HBA-SEB H.B. 1537 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1537 By: Puente Pensions and Investments 3/3/1999 Introduced BACKGROUND AND PURPOSE Currently, paid firefighters and police officers who serve in a municipality with a population of 750,000 or more that has adopted Chapter 174, Local Government Code (Fire and Police Employee Relations), participate in the firefighters' and police officers' retiree health care fund (fund). The 1997 Texas Legislature, Regular Session, established the fund as a separate and distinct statutory trust governed by a board of trustees (board) in each municipality. H.B. 1537 amends and clarifies administrative provisions concerning the fund to be consistent with procedures in practice and provides clarification of the board's power and authority. 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 1.02, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to define "active member," "beneficiary," "collective bargaining agreement," "firefighter," "police officer," "retiree," and "trustee." Redefines "board." Redesignates Subdivision (2) to (6). Makes conforming changes. SECTION 2. Amends Section 1.04, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), as follows: Sec. 1.04. New title: FUND; STATUTORY TRUST. Provides that the firefighters' and police officers' retiree health care fund (fund) is established for each municipality to which this Act applies. Requires the board of trustees of a fund (board) to administer and hold in trust the assets of the fund for the exclusive benefit of the beneficiaries of the fund. Authorizes the board to pay from the fund reasonable administrative expenses incurred in administering the fund. Prohibits a public or private agency, entity, or authority from altering or impairing any contract made by the board or under the authority or direction of the board. Makes a conforming change. SECTION 3. Amends Section 1.05, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to make nonsubstantive changes. SECTION 4. Amends Sections 2.01(a) and (b), Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to provide that retired firefighters and police officers who are beneficiaries of the fund and the surviving spouses of deceased firefighters and police officers elect two retirees by a majority vote, one to represent the fire department and the other to represent the police department on the board. Requires the board, through its secretary, to administer the required elections of the active members and retiree trustees. Requires the board to hold a runoff election between the two candidates receiving the most votes if no candidate receives a majority of the votes cast for a trustee position. Makes conforming and nonsubstantive changes. SECTION 5. Amends Section 2.02, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), as follows: Sec. 2.02. New title: TERMS OF TRUSTEES. SECTION 6. Amends Sections 2.02(c), (d), and (e), Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to make conforming changes. SECTION 7. Amends Section 2.03, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), as follows: Sec. 2.03. New title: RESIGNATION OR REMOVAL OF TRUSTEES. SECTION 8. Amends Sections 2.03(a), (c), and (d), Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), as follows: (a) Authorizes a trustee who is a retiree or an active member of the fund to resign or be removed by a vote of the group eligible to elect the trustee. Deletes existing text regarding authorization to remove a trustee. (c) Makes conforming and nonsubstantive changes. (d) Provides that a trustee who was removed is not eligible to run in the special election held to fill the vacancy for the trustee's unexpired term but is eligible to run in all subsequent elections in which the person is otherwise eligible to run. Makes conforming and nonsubstantive changes. SECTION 9. Amends Section 2.04, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to provide that the treasurer, rather than the finance director, of the municipality is the treasurer of the board. Makes a conforming change. SECTION 10. Amends Section 2.06, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), as follows: Sec. 2.06. New title: MEETINGS; QUORUM. Provides that five trustees constitute a quorum. Authorizes the board to act with the consent of a majority of the members who are present at a board meeting at which a quorum is present. Creates Subsection (a) from existing text. Makes a nonsubstantive change. SECTION 11. Amends Section 2.07(b), (c), (f), and (h), Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to provide that a committee of the board must be composed of not fewer than three and not more than four trustees, except as otherwise specifically provided by the board. Authorizes the appointment of permanent or standing committees. Makes conforming and nonsubstantive changes. SECTION 12. Amends Section 3.01, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to provide that the board has complete authority and power to administer the fund for the exclusive benefit of the fund's beneficiaries, order payments from the fund, independently control the fund, and conduct all litigation on behalf of the fund. Authorizes the board to contract with a municipality or other entity for the administration of benefit claims of beneficiaries, administrative expenses, and other administrative services approved by the board, including the payment of claims or expenses from money in the fund. Requires the board to adopt rules necessary for the board's effective operation, including rules relating to the disbursement of the fund's assets and the name of the board and the fund. Requires the board to take any action necessary to ensure that contributions to the fund and benefits received from the fund are exempt from federal taxes and excluded from a beneficiary's taxable income. Redesignates Subsection (c) to (e). Makes conforming and nonsubstantive changes. SECTION 13. Amends Section 3.02, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to provide that the municipality has the authority and power to contract with the board and provide services through a subcontractor under Section 3.01. Establishes that the municipality has the authority and power to take any action necessary to ensure that contributions to the fund and benefits received from the fund are exempt from federal taxes and excluded from a beneficiary's taxable income. Makes conforming changes. SECTION 14. Amends Article 3, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), by adding Sections 3.04 and 3.05, as follows: Sec. 3.04. INSURANCE. Authorizes the board to use fund assets to purchase insurance from any insurer licensed to do business in this state that provides for reimbursement of the fund and any trustee, officer, or employee of the fund for liability imposed or damages incurred because of an alleged act, error, or omission committed in the capacity of a fiduciary, officer, or employee and the costs and expenses incurred in defense of such a claim. Prohibits the board from purchasing insurance for reimbursement of a trustee, officer, or employee of the fund for liability imposed on that person because of the person's dishonesty, fraud, lack of good faith, or intentional failure to act prudently. Sec. 3.05. INDEMNITY. (a) Authorizes the board to indemnify a trustee, officer, or employee of the fund for liability imposed as damages and for reasonable costs and expenses incurred in defense of a claim of an alleged act, error, or omission committed by the person in the capacity of a fiduciary, officer, or employee if insurance purchased by the board for that purpose is unavailable, insufficient, inadequate, or otherwise not in effect. (b) Prohibits the board from indemnifying a trustee, officer, or employee of the fund for liability or expenses incurred because of the person's dishonesty, fraud, lack of good faith, or intentional failure to act prudently. (c) Prohibits a trustee from voting on a matter of the trustee's own indemnification or from being counted in determining whether a quorum is present for the vote. (d) Authorizes the board to adopt a policy establishing a method for presentation, approval, and payment of claims for indemnification. (e) Authorizes the board to indemnify a former trustee, officer, or employee of the fund for an alleged act, error, or omission committed by the person in the capacity of a fiduciary, officer, or employee and for reasonable costs and expenses incurred in defense of such a claim if insurance purchased by the board for that purpose is unavailable, insufficient, inadequate, or otherwise not in effect. (f) Authorizes the board to authorize indemnification of a current or former trustee, officer, or employee of the fund regardless of when the alleged act, error, or omission occurred, provided that the person is considered liable for the alleged act, error, or omission in relation to the person's capacity as a current or former trustee, officer, or employee of the fund. SECTION 15. Amends Section 4.01, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to require membership in the fund to be determined by collective bargaining agreements. Makes conforming changes. SECTION 16. Amends Section 4.02, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to require contributions to the fund to be determined in accordance with the collective bargaining agreements. Provides that the municipal contribution to and health benefits paid from the fund are a part of the compensation for services rendered to the municipality. Deletes existing text regarding the tax treatment of employer contributions. Redesignates Subsection (d) to (c). Makes conforming and nonsubstantive changes. SECTION 17. Amends Section 4.03, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), as follows: Sec. 4.03. New title: RIGHTS OF BENEFICIARIES AND MEMBERS; ASSOCIATION. Entitles beneficiaries and members, rather than only members, of the fund to all rights otherwise provided to the beneficiaries or members under state or federal statute. Provides that this fund is intended to be a voluntary employee's beneficiary association as described by Section 501(c), Internal Revenue Code of 1986 (Exemption from Tax on Corporations, Certain Trusts, etc.), as amended. Authorizes the board to take any action necessary to ensure that the fund is classified as such. SECTION 18. Amends Section 5.01, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to require retirement health benefits to be determined in accordance with the collective bargaining agreements. Makes a conforming change. SECTION 19. Amends Section 6.01, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to require the treasurer to submit monthly reports to the board showing all fund receipts and disbursements. Establishes that the duties imposed on the treasurer of the fund under this Act and any services provided to or on behalf of the fund by the treasurer under a contract with the municipality are considered additional duties for which the treasurer is liable under oath and bond as the treasurer of the municipality. Redesignates Subsection (c) to (d). Makes conforming changes. SECTION 20. Amends Section 6.03(a), Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to make a nonsubstantive change. SECTION 21. Amends Section 6.04(c), Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to authorize the board, at its discretion, to establish an organization, rather than a corporation, described by Section 501(c)(25), Internal Revenue Code of 1986, as amended, to hold title to real estate owned by the funds. SECTION 22. Amends Section 6.05, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to authorize the board to contract for attorneys in addition to professional investment management services, financial consultants, independent auditors, and actuaries. Authorizes the board to engage in a securities lending program consistent with the benefits payable to beneficiaries, rather than to plan participants and their beneficiaries. Makes a conforming change. SECTION 23. Amends Section 7.01, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), to prohibit a trustee, the executive director, or any employee of the fund from buying, selling, or exchanging any property to or from the fund, from dealing with assets of the fund in the person's own interest or for the person's own account, or from receiving any consideration from any person dealing with the fund. Deletes existing text regarding further specific standards of conduct. Makes conforming and nonsubstantive changes. SECTION 24. (a) Repealer: Article 8, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), (Transition; Effective Date; Emergency). (b) Repealer: Section 3.03, Chapter 1332, Acts of the 75th Legislature, Regular Session, 1997 (Article 6243q, V.T.C.S.), (Order for Payments). SECTION 25. Effective date: October 1, 1999. SECTION 26. Makes application of this Act prospective. SECTION 27. Emergency clause.