HOUSE FILE 418

BY  IVERSON

A BILL FOR

An Act creating a mandatory defined contribution pension plan for certain covered employees and making the plan optional for all other employees covered by the Iowa public employees’ retirement system.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

   Section 1.  Section 97B.1, subsection 1, Code 2011, is amended to read as follows:
   1.  The“Iowa Public Employees’ Retirement System” is established as an independent agency within the executive branch of state government. The Iowa public employees’ retirement system shall administer the retirement system established under this chapter and the retirement plan established under chapter 97E.
   Sec. 2.  Section 97B.1, subsection 2, Code 2011, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  0d.  “Defined contribution plan” means the Iowa public employees’ defined contribution plan created in chapter 97E.
   Sec. 3.  Section 97B.1A, unnumbered paragraph 1, Code 2011, is amended to read as follows:
   When used in this chapter and chapter 97E, unless the context otherwise requires:
   Sec. 4.  Section 97B.42, Code 2011, is amended by adding the following new subsections:
   NEW SUBSECTION.  9.  Notwithstanding any other provision of this section, commencing July 1, 2013, a member in regular service may elect coverage under the defined contribution plan created in chapter 97E, in lieu of continuing contributions to the Iowa public employees’ retirement system or in lieu of opting out of coverage under this chapter pursuant to section 97B.42A. However, the employer’s annual contribution in dollars to the defined contribution plan shall not exceed the annual contribution in dollars which the employer would contribute if the employee had elected to remain an active member under this chapter, as set forth in section 97B.11. A member who elects coverage under the defined contribution plan may withdraw the member’s accumulated contributions and the member’s share of the accumulated employer contributions as provided in section 97B.53, effective when coverage under the defined contribution plan commences. A member who is employed in a position as an employee in regular service and who is covered under the system in this chapter on July 1, 2013, must file an election for coverage under the defined contribution described in chapter 97E, with the system and the member’s employer within eighteen months of the first day on which coverage commences under the defined contribution plan, or the employee shall remain a member under this chapter and shall not be eligible to elect to participate in the defined contribution plan at a later date. A decision to elect out of coverage under this chapter and to elect to participate in the defined contribution plan is irrevocable upon approval from the system.
   NEW SUBSECTION.  10.  A person who is newly hired in a position as an employee in regular service on or after July 1, 2013, shall become a member of the Iowa public employees’ defined contribution retirement plan created in chapter 97E and shall not be considered to have entered covered employment for the purposes of the benefits plan created in this chapter.
   NEW SUBSECTION.  11.  Notwithstanding any provision of this section to the contrary, a member of the system who is subject to a qualified order for the purpose of enforcing child, spousal, or medical support obligations or marital property orders pursuant to section 97B.39 shall not be eligible to transfer to the defined contribution plan created in chapter 97E unless the order is modified to apply under the defined contribution plan created in chapter 97E.
   Sec. 5.  NEW SECTION.  97E.1  Plan created —— definitions.
   1.  An Iowa public employees’ defined contribution retirement plan is created within the Iowa public employees’ retirement system.
   2.  As used in this chapter, unless the context otherwise requires:
   a.  “Board” means the defined contribution advisory board created in section 97E.2.
   b.  “Defined benefit system” means the Iowa public employees’ retirement system created in chapter 97B.
   c.  “Member” means an employee who has elected coverage under the plan and who has a retirement account in the plan.
   d.  “Plan” means the Iowa public employees’ defined contribution retirement plan created in this chapter.
   e.  “Retirement account” means an individual participant’s account that includes both employee and employer contributions and investment gains and losses, less any plan administrative expenses.
   f.  “System” means the Iowa public employees’ retirement system created in chapter 97B.
   Sec. 6.  NEW SECTION.  97E.2  Defined contribution advisory board.
   1.  Board established.  A board is established to be known as the defined contribution advisory board, referred to in this chapter as the “board”. The duties of the board are to review matters relating to the establishment and management of the plan. The board shall meet upon the call of the chief executive officer of the Iowa public employees’ retirement system.
   2.  Investment review.  The board shall review, at least annually, the products, investments, and services offered by the providers under the plan and the investment information available to members and potential members of the plan on an ongoing basis.
   3.  Membership.  
   a.  The board shall consist of six voting members. The voting members shall be as follows:
   (1)  Two public members, appointed by the governor, who are not members of the defined benefit system created in chapter 97B or the plan created in this chapter.
   (2)  Two members, appointed by the governor, who are eligible to be members of the plan. Of the two members appointed, one shall be an active member who is an employee of a school district, area education agency, or merged area and one shall be an active member who is not an employee of a school district, area education agency, or merged area.
   (3)  Director of the department of administrative services.
   (4)  One member, appointed by the governor, who represents employers of employees eligible to be members of the plan who are not state employees.
   b.  Four voting members of the board shall constitute a quorum.
   c.  The two public members and the one employer member shall be paid their actual expenses incurred in the performance of their duties and shall receive a per diem as specified in section 7E.6 for each day of service not exceeding forty days per year. The members who are eligible to be a member of the plan and the director of the department of administrative services shall be paid their actual expenses incurred in the performance of their duties as members of the board, and the performance of their duties as members of the board shall not affect their salaries, vacations, or leaves of absence for sickness or injury.
   d.  The appointive terms of the members appointed by the governor are for a period of six years beginning and ending as provided in section 69.19. If there is a vacancy in the membership of the board for one of the members appointed by the governor, the governor has the power of appointment. Gubernatorial appointees to this board are subject to confirmation by the senate.
   Sec. 7.  NEW SECTION.  97E.3  Defined contribution plan established —— assets to be held in trust —— contracted services.
   1.  The system shall establish a defined contribution plan in accordance with this chapter. 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 plan. Assets of the plan must be held in trust. The system shall be the trustee of the plan. 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 system shall contract for plan administration and use a competitive bidding process when contracting for services for the plan. Services include consulting, educational, investment, recordkeeping, or other services for the plan.
   Sec. 8.  NEW SECTION.  97E.4  Iowa public employees’ retirement system —— powers and duties —— rulemaking.
   1.  The system has the powers and shall perform the duties regarding the plan, as applicable.
   2.  The system shall, in accordance with chapter 17A, adopt rules necessary for the administration of this chapter, including rules concerning the following:
   a.  Matters necessary for the treatment of the plan or plans 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 system 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 system for investment services.
   e.  The commencement of benefit payments under the plan.
   Sec. 9.  NEW SECTION.  97E.5  Administrative expenses and fees.
   1.  The system may establish a fund within the plan for paying the plan’s administrative expenses.
   2.  The system may do any of the following:
   a.  Assess fees to pay the reasonable administrative costs of the plan.
   b.  Negotiate with a vendor or vendors for vendor reimbursement of 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 system to provide for contract oversight are included as part of the administrative expenses of the plan.
   Sec. 10.  NEW SECTION.  97E.6  Membership.
   Except as otherwise provided in this chapter, a member of the plan means an employee who has commenced covered employment on or after July 1, 2013, or any employee commencing covered employment prior to that date and who has elected coverage under the plan.
   Sec. 11.  NEW SECTION.  97E.7  Transfers or rollovers into plan.
   The plan shall accept the rollover and direct transfer of contributions and the income on those contributions from another eligible retirement plan to the member’s account. The plan’s acceptance of regular rollovers, direct rollovers, and direct transfers from another eligible retirement plan shall only be to the extent permitted by the Internal Revenue Code. The term “direct rollover” includes a rollover of a member’s account balance in the system to the plan pursuant to a plan choice election authorized under section 97B.42.
   Sec. 12.  NEW SECTION.  97E.8  Vesting —— allocation of contributions.
   1.  A member is fully vested in the plan with respect to the member’s and employer’s contributions and the income from those contributions from the date that the employee becomes a member of the plan.
   2.  Each member’s retirement account in the plan shall be credited with member and employer contributions calculated as provided in section 97B.10. Member contributions shall be treated in the same manner as provided for contributions made under section 97B.11 pursuant to section 97B.11A for federal and state income tax purposes.
   Sec. 13.  NEW SECTION.  97E.9  Maximum contribution limitation.
   The annual additions to a retirement account in the plan shall not exceed the annual limits on contributions as specified in section 415 of the Internal Revenue Code and adjusted annually by the commissioner of internal revenue.
   Sec. 14.  NEW SECTION.  97E.10  Investment alternatives —— notice of changes —— default fund.
   1.  The system shall select providers for the plan to provide for a sound and diversified mix of products, investments, and services from which individual members may select alternatives for the investment of the member’s retirement account to achieve the member’s financial and retirement goals. At least four of the providers selected shall be insurance companies authorized to issue annuity contracts in this state. The system may limit the providers selected to no more than six. The selection by the system of a provider shall not constitute an endorsement of the provider.
   2.  The system shall from time to time review the suitability and management of the products, investments, and services offered by providers and may change the products, investments, and services to be offered. The system shall notify affected members of potential changes in products, investments, and services before any changes become effective.
   3.  Assets within each member’s retirement account must be invested as directed by the member.
   4.  The system shall provide for a balanced alternative investment to be established as a default alternative investment. If a member fails to direct how the member’s retirement account is to be invested, the member’s entire account balance shall be invested in the default alternative investment.
   Sec. 15.  NEW SECTION.  97E.11  Payout of retirement account balances when terminating plan membership.
   Any time after termination of covered employment by a member, a member or the member’s beneficiary may terminate plan membership by making a written application to the system and removing the member’s retirement 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.
   3.  A lump sum distribution of the member’s retirement account balance.
   Sec. 16.  NEW SECTION.  97E.12  Distribution options for plan members —— rulemaking —— minimum distribution requirements —— restrictions.
   1.  Subject to the requirements of this chapter and chapter 97B, if applicable, a member may, after termination of covered employment, leave the member’s retirement 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 system, a member may select a distribution option offered pursuant to a contract negotiated by the system with a plan vendor or vendors.
   3.  A member who is less than seventy and one-half years of age who returns to covered employment shall not continue to receive a distribution under this section while the member is actively employed in a covered position.
   4.  The system shall adopt rules pursuant to chapter 17A to administer this section and to provide that distributions comply with the minimum distribution requirements established in the Internal Revenue Code.
   Sec. 17.  NEW SECTION.  97E.13  Death benefits.
   A plan member’s beneficiary shall be designated and determined pursuant to rules adopted by the system under chapter 17A. Upon written application filed with the system after the death of a plan member, the member’s beneficiary is entitled to the member’s retirement account balance and all rights established in and subject to this chapter.
   Sec. 18.  NEW SECTION.  97E.14  Minimum retirement account balance required for membership after termination —— adjustment by rule.
   1.
  a.  If a member’s retirement account balance is less than the current maximum amount prescribed by the internal revenue service that may be distributed without triggering automatic rollover rights at the time that the member terminates covered employment, the member shall terminate plan membership by removing the member’s retirement account balance from the plan in a manner provided pursuant to section 97E.11.
   b.  If the member fails to remove the member’s retirement account balance, the system may close the account by paying to the member a lump sum distribution of the member’s entire account balance.
   2.  The system may by rule adjust the minimum retirement account balance provided in this section as necessary to maintain reasonable administrative costs and to account for inflation and to ensure compliance with applicable internal revenue service requirements.
   Sec. 19.  DEFINED CONTRIBUTION ADVISORY BOARD —— INITIAL APPOINTMENTS.  Notwithstanding any provision of section 97E.2 to the contrary, the term of membership for an initial appointment to the defined contribution advisory board shall be as follows:
   1.  The following shall be appointed for an initial six-year term: One employee member and one public member, as designated by the governor.
   2.  The following shall be appointed for an initial four-year term: One employer member and one public member, as designated by the governor.
   3.  The following shall be appointed for an initial two-year term: One employee member, as designated by the governor.
EXPLANATION
   This bill establishes a mandatory defined contribution retirement plan for all employees commencing covered employment on or after July 1, 2013, and creates an option for employees covered under the Iowa public employees’ retirement system (IPERS) to elect out of coverage under that system and into a defined contribution plan established by IPERS effective July 1, 2013.
   Membership in the defined contribution plan is established by the bill. The bill provides that a person hired on or after July 1, 2013, in regular service, who would otherwise be eligible for coverage under the defined benefit system of IPERS, must commence coverage under the defined contribution plan established by IPERS. Active members of IPERS in regular service as of July 1, 2013, are given an option for 18 months from July 1, 2013, to transfer to the defined contribution plan. If a member transfers coverage, IPERS shall transfer moneys to the member’s account in the defined contribution plan in an amount equal to the amount the person would be eligible to receive as a refund if the person terminated membership under IPERS.
   The bill provides that IPERS shall establish the defined contribution plan as a qualified plan pursuant to section 401(a) of the Internal Revenue Code and shall be the trustee of the plan. The bill provides that IPERS shall contract for the administration of the plan through a competitive bidding process. The bill authorizes IPERS to assess fees for the administration of the plan.
   The bill provides for the establishment of a defined contribution advisory board which shall review, at least annually, the investment alternatives provided under the plan. The board consists of six members, to include the director of the department of administrative services, two employee members who would be eligible to be in the plan, one employer member, and two public members. Except for the director of the department of administrative services, the governor appoints the members of the board. Of the two employee members, one shall be a school employee and one shall not. The employer member shall represent employers of employees who are not state employees. The bill further provides transition provisions governing the terms of initial appointments to the board.
   The bill provides that a member shall be vested in the defined contribution plan immediately.
   The bill provides that contributions to the plan from employers and employees shall be pretax and based on the contribution percentage rates under Code chapter 97B.
   The bill provides that IPERS shall select a diversified mix of investment alternatives under the plan and may limit the number of investment providers to no more than six. The bill provides that at least four investment providers be insurance companies authorized to issue annuity contracts in this state. The bill provides that moneys in a member’s retirement account shall be deposited in a balanced fund if the member fails to select an investment option. Distributions to plan members, eligible rollovers of accounts, and death benefit provisions are included in the bill. The bill also provides for an immediate distribution of moneys in a member’s account if the account balance is less than the maximum amount prescribed by the internal revenue service that can be distributed without triggering automatic rollover rights.