SB2764 SD1

SECTION 1. Section 88-74.7, Hawaii Revised Statutes, is amended to read as follows:

"[[]§88-74.7[]] Commencement of benefits on required beginning date. (a) The purpose of this section is to provide for distribution of benefits in accordance with a reasonable and good faith interpretation of section 401(a)(9) of the Internal Revenue Code. Section 401(a)(9) of the Internal Revenue Code requires that the "entire interest" of a member be distributed or that distribution of the member's benefits begin no later than the member's "required beginning date".

(b) For purposes of this section, "required beginning date" means April 1 of the calendar year following the calendar year in which a member terminates service or attains age seventy and one-half, whichever is later.

(c) [~~A member~~] Subject to the suspension and forfeiture provisions of this section and sections 88-96 and 88-341, a member's or former member's accumulated contributions or hypothetical account balance, as defined in section 88-311, shall be paid to the member or former member, or payment of the benefits payable under part II, VII, or VIII of this chapter shall commence, no later than the member's or former member's required beginning date. The payment or payments shall be made on, or beginning no later than, the member's or former member's required beginning date even if the member or former member does not apply for payment or file a retirement application.

(d) [If] Subject to the suspension and forfeiture provisions of this section and sections 88-96 and 88-341, if by a member's or former member's required beginning date:

(1) The [~~member~~] member's or former member's accumulated contributions or hypothetical account balance, as defined in section 88-311, are not paid to the member or former member; or

(2) Payment of the benefits payable under part II, VII, or VIII of this chapter do not commence,

the system shall pay the service retirement benefits for which the member or former member is eligible pursuant to part II, VII, or VIII of this chapter, as applicable, retroactive to the member's or former member's required beginning date with regular interest.

(e) If the system does not receive a written election from the member or former member under section 88-83, 88-283, or 88‑333, as applicable, prior to the later of the member's or former member's required beginning date or sixty days following the receipt by the member or former member of notice from the system that the member or former member is required to make an election, the following election shall be deemed to have been made as of the [~~member~~] member's or former member's required beginning date:

(1) If the member or former member is unmarried or has no reciprocal beneficiary, the member or former member shall be deemed to have elected the maximum retirement allowance; or

(2) If the member or former member is married or has a reciprocal beneficiary, the member or former member shall be deemed to have elected option 3 under section 88-83, or option A under section 88-283, as applicable, and to have designated the member's or former member's spouse or reciprocal beneficiary as the member's or former member's beneficiary;

provided that if the system receives the written election after the member's or former member's required beginning date, but within sixty days following receipt by the member or former member of notice from the system that the member or former member is required to make the election, the written election shall apply, and the member's or former member's retirement benefit shall be recomputed, based on the written election, retroactive to the [~~member~~] member's or former member's required beginning date. The amount of any underpayment resulting from recomputing the benefit shall bear regular interest. If recomputing the benefit results in an overpayment, payments shall be adjusted so that the actuarial equivalent of the benefit to which the member or former member was correctly entitled shall be paid.

(f) If the system does not have current information about the member's or former member's marital or reciprocal beneficiary status at the time of a deemed election, the following presumptions shall apply:

(1) If the member or former member was married or had a reciprocal beneficiary at the time the member or former member last provided information to the system about the member's or former member's marital or reciprocal beneficiary status, it shall be presumed that the member or former member is still married to the same spouse or is in the same reciprocal beneficiary relationship. If the system does not have information as to the age of the spouse or reciprocal beneficiary, the spouse or reciprocal beneficiary shall be presumed to be forty years younger than the member or former member for purposes of computing the member's or former member's benefit; and

(2) If the member or former member was unmarried and did not have a reciprocal beneficiary at the time the member or former member last provided information to the system about the [~~member~~] member's or former member's marital or reciprocal beneficiary status, it shall be presumed that the member or former member is married and that the spouse of the member or former member is forty years younger than the member or former member.

(g) The presumptions of subsection (f) shall cease to apply when the member or former member provides the system with current information as to the member's or former member's marital or reciprocal beneficiary status and the age of the [~~member~~] member's or former member's spouse or reciprocal beneficiary, if any, on the member's or former member's required beginning date. The information shall be provided in a form satisfactory to the system. At that time, the member's or former member's retirement allowance shall be recomputed, retroactive to the member's or former member's required beginning date, based on the updated information; provided that, except as provided in subsection (e), the member or former member shall not be permitted to change the member's or former member's retirement allowance option election or beneficiary; provided further that the benefit being paid to any member or former member who, on the member's or former member's required beginning date, was unmarried and did not have a reciprocal beneficiary, but who was deemed to elect option 3 or option A with an assumed spouse or reciprocal beneficiary, shall be converted to the maximum retirement allowance retroactive to the member's or former member's required beginning date. The amount of any underpayment resulting from recomputing the benefit shall bear regular interest. If recomputing the benefit results in an overpayment, payments shall be adjusted so that the actuarial equivalent of the benefit to which the member or former member was correctly entitled shall be paid.

(h) If the system cannot locate the member or former member, [the member's or former member's benefit shall be payable only until the end of the member's or former member's life expectancy, as determined at the member's or former member's required beginning date. If the member of former member has not by that time made a claim for benefits, the member or former member shall be deemed to be deceased at that time. Interest under subsection (d) shall cease on benefits presumed to be abandoned property, pursuant to part I of chapter 523A, upon payment of the property to the administrator under part I of chapter 523A.] by April 1 of the year following the member's or former member's required beginning date, the member's or former member's benefit, including accumulated contributions, hypothetical account balance, and payment of the benefits payable under part II, VII, or VIII of this chapter, if any, shall be forfeited to the system and shall not escheat under the laws of any state; provided that the benefit forfeited shall be restored if the member or former member makes a proper application to the system for restoration of the benefit. Any benefit that is restored shall be without interest, earnings, or losses for the time period that the benefit was forfeited. All applications for restoration of a forfeited benefit shall be in a form satisfactory to the system.

(i) If after commencing the payment of benefits payable under part II, VII, or VIII of this chapter, the system cannot locate the retirant, beneficiary, or other person or entity entitled to payment of those benefits, the further payment of those benefits shall be forfeited to the system and shall not escheat under the laws of any state; provided that the benefit forfeited shall be restored if the retirant, beneficiary, or other person or entity entitled to payment of the forfeited benefit makes a proper application to the system for restoration of the benefit. Any benefit that is restored shall be without interest, earnings, or losses for the time period that the benefit was forfeited. All applications for restoration of a forfeited benefit shall be in a form satisfactory to the system.

[~~(i)~~] (j) Rules necessary for the purposes of this section shall be adopted as provided in section 88-22.5."

SECTION 2. Section 88-96, Hawaii Revised Statutes, is amended to read as follows:

"§88-96 Rights of members separated from service. (a) Any member who ceases to be an employee and who became a member before July 1, 2012, and has fewer than five years of credited service, excluding unused sick leave, or who becomes a member after June 30, 2012, and has fewer than ten years of credited service, excluding unused sick leave, shall, upon application to the board, be paid all of the member's accumulated contributions and the member's membership shall thereupon terminate and all credited service shall be forfeited; provided that a member shall not be paid the member's accumulated contributions:

(1) If the member becomes an employee again within fifteen calendar days from the date the member ceased to be an employee; or

(2) If, at the time the application for return of accumulated contributions is received by the board, the member has become an employee again.

Regular interest shall be credited to the former employee's account until the former employee's accumulated contributions are returned to the former employee; provided that the former employee's membership shall not continue after the fourth full year following the calendar year in which the individual's employment terminates. Upon termination of the former employee's membership, the former employee's credited service shall be forfeited and, if the former employee's accumulated contributions are $1,000 or less at the time of distribution, the system shall return the former employee's contributions to the former employee. If the former employee does not become an employee again and if the former employee's accumulated contributions have not been withdrawn by the former employee or previously returned by the system to the former employee, the system shall return the former employee's accumulated contributions to the former employee as soon as possible after the later of: (A) the former employee attaining age sixty-two; or (B) the termination of the former employee's membership.

(b) Any member who ceases to be an employee and who became a member before July 1, 2012, and has more than five years of credited service, excluding unused sick leave, or who becomes a member after June 30, 2012, and has more than ten years of credited service, excluding unused sick leave, shall, upon application to the board, be paid all of the member's accumulated contributions and thereupon the former employee's membership shall terminate and all credited service shall be forfeited; provided that the member shall not be paid the member's accumulated contributions:

(1) If the member becomes an employee again within fifteen calendar days from the date the member ceased to be an employee; or

(2) If, at the time the application for return of the member's accumulated contributions is received by the board, the member has become an employee again.

If the contributions are not withdrawn by the former employee within four calendar years following the calendar year in which the former employee's employment terminates, the former employee shall have established vested benefit status and shall be eligible for the service retirement benefit in effect at the time of the former employee's retirement, payable in accordance with this chapter; provided that if the former employee withdraws the former employee's accumulated contributions, the former employee's vested benefit status shall terminate and all credited service shall be forfeited.

(c) [In the case of the death of any former member after the termination of service, the former member's accumulated contributions shall be payable to the former member's estate or to such person as the former member has nominated by written designation duly executed and filed with the board.] If the system cannot locate a former employee at the time the former employee's accumulated contributions are to be returned under this section, the system's obligation to return the accumulated contributions shall be suspended and regular interest shall cease to be credited to the former employee's account. If the system cannot locate the former employee by April 1 of the calendar year following the calendar year in which the system's obligation to return the accumulated contributions was suspended, the accumulated contributions and interest on the former employee's account shall be forfeited to the system; provided that the accumulated contributions and interest forfeited shall be restored if the former employee makes a proper application to the system for restoration of the benefit. Any contributions and interest that are restored under this subsection shall be without interest, earnings, or losses for the time period that the contributions and interest were forfeited. All applications for restoration shall be in a form satisfactory to the system.

(d) In the case of the death after the termination of service and prior to retirement of a former member who has not withdrawn the former member's contributions, the former member's accumulated contributions shall upon application be paid to the former member's estate or to such person as the former member has nominated by written designation duly executed and filed with the board."

SECTION 3. Section 88-341, Hawaii Revised Statutes, is amended to read as follows:

"§88-341 Rights of members separated from service. (a) Any class H member who ceases to be an employee and who became a member before July 1, 2012, and has fewer than five years of credited service, excluding unused sick leave, or who becomes a member after June 30, 2012, and has fewer than ten years of credited service, excluding unused sick leave, shall, upon application to the board, be paid all of the former employee's accumulated contributions, and the former employee's membership shall thereupon terminate and all credited service shall be forfeited; provided that an individual shall not be paid the individual's accumulated contributions if either:

(1) The individual becomes an employee again within fifteen calendar days from the date the individual ceased to be an employee; or

(2) At the time the application for return of accumulated contributions is received by the board, the individual has become an employee again.

Regular interest shall be credited to the former employee's account until the former employee's accumulated contributions are withdrawn; provided that the former employee's membership shall not continue after the fourth full year following the calendar year in which the individual's employment terminates. If the former employee does not become an employee again and has not withdrawn the former employee's accumulated contributions, the system shall return the former employee's accumulated contributions to the former employee as soon as possible after the later of: (A) the former employee attaining age sixty-two; or (B) the termination of the former employee's membership.

(b) Any class H member who ceases to be an employee and who became a member before July 1, 2012, and has more than five years of credited service, excluding unused sick leave, or who becomes a member after June 30, 2012, and has more than ten years of credited service, excluding unused sick leave, shall, upon application to the board, be paid an amount equal to the former employee's hypothetical account balance and the former employee's membership shall thereupon terminate and all credited service shall be forfeited; provided that the individual shall not be paid the individual's hypothetical account balance if either:

(1) The individual becomes an employee again within fifteen calendar days from the date the individual ceased to be an employee; or

(2) At the time the application for payment of the individual's hypothetical account balance is received by the board, the individual has become an employee again.

If the contributions are not withdrawn by the former employee after the individual's employment terminates, the former employee shall have vested benefit status and shall be eligible for the service retirement benefit in effect at the time of the former employee's retirement, payable in accordance with this chapter.

(c) [In case of the death after the termination of service and prior to retirement of any former class H member who has not withdrawn the member's contributions, there shall be paid to the former member's estate or to the person that the former member has nominated by written designation duly executed and filed with the board:

~~(1)~~ The former member's accumulated contributions, if the former member became a member before July 1, 2015, and had fewer than five years of credited service at the time of death or if the former member became a member after June 30, 2015, and had fewer than ten years of credited service at the time of death; or

~~(2)~~ The former member's hypothetical account balance, if the former member became a member before July 1, 2015, and had five or more years of credited service at the time of death or if the former member became a member after June 30, 2015, and had ten or more years of credited service at the time of death.] If the system cannot locate a former employee at the time the former employee's accumulated contributions are to be returned under this section, the system's obligation to return the accumulated contributions shall be suspended and regular interest shall cease to be credited to the former employee's account. If the system cannot locate the former employee by April 1 of the calendar year following the calendar year in which the system's obligation to return the accumulated contributions was suspended, the accumulated contributions and interest on the former employee's account shall be forfeited to the system; provided that the accumulated contributions and interest forfeited shall be restored if the former employee makes a proper application to the system for restoration of the benefit. Any contributions and interest that are restored under this subsection shall be without interest, earnings, or losses for the time period that the contributions and interest were forfeited. All applications for restoration shall be in a form satisfactory to the system.

(d) In the case of the death after termination of service and prior to retirement of any former class H member who has not withdrawn the member's contributions, upon application, there shall be paid to the former member's estate or to the person that the former member has nominated by written designation duly executed and filed with the board:

(1) The former member's accumulated contributions, if the former member became a member before July 1, 2015, and had fewer than five years of credited service at the time of death or if the former member became a member after June 30, 2015, and had fewer than ten years of credited service at the time of death; or

(2) The former member's hypothetical account balance, if the former member became a member before July 1, 2015, and had five or more years of credited service at the time of death or if the former member became a member after June 30, 2015, and had ten or more years of credited service at the time of death."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.

THE SENATE	S.B. NO.	2764
TWENTY-NINTH LEGISLATURE, 2018		S.D. 1
STATE OF HAWAII