00 SENATE BILL NO. 232 01 "An Act relating to federal requirements for governmental plan and other qualifications 02 for the teachers' retirement system, the public employees' retirement system, and the 03 judicial retirement system; and providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05  * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 06 to read: 07 PURPOSE. The purpose of this Act is to 08 (1) assure that the teachers' retirement system, the public employees' 09 retirement system, and the judicial retirement system continue to meet governmental plan 10 qualifications set by the Internal Revenue Service so that those plans may qualify for 11 favorable federal tax treatment; and 12 (2) implement changes in those retirement systems for members to take 13 advantage of changes in federal tax laws to better plan their retirement. 14  * Sec. 2. AS 14.25.060(a) is amended to read: 01 (a) If a member first joined the system [SERVICE] before July 1, 1990, and 02 has military service or Alaska Bureau of Indian Affairs (BIA) service, or if a member 03 joined the system before July 1, 1978, and has creditable outside service, the member  04 may claim this service. If claimed, the member is indebted to the system as follows: 05 (1) At the time of first becoming a member of the system, the arrearage 06 indebtedness is seven percent of the base salary multiplied by the total number of 07 years of creditable outside, military, and Alaska BIA service. The administrator shall 08 add compound interest at the rate prescribed by regulation to the arrearage 09 indebtedness beginning July 1, 1963, or at the time the member first becomes eligible 10 to claim the service, whichever is later, to the date of payment or the date of 11 retirement, whichever occurs first. 12 (2) If a member terminates from the system and is subsequently 13 reemployed as a member, the arrearage indebtedness to the system for outside, 14 military, or Alaska BIA service accumulated in the interim is seven percent of the base 15 salary upon reentering membership service, multiplied by the number of years of 16 interim outside, military, and Alaska BIA service. Compound interest at the rate 17 prescribed by regulation shall be added to the arrearage indebtedness beginning July 1, 18 1963, or the date of reemployment as a member, whichever is later, to the date of 19 payment or the date of retirement, whichever occurs first. 20 * Sec. 3. AS 14.25.062 is amended to read: 21 Sec. 14.25.062. Reinstatement indebtedness. A teacher who has received a 22 refund of contributions in accordance with AS 14.25.150 forfeits corresponding  23 credited service under this chapter. A teacher may elect to reinstate credited  24 service associated with the refund by repaying the total amount of the refund. If  25 an election is made under this section, an indebtedness [IS INDEBTED] to the 26 system in the amount of the total refund shall be established. Compound interest at 27 the rate prescribed by regulation shall be added to the reinstatement indebtedness from 28 the date of the refund to the date of repayment or the date of retirement, whichever 29 occurs first. 30 * Sec. 4. AS 14.25.075(a) is amended to read: 31 (a) An employee who is eligible to purchase credited service under 01 AS 14.25.047 or 14.25.048, a member who is eligible to purchase credited service 02 under AS 14.25.048, 14.25.060 [AS 14.25.060], 14.25.061, [OR] 14.25.100, or  03 14.25.107, or a teacher who is eligible to purchase credited service under 04 AS 14.20.345, AS 14.25.050, 14.25.062, or 14.25.105 [IS A MEMBER FOR 05 PURPOSES OF THIS SECTION. A MEMBER], in lieu of making payments directly 06 to the system, may elect to have the member's employer make payments as provided 07 in this section. 08  * Sec. 5. AS 14.25.075(b) is amended to read: 09 (b) A member may elect to have the employer make payments for all or any 10 portion of the amounts payable for the member's purchase of credited service through 11 a salary reduction program as follows: 12 (1) the amounts paid under a salary reduction program are in lieu of 13 contributions by the member making the election; the electing member's salary or 14 other compensation shall be reduced by the amount paid by the employer under this 15 subsection [SECTION]; 16 (2) the member shall make an irrevocable [AN] election under this 17 subsection [SECTION] to purchase credited service as permitted in AS 14.20.345, 18 AS 14.25.047, 14.25.048, 14.25.050, 14.25.060, 14.25.061, 14.25.062, 14.25.100, 19 [OR] 14.25.105, or 14.25.107 before the member's termination of employment; the 20 irrevocable election must specify the number of payroll periods that deductions will 21 be made from the member's compensation and the dollar amount of deductions for 22 each payroll period during the specified number of payroll periods; the deductions  23 made under this paragraph cease upon the earliest of the member's termination  24 of employment with the employer or the member's death; amounts paid by an  25 employer under (f) of this section may not be applied toward the payment of the  26 dollar amount of the deductions representing the portion of the credited service  27 that is being purchased by the member through payroll deduction in accordance  28 with the member's irrevocable election under this subsection; 29 (3) [A MEMBER WHO MAKES AN ELECTION UNDER THIS 30 SECTION TO HAVE THE EMPLOYER MAKE PAYMENTS FOR LESS THAN 31 ALL OF THE AMOUNTS PAYABLE FOR THE MEMBER'S PURCHASE OF 01 CREDITED SERVICE MAY SUBSEQUENTLY ELECT TO HAVE THE 02 EMPLOYER MAKE PAYMENTS FOR ALL OR ANY PORTION OF THE 03 REMAINING AMOUNTS PAYABLE FOR THE MEMBER'S PURCHASE OF 04 CREDITED SERVICE; 05 (4)] amounts paid by an employer under this subsection [SECTION] 06 shall be treated as employer contributions for the purpose of determining tax treatment 07 under 26 U.S.C. (Internal Revenue Code); the amounts paid by the employer under 08 this subsection [SECTION] may not be included in the member's gross income for 09 income tax purposes until those amounts are distributed by refund or retirement 10 benefit payments. 11 * Sec. 6. AS 14.25.075(f) is amended to read: 12 (f) The [TO THE EXTENT THAT A PAYMENT UNDER THIS SECTION 13 DOES NOT ALTER, AMEND, OR REVOKE ANY ONE OR MORE CURRENTLY 14 EFFECTIVE ELECTIONS MADE BY THE EMPLOYEE, THE] board may accept 15 rollover [EMPLOYEE] contributions from a member, and direct transfers as  16 described in this subsection, for the purchase, in whole or in part, of credited  17 service under this section for the reinstatement, in whole or in part, of forfeited  18 credited service in accordance with AS 14.25.062. A rollover contribution or  19 transfer as described in this subsection [, WHICH] shall [ALSO] be treated as 20 employer contributions for the purpose of determining tax treatment under the Internal 21 Revenue Code, and may be made [FOR THE PAYMENT FOR CREDITED 22 SERVICE PURCHASES MADE UNDER THIS SECTION IN WHOLE OR IN 23 PART,] by any one or a combination of the following methods: 24 (1) subject to the limitations prescribed in [26 U.S.C. 401(a)(3) AND] 25 26 U.S.C. 402(c), accepting eligible rollover distributions directly from one or more 26 retirement programs of another employer that are qualified under 26 U.S.C. 401(a) or 27 accepting rollovers directly from a member [AN EMPLOYEE]; 28 (2) subject to the limitations prescribed in 26 U.S.C. 408(d)(3)(A)(ii), 29 accepting from a member [AN EMPLOYEE] conduit rollover contributions that are 30 received by the member [EMPLOYEE] from one or more conduit rollover individual 31 retirement accounts previously established by the member [EMPLOYEE]; 01 (3) subject to the limitations prescribed in 26 U.S.C. 403(b)(13), 02 accepting direct trustee-to-trustee transfers of all or a portion of the accounts of the 03 member [EMPLOYEE], on or [AND] after January 1, 2002, from a tax sheltered 04 annuity described in 26 U.S.C. 403(b); 05 (4) subject to the limitations prescribed in 26 U.S.C. 457(e)(17), 06 accepting direct trustee-to-trustee transfers of all or a portion of the accounts of the 07 member [EMPLOYEE], on or [AND] after January 1, 2002, from an eligible deferred 08 compensation plan of a tax-exempt organization or a state or local government 09 described in 26 U.S.C. 457(b); 10 (5) accepting direct trustee-to-trustee transfer from an account 11 established for the benefit of the member in AS 39.30.150 - 39.30.180 (Alaska 12 Supplemental Annuity Plan). 13  * Sec. 7. AS 14.25.075(i) is amended to read: 14 (i) On satisfaction of the eligibility requirements of AS 14.20.345, 15 AS 14.25.047, 14.25.048, 14.25.050, 14.25.060, 14.25.061, 14.25.062, 14.25.100, 16 [OR] 14.25.105, or 14.25.107, the requirements of this section, and the administrative 17 filing requirements specified by the board, the system shall adjust the member's 18 credited service history and add any additional service credits acquired. 19  * Sec. 8. AS 14.25.110(k) is amended to read: 20 (k) For system fiscal years beginning after December 31, 1975, and  21 notwithstanding [NOTWITHSTANDING] any other provision of this chapter, the 22 projected annual benefit provided by this chapter and the benefit from all other defined 23 benefit plans required to be aggregated with the benefits from this system under the 24 provisions of 26 U.S.C. 415 may not increase to an amount in excess of the amount 25 permitted under 26 U.S.C. 415 at any time. In the event that any projected annual 26 benefit of a member exceeds the limitation of 26 U.S.C. 415 for a limitation year, the 27 system shall take any necessary remedial action to correct an excess accrued annual 28 benefit. The provisions of 26 U.S.C. 415, and the regulations adopted under that 29 statute, as applied to qualified defined benefit plans of governmental employers are 30 incorporated as part of the terms and conditions of the system. This subsection applies 31 to any member of this system. 01  * Sec. 9. AS 22.25.011 is amended to read: 02 Sec. 22.25.011. Contributions of judges and justices. Each justice and 03 judge appointed after July 1, 1978, and covered as a member under the judicial  04 retirement system as of the date of the justice's or judge's appointment shall 05 contribute seven percent of the base annual salary received by the justice or judge to 06 the judicial retirement system. Contributions shall be made for all creditable service 07 under this chapter up to a maximum of 15 years. This contribution is made in the 08 form of a deduction from compensation, at the end of each payroll period, and is made 09 even if the compensation paid in cash to the justice or judge is reduced below the 10 minimum prescribed by law. The contributions shall be deducted from the justice's or 11 judge's compensation before the computation of applicable federal taxes and shall be 12 treated as employer contributions under 26 U.S.C. 414(h)(2). A member may not have 13 the option of making the payroll deduction directly in cash instead of having the 14 contribution picked up by the employer. Each justice and judge is considered to 15 consent to the deduction from compensation. Payment of compensation less the 16 deduction constitutes a full discharge of all claims and demands for the services 17 rendered by the justice or judge during the period covered by the payment, except as 18 to the benefits provided for under this chapter. The contributions shall be credited to 19 the judicial retirement fund established in accordance with AS 22.25.048. 20  * Sec. 10. AS 22.25.012(a) is amended to read: 21 (a) An administrative director of the Alaska court system appointed under 22 art. IV, sec. 16 of the state constitution is covered as a member under the judicial  23 retirement system as of the date of the administrative director's appointment and  24 is entitled to retirement benefits under this chapter on the terms and conditions 25 applicable to a superior court judge appointed after July 1, 1978, except that an 26 administrative director may receive retirement benefits only with service as 27 administrative director for 10 or more years. 28  * Sec. 11. AS 22.25.048(i) is amended to read: 29 (i) If the judicial retirement system is terminated, a member whose  30 contributions have not been refunded, regardless of the member's employment  31 status at the date of the termination of the system, shall be considered fully vested  01 in the member's adjusted accrued retirement benefits as of the date of the  02 termination of the system. If, upon termination of the system, all liabilities are 03 satisfied, any excess assets arising from erroneous actuarial computation shall revert to 04 the employer. 05  * Sec. 12. AS 39.35.165(b) is amended to read: 06 (b) An employee may elect to have the employer make payments for all or any 07 portion of the amounts payable for the employee's purchase of credited service 08 through a salary reduction program as follows: 09 (1) the amounts paid under a salary reduction program are in lieu of 10 contributions by the employee making the election; the electing employee's salary or 11 other compensation shall be reduced by the amount paid by the employer under this 12 subsection; 13 (2) the employee shall make an irrevocable election under this section 14 to purchase credited service as permitted in AS 39.35.310, 39.35.330, 39.35.340, 15 39.35.342, 39.35.345, 39.35.350, 39.35.360, 39.35.370, 39.35.375, or 39.35.381 and 16 before the employee's termination of employment; the irrevocable election must 17 specify the number of payroll periods that deductions will be made from the 18 employee's compensation and the dollar amount of deductions for each payroll period 19 during the specified number of payroll periods; the deductions made under this  20 paragraph cease upon the earliest of the member's termination of employment  21 with the employer or the member's death; amounts paid by an employer under  22 (f) of this section may not be applied toward the payment of the dollar amount of  23 the deductions representing the portion of the credited service that is being  24 purchased by the member through payroll deduction in accordance with the  25 member's irrevocable election under this subsection; 26 (3) [AN EMPLOYEE WHO MAKES AN ELECTION UNDER THIS 27 SECTION TO HAVE THE EMPLOYER MAKE PAYMENTS FOR LESS THAN 28 ALL OF THE AMOUNTS PAYABLE FOR THE EMPLOYEE'S PURCHASE OF 29 CREDITED SERVICE MAY SUBSEQUENTLY ELECT TO HAVE THE 30 EMPLOYER MAKE PAYMENTS FOR ALL OR ANY PORTION OF THE 31 REMAINING AMOUNTS PAYABLE FOR THE EMPLOYEE'S PURCHASE OF 01 CREDITED SERVICE; 02 (4)] amounts paid by an employer under this subsection [SECTION] 03 shall be treated as employer contributions for the purpose of determining tax treatment 04 under the Internal Revenue Code; the amounts paid by the employer under this 05 subsection [SECTION] may not be included in the member's gross income for income 06 tax purposes until those amounts are distributed by refund or retirement benefit 07 payments. 08  * Sec. 13. AS 39.35.165(f) is amended to read: 09 (f) The [TO THE EXTENT THAT A PAYMENT UNDER THIS SECTION 10 DOES NOT ALTER, AMEND, OR REVOKE ANY ONE OR MORE CURRENTLY 11 EFFECTIVE ELECTIONS MADE BY THE EMPLOYEE, THE] board may accept 12 rollover [EMPLOYEE] contributions from a member and direct transfers, as  13 described in this subsection, for the purchase, in whole or in part, of credited  14 service or for the reinstatement, in whole or in part, of forfeited credited service  15 in accordance with AS 39.35.350. A rollover contribution or transfer as  16 described in this subsection [, WHICH] shall also be treated as employer 17 contributions for the purpose of determining tax treatment under the Internal Revenue 18 Code, and may be made [FOR THE PAYMENT FOR CREDITED SERVICE 19 PURCHASES MADE UNDER THIS SECTION IN WHOLE OR IN PART,] by any 20 one or a combination of the following methods: 21 (1) subject to the limitations prescribed in [26 U.S.C. 401(a)(3) AND] 22 26 U.S.C. 402(c), accepting eligible rollover distributions directly from one or more 23 retirement programs of another employer that are qualified under 26 U.S.C. 401(a) or 24 accepting rollovers directly from a member [AN EMPLOYEE]; 25 (2) subject to the limitations prescribed in 26 U.S.C. 408(d)(3)(A)(ii), 26 accepting from a member [AN EMPLOYEE] conduit rollover contributions that are 27 received by the employee from one or more conduit rollover individual retirement 28 accounts previously established by the member [EMPLOYEE]; 29 (3) subject to the limitations prescribed in 26 U.S.C. 403(b)(13), 30 accepting direct trustee-to-trustee transfers of all or a portion of the accounts of the 31 member [EMPLOYEE], on or [AND] after January 1, 2002, from a tax sheltered 01 annuity described in 26 U.S.C. 403(b); 02 (4) subject to the limitations prescribed in 26 U.S.C. 457(e)(17), 03 accepting direct trustee-to-trustee transfers of all or a portion of the accounts of the 04 member [EMPLOYEE], on or [AND] after January 1, 2002, from an eligible deferred 05 compensation plan of a tax-exempt organization or a state or local government 06 described in 26 U.S.C. 457(b); 07 (5) accepting direct trustee-to-trustee transfer from an account 08 established for the benefit of the member in AS 39.30.150 - 39.30.180 (Alaska 09 Supplemental Annuity Plan). 10  * Sec. 14. AS 39.35.340(a) is amended to read: 11 (a) An [A VESTED] employee is entitled to credited service for active 12 military service in the armed forces of the United States, either by enlistment or 13 induction, if the employee received a discharge under honorable conditions and is not 14 entitled to receive retirement benefits from the United States government for the same 15 service. The credited service allowed may not exceed an aggregate period of five 16 years. Benefits are not payable on credited service for military service unless the 17 employee makes retroactive contributions to the system for the period of time that 18 service credit is claimed. However, if the employee was in the employ of an employer 19 on the date of entry into the armed forces and returned to the employ of an employer 20 within 90 days after the date of discharge from military service, the employee is not 21 required to make retroactive contributions under this system for the period of credited 22 service. 23  * Sec. 15. AS 39.35.370(i) is amended to read: 24 (i) For system fiscal years beginning after December 31, 1975, and  25 notwithstanding [NOTWITHSTANDING] any other provision of this chapter, the 26 projected annual benefit provided by this chapter and the benefit from all other defined 27 benefit plans required to be aggregated with the benefits from this system under the 28 provisions of 26 U.S.C. 415 may not increase to an amount in excess of the amount 29 permitted under 26 U.S.C. 415 at any time. In the event that any projected annual 30 benefit of a member exceeds the limitation of 26 U.S.C. 415(g) for a limitation year, 31 the system shall take any necessary remedial action to correct an excess accrued 01 annual benefit. The provisions of 26 U.S.C. 415, and the regulations adopted under 02 that statute, as applied to qualified defined benefit plans of governmental employers 03 are incorporated as part of the terms and conditions of the system. This subsection 04 applies to any member of this system. 05  * Sec. 16. The uncodified law of the State of Alaska is amended by adding a new section to 06 read: 07 REVISOR'S INSTRUCTION. The revisor of statutes is instructed to change the 08 heading of AS 39.35.546 from "Tax exemption" to "State and federal taxation of benefits." 09 * Sec. 17. The uncodified law of the State of Alaska is amended by adding a new section to 10 read: 11 APPLICABILITY OF CERTAIN CREDITED SERVICE PURCHASES UNDER 12 PUBLIC EMPLOYEES' AND TEACHERS' RETIREMENT SYSTEMS. The provisions of 13 this Act listed in (1) and (2) of this section first apply on the day after the date on which the 14 Department of Administration receives favorable rulings on the changes from the Internal 15 Revenue Service that, under 26 U.S.C. 414(h)(2), the amounts paid by the employer will not 16 be included in the member's gross income for income tax purposes until those amounts are 17 distributed by refund or retirement benefit payment: 18 (1) the changes made to AS 14.25.075(b)(4), redesignated as 19 AS 14.25.075(b)(3) by sec. 5 of this Act; 20 (2) the changes made to AS 39.35.165(b)(4), redesignated as 21 AS 39.35.165(b)(3) by sec. 12 of this Act. 22 (b) The commissioner of administration shall promptly notify the revisor of statutes of 23 the dates that the rulings described in (a) of this section were received. 24  * Sec. 18. The uncodified law of the State of Alaska enacted in sec. 49, ch. 59, SLA 2002, 25 is amended by adding a new subsection to read: 26 (f) Notwithstanding AS 14.25.177 and AS 39.35.547, the following provisions 27 of this Act are retroactive to January 1, 1993: 28 (1) AS 14.25.163, enacted by sec. 9 of this Act; 29 (2) AS 22.25.022, enacted by sec. 19 of this Act; 30 (3) AS 39.35.195, enacted by sec. 32 of this Act. 31 * Sec. 19. This Act takes effect immediately under AS 01.10.070(c).