SB326: Bill Text

LRB-4068/2

RAC:cmh:km

1999 - 2000 LEGISLATURE

1999 Senate BILL 326

January 19, 2000 - Introduced by Law Revision Committee. Referred to Joint survey committee on Retirement Systems.

SB326,2,2 An Act to amend 40.02 (1), 40.02 (2), 40.02 (15) (c) 4., 40.02 (38), 40.04 (4) (a) 1., 40.04 (4) (a) 2., 40.04 (7) (intro.), 40.04 (7) (a) (intro.), 40.04 (7) (c), 40.05 (1) (a) 7., 40.05 (2) (g) 2., 40.08 (7) (a), 40.23 (1) (b), 40.24 (1) (f), 40.24 (3), 40.24 (7) (a) 4., 40.25 (1) (a), 40.25 (1) (b), 40.25 (3m), 40.25 (4), 40.25 (6) (a) 1., 40.25 (6) (a) 2., 40.25 (7) (a) 2., 40.25 (7) (a) 3., 40.26 (2) (a), 40.26 (2) (b), 40.28 (1) (a) 1., 40.63 (9) (b), 40.63 (10) and 40.73 (1) (b); to repeal and recreate 40.08 (4); and to create 40.02 (54v), 40.05 (1) (a) 5m. and 40.80 (2) (g) of the statutes; relating to: the making of additional retirement contributions by participants in the Wisconsin retirement system; deferred compensation programs established by the deferred compensation board; purchase of forfeited creditable service under the Wisconsin retirement system; reimbursement of moneys paid by the department of employe trust funds as a result of misrepresentation, fraud or error; and creditable military service under the Wisconsin retirement system (suggested as remedial legislation by the department of employe trust funds).

Analysis by the Legislative Reference Bureau

Current law permits the making of additional contributions by participants in the Wisconsin retirement system (WRS). These contributions are in addition to the employer and employe required contributions to the WRS. Additional contributions may be used to purchase an annuity at the time of retirement. This bill specifies that there are two different kinds of additional contributions that may be made by participating employes to the WRS: after-tax additional contributions made under section 401 (a) of the Internal Revenue Code (IRC); and tax-deferred additional contributions made under section 403 (b) of the IRC.

Under current law, any participant in the WRS, subject to rules promulgated by the secretary of employe trust funds, may elect as a payout option for a deferred compensation plan established by the deferred compensation board or a plan established by his or her employer, if his or her employer is a local government employer, to have the entire balance treated as an additional contribution to the fixed annuity division of the employe trust fund. (To date, the rules have not been promulgated.) This bill provides that this option is available only for a deferred compensation plan established by the deferred compensation board.

The bill also specifies that the deferred compensation board must serve as trustee of any deferred compensation plan it establishes and must hold the assets and income of the plan in trust for the exclusive benefit of the employes who participate in the plan and their beneficiaries.

Under current law, a participating employe in the WRS may purchase creditable service that he or she may have forfeited in the past. In addition, a participating employe may purchase creditable service under the WRS for service as an employe of the federal government or for service as an employe of an employer that was not covered under the WRS during the period in which the service was performed, but that subsequently became an employer under the WRS. In order to purchase such service, the employe must have at least three continuous years of creditable service under the WRS at the time of application and the number of years that an employe may purchase may not exceed the lesser of ten years or the number of years of creditable service that the employe has at the time of application.

This bill provides that the employe must have at least three continuous years of creditable current service under the WRS at the time of application. Under current law, creditable current service is defined as "the creditable service granted for service performed for a participating employer and for which a participating employe receives earnings after the effective date of participation for that employer".

In addition, the bill provides that creditable service previously purchased by a participating employe may not be used to determine the maximum amount of service that a participating employe may purchase.

Under current law, the department of employe trust funds (DETF) may retain out of any person's annuity or benefit an amount that DETF has determined was paid to the person as a result of misrepresentation, fraud or error. This bill authorizes DETF to secure these inadvertently paid moneys by a lien against the person's account in the employe accumulation reserve of the employe trust fund and any annuity, benefit or obligation of the employe trust fund that is payable or will become payable to the person or the person's beneficiaries.

Currently, under certain conditions, a participating employe under the WRS may receive one year of creditable service under the WRS for each year of military service, up to a maximum of four years of military service credit. However, the participant may not receive military service credits for military service that is used for the purpose of establishing entitlement to a retirement benefit that is paid by the federal government, other than for the nonregular military service program.

This bill provides the new statutory cross-reference to the U.S. Code provision referring to the nonregular military service program.

This bill will be referred to the joint survey committee on retirement systems for a detailed analysis, which will be printed as an appendix to this bill.

For further information, see the Notes provided by the law revision committee of the joint legislative council.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

Law revision committee prefatory note: This bill is a remedial legislation proposal, requested by the department of employe trust funds and introduced by the law revision committee under s. 13.83 (1) (c) 4., stats. After careful consideration of the various provisions of the bill, the law revision committee has determined that this bill makes minor substantive changes in the statutes, and that these changes are desirable as a matter of public policy.

SB326, s. 1 Section 1. 40.02 (1) of the statutes is amended to read:

SB326,3,5 40.02 (1) "Accumulation" means the total employe required contributions or, employer required contributions or, additional contributions or tax-deferred additional contributions as increased or decreased by application of investment earnings.

Note: The definition is amended to specify that it includes both after-tax additional contributions and tax-deferred (pre-tax) additional contributions.

SB326, s. 2 Section 2. 40.02 (2) of the statutes is amended to read:

SB326,4,3 40.02 (2) "Additional contribution" means any after-tax contribution made by or on behalf of a participant to the retirement system other than employe and employer required contributions.

Note: The definition of "additional contribution" is amended to make the term refer only to an after-tax contribution. See also the new definition created by Section 5.

SB326, s. 3 Section 3. 40.02 (15) (c) 4. of the statutes is amended to read:

SB326,4,11 40.02 (15) (c) 4. This paragraph does not apply to any active service used for the purpose of establishing entitlement to, or the amount of, any benefit, other than a disability benefit, to be paid by any federal retirement program except OASDHI and the retired pay for nonregular military service program under 10 USC 1331 to 1337 12731 to 12738 or, if the participant makes an election under s. 40.30 (2), by any retirement system specified in s. 40.30 (2) other than the Wisconsin retirement system.

Note: This change corrects references to the federal tax code's provisions relating to military service credit.

SB326, s. 4 Section 4. 40.02 (38) of the statutes is amended to read:

SB326,4,15 40.02 (38) "Immediate annuity" means an annuity, not including an annuity from additional contributions or tax-deferred additional contributions, which begins to accrue not later than 30 days after termination of employment.

Note: The definition of "immediate annuity" is amended to exclude both categories of additional contributions.

SB326, s. 5 Section 5 . 40.02 (54v) of the statutes is created to read:

SB326,4,19 40.02 (54v) "Tax-deferred additional contribution" means any contribution made to the retirement system by a participating employe as a pre-tax deduction from earnings under section 403 (b) of the Internal Revenue Code.

Note: The new definition of "tax-deferred additional contribution" distinguishes these pre-tax contributions from additional (after-tax) contributions.

SB326, s. 6 Section 6 . 40.04 (4) (a) 1. of the statutes is amended to read:

SB326,5,6 40.04 (4) (a) 1. Credited with all employe contributions made under s. 40.05 (1), all employer additional contributions made under s. 40.05 (2) (g) 1., all additional contributions under s. 40.05 (2) (g) 2., all tax-deferred additional contributions under s. 40.05 (1) (a) 5m. and all contribution accumulations reestablished under s. 40.26 or 40.63 (10).

Note: Sections 6 to 10 amend provisions relating to the accounting of contributions to create separate accounting for each category of additional contributions.

SB326, s. 7 Section 7. 40.04 (4) (a) 2. of the statutes, as affected by 1999 Wisconsin Act 11, is amended to read:

SB326,5,20 40.04 (4) (a) 2. Credited as of each December 31 with interest on the prior year's closing balance at the effective rate on all employe required contribution accumulations in the variable annuity division, on all employe required contributions in the fixed annuity division on December 31, 1984, on all employe required contributions in the fixed annuity division of participants who are not participating employes after December 31, 1984, and on all employe and employer additional contribution accumulations and on all tax-deferred additional contribution accumulations and with interest on the prior year's closing balance at the assumed benefit rate on all employe required contribution accumulations in the fixed annuity division for participants who are participating employes after December 31, 1984, but who terminated covered employment before December 30, 1999.

SB326, s. 8 Section 8. 40.04 (7) (intro.) of the statutes is amended to read:

SB326,6,3 40.04 (7) (intro.) The reserves established under subs. (4), (5) and (6) shall be divided both individually and for the purposes of sub. (3) between a fixed annuity division and a variable annuity division. All required and, additional and tax-deferred additional contributions shall be credited to the fixed annuity division except:

SB326, s. 9 Section 9. 40.04 (7) (a) (intro.) of the statutes, as affected by 1999 Wisconsin Act 11, is amended to read:

SB326,7,2 40.04 (7) (a) (intro.) As otherwise elected by a participant prior to April 30, 1980, or on or after January 1, 2001. Any participant who was a participant prior to April 30, 1980, and whose accounts on January 1, 1982, include credits segregated for a variable annuity shall have his or her required and , additional and tax-deferred additional contributions made on or after January 1, 1982, credited to the variable annuity division in a manner consistent with the participant's election prior to April 30, 1980, unless prior to January 1, 1982, the participant terminated such election under s. 40.85, 1979 stats. Any participant who elects or has elected to have any of his or her credits segregated for a variable annuity on or after January 1, 2001, shall have 50% of his or her required and, additional and tax-deferred additional contributions made on or after the date of election credited to the variable annuity division. The department shall by rule provide that any participant who elects or has elected variable participation prior to April 30, 1980, or on or after January 1, 2001, may elect to cancel that variable participation as to future contributions. The department's rules shall permit a participant who elects or has elected to cancel variable participation as to future contributions, or an annuitant, to elect to transfer previous variable contribution accumulations to the fixed annuity division. A transfer of variable contribution accumulations under this paragraph shall result in the participant receiving the accrued gain or loss from the participant's variable participation. A participant may specify that election to cancel participation in the variable annuity division is conditional. If the participant so specifies the election is effective on the first date on which it may take effect on which the participant:

SB326, s. 10 Section 10 . 40.04 (7) (c) of the statutes is amended to read:

SB326,7,9 40.04 (7) (c) Any participant whose required contributions are segregated in any portion to provide for a variable annuity may direct that any part or all of subsequent additional and tax-deferred additional contributions credited to the participant's account be segregated to provide for a variable annuity and may at any time by filing a form prescribed by the department change the portion being segregated for any future additional and tax-deferred additional contributions.

SB326, s. 11 Section 11. 40.05 (1) (a) 5m. of the statutes is created to read:

SB326,7,22 40.05 (1) (a) 5m. Tax-deferred additional contributions may be made by any participating employe of an employer that had at least one employe who made such contributions to the Wisconsin retirement system or its predecessor systems under s. 42.30 (3), 1979 stats., on or before May 17, 1982. The making of contributions under this subdivision shall be subject to any limitations imposed on contributions by the Internal Revenue Code, applicable regulations adopted under the Internal Revenue Code and rules of the department. The participating employe and the employer are solely responsible for determining the amount of contributions that may be made to the retirement system under this subdivision and monitoring the annual contributions for compliance with any limitations imposed on contributions by the Internal Revenue Code, applicable regulations adopted under the Internal Revenue Code and rules of the department.