SB449: Bill Text

1995 Senate BILL 449

December 13, 1995 - Introduced by Senator Petak, cosponsored by Representative Klusman, by request of the Department of Employe Trust Funds. Referred to Joint survey committee on Retirement Systems.

SB449,1,14 An Act to repeal 40.26 (1) (a) and (b) and 40.26 (2) (d); to renumber and amend 40.26 (1) (intro.); to amend 40.02 (8) (a) 1., 40.02 (14), 40.02 (22) (a), 40.02 (22) (b) 9., 40.02 (22) (e), 40.02 (26g), 40.02 (40), 40.05 (1) (a) 5., 40.05 (1) (a) 6., 40.08 (1m) (e) 2., 40.08 (1m) (f) 2., 40.08 (8) (b), 40.08 (8) (c), 40.08 (14), 40.23 (1) (a) 1., 40.23 (1) (b), 40.23 (1) (c), 40.23 (2m) (b), 40.24 (1) (f), 40.25 (6) (a) 2., 40.25 (6) (a) 3., 40.25 (7) (a) 1., 40.26 (3) (bm) (intro.), 40.27 (2) (b), 40.73 (3) (a), 40.73 (3) (e) and 40.86 (intro.); to repeal and recreate 40.08 (6), 40.08 (8) (a) and 40.23 (1) (d); to create 40.015, 40.02 (39m), 40.02 (48r), 40.03 (2) (t), 40.05 (1) (a) 7., 40.05 (2r), 40.08 (1m) (e) 4., 40.23 (4), 40.24 (5), 40.24 (7) (a) 6., 40.25 (6) (a) 5., 40.26 (5), 40.31, 40.32, 111.91 (2) (k), 111.91 (2) (L) and 111.91 (2) (m) of the statutes; and to affect 1995 Wisconsin Act 27, section 1946m and 1995 Wisconsin Act 27, section 9459 (2) (d); relating to: maximum benefit and contribution limits under the Wisconsin retirement system, granting rule-making authority and making an appropriation.

Analysis by the Legislative Reference Bureau

Under current law, there is no requirement that the Wisconsin retirement system (WRS) be a qualified public retirement plan under the U.S. internal revenue code. This bill specifies that the WRS is established as a governmental plan and as a qualified plan for federal income tax purposes. Also, the bill specifies that no benefit plan administered by the department of employe trust funds (DETF) may be administered in a manner that violates the U.S. internal revenue code or that would cause an otherwise tax-exempt benefit to become taxable under the internal revenue code. Finally, the bill does all of the following for the purpose of bringing the WRS into compliance with the U.S. internal revenue code:

1. This bill establishes certain time frames for locating a primary and secondary beneficiary of a participant in the WRS. Under the bill, if DETF cannot locate the primary beneficiary within one year after the date on which DETF receives written notification of the participant's death, then DETF must pay any benefits to the secondary beneficiary. If DETF cannot locate the secondary beneficiary within an additional 6-month period, then DETF must pay a lump sum benefit to the participant's estate. If for any reason DETF cannot make payment to the estate, the participant must be presumed, unless it is shown to the contrary, to have died intestate, without heirs or beneficiary, and DETF must treat the account as abandoned.

2. Under current law, there is no mandatory date by which DETF must distribute to a participant in the WRS or his or her beneficiary any part of the amount that is credited to the account of a participant in the WRS. This bill provides that DETF must distribute these amounts or begin the distribution of these amounts, if the amounts are taken in a form other than as a lump sum, no later than April 1 of the calendar year in which the participant in the WRS attains the age of 70.5 years.

3. Under current law, a person who participates in the WRS has the amount of his or her annuity generally determined according to a retirement formula, which is based on the participant's final average earnings, the participant's number of years of creditable service and a percentage multiplier. The final average earnings is the 3 annual earnings periods in which the participant's earnings were highest. This formula is not used if the annuity amount that may be purchased by a participant from any employe accumulated additional and required contributions and an amount from employer contributions that equals the accumulated employe required contributions is greater than the amount determined according to the formula. But under neither of the ways to determine the amount of a participant's annuity is there a maximum annuity or contributions limitation.

This bill provides that the annuity amount and the sum of contributions credited to a participant under all defined contribution plans sponsored by his or her employer may not exceed the maximums established under section 415 of the U.S. internal revenue code. Under current federal law, the maximum annual annuity benefit amount is the lesser of $120,000 or 100% of a participant's 3 annual earnings periods in which the participant's earnings were highest. With respect to all contributions that are credited to a participant under all defined contribution plans sponsored by his or her employer, the maximum annual amount of such contributions is the lesser of $30,000 or 25% of a participant's earnings in that year.

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.

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

SB449, s. 1 Section 1. 40.015 of the statutes is created to read:

SB449,3,5 40.015 Compliance with federal tax laws. (1) The Wisconsin retirement system is established as a governmental plan and as a qualified plan for federal income tax purposes under the internal revenue code and shall be so maintained and administered.

SB449,3,9 (2) No benefit plan authorized under this chapter may be administered in a manner which violates an internal revenue code provision that authorizes or regulates that benefit plan or which would cause an otherwise tax exempt benefit to become taxable under the internal revenue code.

SB449, s. 2 Section 2. 40.02 (8) (a) 1. of the statutes is amended to read:

SB449,3,16 40.02 (8) (a) 1. The person, or a trust in which the person has a beneficial interest, so designated by a participant or insured employe or annuitant in the last written designation of beneficiary on file with, and in the form approved by, the department at the time of death, except as provided in s. 40.23 (4) (c). A written designation of beneficiary for a specified benefit plan applies only for determining beneficiaries under that specified benefit plan.

SB449, s. 3 Section 3. 40.02 (14) of the statutes is amended to read:

SB449,3,21 40.02 (14) "Creditable current service" means the creditable service granted for service performed for a participating employer and for which a participating employe receives earnings from a participating employer after the effective date of participation for that employer.

SB449, s. 4 Section 4. 40.02 (22) (a) of the statutes is amended to read:

SB449,4,14 40.02 (22) (a) Except as provided in pars. (b) to (f) and s. 40.63 (1) (c), means the gross amount paid to an employe by a participating employer as salary or wages, including amounts provided through deferred compensation or tax shelter agreements, for personal services rendered to or for an employer, or which would have been available for payment to the employe except for the employe's election that part or all of the amount be used for other purposes and also includes the money value, as determined by the employer, of any board, lodging, fuel, laundry and other allowances provided for the employe in lieu of money. For purposes of this paragraph, the gross amount shall be determined prior to deductions for taxes, insurance premiums, retirement contributions or deposits, charitable contributions or similar amounts and shall be considered received as of the date when the earnings would normally be payable by the employer. For reporting and computation purposes, fractions of a dollar shall be disregarded in determining annual earnings.

SB449, s. 5 Section 5. 40.02 (22) (b) 9. of the statutes is amended to read:

SB449,5,3 40.02 (22) (b) 9. Payments for damages, attorney fees, interest or penalties paid under court judgment or by compromise settlement to satisfy a grievance or wage claim even though the amount of damages or penalties might be based on previous salary levels. However, where the court order or compromise settlement directs that salary be paid for a specified period of time, the payment shall be considered covered earnings applicable to the period specified in the order or settlement, and if the order or settlement provides that the salary be reduced by amounts earned from other sources, then the covered earnings shall be determined prior to the reduction the department may by rule provide that a payment of additional wages to a continuously participating employe, or the payment of salary to a participant for any period of improper termination of participating employment, is earnings, if the payment is treated by the employer and employe as taxable income and is consistent with previous payment for hours of service rendered by the employe.

SB449, s. 6 Section 6. 40.02 (22) (e) of the statutes, as affected by 1995 Wisconsin Act 27, section 1946, is amended to read:

SB449,5,14 40.02 (22) (e) Except for OASDHI purposes, at the employer's discretion, means compensation deemed to have been paid for services deemed to have been rendered during periods of leaves of absence without pay, while serving in a position covered under, and meeting the requirements of, 38 USC 4301, et seq., at the employe's rate of pay prior to the leave beginning such service, provided contributions and premiums on the deemed earnings are paid as required under s. 40.05. Any action taken under this paragraph that applies to state employes shall be taken pursuant to a collective bargaining agreement under subch. V of ch. 111 or s. 230.12 or 233.10.

SB449, s. 7 Section 7. 40.02 (26g) of the statutes is amended to read:

SB449,5,20 40.02 (26g) "Employe-funded reimbursement account plan" means a plan in accordance with section 125 of the internal revenue code, as defined in s. 71.01, under which an employe may direct an employer to place part of the employe's gross compensation in an account to pay for certain future expenses of the employe under section 125 of the internal revenue code.

SB449, s. 8 Section 8. 40.02 (39m) of the statutes is created to read:

SB449,5,25 40.02 (39m) "Internal revenue code" means the internal revenue code, as defined for the current taxable year under s. 71.01 (6), and applicable regulations adopted under the internal revenue code, including proposed and temporary regulations, except as otherwise provided by the department by rule.

SB449, s. 9 Section 9. 40.02 (40) of the statutes is amended to read:

SB449,6,16 40.02 (40) "Leave of absence" means any period during which an employe has ceased to render services for a participating employer and receive earnings from a participating employer and there has been no formal termination of the employer-employe relationship. For purposes of the fund every leave of absence, except a military leave or union service leave, shall terminate 3 years after it begins or, if earlier, upon the date specified by the employer in a notification to the department that the employer-employe relationship has terminated. A leave of absence is not deemed ended or interrupted by reason of resumption of active duty until the employe has resumed active performance of duty for 30 consecutive calendar days for at least 50% of what is considered that employe's normal work time with that employer. For the purpose of group health insurance coverage, every leave of absence due to employe layoff which has not been terminated before 3 years have elapsed shall continue for affected insured employes until an additional 2 years elapse or until sick leave credits used to pay health insurance premiums are exhausted, whichever occurs first.

SB449, s. 10 Section 10. 40.02 (48r) of the statutes is created to read:

SB449,6,20 40.02 (48r) "Required beginning date" means the later of April 1 of the calendar year following the year in which a participant attains the age of 70.5 years or April 1 of the calendar year in which a participating employe retires.

SB449, s. 11 Section 11. 40.03 (2) (t) of the statutes is created to read:

SB449,6,25 40.03 (2) (t) Shall ensure that the Wisconsin retirement system complies with the internal revenue code as a qualified plan for income tax purposes and shall ensure that each benefit plan is administered in a manner consistent with all internal revenue code provisions that authorize and regulate the benefit plan.

SB449, s. 12 Section 12. 40.05 (1) (a) 5. of the statutes is amended to read:

SB449,7,6 40.05 (1) (a) 5. Additional contributions may be made by any participant by deduction from earnings or otherwise or may be provided on behalf of any participant in any calendar year in which the participant has earnings, subject to any limitations imposed on contributions by the U.S. internal revenue code, applicable regulations adopted under the internal revenue code and rules of the department.

SB449, s. 13 Section 13. 40.05 (1) (a) 6. of the statutes is amended to read:

SB449,7,15 40.05 (1) (a) 6. Under the rules promulgated under s. 40.03 (2) (r), additional contributions, other than the first $5,000 of contributions, or a beneficiary's prorated share thereof, that are attributable to a death benefit paid under s. 40.73, may be made to the fixed annuity division by any participant by rollover contribution of a payment or distribution from a pension or annuity qualified under section 401 of the internal revenue code, as defined in s. 71.01 (6), 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.

SB449, s. 14 Section 14. 40.05 (1) (a) 7. of the statutes is created to read:

SB449,7,22 40.05 (1) (a) 7. Subject to any applicable limitations under the internal revenue code, a participating employe may elect to use part or all of his or her accumulated after-tax additional contributions, including interest, made under subd. 5., other than contributions treated by the department as contributions to a tax sheltered annuity under section 403 (b) of the internal revenue code, to purchase creditable service under this chapter.

SB449, s. 15 Section 15. 40.05 (2r) of the statutes is created to read:

SB449,8,3 40.05 (2r) Annual contributions limitations; disqualification procedure. (a) Contributions made under this section are subject to the limitations under s. 40.32 and the internal revenue code.

SB449,8,10 (b) If a participant in the Wisconsin retirement system also participates in a different retirement plan offered by an employer that is subject to section 401 of the internal revenue code and the internal revenue service seeks to disqualify one or more of the plans because the aggregate contributions to the plans exceed the contribution limits under section 415 of the internal revenue code, the internal revenue service, if it permits state law to determine the order of disqualification of such retirement plans, shall disqualify the retirement plans in the following order:

SB449,8,11 1. Retirement plans offered and administered by the employer.

SB449,8,13 2. Retirement plans offered by the employer, but administered by the department.

SB449,8,14 3. The Wisconsin retirement system.

SB449, s. 16 Section 16. 40.08 (1m) (e) 2. of the statutes is amended to read:

SB449,8,21 40.08 (1m) (e) 2. Except as provided in subd. subds. 3. and 4., the control and ownership rights of the alternate payee over his or her share of the account shall be the same as if the alternate payee were a participant who had ceased to be a participating employe but had not applied for a benefit under s. 40.23 or 40.25 on the decree date or the date that the participant terminated covered employment, whichever is earlier.

SB449, s. 17 Section 17. 40.08 (1m) (e) 4. of the statutes is created to read:

SB449,8,25 40.08 (1m) (e) 4. An alternate payee, who elects an annuity option, may only elect among the options under s. 40.24 that provide payments that are calculated only on the basis of the age of the alternate payee.

SB449, s. 18 Section 18. 40.08 (1m) (f) 2. of the statutes is amended to read:

SB449,9,25 40.08 (1m) (f) 2. If the participant is an annuitant on the decree date, the annuity shall be recomputed using the total value of the participant's account determined under par. (b) reduced by the total of the alternate payee share transferred under par. (e) 1., in accordance with the actuarial tables in effect and using the participant's age on the decree date. The decree date shall be the effective date of recomputation. If the optional annuity form before division of the participant's account under par. (b) was not a joint and survivor annuity with the alternate payee as the named survivor, the same annuity option with no change in the remaining guarantee period, if any, shall be continued upon recomputation to both the participant and the alternate payee. The present value of the alternate payee's share of the annuity after division shall be paid to the alternate payee as a straight life annuity based on the age of the alternate payee on the decree date. The alternate payee's annuity shall have the same remaining guarantee period, if any, as the participant's annuity. If the optional annuity form before division of the participant's account under par. (b) was a joint and survivor annuity with the alternate payee as the named survivor, the present value of the annuity after division shall be paid to both the participant and the alternate payee as a straight life annuity based upon their respective ages on the decree date. If the participant's account is reestablished under s. 40.26 (2) after the decree date, the memorandum account created under s. 40.26 (2) (b) shall be adjusted by the total of the alternate payee share computed under this subdivision. If the participant's account is reestablished under s. 40.63 (10) after the decree date, the amounts and creditable service reestablished shall be reduced by an amount equal to the percentage of the alternate payee share computed under this subdivision.

SB449, s. 19 Section 19. 40.08 (6) of the statutes is repealed and recreated to read:

SB449,10,4 40.08 (6) Refunds. (a) Notwithstanding s. 20.913, but subject to par. (b), the department may refund any money paid in error to the fund by or on behalf of a person who is not a participant.

SB449,10,6 (b) The department may not refund any money paid into the fund by an employer, but shall by rule credit the money to the employer.

SB449,10,11 (c) Except as provided in par. (d), money paid into the fund by an employer on behalf of a participant which exceeds the contribution limits under s. 40.32 may not be refunded to the employer, but the department shall by rule credit the money to the employer and the employer shall pay the participant the amount of the credit as additional wages or salary.

SB449,10,14 (d) Money paid into the fund by a participant which exceeds the contribution limits under s. 40.32 may be refunded directly to the participant if the department determines that the money was paid on an after-tax basis.

SB449,10,15 (e) No interest may be credited to any money refunded under this subsection.

SB449, s. 20 Section 20. 40.08 (8) (a) of the statutes is repealed and recreated to read:

SB449,10,18 40.08 (8) (a) Benefits provided under this chapter shall be considered abandoned as follows:

SB449,11,3 1. Any potential primary beneficiary under s. 40.02 (8), other than an estate, who has not applied for any benefit payable under this chapter as a result of the death of the participant and whom the department cannot locate by reasonable efforts, as determined by the department by rule, within one year after the death of the participant shall be presumed to have predeceased the participant and all other potential beneficiaries. Thereafter, if the department is unable to locate any resulting subsequent beneficiary within 6 months, all beneficiaries under s. 40.02 (8) (a) 1. and 2. shall be presumed to have predeceased the participant and the department shall pay all benefits payable under this chapter as a result of the death of the participant to the participant's estate in a lump sum.

SB449,11,12 2. If an estate that is determined by the department to be a beneficiary is closed prior to the payment of benefits payable under this chapter as a result of the death of the participant and the estate is not reopened within 6 months after the department notifies the estate that a benefit is payable, the benefit shall be considered irrevocably abandoned and shall be credited to the employer accumulation reserve, unless the estate was the designated beneficiary under s. 40.02 (8) (a) 1. If the estate was the designated beneficiary under s. 40.02 (8) (a) 1., the department shall pay the benefit to a beneficiary as determined under s. 40.02 (8) (a) 2.

SB449,11,22 3. A participant, other than a participating employe or annuitant, whom the department cannot locate by reasonable efforts, with such efforts beginning by the end of the month in which the participant attains, or would have attained, the age of 65, shall be considered to have abandoned all benefits under the Wisconsin retirement system on the date on which the participant attains, or would have attained, the age of 70. The department shall close the participant's account and shall transfer the moneys in the account to the employer accumulation reserve. The department shall restore the participant's account and shall debit the employer accumulation reserve accordingly if the participant subsequently applies for retirement benefits under this chapter before attaining the age of 80.

SB449,12,8 4. The former spouse of a participant who is an alternate payee and whom the department cannot locate by reasonable efforts, with such efforts beginning by the end of the month in which the participant attains, or would have attained, the age of 65, shall be considered to have abandoned all benefits under the Wisconsin retirement system on the date on which the participant attains, or would have attained, the age of 70. The department shall close the alternate payee's account and shall transfer the moneys in the account to the employer accumulation reserve. The department shall restore the alternate payee's account and shall debit the employer accumulation reserve accordingly if the alternate payee subsequently applies for retirement benefits under this chapter before the participant attains or would have attained the age of 80.

SB449,12,11 5. All presumptions under this paragraph are conclusive upon payment of the benefit payable under this chapter as a result of the death of the participant to any qualifying person, estate or entity other than the employer accumulation reserve.

SB449, s. 21 Section 21. 40.08 (8) (b) of the statutes is amended to read:

SB449,12,17 40.08 (8) (b) All moneys or credits in an account for a person presumed to have died intestate, without heirs or beneficiary, or to be abandoned by the person under par. (a) shall be applied, at the end of the calendar year in which notice is published under par. (c), to the appropriate employer accounts employer accumulation reserve to reduce future funding requirements.

SB449, s. 22 Section 22. 40.08 (8) (c) of the statutes is amended to read:

SB449,13,3 40.08 (8) (c) The department shall publish a class 1 notice, under ch. 985, in the official state paper stating the names of persons presumed to have died intestate, without heirs or beneficiary, or whose accounts are presumed to be abandoned under par. (a), and the fact that a benefit will be paid to the respective persons listed or their respective heirs or legatees on proof of ownership, if applied for within 10 years after the date of publication of the notice the time limits under par. (a) and if the participant, alternate payee or other person offers proof satisfactory to the department that the participant, alternate payee or other person is entitled to the benefit. Such proof shall include, but is not limited to, evidence that the participant died and that the person is the beneficiary under s. 40.02 (8).

SB449, s. 23 Section 23. 40.08 (14) of the statutes is amended to read:

SB449,13,15 40.08 (14) (title) Lump sum rollovers Rollovers to other retirement plans. If a participant who is entitled to receive a lump sum payment or a monthly annuity certain under s. 40.24 (1) (f) for which the participant has specified a term of less than 120 months from the Wisconsin retirement system and who has an account established under any other retirement plan located in the United States so directs in writing, on a form prescribed by the department, the department shall pay the lump sum payment or the monthly annuity directly to the participant's account under that other retirement plan for credit under that other retirement plan. The department shall cease payment of the monthly annuity payments to the annuitant's account under the other retirement plan within 30 days of the written request of the annuitant or written notice of the annuitant's death.

SB449, s. 24 Section 24. 40.23 (1) (a) 1. of the statutes is amended to read:

SB449,13,21 40.23 (1) (a) 1. The participant is separated, regardless of cause, and continues to be separated either until the annuity effective date, or until the date 30 days after the application is received by the department, or the date 30 days after separation, whichever is later, from all employment meeting the qualifications for inclusion specified in s. 40.22 for any participating employer.

SB449, s. 25 Section 25. 40.23 (1) (b) of the statutes is amended to read:

SB449,14,8 40.23 (1) (b) All retirement annuities shall be effective on the day following, or on the first day of a month following, the date of separation from the last participating employer by which the participant was employed, as specified by the participant in the written application for the annuity. However, the date shall not be more than 90 days prior to the date of receipt of the application by the department. The participant may specify that additional contribution accumulations shall not be applied to provide an annuity until a subsequent application is filed for an annuity to be paid from the additional contribution accumulations. The subsequent application shall be made as specified under sub. (4) or the department shall automatically distribute the accumulated additional contribution accumulations as a lump sum.

SB449, s. 26 Section 26. 40.23 (1) (c) of the statutes is amended to read:

SB449,14,15 40.23 (1) (c) No application specifying an annuity effective date later than 60 days after the date of its receipt by the department shall be accepted , unless the participant files the application on or after January 1 of the calendar year in which the participant attains the age of 69.5 years specifying an annuity effective date that begins before April 1 of the year following the calendar year in which the participant attains the age of 70.5 years.

SB449, s. 27 Section 27. 40.23 (1) (d) of the statutes is repealed and recreated to read:

SB449,14,22 40.23 (1) (d) Notwithstanding par. (c), an application for an annuity to be effective on the day following termination of employment may be filed up to 90 days prior to the employe's anticipated termination date. The anticipated termination date shall be stated in the application and the department shall not make an annuity payment until the employe has terminated. The department shall reject any application that is filed more than 90 days prior to the employe's termination date.

SB449, s. 28 Section 28. 40.23 (2m) (b) of the statutes is amended to read:

SB449,15,12 40.23 (2m) (b) Except as provided in s. 40.26, subject to the limitations under section 415 of the internal revenue code, as defined for the current taxable year under s. 71.01 (6), the initial amount of the normal form annuity shall be an amount equal to 65%, or 85% for participants whose formula rate is determined under par. (e) 4., of the participant's final average earnings plus the amount which can be provided under pars. (c) and (d) or, if less, shall be in the monthly amount equal to the sum of the amounts determined under pars. (c), (d) and (e) as modified by par. (f) and in accordance with the actuarial tables in effect on the annuity effective date. If the participant has creditable service under both par. (e) 4. and another category under par. (e), the percent applied under this paragraph shall be determined by multiplying the percent that each type of creditable service is of the participant's total creditable service by 85% and 65%, respectively, and adding the results, except that the resulting benefit may not be less than the amount of the normal form annuity that could be paid based solely on the creditable service under par. (e) 4.

SB449, s. 29 Section 29. 40.23 (4) of the statutes is created to read:

SB449,15,20 40.23 (4) (a) Subject to all requirements under the internal revenue code, the department shall distribute to the participant the entire amount that is credited to the account of a participant under the Wisconsin retirement system no later than the required beginning date, unless the department distributes this amount as an annuity or in more than one payment. If the department distributes this amount as an annuity or in more than one payment, the department shall begin the distribution no later than the required beginning date.