HBA-SEB H.B. 1392 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1392 By: Kuempel Pensions and Investments 2/26/1999 Introduced BACKGROUND AND PURPOSE The Texas Municipal Retirement System (retirement system) admininisters retirement, disability, and death benefits to employees of Texas cities that voluntarily elect to participate in the retirement system. The plan of each of the 720 participating cities is separately funded. Employees contribute a portion of their compensation at a percentage selected by the municipality, and employers contribute as actuarially determined necessary to be for the level of benefits selected. H.B. 1392 modifies the statutes which govern the retirement system (Subtitle G, Title 8, Government Code) by increasing the cap on partial lump-sum distribution accessible to a retiree, providing for prorated interest to apply to a member account in the year of retirement, creating a new benefit for the beneficiary of a vested member, indexing the benefit formula for occupational disability retirees to the Consumer Price Index, mandating direct bank deposit for a new retiree, and making technical provisions. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the board of trustees of the Texas Municipal Retirement System in SECTION 15 (Section 855.116, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 851.001, Government Code, by adding Subdivision (16), as follows: (16) Defines "member" as a person for whom an account has been established in the employees saving fund and whose membership has not terminated under Section 852.104 (Termination of Membership). SECTION 2. Amends Subchapter B, Chapter 852, Government Code, by adding Section 852.110, as follows: Sec. 852.110. CORRECTION OF ERRORS. (a) Requires the Texas Municipal Retirement System (retirement system) to correct a reporting error on the part of a municipality if, as a result of the error, a person has not received credited service or current service credit or has received less than the correct amount of service credit for months in which the person served as an employee of the municipality. (b) Prohibits a correction from being made for service performed more than four years before the date an application for the correction is received by the retirement system. Specifies that the board of trustees of the retirement system (board) approve the form on which a person applies for correction of service credit. (c) Prohibits a correction from being made, except as provided by Subsection (g), unless the retirement system receives, in addition to the application, each of the items required under Subsection (d) and either a written agreement, approved by the municipality's governing body, stating that an error has occurred and that the municipality has agreed to correct the error, a final judgment by a court of competent jurisdiction ordering the municipality to correct the error, or an order in an administrative proceeding that is no longer subject to appeal which directs the subdivision to correct the error. (d) Prohibits a correction from being made unless the retirement system receives a supplemental report properly signed on behalf of the municipality showing the corrections to a person's credit, payment from the person seeking the correction in an amount equal to the contribution or additional contribution the person would have made to the retirement system if the service had been correctly reported to the system, and payment from the municipality in an amount equal to the contribution that the municipality should have paid to the retirement system based on the additional credit. (e) Requires a municipality that is the subject of an agreement, judgment, or order described by Subsection (c) to file the supplemental report and submit the payments no later than 30 days after the date the municipality is notified in writing by the retirement system that those items should be sent to the retirement system. (f) Requires the retirement system to correct a reporting error on the part of a participating municipality on written application to the retirement system if, as a result of the error, a person has not received prior service credit. Requires the retirement system to correct the error if the application is accompanied by evidence of the prior service satisfactory to the retirement system and if the retirement system receives the application for the correction within four years after the date the municipality began participation or the person first became a member of the retirement system, whichever is later. (g) Authorizes the correction of an error affecting three monthly reports within a period of three consecutive months, at most, to be made on the basis of the application alone if the application, supplemental report, and payments are received by the retirement system before the first day of the seventh month after the month for which the correction is being made. SECTION 3. Amends Section 853.401(c), Government Code, to authorize the percentage of base updated service credits adopted through ordinance by a governing body under this section (Ordinance Authorizing Updated Service Credits) and used in computing updated service credits for employees of the municipality to be 50, 75, or 100 percent of a base updated service credit. Provides that a percentage adopted by the governing body of a municipality under Section 853.404(a) and in effect on December 31, 1999, remains in effect until changed or discontinued under Section 853.404 (Allowance of Updated Service Credit and Annuity Increases). SECTION 4. Amends Subsection 853.402(b), Government Code, to provide that if a member did not perform any service within the 36-month period before January 1 of the year immediately preceding the January 1 on which the updated service credits will take effect, then the average updated service compensation of a member is computed as the monthly average compensation for the most recent 36-month period in which the member performed service. Makes conforming changes. SECTION 5. Amends Section 854.002, Government Code, by adding Subsection (d), as follows: (d) Provides that, notwithstanding any other provision of this subtitle (Texas Municipal Retirement System), instead of an annuity, a person will receive from the retirement system a single payment equal to the sum of any updated service credit or any prior service, special prior service, or antecedent service credit for that person on the date of retirement, plus accumulated interest, the amount credited to the person's individual account in the employees saving fund, and the amount from the municipality accumulation fund equal to the amount in the member's individual account or a greater amount authorized by a participating municipality under Section 855.501 (Increased Current Service Annuities). Establishes that the person receives that sum if the sum is $5,000 or less on the date of that person's retirement. SECTION 6. Amends Section 854.004(c), Government Code, to provide that, except as otherwise provided by this subtitle, an annuity under this subtitle ends on the last day of the month in which death occurs, rather than on the last day of the month immediately preceding the month in which death occurs. SECTION 7. Amends Section 854.006, Government Code, by adding Subsections (f) and (g), as follows: (f) Authorizes the benefit payable to a retiree to increase to the amount that would have been payable as though the retiree had selected an annuity payable only during the retiree's lifetime if a divorce decree or qualified relations order, as that term is defined by Section 804.001 (Definitions), so provides. Provides that the increase is authorized if the proceeding in which the decree or order is entered terminates the marriage between the retiree and the person who was designated to receive the continued payment after the retiree's death, the decree or order awards the retiree all benefits resulting from the retiree's participation in the retirement system, and the decree or order is signed after December 31, 1999. This subsection applies if the retiree is receiving payments of an annuity for the retiree's life with payments to continue after the retiree's death until the death of another person under Section 854.104(c)(1), (2), or (5), Section 854.305(c)(1), (2), or (5), or Section 854.410(c)(1), (2), or (5) (regarding the payment of benefits after the death of a retiree receiving an optional service, disability, or occupational disability retirement annuity). (g) Provides that a decree or order under Subsection (f) applies only to annuity payments made after the date the retirement system receives and approves a decree or order as complying with Subsection (f). SECTION 8. Amends Section 854.008(b), Government Code, to prohibit the amount of a lump-sum distribution under this section (Partial Lump-Sum Distribution on Retirement) from exceeding threefourths, rather than one-half, of the total contributions and accumulated interest in a member's individual account in the employees saving fund at the time of the member's retirement. SECTION 9. Amends Section 854.203(b), Government Code, to provide that a multiplier used in computing annuity increases for retirees under this section (Optional Increase in Retirement Annuities) is 30, 50, or 70 percent of the sum of the prior and current service annuities, as specified by the governing body in the ordinance, except that if the governing body has specified a different percentage in an ordinance adopted under Section 853.404(c) and in effect on December 31, 1999, the percentage used in computing annuity increases for retirees of that municipality remains in effect until changed or discontinued under Section 853.404. Makes conforming changes. SECTION 10. Amends Section 854.204, Government Code, as follows: Sec. 854.204. New title: OPTIONAL BENEFIT FOR DESIGNATED BENEFICIARY OF VESTED EMPLOYEE. (a) Makes no changes. (b) Makes this section applicable to a surviving person whom a member has designated as beneficiary, rather than to the member's spouse. Makes conforming changes. (c) Makes conforming changes. (d) Authorizes a person who is beneficiary to, by written notice filed with the board within 180 days after the member dies, elect to receive a reduced annuity instead of accumulated deposits or an annuity if the person is entitled to leave accumulated deposits with the retirement system until a specific date or receive an annuity in the amount that would have been payable to the retiree if living. Provides that an annuity under this subsection is payable monthly during the person's lifetime in the amount that would have been payable to the person if the member had been eligible to retire and had retired on the last day of the month immediately preceding the month of the member's death under an optional annuity that is payable throughout the life of a person designated by the retiree. (e) Provides that if a member has designated as beneficiary a person to whom a retirement plan that is qualified under Section 401, Internal Revenue Code of 1986 (Qualified Pension, Profit-Sharing, and Stock Bonus Plans), cannot make payments for more than five years without losing its qualified status, and the beneficiary elects to receive an annuity or reduced annuity, then the annuity payable is the actuarial equivalent of the monthly payments that the beneficiary would have received if the member had retired on the date the annuity begins under the optional annuity described by Section 854.104(c)(4) (regarding the payment of 180 monthly annuity payments to the retiree's beneficiary), to be paid over 60 months. (f) Provides that if a member has designated more than one person as beneficiaries, and those persons elect to receive an annuity or reduced annuity, then the annuity payable by the retirement system is the actuarial equivalent of the monthly payments that the beneficiaries would have received if the member had retired on the date the annuity begins under the optional annuity described by Section 854.104(c)(4), to be paid over 180 months. SECTION 11. Amends Section 854.304(c), Government Code, to provide that if a retiree dies before 60 monthly payments of a standard disability retirement annuity have been made, the remainder of the 60 monthly payments is payable to the retiree's designated beneficiary. SECTION 12. Amends Section 854.305(c), Government Code, to authorize an eligible person to select an optional annuity that provides that the annuity is payable only during the retiree's lifetime. Makes a conforming change. SECTION 13. Amends Sections 854.408(a) and (b), Government Code, as follows: (a) Provides that a standard occupational disability retirement annuity is payable throughout the life of the retiree, but if the retiree dies before 60 monthly payments have been made, the remainder of the 60 monthly payments is payable to the retiree's designated beneficiary and is reducible as to any month or series of months as provided by this section (Standard Occupational Disability Retirement Annuity). (b) Prohibits the standard occupational disability retirement annuity of a retiree under age 60 from exceeding the amount that is required to be added to the retiree's monthly earned income to equal the highest average compensation earned during any 12 consecutive months during the three calendar years immediately preceding the year in which the retiree retired for disability, if greater than the monthly annuity attributable to the retiree's accumulated contributions, when the highest average compensation is multiplied by the percentage increase, if any, in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor for a specific time period. SECTION 14. Amends Section 854.410(c), Government Code, to make conforming changes. SECTION 15. Amends Subchapter B, Chapter 855, Government Code, by adding Section 855.116, as follows: Sec. 855.116. ELECTRONIC FILING OF CERTAIN DOCUMENTS. Defines "electronic filing." Authorizes the board to adopt rules and procedures relating to the electronic filing of documents with the retirement system. Provides that a document that is electronically filed in accordance with those rules and procedures is considered to have been properly filed with the retirement system. SECTION 16. Amends Section 855.205(d), Government Code, to require the actuary appointed to advise the board about the retirement system to compute the current interest rate in accordance with Section 855.316(b) (regarding computation of the interest rate), rather than Section 855.316(c) on the basis of rates and tables adopted by the board. Deletes existing text requiring the actuary to certify the amount of each annuity and benefit granted by the board. Makes conforming changes. SECTION 17. Amends Sections 855.306(b) and (c), Government Code, as follows: (b) Requires the retirement system, on a person's retirement under this subtitle on a date other than December 31, to credit interest and supplemental interest, if any, to the person's individual account at the rate credited on members' accounts for the preceding year. Establishes that the interest must be on the amount of accumulated contributions credited to the member's account on January 1 of the year in which the retirement occurs and prorated from January 1 of the year in which retirement occurs to the effective date of the retirement. (c) Prohibits the retirement system from paying interest on money in a person's individual account for a part of a year except as provided by Subsection (b). SECTION 18. Amends Section 855.311, Government Code, by adding Subsection (g), as follows: (g) Provides that distribution and payment to an annuitant under Subsection (e) (authorizing the board to distribute to all annuitants from the distributive account) must be based on a specific ratio involving the number of months elapsing since the effective date of the person's retirement if that person retired under this subtitle during the year for which the distribution and payment is made. SECTION 19. Amends Section 855.315, Government Code, by adding Subsections (d) and (e), as follows: (d) Requires the retirement system to make payments by electronic funds transfer to annuitants whose first annuity payment under this subtitle occurs after January 1, 2000. Authorizes the retirement system to use electronic funds transfers to make other payments. (e) Authorizes the retirement system to make payment by vouchers, checks, or warrants to an annuitant, notwithstanding any requirement to make a payment by electronic funds transfer. Provides that this subsection applies if making the payment by electronic funds transfer would be impractical for the retirement system, if the annuitant properly notifies the retirement system that receiving the payment by electronic funds transfer would be impractical or more costly to the person, or if the person is unable to establish a qualifying account at a financial institution to receive electronic funds transfers. SECTION 20. Amends Section 855.407(g), Government Code, to require a municipality that begins participation in the retirement system on or after December 31, 1999, and any municipality already participating on that date whose governing body elects to do so, to contribute to its account in the municipality accumulation fund at the combined rate of total compensation paid to its employees as the actuary determines is necessary to fund all obligations chargeable to its account in the fund within the municipality's amortization period, regardless of other provisions of this subtitle. SECTION 21. Effective date: December 31, 1999. SECTION 22. Emergency clause.