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SB 232: "An Act relating to federal requirements for governmental plan and other qualifications for the teachers' retirement system, the public employees' retirement system, and the judicial retirement system; and providing for an effective date."

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).