Tax Qualification Requirements

(a)The Fund shall maintain its status as a tax-qualified governmental pension plan under Section 401(a) of the Code. As used in this Article, “Code” means the United States Internal Revenue Code of 1986, as amended, applicable to Guam under the mirror provisions of the Guam Income Tax Code.

(b)The Fund shall be administered in accordance with the requirements of Section 401(a)(1), (2), (7), (8), (9), (16), (17), (25), (31), and

(37)of the Code, as such provisions, as amended, apply to a governmental pension plan sponsored by the government of Guam. Without limiting the generality of the foregoing and notwithstanding any other provision of this Article to the contrary:

(1)In accordance with Sections 401(a)(1) and 401(a)(2) of the Code, the Board shall hold the corpus and income of the Fund in trust, and at no time prior to the satisfaction of all liabilities with respect to members and their beneficiaries shall any part of the corpus or income of the Fund be used for, or diverted to, purposes other than for the exclusive benefit of the members and their beneficiaries.

(2)In accordance with Section 401(a)(7) of the Code, in the event of the termination of or complete discontinuance of contributions to the Fund, the rights of all members to benefits accrued as of the date of such termination or discontinuance, to the extent then funded, shall be fully vested and nonforfeitable.

(3)In accordance with Section 401(a)(8) of the Code, benefits forfeited by a member for any reason shall not be applied to increase the benefits any other member or beneficiary would otherwise receive under this Article.

(4)All benefit distributions shall be administered in accordance with a reasonable good-faith interpretation of Section 401(a)(9) of the Code. The following describes the statutory requirements of Section 401(a)(9) of the Code:

(A)The member’s entire interest shall be distributed to the member no later than the member’s required beginning date, or the member’s entire interest must begin to be distributed to the member no later than the member’s required beginning date and must be paid over the life of the member, or the lives of the member and a designated beneficiary (or over a period that does not extend beyond the life expectancy of the member or the life expectancy of the member and a designated beneficiary). The “required beginning date” is April 1 of the calendar year following the later of

(i)the calendar year in which the member attains age 70½, or CH. 8 RETIREMENT OF PUBLIC EMPLOYEES

(ii)the calendar year in which the member retires.

(B)If the distribution of the member’s interest has begun in accordance with Paragraph

(A)and the member dies before the member’s entire interest has been distributed, the remaining portion must be distributed at least as rapidly as under the method of distribution being used to satisfy Paragraph (A).

(C)If the member dies before distribution of the member’s interest has begun under Paragraph (A), the member’s entire interest shall be distributed, or begin to be distributed, no later than as follows:

(i)If the member’s surviving spouse is the member’s sole designated beneficiary, distributions to the surviving spouse shall begin by December 31 of the calendar year immediately following the calendar year in which the member dies, or by December 31 of the calendar year in which the member would have attained age 70½, if later;

(ii)If the member’s surviving spouse is not the member’s sole designated beneficiary, distributions to the designated beneficiary shall begin by December 31 of the calendar year immediately following the calendar year in which the member died, and shall be paid over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary); or

(iii)If there is no designated beneficiary, the member’s entire interest shall be distributed by December 31 of the calendar year containing the fifth anniversary of the member’s death.

(D)All death benefits shall be administered to comply with the incidental death benefit requirement in Section 401(a)(9)(G) of the Code.

(5)In accordance with Section 401(a)(16), benefits paid from, and mandatory employee contributions made to, the Fund shall not exceed the maximum benefits and the maximum annual additions, respectively, permissible under Section 415 of the Code with respect to governmental plans.

(A)Specifically, the “annual benefit,” which is a benefit payable in the form of a straight life annuity, may not exceed the dollar limit described in Section 415(b)(1)(A) of the Code, as automatically adjusted for increases in the cost of living under Section 415(d) of the Code. For benefits payable in the plan year ending September 30, 2010, the dollar limit is $195,000. The 12-month plan year ending each September 30 shall be the “limitation year” for purposes of applying the limitations under Section 415 of the Code. Section 415 of the Code and the Treasury Regulations thereunder require that adjustments be made to the dollar limit for benefits that commence prior to age 62, or after age 65, and for benefits payable to members with less than ten years of membership. The Code and Treasury Regulations require that any benefit payable in a form other than a straight life annuity must be converted to an actuarially equivalent straight life annuity in applying the applicable limit to the “annual benefit”.

(B)The “annual benefit” does not include the portion of the member’s benefit attributable to mandatory employee contributions under Section 8136. Rather, mandatory employee contributions are treated as contributions to a defined contribution plan for purposes of Section 415 of the Code, and are therefore subject to the limits on annual additions under Section 415(c)(1) of the Code. The annual additions may not exceed the lesser of the two limits. The first limit is the dollar limit described in Section 415(c)(1)(A) of the Code, as automatically adjusted for increases in cost of living under Section 415(d) of the Code. For the limitation year ending September 30, 2010, the dollar limit is $49,000. The second limit is the compensation limit CH. 8 RETIREMENT OF PUBLIC EMPLOYEES described in Section 415(c)(1)(B) of the Code which provides that the annual additions may not exceed 100% of the member’s “Section 415 compensation” for the limitation year.

(C)“Section 415 compensation” means the member’s Box 1, W 2 earnings for the year, modified to include any pre-tax elective deferrals pursuant to Sections 403(b), 457(b), 125, or 132(f)(4) of the Code. Generally, Section 415 compensation does not include amounts paid after severance from employment. However, Section 415 compensation does include amounts paid by the later of 2½ months after the member’s severance from employment or the end of the limitation year that includes the date of the member’s severance from employment if the payment is regular compensation for services during the member’s regular working hours, or compensation for services outside the member’s regular working hours (such as overtime or shift differential), commissions, bonuses, or similar payments, and, absent the severance from employment, the payments would have been paid to the member while the member continued in employment with the government. Section 415 compensation also includes any payments to or for the benefit of a member who does not currently perform services for the government by reason of qualified military service, as defined in Subsection

(9)of this Section, to the extent those payments do not exceed the amounts the member would have received if the member had continued to perform services for the government, rather than entering qualified military service. Section 415 compensation also includes "differential wage payments" within the meaning of Section 3401(h)(2) of the Code with respect to the period during which the member is on active duty in Qualified Military Service. Finally, Section 415 compensation includes payments awarded by an administrative agency, or court, or pursuant to a bona fide agreement by the government to compensate a member for lost wages. Such payments for back pay are treated as Section 415 compensation for the limitation year to which the back pay relates to the extent the back pay represents wages and compensation that would otherwise be included as Section 415 compensation under this Subsection.

(6)In accordance with Section 401(a)(17) of the Code, for purposes of calculating contributions payable to the Fund and benefits payable from the Fund, “salary,” “annual salary,” and “average annual salary” shall be subject to the annual limit on compensation under Section 401(a)(17) of the Code, which limit is adjusted automatically for increases in the cost of living under Sections 401(a)(17)(B) and 415(d) of the Code. For the plan year ending September 30, 2010, the limit is $245,000.

(7)In accordance with Section 401(a)(25) of the Code, in the case that the amount of the member's benefit payable by the Fund is to be determined on the basis of actuarial assumptions, such assumptions shall be specified under Fund documents.

(8)In accordance with Section 401(a)(31) of the Code, a “distributee” who is entitled to a distribution may elect, at the time and in the manner determined by the Board, to have any portion of an “eligible rollover distribution” that is equal to at least $500 (or such other minimum amount required under the Code or Treasury Regulations) paid directly in a “direct rollover” to an “eligible retirement plan.” For purposes of these rules, the following definitions apply:

(A)“eligible rollover distribution” means any distribution of all or any portion of a member’s vested benefit, except that an eligible rollover distribution shall not include:

(i)any distribution that is one of a series of substantially equal periodic payments made no less frequently than annually for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s beneficiary, or for a specified period of ten years or more; CH. 8 RETIREMENT OF PUBLIC EMPLOYEES

(ii)any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and

(iii)the portion of any distribution that is not includible in gross income. Notwithstanding the foregoing, a distribution shall not fail to be an eligible rollover distribution merely because the distribution consists of after-tax employee contributions that are not includible in gross income. However, such portion may be transferred only to an individual retirement account described in Section 408(a) of the Code or an individual retirement annuity described in Section 408(b) of the Code (other than an endowment contract), or to a qualified retirement plan (defined contribution or defined benefit) described in Section 401(a) of the Code, or an annuity contract described in Section 403(b) of the Code, provided that the qualified trust or annuity contract agrees to separately account for amounts so transferred (and the earnings thereon), including separately accounting for the portion of such distribution which is includible in gross income and the portion which is not so includible.

(B)“eligible retirement plan” shall mean any of the following accounts or plans to the extent it accepts the distributee’s eligible rollover distribution:

(i)a qualified retirement plan described in Section 401(a) of the Code;

(ii)an individual retirement account described in Section 408(a) of the Code;

(iii)an individual retirement annuity described in Section 408(b) of the Code (other than an endowment contract);

(iv)an annuity plan described in Section 403(a) of the Code;

(v)an annuity contract described in Section 403(b) of the Code, or

(vi)an eligible deferred compensation plan described in Section 457(b) of the Code that is maintained by an eligible governmental employer described in Section 457(e)(1)(A) of the Code, and that agrees to separately account for amounts transferred into such plan from this plan.

(C)A “distributee” includes a member, the surviving spouse of a deceased member, and the current or former spouse of a member who is an alternate payee under a qualified domestic relations order that has been approved by the Board.

(D)A “direct rollover” is a direct payment by the Fund to the eligible retirement plan specified by the distributee.

(E)A non-spouse beneficiary may elect a direct rollover to an individual retirement account or individual retirement annuity described in Paragraph (B)(ii) or

(iii)established for the purpose of receiving the distribution on behalf of the non-spouse beneficiary.

(F)A distributee may elect a direct rollover to a Roth IRA, as described in Section 408A of the Code, if the distributee meets the requirements that apply to rollovers from a traditional IRA to a Roth IRA (i.e., for tax years prior to January 1, 2010, the distributee’s modified adjusted gross income cannot exceed $100,000, and the distributee must not be married filing a separate return).

(G)In prescribing the manner of making elections with respect to eligible rollover distributions, as described above, the Board may provide for the uniform application of any restrictions permitted under applicable sections of the Code and Treasury Regulations, including a requirement that a distributee may not elect to make a direct rollover from a single eligible CH. 8 RETIREMENT OF PUBLIC EMPLOYEES rollover distribution to more than one eligible retirement plan. The Board may require a recipient plan to provide a written statement that it will accept the rollover and separately account for the amount rolled over, where appropriate.

(H)Prior to making an eligible rollover distribution, the Board shall provide the distributee a notice describing the distributee’s right to make a direct rollover to an eligible retirement plan (the 402(f) Notice). The Board shall issue the 402(f) Notice at least 30 days, but no more than 180 days, prior to the date a distribution is made. However, such eligible rollover distribution may commence less than 30 days after the notice is given, provided that the 402(f) Notice clearly informs the distributee that the distributee has the right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a direct rollover, and the distributee, after receiving the notice, affirmatively elects a distribution.

(9)In accordance with Section 401(a)(37) of the Code, the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), as amended, provides certain pension benefit rights to employees who return to employment with their employer following a leave of absence for "qualified military service" as defined hereunder. § 8137.2 of this Chapter also provides certain rights to employees who are on leave without pay and on active duty with the Guam National Guard or the reserve components of any of the Armed Services of the United States. Any member who returns to employment with the government following qualified military service shall be entitled to the greater of the rights the member is entitled to under § 8137.2 of this Chapter, or the reemployment pension rights in Section 414(u) of the Code. In the case of a member who dies while performing qualified military service, the survivors of the member are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the Fund had the member resumed and then terminated employment on account of death. This would include the death benefits provided under §§ 8131 and 8134 of this Chapter. For purposes of this Section and applying the requirements of the USERRA, qualified military service means such term as defined in Section 414(u)(5) of the Code (any service in the U.S. Armed Forces - Army, Air Force, Navy, Marines, or Coast Guard; the Army National Guard and the Air National Guard, when engaged in active duty for training, inactive duty training, or full-time National Guard duty; the commissioned corps of the Public Health Service; and any other category of persons designated by the President in time of war or national emergency).