Scope statements
Employee Trust Funds
Subject
The proposed rule concerns some effects of a waiver, or partial waiver, of Wisconsin Retirement System benefits under s.
40.08 (3) and the waiver of death benefits by a beneficiary under s.
40.74 (2). The rule also codifies interpretations related to determining the beneficiary entitled to receive payment of Wisconsin Retirement System death benefits.
Policy analysis
The proposed rule will establish, codify or clarify with respect to annuity benefits from the Wisconsin Retirement System that:
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The annuity effective date for an annuity affected by a waiver remains the effective date determined from the date the application was received, not the effective date of the waiver. This will permit benefits to be effective at the earliest possible date and establish a date necessary for calculating annuity benefits.
•
Similarly, the annuity effective date for calculating the present value of an annuity for a lump sum payment under Wis. Stats. s.
40.25 (1), when the participant's eligibility depends on a waiver of benefits, remains the effective date determined from the date the application was received, not the effective date of the waiver.
•
A person may waive a portion of a WRS annuity benefit in order to qualify for a lump sum payment under Wis. Stats. s.
40.25 (1). This codifies a policy adopted in 1998, reversing an earlier interpretation that a person could not use a partial waiver of benefits to qualify for a lump sum payment.
With respect to death benefits payable from the Wisconsin Retirement System, the rule will establish, codify or clarify that:
•
Wis. Stats. ss.
40.08 (3) and
40.74 (1) will be read together to permit a beneficiary of a WRS death benefit to waive part of a death benefit. This codifies current Department policy and practice. Codification of this liberal interpretation of the waiver statutes will help prevent confusion for persons considering waiver in the future. In past years, the Department had allowed waiver only if the entire death benefit was waived.
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Waivers may be filed by potential beneficiaries for the purpose of extinguishing any possible claim the person might have. This will permit a person to file a waiver even before the Department has determined that the person qualifies as a beneficiary. By statute, waivers are not effective until the first day of the second month after receipt. Consequently, there is a 29 to 62 day delay before a waiver received by the Department becomes effective and irrevocable. If waivers by secondary and successive beneficiaries could only be accepted after waivers by primary beneficiaries had become effective, the result would be a series of delays. The rule will facilitate and expedite the ultimate purpose and effect of the waivers.
To illustrate this last objective, consider the example of a WRS participant who filed a beneficiary designation 40 years ago naming her mother as primary beneficiary and a brother as her secondary beneficiary, in the event the mother predeceases the participant. The participant married, but never filed a beneficiary designation naming the spouse as her beneficiary. She dies and is survived by the mother, brother and her spouse. The spouse can only become her beneficiary if there are no surviving designated beneficiaries, or if the mother and brother both waive the death benefit. The mother and brother are willing to waive. Under the proposed rule, DETF could accept waivers from the brother and mother in any order. The brother's waiver could be filed and become effective, extinguishing the bother's potential beneficiary interest, even before a waiver from the mother was received.
Finally, with respect to clarifying who may become a beneficiary, the proposed rule will establish and clarify that:
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A person who waives a WRS benefit payable because of the death of another person will be treated as if that person waiving had failed to survive the decedent. If a potential beneficiary files a beneficiary designation applicable to a death benefit payable to that person, then waives the benefits, the beneficiary designation is void and does not control the payment of any benefit.
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A person who intentionally kills the decedent may not receive any benefit payment resulting from the death.
Statutory authority
Staff time required
The Department estimates that state employees will spend 20 hours to develop this rule.
Entities affected by rule
The proposed rule affects participants in the Wisconsin Retirement System and their beneficiaries or potential beneficiaries.
Comparison with federal requirements
No existing or proposed federal regulations directly address the waiver provisions applicable to the Wisconsin Retirement System. The federal tax code indirectly affects the proposed rule's treatment of beneficiaries who waive death benefits. If a beneficiary could waive receipt of benefits, but still control to whom the benefits would be paid, the IRS would treat this as constructive receipt with tax consequences and requiring Departmental reporting and tax withholding. The proposed rule is therefore intended to prevent constructive receipt.
Employee Trust Funds
Subject
The proposed rule will concern the status of a non-annuitant Wisconsin Retirement System participant at death, for purposes of determining the applicable death benefit.
Policy analysis
The purpose of this rule is to codify an interpretation of Wis. Stats. s.
40.71 (1) (b) and eliminate a potential misunderstanding. The clarified interpretation will better effectuate the purpose of the statute and also reflect the Department's general policies of treating participants in the Wisconsin Retirement System impartially and of administering benefits in accord with the statutory eligibility criteria.
This rule applies to death benefits payable because of the death of a person who was not an annuitant of the Wisconsin Retirement System. The rule will codify that a person's actual status on the date of the person's death determines whether the death benefits payable from the Wisconsin Retirement System are those for an active employee or a former employee. If the person's employment was terminated prior to the date of death, then the benefits payable will be those appropriate for a former employee. The date the employer's report is received by the Department will not dictate the benefits due.
Section
40.71 (1) (b), Stats., is one of several statutes that determines whether deceased participant is treated as an active employee, a former employee or an annuitant for purposes of paying the applicable death benefits from the Wisconsin Retirement System. This particular provision states that, “If the date of death is less than one year after the last day for which earnings were paid, a participant is deemed a participating employee on leave of absence, notwithstanding the fact that no formal leave of absence is in effect, if the participating employer for which the participant last performed services as a participating employee has not filed notice of the termination of employment prior to the employee's death." The purpose of the statue is clearly to treat a decedent whose employment had not been formally terminated as a person on leave of absence, for up to a year. Participating employees on leave of absence continue to be participating employees, as provided by Wis. Stat. §
40.02 (46).
It has come to the Department's attention that a misreading of the last clause of the statute is possible. The last clause might be read to imply that if an employer terminated an employee, but did not report the termination to the DETF until after the employee died, then the death benefits would be determined as if the decedent was “deemed" to be an active employee at the time of death. This potential misunderstanding was not critical when the death benefits payable as the result of the death of most active employees were identical to the death benefits payable upon the death of a former employee who had remained a participant in the Wisconsin Retirement System.
However, beginning in 2001 as a result of implementing
1999 Wis. Act 11, there was an expansion of the scope of the special death benefit under s.
40.73 (1) (c) that applied to the death of active employees over minimum retirement age. The same legislation also created a new death benefit payable upon the death of an active employee, regardless of age, which effectively doubled the death benefit formerly payable. As a result, it is now much more critical to accurately determine whether a decedent was actively employed, or not, at the time of death. A clear interpretation of the last clause of s.
40.71 (1) (b) has become absolutely necessary for the Department to calculate and pay the correct death benefits.
The Department has considered and rejects the alternative interpretation of the statute that would permit an employer to delay reporting a termination and thereby possibly increase the benefits payable if the former employee should die. The Department has a duty to administer benefits in accord with the laws governing the Wisconsin Retirement System. These laws include requirements for employers to make accurate, regular and timely reports to the Department concerning covered employees. The alternative interpretation would conflict with those duties by appearing to permit a delay in reporting terminations of employment. Any effort to administer such an interpretation would also likely give rise to differing treatment of similarly situated former employees. The Department has a duty to treat participants impartially within the laws governing the retirement system.
The interpretation to be promulgated by this rule will do nothing to change the one-year presumption that an deceased employee who was not terminated prior to death was an employee at death, even if no formal leave of absence had been granted. For example, some years ago, an employee disappeared. The employer waited about a week, then sent out a termination notice for failing to work. The employee's body was discovered and it was established that the employee had died before the employer terminated his employment. The Department paid out the death benefits appropriate to the death of an active employee. Retroactive terminations are generally prohibited. Until the employer acted to terminate the employment, the missing employee was treated as being on an informal leave of absence and therefore still an active employee.
The rule will not affect death benefits already paid by the Department of Employee Trust Funds. The rule will apply prospectively to persons who are either terminated from employment, or who die, after the effective date of the rule.
Statutory authority
Staff time required
The Department estimates that state employees will spend 12 hours to develop this rule.
Entities affected by rule
The entitles affected by this rule proposal are: the Department of Employee Trust Funds; the Public Employee Trust Fund, from which Wisconsin Retirement System benefits are paid; participants in the Wisconsin Retirement System, all of whom have an interest in the proper administration of benefits; participating employers; living former employees of participating employers whose termination has not yet been reported to the Department; and, the beneficiaries of deceased participants in the Wisconsin Retirement System who died sometime after their employment had ended and before taking a pension.
Comparison with federal requirements
There are no known existing or proposed federal regulations that are intended to address the activities regulated by this rule.
The proposed rule concerns some effects of a waiver, or partial waiver, of Wisconsin Retirement System benefits under s.
40.08 (3) and the waiver of death benefits by a beneficiary under s.
40.74 (2). The rule also codifies interpretations related to determining the beneficiary entitled to receive payment of Wisconsin Retirement System death benefits.
