Report Title:
ERS; Maximum Creditable Earnings; Optional Annuity
Description:
Establishes maximum creditable annual salary formula for purpose of determining average final compensation and retirement benefits of public employees whose salaries are in excess of five times the median public employee salary. Authorizes optional annuity contracts to allow deferral of taxes paid on earnings in excess of maximum creditable amounts.
THE SENATE |
S.B. NO. |
2064 |
TWENTY-SECOND LEGISLATURE, 2004 |
||
STATE OF HAWAII |
||
|
A BILL FOR AN ACT
relating to public employee benefits.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Chapter 88, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:
"Part . public employees' annuity and
custodial account contracts
§88- Purpose. The purpose of this part is to provide the means by which a public employee, other than an employee of the department of education or the University of Hawaii, whose annual salary, wages, or earnings are in excess of five times the median public employee salary, may qualify for the favorable benefits of section 403(b) of the Internal Revenue Code of 1986, as amended, with respect to earnings in excess of creditable amounts as referenced in section 88-81(f).
§88- Definitions. For the purposes of this part:
"Qualified employee" means a public employee, other than an employee of the department of education or the University of Hawaii, whose annual salary, wages, or earnings exceed five times the median public employee salary for that year as determined by the department of human resources development.
§88- Contract for purchase of annuity or investment in custodial account. (a) The employees' retirement system, on behalf of any public employee, other than an employee of the department of education or the University of Hawaii, may enter into a written agreement with any qualified employee to purchase for the employee an annuity contract under section 403(b) of the Internal Revenue Code of 1986, as amended, from an insurer who holds a certificate of authority under section 431:3-201 or certificate of registration of dealer in securities under chapter 485, or both, and who complies with the requirements established by the employees' retirement system and agrees to abide by the terms, conditions, rules, or regulations of the employees' retirement system.
(b) The employees' retirement system may pay amounts to a custodial account established on behalf of the employee pursuant to section 403(b)(7) of the Internal Revenue Code of 1986, as amended.
§88- Withholding. (a) The board, in collaboration with a qualified employee's employing department, may enter into an agreement under which the employee's department shall withhold from the salary of the employee the amount of the premiums payable on account of the annuity contract, and shall make such premium payments on behalf of the employee to the employees' retirement system. The board may contract with third parties to administer plans to ensure compliance with the Internal Revenue Code of 1986, as amended, state and federal laws, and for the withholding of amounts from the salaries of qualified employees payable on account of annuity contracts and for making payments on their behalf. Costs for implementing and administering these plans shall be borne by the insurance service providers offering the annuity products, or the annuity entity selling or maintaining the annuity contracts on behalf of the employees of a department.
(b) The board may also enter into an agreement with a department or the judiciary under which the department or the judiciary shall withhold from the salary of the employee the amount payable on account of the custodial account, and shall make the payments on behalf of the employee to the employees' retirement system. The board may contract with third parties to administer plans to ensure compliance with the Internal Revenue Code of 1986, as amended, state and federal laws, and for the withholding of amounts from the salaries of employees payable on account of custodial accounts and for making payments on their behalf. Costs for implementing and administering the plan for a department or the judiciary shall be borne by the custodial service provider offering the custodial account product, or the custodial entity selling or maintaining the custodial accounts on behalf of the department or the judiciary.
§88- Adoption of rules. The employees' retirement system may adopt rules pursuant to chapter 91 to implement this part, including:
(1) The method of filing an election to accept an adjustment in earnings and revocation of the election;
(2) The effective date of an election;
(3) Changes in the amount of the adjustment in earnings; and
(4) Selection of the insurance company or companies from which the annuity contracts are to be purchased or to which payments into a qualified custodial account are to be made.
§88- Limitation on liability. The employees' retirement system and the State of Hawaii shall not be held liable for the sums deferred or the results of any investment product.
§88- Retirement system contribution not affected. A reduction in salary authorized by an employee under the terms of this part shall in no way alter the amount of regular compensation or gross salary upon which the employee's contribution to the employees' retirement system is based."
SECTION 2. Section 88-81, Hawaii Revised Statutes, is amended to read as follows:
"§88-81 Average final compensation[.]; maximum creditable annual salary. (a) Average final compensation is the average annual compensation pay or salary upon which a member has made contributions as required by sections 88-45 and 88-46[.], subject to subsection (f).
(b) The average final compensation of members shall be calculated as follows:
(1) For employees who become members prior to January 1, 1971:
(A) During the member's five highest paid years of credited service, including vacation pay, or the three highest paid years of credited service excluding vacation pay, whichever is greater; or
(B) If the member has less than three years of credited service, during the member's actual years of credited service.
(2) For employees who become members on or after January 1, 1971:
(A) During the member's three highest paid years of credited service, excluding vacation pay; or
(B) If the member has less than three years of credited service, during the member's actual years of credited service.
(c) In computing the compensation of a judge, the compensation paid to the judge by the United States as well as by the Territory shall be included.
(d) For service rendered as a member of the legislature from and after November 5, 1968, the actual annual salary of a member shall be the only amount used for determining the member's average final compensation. For service rendered as a member of the legislature prior to November 5, 1968, and after admission of this State into the Union, the annual compensation of a member shall be computed, for the purpose of determining the member's average final compensation, as follows: during a year in which a general session was held, it shall be deemed to have been an amount equal to four times the salary of a member of the legislature for a general session; and during a year in which a budget session was held, it shall be deemed to have been an amount equal to six times the salary of a member of the legislature for a budget session. For service rendered as a member of the legislature prior to the admission of this State into the Union, the annual compensation of a member shall be deemed to have been four times the salary of a member of the legislature for a regular session for each year during the member's term of office.
(e) If a member has credited service rendered as an elective officer or as a legislative officer, the member's average final compensation shall be computed separately for each category of service as follows:
(1) For the three highest paid years of credited service as an elective officer, or if the member has less than three years of credited service in that capacity, then the member's actual years of credited service;
(2) For the three highest paid years of credited service as a legislative officer, or if the member has less than three years of credited service in that capacity, then the member's actual years of credited service;
(3) For the three highest paid years of credited service as a judge, or if the member has less than three years of credited service in that capacity, then the member's actual years of credited service; and
(4) For the three highest paid years of credited service not included in paragraph (1), (2), or (3), or if the member has less than three years of credited service in that capacity, then the member's actual years of credited service.
(f) The amount creditable to a year of credited service shall not exceed five times the median public employee salary for that year as determined by the department of human resources development."
SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 4. This Act shall not diminish or impair the benefits of public employees who are vested members of the employees' retirement system and who have credited service before July 1, 2004.
SECTION 5. Any public employment contract not subject to chapter 89, Hawaii Revised Statutes, that:
(1) Provides or authorizes membership in the employees' retirement system;
(2) Provides a salary, wages, or earnings in excess of five times the median public employee salary for that year as determined by the department of human resources development; and
(3) Is executed, extended, or renegotiated after the effective date of this Act;
shall be in compliance with this Act.
SECTION 6. This Act shall take effect on July 1, 2004.
INTRODUCED BY: |
_____________________________ |