(1) Any member having a separate retirement account who terminates service and at the time of termination has less than five years of credited service or who terminates service and at the time of termination has more than five years of credited service but elects a refund of contributions as provided under section 31-31-404 (1)(a) shall forfeit the entire balance in the member's separate retirement account to the actuarial account.

(2) (a) Any member having a separate retirement account who is retired for disability shall receive the entire balance in the member's separate retirement account in accordance with the member's selection of one of the payment options permitted by subsection (3) of this section or pursuant to rules promulgated by the board that allow members who are eligible to receive retirement benefits to defer receipt of the benefits to the extent permitted under section 401 (a)(9) of the federal "Internal Revenue Code of 1986", 26 U.S.C. sec. 401 (a)(9), as amended, and the regulations promulgated pursuant to section 401 (a)(9). If the member subsequently returns to work pursuant to section 31-31-805 (2) and had been receiving periodic payments from the member's separate retirement account, such payments shall cease and any remaining balance shall remain in the member's separate retirement account, subject to subsequent distribution in accordance with this section.

(b) If any member having a separate retirement account dies prior to termination, the entire balance in the member's separate retirement account shall be payable to the member's surviving spouse or dependent children in accordance with their selection of one of the payment options permitted by subsection (3) of this section.

(3) Any member retiring pursuant to the provisions of section 31-31-403 or 31-31-404 (2) may elect to receive the balance in the member's separate retirement account in accordance with one of the following payment options:

(a) Option 1: In a lump sum;

(b) Option 2: In periodic installments of a specified and substantially equal amount, payable monthly over a period not to exceed the joint life expectancy of the member and the member's spouse. This maximum period shall be determined under the applicable actuarial tables then being used by the association at the time the initial monthly installment payment becomes payable.

(c) Option 3: In an annuity. The member may choose an annuity payable to the member for life or may choose any of the joint and survivor options permitted by section 31-31-403 (5)(a).

(4) A member may elect to commence payment of the amount in the member's separate retirement account at any time after the member terminates service but in no event later than the commencement of the member's retirement benefits under section 31-31-403 or 31-31-404 (2). A member will continue to accrue earnings on the amount in the member's separate retirement account until such time as the account is exhausted.

(5) The restoration of a member's service credit pursuant to section 31-31-404 (1)(b) shall not entitle the member to reinstatement of any previously forfeited balance in the member's separate retirement account.

(6) If a member terminates service with less than five years of credited service and does not elect a refund of accumulated contributions, the amount in the member's separate retirement account shall not be forfeited but shall continue to be subject to the earnings and reduction provisions of section 31-31-405, and, upon the member's return to active service with an employer covering its members under the normal retirement provisions of this part 4, the member shall be credited with any amount which has accrued in the member's separate retirement account.

(7) The balance in a member's separate retirement account, the member's accumulated contributions to the account, and the earnings on the account shall be paid to the member's estate if the member:

(a) Dies while in active service;

(b) Has more than five years of credited service;

(c) Does not leave a surviving spouse, dependent child, or designated beneficiary; and

(d) Is not eligible for the normal retirement pension described in section 31-31-403 at the time of death.