW of plan 3, investment shall be in the same portfolio as that of the school employees' retirement system combined plan 2 and 3 fund under RCW 41.50.075(4).
     (c) 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).
     (2) The state investment board shall declare monthly unit values for the portfolios or funds, or portions thereof, utilized under subsection (1)(a), (b), and (c) of this section. The declared values shall be an approximation of portfolio or fund values, based on internal procedures of the state investment board. Such declared unit values and internal procedures shall be in the sole discretion of the state investment board. The state investment board may delegate any of the powers and duties under this subsection, including discretion, pursuant to RCW 43.33A.030. Member accounts shall be credited by the department with a rate of return based on changes to such unit values.
     (3)(a) Members may elect to self-direct their investments as set forth in RCW 41.34.130 and 43.33A.190.
     (b) Members who elect to participate in the assured benefit program may elect to self-direct only that portion of their investment that is outside their assured benefit program subaccount.

Sec. 4   RCW 41.31A.020 and 2003 c 294 s 4 are each amended to read as follows:
     (1) On January 1, 2004, and on January 1st of even-numbered years ((thereafter)) through January 1, 2008, the member account of a person meeting the requirements of this section shall be credited by the extraordinary investment gain amount. After January 1, 2008, no further amount under this section shall either accrue, be credited, or be paid to member accounts.
     (2) Through January 1, 2008, the following persons shall be eligible for the benefit provided in subsection (1) of this section:
     (a) Any member of the teachers' retirement system plan 3, the Washington school employees' retirement system plan 3, or the public employees' retirement system plan 3 who earned service credit during the twelve-month period from September 1st to August 31st immediately preceding the distribution and had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution; or
     (b) Any person in receipt of a benefit pursuant to RCW 41.32.875, 41.35.680, or 41.40.820; or
     (c) Any person who is a retiree pursuant to RCW 41.34.020(((8))) (10) 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
     (d) Any teacher who is a retiree pursuant to RCW 41.34.020(((8))) (10) and who has completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817; or
     (e) Any classified employee who is a retiree pursuant to RCW 41.34.020(((8))) (10) and who has completed five service credit years by September 1, 2000, and who transferred to plan 3 under RCW 41.35.510; or
     (f) Any public employee who is a retiree pursuant to RCW 41.34.020(((8))) (10) and who has completed five service credit years by March 1, 2002, and who transferred to plan 3 under RCW 41.40.795; or
     (g) Any person who had a balance of at least one thousand dollars in their member account on August 31st 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
     (h) Any teacher who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by July 1, 1996, under plan 2 and who transferred to plan 3 under RCW 41.32.817; or
     (i) Any classified employee who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by September 1, 2000, and who transferred to plan 3 under RCW 41.35.510; or
     (j) Any public employee who had a balance of at least one thousand dollars in their member account on August 31st of the year immediately preceding the distribution and who has completed five service credit years by March 1, 2002, and who transferred to plan 3 under RCW 41.40.795. After January 1, 2008, no member shall be eligible for the benefit provided in subsection (1) of this section.
     (3) Through July 1, 2007, 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, the Washington school employees' 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 compound average 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 31st 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 31st 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 the teachers' retirement system plan 2, the Washington school employees' retirement system plan 2, or the public employees' retirement system plan 2 during the twelve-month period from September 1st to August 31st immediately preceding the distribution;
     (C) Any person in receipt of a benefit pursuant to RCW 41.32.765, 41.35.420, or 41.40.630; and
     (D) Any person with five or more years of service in the teachers' retirement system plan 2, the Washington school employees' retirement system plan 2, or the public employees' retirement system 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 31st of the previous year. After July 1, 2007, no extraordinary gain shall be calculated.
     (4) 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.

Sec. 5   RCW 41.34.110 and 1996 c 39 s 12 are each amended to read as follows:
     (1) A member who separates from service and then reestablishes membership may restore contributions to the member account.
     (2) A member electing to participate in the assured benefit program, who separates from service and then reestablishes membership, may continue to be eligible for benefits under RCW 41.32.840(2), 41.35.620(2), or 41.40.790(2)(a)(i) by restoring all contributions and earnings to the member account made after the election, plus interest as determined by the director.

NEW SECTION.  Sec. 6   A new section is added to chapter 41.32 RCW under the subchapter heading "plan 1" to read as follows:
     Beginning July 1, 2009, the annual increase amount as defined in RCW 41.32.010(46) shall be increased by an amount equal to $0.23 minus the 2008 gain sharing increase amount under RCW 41.31.010 per month per year of service. This adjustment shall not decrease the annual increase amount, and is not to exceed $0.05 per month per year of service.

Sec. 7   RCW 41.32.835 and 1995 c 239 s 105 are each amended to read as follows:
     (1) All teachers who first become employed by an employer in an eligible position on or after ((July 1, 1996, shall be members of plan 3)) July 1, 2007, shall have a period of ninety days to make an irrevocable choice to become a member of plan 2 or plan 3. At the end of ninety days, if the member has not made a choice to become a member of plan 2, he or she becomes a member of plan 3.
     (2) For administrative efficiency, until a member elects to become a member of plan 3, or becomes a member of plan 3 by default under subsection (1) of this section, the member shall be reported to the department in plan 2, with member and employer contributions. Upon becoming a member of plan 3 by election or by default, all service credit shall be transferred to the member's plan 3 defined benefit, and all employee accumulated contributions shall be transferred to the member's plan 3 defined contribution account.

NEW SECTION.  Sec. 8   A new section is added to chapter 41.32 RCW under the subchapter heading "plan 3" to read as follows:
     Beginning July 1, 2008, and through September 30, 2008, plan 3 members who first became plan 3 members prior to July 1, 2007, may make an irrevocable election, filed in writing with the department, to participate in the assured benefit program prospective provisions under RCW 41.32.840(2) and 41.34.040.

Sec. 9   RCW 41.32.840 and 1996 c 39 s 4 are each amended 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)(a) A member of the retirement system who elects to participate in the assured benefit program shall receive an additional benefit under one of (a)(i) through (iv) of this subsection. The member shall select the form of their additional benefit from among these options at retirement from service. However, a minimum of five years from the date a member elects to participate in the assured benefit program must elapse before the member can begin drawing a prospective assured benefit under (a)(ii) through (iv) of this subsection.
     (i) The member may elect to terminate the assured benefit subaccount and have the funds in the subaccount, including any investment earnings, returned to the member's defined contribution account;
     (ii) The member, at time of retirement from service, may elect to receive at normal retirement age, an assured benefit of one percent of the member's average final compensation for each year of service credit during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated as under RCW 41.32.845;
     (iii) The member who has attained at least age fifty-five and has completed at least ten years of service, at time of retirement from service, may elect to receive an assured benefit of one percent of the member's average final compensation for each year of service credit during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated under RCW 41.32.845, and adjusted for early retirement under RCW 41.32.875(2); or
     (iv) The member who has attained at least age fifty-five and has completed at least thirty years of service, at time of retirement from service, may elect to receive an assured benefit of one percent of the member's average final compensation for each year of service credit during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated under RCW 41.32.845, and adjusted for alternate early retirement under RCW 41.32.875(3).
     If the member chooses to receive the assured benefit, the assured benefit subaccount balance will be reduced by an amount that is actuarially equivalent to the value of the assured benefit and that amount will be transferred to the pension reserve as defined in RCW 41.32.010(18). If funds in the subaccount exceed that amount, the excess shall be returned to the member's defined contribution account. If the funds in the subaccount are less than that amount, the entire subaccount balance will be transferred.
     The assured benefit is subject to the same conditions as the retirement allowance in subsection (1) of this section, including but not limited to provisions for retirement and return to work, early retirement, death, and disability, and is subject to adjustments under this chapter.
     (b) For the purposes of this section, "actuarially equivalent" means of equal value when computed on the basis of mortality tables and rules adopted by the director.
     (3) The retirement allowance payable under RCW 41.32.875 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.

Sec. 10   RCW 41.35.610 and 1998 c 341 s 202 are each amended to read as follows:
     (1) All classified employees who first become employed by an employer in an eligible position on or after ((September 1, 2000, shall be members of plan 3)) July 1, 2007, shall have a period of ninety days to make an irrevocable choice to become a member of plan 2 or plan 3. At the end of ninety days, if the member has not made a choice to become a member of plan 2, he or she becomes a member of plan 3.
     (2) For administrative efficiency, until a member elects to become a member of plan 3, or becomes a member of plan 3 by default under subsection (1) of this section, the member shall be reported to the department in plan 2, with member and employer contributions. Upon becoming a member of plan 3 by election or by default, all service credit shall be transferred to the member's plan 3 defined benefit, and all employee accumulated contributions shall be transferred to the member's plan 3 defined contribution account.

NEW SECTION.  Sec. 11   A new section is added to chapter 41.35 RCW under the subchapter heading "plan 3" to read as follows:
     Beginning July 1, 2008, and through September 30, 2008, plan 3 members who first became members of plan 3 prior to July 1, 2007, may make an irrevocable election, filed in writing with the department, to participate in the assured benefit program prospective provisions under RCW 41.34.040 and 41.35.620(2).

Sec. 12   RCW 41.35.620 and 1998 c 341 s 203 are each amended 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)(a) A member of the retirement system who elects to participate in the assured benefit program shall receive an additional benefit under one of (a)(i) through (iv) of this subsection. The member shall select the form of their additional benefit from among these options at retirement from service. However, a minimum of five years from the date a member elects to participate in the assured benefit program must elapse before the member can begin drawing a prospective assured benefit under (a)(ii) through (iv) of this subsection.
     (i) The member may elect to terminate the assured benefit subaccount and have the funds in the subaccount, including any investment earnings, returned to the member's defined contribution account;
     (ii) The member, at time of retirement from service, may elect to receive at normal retirement age an assured benefit of one percent of the member's average final compensation for each year of service credit during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated as under RCW 41.35.210;
     (iii) The member who has attained at least age fifty-five and has completed at least ten years of service, at time of retirement from service, may elect to receive an assured benefit of one percent of the member's average final compensation for each year of service credit during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated under RCW 41.35.210, and adjusted for early retirement under RCW 41.35.680(2); or
     (iv) The member who has attained at least age fifty-five and has completed at least thirty years of service, at time of retirement from service, may elect to receive an assured benefit of one percent of the member's average final compensation for each year of service credit during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated under RCW 41.35.210, and adjusted for alternate early retirement under RCW 41.35.680(3).
     If the member chooses to receive the assured benefit, the assured benefit subaccount balance will be reduced by an amount that is actuarially equivalent to the value of the assured benefit and that amount will be transferred to the school employees' retirement system. If funds in the subaccount exceed that amount, the excess shall be returned to the member's defined contribution account. If the funds in the subaccount are less than that amount, the entire subaccount balance will be transferred.
     The assured benefit is subject to the same conditions as the retirement allowance in subsection (1) of this section, including but not limited to provisions for retirement and return to work, early retirement, death, and disability, and is subject to adjustment under this chapter.
     (b) For the purposes of this section, "actuarially equivalent" means of equal value when computed on the basis of mortality tables and rules adopted by the director.
     (3) The retirement allowance payable under RCW 41.35.680 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. 13   A new section is added to chapter 41.40 RCW under the subchapter heading "plan 1" to read as follows:
     Beginning July 1, 2009, the annual increase amount as defined in RCW 41.40.010(41) shall be increased by an amount equal to $0.23 minus the 2008 gain-sharing increase amount under RCW 41.31.010 per month per year of service. This adjustment shall not decrease the annual increase amount, and is not to exceed $0.05 per month per year of service.

NEW SECTION.  Sec. 14   A new section is added to chapter 41.40 RCW under the subchapter heading "plan 3" to read as follows:
     Beginning July 1, 2008, and through September 30, 2008, plan 3 members who first became members of plan 3 prior to July 1, 2007, may make an irrevocable election, filed in writing with the department, to participate in the assured benefit program prospective provisions under RCW 41.34.040 and 41.40.790(2).

Sec. 15   RCW 41.40.790 and 2000 c 247 s 303 are each amended 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)(a) A member of the retirement system who elects to participate in the assured benefit program shall receive an additional benefit under one of (a)(i) through (iv) of this subsection. The member shall select the form of their additional benefit from among these options at retirement from service. However, a minimum of five years from the date a member elects to participate in the assured benefit program must elapse before the member can begin drawing a prospective assured benefit under (a)(ii) through (iv) of this subsection.
     (i) The member may elect to terminate the assured benefit subaccount and have the funds in the subaccount, including any investment earnings, returned to the member's defined contribution account; or
     (ii) The member, at time of retirement from service, may elect to receive at normal retirement age an assured benefit of one percent of the member's average final compensation for each year of service credit year during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated as under RCW 41.40.840;
     (iii) The member who has attained at least age fifty-five and has completed at least ten years of service, at time of retirement from service, may elect to receive an assured benefit of one percent of the member's average final compensation for each year of service credit during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated under RCW 41.40.840, and adjusted for early retirement under RCW 41.40.815(2); or
     (iv) The member who has attained at least age fifty-five and has completed at least thirty years of service, at time of retirement from service, may elect to receive an assured benefit of one percent of the member's average final compensation for each year of service credit during participation in the assured benefit program, with postretirement cost-of-living adjustments calculated under RCW 41.40.840, and adjusted for alternate early retirement under RCW 41.40.815(3).
     If the member chooses to receive the assured benefit, the assured benefit subaccount balance will be reduced by an amount that is actuarially equivalent to the value of the assured benefit and that amount will be transferred to the public employees' retirement system. If funds in the subaccount exceed that amount, the excess shall be returned to the member's defined contribution account. If the funds in the subaccount are less than that amount, the entire subaccount balance will be transferred.
     (b) For the purposes of this section, "actuarially equivalent" means of equal value when computed on the basis of mortality tables and rules adopted by the director.
     The assured benefit is subject to the same conditions as the retirement allowance in subsection (1) of this section, including but not limited to provisions for retirement and return to work, early retirement, death, and disability, and is subject to adjustment under this chapter.
     (3) The retirement allowance payable under RCW 41.40.820 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.

Sec. 16   RCW 41.31.010 and 1998 c 340 s 1 are each amended to read as follows:
     Beginning July 1, 1998, and on January 1st of even-numbered years thereafter, through 2008, the annual increase amount as defined in RCW 41.32.010 and 41.40.010 shall be increased by the gain-sharing increase amount, if any. No further amount shall either accrue, be credited, or be paid to member accounts after January 1, 2008. The monthly retirement allowance of a person in receipt of the benefit provided in RCW 41.32.489 or 41.40.197 shall immediately be adjusted to reflect any increase.

Sec. 17   RCW 41.31.020 and 1998 c 340 s 2 are each amended to read as follows:
     (1) Through January 1, 2008, the gain-sharing increase amount shall be the amount of increase, rounded to the nearest cent, that can be fully funded in actuarial present value by the amount of extraordinary investment gains, if any. Through January 1, 2008, the amount of extraordinary investment gains 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 plan 1 fund and the public employees' retirement system plan 1 fund at the close of the previous state fiscal year;
     (b) Multiplied by the amount which the compound average of investment returns on those assets over the previous four state fiscal years exceeds ten percent. After July 1, 2007, no extraordinary gain shall be calculated.
     (2) The gain-sharing increase amount for July 1998, as provided for in RCW 41.31.010, is ten cents.

NEW SECTION.  Sec. 18   A new section is added to chapter 41.34 RCW to read as follows:
     The department of retirement systems is authorized to adopt rules to ensure that assured benefits under RCW 41.32.840(2)(a)(ii) through (iv), 41.35.620(2)(a)(ii) through (iv), and 41.40.790 (2)(a)(ii) through (iv) are treated equivalently to defined benefits.

NEW SECTION.  Sec. 19   A new section is added to chapter 41.34 RCW to read as follows:
     The benefits provided pursuant to this act are not provided to employees as a matter of contractual right prior to July 1, 2008. The legislature retains the right to alter or abolish these benefits at any time prior to July 1, 2008.

NEW SECTION.  Sec. 20   RCW 41.31A.020, 41.31.010, and 41.31.020 are decodified, effective January 2, 2008.

NEW SECTION.  Sec. 21   If any part of this act is found to be in conflict with a final determination by the federal internal revenue service that is a prescribed condition to favorable tax treatment of one or more of the retirement plans, the conflicting part of this act is inoperative solely to the extent of the conflict and with respect to the individual members directly affected. This finding does not affect the operation of the remainder of this act in its application to the members concerned. The legislature reserves the right to amend or repeal this act in the future as may be required to comply with a final federal determination that amendment or repeal is necessary to maintain the favorable tax treatment of a plan.

NEW SECTION.  Sec. 22   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. 23   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2007.