SB418: Bill Text

LRB-3808/3

RAC:hmh:pg

2001 - 2002 LEGISLATURE

2001 Senate BILL 418

February 4, 2002 - Introduced by Senator Wirch, cosponsored by Representative Vrakas. Referred to Joint Committee on Retirement Systems.

SB418,2,5 An Act to repeal 40.22 (2) (h) and 40.26 (5) (a); to renumber and amend 40.08 (3), 40.08 (10), 40.71 (1) (d) and 40.73 (1) (am); to amend 40.02 (1), 40.02 (2), 40.02 (15) (c) (intro.), 40.02 (15) (c) 3., 40.02 (15) (c) 4., 40.02 (38), 40.03 (2) (ig), 40.03 (6) (i), 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) 6., 40.05 (1) (a) 7., 40.05 (2) (g) 2., 40.08 (1), 40.08 (7) (a), 40.08 (7) (c), 40.08 (8) (a) 1., 40.08 (8) (a) 2., 40.08 (8) (a) 2m., 40.08 (8) (a) 3., 40.08 (8) (a) 4., 40.08 (8) (b), 40.08 (8) (c), 40.08 (8) (e), 40.08 (13), 40.23 (1) (b), 40.23 (3), 40.23 (4) (a), 40.23 (4) (b), 40.23 (4) (c), 40.23 (4) (d), 40.23 (4) (e) 1., 40.23 (4) (e) 3., 40.23 (4) (g), 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., 40.25 (7) (d), 40.26 (2) (a), 40.26 (2) (b), 40.26 (5) (intro.), 40.26 (5) (c), 40.28 (1) (a) 1., 40.63 (7), 40.63 (9) (b), 40.63 (10), 40.70 (1) (b), 40.70 (6), 40.71 (2), 40.73 (1) (b) and 40.73 (3) (e); to repeal and recreate 40.08 (4), 40.08 (6) (e) and 40.23 (4) (f); and to create 40.02 (54v), 40.03 (6) (cm), 40.05 (1) (a) 5m., 40.06 (8), 40.08 (3) (b), 40.08 (10) (b), 40.08 (10) (c), 40.08 (10) (d), 40.73 (1) (am) 1., 40.73 (1) (am) 2., 40.73 (1) (am) 3. and 40.80 (2) (g) of the statutes; relating to: an omnibus measure affecting the provision and administration of benefits provided to participants in the Wisconsin retirement system and granting rule-making authority.

Analysis by the Legislative Reference Bureau

This bill makes numerous changes to the administration of the Wisconsin retirement system (WRS) and other benefits offered to state and other governmental employees. The changes include all of the following:

1. Current law permits the making of additional contributions by participants in the WRS. These contributions are in addition to the employer and employee 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 participants 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.

2. Under current law, any participant in the WRS, subject to rules promulgated by the secretary of employee 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 employee 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 employees who participate in the plan and their beneficiaries.

3. Under current law, a participating employee in the WRS may purchase creditable service that he or she may have forfeited in the past. In addition, a participating employee may purchase creditable service under the WRS for service as an employee of the federal government or for service as an employee 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 employee 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 employee may purchase may not exceed the lesser of ten years or the number of years of creditable service that the employee has at the time of application.

This bill provides that the employee 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 employee receives earnings after the effective date of participation for that employer."

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

4. Under current law, the department of employee 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 employee accumulation reserve of the employee trust fund and any annuity, benefit, or obligation of the employee trust fund that is payable or will become payable to the person or the person's beneficiaries.

5. Under current law, a participating employee under the WRS may receive one year of creditable military service under the WRS for each year of military service, up to a maximum of four years of military service credit, at the time of retirement in either of the following ways:

a. If the participant left employment covered under the WRS to enter military service and returned to the same employer within 180 days after being discharged, the participant may receive one year of military service credit for each year of military service (regardless of the amount of the participant's creditable service).

b. If the participant's military service was performed before 1974, the participant may receive up to one, two, three, or four years of military service credit if the participant has at least five, ten, fifteen, or twenty years, respectively, of creditable service (not counting previously granted military service credit). Under current law, the crediting of creditable military service under this item 5. b. occurs on the date on which the participant attains five, ten, fifteen, or twenty years of creditable service.

This bill provides that the crediting of creditable military service under item 5. b. above continues to occur on the date on which the participant attains five, ten, fifteen, or twenty years of creditable service, except that, if a participant would receive an higher benefit, the creditable military service must be allocated according to the amount of creditable service that is credited to the participant's account on the date on which the participant terminates participating employment.

In addition, the bill provides the new statutory cross-reference to the U.S. Code provision referring to the nonregular military service program. Finally, the bill clarifies that not more than one year of creditable service may be earned by a participant in any year for the purpose of receiving creditable military service.

6. Under current law, other than the first $5,000 of additional contributions that are attributable to a WRS death benefit, additional contributions of a participant in the WRS may be made to the fixed annuity division of the public employee trust fund by rollover contribution of a payment or distribution from a pension or annuity qualified under the IRC. This bill permits the first $5,000 of additional contributions that are attributable to a WRS death benefit to be made to the fixed annuity division.

7. Under current law, a participant in the WRS may elect, as a payout option, to have his or her deferred compensation balance treated as an additional contribution under the WRS. Additional contributions under the WRS may be used to increase a WRS annuity. This bill specifies that this option is only available for state employees who participate in the Wisconsin deferred compensation program.

8. Under current law, a potential primary beneficiary of a participant under the WRS, other than an estate, who has not applied for any benefit payable as a result of the death of the participant and whom DETF cannot locate by reasonable efforts within one year after the death of the participant is presumed to have predeceased the participant and all other potential beneficiaries. Thereafter, if DETF is unable to locate any resulting subsequent beneficiary within six months, all beneficiaries are presumed to have predeceased the participant, and DETF must pay benefits to the participant's estate. This bill changes the time period from one year after the death of the participant to one year after DETF learns of the death of the participant.

9. Under current law, an account in the WRS is considered abandoned if DETF cannot locate the participant before the date on which the participant attains, or would have attained, the age of 70. However, if the participant subsequently applies for retirement benefits before attaining the age of 80, DETF must restore any participant's account. This bill eliminates the provision that allows a participant to have his or her account restored if he or she applies for retirement benefits before attaining the age of 80.

10. Under current law, DETF is required to publish notice in the official state newspaper of the names of all WRS participants who are presumed to have died intestate or whose accounts are presumed to be abandoned. At the end of the fifth calendar year after which the notice is published, the unclaimed moneys are transferred to the employer accumulation reserve to reduce future funding requirements of the WRS. This bill requires that the moneys must be transferred at the end of the calendar year in which the notice is published.

11. This bill provides that the factors that are used to calculate a participant's retirement benefits under the WRS are subject to correction for seven years after the date that DETF calculates the participant's benefits. In addition, the bill provides that individual premium and benefit payments are subject to correction for seven years after the premium is due or the benefit is made, whichever is applicable, and that a contribution correction may occur as a result of a decision of DETF to classify a participant as a protective occupation participant. Finally, the bill provides that any employer under the WRS who employed teacher participants who were members of the state teachers retirement system shall pay the state all employer required contributions, plus interest at the effective rate on the accumulations, that would have been paid for the teacher participants under the state teachers retirement system.

12. Under current law, DETF may refund any moneys to any person who has paid the moneys in error into the public employee trust fund. However, DETF may not pay interest on any such refund. This bill authorizes DETF to pay interest on the refunded moneys at a rate of interest that is established by rule.

13. Under current law, with respect to certain annuity underpayments under the WRS, DETF is required to pay interest to an annuitant at a rate of 0.4% interest for each month during the period in which the underpayment occurred. This bill provides that DETF must pay interest at a rate of interest that is established by rule.

14. This bill makes several changes regarding the timing of the distributions of benefits under the WRS so as to bring the timing of the distributions in compliance with the IRC.

15. Under current law, one of the conditions that a participant in the WRS must meet in order to qualify for a WRS annuity is that the participant must be separated until his or her annuity effective date, the date 30 days after an annuity application is received by the department of employee trust funds, or the date 30 days after separation, whichever is latest, from all participating employment. This bill provides that if a participant does not meet this condition the participant may not receive any benefit provided under the WRS for which the receipt of an annuity is a condition.

16. Under current law, in the WRS, if an application, by a participant age 55 or over, or by a protective occupation participant age 50 or over, for any disability annuity is disapproved, the date that would have been the disability annuity effective date shall be the retirement annuity effective date if so requested by the applicant within 60 days of the disapproval or, if the disapproval is appealed, within 60 days of final disposition of the appeal.

This bill provides that, if the application is cancelled, withdrawn or denied, the date that would have been the disability annuity effective date shall be the retirement annuity effective date if so requested by the applicant within 60 days of the date of cancellation, withdrawal, or denial or, if the denial is appealed, within 60 days of final disposition of the appeal.

17. This bill provides that, for the purposes of death benefit eligibility under the WRS, every participant in the WRS is considered an annuitant upon the later of the following:

a. The effective date of the participant's annuity.

b. The date the application for an annuity is received by DETF, but only if the participant is living on that date.

This bill simply restates the current law requirement.

18. This bill permits DETF, if required under federal law, to distribute a participant's death benefits as a lump sum payment even if the participant provided written notice to DETF before his or her death that the benefit should not be distributed as a lump sum payment.

19. This bill specifies that the number of guaranteed death benefit payments that are payable to a beneficiary of a participant in the WRS may not exceed the life expectancy of the beneficiary.

20. Under current law affecting the WRS, any person who is a visiting professor, associate professor, assistant professor, or instructor employed by the University of Wisconsin (UW) System and whose employment with the UW System is all within 12 consecutive months may not participate in the WRS. This bill eliminates this prohibition.

21. Under current law, the secretary of employee trust funds must promulgate, with the approval of the group insurance board, all rules required for the administration of the group health, long-term care, income continuation, and life insurance plans established under certain subchapters of chapter 40 of the statutes. This bill expands this duty to promulgating rules for the administration of the group health, long-term care, income continuation, life insurance, and other insurance plans established under all of chapter 40 of the statutes.

22. Under current law, the secretary of employee trust funds is required to promulgate, with the approval of the group insurance board, all rules required for the administration of the group health, long-term care, income continuation, and life insurance plans provided by the group insurance board. This bill specifically provides that the group insurance board shall approve or reject all rules proposed by the secretary of employee trust funds.

23. Under current law, to be insured under the group life insurance plan administered by DETF, an eligible employee must file an application with DETF. This bill requires that the application be filed in the manner provided by rule or contract.

24. Currently, with respect to life insurance benefits offered to participating employees in the WRS, an employee must apply for the insurance coverage within 6 months after becoming eligible for coverage. If the employee does not apply for life insurance coverage with the six-month period, the employee may subsequently be covered under the life insurance program only if he or she is under 55 and furnishes evidence of insurability satisfactory to the insurer, at his or her own expense. This bill provides that the employee must apply for the insurance coverage within a time period specified by rule or contract after becoming eligible for coverage. In addition, the bill eliminates the requirement that the employee must be under 55 if he or she subsequently wishes to apply for life insurance outside of the permissible time period established by rule or contract.

25. Under current law, the group insurance board is authorized to hear appeals of determinations made by DETF affecting group insurance plans. This bill requires the group insurance board to hear such appeals.

26. Current law provides that no participant, beneficiary or distributee of any estate may waive the right to or the payment of all or any portion of any benefit under the WRS or under a program administered by DETF.

This bill provides that no participant, alternate payee, beneficiary, or personal representative of any estate may conditionally or partially waive any portion of a benefit under the WRS or under a program administered by DETF if the implementation of the waiver, or monitoring of benefits under the waiver, would require "special administration" by DETF.

27. Under current law, DETF may not be required by a court order, or by any other action or proceeding, to enforce or otherwise monitor the beneficiary designation specified in a qualified domestic relations order (QDRO). A QDRO is a judgment, decree, or order issued by a court pursuant to a domestic relations law of any state or territory of the United States, that meets certain requirements. This bill provides that DETF may not be required by a court order, or by any other action or proceeding, to enforce or otherwise monitor any beneficiary designation filed with DETF.

28. Under the WRS, if a participating employee dies before he or she would be eligible to receive an annuity his or her death benefit equals the sum of his or her additional contribution accumulations and twice his or her employee required contribution accumulations. For a participating employee who has purchased WRS service based on his or her other governmental employment, this bill reduces the amount of the death benefit by the amount that the employee paid for the additional WRS service.

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 state and local fiscal estimate, which will be printed as an appendix to this bill.