CHAPTER 3-13

DEFERRED COMPENSATION PLAN FOR PUBLIC EMPLOYEES

3-13-1    3-13-1 to 3-13-38. Repealed by SL 1974, ch 35, § 80.

3-13-39    Repealed by SL 1987, ch 38, §§ 8 to 17.

3-13-49    State deferred compensation plan--Agreements in writing--Administrative charge--Amounts deferred remitted to state deferred compensation fund.

3-13-49.1    Political subdivisions.

3-13-50    Administration of plan--Hiring and remuneration of additional employees.

3-13-51    Repealed by SL 2000, ch 27, § 1.

3-13-51.1    Investment of funds--Investment officer as fiduciary.

3-13-51.2    Executive director and investment officer to execute necessary agreements.

3-13-51.3    Default designation of new investment selection upon termination of participant's contract.

3-13-52    Limitation of liability to participants.

3-13-53    Deferred compensation fund.

3-13-54    Promulgation of rules--Limitation on availability of accumulated deferred compensation to participant--Exception.

3-13-55    Definition of terms.

3-13-56    Automatic enrollment feature.

3-13-57    Designated Roth contribution program.

3-13-58    Required minimum distributions--General rule.

3-13-59    Required minimum distributions--Participant's death after distributions begun.

3-13-60    Required minimum distributions--Participant's death before distributions begun.

3-13-61    Required minimum distributions--Reasonable and made in good faith.

3-13-62    Required minimum distributions--Participant's death after December 31, 2021.

3-13-63    Required minimum distributions--Waiver of 2020.

3-13-1 to 3-13-38. Repealed by SL 1974, ch 35, § 80.

3-13-39 to 3-13-48. Repealed by SL 1987, ch 38, §§ 8 to 17.

3-13-49. State deferred compensation plan--Agreements in writing--Administrative charge--Amounts deferred remitted to state deferred compensation fund.

The board may establish the South Dakota deferred compensation plan for state government and political subdivision governments as determined by the board. Any eligible person wishing to participate shall execute such agreements as the board may require and shall specify in writing the amount of compensation to be deferred. Such agreement shall authorize reduction of compensation by the amount specified plus an administrative charge set by the board. The employer of each participating employee shall remit all amounts so deferred to the South Dakota deferred compensation fund, along with such documentation as may be required, no later than ten days after each payday. No deferral of compensation under this chapter may reduce compensation for the purpose of calculation of contributions and benefits under chapters 3-6E and 3-12C.

Source: SL 1987, ch 38, § 1.

3-13-49.1. Political subdivisions.

Notwithstanding the provisions of § 3-13-49, any political subdivision may establish a deferred compensation program for its employees. Participation in such program shall be by written agreement between the employees and the governing body of the political subdivision. The agreement shall provide for the deferral of compensation and the investment and administration of such funds.

Source: SL 1989, ch 43.

3-13-50. Administration of plan--Hiring and remuneration of additional employees.

The executive director shall administer the plan. The executive director may hire additional employees as may be required and shall set the remuneration of the employees.

Source: SL 1987, ch 38, § 2; SL 2016, ch 31, § 49.

3-13-51. Repealed by SL 2000, ch 27, § 1.

3-13-51.1. Investment of funds--Investment officer as fiduciary.

A participant may invest in any investment selected by the state investment officer, including annuity contracts. The state investment officer may enter into contracts for investment alternatives. The executive director or third-party administrator may transfer funds to, from, and among the respective investment alternatives as directed by the participant or as required if the investment alternative is no longer available. The state investment officer shall be held to the standard of conduct of a fiduciary and shall carry out all functions solely in the interests of the participants and benefit recipients and for the exclusive purpose of providing benefits and defraying reasonable expenses incurred in performing the duties required by law.

Source: SL 2000, ch 27, § 2; SL 2016, ch 31, § 50.

3-13-51.2. Executive director and investment officer to execute necessary agreements.

The executive director shall execute any agreements necessary to carry out the provisions of this chapter, except agreements as are executed by the state investment officer pursuant to § 3-13-51.1.

Source: SL 2000, ch 27, § 4; SL 2016, ch 31, § 51.

3-13-51.3. Default designation of new investment selection upon termination of participant's contract.

If a contract with a vendor terminates and a participant fails to notify the third-party administrator of the participant's new investment selection before the contract terminates, the third-party administrator shall transfer that participant's account to the investment alternative designated by the state investment officer.

Source: SL 2000, ch 27, § 5.

3-13-52. Limitation of liability to participants.

Neither the plan nor any participating employer may have any liability to any participant for losses arising out of any decrease in the value of any investments held by the plan. The liability of the plan to any participant is limited to the value of the participant's account on the date the account is made available to the participant pursuant to the provisions of the plan. In no event may any member of the board, the executive director or any member of the executive director's staff have any liability for any action taken with respect to the plan unless such action be taken in bad faith.

Source: SL 1987, ch 38, § 4; SL 2016, ch 31, § 52.

3-13-53. Deferred compensation fund.

The South Dakota deferred compensation fund is hereby established. All compensation deferred pursuant to this chapter shall be deposited in the fund. Expenditures from the fund shall be paid on warrants drawn by the state auditor on vouchers approved by the executive director. All administrative expenses shall be budgeted and expended pursuant to chapters 4-7, 4-8, 4-8A, and 4-8B. In accord with § 457(g) of the Internal Revenue Code, all money in the fund and all property and rights held by the fund, at all times until made available to a participant or the participant's beneficiary, shall be held in trust for the exclusive benefit of the participant. All compensation deferred pursuant to this chapter shall be transferred not later than fifteen business days after the end of the month in which the compensation otherwise would have been paid to the participant.

Source: SL 1987, ch 38, § 5; SL 1997, ch 32, § 1; SL 2008, ch 20, § 17; SL 2013, ch 20, § 17; SL 2016, ch 31, § 53.

3-13-54. Promulgation of rules--Limitation on availability of accumulated deferred compensation to participant--Exception.

The board may promulgate rules pursuant to chapter 1-26 concerning the time and amount of compensation which may be deferred, the persons who may participate in the plan, the conditions of participation, the time and manner in which accumulated deferrals may be made available to a participant or beneficiary, the establishment of administrative changes, and participation by political subdivisions. Except pursuant to the provisions of an automatic enrollment feature established under subdivision 3-13-56(4), in no event may the accumulated deferred compensation become available to the participant prior to thirty days following the participant's separation from employment with a participating employer unless the participant is faced with an unforeseeable emergency as determined by the board, unless an in-service distribution of a small amount of funds is made, or unless a distribution is made to a participant who has been called to perform qualified military service for a period in excess of thirty days. If a participant returns to service with a participating employer within thirty days following separation from service, the accumulated deferred compensation is not available to the participant.

Source: SL 1987, ch 38, § 6; SL 2009, ch 20, § 4; SL 2011, ch 20, § 4.

3-13-55. Definition of terms.

The definitions contained in § 3-12C-101 apply to this chapter unless the context clearly otherwise requires. In addition the following terms mean:

(1)    "Accumulated deferred compensation," compensation deferred by a participant in the plan, plus any investment return thereon;

(2)    "Plan," the South Dakota deferred compensation plan created pursuant to this chapter; and

(3)    "Plan year," a calendar year ending on December thirty-first.

Source: SL 1987, ch 38, § 7; SL 2012, ch 26, § 14.

3-13-56. Automatic enrollment feature.

The board may establish an automatic enrollment feature within the plan by rules promulgated pursuant to chapter 1-26 and § 3-13-54. Any automatic enrollment feature established by the board shall include:

(1)    A provision that automatic enrollment shall apply to newly-employed members hired after a specified future date, any state employees not contributing to the deferred compensation plan as of June 30, 2019, and employees of any other automatic enrollment unit that elects automatic enrollment for its employees not contributing to the deferred compensation plan;

(2)    A provision that automatic enrollment shall apply only to the employees of those participating units that choose the automatic enrollment feature for the unit's employees;

(3)    A provision that automatic enrollment may not require more than an established maximum contribution per month per automatically-enrolled participant;

(4)    A provision that a participant who is automatically enrolled shall have as long as ninety days after the start of employment to discontinue participation in the plan;

(5)    A provision that an automatically-enrolled participant who discontinues participation in the plan within ninety days of enrollment shall receive a refund of the participant's account within thirty days after discontinuing participation;

(6)    A provision that the state investment officer shall select a default investment fund to receive contributions by any automatically-enrolled participant who does not choose an investment alternative to receive the participant's contributions;

(7)    A provision authorizing participating units and the system to make contributions to the plan for the benefit of participants;

(8)    A provision that the plan shall adhere to notice requirements to automatically-enrolled participants in accord with Internal Revenue Service Rulings 98-30 and 2000-8;

(9)    A provision that automatic enrollment does not require advance authorization by a participant, which is hereby deemed to be an exception to the provisions of any state law requiring employee authorization for a payroll deduction or any similar ordinance of a local participating unit; and

(10)    A provision that the amount of compensation deferred by an automatically-enrolled participant shall automatically increase by a specified amount each year unless the participant elects not to participate in automatic escalation or elects to defer a different amount than specified.

If a participant discontinues participation pursuant to subdivision (4), that act is a permissive withdrawal pursuant to § 414(w) of the Internal Revenue Code.

Source: SL 2008, ch 25, § 1; SL 2013, ch 20, § 18; SL 2015, ch 29, § 1; SL 2018, ch 34, § 1; SL 2019, ch 23, § 9.

3-13-57. Designated Roth contribution program.

The board may establish a designated Roth contribution program within the deferred compensation plan. For the purposes of this section, a designated Roth contribution is an elective salary deferral that is:

(1)    Designated irrevocably by the participant at the time of the deferred election as a designated Roth contribution that is being made in lieu of all or a portion of the pre-tax elective deferrals the participant is otherwise eligible to make under the plan; and

(2)    Treated by the employer as includable in the participant's income at the time the participant would have received that amount in compensation if the participant had not made a deferred election.

The board shall, pursuant to chapter 1-26, promulgate rules relating to distributions, conversions, transfers, rollovers, and limitations with regard to the designated Roth contribution program in accordance with federal law.

Source: SL 2012, ch 28, § 1.

3-13-58. Required minimum distributions--General rule.

The system shall pay all benefits in accordance with a good faith interpretation of the requirements in § 401(a)(9) of the Internal Revenue Code and the regulations in effect under that section, as applicable to a governmental plan within the meaning of § 414(d) of the Internal Revenue Code.

The participant's entire interest must be distributed, or begin to be distributed, by the required beginning date, which is April first of the calendar year following the later of:

(1)    The calendar year in which the participant reaches the applicable age, which is determined as follows:

(a)    If the member was born before July 1, 1949, the applicable age is seventy and one-half;

(b)    If the member attained age seventy-two before January 1, 2023, the applicable age is seventy-two;

(c)    If the member attains age seventy-two after December 31, 2022, the applicable age is seventy-three; or

(d)    Effective January 1, 2033, applicable age shall have the meaning set forth in § 401(a)(9)(C)(v) of the Internal Revenue Code; or

(2)    The calendar year in which the participant retires and separates from service with the member's employer.

A participant or beneficiary eligible for benefits must apply for benefits in order to commence distribution of benefits. The system, pursuant to a qualified domestic relations order, may establish separate benefits for a participant and alternate payee.

Source: SL 2021, ch 28, § 7; SL 2024, ch 21, § 3.

3-13-59. Required minimum distributions--Participant's death after distributions begun.

If a participant dies after the required distribution of benefits has begun, the remaining portion of the participant's interest shall be distributed at least as rapidly as under the same method of distribution before the participant's death.

Source: SL 2021, ch 28, § 8.

3-13-60. Required minimum distributions--Participant's death before distributions begun.

If a participant dies before required distribution of the participant's benefits has begun, the participant's interest shall be distributed as follows:

(1)    If the participant has a surviving spouse, the surviving spouse shall receive benefits over the life of the surviving spouse beginning as soon as administratively possible and effective the month after the participant's death; or

(2)    If the participant has no surviving spouse, the participant's remaining interest shall be distributed in a lump sum payment to the designated beneficiary within five years from the date of the participant's death.

Source: SL 2021, ch 28, § 9.

3-13-61. Required minimum distributions--Reasonable and made in good faith.

Notwithstanding the provisions of §§ 3-13-58 to 3-13-60, inclusive, or the provisions of United States Treasury regulations, benefit options may continue so long as the option satisfies § 401(a)(9) of the Internal Revenue Code based on a reasonable and good faith interpretation of that section.

Source: SL 2021, ch 28, § 10.

3-13-62. Required minimum distributions--Participant's death after December 31, 2021.

Notwithstanding any contrary provisions, effective for any participant death after December 31, 2021, the following distribution provisions shall take effect subject to any regulations or other guidance issued under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019:

(1)    If the participant dies before the distribution of his or her entire account (regardless of whether any distributions had begun before the participant's death) and the participant has a designated beneficiary:

(a)    The entire account shall be distributed to the designated beneficiary by December thirty-first of the calendar year containing the tenth anniversary of the participant's death;

(b)    Notwithstanding subsection (a), if the designated beneficiary is an eligible designated beneficiary, the eligible designated beneficiary may elect for the participant's account to be distributed by:

(i)    December thirty-first of the calendar year containing the tenth anniversary of the participant's death, or

(ii)    Beginning no later than December thirty-first of the calendar year immediately following the calendar year in which the participant died, over the life of the eligible designated beneficiary or over a period not exceeding the life expectancy of the eligible designated beneficiary. If the eligible designated beneficiary is the surviving spouse, payment under this subsection (b)(ii) is not required until the later of December thirty-first of the calendar year immediately following the calendar year in which the participant died or December thirty-first of the calendar year in which the participant would have attained age seventy and one-half (age seventy-two with respect to a participant who would have attained age seventy and one-half after December 31, 2019). If the eligible designated beneficiary does not elect a method of distribution, the participant's account shall be distributed in accordance with this subsection (b)(ii);

(c)    Upon either the death of an eligible designated beneficiary before distribution of the participant's entire account or the attainment of the age of majority for an eligible designated beneficiary who is a minor child under subsection (4)(b), subsection (1)(b) no longer applies and the remainder of the entire account shall be distributed to the designated beneficiary by December thirty-first of the calendar year containing the tenth anniversary of the participant's death;

(2)    If the participant dies before distributions of his or her account begins and the participant has no designated beneficiary, the participant's account under the plan shall be distributed by December thirty-first of the calendar year containing the fifth anniversary of the participant's death. If the participant dies after distribution of the account begins and the participant has no designated beneficiary, any remaining portion of the account shall continue to be distributed at least as rapidly as under the method of distribution in effect at the time of the participant's death;

(3)    Any distribution required under the incidental death benefit requirements of Internal Revenue Code section 401(a) shall be treated as distributions required under this section;

(4)    For purposes of this section, the term, eligible designated beneficiary, means a designated beneficiary who, as of the date of the death of the participant, is:

(a)    The surviving spouse of the participant;

(b)    A child of the participant who has not reached the age of majority. However, the child ceases to be an eligible designated beneficiary as of the date the child reaches the age of majority;

(c)    Disabled within the meaning of Internal Revenue Code section 72(m)(7);

(d)    Chronically ill within the meaning of Internal Code section 7702B(c)(2) (except that the requirements of subparagraph (A)(i) thereof may only be treated as met if there is a certification that, as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one which is reasonably expected to be lengthy in nature); or

(e)    Any other person who is not more than ten years younger than the participant.

Source: SL 2021, ch 28, § 11.

3-13-63. Required minimum distributions--Waiver of 2020.

Notwithstanding any other provisions of chapter 3-13, the participant or beneficiary who would have been required to receive required minimum distributions (RMD) for 2020 (or paid in 2021 for the 2020 calendar year for a participant with a required beginning date of April 2, 2021) but for the enactment of Internal Revenue Code section 401(a)(9)(I) (2020 RMDs), and who would have satisfied that requirement by receiving distributions that are either (1) equal to the 2020 RMDs or (2) one or more payments in a series of substantially equal distributions (that include the 2020 RMDs) made at least annually and expected to last for the life (or life expectancy) of the participant, the joint lives (or joint life expectancy) of the participant and the participant's designated beneficiary, or for a period of at least ten years (extended 2020 RMDs) shall receive those distributions for 2020 unless the participant or beneficiary chooses not to receive the distributions. For purposes of the direct rollover provisions of the plan, 2020 RMDs and extended 2020 RMDs also shall be treated as eligible rollover distributions in 2020.

Source: SL 2021, ch 28, § 12.