Section 40. (1)(a) Notwithstanding the provisions of chapter thirty-two of the General Laws, or of any general or special law to the contrary the board of higher education shall establish an optional retirement program under which custodial accounts described in section 403(b)(7) of the Internal Revenue Code, as it may be amended from time to time, or contracts providing retirement and death benefits may be purchased for eligible members who elect to participate in the program. The benefits to be provided for participants in such optional retirement program shall be provided through such custodial accounts or individual or group annuity contracts, which may be fixed or variable in nature, or a combination thereof; provided that, at all times, those annuity contracts issued by licensed insurers under the optional retirement program shall provide the minimum values and guarantees required by the laws governing such contracts in the commonwealth; and provided, further, that the benefits shall be payable only to participants in the program or their beneficiaries, and such benefits shall be paid only by the selected providers in accordance with the terms of the custodial accounts, annuity contracts or certificates providing coverage to the participant; provided that such optional retirement program shall not allow a participant to withdraw contributions while an active participant in the commonwealth's optional retirement program.

(b) Said council shall select at least two but no more than four providers for the optional retirement program and enter into contracts with them in accordance with the laws governing the procurement of services for executive agencies of the commonwealth, provided that such procurements shall not be subject to the approval of the commissioner of administration; provided, further, that the selected providers shall be authorized to conduct business within the commonwealth, and each and every provider or issuer of annuity contracts under the optional retirement program which is a life insurance company shall hold a certificate of authority to do a life insurance business in the commonwealth, maintain the minimum required capital and surplus required for life insurance companies under the laws of the commonwealth, be a member of the commonwealth's life and health insurance guaranty association and be a member of the life and health insurance guaranty associations in any and all jurisdictions where required by law with similar retirement programs funded in whole or in part through the provider's annuities in which participants in the optional retirement program might participate upon transfer of employment; and provided, further, that said council shall coordinate the transfer of funds and information between payroll centers, the selected providers and plan participants.

(c) The council shall promulgate regulations governing the administration of and participation in the plan. Such regulations shall be subject to the provisions of chapter thirty A, and a copy of such regulations, and any amendments thereto, shall be filed in advance of their taking effect with the general court. The council shall file the proposed regulation, amendment or repeal with the clerk of the house of representatives, who shall refer such regulations to the joint committee on public service. Within thirty days after such referral, the committee on public service may hold a public hearing on the regulations and shall issue a report to the council. Said report shall contain any proposed changes to the regulations voted upon by the public service committee. The council shall review said report and shall adopt final regulations as deemed appropriate in view of said report and shall file with the chairmen of the public service committee its final regulations. If the final regulations do not contain the changes proposed by the public service committee, the council shall send a letter to the public service committee accompanying the final regulations stating the reasons why such proposed changes were not adopted. Not earlier than forty-five days after the filing of such letter and final regulations with the public service committee, the council shall file the final regulations with the state secretary as provided in section five of said chapter thirty A and said regulations shall thereupon take effect.

If no such proposed changes to the regulations are made to the council within sixty days of the initial filing of the proposed regulation or any amendment or a repeal of such regulation with the clerk of the house of representatives, the council may file the final regulations with the state secretary as provided in section five of said chapter thirty A and said regulations shall thereupon take effect.

(2)(a) Participation in the optional retirement program provided by this section shall be limited to persons who are otherwise eligible for membership in the state employees' retirement system as established under the provisions of chapter 32; provided, however, that they are faculty members, chancellors, vice chancellors, presidents, vice presidents, deans, or holding a position classified as a senior administrator IV, senior administrator III, senior administrator II, senior administrator I of the board of higher education or public institutions of higher education, as defined in section 5.

(b) Elections to participate in the optional retirement program shall be made as follows:

(i) Any eligible employee who is initially appointed on or after the effective date of the optional retirement program may elect in writing, or in another form acceptable to the council, to participate in the optional retirement program within 180 days of the effective date of the appointment. Any such election shall be effective as of the effective date of appointment. If an eligible employee fails to make an election as provided in this paragraph, such employee shall become a member of the state employees' retirement system established under the provisions of said chapter thirty-two.

(ii) Any eligible employee who is a member of any retirement system established under the provisions of said chapter thirty-two on the effective date of the optional retirement program but who has less than ten years of creditable service on the effective date of the optional retirement program may elect in writing, or in another form acceptable to the council, to participate in the optional retirement program within ninety days after the effective date of the optional retirement program. Any such election shall become effective on the first day of the pay period next following such election, and shall constitute a waiver of all retirement benefits to which the individual may be entitled as an employee under any retirement system established under the provisions of said chapter thirty-two.

(iii) Any employee who is a member of any retirement system established under the provisions of said chapter thirty-two but who has less than ten years of creditable service on the date such employee becomes eligible to participate in the optional retirement program may elect in writing, or in another form acceptable to the council, to participate in such optional retirement program within ninety days of the date said employee becomes eligible. Any such election shall become effective on the first day of the pay period next following such election, and shall constitute a waiver of all retirement benefits to which the individual may be entitled as an employee under any retirement system established under the provisions of said chapter thirty-two.

(iv) Any eligible employee electing to participate in the optional retirement program shall be ineligible for membership in the state employees' retirement system as long as he remains continuously' employed in any eligible position within a public institution of higher education, as defined in section five; provided, that the election by an eligible employee to participate in the optional retirement program shall be irrevocable for so long as the employee continues to meet the eligibility requirements; provided further, however, if an employee becomes ineligible to continue in the optional retirement program, the employee shall thereafter participate in the state employees' retirement system established in accordance with the provisions of said chapter thirty-two.

(3)(a) Any eligible employee electing to participate in the optional retirement program shall not be required to make contributions to the state employee's retirement system but shall contribute to the optional retirement program an amount equal to the contribution which would have been required had such employee been a member of the state employees' retirement system.

(b) For each eligible employee electing to participate in the optional retirement program, there shall be an employer contribution in an amount equal to five percent of each employee's regular compensation, as defined in section one of chapter thirty-two, to the optional retirement program and a plan established to provide life and disability benefits to all participants in the program, which contribution shall be funded by the commonwealth and accounted for separately in the commonwealth funding schedule as defined in section 1 of chapter 32; provided, however, that not more than one percent of said contribution shall be made to the plan established to provide said life and disability benefits; and provided, further, that the balance of said contribution shall be remitted to the appropriate provider for application to the participating employee's contract or custodial account, less any monthly fees established by the council and approved in advance by the state comptroller in order to cover the reasonably necessary direct costs incurred by the council in establishing and administering the plan; and provided, further, that no funds shall be invested in any bank or financial institution which directly or through any subsidiary has outstanding loans to any individual or corporation engaged in the manufacture, distribution or sale of firearms, munitions, including rubber or plastic bullets, tear gas, armored vehicles or military aircraft for use or deployment in any activity in Northern Ireland, and no assets shall be invested in the stocks, securities or other obligations of any such company so engaged.

(c) If any eligible employee is a member of any retirement system established under the provisions of said chapter thirty-two at the time such employee elects to participate in the optional retirement program, the employee may direct that the amount of the accumulated total deductions, and any interest to which the employee would be entitled under said chapter thirty-two if the employee withdrew from the system, credited to such employee's account in such retirement system be transferred directly to such employee's account in the optional retirement program. Any such transfer shall be made in the form of a direct trustee-to-trustee transfer in compliance with the requirements of subchapter D of chapter one of the federal Internal Revenue Code.

(d) The funds accumulated under the optional retirement program shall be exempt from taxation. The rights of a participant to a custodial account, an annuity, the annuity contracts or certificates providing coverage to participants, and all right in and to the funds accumulated under the custodial accounts, annuity contracts or certificates shall be exempt from taxation, including income taxes levied under the provisions of said chapter sixty-two. No assignment of any right in or to any funds or annuities under the optional retirement program shall be valid except such assignment as may be made for the purpose of making restitution in the case of dereliction from duty by any participant as set forth in section fifteen of said chapter thirty-two as long as such assignment does not violate the restrictions of the Internal Revenue Code; provided that nothing in this section shall prevent a participant's custodial account or annuity from being attached, taken on execution, assigned, or subject to other process to satisfy a support order under chapter two hundred and eight, two hundred and nine, or two hundred and seventy-three as long as such order constitutes a qualified domestic relations order under the terms of the Internal Revenue Code.

(e) Any eligible employee enrolled in the optional retirement program who retires and wishes to retain his group insurance coverage as provided in chapter 32A, or retires and wishes to enroll in group insurance coverage pursuant to said chapter 32A, may do so in the same manner, and subject to the same limitations and requirements as an active employee member of the state retirement system. Any eligible employee enrolled in the optional retirement program who retains or enrolls in the group insurance coverage upon retirement shall be deemed to have authorized his optional retirement program plan provider to deduct from the retired employees account, on a monthly basis, and forward to the group insurance commission, an amount equal to the retired employee's share of the premium as set by said chapter 32A and each annual appropriation act. Each optional retirement program plan provider shall be required to deduct and forward said premium amounts, as determined by the group insurance commission, to the group insurance commission in advance of the month for which the premium is due and in a manner as may be prescribed by the group insurance commission. For group insurance commission purposes employees who were members of the state retirement system when they became eligible to participate in the optional retirement program, and who then enrolled in the optional retirement program, may add their time in the state retirement system to their time in the optional retirement program in determining years of creditable service.

(f) After December 31, 1995, no contribution shall be made under any provision of this section in excess of, or on the basis of compensation in excess of, any limitation that may be imposed pursuant to federal law, including, but not limited to, the limitations in 26 U.S.C. sections 401(a)(17), 402(g), 403(b) and 415, to the extent such limitations apply. The board of higher education may adopt rules and regulations as it deems necessary from time to time to effectuate the purposes of this section, including, but not limited to, rules or regulations establishing such limitations only when it determines that such limitations are necessary to comply with applicable provisions of the United States Internal Revenue Code. For these purposes section 13212(d)(3) of the Revenue Reconciliation Act of 1993, Public Law 103–66, which provides for a special governmental limit under 26 U.S.C. section 401(a)(17), and section 1.401(a)(17)–1(d)(4) of the United States Treasury Regulations, which provides rules implementing said section 13212(d)(3), shall apply to all members in service who were members in service on or before December 31, 1995.