LRB-4224/3
RAC:kmg:km
1995 - 1996 LEGISLATURE
December 13, 1995 - Introduced by Senator Petak, cosponsored by Representative
Klusman, by request of the Department of Employe Trust Funds. Referred to
Joint survey committee on Retirement Systems.
SB449,1,14
1An Act to repeal 40.26 (1) (a) and (b) and 40.26 (2) (d);
to renumber and amend
240.26 (1) (intro.);
to amend 40.02 (8) (a) 1., 40.02 (14), 40.02 (22) (a), 40.02 (22)
3(b) 9., 40.02 (22) (e), 40.02 (26g), 40.02 (40), 40.05 (1) (a) 5., 40.05 (1) (a) 6., 40.08
4(1m) (e) 2., 40.08 (1m) (f) 2., 40.08 (8) (b), 40.08 (8) (c), 40.08 (14), 40.23 (1) (a)
51., 40.23 (1) (b), 40.23 (1) (c), 40.23 (2m) (b), 40.24 (1) (f), 40.25 (6) (a) 2., 40.25
6(6) (a) 3., 40.25 (7) (a) 1., 40.26 (3) (bm) (intro.), 40.27 (2) (b), 40.73 (3) (a), 40.73
7(3) (e) and 40.86 (intro.);
to repeal and recreate 40.08 (6), 40.08 (8) (a) and
840.23 (1) (d);
to create 40.015, 40.02 (39m), 40.02 (48r), 40.03 (2) (t), 40.05 (1)
9(a) 7., 40.05 (2r), 40.08 (1m) (e) 4., 40.23 (4), 40.24 (5), 40.24 (7) (a) 6., 40.25 (6)
10(a) 5., 40.26 (5), 40.31, 40.32, 111.91 (2) (k), 111.91 (2) (L) and 111.91 (2) (m) of
11the statutes; and
to affect 1995 Wisconsin Act 27, section
1946m and
1995 12Wisconsin Act
27, section
9459 (2) (d);
relating to: maximum benefit and
13contribution limits under the Wisconsin retirement system, granting
14rule-making authority and making an appropriation.
Analysis by the Legislative Reference Bureau
Under current law, there is no requirement that the Wisconsin retirement
system (WRS) be a qualified public retirement plan under the U.S. internal revenue
code. This bill specifies that the WRS is established as a governmental plan and as
a qualified plan for federal income tax purposes. Also, the bill specifies that no
benefit plan administered by the department of employe trust funds (DETF) may be
administered in a manner that violates the U.S. internal revenue code or that would
cause an otherwise tax-exempt benefit to become taxable under the internal revenue
code. Finally, the bill does all of the following for the purpose of bringing the WRS
into compliance with the U.S. internal revenue code:
1. This bill establishes certain time frames for locating a primary and
secondary beneficiary of a participant in the WRS. Under the bill, if DETF cannot
locate the primary beneficiary within one year after the date on which DETF receives
written notification of the participant's death, then DETF must pay any benefits to
the secondary beneficiary. If DETF cannot locate the secondary beneficiary within
an additional 6-month period, then DETF must pay a lump sum benefit to the
participant's estate. If for any reason DETF cannot make payment to the estate, the
participant must be presumed, unless it is shown to the contrary, to have died
intestate, without heirs or beneficiary, and DETF must treat the account as
abandoned.
2. Under current law, there is no mandatory date by which DETF must
distribute to a participant in the WRS or his or her beneficiary any part of the amount
that is credited to the account of a participant in the WRS. This bill provides that
DETF must distribute these amounts or begin the distribution of these amounts, if
the amounts are taken in a form other than as a lump sum, no later than April 1 of
the calendar year in which the participant in the WRS attains the age of 70.5 years.
3. Under current law, a person who participates in the WRS has the amount
of his or her annuity generally determined according to a retirement formula, which
is based on the participant's final average earnings, the participant's number of
years of creditable service and a percentage multiplier. The final average earnings
is the 3 annual earnings periods in which the participant's earnings were highest.
This formula is not used if the annuity amount that may be purchased by a
participant from any employe accumulated additional and required contributions
and an amount from employer contributions that equals the accumulated employe
required contributions is greater than the amount determined according to the
formula. But under neither of the ways to determine the amount of a participant's
annuity is there a maximum annuity or contributions limitation.
This bill provides that the annuity amount and the sum of contributions
credited to a participant under all defined contribution plans sponsored by his or her
employer may not exceed the maximums established under section 415 of the U.S.
internal revenue code. Under current federal law, the maximum annual annuity
benefit amount is the lesser of $120,000 or 100% of a participant's 3 annual earnings
periods in which the participant's earnings were highest. With respect to all
contributions that are credited to a participant under all defined contribution plans
sponsored by his or her employer, the maximum annual amount of such
contributions is the lesser of $30,000 or 25% of a participant's earnings in that year.
This bill will be referred to the joint survey committee on retirement systems
for a detailed analysis, which will be printed as an appendix to this bill.
For further information see the state and local fiscal estimate, which will be
printed as an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
SB449, s. 1
1Section
1. 40.015 of the statutes is created to read:
SB449,3,5
240.015 Compliance with federal tax laws. (1) The Wisconsin retirement
3system is established as a governmental plan and as a qualified plan for federal
4income tax purposes under the internal revenue code and shall be so maintained and
5administered.
SB449,3,9
6(2) No benefit plan authorized under this chapter may be administered in a
7manner which violates an internal revenue code provision that authorizes or
8regulates that benefit plan or which would cause an otherwise tax exempt benefit to
9become taxable under the internal revenue code.
SB449, s. 2
10Section
2. 40.02 (8) (a) 1. of the statutes is amended to read:
SB449,3,1611
40.02
(8) (a) 1. The person, or a trust in which the person has a beneficial
12interest, so designated by a participant or insured employe or annuitant in the last
13written designation of beneficiary on file with, and in the form approved by, the
14department at the time of death
, except as provided in s. 40.23 (4) (c). A written
15designation of beneficiary for a specified benefit plan applies only for determining
16beneficiaries under that specified benefit plan.
SB449, s. 3
17Section
3. 40.02 (14) of the statutes is amended to read:
SB449,3,2118
40.02
(14) "Creditable current service" means the creditable service granted
19for service performed
for a participating employer and for which a participating
20employe receives earnings
from a participating employer after the effective date of
21participation for that employer.
SB449, s. 4
1Section
4. 40.02 (22) (a) of the statutes is amended to read:
SB449,4,142
40.02
(22) (a) Except as provided in pars. (b) to (f) and s. 40.63 (1) (c), means
3the gross amount paid to an employe
by a participating employer as salary or wages,
4including amounts provided through deferred compensation or tax shelter
5agreements, for personal services rendered to or for an employer, or which would
6have been available for payment to the employe except for the employe's election that
7part or all of the amount be used for other purposes and also includes the money
8value, as determined by the employer, of any board, lodging, fuel, laundry and other
9allowances provided for the employe in lieu of money. For purposes of this
10paragraph, the gross amount shall be determined prior to deductions for taxes,
11insurance premiums, retirement contributions or deposits, charitable contributions
12or similar amounts and shall be considered received as of the date when the earnings
13would normally be payable by the employer. For reporting and computation
14purposes, fractions of a dollar shall be disregarded in determining annual earnings.
SB449, s. 5
15Section
5. 40.02 (22) (b) 9. of the statutes is amended to read:
SB449,5,316
40.02
(22) (b) 9. Payments for damages, attorney fees, interest or penalties paid
17under court judgment or by compromise settlement to satisfy a grievance or wage
18claim even though the amount of damages or penalties might be based on previous
19salary levels. However,
where the court order or compromise settlement directs that
20salary be paid for a specified period of time, the payment shall be considered covered
21earnings applicable to the period specified in the order or settlement, and if the order
22or settlement provides that the salary be reduced by amounts earned from other
23sources, then the covered earnings shall be determined prior to the reduction the
24department may by rule provide that a payment of additional wages to a
25continuously participating employe, or the payment of salary to a participant for any
1period of improper termination of participating employment, is earnings, if the
2payment is treated by the employer and employe as taxable income and is consistent
3with previous payment for hours of service rendered by the employe.
SB449,5,146
40.02
(22) (e) Except for OASDHI purposes,
at the employer's discretion, 7means compensation deemed to have been paid for services deemed to have been
8rendered
during periods of leaves of absence without pay, while serving in a position
9covered under, and meeting the requirements of, 38 USC 4301, et seq., at the
10employe's rate of pay prior to
the leave beginning such service, provided
11contributions and premiums on the deemed earnings are paid as required under s.
1240.05.
Any action taken under this paragraph that applies to state employes shall
13be taken pursuant to a collective bargaining agreement under subch. V of ch. 111 or
14s. 230.12 or 233.10.
SB449, s. 7
15Section
7. 40.02 (26g) of the statutes is amended to read:
SB449,5,2016
40.02
(26g) "Employe-funded reimbursement account plan" means a plan in
17accordance with section
125 of the internal revenue code
, as defined in s. 71.01, under
18which an employe may direct an employer to place part of the employe's gross
19compensation in an account to pay for certain future expenses of the employe under
20section
125 of the internal revenue code.
SB449, s. 8
21Section
8. 40.02 (39m) of the statutes is created to read:
SB449,5,2522
40.02
(39m) "Internal revenue code" means the internal revenue code, as
23defined for the current taxable year under s. 71.01 (6), and applicable regulations
24adopted under the internal revenue code, including proposed and temporary
25regulations, except as otherwise provided by the department by rule.
SB449, s. 9
1Section
9. 40.02 (40) of the statutes is amended to read:
SB449,6,162
40.02
(40) "Leave of absence" means any period during which an employe has
3ceased to render services for
a participating employer and receive earnings
from a
4participating employer and there has been no formal termination of the
5employer-employe relationship. For purposes of the fund every leave of absence,
6except a military leave or union service leave, shall terminate 3 years after it begins
7or, if earlier, upon the date specified by the employer in a notification to the
8department that the employer-employe relationship has terminated. A leave of
9absence is not deemed ended or interrupted by reason of resumption of active duty
10until the employe has resumed active performance of duty for 30 consecutive
11calendar days for at least 50% of what is considered that employe's normal work time
12with that employer. For the purpose of group health insurance coverage, every leave
13of absence due to employe layoff which has not been terminated before 3 years have
14elapsed shall continue for affected insured employes until an additional 2 years
15elapse or until sick leave credits used to pay health insurance premiums are
16exhausted, whichever occurs first.
SB449, s. 10
17Section
10. 40.02 (48r) of the statutes is created to read:
SB449,6,2018
40.02
(48r) "Required beginning date" means the later of April 1 of the calendar
19year following the year in which a participant attains the age of 70.5 years or April
201 of the calendar year in which a participating employe retires.
SB449, s. 11
21Section
11. 40.03 (2) (t) of the statutes is created to read:
SB449,6,2522
40.03
(2) (t) Shall ensure that the Wisconsin retirement system complies with
23the internal revenue code as a qualified plan for income tax purposes and shall
24ensure that each benefit plan is administered in a manner consistent with all
25internal revenue code provisions that authorize and regulate the benefit plan.
SB449, s. 12
1Section
12. 40.05 (1) (a) 5. of the statutes is amended to read:
SB449,7,62
40.05
(1) (a) 5. Additional contributions may be made by any participant by
3deduction from earnings or otherwise or may be provided on behalf of any participant
4in any calendar year in which the participant has earnings, subject to any limitations
5imposed on contributions by the
U.S. internal revenue code, applicable regulations
6adopted under the internal revenue code and rules of the department.
SB449, s. 13
7Section
13. 40.05 (1) (a) 6. of the statutes is amended to read:
SB449,7,158
40.05
(1) (a) 6. Under the rules promulgated under s. 40.03 (2) (r), additional
9contributions
, other than the first $5,000 of contributions, or a beneficiary's prorated
10share thereof, that are attributable to a death benefit paid under s. 40.73, may be
11made to the fixed annuity division by any participant by rollover contribution of a
12payment or distribution from a pension or annuity qualified under section
401 of the
13internal revenue code,
as defined in s. 71.01 (6), subject to any limitations imposed
14on contributions by the internal revenue code, applicable regulations adopted under
15the internal revenue code and rules of the department.
SB449, s. 14
16Section
14. 40.05 (1) (a) 7. of the statutes is created to read:
SB449,7,2217
40.05
(1) (a) 7. Subject to any applicable limitations under the internal revenue
18code, a participating employe may elect to use part or all of his or her accumulated
19after-tax additional contributions, including interest, made under subd. 5., other
20than contributions treated by the department as contributions to a tax sheltered
21annuity under section
403 (b) of the internal revenue code, to purchase creditable
22service under this chapter.
SB449, s. 15
23Section
15. 40.05 (2r) of the statutes is created to read:
SB449,8,3
140.05
(2r) Annual contributions limitations; disqualification procedure. (a)
2Contributions made under this section are subject to the limitations under s. 40.32
3and the internal revenue code.
SB449,8,104
(b) If a participant in the Wisconsin retirement system also participates in a
5different retirement plan offered by an employer that is subject to section
401 of the
6internal revenue code and the internal revenue service seeks to disqualify one or
7more of the plans because the aggregate contributions to the plans exceed the
8contribution limits under section
415 of the internal revenue code, the internal
9revenue service, if it permits state law to determine the order of disqualification of
10such retirement plans, shall disqualify the retirement plans in the following order:
SB449,8,1111
1. Retirement plans offered and administered by the employer.
SB449,8,1312
2. Retirement plans offered by the employer, but administered by the
13department.
