BILL REQ. #:  H-0162.5 

Read first time 01/21/09.   Referred to Committee on Ways & Means.

     AN ACT Relating to a Washington state patrol retirement system deferred option plan; adding a new section to chapter 43.43 RCW; providing an effective date; and declaring an emergency.

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

NEW SECTION.  Sec. 1   A new section is added to chapter 43.43 RCW, to be codified between RCW 43.43.120 and 43.43.320, to read as follows:
     (1) Effective January 1, 2010, in lieu of retiring under RCW 43.43.250 and accepting a retirement allowance under RCW 43.43.260, and either RCW 43.43.270 or 43.43.271, as applicable, a regular patrol officer, or a patrol officer who has attained the rank of sergeant, who has been a member of the Washington state patrol retirement system and has not less than twenty-five years of service credit and is eligible to receive a retirement allowance may participate in the Washington state patrol retirement system deferred option plan. A member electing this option shall:
     (a) Continue his or her employment to a specified date and thereby defer receipt of retirement benefits in accordance with the provisions of this section; and
     (b) Elect a form of monthly retirement allowance from the Washington state patrol retirement system, which election shall be irrevocable unless otherwise provided under the Washington state patrol retirement system.
     (2) For purposes of this section, service credit includes service credit recognized under RCW 43.43.230, 43.43.233, 43.43.235, and 43.43.260.
     (3)(a) The number of years of the member's service credit prior to participation in the Washington state patrol retirement system deferred option plan, plus the number of years of participation in the Washington state patrol retirement system deferred option plan, must equal or exceed twenty-eight years. However, the duration of participation in the Washington state patrol retirement system deferred option plan for any member shall not exceed seven years.
     (b) Participation in the Washington state patrol retirement system deferred option plan must begin on the first day of a month and end on the last day of a month.
     (c)(i) At the conclusion of a member's participation in the Washington state patrol retirement system deferred option plan, the member shall terminate employment with the Washington state patrol, and shall start receiving the member's accrued monthly retirement allowance from the Washington state patrol retirement system.
     (ii) Any member who is placed on disability status as set forth in subsection (7) of this section and whose Washington state patrol retirement system deferred option plan account is not reinstated under subsection (7)(b) of this section shall not receive a monthly retirement allowance from the Washington state patrol retirement system.
     (4)(a) While a member is participating in the Washington state patrol retirement system deferred option plan, the member contributions and the employer contributions shall continue to be paid at the rate computed for the current active members under RCW 41.45.0631, subject to the following:
     (i) One hundred percent of a member's contributions shall be credited to the member's Washington state patrol retirement system deferred option plan account, and one hundred percent of the employer's contributions shall be credited to the retirement system; and
     (ii) The monthly retirement benefits that would have been payable had the member retired and begun receiving a retirement allowance shall be paid into the member's Washington state patrol retirement system deferred option plan account.
     (b) The member shall not earn any additional service credit under the Washington state patrol retirement system, or receive any salary increase adjustments to the member's retirement allowance calculation, during the period of the member's participation in the Washington state patrol retirement system deferred option plan.
     (5)(a) A member who participates in the deferred option plan is eligible to receive retirement allowance cost-of-living increases from the Washington state patrol retirement system, up to a maximum of three percent per year during the member's period of participation in the deferred option plan.
     (b) A member's deferred option plan account balance shall be credited on an annual basis with investment earnings at a rate of two percentage points below the rate of return of the investment portfolio of the Washington state patrol retirement system, but not less than zero percent.
     (c)(i) A member shall forfeit all interest on the deferred option plan account balance if the member terminates participation in the Washington state patrol retirement system deferred option plan before the sum of the member's years of service credit prior to participation in the deferred option plan, plus the number of years of participation in the deferred option plan, equals twenty-eight years. However, this subsection (5)(c) does not apply if the member's participation terminates as a result of the member's death.
     (ii) If a member forfeits his or her interest under this subsection (5)(c), his or her eligibility for a retirement allowance under this chapter shall be calculated as if he or she had never elected the deferred option plan.
     (6) If a member is placed on disability leave in accordance with RCW 43.43.040(1)(a) during the period of the member's participation in the Washington state patrol retirement system deferred option plan, the member and the employer contributions shall continue to be made and credited in accordance with subsection (4) of this section for the period of disability leave.
     (7)(a) A member who, during the period of participation in the Washington state patrol retirement system deferred option plan, is placed on disability status in accordance with RCW 43.43.040(1)(a), and receives compensation in accordance with RCW 43.43.040(2): (i) Is deemed to have terminated participation in the deferred option plan on the last day of the month that coincides with, or next follows, the date of the member's placement on disability status; and (ii) forfeits the entire balance in the member's deferred option plan account as of the termination date under (a)(i) of this subsection (7).
     (b) A member shall be reinstated in the Washington state patrol retirement system deferred option plan, and the balance previously forfeited from the member's deferred option plan account shall be reinstated, on the first day of the month that coincides with or next follows the date of the member's reemployment if the member:
     (i) Was receiving disability benefits under RCW 43.43.040;
     (ii) Was deemed to have terminated participation in the deferred option plan;
     (iii) Returns to active duty with the Washington state patrol; and
     (iv) Becomes an active member of the retirement system.
     (c) A member reemployed and reinstated as provided in (b) of this subsection may elect to acquire service credit for the period of disablement by paying all required contributions in accordance with RCW 43.43.290. When payments are made, member and employer contributions shall be credited in accordance with subsection (4) of this section. Service credit shall be applied toward the member's number of years of participation in the Washington state patrol retirement system deferred option plan for purposes of determining the minimum and maximum period of participation described in subsection (3) of this section.
     (8) Subject to subsection (5)(c) of this section, upon retirement the member shall receive:
     (a) The member's accrued monthly retirement allowance from the Washington state patrol retirement system, in accordance with subsection (3)(c)(i) of this section, and
     (b) An amount equal to the member's monthly retirement allowance elected under subsection (1)(b) of this section, multiplied by the number of months the member was in the deferred option plan, adjusted for any cost-of-living increases under subsection (5)(a) of this section, plus the amount of contribution under subsection (4) of this section and the amount of interest under subsection (5) of this section. The amount determined under this subsection shall be paid, at the member's option in:
     (i) A lump sum payment;
     (ii) A direct rollover payable to an individual retirement annuity provider selected by the member as a result of the member's own research and investigation; or
     (iii) A direct rollover to an eligible retirement plan or, if the beneficiary is a nonspouse designated beneficiary, to an individual retirement account or annuity as described in subsection (10)(b)(ii) of this section.
     (9)(a) If the member dies during the period of participation in the Washington state patrol retirement system deferred option plan, the amount determined in subsection (8) of this section shall be paid:
     (i) At the option of the designated beneficiary, for the benefit of the designated beneficiary, and in accordance with subsection (8)(a) or (b)(iii) of this section; or
     (ii) If there is no designated beneficiary or the designated beneficiary predeceases the member, to the estate of the member in accordance with subsection (8)(a) of this section. A payment made under this section is in addition to any death benefits payable under any other statute.
     (b) For purposes of this section, "designated beneficiary" means the individual designated by the member by written designation duly executed and filed with the department. If the member's lawful spouse or lawful domestic partner is not designated as the sole primary beneficiary, the member must also file with the department the written consent of his or her spouse or domestic partner to the beneficiary designation.
     (10)(a) At the end of participation, a distributee may elect, at the time and in the manner prescribed by the department, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.
     (b) For purposes of this section, the following definitions apply:
     (i) "Eligible rollover distribution" means any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such a distribution is required under section 401(a)(9) of the internal revenue code of 1986, as amended, and the portion of any distribution that is not includable in gross income. A portion of a distribution does not fail to be an eligible rollover distribution merely because the portion consists of after-tax member contributions that are not includable in gross income. However, such a portion may be paid only to:
     (A) An individual retirement account or annuity described in section 408(a) or (b) of the internal revenue code of 1986, as amended; or
     (B) A qualified trust described in section 401(a) or 403(a) of the internal revenue code of 1986, as amended, or an annuity contract described in section 403(b) of the internal revenue code of 1986, as amended, if such a trust or annuity contract provides for separate accounting for amounts so transferred (and earnings thereon), including separately accounting for the portion of such a distribution that is includable in gross income and the portion of such a distribution which is not includable.
     (ii) "Eligible retirement plan" means an eligible plan under section 457(b) of the internal revenue code of 1986, as amended, which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such a plan from the retirement system, an individual retirement account described in section 408(a) of the internal revenue code of 1986, as amended, an individual retirement annuity described in section 408(b) of the internal revenue code of 1986, as amended, an annuity plan described in section 403(a) of the internal revenue code of 1986, as amended, an annuity contract described in section 403(b) of the internal revenue code of 1986, as amended, or a qualified trust described in section 401(a) of the internal revenue code of 1986, as amended, that accepts the distributee's eligible rollover distribution.
     (iii) "Distributee" means a member whether or not the member is an active member. In addition, the member's surviving spouse or surviving domestic partner and the member's spouse, former spouse, domestic partner, or former domestic partner who is an obligee under a mandatory benefits assignment order, as provided in RCW 41.50.500, are distributees with regard to the interest of the spouse, former spouse, domestic partner, or former domestic partner. "Distributee" also includes the member's nonspouse designated beneficiary, pursuant to section 401(a)(9)(E) of the internal revenue code of 1986, as amended. In the case of a nonspouse beneficiary, the direct rollover may be made only to an individual retirement account or annuity (other than an endowment contract) described in section 408(a) or (b) of the internal revenue code of 1986, as amended (IRA), that is established on behalf of such a designated beneficiary and that will be treated as an inherited IRA pursuant to the provisions of section 402(c)(11) of the internal revenue code of 1986, as amended. Also, in this case, the determination of any required minimum distribution under section 401(a)(9) of the internal revenue code of 1986, as amended, that is ineligible for rollover shall be made in accordance with Notice 2007-7, Q&A 17 and 18, 2007-5 I.R.B. 395. The required minimum distribution rules of section 401(a)(9)(B) (other than clause iv thereof) of the internal revenue code of 1986, as amended, apply to the transferee IRA.
     (iv) "Direct rollover" means a payment by the retirement system to the eligible retirement plan specified by the distributee or, to a Roth IRA under section 408A of the internal revenue code of 1986, as amended, as specified by the distributee (assuming the distributee otherwise meets the Roth IRA requirements).
     (c) At least thirty days before, and not more than one hundred eighty days before, the date of distribution, the distributee must be provided with a notice of rights which satisfies section 402(f) of the internal revenue code of 1986, as amended, as to rollover options and tax effects. Such a distribution may commence less than thirty days after the notice is given. However, (i) the department must clearly inform the distributee that the distributee has a right to a period of at least thirty days after receiving the notice to consider the decision of whether or not to elect a distribution; and (ii) the distributee, after receiving the notice, must affirmatively elect a distribution.

NEW SECTION.  Sec. 2   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, 2009.