To amend Rule 19-11.002, F.A.C., to indicate what happens when a beneficiary is “per Florida law” as described in Section 121.4501(2), Florida Statutes and that beneficiary fails to contact the FRS Investment Plan and/or cannot be identified. To ...

 

STATE BOARD OF ADMINISTRATION

RULE NOS.:RULE TITLES:

19-11.002Beneficiary Designations and Distributions for FRS Investment Plan

19-11.012Acceptance of Rollovers by the FRS Investment Plan

PURPOSE AND EFFECT: To amend Rule 19-11.002, F.A.C., to indicate what happens when a beneficiary is “per Florida law” as described in Section 121.4501(2), Florida Statutes and that beneficiary fails to contact the FRS Investment Plan and/or cannot be identified. To amend Rule 19-11.012, F.A.C., to detail procedures that are to be followed by Investment Plan members electing to transfer to the Pension Plan, having an available balance after paying all buy-in amounts and desiring to purchase service credit with that remaining balance.

SUMMARY: To expand and clarify information concerning certain “per Florida law” beneficiaries of FRS Investment Plan accounts, and to detail procedures that must be followed by certain Investment Plan members who are entitled to purchase service credit when they transfer to the FRS Pension Plan. There are no other rules incorporating any of these proposed rules. The proposed amendments do not have an impact on any other rules. Legislative ratification of these rule amendments is not required.

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: Upon review of the proposed changes to the rules as well as all incorporated materials, the State Board of Administration has determined that the rules do not meet the statutory threshold for ratification by the legislature. There will be no impact on economic growth, job creation or employment, private-sector investment, or business competitiveness, and no increase in regulatory costs.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 121.4501(8) FS.

LAW IMPLEMENTED: 121.091, 121.4501 (4), (5), (20), (21), 121.591, 732.802 FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW (IF NOT REQUESTED, THIS HEARING WILL NOT BE HELD):

DATE AND TIME: Wednesday, September 11, 2013, 9:00 a.m. – 11:00 a.m.

PLACE: Hermitage Room, the Hermitage Centre, 1801 Hermitage Blvd., Tallahassee, Florida 32308

Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 5 days before the workshop/meeting by contacting: Tina Joanos, Agency Clerk, Office of the General Counsel, State Board of Administration, 1801 Hermitage Blvd., Tallahassee, Florida 32308, [phone], [e-mail].. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Ruth A. Smith, Assistant General Counsel, State Board of Administration, 1801 Hermitage Blvd., Tallahassee, Florida 32308, [phone], [e-mail]

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

19-11.002 Beneficiary Designations and Distributions for FRS Investment Plan.

(1) through (6) No change.

(7) Per Florida Law Beneficiary Designation.

(a) If a member fails to designate a beneficiary as outlined in paragraph (2) above, the member’s designation of beneficiary will automatically be assigned a designation of “Per Florida Law” as outlined in s. 121.4501(2), F.S.

(b) If, upon the death of a member, a beneficiary(ies) can be identified in accordance with Florida statute, but no social security number or address of the beneficiary or beneficiaries, is available, the FRS Investment Plan Administrator will, with the assitance of the SBA, make a reasonable effort to obtain each beneficiary’s Social Security Number or Taxpayer Identification Number, using available search tools, including the internet, LexisNexis Accurint, or another third party vendor providing such services. If a beneficiary can be identified and the social security number is provided, the transfer of benefits will be executed by the Investment Plan Administrator.

(c) If upon the death of a member a beneficiary cannot be identified, the provisions of paragraph (d) below will be followed.

(d) After one year from the date of the member’s death, if the beneficiary cannot be located or if a beneficiary cannot be identified, the account will be transferred to the Suspense Account. By calendar year-end, of each year following the transfer to the Suspense Account, the FRS Investment Plan Administrator will attempt to locate and obtain the Social Security Number or the Taxpayer Identification Number of the beneficiary. The transferred funds shall be invested in the FRS Select U.S. Treasury Inflation-Protected Securities Index Fund. The amount will be held in the FRS Investment Plan Suspense Account until (1) the beneficiary contacts the FRS Investment Plan; or (2) another beneficiary requests consideration as the deceased’s proper beneficiary; or, (3) at the end of 10 years in the Suspense Account, the amount is transferred to the FRS Investment Plan Forfeiture Account, where it is held indicating the name of the deceased member and the name of the beneficiary, if known.

(e) Should the beneficiary be located who then is willing to provide a social security number, a check will be issued to that beneficiary. The check will include actual earnings that have accrued on the funds from the date of transfer from the member’s account to the Suspense Account. Such payment will be subject to applicable income tax withholding, which shall be paid to the tax authorities at the time of the issuance of the check to the beneficiary.

(8)(7) Distributions to beneficiaries on the death of a member.

(a) If a member dies before his or her effective date of retirement, the member’s spouse at the time of his or her death shall be the member’s beneficiary, unless the member has designated a different beneficiary after the member’s most recent marriage. If the member did name another beneficiary after his or her most recent marriage, the named beneficiary will receive the member’s account balance.

(b) Upon notification of the member’s death, the FRS Investment Plan Administrator will contact the designated beneficiary or the family of the deceased member and provide instructions on how to claim any benefits.

(9)(8) Distributions to designated or per Florida law spousal beneficiaries.

(a) The member’s surviving spouse, must provide a certified copy of the member’s death certificate and, if the spouse is not designated by the member, but is the beneficiary according to Florida law, the surviving spouse must provide a copy of the marriage certificate before benefits will be paid.

(b) Spousal beneficiaries may request the following distributions:

1. Full distribution, in which the entire account balance is paid in one lump sum. If this option is selected, the spouse no longer will be a member of the FRS Investment Plan.

2. Partial Distribution, which provides for a partial lump sum payment of the account balance. The remainder may be paid out through regular periodic payments that the spouse selects, such as monthly, quarterly, semi-annually or annually. The spouse also may defer payment of the remainder of the account balance and take additional partial lump sum payments as needed.

3. Periodic Payments, which allows for the establishment of a regular payment schedule of benefits, such as monthly, quarterly, semi-annually or annually. The amount of each benefit payment will be calculated by dividing the account balance on the date of the benefit payment by the remaining number of payments. As such, the amount of the benefit payment may change with each payment. If the account has multiple funds and sources, the periodic withdrawal amount will be prorated among all funds and sources in the account. The number of years over which the payments are made cannot exceed the spouse’s life expectancy, which is determined by an actuarial table prepared by the U.S. Department of the Treasury.

4. Deferrals until a certain age, which allows the spouse to defer the receipt of benefits until a later date. However, the spouse must begin receiving the benefit payout no later than April 1 in the calendar year after the member would have attained age 70 1/2. The spouse may elect a full distribution, partial distribution or periodic payment. However, the total annual benefit payment must equal or exceed the federal Required Minimum Distribution (RMD). An additional benefit payment will be sent to the spouse in December of any year in which the total periodic payments for that year do not equal or exceed the spouse’s RMD.

5. Roll over the account assets to another 401(a), 401(k) or a 403(b) plan, or to an Individual Retirement Account or Roth IRA.

(10)(9) Distributions to designated non-spousal individual beneficiaries and look-through trusts or beneficiaries determined by Florida law.

(a) In accordance with Internal Revenue Service (IRS) rules, non-spousal beneficiary accounts cannot be held indefinitely in the FRS Investment Plan. The “required minimum distribution” is required by the Internal Revenue Service and spelled out in IRS Code s. 401(a)(9), requiring that if the beneficiary is not a spouse, the Investment Plan can hold the distribution for no more than 5 years from the date of the member’s death.

(b) For a non-spousal beneficiary or a look-through trust beneficiary, there are two possibilities, depending upon whether payments from the account had commenced before the member’s death:

1. Where distributions have already begun to the member, but the member dies before the entire account has been distributed, the remaining portion of the account must be distributed at least as rapidly as under the method of distribution being used as of the date of the member’s death.

2. If a member dies before the distribution of the member’s account has begun, the entire account of the member must be distributed within 5 years after the death of the member, unless:

a. The member’s account will be distributed over the life of the designated beneficiary or the beneficiary of the look-through trust (or over a period not extending beyond the life expectancy of such beneficiary), and

b. Such distributions begin no later than 1 year after the member’s death.

(c) The non-spousal beneficiary must decide within 1 year of the date of death to take lifetime installment or annuity payouts.

(d) If the whole amount is not paid out during the required 5-year period, the remaining funds in the account will be paid in a lump sum to the non-spousal beneficiary.

(e) Non-spousal individual beneficiaries and look-through trusts may request the following distributions:

1. Full distribution, in which the entire account balance is paid in one lump sum. If this option is selected, the beneficiary no longer will be a member of the FRS Investment Plan.

2. Partial Distribution, which provides for a partial lump sum payment of the account balance. The remainder may be paid out through regular periodic payments that the spouse selects, such as monthly, quarterly, semi-annually or annually. The beneficiary also may defer payment of the remainder of the account balance and take additional partial lump sum payments as needed.

3. Periodic Payments, which allows for the establishment of a regular payment schedule of benefits, such as monthly, quarterly, semi-annually or annually. The amount of each benefit payment will be calculated by dividing the account balance on the date of the benefit payment by the remaining number of payments. As such, the amount of the benefit payment may change with each payment. If the account has multiple funds and sources, the periodic withdrawal amount will be prorated among all funds and sources in the account. The number of years over which the payments are made cannot exceed the life expectancy of the non-spousal beneficiary or of the beneficiary of the look-through trust, which is determined by an actuarial table prepared by the U.S. Department of the Treasury. If the beneficiary stops the payment for any reason, then the payout of the benefits will be governed by the time limitations set forth in paragraph (b).

4. Deferrals of up to 5 years, however the benefit must be distributed within 5 years after the death of the member, if the conditions in subparagraph (b)2. above have not been met.

(11)(10) Distributions to the member’s designated estate or to a designated non look-through trust.

(a) A beneficiary which is either the member’s estate or a non look-through trust is considered as a non-person. Pursuant to Code s. 401(a)(9), the entire interest of the member must be distributed to such beneficiary within 5 years after the death of the member.

(b) The estate or non look-through trust beneficiary has two options for receiving the benefit payment:

1. Full distribution, in which the entire account balance is paid in one lump sum. If this option is selected, the beneficiary no longer will be a member of FRS Investment Plan.

2. Deferrals of up to 5 years, however the benefit must be distributed within 5 years after the death of the member.

(12)(11) Distributions to beneficiaries who are minors.

(a) A minor is a child under the age of 18.

(b) When a minor child or children are the designated beneficiaries of the member, whether the member is the minor’s or minors’ parent, grandparent, sibling, other relative or any other person, a copy of the birth certificate of each minor child and the social security number for each minor child must be provided to the FRS Investment Plan Administrator, and must be received prior to any payout, regardless of the amount. The birth certificate provides proof as to identity of the natural guardian(s) of the children, so that appropriate payment arrangements may be made.

(c) Section 744.301, F.S., allows for the natural guardian (surviving parent(s)) to handle benefits to a minor child where that amount does not exceed $15,000, without court appointment, authority or bond.

(d) In all cases in which a minor is a beneficiary of an account balance which is greater than $15,000, the surviving parent(s), or other relative or other interested party, must apply for a formal guardianship. A court order or court appointment and Letters of Guardianship will be required prior to payout of any benefits to the minor. The FRS Investment Plan Administrator shall place a hold on any account where the minor beneficiary is to receive an amount in excess of $15,000 and advise the SBA.

(e) If the individual responding to the correspondence sent by the Administrator and providing instructions for payout is not the surviving parent(s), the Administrator shall request the individual to provide a Court Order wherein a guardian has been appointed for the minor, prior to payout of any benefit and the Administrator shall take directions only from the named guardian.

(f) If no instructions for payout are received, the Administrator shall notify the SBA and the SBA will contact the probate court with jurisdiction over the estate of the member to request direction on the disposition of the minor’s interest in the account. Expenses shall be deducted from the member’s account.

(13)(12) A beneficiary, whether designated or pursuant to Florida law, of a deceased member who, by a verdict of a jury or by a court trying the case without a jury, is found guilty, or who has entered a plea of guilty or nolo contendere, of unlawfully and intentionally killing or procuring the death of such member shall forfeit all rights to the deceased member’s retirement benefits. Any benefits will be paid as if such beneficiary had predeceased the deceased member. No benefits will be paid until there is a final resolution of such charges against the beneficiary.

(14)(13)(a) If the deceased member has designated a beneficiary but has not provided the designated beneficiary’s social security number or address, or has provided an incorrect social security number, then, after at least three unsuccessful attempts by the SBA or the FRS Investment Plan Administrator to locate the beneficiary, the FRS Investment Plan Administrator will advise the SBA accordingly and the account will not be distributed.

(b) The FRS Investment Plan Administrator will, with the assistance of the SBA, at the time of notification of death, make a reasonable effort to obtain the beneficiary’s Social Security Number or Taxpayer Identification Number, using available search tools, including the internet, LexisNexis Accurint, the Social Security Administration, or another third party vendor providing such services.

(c) After one year from the date of the member’s death, if the beneficiary cannot be located, the account will be transferred to the Suspense Account. By calendar year-end, of each year following the transfer to the Suspense Account, the FRS Investment Plan Administrator will attempt to locate and obtain the Social Security Number or the Taxpayer Identification Number of the beneficiary. The transferred funds shall be invested in the FRS Select U.S. Treasury Inflation-Protected Securities Index Fund. The amount will be held in the FRS Investment Plan Suspense Account until (1) the beneficiary contacts the FRS Investment Plan; or (2) another beneficiary requests consideration as the deceased’s proper beneficiary; or, (3) at the end of 10 years in the Suspense Account, the amount is transferred to the FRS Investment Plan Forfeiture Account, where it is held indicating the name of the deceased member and the name of the beneficiary, if known.

(d) Should the beneficiary be located and provides a social security number, a check will be issued to the beneficiary, with actual earnings, from the date of transfer from the member’s account to the Suspense Account subject to applicable income tax withholding, which shall be paid to the tax authorities at the time of such payment to the beneficiary.

(15)(14)(a) Pursuant to Federal guidelines, if the deceased member’s account is to be paid to the member’s estate but no Estate Identification Number is provided, the account will not be paid to the Estate until the Estate Identification Number is received. In the event that no Estate Identification Number is provided within one year from the date of notification to the FRS Investment Plan Administrator of the member’s death, the FRS Investment Plan Administrator will transfer the deceased member’s account to the Suspense Account indicating the name of the deceased member. If after 10 years after the date of death, the FRS Investment Plan Administrator has not received an Estate Identification Number, the deceased member’s account will be transferred to the FRS Investment Plan Forfeiture Account where it will be held indicating the name of the deceased member. The transferrred funds shall be invested in the FRS Select U.S. Treasury Inflation-Protected Securities Index Fund.

(b) The FRS Investment Plan Administrator will, at the time of the transfer to the Suspense Account, make a reasonable effort to obtain the Estate Identification Number. Additionally, by calendar year-end of each year following the transfer to the Suspense Account, the FRS Investment Plan Administrator will attempt to locate and obtain the Estate Identification Number.

(c) The amount will be held in the FRS Investment Plan Suspense Account until (1) the member’s estate representative contacts the FRS Investment Plan; or (2) a beneficiary requests consideration as the deceased’s proper beneficiary; or, (3) at the end of 10 years in the Suspense Account, the amount is transferred to the FRS Investment Plan Forfeiture Account, where it is held indicating the name of the deceased member.

(d) Should the estate’s representative subsequently provide an Estate Identification Number, a check will be issued to the estate, with actual earnings while invested in the FRS Select U.S. Treasury Inflation-Protected Securities Index Fund, from the date of transfer from the member’s account to the Suspense Account. Any subject to applicable income tax withholding, which shall be paid to the appropriate tax authorities at the time of the benefit payment to the estate.

(16)(15) If the social security number and date of birth of a beneficiary are known, an account will be established in the beneficiary’s name and funds will be transferred thereto. If any other beneficiaries are named, accounts also will be established in their names, provided their social security numbers and dates of birth are made known to the Investment Plan Administrator. However, no distribution will be made to any beneficiary until a certified copy of the member’s death certificate has been received. In the meantime, the beneficiary will have control over any investment elections/allocations for the account. The beneficiary will be notified of the establishment of the account and will receive a PIN to access information pertaining to the account.

(17)(16)(a) A designated beneficiary may disclaim any monetary interest as provided in Chapter 739, F.S., and Internal Revenue Code s. 2518. A beneficiary can make a partial disclaimer or disclaim the entire interest. When a beneficiary makes a disclaimer, the beneficiary is considered to have predeceased the member, and the other beneficiaries designated by the member may then accept or disclaim any interest to which they are entitled.

(b) The general requirements for a valid disclaimer are that:

1. The beneficiary must provide an irrevocable and unqualified refusal to accept the assets.

2. The refusal must be in writing.

3. The written disclaimer must be submitted to the FRS Investment Plan Administrator at the later of the following times:

a. Nine months after the retirement account owner dies.

b. Nine months after the beneficiary attains age 21, or if the beneficiary is 21 when the retirement account owner dies.

c. The beneficiary must not have accepted any of the inherited assets prior to the disclaimer.

d. The assets must pass to the successor beneficiary without any direction on the part of the person making the disclaimer.

(c) There is no special form or document that an individual must complete to disclaim inherited assets. A letter, duly notarized, is sufficient as long as it meets the requirements set forth in paragraph (b).

Rulemaking Authority 121.4501(8) FS. Law Implemented 121.091(5)(j), (8), 121.4501(20), 121.591(3), 732.802 FS. History–New 10-21-04, Amended 3-9-06, 11-26-07, 12-8-08, 1-7-10, 8-7-11, 7-12-12, 12-16-12,_________.

 

19-11.012 Acceptance of Rollovers or Plan to Plan Transfers to or from by the FRS Investment Plan.

(1) through (11) No change.

(12)(a) An Investment Plan member electing to transfer to the Pension Plan and that has an excess balance remaining in the Investment Plan account after satisfying any required Pension Plan buy-in amounts, may elect to use all or part of that remaining balance to purchase service credit in the Pension Plan. The member will need to complete Form PRO-2, “Pre-tax Direct Rollover Rolloever/Transfer Form,” rev. 10-10, http://www.flrules.org/Gateway/reference.asp?No=Ref-01184, which hereby is adopted and incorporated by reference, to effect this purchase.

(b) The member must call the Investment Plan Administrator and request that funds be transferred from the Investment Plan to the Pension Plan to effect the purchase of service. The member must confirm that an invoice has been received from the Division of Retirement. The amount to be transferred must be equal to or less than the invoiced amount. If the balance of the member’s account is less than the invoice amount, the member may request the total account balance be transferred.

(c) The member must complete the form referenced in (a) above. The completed form is to be sent to the Investment Plan Administrator.

(d) The Plan Administrator will request authorization to liquidate the requested amount from the SBA. The SBA shall provide a letter of direction to effect the member’s request. Upon receipt of the letter, the Plan Administrator will liquidate the funds from the member’s account. Upon liquidation, the amount will be received by the Plan Administrator from the Custodian in the form of a check payable to the “Florida Retirement System” and reference the member’s name. Upon receipt of the check, the Plan Administrator will send the check and the form by regular US mail to the Division of Retirement as soon as administratively possible. A confirmation of the transaction and the date the check and form were mailed to the Division of Retirement will be sent to the member.

(e) It is the responsibility of the member to confirm receipt of the funds by the Division of Retirement.

Rulemaking Authority 121.4501(8), (5)(e) FS. Law Implemented 121.4501(4)(g)5., (5)(e), (21), 121.591 FS. History–New 7-12-12, Amended_________.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Ron Poppell, Senior Officer, Defined Contributions Program

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Trustees of the State Board of Administration

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: August 6, 2013

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: June 28, 2013, Vol. 39/126