CHAPTER 3-13A
SOUTH DAKOTA SPECIAL PAY RETIREMENT PROGRAM
3-13A-1 Special pay retirement program established.
3-13A-2 Definitions.
3-13A-3 Special pay fund.
3-13A-4 Board controls program as fiduciary--Promulgation of rules.
3-13A-5 Transfer of special pay to fund upon termination of employment--Contribution limit.
3-13A-6 Time for transfer of compensation to trust.
3-13A-7 Participant account.
3-13A-8 Vesting of participant account--Forfeiture.
3-13A-9 Investment of funds.
3-13A-10 Lump-sum distribution to participant.
3-13A-11 Investment alternatives--Transfer of account balances by participant
3-13A-12 Transfer of funds from terminated investment selection.
3-13A-13 Allocation of investment return among participant accounts--Accounting dates.
3-13A-14 Valuation of investment alternatives.
3-13A-15 Beneficiaries of participant's account.
3-13A-16 Payments and benefits under program not assignable or subject to creditors' actions.
3-13A-17 Powers and duties of executive director.
3-13A-18 Election by participating units of retirement system to participate in program--Rescission of participation.
3-13A-19 Trustee-to-trustee transfer of participant's account to government defined-benefit retirement plan.
3-13A-20 Rollover transfer of participant's account.
3-13A-21 Rollover transfer of participant's account in another plan.
3-13A-22 Distribution from participant's account--Forms of distribution--Time for election.
3-13A-23 Annuity distributions date.
3-13A-23.1 Required minimum distributions--General rule.
3-13A-23.2 Required minimum distributions--Participant's death after distributions begun.
3-13A-23.3 Required minimum distributions--Participant's death before distributions begun.
3-13A-23.4 Required minimum distributions--Reasonable and made in good faith.
3-13A-23.5 Required minimum distributions--Participant's death after December 31, 2021.
3-13A-23.6 Required minimum distributions--Waiver of 2020.
3-13A-24 State investment officer to act as fiduciary--Certain persons prohibited from acting as third-party administrator or vendor.
3-13A-25 Limitation of liability to participants.
3-13A-1. Special pay retirement program established.
There is hereby established the South Dakota special pay retirement program. It is the intent of the Legislature that the special pay retirement program shall become a qualified plan under § 401(a) of the code and that the program shall be treated as a governmental plan under § 414(d) of the code. It is the further intent of the Legislature that special pay transmitted to the fund is picked up by the participating unit and thus shall be designated as an employer contribution under § 414(h)(2) of the code.
Source: SL 2004, ch 43, § 1; SDCL, § 3-12-165; SL 2005, ch 28, § 1.
3-13A-2. Definitions.
The definitions contained in chapter 3-12 apply to this chapter unless otherwise specified. In addition, the following terms used in this chapter mean:
(1) "Account," the record for each participant reflecting the amount of the participant's special pay transmitted to the fund, allocated investment gains and losses thereon, and administrative charges against those amounts;
(2) "Accounting date," the date on which an investment is valued and the total investment return is allocated to a participant's account;
(3) "Board," the South Dakota Retirement System Board of Trustees as established under § 3-12C-203;
(4) "Executive director," the executive director of the South Dakota Retirement System as provided in § 3-12C-209;
(5) "Fund," the South Dakota special pay fund established pursuant to § 3-13A-3;
(6) "Normal retirement date," the date a participant may retire pursuant to the provisions of chapter 3-12C without reduced benefits;
(7) "Participant," a terminated employee of a participating unit who has reached the calendar month before the month of the employee's fifty-fifth birthday and who received six hundred dollars or more in special pay;
(8) "Participating unit," the State of South Dakota, the South Dakota Board of Regents, or any other political subdivision of the state that participates in the program;
(9) "Plan year," a calendar year ending on December thirty-first;
(10) "Program," the South Dakota Special Pay Retirement Program created pursuant to §§ 3-13A-1 to 3-13A-25, inclusive;
(11) "Special pay," compensation other than regular salary or wages granted to a participant and transferred in a lump-sum to the fund at the termination of the participant's employment;
(12) "Third-party administrator," a person who, pursuant to contract, handles administration of the program on behalf of the board and the executive director;
(13) "Vendor," a person or organization selected by the state investment officer to provide investment or insurance products to the program.
Source: SL 2004, ch 43, § 2; SDCL § 3-12-166; SL 2005, ch 28, § 1; SL 2006, ch 22, § 1; SL 2008, ch 20, § 18; SL 2013, ch 20, § 19; SL 2013, ch 22, §§ 1, 2; SL 2016, ch 31, § 54.
3-13A-3. Special pay fund.
The South Dakota special pay fund is hereby established. All compensation transmitted to the fund pursuant to §§ 3-13A-1 to 3-13A-25, inclusive, shall be deposited in the fund. Expenditures from the fund shall be paid on warrants drawn by the state auditor and supported by 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. All money in the fund and all property and rights held by the fund shall be held in trust for the exclusive benefit of the participants at all times until made available to a participant or the participant's beneficiary. All benefits payable under this program shall be paid and provided for solely from the fund and a participating unit assumes no liability or responsibility therefor. Any trust under the program shall be established pursuant to a written agreement that constitutes a valid trust under the law of South Dakota.
Source: SL 2004, ch 43, § 3; SDCL § 3-12-167; SL 2005, ch 28, § 1; SL 2016, ch 31, § 55.
3-13A-4. Board controls program as fiduciary--Promulgation of rules.
The program shall be under the authority of the board. The board shall be held to the standard of conduct of a fiduciary and shall carry out its functions solely in the interest of the participants and benefit recipients and for the exclusive purpose of providing benefits and defraying reasonable expenses incurred in performing such duties as required by law. The board may promulgate rules necessary to establish uniform procedures for the administration of the program and to insure uniformity of application of the provisions of §§ 3-13A-1 to 3-13A-25, inclusive. Rules may be promulgated in regard to membership, contributions and the collection thereof, fees for administration of the program, and procedures for application for benefits and payment of benefits. The rules shall be promulgated pursuant to chapter 1-26 and shall be in accordance with the provisions of §§ 3-13A-1 to 3-13A-25, inclusive.
Source: SL 2004, ch 43, § 4; SDCL, § 3-12-168; SL 2005, ch 28, § 1.
3-13A-5. Transfer of special pay to fund upon termination of employment--Contribution limit.
Upon a participant's termination of employment, the participating unit shall transmit the gross amount of the participant's special pay to the fund. However, except to the extent permitted under § 414(v) of the code, if applicable, a contribution allocated to a participant's account under the program may not exceed the limitation for defined contribution plans pursuant to § 415(c)(1)(A) of the code, or one hundred percent of the participant's compensation, as identified in § 415(c)(3) of the code for the calendar year. For the purposes of the limitations under this section, all of the defined contribution plans of a participant's employer, whether terminated or current, shall be treated as a single defined contribution plan.
Source: SL 2004, ch 43, § 5; SL 2005, ch 27, § 2; SDCL § 3-12-169; SL 2005, ch 28, § 1; SL 2013, ch 22, § 3; SL 2019, ch 23, § 10.
3-13A-6. Time for transfer of compensation to trust.
For the proper administration of the accounts of participants, all amounts of compensation subject to this chapter shall be transferred to the trust 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 2004, ch 43, § 6; SDCL § 3-12-170; SL 2005, ch 28, § 1; SL 2008, ch 20, § 19.
3-13A-7. Participant account.
An account shall be established for each participant. The account shall be the basis for any distribution to the participant or to the participant's beneficiary, surviving spouse, surviving children, or estate pursuant to § 3-13A-15.
Source: SL 2004, ch 43, § 7; SDCL, § 3-12-171; SL 2005, ch 28, § 1.
3-13A-8. Vesting of participant account--Forfeiture.
A participant's account is fully vested in the program at any time on or after the date the participant begins participation in the program. A participant's account is not subject to any forfeiture pursuant to the provisions of the program. A loss as described in § 3-13A-25 is not considered to be a forfeiture.
Source: SL 2005, ch 27, § 1.
3-13A-9. Investment of funds.
A plan 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.
Source: SL 2004, ch 43, § 8; SDCL § 3-12-172; SL 2005, ch 28, § 1; SL 2016, ch 31, § 56.
3-13A-10. Lump-sum distribution to participant.
A participant who elects an immediate total lump-sum distribution from the program shall be guaranteed payment of the entire amount of the participant's special pay, plus any earnings, and less any mandatory income tax withholding and fees established by the board, within a period that is not longer than is reasonable from the date the participant's funds were received by the program on behalf of the participant.
Source: SL 2004, ch 43, § 9; SDCL, § 3-12-173; SL 2005, ch 28, § 1.
3-13A-11. Investment alternatives--Transfer of account balances by participants.
Each participant may elect to have the participant's funds invested in one or more of the investment alternatives selected by the state investment officer pursuant to § 3-13A-9. Subject to any limitations imposed by the executive director, a vendor, or a third-party administrator, a participant may elect to transfer any portion of the account balance from one offered investment alternative to another at any time, if notice is given to the executive director or the third-party administrator. Any costs associated with such a transfer shall be borne by the participant and shall be deducted from the participant's account. If, due to a payroll error, a participant's deferral is deposited in an investment alternative other than the one selected by the participant, the executive director or third-party administrator may correct the error by transferring the participant's deferral to the proper investment alternative, subject to any limitations which may be imposed by the vendor. No retroactive adjustment may be made.
Source: SL 2004, ch 43, § 10; SDCL § 3-12-174; SL 2005, ch 28, § 1; SL 2016, ch 31, § 57.
3-13A-12. Transfer of funds from terminated investment selection.
If a contract between the state investment officer and a vendor is terminated and a participant fails to notify the executive director or third-party administrator of the participant's new investment selection before the contract terminates, the executive director or third-party administrator shall transfer that participant's account to the investment alternative designated by the state investment officer.
Source: SL 2004, ch 43, § 11; SDCL § 3-12-175; SL 2005, ch 28, § 1; SL 2016, ch 31, § 58.
3-13A-13. Allocation of investment return among participant accounts--Accounting dates.
The total investment return on any offered investment shall be allocated to the account of each participant based on the proportion the participant's account bears to all other accounts which have been invested in the same investment alternative. Allocations shall be made on each accounting date. The last day of each calendar quarter is an accounting date. The board may provide additional accounting dates.
Source: SL 2004, ch 43, § 12; SDCL, § 3-12-176; SL 2005, ch 28, § 1.
3-13A-14. Valuation of investment alternatives.
Each offered investment alternative shall be valued on each accounting date. The valuation shall be at market value. Any charges against the value shall be explicitly disclosed. Each participant shall be provided with a statement of the participant's account by no later than forty-five days after the close of each calendar quarter.
Source: SL 2004, ch 43, § 13; SDCL, § 3-12-177; SL 2005, ch 28, § 1.
3-13A-15. Beneficiaries of participant's account.
A participant may designate a beneficiary to receive the participant's benefits under the program in case of the death of the participant. If no beneficiary is designated or the beneficiary has predeceased the participant, the participant's benefits shall be paid as follows:
(1) To the participant's surviving spouse;
(2) If there is no surviving spouse, then to all surviving children of the participant, irrespective of age, on a share-alike basis; or
(3) If there is no surviving spouse and there are no surviving children, then to the participant's estate.
Source: SL 2004, ch 43, § 14; SDCL § 3-12-178; SL 2005, ch 28, § 1; SL 2012, ch 26, § 15.
3-13A-16. Payments and benefits under program not assignable or subject to creditors' actions.
Notwithstanding the provisions of § 3-13A-15, no participant may assign or otherwise alienate any right to any payment or benefit under the program. The right of a participant to any payment or benefit is not subject to the rights of the participant's or any beneficiary's creditors, and is exempt from executions, attachment, prior assignment, or any other judicial relief or order for the benefit of creditors or other third persons, except as required under applicable law, including any qualified domestic relations order as defined in § 414(p) of the Internal Revenue Code, or as is otherwise specifically provided in this chapter.
Source: SL 2004, ch 43, § 15; SDCL § 3-12-179; SL 2005, ch 28, § 1; SL 2008, ch 20, § 20; SL 2013, ch 20, § 20.
3-13A-17. Powers and duties of executive director.
The executive director shall administer the program and shall determine all questions arising under or in connection with the program. The executive director may hire additional employees as may be required and shall set the remuneration of the employees. In addition, the executive director, with the approval of the board, may contract with vendors for third-party administration of various duties under the program as the executive director sees fit. The executive director shall execute any agreements necessary to carry out the provisions of §§ 3-13A-1 to 3-13A-25, inclusive, except any agreements executed by the state investment officer pursuant to § 3-13A-9.
Source: SL 2004, ch 43, § 16; SDCL § 3-12-180; SL 2005, ch 28, § 1; SL 2016, ch 31, § 59.
3-13A-18. Election by participating units of retirement system to participate in program--Rescission of participation.
Any public employer that is a participating unit of the system established under chapter 3-12C may become a participating unit under this chapter at any time on or after July 1, 2004. The decision to become a participating unit shall be made by the elected official, the appointed official, or the governing body in charge of the unit. The unit shall become a participating unit as soon as notice of the decision has been delivered in writing to the system. A participating unit at a later date may choose to rescind such status and may do so by delivering written notice of the decision to the system. However, if such a rescission occurs, the rescission does not affect the status of any participant who was employed by that unit.
Source: SL 2004, ch 43, § 17; SDCL § 3-12-181; SL 2005, ch 28, § 1.
3-13A-19. Trustee-to-trustee transfer of participant's account to government defined-benefit retirement plan.
For the purpose of acquiring credited service in a qualified governmental defined-benefit retirement plan as identified under § 401(a) and defined in § 414(d) of the code, a participant may transfer a portion or all of the participant's account in the program by trustee-to-trustee transfer to the government defined-benefit retirement plan.
Source: SL 2004, ch 43, § 18; SDCL, § 3-12-182; SL 2005, ch 28, § 1.
3-13A-20. Rollover transfer of participant's account.
The board shall establish by rule promulgated pursuant to chapter 1-26 the parameters under which a participant, a participant's surviving spouse, or a participant's beneficiary may transfer a portion or all of the participant's account by rollover to a plan which is an eligible plan under the code.
Source: SL 2004, ch 43, § 19; SDCL § 3-12-183; SL 2005, ch 28, § 1; SL 2009, ch 20, § 5.
3-13A-21. Rollover transfer of participant's account in another plan.
To the extent permitted by law, a participant may transfer a portion or all of the participant's account in another plan which is eligible under § 401(a), 403(b), 408, or 457 of the code into this program by rollover. The program shall account for such amounts separately.
Source: SL 2004, ch 43, § 20; SDCL, § 3-12-184; SL 2005, ch 28, § 1.
3-13A-22. Distribution from participant's account--Forms of distribution--Time for election.
A participant is entitled to receive a distribution from the participant's account upon written application to the executive director or third-party administrator. The participant may elect, on forms prescribed by the executive director or third-party administrator, the time distributions under the program are to commence by designating the month and year during which the first distribution is to be made. The participant may elect to receive the participant's distribution in any of the following forms:
(1) A lump sum;
(2) Equal monthly installments over a fixed period; or
(3) Any other form offered by the executive director or a third-party administrator.
The application and election shall be made prior to the time any amounts become payable. A participant or a beneficiary who has chosen a payment form may change that payment option, if no payment has yet been made, and subject to any administrative restrictions and charges established by the board.
Source: SL 2004, ch 43, § 21; SDCL § 3-12-185; SL 2005, ch 28, §1; SL 2016, ch 31, § 60.
3-13A-23. Annuity distributions date.
A participant who does not take a total lump-sum distribution, transfer funds by rollover pursuant to § 3-13A-20, or transfer funds by trustee-to-trustee transfer pursuant to § 3-13A-19 may begin annuity distributions by selecting a retirement date, as set out in § 3-13A-22. If a participant does not make a selection, the participant's normal retirement date is as defined in subdivision 3-13A-2(6).
Source: SL 2004, ch 43, § 22; SDCL, § 3-12-186; SL 2005, ch 28, § 1; SL 2021, ch 28, § 13.
3-13A-23.1. 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, § 14; SL 2024, ch 21, § 4.
3-13A-23.2. 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, § 15.
3-13A-23.3. 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, § 16.
3-13A-23.4. Required minimum distributions--Reasonable and made in good faith.
Notwithstanding the provisions of §§ 3-13A-23 to 3-13A-23.1, inclusive, or the provisions of the 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, § 17.
3-13A-23.5. 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 Revenue 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, § 18.
3-13A-23.6. Required minimum distributions--Waiver of 2020.
Notwithstanding any other provisions of chapter 3-13A, 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 § 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, § 19.
3-13A-24. State investment officer to act as fiduciary--Certain persons prohibited from acting as third-party administrator or vendor.
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 such duties as required by law. No employee of a participating unit and no spouse or dependent of the employee may act as or represent a third-party administrator or a vendor in a matter concerning the program, except that the state investment officer and the state investment officer's employees may invest all or part of the fund pursuant to § 3-13A-9.
Source: SL 2004, ch 43, § 23; SDCL, § 3-12-187; SL 2005, ch 28, § 1.
3-13A-25. Limitation of liability to participants.
Neither the program nor any participating unit is liable to any participant for losses arising out of any decrease in the value of any investments held under the program. The liability of the program to any participant is limited to the value of the participant's account on the date the participant chooses to begin payment pursuant to the provisions of the program. 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 program unless the action has been taken in bad faith.
Source: SL 2004, ch 43, § 24; SDCL § 3-12-188; SL 2005, ch 28, § 1; SL 2016, ch 31, § 61.
