Montana HB 79

1999 Montana Legislature

HOUSE BILL NO. 79

INTRODUCED BY M. BRAINARD

BY REQUEST OF THE COMMITTEE ON PUBLIC EMPLOYEE RETIREMENT SYSTEMS

AN ACT RELATING TO THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM; ESTABLISHING A DEFINED CONTRIBUTION PLAN WITHIN THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND SPECIFYING THE PLAN'S PROVISION OF RIGHTS, BENEFITS, AND FEATURES; TRANSFERRING ADMINISTRATION OF THE STATE DEFERRED COMPENSATION PROGRAM TO THE PUBLIC EMPLOYEES' RETIREMENT BOARD; ELIMINATING CERTAIN INVESTMENT RESTRICTIONS IN THE UNIFIED INVESTMENT PROGRAM; PROVIDING FOR THE POWERS AND DUTIES OF THE PUBLIC EMPLOYEES' RETIREMENT BOARD IN IMPLEMENTING AND ADMINISTERING THE NEW PLAN; ALLOWING CURRENT AND NEW SYSTEM MEMBERS TO CHOOSE WHETHER TO JOIN THE NEW DEFINED CONTRIBUTION PLAN OR STAY IN THE DEFINED BENEFIT PLAN; SPECIFYING PLAN CHOICE, MEMBERSHIP, AND VESTING CRITERIA; ALLOWING RETIREMENT SYSTEM MEMBERS EMPLOYED BY THE UNIVERSITY SYSTEM TO CHOOSE THE OPTIONAL RETIREMENT PLAN; PROVIDING FOR ACTUARIAL FUNDING OF DEFINED BENEFIT PLAN UNFUNDED LIABILITIES AND PLAN CHOICE COSTS; ESTABLISHING CRITERIA FOR THE INVESTMENT ALTERNATIVES THAT MAY BE OFFERED IN THE NEW PLAN; SPECIFYING THE PAYOUT AND BENEFIT OPTIONS AVAILABLE WITHIN THE DEFINED CONTRIBUTION PLAN; PROVIDING FOR DEATH BENEFITS IN THE NEW PLAN; REQUIRING AND SPECIFYING THE COMPONENTS OF MEMBER EDUCATIONAL PROGRAMS; ESTABLISHING AN IMPLEMENTATION SCHEDULE; PROVIDING FOR AN IMPLEMENTATION TEAM, ADVISORY COUNCIL, AND OVERSIGHT COMMITTEE; PROVIDING FOR PAYMENT OF CERTAIN LOCAL GOVERNMENT ADMINISTRATIVE EXPENSES; REQUIRING THAT THE PUBLIC EMPLOYEES' RETIREMENT BOARD FILE FOR AN INTERNAL REVENUE SERVICE DETERMINATION; EXPANDING CERTAIN RETIREMENT BENEFITS TO COVER LEGISLATORS TERMINATED FROM SERVICE BECAUSE OF TERM LIMITS; AUTHORIZING A LONG-TERM LOAN FROM THE DEPARTMENT OF ADMINISTRATION TO THE PUBLIC EMPLOYEES' RETIREMENT BOARD TO PAY FOR DEFINED CONTRIBUTION PLAN STARTUP COSTS; AMENDING SECTIONS 2-15-1009, 2-18-704, 17-6-201, 19-2-302, 19-2-303, 19-2-401, 19-2-403, 19-2-405, 19-2-406, 19-2-407, 19-2-408, 19-2-409, 19-2-501, 19-2-503, 19-2-504, 19-2-505, 19-2-603, 19-2-706, 19-2-902, 19-2-906, 19-2-907, 19-2-908, 19-2-909, 19-2-1001, 19-2-1002, 19-2-1003, 19-2-1005, 19-2-1006, 19-2-1007, 19-3-103, 19-3-108, 19-3-201, 19-3-203, 19-3-315, 19-3-316, 19-3-401, 19-21-102, 19-21-201, 19-21-202, 19-21-203, 19-50-101, 19-50-102, 19-50-201, 19-50-202, AND 19-50-203, MCA; REPEALING SECTION 19-50-206, MCA; AND PROVIDING EFFECTIVE DATES, AN APPLICABILITY PROVISION, AND TERMINATION DATES.

WHEREAS, House Bill No. 90 of the 55th Legislature required the Committee on Public Employee Retirement Systems (CPERS) to design a new or modified public employees' retirement plan containing certain specified features; and

WHEREAS, House Bill No. 90 required that the new or modified plan increase portability of member contributions, increase flexibility to allow members to choose among investment options, and retain a plan component that offers a specified benefit in retirement; and

WHEREAS, House Bill No. 90 required that the CPERS establish an implementation schedule for the new or modified plan, provide for an educational program, and present any implementing legislation; and

WHEREAS, the CPERS contracted with a benefits consulting firm and conducted a thorough and broad-based study during the 1997-98 interim to determine the design of the new or modified retirement plan; and

WHEREAS, the study involved numerous focus groups from across Montana, including members of retirement systems, employers, plan administrators, and public officials; and

WHEREAS, the CPERS commissioned and considered reports and analyses by the contracted consulting firm; and

WHEREAS, the CPERS has concluded the study required by House Bill No. 90 and recommends that the current public employees' retirement system (PERS) consist of two retirement plans, the current defined retirement benefit plan and a new defined contribution retirement plan; and

WHEREAS, current and new members of the PERS may choose between either the defined benefit plan or the defined contribution plan.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

Section 1. Section 2-15-1009, MCA, is amended to read:

"2-15-1009. Public employees' retirement board -- terms -- allocation. (1) There is a public employees' retirement board.

(2) The board consists of ~~six~~ seven members appointed by the governor. The members are:

(a) three public employees who are active members of a public retirement system (not more than one of these members may be an employee of the same department and at least one of these members must, no later than July 1, 2003, be a member of the defined contribution plan created pursuant to [sections 42 through 63]);

(b) one retired public employee who is an inactive member of the public employees' retirement system; ~~and~~

(d) one member who has experience in investment management, counseling, or financial planning or who has other similar experience.

(3) The term of office for each member is 5 years.

(4) The board is allocated to the department for administrative purposes only as prescribed in 2-15-121. The board shall hire necessary employees as provided in 19-2-404.

(5) Members of the board must be compensated and receive travel expenses as provided for in 2-15-124."

Section 2. Section 2-18-704, MCA, is amended to read:

"2-18-704. Mandatory provisions. (1) An insurance contract or plan issued under this part must contain provisions that permit:

(a) the member of a group who retires from active service under the appropriate retirement provisions of a defined benefit plan provided by law or, in the case of the defined contribution plan provided in [sections 42 through 63], a member with at least 5 years of service and who is at least age 50 while in covered employment to remain a member of the group until the member becomes eligible for medicare under the federal Health Insurance for the Aged Act, 42 U.S.C. 1395, as amended, unless the member is a participant in another group plan with substantially the same or greater benefits at an equivalent cost or unless the member is employed and, by virtue of that employment, is eligible to participate in another group plan with substantially the same or greater benefits at an equivalent cost;

(b) the surviving spouse of a member to remain a member of the group as long as the spouse is eligible for retirement benefits accrued by the deceased member as provided by law unless the spouse is eligible for medicare under the federal Health Insurance for the Aged Act or unless the spouse has or is eligible for equivalent insurance coverage as provided in subsection (1)(a);

(c) the surviving children of a member to remain members of the group as long as they are eligible for retirement benefits accrued by the deceased member as provided by law unless they have equivalent coverage as provided in subsection (1)(a) or are eligible for insurance coverage by virtue of the employment of a surviving parent or legal guardian.

(2) An insurance contract or plan issued under this part must contain the provisions of subsection (1) for remaining a member of the group and also must permit:

(a) the spouse of a retired member the same rights as a surviving spouse under subsection (1)(b);

(b) the spouse of a retiring member to convert a group policy as provided in 33-22-508; and

(c) continued membership in the group by anyone eligible under the provisions of this section, notwithstanding the person's eligibility for medicare under the federal Health Insurance for the Aged Act.

(3) (a) A state insurance contract or plan must contain provisions that permit a legislator to remain a member of the state's group plan until the legislator becomes eligible for medicare under the federal Health Insurance for the Aged Act, 42 U.S.C. 1395, as amended, if the legislator:

(i) terminates service in the legislature and is a vested member of a state retirement system provided by law; and

(ii) notifies the department of administration in writing within 90 days of the end of the legislator's legislative term.

(b) A former legislator may not remain a member of the group plan under the provisions of subsection (3)(a) if the person:

(i) is a member of a plan with substantially the same or greater benefits at an equivalent cost; or

(ii) is employed and, by virtue of that employment, is eligible to participate in another group plan with substantially the same or greater benefits at an equivalent cost.

(c) A legislator who remains a member of the group under the provisions of subsection (3)(a) and subsequently terminates membership may not rejoin the group plan unless the person again serves as a legislator.

(4) (a) A state insurance contract or plan must contain provisions that permit continued membership in the state's group plan by a member of the judges' retirement system who leaves judicial office but continues to be an inactive vested member of the judges' retirement system as provided by 19-5-301. The judge shall notify the department of administration in writing within 90 days of the end of the judge's judicial service of the judge's choice to continue membership in the group plan.

(b) A former judge may not remain a member of the group plan under the provisions of this subsection (4) if the person:

(i) is a member of a plan with substantially the same or greater benefits at an equivalent cost;

(ii) is employed and, by virtue of that employment, is eligible to participate in another group plan with substantially the same or greater benefits at an equivalent cost; or

(iii) becomes eligible for medicare under the federal Health Insurance for the Aged Act, 42 U.S.C. 1395, as amended.

(c) A judge who remains a member of the group under the provisions of this subsection (4) and subsequently terminates membership may not rejoin the group plan unless the person again serves in a position covered by the state's group plan.

(5) A person electing to remain a member of the group under subsection (1), (2), (3), or (4) shall pay the full premium for coverage and for that of the person's covered dependents.

(6) An insurance contract or plan issued under this part that provides for the dispensing of prescription drugs by an out-of-state mail service pharmacy, as defined in 37-7-702:

(a) must permit any member of a group to obtain prescription drugs from a pharmacy located in Montana that is willing to match the price charged to the group or plan and to meet all terms and conditions, including the same professional requirements that are met by the mail service pharmacy for a drug, without financial penalty to the member; and

(b) may only be with an out-of-state mail service pharmacy that is registered with the board under Title 37, chapter 7, part 7, and that is registered in this state as a foreign corporation."

Section 3. Section 17-6-201, MCA, is amended to read:

"17-6-201. (Temporary) Unified investment program -- general provisions. (1) The unified investment program directed by Article VIII, section 13, of the Montana constitution to be provided for public funds must be administered by the board of investments in accordance with the prudent expert principle, which requires an investment manager to:

(a) discharge the duties with the care, skill, prudence, and diligence, under the circumstances then prevailing, that a prudent person acting in a like capacity with the same resources and familiar with like matters exercises in the conduct of an enterprise of a like character with like aims;

(b) diversify the holdings of each fund within the unified investment program to minimize the risk of loss and to maximize the rate of return unless, under the circumstances, it is clearly prudent not to do so; and

(c) discharge the duties solely in the interest of and for the benefit of the funds forming the unified investment program.

(2) (a) Retirement funds may be invested in common stocks of any corporation, except that an investment may not be made at any time that would cause the book value of the investments in a retirement fund to exceed 50% of the book value of the fund or that would cause the stock of one corporation to exceed 2% of the book value of the retirement fund.

(b) Other public funds may not be invested in private corporate capital stock. "Private corporate capital stock" means only the common stock of a corporation.

(3) (a) This section does not prevent investment in any business activity in Montana, including activities that continue existing jobs or create new jobs in Montana.

(b) The board is urged under the prudent expert principle to invest up to 3% of retirement funds in venture capital companies. Whenever possible, preference should be given to investments in those venture capital companies that demonstrate an interest in making investments in Montana.

(c) In discharging its duties, the board shall consider the preservation of purchasing power of capital during periods of high monetary inflation.

(d) The board may not make a direct loan to an individual borrower. The purchase of a loan or a portion of a loan originated by a financial institution is not considered a direct loan.

(4) The board has the primary authority to invest state funds. Another agency may not invest state funds unless otherwise provided by law. The board shall direct the investment of state funds in accordance with the laws and constitution of this state. The board has the power to veto investments made under its general supervision.

(5) The board shall:

(a) assist agencies with public money to determine if, when, and how much surplus cash is available for investment;

(b) determine the amount of surplus treasury cash to be invested;

(d) prepare the claim to pay for the investment; and

(e) keep an account of the total of each investment fund and of all the investments belonging to the fund and a record of the participation of each treasury fund account in each investment fund.

(6) The board may:

(a) execute deeds of conveyance transferring real property obtained through investments. Prior to the transfer of real property directly purchased and held as an investment, the board shall obtain an appraisal by a qualified appraiser.

(b) direct the withdrawal of funds deposited by or for the state treasurer pursuant to 17-6-101 and 17-6-105;

(c) direct the sale of securities in the program at their full and true value when found necessary to raise money for payments due from the treasury funds for which the securities have been purchased;

(d) expend funds needed to cover costs of necessary repairs to property owned by the board as an investment. Repairs that cost in excess of $2,500 must be bid, and the bid must be awarded in compliance with existing state law and regulations. Emergency repairs may be made by the board without bid if approved by the state architect.

(7) The cost of administering and accounting for each investment fund must be deducted from the income from each fund.

(8) At the beginning of each fiscal year, the board shall, from the appropriate fund, reimburse the department of commerce for the costs of administering programs established under Title 90, chapter 3, that are not covered by payback funds available from the account established in 90-3-305.

17-6-201. (Effective July 1, 1999) Unified investment program -- general provisions. (1) The unified investment program directed by Article VIII, section 13, of the Montana constitution to be provided for public funds must be administered by the board of investments in accordance with the prudent expert principle, which requires an investment manager to:

(c) discharge the duties solely in the interest of and for the benefit of the funds forming the unified investment program.

(b) Other public funds may not be invested in private corporate capital stock. "Private corporate capital stock" means only the common stock of a corporation.

(3) (a) This section does not prevent investment in any business activity in Montana, including activities that continue existing jobs or create new jobs in Montana.

(c) In discharging its duties, the board shall consider the preservation of purchasing power of capital during periods of high monetary inflation.

(d) The board may not make a direct loan to an individual borrower. The purchase of a loan or a portion of a loan originated by a financial institution is not considered a direct loan.

(5) The board shall:

(a) assist agencies with public money to determine if, when, and how much surplus cash is available for investment;

(b) determine the amount of surplus treasury cash to be invested;

(d) prepare the claim to pay for the investment; and

(e) keep an account of the total of each investment fund and of all the investments belonging to the fund and a record of the participation of each treasury fund account in each investment fund.

(6) The board may:

(b) direct the withdrawal of funds deposited by or for the state treasurer pursuant to 17-6-101 and 17-6-105;

(7) The cost of administering and accounting for each investment fund must be deducted from the income from each fund."

Section 4. Section 19-2-302, MCA, is amended to read:

"19-2-302. Applicability. ~~This~~ Except as otherwise provided in this title, this chapter applies to the provisions and administration of the retirement systems and plans within the systems under chapters 3, 5 through 9, and 13 of this title."

Section 5. Section 19-2-303, MCA, is amended to read:

"19-2-303. Definitions. Unless the context requires otherwise, for each of the retirement systems subject to this chapter, the following definitions apply:

(1) "Account balance" means all contributions, income, and other assets in a retirement account that have, pursuant to [section 52], vested to a member of the defined contribution plan.

~~(1)~~(2) "Accumulated contributions" means the sum of all the regular and any additional contributions made by a member in a ~~system~~ defined benefit plan, together with the regular interest on the contributions.

~~(2)~~(3) "Active member" means a member who is a paid employee of an employer, is making the required contributions, and is properly reported to the division for the most current reporting period.

~~(3)~~(4) "Actuarial cost" means the amount determined by the board in a uniform and nondiscriminatory manner to represent the present value of the benefits to be derived from the additional service to be credited based on the most recent actuarial valuation for the system and the age, years until retirement, and current salary of the member.

~~(4)~~(5) "Actuarial equivalent" means a benefit of equal value when computed upon the basis of the 1971 Group Annuity Mortality Table, with ages set back 4 years and an interest rate of 8% compounded annually.

~~(5)~~(6) "Actuarial liabilities" means the excess of the present value of all benefits payable under a defined benefit retirement ~~system~~ plan over the present value of future normal costs in that retirement ~~system~~ plan.

~~(6)~~(7) "Actuary" means the actuary retained by the board in accordance with 19-2-405.

~~(7)~~(8) "Additional contributions" means contributions made by a member of a defined benefit plan to purchase various types of optional service credit as allowed by the applicable retirement ~~system~~ plan.

~~(8)~~(9) "Annuity" means:

(a) in the case of a defined benefit plan, equal and fixed payments for life that are the actuarial equivalent of a lump-sum payment under a retirement ~~system~~ plan and as such are not benefits paid by a retirement ~~system~~ plan and are not subject to periodic or one-time increases; or

(b) in the case of the defined contribution plan, a payment of a fixed sum of money at regular intervals.

~~(9)~~(10) "Benefit" means:

(a) the service or disability retirement or survivorship benefit payment provided by a defined benefit retirement ~~system~~ plan; or

(b) a payment or distribution under the defined contribution retirement plan for the exclusive benefit of a plan member or the member's beneficiary or an annuity purchased under [section 57].

~~(10)~~(11) "Board" means the public employees' retirement board provided for in 2-15-1009.

~~(11)~~(12) "Contingent annuitant" means a person designated to receive a continuing monthly benefit after the death of a retired member.

(13) "Covered employment" means employment in a covered position.

(14) "Covered position" means a position in which the employee must be a member of the retirement system except as otherwise provided by law.

~~(12)~~(15) "Credited service" or "service credit" means the periods of time for which the required contributions have been made to a retirement ~~system~~ plan and that are used to calculate service or disability retirement or survivorship benefits under a defined benefit retirement ~~system~~ plan.

(16) "Defined benefit retirement plan" or "defined benefit plan" means a plan within the retirement systems provided for pursuant to 19-2-302 that is not the defined contribution retirement plan.

(17) "Defined contribution retirement plan" or "defined contribution plan" means the plan within the public employees' retirement system established in 19-3-103 that is provided for in [sections 42 through 63] and that is not a defined benefit plan.

~~(13)~~(18) "Department" means the department of administration.

~~(14)~~(19) "Designated beneficiary" means the person designated by a member or payment recipient to receive any survivorship benefits or, lump-sum payments, or benefit from a retirement account upon the death of the member or payment recipient, including annuities derived from the benefits or payments.

~~(15)~~(20) "Disability" means a total inability of the member to perform the member's duties by reason of physical or mental incapacity. The disability must be incurred while the member is an active member and must be one of permanent duration or of extended and uncertain duration, as determined by the board on the basis of competent medical opinion.

~~(16)~~(21) "Division" means the public employees' retirement division of the department ~~of administration~~.

~~(17)~~(22) "Employee" means a person who is employed by an employer in any capacity and whose salary is paid by the employer.

~~(18)~~(23) "Employer" means a governmental entity participating in a retirement system enumerated in 19-2-302 on behalf of its eligible employees.

~~(19)~~(24) "Essential elements of the position" means fundamental job duties. An element may be considered essential because of but not limited to the following factors:

(a) the position exists to perform the element;

(b) there are a limited number of employees to perform the element; or

~~(20)~~(25) "Fiscal year" means any year commencing with July 1 and ending the following June 30.

~~(21)~~(26) "Inactive member" means a member who is not an active or retired member.

~~(22)~~(27) "Member" means ~~any~~ either:

(a) a person with accumulated contributions and service credited with a defined benefit retirement ~~system~~ plan or receiving a retirement benefit on account of the person's previous service credited in a retirement system; or

(b) a person with a retirement account in the defined contribution plan.

~~(23)~~(28) "Membership service" or "years of service" means the periods of service that are used to determine eligibility for retirement or other benefits.

~~(24)~~(29) "Normal cost" or "future normal cost" means an amount calculated under an actuarial cost method required to fund accruing benefits for members of a defined benefit retirement ~~system~~ plan during any year in the future. Normal cost does not include any portion of the supplemental costs of a retirement ~~system~~ plan.

~~(25)~~(30) "Pension" means benefit payments for life derived from contributions to a ~~system~~ retirement plan made from state- or employer-controlled funds.

~~(26)~~(31) "Pension trust fund" means a fund established to hold the contributions, income, and assets of a retirement system or plan in public trust.

~~(27)~~(32) "Plan choice rate" means the amount of the employer contribution as a percentage of payroll covered by the defined contribution plan members that is allocated to the public employees' retirement system's defined benefit plan pursuant to [section 53] and that is adjusted by the board pursuant to [section 54] to actuarially fund the unfunded liabilities and the normal cost rate changes in a defined benefit plan resulting from member selection of the defined contribution plan.

(33) "Regular contributions" means contributions required from members under a retirement ~~system~~ plan.

~~(28)~~(34) "Regular interest" means interest at the rate set from time to time by the board.

~~(29)~~(35) "Retirement" or "retired" means the status of a member who has terminated from service and has received and accepted a retirement benefit from a retirement ~~system~~ plan.

(36) "Retirement account" means an individual account within the defined contribution retirement plan for the deposit of employer and employee contributions and other assets for the exclusive benefit of a member of the defined contribution plan or the member's beneficiary.

~~(30)~~(37) "Retirement benefit" means:

(a) in the case of a defined benefit plan, the periodic benefit payable as a result of service, early, or disability retirement under a defined benefit plan of a retirement system. An With respect to a defined benefit plan, the term does not mean an annuity ~~is not a retirement benefit~~.

(b) in the case of the defined contribution plan, a benefit as defined in subsection (10)(b).

~~(31)~~(38) "Retirement system" or "system" means one of the public employee retirement systems enumerated in 19-2-302.

~~(32)~~(39) "Service" means employment of an employee in a position covered by a retirement system.

~~(33)~~(40) "Statutory beneficiary" means the surviving spouse or dependent child or children of a member of the highway patrol officers', municipal police officers', or firefighters' unified retirement system who are statutorily designated to receive benefits upon the death of the member.

~~(34)~~(41) "Supplemental cost" means an element of the total actuarial cost of a defined benefit retirement ~~system~~ plan arising from benefits payable for service performed prior to the inception of the retirement ~~system~~ plan or prior to the date of contribution rate increases, changes in actuarial assumptions, actuarial losses, or failure to fund or otherwise recognize normal cost accruals or interest on supplemental costs. These costs are included in the unfunded actuarial liabilities of the retirement ~~system~~ plan.

~~(35)~~(42) "Survivorship benefit" means payments for life to the statutory or designated beneficiary of a deceased member who died while in service under a defined benefit retirement ~~system~~ plan.

~~(36)~~(43) "Termination of employment" or "termination of service" means that the member has severed the employment relationship with the employer and has been paid all compensation due upon termination of employment, including but not limited to payment of accrued annual leave credits, as provided in 2-18-617, and payment of accrued sick leave credits, as provided in 2-18-618. For purposes of this subsection, compensation as a result of legal action, court order, appeal, or settlement to which the board was not party is not a payment due upon termination.

~~(37)~~(44) "Unfunded actuarial liabilities" or "unfunded liabilities" means the excess of a defined benefit retirement ~~system's~~ plan's actuarial liabilities at any given point in time over the value of its cash and investments on that same date.

~~(38)~~(45) "Vested member" or "vested" means:

(a) with respect to a defined benefit plan, a member or the status of a member who has attained the minimum membership service requirements to be eligible for retirement benefits under a the retirement ~~system~~ plan; or.

(b) with respect to the defined contribution plan, a member or the status of a member who, pursuant to [section 52], is entitled to employer contributions and income on those contributions in the member's retirement account.

~~(39)~~(46) "Written application" means a written instrument duly executed and filed with the board and containing all information required by the board, including ~~such~~ proofs of age as that the board considers necessary."

Section 6. Section 19-2-401, MCA, is amended to read:

"19-2-401. Location of board -- jurisdiction and venue for judicial review -- quorum -- officers and employees. (1) The board shall maintain its office in the city of Helena. Jurisdiction and venue for judicial review of final administrative decisions of the board are in the first judicial district, Lewis and Clark County, unless otherwise stipulated by the parties.

(2) A quorum of the board is ~~three~~ four members.

(3) The board shall elect one of its members presiding officer. The board may appoint a committee of one or more of its members to perform routine acts, such as retirement of members and fixing of retirement benefits, approval of death claims, and correction of records necessary in the administration of the systems in accordance with the provisions of chapters 3, 5 through 9, ~~12,~~ 13, and 15 17 of this title and in accordance with the rules of the board. The attorney general is the legal counsel for the board."

Section 7. Section 19-2-403, MCA, is amended to read:

"19-2-403. Powers and duties of board. (1) The board shall administer the provisions of the chapters enumerated in 19-2-302.

(2) The board may establish rules that it considers proper for the administration and operation of the retirement systems and enforcement of the chapters under which each retirement system is established.

(3) The board shall establish uniform rules that are necessary to determine service credit for fractional years of service.

(4) The board shall determine who are employees within the meaning of each retirement system. The board is the sole authority for determining the conditions under which persons may become members of and receive benefits under the retirement systems.

(5) The board shall determine and may modify retirement benefits under the retirement systems.

(6) In matters of board discretion under the systems, the board shall treat all persons in similar circumstances in a uniform and nondiscriminatory manner.

(7) The board shall maintain records and accounts it determines necessary for the administration of the retirement systems.

(8) Upon the basis of the findings of the actuary pursuant to 19-2-405, the board shall adopt actuarial tables and rates of regular interest it determines appropriate for the administration of the retirement systems.

(9) The board shall review the sufficiency of benefits paid by the retirement system or plan and recommend to the legislature those changes in benefits in a defined benefit plan or in contributions under the defined contribution plan that may be necessary for ~~retired~~ members and their beneficiaries to maintain a stable standard of living.

(10) The board may implement third-party mailings under the provisions of 2-6-109. If third-party mailings are implemented, the board shall adopt rules governing means of implementation, including the specification of eligible third parties, appropriate materials, and applicable fees and procedures. Fees generated by third-party mailings must be deposited in an account in the state special revenue fund and must be appropriated to the board for the benefit of participants of retirement systems or plans administered by the board.

(11) The board shall perform other duties and may exercise the powers concerning the defined contribution plan for plan members as provided in [sections 42 through 63]."

Section 8. Section 19-2-405, MCA, is amended to read:

"19-2-405. Employment of actuary -- biennial investigation and valuation. (1) The board shall retain a competent actuary who is an enrolled member of the American academy of actuaries and who is familiar with public systems of pensions. The actuary is the technical advisor of the board on matters regarding the operation of the retirement systems.

(2) The board shall require the actuary to make a biennial actuarial investigation into the suitability of the actuarial tables used by the retirement systems and an actuarial valuation of the assets and liabilities of ~~the~~ each defined benefit plan that is a part of the retirement systems.

(3) The normal cost contribution rate, which is funded by required employee contributions and a portion of the required employer contributions to ~~the~~ each defined benefit retirement ~~system~~ plan, must be calculated as ~~that~~ the level percentage of members' salaries that will actuarially fund benefits payable under a retirement ~~system~~ plan as those benefits accrue in the future.

(4) (a) The unfunded liability contribution rate, which is entirely funded by a portion of the required employer contributions to the retirement ~~system~~ plan, must be calculated as ~~that~~ the level percentage of current and future defined benefit plan members' salaries that will amortize the unfunded actuarial liabilities of the retirement ~~system~~ plan over a reasonable period of time, not to exceed 30 years, as determined by the board.

(b) In determining the amortization period under subsection (4)(a) for the public employees' retirement system's defined benefit plan, the actuary shall take into account the plan choice rate contributions to be made to the defined benefit plan pursuant to [section 53] and 19-21-203(5)(b).

(5) The board shall require the actuary to conduct a periodic actuarial investigation into the actuarial experience of the retirement systems and plans.

(6) The board may require the actuary to conduct any valuation necessary to administer the retirement systems and the plans subject to this chapter."

Section 9. Section 19-2-406, MCA, is amended to read:

"19-2-406. Determination of disability by board -- compliance with federal law -- conversion to service retirement benefit -- rules. (1) The board shall determine whether a member has become disabled. In the discharge of its duty regarding determinations, the board, any member of the board, or any authorized representative of the board may order medical examinations, conduct hearings, administer oaths and affirmations, take depositions, certify to official acts, and issue subpoenas to compel the attendance of witnesses and the production of books, papers, correspondence, memoranda, and other records considered necessary as evidence in connection with a claim for disability retirement.

(2) The board shall adopt rules requiring employers to identify and explain the essential elements of a member's position, any accommodations that were or can be made in compliance with the Americans With Disabilities Act of 1990 (42 U.S.C. 12101, et seq.), and the effectiveness of the accommodations.

(3) The board shall retain medical personnel to advise it in assessing the nature and extent of disabling conditions while reviewing claims for disability retirement.

(4) The disability retirement benefit paid to a member must be converted to a service retirement benefit, without recalculation of the monthly benefit amount, when the member has attained the minimum age required for normal service retirement. The board shall notify the member in writing as to the change in status.

(5) This section does not apply to members of the defined contribution plan."

Section 10. Section 19-2-407, MCA, is amended to read:

"19-2-407. Report by division to governor. As soon as practical after the close of each fiscal year, the division shall file with the governor a report of its work for that fiscal year. The report must include a statement as to the accumulated cash and securities in the pension trust funds as certified by the state treasurer and the board of investments. The report must ~~also~~ include the most recent unpublished report of the actuary of the actuarial valuation of the assets and liabilities of each system or plan. The report must also provide information concerning the defined contribution plan, including a description of the plan, the number of members in the plan, plan contribution rates, the total amount of money invested by members, investment performance, administrative costs and fees, determinations on the plan choice rate made pursuant to [section 54], and other information required under applicable governmental accounting standards and as determined by the board."

Section 11. Section 19-2-408, MCA, is amended to read:

"19-2-408. Administrative expenses. (1) The legislature finds that proper administration of the pension trust funds benefits both employers and members and continues to benefit members after retirement.

(2) (a) The administrative expenses of the retirement systems administered by the board must be paid from the investment earnings on the pension trust fund of the public employees' retirement ~~system~~ system's defined benefit plan, except as otherwise provided in ~~subsection (3)~~ this section. ~~Before the fiscal yearend closing, the~~ The board shall compute the administrative expenses attributable to each retirement system or plan administered by the board ~~for the immediately preceding fiscal year~~ and transfer that amount from each retirement system's or plan's pension trust fund to the pension trust fund of the public employees' retirement ~~system.~~ system's defined benefit plan in a manner that ensures that the public employees' retirement system's defined benefit plan trust fund is fully compensated for expenditures made on behalf of other systems or plans so that there is no actuarial impact on the fund.

(b) The total administrative expenses of the board, including the administration of the volunteer firefighters' pension plan, may not exceed 1.5% of the total defined benefit plan retirement benefits paid.

(3) For purposes of calculating the percentage specified in subsection (2)(b), administrative expenses do not include:

(a) expenditures to purchase intangible assets for plan administration;

(b) expenses of the defined contribution plan; or

(c) expenditures of funds allocated under [section 41(1)(b) or (1)(c)] to the education fund established in [section 41(1)(a)].

~~(3)~~(4) On January 1 of each year, each employer under the public employees' retirement system shall contribute on behalf of each member then in its service a membership fee of $1 in addition to other required contributions. The fees must be used for the purpose of defraying the administrative expense of chapters 2, 3, 5 through 9, and 13 and this chapter.

~~(4)~~(5) The board may assess and the division may collect a fee from the department of fish, wildlife, and parks for the purpose of defraying the expenses of administering chapter 8 of this title.

(6) The administrative expenses of the defined contribution plan must be paid, as provided in [section 46], from assets of the defined contribution plan."

Section 12. Section 19-2-409, MCA, is amended to read:

"19-2-409. ~~Systems~~ Plans to be funded on actuarially sound basis -- definition. As required by Article VIII, section 15, of the Montana constitution, each system must be funded on an actuarially sound basis. For purposes of this section, "actuarially sound basis" means that contributions to each ~~system~~ retirement plan must be sufficient to pay the full actuarial cost of the ~~system~~ plan. ~~The~~ For a defined benefit plan, the full actuarial cost includes both the normal cost of providing benefits as they accrue in the future and the cost of amortizing unfunded liabilities over a scheduled period of no more than 30 years. For the defined contribution plan, the full actuarial cost is the contribution defined by law that is payable to an account on behalf of the member."

Section 13. Section 19-2-501, MCA, is amended to read:

"19-2-501. Pension trust funds established. A pension trust fund is established and maintained for each retirement plan within a system subject to this chapter as enumerated in 19-2-302."

Section 14. Section 19-2-503, MCA, is amended to read:

"19-2-503. Management of pension trust funds. The pension trust funds must be managed as follows:

(1) The board is the trustee of all money collected for the retirement systems and has exclusive control of the administration of the pension trust funds except as otherwise provided by law.

(2) The department shall deposit in the state treasury all amounts received by it as provided in this chapter.

(3) ~~The~~ Except as provided in [sections 42 through 63], the state treasurer is custodian of the pension trust funds, subject to the exclusive control of the board for administration and the board of investments for the investment of the funds."

Section 15. Section 19-2-504, MCA, is amended to read:

"19-2-504. Investment of pension trust funds. (1) ~~The~~ Except as provided in [sections 42 through 63], the pension trust funds of the retirement systems must be invested by the state board of investments as part of the unified investment program described in Title 17, chapter 6, part 2.

(2) All income earned on any assets constituting a part of the pension trust funds must be paid into the appropriate pension trust funds as received.

(3) The pension trust funds may be commingled for investment purposes, but separate accounts must be maintained for each system."

Section 16. Section 19-2-505, MCA, is amended to read:

"19-2-505. Restrictions on use of funds. (1) Except as provided in this section, a member or an employee of the board, the department, or the board of investments may not:

(a) have any interest, direct or indirect, in the making of any investment or in the gains or profits accruing from the pension trust funds;

(b) directly or indirectly, for the member or employee or as an agent or partner of others, borrow from the pension trust funds or deposits;

(c) in any manner use the pension trust funds except to make current and necessary payments that are authorized by the division; or

(d) become an endorser or surety as to or in any manner an obligor for investments for the pension trust funds.

(2) The assets of the retirement systems, including the assets of retirement accounts, may not be used for or diverted to any purpose other than for the exclusive benefit of the members and their beneficiaries and for paying the reasonable administrative expenses of the retirement systems administered by the board.

(3) This section does not prevent the administration of an investment alternative within the defined contribution plan to the same extent that all other investment alternatives within the defined contribution plan are managed."

Section 17. Section 19-2-603, MCA, is amended to read:

"19-2-603. Reinstatement after withdrawal of contributions. (1) Except as otherwise provided in [sections 42 through 63] and this section, ~~any~~ a person who again becomes a member of a defined benefit plan subsequent to the refund of the person's accumulated contributions after a termination of previous membership is considered a new member without credit for any previous membership service. The person may reinstate that membership service by redepositing the sum of the accumulated contributions that were refunded to the person at the last termination of the person's membership plus the interest that would have been credited to the person's accumulated contributions had the refund not taken place. If the person makes this redeposit, the service credits previously canceled must be reinstated.

(2) Regardless of whether this redeposit is made, the documents held by the retirement system as executed by the member prior to termination of membership must be held by the system for the same purposes as prior to termination, and beneficiaries nominated in the documents continue unchanged until changed as provided in this section."

Section 18. Section 19-2-902, MCA, is amended to read:

"19-2-902. Frequency of benefit payments. A retirement benefit or survivorship benefit granted under a retirement system subject to this chapter, other than a benefit under the defined contribution plan, must be payable in monthly installments, except that the board may elect to convert payments of at least $20 ~~per~~ a year to a single sum of actuarial equivalent value. A smaller pro rata amount may be paid for part of a month when the retirement benefit ends before the last day of the month."

Section 19. Section 19-2-906, MCA, is amended to read:

"19-2-906. Limitations on disability or survivorship benefits. If the board determines that ~~a member's~~ the disability or death of a member of a defined benefit plan is proximately caused by the gross negligence, willful misconduct, or violation of the law by the member, the board may revoke, suspend, or refuse to grant benefits except an annuity that is the actuarial equivalent of the member's accumulated contributions with regular interest to the day the benefit commences."

Section 20. Section 19-2-907, MCA, is amended to read:

"19-2-907. Alternate payees -- family law orders -- rulemaking. (1) A participant in a retirement system may have the participant's rights modified or recognized by a family law order.

(2) For purposes of this section:

(a) "family law order" means a judgment, decree, or order of a court of competent jurisdiction under Title 40 concerning child support, parental support, spousal maintenance, or marital property rights that includes a transfer of all or a portion of a participant's payment rights in a retirement system to an alternate payee in compliance with this section; and

(b) "participant" means a member or an actual or potential beneficiary, survivor, or contingent annuitant of a retirement system designated pursuant to Title 19, chapter 3, 5, 6, 7, 8, 9, 13, or 17.

(3) A family law order must identify an alternate payee by full name, current address, and social security number. An alternate payee's rights and interests granted in compliance with this section are not subject to assignment, execution, garnishment, attachment, or other process. An alternate payee's rights or interests may be modified only by a family law order amending the family law order that established the right or interest.

(4) A family law order may not require:

(a) a type or form of benefit, option, or payment not available to the affected participant under the appropriate retirement system or plan; or

(b) an amount or duration of payment greater than that available to a participant under the appropriate retirement system.

(5) A In a defined benefit plan, a family law order may only provide for payment to an alternate payee as follows:

(a) Service retirement benefit payments or withdrawals of member contributions may be apportioned by directing payment of a percentage of the amount payable or payment of a fixed amount of no more than the amount payable to the participant.

(b) The maximum amount of disability or survivorship benefits that may be apportioned to alternate payees is the monthly benefit amount that would have been payable on the date of termination of service if the member had retired without disability or death. Conversion of a disability retirement to a service retirement pursuant to 19-2-406(4), 19-3-1015(2), 19-6-612(2), or 19-8-712(2) does not increase the maximum monthly amount that may be apportioned to an alternate payee.

(c) Retirement benefit adjustments for which a participant is eligible after retirement may be apportioned only if existing benefit payments are apportioned. The adjustments must be apportioned in the same ratio as existing benefit payments.

(d) Payments must be limited to the life of the appropriate participant. The duration of payments to an alternate payee may be further limited only to a specified maximum time, the life of the alternate payee, or the life of a specified participant. Payments to an alternate payee may be limited to a specific amount ~~per~~ each month if the number of payments is specified. The alternate payee's rights and interests survive the alternate payee's death and may be transferred by inheritance.

(e) The participant may be required to choose a specified form of benefit payment or designate a beneficiary or contingent annuitant if the retirement system or plan allows for that option.

(6) The board may assess a participant or an alternate payee for all costs of reviewing and administering a family law order, including reasonable attorney fees. The board may adopt rules to implement this section.

(7) Each family law order establishing a final obligation concerning payments by the retirement system must contain a statement that the order is subject to review and approval by the board.

(8) The board shall adopt rules to provide for the application of a family law order within the defined contribution plan."

Section 21. Section 19-2-908, MCA, is amended to read:

"19-2-908. Time of commencement of benefit -- rulemaking. (1) (a) The board shall grant a benefit to any member, or the member's statutory or designated beneficiary, who has fulfilled all eligibility requirements, terminated covered service, and filed the appropriate written application.

(b) A member may apply for retirement benefits before terminating covered service, but commencement of the benefits must be as provided in this section.

(2) (a) Except as provided in subsection (2)(b), the service retirement benefit may commence on the first day of the month following the eligible member's last day of membership service or, if requested by the inactive member in writing, on the first day of a later month following receipt of the written application.

(b) If an elected official's term of office expires before the 15th day of the month, the official may elect that service retirement benefits from a defined benefit plan commence on the first day of the month following the official's last full month in office. An official electing this option may not earn membership service, service credit, or compensation for purposes of calculating final average salary under the retirement system in the partial month ending the official's term, and compensation earned in that partial month is not subject to employer or employee contributions.

(3) The disability retirement benefit payable to a member must commence on the day following the member's termination from service.

(4) Monthly survivorship benefits from a defined benefit plan must commence on the day following the death of the member.

(5) Estimated and finalized benefit payments must be issued as provided in rules adopted by the board.

(6) With respect to the defined contribution plan, the board shall adopt rules regarding the commencement of benefits that are consistent with applicable provisions of the Internal Revenue Code and its implementing regulations."

Section 22. Section 19-2-909, MCA, is amended to read:

"19-2-909. Execution or withholding for support obligation -- rulemaking. (1) Benefits in the retirement systems or plans provided for in chapters 3, 5 through 9, 13, and 17 are subject to execution and income withholding for the payment of a participant's support obligation.

(2) For purposes of this section, the following definitions apply:

(a) "Execution" means a warrant for distraint issued or a writ of execution obtained by the department of public health and human services when providing support enforcement services under Title IV-D of the Social Security Act.

(b) "Income withholding" means an income-withholding order issued under the provisions of Title 40, chapter 5, part 3 or 4, or an income-withholding order issued in another state as provided in 40-5-157.

(c) "Participant" means a member or an actual or potential beneficiary, survivor, or contingent annuitant of a retirement system or plan designated pursuant to Title 19, chapter 3, 5, 6, 7, 8, 9, 13, or 17.

(d) "Support obligation" has the meaning provided in 40-5-403 for a support order.

(3) The execution or income-withholding order may not require:

(a) a type or form of benefit, option, or payment not available to the affected participant under the appropriate retirement system or plan; or

(b) an amount or duration of payment greater than that available to a participant under the appropriate retirement system or plan.

(4) ~~The~~ An execution or income-withholding order applied to a defined benefit retirement plan may ~~only~~ provide for payment only as follows:

(b) The maximum amount of disability or survivorship benefits that may be apportioned and paid under this section is the monthly benefit amount that would have been payable on the date of termination of service if the member had retired without disability or death.

(d) Payments must be limited to the life of the appropriate participant. The duration of payments under this section may be further limited only to a specified maximum time or the life of a specified participant. Payments may also be limited to a specific amount ~~per~~ each month if the number of payments is specified.

(5) The board shall adopt rules to provide for the application of an execution or income-withholding order within the defined contribution plan."

Section 23. Section 19-2-1001, MCA, is amended to read:

"19-2-1001. Maximum benefit and contribution limitation. A monthly benefit paid under a defined benefit plan of the retirement systems and the annual additions to a retirement account within the defined contribution plan may not exceed the annual limits on benefits and contributions as specified in section 415 of the Internal Revenue Code of 1986 and adjusted annually by the commissioner of internal revenue."

Section 24. Section 19-2-1002, MCA, is amended to read:

"19-2-1002. Vesting of retirement benefits upon termination of ~~system~~ plan. Upon termination of a retirement ~~system~~ plan, termination of employment of a substantial number of members that would constitute a partial termination of the retirement ~~system~~ plan, or complete discontinuance of contributions to that retirement ~~system~~ plan, the retirement benefit accrued to each member directly affected by the occurrence becomes fully vested and nonforfeitable to the extent funded."

Section 25. Section 19-2-1003, MCA, is amended to read:

"19-2-1003. Transfer of dormant, nonvested member-accumulated contributions. The board may, in its discretion, transfer the accumulated contributions of a nonvested member of a defined benefit plan to the pension trust fund of the ~~system~~ plan in which the member is participating if the member has not participated in the plan as an employee for a period of 10 years. Rights of the member may not be jeopardized by the transfer, and the accumulated contributions must be transferred to the member's name upon subsequent return to service or subsequent application for refund."

Section 26. Section 19-2-1005, MCA, is amended to read:

"19-2-1005. Compensation limit. A retirement ~~system~~ plan subject to this chapter may not take into account compensation of a member in excess of the amount permitted in Internal Revenue Code section 401(a)(17)."

Section 27. Section 19-2-1006, MCA, is amended to read:

"19-2-1006. Use of forfeitures. A retirement ~~system~~ plan subject to this chapter may not apply forfeitures of benefits to increase the benefits of any member in a manner not permitted in Internal Revenue Code section 401(a)(8)."

Section 28. Section 19-2-1007, MCA, is amended to read:

"19-2-1007. Required distributions. The benefits payable by the retirement ~~systems~~ plans subject to this chapter are subject to the requirements of section 401(a)(9) of the Internal Revenue Code as follows:

(1) Benefits must begin by April 1 of the calendar year following the plan year in which the member reaches 70 1/2 years of age or retires, whichever is later.

(2) The member's entire interest in ~~the~~ a retirement ~~system~~ plan must be distributed over the life of the member or the lives of the member and a designated beneficiary, or over a period not extending beyond the life expectancy of the member or the life expectancy of the member and a designated beneficiary.

(3) When a member dies after distribution of benefits has begun, the remaining portion of the member's interest must be distributed at least as rapidly as under the method of distribution prior to the member's death.

(4) When a member dies before distribution of benefits has begun, the entire interest of the member must be distributed within 5 years of the member's death. The 5-year payment rule does not apply to any portion of the member's interest that is payable to a designated beneficiary over the life or life expectancy of the beneficiary and that begins within 1 year after the date of the member's death. The 5-year payment rule does not apply to any portion of the member's interest that is payable to a surviving spouse, that is payable over the life or life expectancy of the spouse, and that begins no later than the date the member would have reached 70 1/2 years of age.

(5) The benefits payable must meet the minimum distribution incidental benefit requirements of section 401(a)(9)(G) of the Internal Revenue Code."

Section 29. Section 19-3-103, MCA, is amended to read:

"19-3-103. Retirement system created -- system to consist of two plans. (1) A defined benefit retirement ~~system~~ plan is created and established to become effective July 1, 1945~~, and to be known as the public employees' retirement system~~.

(2) A defined contribution plan is established as provided in [sections 42 through 63].

(3) The public employees' retirement system consists of the defined benefit plan and the defined contribution plan. Each plan within the system is governed by the applicable provisions of chapter 2 and this chapter."

Section 30. Section 19-3-108, MCA, is amended to read:

"19-3-108. Definitions. Unless the context requires otherwise, as used in this chapter, the following definitions apply:

(1) "Compensation" means remuneration paid out of funds controlled by an employer. Compensation does not include the payments or contributions made in lieu of wages for an individual subject to 19-3-403(4)(a).

(2) "Contracting employer" means any political subdivision or governmental entity that has contracted to come into the system under this chapter.

(3) "Defined benefit plan" means the plan within the public employees' retirement system established in 19-3-103 that is not the defined contribution plan.

(4) "Employer" means the state of Montana, its university system or any of the colleges, schools, components, or units of the university system for the purposes of this chapter, or any contracting employer.

~~(4)~~(5) "Employer contributions" means payments to ~~the~~ a pension trust fund pursuant to 19-3-316 from appropriations of the state of Montana and from contracting employers.

~~(5)~~(6) "Final average salary", except as provided in 19-3-520, means a member's highest average monthly compensation during any 36 consecutive months of membership service. Lump-sum payments for severance pay, sick leave, and annual leave paid to the member upon termination of employment may be used in the calculation of a retirement benefit only to the extent that they are used to replace, on a month-for-month basis, the regular compensation for a month or months included in the calculation of the final average salary. A lump-sum payment may not be added to a single month's compensation.

(7) "System" or "retirement system" means the public employees' retirement system established in 19-3-103."

Section 31. Section 19-3-201, MCA, is amended to read:

"19-3-201. Contracts with political subdivisions. (1) Any municipal corporation, county, or public agency in the state may become a contracting employer and make all or specified groups of its employees members of the retirement system by a contract entered into between the board and the legislative body of the contracting employer. The contract may include any provisions that are consistent with chapter 2 and this chapter and necessary in the administration of the retirement system as it affects the contracting employer and its employees.

(2) The approval of the contract is subject to the following provisions, in addition to the other provisions of this chapter:

(a) The legislative body of the contracting employer shall adopt a resolution giving notice of intention to approve the contract and containing a summary of the major provisions of the retirement system. The contract may not be approved unless the employees proposed to be included in the retirement system adopt the proposal by a majority affirmative vote in a secret ballot. The ballot at the election must include the summary of the retirement system as set forth in the resolution. The election must be conducted as prescribed by the legislative body of the contracting employer. Approval of the contract must be by ordinance adopted by the affirmative vote of two-thirds of the members of the legislative body, not less than 20 days after the adoption of the resolution or by an ordinance adopted by a majority vote of the electorate of the contracting employer voting on the contract.

(b) The contract must specify that all employees of the contracting employer or groups of employees as agreed to between the board and the contracting employer ~~must~~ shall become members. The groups of employees to be included must be by departments, duties, or other similar classifications and not by individual employees. The board may disapprove any classification into groups if, in its opinion, the classification affects adversely the interest of the retirement system. Membership in the retirement system is compulsory for all employees included under the contract and who are hired after the effective date of the contract. An employee's membership in either the defined benefit plan or the defined contribution plan is determined on an individual basis as provided in this chapter.

(c) The contract may be amended in the manner prescribed in this section for the original approval of contracts. Groups of excluded employees may be subsequently included by amendment.

(3) The termination of the contract is subject to the following provisions, in addition to the other provisions of this chapter:

(a) The legislative body of a contracting employer shall adopt a resolution giving notice to its employees that it intends to terminate retirement system coverage.

(b) All employees covered under the retirement system ~~shall~~ must receive notice of the termination resolution and be permitted to vote for or against the resolution by secret ballot.

(c) If a majority of covered employees votes for termination, the legislative body, not less than 20 days after the approval of the resolution by the employees, may adopt by a ~~2/3~~ two-thirds majority a resolution terminating coverage under the system effective the last day of that month and forward the resolution and a certified copy of the election results to the board.

(d) Upon receipt of the termination resolution, the board may request an actuarial valuation of the liabilities of the terminating agency to the retirement system, and the board may withhold approval of the termination of contract until satisfactory arrangements are made to provide funding for any excess accrued liabilities not previously funded by the terminating agency."

Section 32. Section 19-3-203, MCA, is amended to read:

"19-3-203. Conversion of local or state retirement plan. (1) If the legislative body of any city, county, or public agency having an existing retirement, pension, or annuity fund or system, referred to as the local system, desires to make the members of the local system members of the public employees' retirement system, it may enter into a contract for that purpose with the board in the manner provided in 19-3-201. However, the employees voting, as provided in 19-3-201(2)(a), ~~shall~~ must be limited to active members of the local system, and approval ~~shall require~~ requires an affirmative vote of two-thirds of the employees.

(2) ~~All~~ Subject to the applicable provisions of this chapter, active members of the local system shall become members of either the defined benefit plan or the defined contribution plan of the retirement system and ~~shall~~ are no longer be members of the local system. The pensions being paid to pensioners or annuitants of the local system on the effective date of the contract must be continued and paid at their existing rates by the public employees' retirement system. The liability for the pensions must be computed by the actuary and charged to the contracting employer. All cash and securities held by the local system must be transferred to the retirement system as of the effective date of the contract and credited to the employer. The value of the securities must be determined by the board.

(3) The trustees or other administrative head of the local system as of the effective date of the contract shall certify the proportion, if any, of the funds of the system that represents the accumulated contributions of the active members and the relative shares of the members as of that date. The shares must be charged to the employer and credited as accumulated contributions of the members in the public employees' retirement system and administered as if the contributions had been made during membership in the retirement system. Any excess of employer credits over charges under this section must be offset, with regular interest, against future required employer contributions. Any excess of employer charges over credits under this section must be payable by the contracting employer, with regular interest, on a monthly basis as specified in the contract."

Section 33. Section 19-3-315, MCA, is amended to read:

"19-3-315. Member's contribution to be deducted. (1) ~~On and after July 1, 1997, the regular contribution of each member is 6.8% of the member's compensation.~~ Each member's contribution ~~increases to~~ is 6.9% ~~beginning July 1, 1999~~ of the member's compensation.

(2) Payment of salaries or wages less the contribution is full and complete discharge and acquittance of all claims and demands for the service rendered by members during the period covered by the payment, except their claims to the benefits to which they may be entitled under the provisions of this chapter.

(3) Each employer, pursuant to section 414(h)(2) of the federal Internal Revenue Code of 1954, as amended and applicable on July 1, 1985, shall pick up and pay the contributions that would be payable by the member under subsection (1) for service rendered after June 30, 1985.

(4) (a) The member's contributions picked up by the employer must be designated for all purposes of the retirement system as the member's contributions, except for the determination of a tax upon a distribution from the retirement system. ~~These~~

(b) In the case of a member of the defined benefit plan, these contributions must become part of the member's accumulated contributions but must be accounted for separately from those previously accumulated.

(c) In the case of a member of the defined contribution plan, these contributions must be allocated as provided in [section 53].

(5) The member's contributions picked up by the employer must be payable from the same source as is used to pay compensation to the member and must be included in the member's wages, as defined in 19-1-102, and compensation. The employer shall deduct from the member's compensation an amount equal to the amount of the member's contributions picked up by the employer and remit the total of the contributions to the board."

Section 34. Section 19-3-316, MCA, is amended to read:

"19-3-316. Employer contribution rates. (1) Each employer shall contribute to ~~the cost of benefits under~~ the system. Except as provided in subsection (2), the amount of the employer contribution as a percentage of the employer's covered payroll is ~~6.8% beginning July 1, 1997, and increases to~~ 6.9% ~~beginning July 1, 1999~~. Of employer contributions made under this subsection for both defined benefit plan and defined contribution plan members, a portion must be allocated for educational programs as provided in [section 41]. Employer contributions for members under the defined contribution plan must be allocated as provided in [section 53].

(2) Local government and school district employer contributions must be the total employer contribution rate provided in subsection (1) minus the state contribution rate applied to their monthly covered payrolls under 19-3-319. The payment is statutorily appropriated as provided in 17-7-502."

Section 35. Section 19-3-401, MCA, is amended to read:

"19-3-401. Membership -- inactive vested members -- inactive nonvested members. (1) Except as otherwise provided in this chapter, all employees shall become members of the defined benefit plan on the first day of service. Each employer shall file with the board information affecting their employees' status as members ~~of the retirement system~~ as the board may require. An employee may become a member of the defined contribution plan only as provided in [sections 42 through 63].

(2) A member of the defined benefit plan with at least 5 years of membership service who terminates service and does not take a refund of the member's accumulated contributions is an inactive vested member and retains the right to purchase service and to receive a service retirement benefit subject to the provisions of this chapter.

(3) A member of the defined benefit plan with less than 5 years of membership service who terminates service and leaves the member's accumulated contributions in the pension trust fund is an inactive nonvested member and is not eligible for any benefits from the retirement ~~system~~ plan. An inactive nonvested member is eligible only for a refund of the member's accumulated contributions.

(4) Every employee who reenters service shall become a member of either the defined benefit plan or the defined contribution plan subject to the provisions of this chapter unless the employee has had an original election of exemption from membership and the employee's service was not interrupted by a break of more than 1 month. A seasonal employee who has had an original election of exemption from membership is not subject to the requirement regarding the break in service while continuing in the employee's original employment and employed on a seasonal basis, but upon termination of employment to accept new employment or absence of more than 1 month in returning to original employment in any ensuing season, the seasonal employee shall become a member of the retirement system upon reentry.

(5) Time during which an employee of a school district is absent from service during official vacation is counted as service in determining eligibility for membership under this chapter."

Section 36. Section 19-21-102, MCA, is amended to read:

"19-21-102. ~~Definition of teachers' retirement system~~ Definitions. ~~In this chapter, "teachers'~~ Unless the context requires otherwise, as used in this chapter, the following definitions apply:

(1) "Program" means the optional retirement program established pursuant to this chapter.

(2) "Public employees' retirement system" means the retirement system established in 19-3-103.

(3) "Teachers' retirement system" or "system" means the teachers' retirement system provided for in Title 19, chapter 20."

Section 37. Section 19-21-201, MCA, is amended to read:

"19-21-201. Participation in program. (1) Except as provided in subsection (2), academic and professional administrative personnel with individual contracts under the authority of the board of regents are eligible for and may elect to participate in the ~~optional retirement~~ program instead of the teachers' retirement system. This election must be exercised:

(a) before January 1, 1988, for an eligible person hired before July 1, 1987;

(b) within 90 days after entry into service or before January 1, 1988, whichever is later, for a person hired in an eligible position on or after July 1, 1987; and

(c) within 30 days after receiving written notice of eligibility or before January 1, 1988, whichever is later, for an employee who becomes eligible to participate in the ~~optional retirement~~ program by reason of appointment, promotion, transfer, or reclassification to an eligible position.

(2) (a) An eligible person hired on or after July 1, 1993, shall become a member of the ~~optional retirement plan~~ program unless the person is, on the date hired, an active, inactive, or retired member of a public retirement system created in Title 19, chapter 3 or 20.

(b) A An eligible person hired who is a member of a public retirement system created in Title 19, chapter 3 or 20, shall elect to:

(i) remain with the retirement system of which the person is a member on the date hired; or

(ii) become a member of the ~~optional retirement plan~~ program.

(c) A person eligible to make an election under this subsection (2) shall exercise the election within 30 days of being hired.

(d) A person is ineligible to make an election under subsection (1) or (2) if the person previously elected to remain in the teachers' retirement system pursuant to subsection (1) or to remain in the public employees' retirement system pursuant to this subsection (2).

(3) The election must be exercised by filing a written ~~notice~~ irrevocable election with the teachers' retirement system and the disbursing officer of the employer. The election is effective as of the date the notice is filed or January 1, 1988, whichever is later.

(4) If an eligible officer or staff member fails to exercise the election, as provided by this section, that person ~~must~~ shall remain or become a member of the teachers' retirement system.

(5) An election under this section is not effective unless the notice filed with the disbursing officer of the employer is accompanied by an appropriate application, if one is required, for the issuance of a contract or contracts under the program.

(6) Subject to and as provided in [section 48], a university system employee in a position covered under the public employees' retirement system may elect to participate in the program."

Section 38. Section 19-21-202, MCA, is amended to read:

"19-21-202. Effect on rights under teachers' retirement system. (1) An election under 19-21-201(1) through (3) and (5) to participate in the ~~optional retirement~~ program is a waiver of all rights and benefits under the teachers' retirement system except as provided in this section.

(2) A member of the teachers' retirement system who elects to participate in the ~~optional retirement~~ program is considered, for the purpose of determining eligibility for rights and benefits under that system, to be no longer employed in a capacity that allows active membership in that system as of the effective date of the election. Thereafter, the member is considered an inactive member of the ~~retirement~~ system if qualified under 19-20-303, with the rights and privileges provided under 19-20-603(1). A member who elects to participate in the ~~optional retirement~~ program who does not qualify as an inactive member under 19-20-303 is considered a terminated member of the ~~retirement~~ system under 19-20-304(4).

(3) A person who elects to participate in the ~~optional retirement~~ program is ineligible to be an active member of the teachers' retirement system while continuously employed in a position eligible to participate in the ~~optional retirement~~ program."

Section 39. Section 19-21-203, MCA, is amended to read:

"19-21-203. Contributions -- supplemental and plan choice rate contributions. (1) Each ~~optional retirement~~ program participant shall contribute an amount equal to the member's contribution required under 19-20-602. The board of regents shall contribute an amount that, when added to the participant's contribution, is equal to 12% of the participant's earned compensation.

(2) (a) ~~On or after July 1, 1997, the~~ The board of regents may:

(i) reduce the participant's contribution rate established in subsection (1) to an amount not less than 6% of the participant's earned compensation; and

(ii) increase the employer's contribution rate to an amount not greater than 6% of the participant's earned compensation.

(b) The sum of the participant's and employer's contributions made under subsection (2)(a) must remain at 12% of the participant's earned compensation.

(3) The board of regents shall determine whether the participant's contribution is to be made by salary reduction under section 403(b) of the Internal Revenue Code of 1954 or by employer ~~pick-up~~ pickup under section 414(h)(2) of that code.

(4) The disbursing officer of the employer or other official designated by the board of regents shall pay both the participant's contribution and the appropriate portion of the board of regents' contribution to the designated company or companies for the benefit of the participant.

(5) (a) The board of regents shall make the supplemental contributions to the teachers' retirement system, as provided in 19-20-621, to discharge the obligation incurred by the Montana university system for the past service liability incurred by active, inactive, and retired members of the teachers' retirement system.

(b) For employees electing to become program members pursuant to [section 48], the board of regents shall, in addition to other contributions required under this section, contribute to the public employees' retirement system the plan choice rate provided in [section 53(2)(b)] and adjusted pursuant to [section 54]."

Section 40. Nonapplication of part to defined contribution plan. Except as otherwise provided in [sections 42 through 63], none of the provisions of this part apply under the defined contribution plan.

Section 41. Education fund established -- allocation of employer contributions -- educational program requirements. (1) (a) The board shall establish an education fund and provide for educational programs for system members in a manner consistent with the provisions of this section.

(b) For the initial transfer educational program established for system members, 0.1% of covered payroll from the employer contributions made pursuant to 19-3-316 must be allocated to the education fund established in subsection (1)(a).

(c) For the ongoing educational and communication programs established pursuant to this section, from the employer contributions made pursuant to 19-3-316, 0.04% of covered payroll must be allocated to the education fund established in subsection (1)(a). The board shall from time to time review the sufficiency of this amount and recommend to the legislature the adjustments that it considers appropriate.

(2) (a) The educational programs must provide system members with impartial and balanced information about plan choices. The programs must involve multimedia formats. Plan comparisons must, to the greatest extent possible, be based upon real rates of return on investments available in each retirement plan.

(b) If an educational program is conducted by a contractor, the board shall monitor the performance of the contract to ensure that the program is conducted in accordance with the contract, applicable law, and the rules of the board. A contractor hired to provide educational services pursuant to this section may not be the same entity contracted to provide other services for the defined contribution plan or the optional retirement program.

(3) The board shall provide for an initial and an ongoing transfer educational program to provide system members with information necessary to make informed plan choice decisions. The transfer educational program must include but is not limited to information on:

(a) the amount of money available to a member to transfer to the defined contribution plan;

(b) the features of and differences between the defined benefit plan and the defined contribution plan, both generally and specifically, as those differences may affect the member;

(c) the expected benefit available if the member were to retire under each of the retirement plans, based on appropriate alternative sets of assumptions;

(d) the aggregate rate of return from investments in the defined contribution plan and the period of time over which the aggregate rate of return must be achieved to equal or exceed the expected monthly benefit payable to the member under the defined benefit plan;

(e) the historical rates of return for the investment alternatives available in the defined contribution plan;

(f) the benefits and historical rates of return on investments available in deferred compensation plans or a plan under section 403(b) of the Internal Revenue Code for which the employee may be eligible;

(g) the plan choices available to employees of the university system pursuant to [section 48] and the comparative benefits of each available plan; and

(h) payout options available in each of the retirement plans.

(4) An ongoing educational and communication program must provide members of either plan with information necessary to make informed decisions about choices within their plan of membership and in preparation for retirement. The program must include but not be limited to information concerning:

(a) rights and conditions of membership;

(b) benefit features within the plan, options, and the effects of certain decisions;

(c) coordination of contributions and benefits with a deferred compensation plan under section 457 of the Internal Revenue Code or a plan under section 403(b) of the Internal Revenue Code;

(d) significant plan changes;

(e) contribution rates and plan funding status; and

(f) planning for retirement.

(5) The board shall also establish a communication program to provide plan information to participating employers and the employer's personnel and payroll officers and to explain their respective responsibilities in conjunction with the retirement plans.

(6) This section does not prohibit a plan vendor or vendors from providing system members with information necessary to make informed decisions about the defined contribution plan or the optional retirement program and investment alternatives within the defined contribution plan or the optional retirement program.

Section 42. Definitions. Unless the context requires otherwise, as used in [sections 42 through 63], the following definitions apply:

(1) "Member" means an employee with a retirement account in the defined contribution plan.

(2) "Optional retirement program" means the retirement plan established by the board of regents under chapter 21 of this title.

(3) "Plan" or "defined contribution plan" means the defined contribution retirement plan.

Section 43. Defined contribution plan established -- assets to be held in trust -- contracted services. (1) The board shall establish within the public employees' retirement system a defined contribution plan in accordance with the provisions of [sections 42 through 63]. The plan must be established as a pension plan for the exclusive benefit of members and their beneficiaries and as a "qualified plan" pursuant to section 401(a) of the Internal Revenue Code and its implementing regulations. Retirement accounts must be established for each member of the defined contribution plan. Assets of the plan must be held in trust. The plan is established in addition to any retirement, pension, deferred compensation, or other benefit plan administered by the state or a political subdivision.

(2) The board shall contract for plan administration and use a competitive bidding process when contracting for consulting, educational, investment, recordkeeping, or other services for the plan.

(3) The board shall contract for a qualified consultant to assist in preparation of the request for bid or request for proposal for plan services.

Section 44. Legislative intent. It is the intent of the legislature that, in implementing and administering the defined contribution plan:

(1) changes to current administrative processes and the impact of those changes on employers be minimized to the extent possible;

(2) the administrative structure for the plan be configured in an economical and efficient manner;

(3) administration and services for the plan be contracted out to the extent possible, but that the board provide for the diligent oversight of the contracts;

(4) reasonable participant services be provided for and that fees be commensurate with the services;

(5) lines of communication and responsibilities be clearly established so that employers or their personnel and payroll officers do not advise members about plan choices or investment alternatives; and

(6) employers be encouraged to provide paid time for employees to attend educational programs sponsored by the board pursuant to [section 41].

Section 45. Board powers and duties -- rulemaking. (1) The board has the powers and shall perform the duties regarding the defined contribution plan as provided in 19-2-403, as applicable. The board may also exercise the powers and shall perform the duties provided in this chapter.

(2) The board shall, in accordance with the Montana Administrative Procedure Act, adopt rules necessary for the implementation of [sections 42 through 63] and other applicable sections in chapters 2 and 3 of this title, including rules concerning the following:

(a) matters necessary for the treatment of the plan as a qualified plan under applicable sections of the Internal Revenue Code;

(b) the treatment of dormant or inactive accounts;

(c) the security and privacy of information maintained by the board concerning a member's investments, as required by applicable law;

(d) minimum asset, reserve, insurance, or other security requirements intended to ensure the solvency of a contractor used by the board for investment services; and

(e) the commencement of benefits in the plan pursuant to [sections 42 through 63] and as provided in 19-2-908.

Section 46. Administrative expenses and fees. (1) The board may establish a fund within the defined contribution plan for paying the plan's administrative expenses.

(2) The board may:

(a) assess fees to pay the reasonable administrative costs of the plan; and

(b) negotiate with a vendor or vendors for vendor reimbursement of board administrative expenses for the plan.

(3) All fees assessed must be fully disclosed to plan members and treated as public information.

(4) Costs for the board to provide for contract oversight are included as part of the administrative expenses of the plan.

Section 47. Plan membership -- written election required -- failure to elect -- effect of election. (1) Except as otherwise provided in [sections 42 through 63]:

(a) (i) a member who is an active member of the defined benefit plan on the date that the defined contribution plan becomes effective may, within 12 months after that date, elect to transfer to and become a member of the plan;

(ii) a member who was an inactive member of the defined benefit plan on the date that the defined contribution plan becomes effective and who is rehired into covered employment after the plan effective date may, within 12 months after the member's rehire date, elect to transfer to and become a member of the plan;

(b) a member who is initially hired into covered employment on or after the date that the defined contribution plan becomes effective may, within 12 months of the member's hire date, elect to become a member of the plan.

(2) (a) Elections made pursuant to this section must be made on a form prescribed by the board.

(b) A member failing to make an election prescribed by this section remains a member of the defined benefit plan.

(c) An election under this section, including the default election pursuant to subsection (2)(b), is a one-time irrevocable election. Subject to [section 49], this subsection (2)(c) does not prohibit a new election after an employee has terminated membership in either plan and returned to covered employment.

(3) A member in either the defined benefit plan or the defined contribution plan who becomes inactive after an election under this section and who returns to active membership remains in the plan previously elected.

(4) A system member may not simultaneously be a member of the defined benefit plan and the defined contribution plan and must be a member of either the defined benefit plan or the defined contribution plan. A period of service may not be credited in more than one retirement plan within the system.

(5) The provisions of [sections 42 through 63] do not prohibit the board from adopting rules to allow an employee to elect the defined contribution plan on the first day of covered employment.

(6) A member of the defined benefit plan who is subject to a family law order pursuant to 19-2-907 or an execution or income-withholding order pursuant to 19-2-909 may not transfer to the defined contribution plan unless the order is modified to apply under the defined contribution plan or, for university employees making an election pursuant to [section 48], the optional retirement program.

Section 48. Plan choices for members employed by university system -- amount available to transfer -- effect on rights. (1) If an employee of the university system, as defined in 5-20-201, is eligible to make an election under [sections 42 through 63] to transfer to the defined contribution plan, the employee may, instead of electing the plan, make a one-time irrevocable election on a form prescribed by the board to transfer membership to the university system's optional retirement program provided for under chapter 21 of this title.

(2) For an employee electing to transfer to the optional retirement program, the board shall transfer to the optional retirement program the amount that the employee would have been able to transfer to the defined contribution plan under [section 50].

(3) An election to become a member of the optional retirement program pursuant to this section is a waiver of all rights and benefits under the public employees' retirement system.

Section 49. Reinstatement of plan membership -- purchase of prior service in defined benefit plan. (1) (a) An employee who terminated membership in the defined benefit plan, the defined contribution plan, or the optional retirement program after making an election pursuant to [section 47] or [section 48] and who returns to covered employment after a break in service of less than 24 consecutive months shall become a member of the plan that the member last selected and is not eligible for a new plan choice election.

(b) Except as provided in subsection (2), an employee who terminated membership in either the defined benefit plan, the defined contribution plan, or the optional retirement program after making an election pursuant to [section 47] or [section 48] and who returns to covered employment after a break in service of 24 consecutive months or more is eligible to make a plan choice election as if the employee were initially hired as provided for in [section 47(1)(b)].

(2) (a) An employee who returns to covered employment after terminating plan membership in the defined contribution plan or the optional retirement program shall return to the plan previously selected if the employee has accessed money derived from the employee's former retirement account by:

(i) receiving a lump-sum distribution of the member's former retirement account, unless the distribution was forced pursuant to [section 59(1)(b)];

(ii) receiving a lump-sum distribution from an account outside the defined contribution plan that has at any time received a transfer of funds from the member's former retirement account or any account to which the member has transferred funds from a former retirement account; or

(iii) receiving a regular benefit, payment, or distribution from an account outside the defined contribution plan in which there is money from the member's former retirement account.

(b) For the purposes of this subsection (2), "retirement account" also includes an employee's account under the optional retirement program.

(3) (a) An employee who returns to covered employment after terminating membership in the defined benefit plan, who is eligible to make a plan choice, and who elects to join the defined benefit plan may reinstate prior membership service as provided in 19-2-603.

(b) An employee who returns to covered employment after terminating membership in the defined contribution plan or the optional retirement program, who is eligible to make a plan choice, and who elects to join the defined benefit plan may purchase prior membership service by paying to the board the full actuarial cost of the service as of the latest actuarial valuation of the defined benefit plan. The employee may not purchase membership service under this section in excess of the employee's length of service as a member of the defined contribution plan or the optional retirement program.

Section 50. Amount available to transfer. (1) (a) For an employee who was a system member on the day before the effective date of the defined contribution plan and who elects to transfer to the plan, the board shall transfer from the defined benefit plan to the member's retirement account the employee's contributions and the percentage of the employer's contributions specified in subsection (1)(b), plus 8% compounded annual interest on the total of the employee and employer contributions.

(b) Based on the contribution amount historically available to pay unfunded liabilities in the defined benefit plan and the transferring member's years of service, the percentage of the employer contributions that may be transferred are as follows:

Years of service Percentage of employer

contributions available to transfer

Less than 5 years 65.53%

5 to 9 years 58.59%

10 to 14 years 55.26%

15 to 19 years 55.42%

20 or more years 57.53%

(2) For an employee hired on or after the effective date of the defined contribution plan who elects to become a member of the plan, the board shall transfer from the defined benefit plan to the member's retirement account an amount equal to the amount that would have been credited to the member's account pursuant to [section 53] had the employee become a plan member on the employee's hire date, plus interest credited at the actuarially assumed rate of return on the defined benefit plan assets as of the plan's latest actuarial valuation.

Section 51. Transfers or rollovers into plan -- membership credit for purposes of vesting. (1) Except as provided in subsection (2), the board shall accept the transfer or rollover of assets from another qualified plan to the member's retirement account. If a member is transferring assets from another plan provided for in this title, the member must, for the purposes of becoming vested pursuant to [section 52], receive credit for the employee's prior membership service under that plan.

(2) (a) After-tax money may not be transferred or rolled over to a retirement account unless the money was contributed to the system's defined benefit plan on an after-tax basis.

(b) To the extent that the transfer or rollover is disallowed under the Internal Revenue Code provisions in effect as of the calendar year immediately preceding the date of the transfer or rollover, a member may not transfer or rollover to a retirement account contributions made under sections 403(b) and 457 of the Internal Revenue Code.

Section 52. Vesting -- mandatory termination of membership -- forfeitures. (1) A member is fully vested with the member's contributions and the income on those contributions from the date that the employee becomes a member of the plan, but is not considered a vested member, as defined in 19-2-303, unless the member meets the criteria under subsection (2).

(2) A member is not vested with the employer's contributions and the income on those contributions and does not attain the status of a vested member until the member has a total of 5 years of membership service under the system.

(3) A member who terminates covered employment before becoming a vested member shall terminate plan membership by removing from the plan the member's entire account balance as provided in [section 56]. The employer contributions and income on the employer's contributions in the member's retirement account are forfeited and must be allocated as provided in [section 53].

Section 53. Allocation of contributions and forfeitures. (1) Each plan member's retirement account must be credited with the employee contributions made under 19-3-315.

(2) Subject to adjustment by the board as provided in [section 54], beginning on the plan's effective date, of the employer contributions under 19-3-316:

(a) 4.49% of compensation must be allocated to the member's retirement account; and

(b) 2.37% of compensation must be allocated to the defined benefit plan as the plan choice rate.

(3) Forfeitures of employer contributions and investment income on the employer contributions may not be used to increase a member's retirement account. The board shall allocate the forfeitures under [section 52] to meet the employer contributions obligation provided under subsection (2)(a) of this section in lieu of direct contributions by the employer and shall increase the contribution amount under subsection (2)(b) of this section by the amount of the forfeitures used in lieu of the employer contributions.

Section 54. Determination and adjustment of plan choice rate and contribution allocations -- rulemaking. (1) The board shall provide for the periodic review of the sufficiency of the plan choice rate and shall adjust the allocation of contributions under [section 53] as specified in this section. The board shall provide that the data necessary to comply with this section is collected and maintained for all system members.

(2) The plan choice rate set in [section 53(2)(b)] must be adjusted as provided in this section, taking into account:

(a) as determined under subsection (3), the change in the normal cost contribution rate in the defined benefit plan that is the result of member selection of the defined contribution plan;

(b) as determined under subsection (4), the anticipated reduction in defined contribution plan costs because of forfeitures; and

(c) as determined under subsection (5), the sufficiency of the plan choice rate to actuarially fund the defined contribution plan's share of the defined benefit plan's unfunded liabilities.

(3) The change in the normal cost contribution rate must be an amount equal to the difference between the normal cost contribution rate in the defined benefit plan that would have resulted if all system members remained in the defined benefit plan and the normal cost contribution rate in the defined benefit plan for the actual members of the defined benefit plan, multiplied by the covered payroll of members in the defined benefit plan, divided by the covered payroll of members in the defined contribution plan. The measurements under this subsection must be based on the defined benefit plan in effect on the effective date of the defined contribution plan until the board determines that the defined benefit plan has been amended in a manner that significantly affects plan choices available to system members. After a board determination that the defined benefit plan has been significantly changed, the measurements in this subsection with respect to members entering the system after the significant change must be made on the basis of the defined benefit plan, as amended.

(4) The anticipated reduction in defined contribution plan costs as a result of forfeitures under [section 52] must be determined as the amount of forfeitures expected during the next biennium based on actual forfeitures in the preceding biennium, adjusted by taking into account the gains or losses during the preceding biennium resulting from forfeitures of greater or lesser amounts than expected, divided by twice the covered payroll of members of the defined contribution plan.

(5) The sufficiency of the plan choice rate to actuarially fund the appropriate share of the defined benefit plan's unfunded liabilities must be determined as follows:

(a) The board shall determine the number of years required to actuarially fund the defined benefit plan's unfunded liabilities as of the June 30, 1998, actuarial valuation, which must be the initial schedule for the defined contribution plan to actuarially fund the plan's share of the unfunded liabilities. The board shall reduce the schedule by 1 year each biennium.

(b) During each subsequent actuarial valuation of the defined benefit plan conducted pursuant to 19-2-405, the board shall determine whether the plan choice rate minus the sum of the amounts provided in subsections (2)(a) and (2)(b) of this section is sufficient to pay the unfunded liability obligations within the schedule determined under subsection (5)(a) of this section. If the amount is insufficient to fund the liability over a period of 10 years longer than the scheduled period or is more than sufficient to fund the liability over a period of 10 years earlier than the scheduled period, the board shall determine to the nearest 0.1% the amount of the increase or decrease in the plan choice rate that is required to actuarially fund the liabilities according to the established schedule.

(6) If the board determines that the plan choice rate should be increased or decreased, the plan choice rate under [section 53(2)(b)] must be increased or decreased accordingly. If the plan choice rate is increased, the allocation of employer contributions to member accounts under [section 53(2)(a)] must be decreased by that amount. If the plan choice rate is decreased, the allocation of employer contributions to member accounts under [section 53(2)(b)] must be increased by that amount.

(7) By November 1 of the year of a determination pursuant to this section that the allocation of employer contributions under [section 53(2)] must be changed, the board shall notify system members, participating employers, employee and employer organizations, the governor, and the legislature of its determination and of the changes required.

(8) Effective January 1 of the year after the regular legislative session that immediately follows a determination under this section, the plan choice rate and the allocation of contributions under [section 53(2)] must be adjusted according to the board's determination.

Section 55. Investment alternatives -- notice of changes -- default fund. (1) The board shall contract with a vendor or vendors to provide for at least eight investment alternatives within the defined contribution plan. In providing for the plan's investment alternatives, only a vendor or vendors offering suitable and well-managed investments, licensed to conduct business in Montana, and regulated by the United States securities and exchange commission may be used.

(2) The investment alternatives must include at least three that offer plan members the following:

(a) the ability to materially affect the potential return on amounts in the member's retirement account and the degree of risk to which those amounts are subject;

(b) a range of investment alternatives that:

(i) provides sound and diversified funds;

(ii) offers, under each alternative, a materially different risk and return characteristic than found in the other alternatives;

(iii) allows the member or beneficiary to choose among them to achieve a portfolio with an aggregate risk and return characteristic to achieve a point within the risk and return range normally appropriate for the member or beneficiary based on age, income, and individual retirement goals; and

(iv) tends to minimize through diversification the overall risk of large losses.

(3) Subject to a competitive bidding process, the investment alternatives may include the investment alternatives offered to members of the state deferred compensation plan pursuant to chapter 50 of this title.

(4) The board shall from time to time review the suitability and management of investment alternatives and may change the alternatives to be offered. The board shall notify affected members of potential changes before any changes become effective.

(5) Assets within each member's retirement account must be invested as directed by the member.

(6) The board shall provide for a balanced fund to be established as a default investment fund. In the case of a member failing to direct how the member's retirement account is to be invested, the member's entire account balance must be invested in the default fund.

(7) This section does not prohibit the board from contracting with the board of investments established in 2-15-1808 to provide one or more investment alternatives within the plan.

Section 56. Payout of account balances when terminating plan membership. Any time after termination of covered employment, a member or the member's beneficiary may terminate plan membership by making a written application to the board and removing the member's account balance from the plan through any combination of the following payout options, each of which is subject to applicable regulations of the internal revenue service:

(1) a direct rollover to an eligible retirement plan or to an individual retirement account or annuity pursuant to section 401(a)(31) of the Internal Revenue Code;

(2) a regular rollover to an eligible retirement plan pursuant to section 402(c) of the Internal Revenue Code; or

(3) a lump-sum distribution of the member's account balance.

Section 57. Distribution options for plan members -- rulemaking -- minimum distribution requirements -- restrictions. (1) Subject to [sections 52 and 59], a member may, after termination of covered employment, leave the member's account balance in the plan, and the member is eligible for a distribution as provided in this section.

(2) After termination of covered employment, upon written application to the board, a member may, if provided for by the board, select a distribution option offered pursuant to a contract negotiated by the board with a plan vendor or vendors.

(3) A member who is less than 70 1/2 years of age who returns to covered employment may not continue to receive a distribution under this section while actively employed in a covered position.

(4) The board shall adopt rules to administer this section and to provide that distributions comply with the minimum distribution requirements established in the Internal Revenue Code and applicable under 19-2-1007.

Section 58. Death benefits. A plan member's beneficiary must be determined as provided in chapter 2, part 8, of this title. Upon written application filed with the board after the death of a plan member, the member's beneficiary is entitled to the member's account balance and all rights established in and subject to [sections 42 through 63].

Section 59. Minimum account balance required for membership after termination -- adjustment by rule. (1) (a) If a member's account balance is less than $5,000 at the time that the member terminates covered employment, the member shall terminate plan membership by removing the member's account balance from the plan in a manner provided pursuant to [section 56].

(b) If the member fails to remove the member's account balance, the board may close the account by paying to the member a lump-sum distribution of the member's entire account balance.

(2) The board may by rule adjust the minimum account balance provided in this section as necessary to maintain reasonable administrative costs and to account for inflation.

Section 60. Implementation schedule -- plan effective date. (1) In exercising its authority pursuant to [sections 42 through 63] to implement the defined contribution plan, the board shall:

(a) by September 1, 1999, retain a qualified consultant to assist the board in developing appropriate requests for proposals for contracted services;

(b) by January 1, 2000, issue a request for proposal for all required contracted services;

(d) by September 1, 2000, begin the development and modification of data systems and reporting processes required to administer the plan.

(2) The defined contribution plan must become operational by no later than July 1, 2002.

Section 61. Implementation team -- state agency assistance. The board shall create an implementation team to assist in establishing the defined contribution plan. Upon request of the board, other state agencies may provide technical and professional assistance to support the implementation of the plan. The board may also request the assistance of other contracting employers and may provide compensation for personal services and other costs incurred by an agency or contracting employer to support the board pursuant to this section.

Section 62. Creation of employee investment advisory council. (1) The board shall, by August 1, 1999, appoint an employee investment advisory council. The advisory council shall meet at least quarterly to:

(a) advise the board concerning the establishment and operation of the defined contribution plan, including the selection of the initial investment alternatives to be provided pursuant to [section 55];

(b) advise the board about negotiating, contracting, or modifying services for the state deferred compensation plan provided for in chapter 50; and

Section 63. Legislative oversight committee -- reports and recommendations by board -- study of health care costs and disability provisions. (1) The legislative council shall provide for an appropriate interim legislative committee to oversee the implementation of the defined contribution plan established pursuant to [sections 42 through 63] and to act as a steering committee on matters of policy.

(2) The board shall consult with and provide regular progress reports to the committee and shall make recommendations regarding the design and implementation of the defined contribution plan.

(3) The committee shall also examine:

(a) options for addressing the cost of postretirement health insurance and other medical care for public retirees; and

(b) options for providing disability benefits for public retirees.

Section 64. Board to seek commissioner's ruling or opinion. The public employees' retirement board shall, as soon as possible, request in writing a ruling or opinion from the commissioner of the internal revenue service as to whether the defined contribution retirement plan established pursuant to [this act] constitutes a "qualified plan" pursuant to section 401(a) of the Internal Revenue Code.

Section 65. Rulemaking -- implementation -- certification that plan is effective. (1) The public employees' retirement board may adopt rules necessary to implement the provisions of [sections 42 through 63].

(2) The board shall certify to the governor and the secretary of state the date on which the defined contribution retirement plan established pursuant to [sections 42 through 63] is ready to become operational and shall provide a copy of the certification to the code commissioner.

(3) Rights under [sections 42 through 63] do not vest until the defined contribution retirement plan becomes operational and is certified as provided in this section.

Section 66. Payment of local government administration expenses. To the extent that a local government unit is required to incur administrative expenses to start the defined contribution retirement plan that exceed the amount provided in 1-2-112(4)(a), the expenses must be paid by the public employees' retirement board as defined contribution plan administrative expenses.

Section 67. Section 19-50-101, MCA, is amended to read:

"19-50-101. Definitions. For the purposes of this chapter, unless a different meaning is plainly implied by the context, the following definitions apply:

(1) "Administrator" or "board" means the ~~department of administration created by 2-15-1001~~ public employees' retirement board created in 2-15-1009 or an appropriate officer of a political subdivision.

~~(2) "Advisory council" means the state employee group benefits advisory council provided for in 2-15-1016.~~

~~(3)~~(2) "Deferred compensation" means that income which an employee may legally defer in a deferred compensation plan established under this chapter pursuant to the rulings of the internal revenue service and which, while invested, is exempt from state and federal income tax on the employee's contribution and on the interest, dividends, and capital gains until ultimately distributed to the employee.

~~(4) "Department" means the department of administration created by 2-15-1001.~~

~~(5)~~(3) "Eligible deferred compensation plan" means a plan meeting the requirements of section 457 of the Internal Revenue Code.

~~(6)~~(4) "Employee" means any person, including independent contractors and elected officials, receiving compensation from the state or a political subdivision for performing services.

~~(7)~~(5) "Fund" means the state deferred compensation investment account.

~~(8)~~(6) "Participant" means an employee enrolled in the plan.

~~(9)~~(7) "Political subdivision" means any city, town, county, or other political subdivision of the state of Montana."

Section 68. Section 19-50-102, MCA, is amended to read:

"19-50-102. Deferred compensation programs permitted -- rules. (1) The state or a political subdivision may establish deferred compensation plans that are eligible under section 457 of the Internal Revenue Code of 1954 (26 U.S.C. 457), as amended or superseded, and in compliance with regulations of the U.S. department of the treasury. Eligible deferred compensation plans for employees may be established in addition to any retirement, pension, or other benefit plan administered by the state or a political subdivision.

(2) An employee may enter into a written agreement with the state or a political subdivision to defer a part of the employee's compensation to one or more of the investment options provided in subsection (4) for the purpose of investment as provided by this chapter. The total amount deferred may not exceed the employee's annual salary and may not exceed the amounts permitted under applicable sections of the Internal Revenue Code.

(3) Compensation deferred pursuant to this chapter is included as compensation for the purpose of computing retirement or pension benefits.

(4) The ~~department~~ board or an appropriate officer of a political subdivision shall from time to time select the type of investment options and the financial institutions or entities in which state or political subdivision employee deferred compensation plan funds may be invested. The ~~department~~ board or an appropriate officer of a political subdivision shall notify affected plan members of potential changes in investment options and financial institutions before the changes are made. The investment options and entities may include:

(a) a state deferred compensation investment fund established pursuant to Title 17 for the purpose of administering a state-invested deferred compensation plan. All contributions made by participants in the state deferred compensation investment fund and all interest or increase in the fund must be credited to the fund. These state-invested funds may be commingled with other state investment funds, but separate accounting must be maintained. The assets of the fund must be maintained for the benefit of participants and may not be diverted except for paying the reasonable expenses for administering the state deferred compensation investment fund.

(b) savings accounts in federally insured financial institutions;

(c) life insurance contracts and fixed annuity and variable annuity contracts from companies that are licensed to do business in the state and subject to regulation by the insurance commissioner;

(d) investment funds managed pursuant to investment services contracts maintained by the ~~department~~ board or an appropriate officer of a political subdivision with investment managers registered with the United States securities and exchange commission;

(e) mutual funds provided through contracts maintained by the ~~department~~ board or an appropriate officer of a political subdivision with mutual fund companies regulated by the United States securities and exchange commission; or

(f) a combination of the items in subsections (4)(a) through (4)(e).

(5) The deferred compensation plan funds invested pursuant to this section and the income from those funds must be held in a trust, custodial account, or insurance contract for the exclusive benefit of participants and their beneficiaries.

(6) The administrator may allocate any necessary costs against the assets and interest earnings accumulated in funds, accounts, or contracts established under this chapter.

(7) The ~~department~~ board or appropriate officer of a political subdivision shall promulgate rules not inconsistent with this chapter for the proper administration of deferred compensation plans established under this chapter."

Section 69. Section 19-50-201, MCA, is amended to read:

"19-50-201. ~~Department~~ Board authorized to make contracts with political subdivisions. (1) Effective July 1, 1983, a political subdivision may become a contracting employer and make all or specified groups of its employees eligible to participate in the state-administered deferred compensation program by a contract entered into and between the ~~department~~ board and the legislative body of the political subdivision. The contract may include any provisions that are consistent with this chapter and necessary for the administration of the deferred compensation program.

(2) The approval and termination of the contract shall be subject to the following provisions:

(a) The legislative body of the political subdivision shall adopt a resolution to enter into a contract with the ~~department~~ board authorizing its employees to participate in the state-administered deferred compensation program. The resolution must contain a summary of the major provisions of the state-administered deferred compensation program.

(b) The contract must specify that the political subdivision agrees that the ~~department~~ board is the administrator of the deferred compensation program and agrees to the rules and conditions established by the ~~department~~ board for the proper administration of the plan.

Section 70. Section 19-50-202, MCA, is amended to read:

"19-50-202. Administration of program. The deferred compensation program shall be administered by the ~~department~~ board or the appropriate officer designated by a political subdivision. Payroll deductions shall be made, in each instance, by the appropriate payroll officer. The administrator shall protect the interests of program participants and safeguard the assets of the deferred compensation plan and shall contract with private corporations, institutions, or individuals for administrative and marketing services. The administrator may solicit bids for options under 19-50-102. All contracts with marketing representatives must provide that all options in 19-50-102 be presented in an unbiased manner and in a manner so as to conform to applicable rules promulgated by the administrator, be reported on a periodic basis to all employees participating in eligible deferred compensation plans, and not be the subject of unreasonable solicitation of employees to participate in the program. All costs or fees in relation to the marketing of options provided under 19-50-102 shall be paid by the underwriting companies selected by the administrator or by the interest earnings accruing to the assets of the state deferred compensation investment fund."

Section 71. Section 19-50-203, MCA, is amended to read:

"19-50-203. Payments authorized. Notwithstanding any other provision of law to the contrary, the ~~department~~ board or a political subdivision is hereby authorized to make payments to eligible deferred compensation plans designated by this chapter. Such payments shall not be construed to be a prohibited use of the general assets of the state or a political subdivision."

Section 72. Section 19-2-706, MCA, is amended to read:

"19-2-706. Additional service for member involuntarily terminated from membership service. (1) An employee of the state or university system is entitled to the involuntary termination provision provided in subsection (3) if:

(a) the employee is a member of the public employees', game wardens' and peace officers', sheriffs', or highway patrol officers' retirement system;

(b) the employee's active service is involuntarily terminated because of elimination of the employee's position as a result of privatization, reorganization of an agency, closure of or a reduction in force at an agency, or other actions by the legislature or, in the case of a legislator, because of term limits terminating the service of the legislator in either one of the houses of the legislature ~~on or after July 1, 1997, but before July 1, 1999~~;

(c) the employee is eligible for a normal service retirement or early retirement under the applicable provisions of the retirement system to which the member belongs; and

(d) the employee waives termination benefits for which the employee would otherwise be eligible under the State Employee Protection Act.

(2) The cost of each year of service purchased under this section is the total actuarial cost of purchasing the service based on the most recent actuarial valuation of the retirement system.

(3) The employer of an eligible member under subsection (1) shall pay a portion of the total cost of purchasing up to 3 years of additional service that the member was qualified to purchase under 19-3-513, 19-6-804, 19-7-804, or 19-8-904. The employer-paid portion applied toward the service purchase must be calculated using the formula A x B x C when:

(a) A is equal to a maximum of 3 additional years of service that the member is eligible to purchase;

(b) B is equal to the sum of the employer and employee contribution rates in the member's retirement system; and

(c) C is equal to the member's gross compensation paid during the immediate preceding 12 months of membership service. The employer may not be charged more than the total actuarial cost of the service purchased by the terminated employee.

(4) The member shall pay the difference, if any, between the full actuarial cost of the service to be purchased and the amount contributed by the employer under subsection (3). A member is entitled to a refund for that portion of previously purchased additional service that would otherwise cause the member to be unqualified to receive all or part of the additional service provided in this section. A member may elect to purchase less than the full amount of service for which the member is eligible under this section, but the election may not reduce the amount of the employer's contribution as calculated under subsection (3).

(5) The board may allow an employer to pay the contributions required under subsection (3) in installments for up to 10 years and may charge interest at a rate set by the board pursuant to 19-2-403.

(6) A member who has received additional service under this section and who returns to employment for the same jurisdiction for 600 or more hours in a calendar year forfeits the additional service. The employer's contribution to purchase that member's additional service, minus any retirement benefits already paid, must be refunded to the employer. As used in this subsection, the same jurisdiction means all agencies of the state, including the university system."

Section 73. Repealer. Section 19-50-206, MCA, is repealed.

Section 74. Loans -- repayment. To pay the startup costs of the defined contribution retirement plan, the public employees' retirement board is authorized to take a long-term loan from the department of administration, which shall provide for the loan from the investment fund type established under the provisions of House Bill No. 645. The loan must be repaid with interest under terms and conditions determined by the department.

Section 75. Codification instruction. (1) [Section 40] is intended to be codified as an integral part of Title 19, chapter 2, parts 7 and 11; and Title 19, chapter 3, parts 5, 9 through 12, and 15, and the provisions of Title 19, chapter 2, parts 7 and 11; and Title 19, chapter 3, parts 5, 9 through 12, and 15, apply to [section 40].

(2) [Section 41] is intended to be codified as an integral part of Title 19, chapter 3, part 1, and the provisions of Title 19, chapter 3, part 1, apply to [section 41].

(3) [Sections 42 through 63] are intended to be codified as an integral part of Title19, chapter 3, and the provisions of Title 19, chapter 3, apply to [sections 42 through 63].

Section 76. Coordination instruction. (1) If __ Bill No. __ [LC0567] is passed and approved and if it provides for the continuation of the committee on public employee retirement systems provided for in Title 5, chapter 21, then the phrase "legislative council shall provide for an appropriate interim legislative committee" as it appears in [section 63] of [this act] is replaced with the phrase "committee on public employee retirement systems provided for in Title 5, chapter 21".

(2) If House Bill No. 645 is not passed and approved, then [section 74] of [this act] must read:

"NEW SECTION. Section 74. Loan from board of investments. To pay the startup costs of the defined contribution retirement plan, the public employees' retirement board may receive a loan from the intercap revolving loan program adopted pursuant to 17-5-1605."

Section 77. Saving clause. [This act] does not affect rights and duties that matured, penalties that were incurred, or proceedings that were begun before [the immediate effective date provided under [section 79(2)]].

Section 78. Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.

Section 79. Effective dates. (1) Except as provided in subsections (2) through (4), [this act] is effective October 1, 1999.

(2) [Sections 3, 11, 20 through 22, 43(2) and (3), 44, 45, 55(1) through (3) and (7), 60, 61, 64, 65, 72, 75 through 78, 80, and 81 and this section] are effective on passage and approval.

(3) [Sections 34, 41(1)(a), (1)(b), and (2) through (6), 46, 62, 63, and 66 through 71, 73, and 74] are effective July 1, 1999.

(4) [Sections 2, 4 through 10, 12 through 19, 23 through 40, 41(1)(c), 43(1), 47 through 54, 55(4) through (6), and 56 through 59] are effective contingent upon certification, as provided in [section 65], that the defined contribution retirement plan is ready to become operational or on July 1, 2002, whichever is earlier.

Section 80. Contract of employment -- applicability. Contract rights of employment are not applicable with regard to the right to elect either the defined contribution plan or the optional retirement program until the plan choice period begins. Contract rights of employment are not applicable with regard to rights in the defined contribution plan or the optional retirement program until the defined contribution plan or the optional retirement program is elected.

Section 81. Termination. (1) [Sections 41(1)(b), 61, and 63] terminate July 1, 2001.

(2) [Section 60] terminates July 1, 2002.

- END -

Latest Version of HB 79 (HB0079.ENR)
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