HBA-ATS H.B. 1173 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1173 By: Yarbrough Pensions and Investments 5/27/1999 Enrolled BACKGROUND AND PURPOSE In 1997, the 75th Texas Legislature repealed Article 6243e.2, V.T.C.S., and created Article 6243e.2(1), V.T.C.S. Enacted in 1975 to benefit the City of Houston's firefighters' pension fund, which had sought independent statutory authority, Article 6243e.2 established and governed a firefighters' relief and retirement fund for firefighters in cities having a population not less than 1,200,000. At that time, Houston was the only city in Texas that satisfied the population requirement. In fact, the Houston firefighters' fund continued to be the only fund governed by Article 6243e.2 until its repeal. Today, Article 6243e.2(1), V.T.C.S., governs the firefighters' relief and retirement fund for firefighters in cities having a population not less than 1,600,000. According to the 1990 Census of Population and Housing, Houston is the only city in Texas with a population greater than 1,600,000. H.B. 1173 increases or enhances some of the benefits firefighters or their beneficiaries are entitled to receive. For example, this bill requires the board of trustees (board) of a firefighter's relief and retirement fund to pay supplemental benefits to retired members and eligible beneficiaries. Before supplemental benefits can be paid, the fund actuary must determine that, as of the end of any fund fiscal year, the value of the fund's assets exceeds the amount of the fund's accrued liability, the fund's gross rate of return on investments for that fiscal year exceeds 9.25 percent, and payment of supplemental benefits will not result in an increase of a municipality's contribution rate. The lumpsum payment for each retired member or eligible beneficiary is based on the lesser of the amount by which the value of the fund assets exceeds the amount of accrued liability, or $4 million. In addition, this bill requires the board to pay an additional lump-sum benefit of $4,000 to members who retire or retired after completing 20 years of service after June 30, 1998, or to beneficiaries of a member whose death occurs or occurred after June 30, 1998. This bill also increases from five years to seven years the anniversary date of a member's deferred retirement option plan (DROP) election after which subsequent deductions from the member's salary are prohibited from being credited to a member's DROP account or from increasing any benefit payable from the fund for a member's service. Other provisions of H.B. 1173 affect the operation of the board of trustees. This bill requires a municipality to allow board trustees the time required to travel to and attend educational workshops and legislative hearings and meetings regarding proposed amendments to the legislation governing their fund. This bill also authorizes the board to purchase with its funds a life insurance policy from a licensed insurer to cover lump-sum death benefits that may become payable to a member's eligible survivor or estate. Additionally, this bill authorizes a board to pay with fund assets the reasonable expenses incurred in providing annual or semiannual meetings of retired members, spouses of retired members, and eligible survivors that help communication regarding benefits paid from the fund. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 1(11), Article 6243e.2(1), V.T.C.S., to redefine "firefighter" to include a member who has made a deferred retirement option plan (DROP) election, but is otherwise a full-time, fully paid, active, classified member of a regularly organized fire department of an incorporated municipality. SECTION 2. Amends Section 2(l), Article 6243e.2(1), V.T.C.S., as follows: (l) Requires a municipality with a population of at least 1,600,000 (municipality) to allow municipal employees who are board trustees to promptly attend all board and committee meetings. Requires those employees to provide the municipality with reasonable notice of their absence from work for regularly scheduled board and committee meetings. Requires a municipality to allow board trustees the time required to travel to and attend educational workshops and legislative hearings and meetings regarding proposed amendments to this article, if attendance is consistent with a board trustee's duty to the board. Prohibits a municipality from using the travel and attendance requirements to reduce or withhold the wages a trustee would otherwise earn. Authorizes a board to reimburse from the fund a municipality for costs incurred by the municipality for allowing a trustee's attendance. SECTION 3. Amends Section 3, Article 6243e.2(1), V.T.C.S., by adding Subsections (h) and (i), as follows: (h) Authorizes a board to purchase with its funds a life insurance policy from a licensed insurer to cover the amount of lump-sum death benefits that may become payable to a member's eligible survivor or estate. Prohibits that amount from exceeding the amount of lump-sum death benefits payable under this article. Requires a board to be the policyholder of any life insurance purchased under this subsection. Requires a board to use any proceeds received from the insurer to satisfy any lump-sum death benefits owed. (i) Authorizes a board to pay with fund assets the reasonable expenses incurred in providing annual or semiannual meetings of retired members, spouses of retired members, and eligible survivors that facilitate communication regarding benefits paid under this article, if the expenses do not materially affect the total assets of the fund. Provides that reasonable expenses may include the purchase of items or services necessary to promote and facilitate these meetings. SECTION 4. Amends Section 4, Article 6243e.2(1), V.T.C.S., by deleting existing Subsections (d) and (f). Existing Subsection (d) requires the payment of a one-time, additional lump sum of $5,000 to a member with a service or disability pension or a member's beneficiary who began receiving benefits before November 1, 1997. Existing Subsection (f) requires the one-time, additional lump sum of $5,000 to be paid to the member or to the eligible spouse of a deceased member, or if the member is deceased and there is no eligible spouse, the $5,000 benefit is required to be divided equally among and paid to each eligible child of the member, if any, or among the eligible parents of the member. Redesignates existing Subsection (e) to Subsection (d). SECTION 5. Amends Section 5, Article 6243e.2(1), V.T.C.S., as follows: Sec. 5. DEFERRED RETIREMENT OPTION PLAN. (a) Makes a conforming change. (b) Increases from five years to seven years the anniversary date of a member's DROP election after which subsequent deductions from the member's salary are prohibited from being credited to a member's DROP account or from increasing any benefit payable from the fund for a member's service. (c) Makes a conforming change. (d) Makes a conforming change. (e) Makes conforming changes. (f) Creates this subsection from existing Subsection (h), which provides a member the option of electing to receive partial payments of the balance of the member's DROP account when the member terminates active service in the DROP. Deletes existing Subsection (f) which provides a member the option of electing to receive installment payments of the balance of a member's DROP account when the member terminates active service in the DROP. Deletes existing Subsection (g) which authorizes a board to adopt by a majority vote the provisions of existing Subsections (h) and (i). (g) Redesignates existing Subsection (i) to this subsection. (h) Redesignates existing Subsection (j) to this subsection and makes conforming changes. (i) Redesignates existing Subsection (k) to this subsection and makes a conforming change. (j) Redesignates existing Subsection (l) to this subsection and makes a nonsubstantive change. (k) Redesignates existing Subsection (m) to this subsection. (l) Redesignates existing Subsection (n) to this subsection and makes a conforming change. (m) Redesignates existing Subsection (o) to this subsection. (n) Redesignates existing Subsection (p) to this subsection. (o) Adds this provision to provide that a member who has made a DROP election is not classified as retired, eligible to be paid, or eligible to accrue or to receive any benefit that is accrued or received by a member who has terminated active service or by the eligible survivors of deceased members unless the member who has made the DROP election has terminated active service. SECTION 6. Amends Section 6(d), Article 6243e.2(1), V.T.C.S., to provide that the amount of the disability benefit for a firefighter who becomes disabled or dies from heart or lung disease or cancer is presumed to constitute, unless the presumption is rebutted, rather than the disability benefit constitutes, the pension amount required to be used to determine the death benefit payable with respect to that member. Provides that the on-duty disability presumption may be rebutted only by clear and convincing evidence. SECTION 7. Amends Section 7(e), Article 6243e.2(1), V.T.C.S., to provide that the eligible parents, rather than the parents, of a member receiving a pension under Section 4 (Service Pension Benefits) or a disability pension under Section 6 (Disability Pension Benefits) are entitled to receive a one-time $5,000 death benefit if the member is not survived by an eligible spouse or an eligible child. Requires the $5,000 death benefit to be paid to the member's estate if the member is not survived by an eligible spouse, child, or parent. SECTION 8. Amends Section 10, Article 6243e.2(1), V.T.C.S., to change how an increase in benefits under Section 10 (Nonstatutory Benefit Increases) is effectuated by deleting the condition that benefits under Section 10 may be increased only if the increase is first approved by an actuary; by adding the provision that an actuary must determine that the increase cannot reasonably be viewed as posing a material risk of jeopardizing the fund's ability to pay any existing benefit; and by adding the provision that the State Pension Review Board must approve that determination, rather than approve the increase. SECTION 9. Amends Article 6243e.2(1), V.T.C.S., by adding Sections 10A and 10B, as follows: Sec. 10A. ANNUAL SUPPLEMENTAL BENEFIT FOR CERTAIN RETIRED MEMBERS AND ELIGIBLE SURVIVORS. (a) Requires a board to pay supplemental benefits under this section to retired members, not including deferred retirees, and to eligible survivors, not including survivors of deferred retirees, if the requirements of Subsection (b) are met. Requires a board to pay the supplemental benefits in January following a fiscal year of the fund in which the requirements of Subsection (b) are met. (b) Requires a board to pay supplemental benefits under this section if the fund actuary determines that, as of the end of any fund fiscal year the value of the fund's assets exceeds the amount of the fund's accrued liability, the fund's gross rate of return on investments for that fiscal year exceeds 9.25 percent, and payment of supplemental benefits will not result in an increase of a municipality's contribution rate. (c) Requires a board to adopt rules and procedures to govern the payment of benefits under this section. Requires a board to establish a minimum income level consistent with the national poverty level. (d) Requires a board to determine an aggregate supplemental benefit amount that is prohibited from exceeding the lesser of the amount by which the value of the fund assets exceeds the amount of accrued liability or $4 million. (e) Requires a board to determine the amount of a lump-sum payment for each retired member or eligible survivor based on the aggregate supplemental benefit amount determined under Subsection (d). (f) Requires the total number of years since the commencement date of each retired member's or eligible survivor's annual retirement or survivor benefit to be divided by the total number of years since the commencement date of all annual retirement or survivor benefits to establish a payment percentage for each retired member and eligible survivor in determining the lump-sum payment amount. (g) Requires the payment percentage of each retired member and eligible survivor to be multiplied by the aggregate supplemental benefit less the total amount of any payments made under Subsection (i) of this section. (h) Provides that the product of the computation under Subsection (g) determines the lump-sum payment to the retired member or eligible survivor unless the lump-sum payment plus the annual retirement benefit is less than the minimum income level established by the board. (i) Provides that if the lump-sum payment plus the annual retirement benefit is less than the minimum income level established by the board, the retired member or eligible survivor is entitled to receive an additional payment from the amount determined under Subsection (d) that will cause the recipient to meet but not exceed the minimum income level. (j) Provides that the benefits commencement date for a retired member or the eligible survivor of a retired member is the first day on which the retired member most recently began receiving pension benefits from the fund. Provides that the benefits commencement date for an eligible survivor of an active member is the first day of receipt of benefits as an eligible survivor. (k) Provides that notwithstanding any other provision of this section, if more than one eligible survivor is to receive a supplemental benefit as a result of one deceased person under this section, only one eligible survivor is considered in computations under this section other than computations under this subsection and as receiving the payments received by all eligible survivors of the one deceased person; and the amount of payments under this section will be paid to eligible survivors in the same manner as payments under Subsections (a) and (b), Section 7 (Death Benefits), of this article are made. (l) Provides that all actuarial determinations required under this section must be made by the fund's actuary. Sec. 10B. ADDITIONAL LUMP-SUM RETIREMENT OR DEATH BENEFIT. (a) Requires a board to pay designated people a $4,000 lump-sum payment from the fund, in addition to any other benefits, as soon as administratively practicable after the date of the person's retirement, if it occurs or occurred after June 30, 1998. Those designated people are members who retire or retired after completing 20 years of service and are eligible to receive service pension benefits under Section 4 of this article, and members who retire or retired and are eligible to receive disability benefits under Section 6 of this article. (b) Requires a board to pay a $4,000 lump-sum payment from the fund to an eligible survivor of a member whose death occurs or occurred after June 30, 1998, who had not terminated active service, and who was ineligible to receive service pension benefits under Section 4 of this article or disability benefits under Section 6 of this article. (c) Provides that if more than one eligible survivor of one deceased member exists, the amount of each survivor's benefit is determined in the same manner as payment of death benefits is determined under Section 7(e) of this article. Requires the board to make payments under Subsection (b) of this section as soon as administratively practicable after the date of death of the member of whom each recipient is an eligible survivor. SECTION 10. Amends Sections 13(b) and (h), Article 6243e.2(1), V.T.C.S., as follows: (b) Deletes the requirement that a board establish minimum physical requirements for membership in a fund that cannot exceed those established by the Fire Fighters' and Police Officers' Civil Service Commission. Adds the provision that results of a physical examination will be forwarded to the board for the purpose of determining whether the applicant has a preexisting condition that would be relevant to any determination under Section 6, rather than forwarded to the board to determine eligibility for membership in the fund and the existence of any preexisting condition. Authorizes the board to require additional physical examinations if necessary in determining the presence or absence of any preexisting condition, rather than to determine whether an applicant meets the minimum physical requirements for membership in the fund. Deletes several provisions establishing procedures for notifying an applicant who has failed to meet the minimum physical standards and for appealing that determination. (h) Makes a conforming change. SECTION 11. Effective date: November 1, 1999. SECTION 12. Emergency clause.