House File 2730 - Introduced
HOUSE FILE
BY COMMITTEE ON STATE GOVERNMENT
(SUCCESSOR TO HSB 512)
Passed House, Date Passed Senate, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act creating a defined contribution pension option for
2 employees covered by the Iowa public employees' retirement
3 system.
4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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PAG LIN
1 1 Section 1. NEW SECTION. 97E.1 PLAN CREATED ==
1 2 DEFINITIONS.
1 3 1. An Iowa public employees' defined contribution
1 4 retirement plan is created within the office of the treasurer.
1 5 2. As used in this chapter, unless the context otherwise
1 6 requires:
1 7 a. "Board" means the defined contribution advisory board
1 8 created in section 97E.2.
1 9 b. "Defined benefit system" means the Iowa public
1 10 employees' retirement system created in chapter 97B.
1 11 c. "Member" means an employee who has elected coverage
1 12 under the plan and who has a retirement account in the plan.
1 13 d. "Plan" means the Iowa public employees' defined
1 14 contribution retirement plan created in this chapter.
1 15 e. "Retirement account" means an individual participant's
1 16 account that includes both employee and employer contributions
1 17 and investment gains and losses, less any plan administrative
1 18 expenses.
1 19 Sec. 2. NEW SECTION. 97E.2 DEFINED CONTRIBUTION ADVISORY
1 20 BOARD.
1 21 1. BOARD ESTABLISHED. A board is established to be known
1 22 as the defined contribution advisory board, referred to in
1 23 this chapter as the "board". The duties of the board are to
1 24 review matters relating to the establishment and management of
1 25 the optional plan. The board shall meet upon the call of the
1 26 treasurer of the state.
1 27 2. INVESTMENT REVIEW. The board shall review, at least
1 28 annually, the alternative products, investments, and services
1 29 offered by the providers under the plan and the investment
1 30 information available to members and potential members of the
1 31 plan on an ongoing basis.
1 32 3. MEMBERSHIP.
1 33 a. The board shall consist of six voting members. The
1 34 voting members shall be as follows:
1 35 (1) Two public members, appointed by the governor, who are
2 1 not members of the defined benefit system created in chapter
2 2 97B or the plan created in this chapter.
2 3 (2) Two members, appointed by the governor, who are
2 4 eligible to be members of the plan. Of the two members
2 5 appointed, one shall be an active member who is an employee of
2 6 a school district, area education agency, or merged area and
2 7 one shall be an active member who is not an employee of a
2 8 school district, area education agency, or merged area.
2 9 (3) Director of the department of administrative services.
2 10 (4) One member, appointed by the governor, who represents
2 11 employers of employees eligible to be members of the plan who
2 12 are not state employees.
2 13 b. Four voting members of the board shall constitute a
2 14 quorum.
2 15 c. The two public members and the one employer member
2 16 shall be paid their actual expenses incurred in the
2 17 performance of their duties and shall receive a per diem as
2 18 specified in section 7E.6 for each day of service not
2 19 exceeding forty days per year. The members who are eligible
2 20 to be a member of the plan and the director of the department
2 21 of administrative services shall be paid their actual expenses
2 22 incurred in the performance of their duties as members of the
2 23 board, and the performance of their duties as members of the
2 24 board shall not affect their salaries, vacations, or leaves of
2 25 absence for sickness or injury.
2 26 d. The appointive terms of the members appointed by the
2 27 governor are for a period of six years beginning and ending as
2 28 provided in section 69.19. If there is a vacancy in the
2 29 membership of the board for one of the members appointed by
2 30 the governor, the governor has the power of appointment.
2 31 Gubernatorial appointees to this board are subject to
2 32 confirmation by the senate.
2 33 Sec. 3. NEW SECTION. 97E.3 DEFINED CONTRIBUTION PLAN
2 34 ESTABLISHED == ASSETS TO BE HELD IN TRUST == CONTRACTED
2 35 SERVICES.
3 1 1. The office of the treasurer shall establish a defined
3 2 contribution plan in accordance with this chapter. The plan
3 3 must be established as a pension plan for the exclusive
3 4 benefit of members and their beneficiaries and as a qualified
3 5 plan pursuant to section 401(a) of the Internal Revenue Code
3 6 and its implementing regulations. Retirement accounts must be
3 7 established for each member of the plan. Assets of the plan
3 8 must be held in trust. The office of the treasurer shall be
3 9 the trustee of the plan. The plan is established in addition
3 10 to any retirement, pension, deferred compensation, or other
3 11 benefit plan administered by the state or a political
3 12 subdivision.
3 13 2. The office of the treasurer shall contract for plan
3 14 administration and use a competitive bidding process when
3 15 contracting for services for the plan. Services include
3 16 consulting, educational, investment, recordkeeping, or other
3 17 services for the plan.
3 18 Sec. 4. NEW SECTION. 97E.4 OFFICE OF THE TREASURER ==
3 19 POWERS AND DUTIES == RULEMAKING.
3 20 1. The office of the treasurer has the powers and shall
3 21 perform the duties regarding the plan, as applicable.
3 22 2. The office of the treasurer shall, in accordance with
3 23 chapter 17A, adopt rules necessary for the administration of
3 24 this chapter, including rules concerning the following:
3 25 a. Matters necessary for the treatment of the plan or
3 26 plans as a qualified plan under applicable sections of the
3 27 Internal Revenue Code.
3 28 b. The treatment of dormant or inactive accounts.
3 29 c. The security and privacy of information maintained by
3 30 the office of the treasurer concerning a member's investments,
3 31 as required by applicable law.
3 32 d. Minimum asset, reserve, insurance, or other security
3 33 requirements intended to ensure the solvency of a contractor
3 34 used by the office of the treasurer for investment services.
3 35 e. The commencement of benefit payments under the plan.
4 1 Sec. 5. NEW SECTION. 97E.5 ADMINISTRATIVE EXPENSES AND
4 2 FEES.
4 3 1. The office of the treasurer may establish a fund within
4 4 the plan for paying the plan's administrative expenses.
4 5 2. The office of the treasurer may do any of the
4 6 following:
4 7 a. Assess fees to pay the reasonable administrative costs
4 8 of the plan.
4 9 b. Negotiate with a vendor or vendors for vendor
4 10 reimbursement of administrative expenses for the plan.
4 11 3. All fees assessed must be fully disclosed to plan
4 12 members and treated as public information.
4 13 4. Costs for the office of the treasurer to provide for
4 14 contract oversight are included as part of the administrative
4 15 expenses of the plan.
4 16 Sec. 6. NEW SECTION. 97E.6 PLAN MEMBERSHIP.
4 17 Except as otherwise provided in this chapter, a member of
4 18 the plan means an employee who elected coverage under the plan
4 19 pursuant to section 97B.42.
4 20 Sec. 7. NEW SECTION. 97E.7 TRANSFERS OR ROLLOVERS INTO
4 21 PLAN.
4 22 The plan shall accept the rollover and direct transfer of
4 23 contributions and the income on those contributions from
4 24 another eligible retirement plan to the member's account. The
4 25 plan's acceptance of regular rollovers, direct rollovers, and
4 26 direct transfers from another eligible retirement plan shall
4 27 only be to the extent permitted by the Internal Revenue Code.
4 28 The term "direct rollover" includes a rollover of a member's
4 29 account balance in the system to the plan pursuant to a plan
4 30 choice election authorized under section 97B.42.
4 31 Sec. 8. NEW SECTION. 97E.8 VESTING == ALLOCATION OF
4 32 CONTRIBUTIONS.
4 33 1. A member is fully vested in the plan with respect to
4 34 the member's and employer's contributions and the income from
4 35 those contributions from the date that the employee becomes a
5 1 member of the plan.
5 2 2. Each member's retirement account in the plan shall be
5 3 credited with member and employer contributions calculated as
5 4 provided in section 97B.10. Member contributions shall be
5 5 treated in the same manner as provided for contributions made
5 6 under section 97B.11 pursuant to section 97B.11A for federal
5 7 and state income tax purposes.
5 8 Sec. 9. NEW SECTION. 97E.9 MAXIMUM CONTRIBUTION
5 9 LIMITATION.
5 10 The annual additions to a retirement account in the plan
5 11 shall not exceed the annual limits on contributions as
5 12 specified in section 415 of the Internal Revenue Code and
5 13 adjusted annually by the commissioner of internal revenue.
5 14 Sec. 10. NEW SECTION. 97E.10 INVESTMENT ALTERNATIVES ==
5 15 NOTICE OF CHANGES == DEFAULT FUND.
5 16 1. The office of the treasurer shall select providers for
5 17 the plan to provide for a sound and diversified mix of
5 18 products, investments, and services from which individual
5 19 members may select alternatives for the investment of the
5 20 member's retirement account to achieve the member's financial
5 21 and retirement goals. At least four of the providers selected
5 22 shall be insurance companies authorized to issue annuity
5 23 contracts in this state. The office of the treasurer may
5 24 limit the providers selected to no more than six. The
5 25 selection by the office of the treasurer of a provider shall
5 26 not constitute an endorsement of the provider.
5 27 2. The office of the treasurer shall from time to time
5 28 review the suitability and management of the products,
5 29 investments, and services offered by providers and may change
5 30 the products, investments, and services to be offered. The
5 31 office of the treasurer shall notify affected members of
5 32 potential changes in products, investments, and services
5 33 before any changes become effective.
5 34 3. Assets within each member's retirement account must be
5 35 invested as directed by the member.
6 1 4. The office of the treasurer shall provide for a
6 2 balanced alternative investment to be established as a default
6 3 alternative investment. If a member fails to direct how the
6 4 member's retirement account is to be invested, the member's
6 5 entire account balance shall be invested in the default
6 6 alternative investment.
6 7 Sec. 11. NEW SECTION. 97E.11 PAYOUT OF RETIREMENT
6 8 ACCOUNT BALANCES WHEN TERMINATING PLAN MEMBERSHIP.
6 9 Any time after termination of covered employment by a
6 10 member, a member or the member's beneficiary may terminate
6 11 plan membership by making a written application to the office
6 12 of the treasurer and removing the member's retirement account
6 13 balance from the plan through any combination of the following
6 14 payout options, each of which is subject to applicable
6 15 regulations of the internal revenue service:
6 16 1. A direct rollover to an eligible retirement plan or to
6 17 an individual retirement account or annuity pursuant to
6 18 section 401(a)(31) of the Internal Revenue Code.
6 19 2. A regular rollover to an eligible retirement plan
6 20 pursuant to section 402(c) of the Internal Revenue Code.
6 21 3. A lump sum distribution of the member's retirement
6 22 account balance.
6 23 Sec. 12. NEW SECTION. 97E.12 DISTRIBUTION OPTIONS FOR
6 24 PLAN MEMBERS == RULEMAKING == MINIMUM DISTRIBUTION
6 25 REQUIREMENTS == RESTRICTIONS.
6 26 1. Subject to the requirements of this chapter and chapter
6 27 97B, if applicable, a member may, after termination of covered
6 28 employment, leave the member's retirement account balance in
6 29 the plan, and the member is eligible for a distribution as
6 30 provided in this section.
6 31 2. After termination of covered employment, upon written
6 32 application to the office of the treasurer, a member may
6 33 select a distribution option offered pursuant to a contract
6 34 negotiated by the office of the treasurer with a plan vendor
6 35 or vendors.
7 1 3. A member who is less than seventy and one=half years of
7 2 age who returns to covered employment shall not continue to
7 3 receive a distribution under this section while the member is
7 4 actively employed in a covered position.
7 5 4. The office of the treasurer shall adopt rules pursuant
7 6 to chapter 17A to administer this section and to provide that
7 7 distributions comply with the minimum distribution
7 8 requirements established in the Internal Revenue Code.
7 9 Sec. 13. NEW SECTION. 97E.13 DEATH BENEFITS.
7 10 A plan member's beneficiary shall be designated and
7 11 determined pursuant to rules adopted by the office of the
7 12 treasurer under chapter 17A. Upon written application filed
7 13 with the office of the treasurer after the death of a plan
7 14 member, the member's beneficiary is entitled to the member's
7 15 retirement account balance and all rights established in and
7 16 subject to this chapter.
7 17 Sec. 14. NEW SECTION. 97E.14 MINIMUM RETIREMENT ACCOUNT
7 18 BALANCE REQUIRED FOR MEMBERSHIP AFTER TERMINATION ==
7 19 ADJUSTMENT BY RULE.
7 20 1. a. If a member's retirement account balance is less
7 21 than the current maximum amount prescribed by the internal
7 22 revenue service that may be distributed without triggering
7 23 automatic rollover rights at the time that the member
7 24 terminates covered employment, the member shall terminate plan
7 25 membership by removing the member's retirement account balance
7 26 from the plan in a manner provided pursuant to section 97E.11.
7 27 b. If the member fails to remove the member's retirement
7 28 account balance, the office of the treasurer may close the
7 29 account by paying to the member a lump sum distribution of the
7 30 member's entire account balance.
7 31 2. The office of the treasurer may by rule adjust the
7 32 minimum retirement account balance provided in this section as
7 33 necessary to maintain reasonable administrative costs and to
7 34 account for inflation and to ensure compliance with applicable
7 35 internal revenue service requirements.
8 1 Sec. 15. Section 97B.1, subsection 2, Code 2005, is
8 2 amended by adding the following new paragraph:
8 3 NEW PARAGRAPH. cc. "Defined contribution plan" means the
8 4 Iowa public employees' defined contribution plan created in
8 5 chapter 97E.
8 6 Sec. 16. Section 97B.1A, unnumbered paragraph 1, Code
8 7 Supplement 2005, is amended to read as follows:
8 8 When used in this chapter and chapter 97E, unless the
8 9 context otherwise requires:
8 10 Sec. 17. Section 97B.42, Code 2005, is amended by adding
8 11 the following new unnumbered paragraphs:
8 12 NEW UNNUMBERED PARAGRAPH. Notwithstanding any other
8 13 provision of this section, commencing July 1, 2007, a member
8 14 in regular service may elect coverage under the defined
8 15 contribution plan created in chapter 97E, in lieu of
8 16 continuing or commencing contributions to the Iowa public
8 17 employees' retirement system or in lieu of opting out of
8 18 coverage under this chapter pursuant to section 97B.42A.
8 19 However, the employer's annual contribution in dollars to the
8 20 defined contribution plan shall not exceed the annual
8 21 contribution in dollars which the employer would contribute if
8 22 the employee had elected to remain an active member under this
8 23 chapter, as set forth in section 97B.11. A member who elects
8 24 coverage under the defined contribution plan may withdraw the
8 25 member's accumulated contributions and the member's share of
8 26 the accumulated employer contributions as provided in section
8 27 97B.53, effective when coverage under the defined contribution
8 28 plan commences. A member who is employed in a position as an
8 29 employee in regular service and who is covered under the
8 30 system in this chapter on July 1, 2007, must file an election
8 31 for coverage under the defined contribution described in
8 32 chapter 97E, with the system and the member's employer within
8 33 eighteen months of the first day on which coverage commences
8 34 under the defined contribution plan, or the employee shall
8 35 remain a member under this chapter and shall not be eligible
9 1 to elect to participate in the defined contribution plan at a
9 2 later date. A person who is newly hired in a position as an
9 3 employee in regular service on or after July 1, 2007, must
9 4 file an election for coverage under the defined contribution
9 5 plan with the system and the person's employer within sixty
9 6 days of commencing employment, or the employee shall not be
9 7 eligible to elect to participate in the defined contribution
9 8 plan at a later date. A decision to elect out of coverage
9 9 under this chapter and to elect to participate in the defined
9 10 contribution plan is irrevocable upon approval from the
9 11 system.
9 12 NEW UNNUMBERED PARAGRAPH. Notwithstanding any provision of
9 13 this section to the contrary, a member of the system who is
9 14 subject to a qualified order for the purpose of enforcing
9 15 child, spousal, or medical support obligations or marital
9 16 property orders pursuant to section 97B.39 shall not be
9 17 eligible to transfer to the defined contribution plan created
9 18 in chapter 97E unless the order is modified to apply under the
9 19 defined contribution plan created in chapter 97E.
9 20 Sec. 18. DEFINED CONTRIBUTION ADVISORY BOARD == INITIAL
9 21 APPOINTMENTS. Notwithstanding any provision of section 97E.2
9 22 to the contrary, the term of membership for an initial
9 23 appointment to the defined contribution advisory board shall
9 24 be as follows:
9 25 1. The following shall be appointed for an initial six=
9 26 year term: One employee member and one public member, as
9 27 designated by the governor.
9 28 2. The following shall be appointed for an initial four=
9 29 year term: One employer member and one public member, as
9 30 designated by the governor.
9 31 3. The following shall be appointed for an initial two=
9 32 year term: One employee member, as designated by the
9 33 governor.
9 34 EXPLANATION
9 35 This bill establishes an option for employees covered or
10 1 eligible to be covered under the Iowa public employees'
10 2 retirement system (IPERS) to elect out of coverage under that
10 3 system and into a defined contribution plan established by the
10 4 office of the treasurer of state effective July 1, 2007.
10 5 Membership in the defined contribution plan is established
10 6 by the bill. The bill provides that a person hired on or
10 7 after July 1, 2007, in regular service, who is eligible for
10 8 coverage under IPERS, has the option of electing out of that
10 9 coverage and electing coverage under a defined contribution
10 10 plan established by the office of the treasurer. Active
10 11 members of IPERS in regular service as of July 1, 2007, are
10 12 given an option for 18 months from July 1, 2007, to transfer
10 13 to the defined contribution plan. If a member transfers
10 14 coverage, IPERS shall transfer moneys to the member's account
10 15 in the defined contribution plan in an amount equal to the
10 16 amount the person would be eligible to receive as a refund if
10 17 the person terminated membership under IPERS.
10 18 The bill provides that the office of the treasurer shall
10 19 establish the defined contribution plan as a qualified plan
10 20 pursuant to section 401(a) of the Internal Revenue Code and
10 21 shall be the trustee of the plan. The bill provides that the
10 22 office of the treasurer shall contract for the administration
10 23 of the plan through a competitive bidding process. The bill
10 24 authorizes the office of the treasurer to assess fees for the
10 25 administration of the plan.
10 26 The bill provides for the establishment of a defined
10 27 contribution advisory board which shall review, at least
10 28 annually, the investment alternatives provided under the plan.
10 29 The board consists of six members, to include the director of
10 30 the department of administrative services, two employee
10 31 members who would be eligible to be in the plan, one employer
10 32 member, and two public members. Except for the director of
10 33 the department of administrative services, the governor
10 34 appoints the members of the board. Of the two employee
10 35 members, one shall be a school employee and one shall not.
11 1 The employer member shall represent employers of employees who
11 2 are not state employees. The bill further provides transition
11 3 provisions governing the terms of initial appointments to the
11 4 board.
11 5 The bill provides that a member shall be vested in the
11 6 defined contribution plan immediately.
11 7 The bill provides that contributions to the plan from
11 8 employers and employees shall be pretax and based on the
11 9 contribution percentage rates under IPERS.
11 10 The bill provides that the treasurer shall select a
11 11 diversified mix of investment alternatives under the plan and
11 12 may limit the number of investment providers to no more than
11 13 six. The bill provides that at least four investment
11 14 providers be insurance companies authorized to issue annuity
11 15 contracts in this state. The bill provides that moneys in a
11 16 member's retirement account shall be deposited in a balanced
11 17 fund if the member fails to select an investment option.
11 18 Distributions to plan members, eligible rollovers of accounts,
11 19 and death benefit provisions are included in the bill. The
11 20 bill also provides for an immediate distribution of moneys in
11 21 a member's account if the account balance is less than the
11 22 maximum amount prescribed by the internal revenue service that
11 23 can be distributed without triggering automatic rollover
11 24 rights.
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