HBA-SEB H.B. 1697 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1697 By: Greenberg Pensions and Investments 7/9/1999 Enrolled BACKGROUND AND PURPOSE Municipalities with populations between 460,000 and 500,000 have retirement systems in place for the employees of those municipalities. H.B. 1697 modifies the statutes governing those retirement systems by providing disability benefits for off-the-job injuries or illness after five years of service, amending the rights of members participating in the proportionate retirement program, providing additional opportunities for voting members to fill a vacancy on the retirement system's board of trustees, establishing lump-sum distributions to retirees without affecting base annuities, increasing the benefit multiplier from 2.6 to 2.7, and allowing additional benefit improvements contingent on increased contributions and actuarial soundness. 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 2, Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), to redefine "agency of the municipality," "beneficiary," "creditable service," "current service annuity," "designated beneficiary," "employer," "Fund No. 2," "investment manager," "malfeasance," "normal retirement age," "normal retirement date," "prior service pension," "regular full-time employee," "retired member," "retirement allowance," "retirement system," "retirement system," "retirement and pensioning system," "pension system," and "system." SECTION 2. Amends Section 3, Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), to require members of the a retirement system created by this Act for a city having a population of 460,000 to 500,000 (retirement system) who retired and the beneficiaries of members who died prior to October 1, 1999, rather than September 1, 1997, to continue to receive the same retirement allowances or benefits that they were entitled to receive prior to that date, together with any benefit increases, rather than cost of living adjustments, authorized under this Act. Makes conforming changes. SECTION 3. Amends Section 4, Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), as follows: Sec. 4. ADMINISTRATION. (a) Provides that the retirement board of the retirement system (retirement board) has the power and responsibility for the proper and effective general administration, management, and operation of the retirement system for the exclusive benefit of its present and future members and their beneficiaries. Deletes existing text requiring the retirement board to be organized immediately after its members have qualified and taken the oath of office. (b) Sets forth the composition of the retirement board. Deletes existing text authorizing the removal and replacement or redesignation of the place one member of the 11 retirement board members by the city council of a municipality (governing body) at any time. (c) Requires the retirement board to appoint an active-contributory member to fill a vacancy on the retirement board for a member in the sixth through ninth places whose term on the retirement board is eliminated early if the remainder of the unexpired term is 364 days or fewer and, if 365 days or more, to fill the vacancy by a vote of the activecontributory members at a special election. Requires the retirement board to appoint a retired member of the retirement system (retired member) to fill the remainder of an unexpired term in the 10th or 11th place on the retirement board if the unexpired term is 364 days or fewer and, if 365 days or more, to fill the vacancy by voting at a special election. (d) Makes a conforming change. (e) Redesignated from Subsection (d)(1). Requires only one active-contributory member to be eligible for election from any one department or office or similar organizational unit that is established in the annual budget of a city or municipality (employer) and that is not a part of any other department. Makes a conforming change. (f) Redesignated from Subsection (d)(2). (g) Redesignated from Subsection (d)(3). Deletes text regarding elections for place ten. (h) Redesignated from Subsection (d)(4)(A). (i) Redesignated from Subsection (d)(4)(B). (j) Redesignated from Subsection (d)(5). (k) Redesignated from Subsection (d)(6). Requires elections for places six through nine on the retirement board to be held in December of odd-numbered years and elections for places ten and eleven to be held in December of every second even-numbered year. Makes conforming changes. (l) Redesignated from Subsection (d)(7). (m) Redesignated from Subsection (d)(8). Requires the retirement board to approve written procedures that include comprehensive provisions prescribing the conduct of the election and early voting. (n) Redesignated from Subsection (e). Requires each member of the retirement board to take an oath of office within 30 days after appointment or election. Makes conforming changes. (o) Redesignated from Subsection (f). Requires the retirement board to elect a presiding officer and an assistant presiding officer, rather than a chairman and a vice chairman, from its membership for one calendar year terms. (p) Redesignated from Subsection (g). Requires the retirement board to hire a pension director, rather than a pension officer, as an employee of the retirement board. Requires the retirement board to establish, consistent with this Act, the title and duties of the pension director. Requires the pension director to employ a staff of the retirement system, rather than a staff of the retirement board. Makes conforming changes. (q) Redesignated from Subsection (h). Requires the retirement board to establish rules and regulations for the administration of the funds authorized to be created hereunder and for the transaction of the retirement system's business, rather than the retirement board's business, subject to this Act. Makes a nonsubstantive change. (r) Redesignated from Subsection (i)(1). Requires each employer to provide to the retirement board the records that are useful for the board's administration of the retirement system or the fund containing the aggregate of the assets of the members' contributions and the city's contributions (fund). (s) Redesignated from Subsection (i)(2). (t) Redesignated from Subsection (i)(3). Requires the retirement board to order payments from the fund in accordance with this Act. Authorizes the retirement board to increase the benefits and allowances to be paid from the fund in accordance with this Act and to increase the benefits and allowances the board pays from the fund under Subsection 10(g) (regarding obtaining an actuarial study to show that the proposed change will not make the fund financially unsound). Requires the retirement board to collect all underpayments and refund all known overpayments made to the system, if practicable. Makes conforming changes. (u) Redesignated from Subsection (i)(4). Requires the retirement board to keep a record of the names and amounts paid to retired members, surviving spouses, and beneficiaries. Provides that a certified public accounting firm selected by the retirement board performs an annual independent audit of the system accounts. (v) Redesignated from Subsection (i)(5). (w) Redesignated from Subsection (i)(6). (x) Redesignated from Subsection (i)(7). Makes a nonsubstantive change. (y) Redesignated from Subsection (i)(8). (z) Redesignated from Subsection (j). Makes a nonsubstantive change. (aa) Redesignated from Subsection (k). Authorizes the retirement board to adopt rules, establish policies, regulations, and procedures that the retirement board considers necessary or advisable to carry out this Act. Makes conforming and nonsubstantive changes. (bb) Requires the provisions of this Act to be construed and administered in a manner that will allow the retirement system's benefit plan to be a qualified plan under Section 401(a) of the United States Internal Revenue Code of 1986 (Code) (Qualified Pension, Profit-Sharing, and Stock Bonus Plans). Authorizes the retirement board to adopt rules that modify the plan to the extent necessary for the retirement system to be a qualified plan. Requires the retirement board to adopt rules to ensure that benefits paid to a retired member or beneficiary do not exceed the limits established by Section 415 of the Code (Limitations on Benefits and Contribution under Qualified Plans). Establishes that rules adopted by the retirement board are a part of the plan. Authorizes the retirement board to adopt rules that establish a separate qualified excess benefit arrangement as defined in 26 U.S.C. Section 415 to provide any benefits that would have been provided under the qualified plan except for the limits in that section. (cc) Redesignated from Subsection (l). (dd) Redesignated from Subsection (m). Authorizes the retirement board to remove a retirement board member from office for malfeasance by a vote of six retirement board members or more at any time after notice and hearing. SECTION 4. Amends Section 5, Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), to provide that members of the retirement system who belong to the inactive-noncontributory group consists of all members whose status as an employee has been terminated before retirement or disability retirement but who are still entitled to or who may become entitled to or whose beneficiary may become entitled to benefits. Deletes existing text regarding the time frame in which an employee becomes an active-contributory member of the retirement system. Makes conforming and nonsubstantive changes. SECTION 5. Amends Sections 6(c), (d), and (e), Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), as follows: (c) Establishes the types of uniformed service that is required to be credited in the retirement system. Authorizes a member to use uniformed service to establish creditable service for an authorized leave of absence for military service under certain conditions. Authorizes a member to establish the credit by making periodic payments or a lump-sum payment. Sets forth the procedure for making periodic payments or a lump-sum payment. Prohibits a member's lump sum contribution from exceeding the amount required under the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended, if the member makes the contributions within the time required by that Act. Requires the member's employer to make contributions as though the member had continued employment at the same salary as the member's last pay period. Requires the employer's contributions to be made each pay period if the member is making periodic payments. Provides that a member accrues membership service for the pay periods in which the member makes a deposit, and that membership service credit accrues at the time of credit. Authorizes a member to establish uniformed creditable service for specific active federal duty service for which the member must contribute a lump-sum equal to 25 percent of the estimated cost of the retirement benefits the member will be entitled to receive. Provides that the retirement board will determine the required contribution based on a specific procedure. Makes conforming changes. (d) Authorizes the employer of a member to purchase additional creditable service for the member that is required to be credited to the member. Deletes existing text regarding a member's qualification for unreduced retirement benefits at age 55. (e) Makes a nonsubstantive change. SECTION 6. Amends Section 7, Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), as follows: Sec. 7. New title: SERVICE RETIREMENT AND WITHDRAWAL BENEFITS. (a) Entitles a member to a distribution of the member's accumulated deposits in a single lump sum if the member's employment terminates before the member's normal retirement date, unless Section 8 of this Act applies. Deletes existing text regarding the entitlement of a member to withdraw deposits after 20 years of service on attaining age 55. Makes a conforming change. (b) Provides that unless a member is eligible and participates in the proportionate retirement program, the member is not entitled to receive a retirement allowance if the member terminates employment with the employer and has less than five years of creditable service. (c) Makes a nonsubstantive change. (d) Redesignated from Subsection (d)(1). Authorizes the retirement board to authorize once each December a cost of living adjustment (adjustment) or a lump-sum additional benefit payment that shall be paid to each retired member or beneficiary who became entitled to benefits on or before December 31 of the year before the year in which the additional payment is approved. (e) Makes conforming and nonsubstantive changes. (f) Redesignated from Subsection (d)(2). Makes conforming changes. (g) Redesignated from Subsection (d)(2)(A). Makes conforming and nonsubstantive changes. (h) Redesignated from Subsection (d)(2)(B). Makes conforming changes. (i) Redesignated from Subsection (d)(2)(C). Prohibits the amount of an adjustment or additional payment from exceeding an amount equal to the amount of the monthly payment being received by a member before the addition of any adjustment made during that year if the payment is an additional payment. Requires the adjustment or additional payment to be prorated for members who retired during the year in which the adjustment or additional payment is authorized. Makes conforming changes. (j) Redesignated from Subsection (d)(3). Makes a conforming change. (k) Redesignated from Subsection (e). Requires any member to be eligible for proportionate retirement if the member qualifies for retirement by reason of creditable service attained with one or more retirement programs participating in the proportionate retirement program established by state law. Requires a member who qualifies for proportionate retirement and retirees to begin receiving the retirement benefits beginning on the last day of the month after the month in which the member retired. Deletes existing text regarding early retirement. (l) Redesignated from Subsection (f). Deletes existing text establishing Option V (Level Income Option) and Option VI (66-2/3 Percent Joint and Survivor/Level Income Option). Redesignates Subdivisions (7) and (8) to (5) and (6), respectively. Redesignates Option VII to Option V (15-Year Certain and Life Annuity) and Option VIII to Option VI (Equivalent Benefit Plan). (m) Redesignated from Subsection (g)(1). Makes conforming changes. (n) Redesignated from Subsection (g)(2). (o) Redesignated from Subsection (h). Makes a conforming change. (p) Redesignated from Subsection (i). (q) Redesignated from Subsection (j). (r) Redesignated from Subsection (k)(1). Requires a member's accumulated deposits to be returned to the member or the member's beneficiary within seven years after termination of employment by a member with less than five years of creditable service if a designation of intent to participate in proportionate retirement has not been filed with the retirement system or a prior demand for withdrawal of accumulated deposits has not been made. Makes conforming changes. (s) Redesignated from Subsection (k)(2). Redesignates Subsections (k)(2)(A)-(D) to Subsections (s)(1)-(4). (t) Redesignated from Subsection (k)(3). (u) Requires a member's account to be reinstated and credited, but not refunded, and requires the member to receive a proportionate retirement allowance if the member's accumulated deposits are not withdrawn and the member gives intent to participate in proportionate retirement. Entitles the member to receive a proportionate retirement allowance. (v) Requires the retirement board to consider the system's records and evidence presented by a member or beneficiary in determining if any payment is due if a demand for withdrawal of funds is made after the 10th anniversary of the date of termination of employment and system records do not affirmatively establish that the accumulated deposits remain in the fund. Establishes that the member or beneficiary bears the burden of proof. Provides that a decision made by the retirement board is final. (w) Redesignated from Subsection (l). (x) Redesignated from Subsection (m). (y) Redesignated from Subsection (y). (z) Requires the reduced annuity of a retired member who elected the optional lifetime retirement annuity to be increased to the standard service retirement annuity that the retired member would have been entitled to receive if the retired member had not selected Option I (100 Percent Joint and Survivor Annuity), Option II (50 Percent Joint and Survivor Annuity), or Option III (66-2/3 Percent Joint and Survivor Annuity) and if a person who is designated by in writing by the member under Option I, II, or III predeceases the retired member. Requires the standard service retirement annuity to be adjusted as appropriate for early retirement and for the postretirement increases in retirement benefits. Provides that an increase in the annuity is payable to the retired member for the remainder of the retired member's life. Sets forth the beginning date for an increase in the annuity. (aa) Redesignated from Subsection (o). (bb) Redesignated from Subsection (o)(1). (cc) Redesignated from Subsection (o)(2). (dd) Redesignated from Subsection (o)(3). (ee) Redesignated from Subsection (o)(4). (ff) Redesignated from Subsection (o)(5). (gg) Redesignated from Subsection (o)(6). (hh) Redesignated from Subsection (p). SECTION 7 . Amends Sections 8(a) and (d)-(i), Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), as follows: (a) Requires a member to remain in one of the following categories for 90 days following termination of employment for inability to perform all employment duties: activecontributory member, inactive-contributory member, or member on approved medical leave of absence. (d) Authorizes a member who has more than five, rather than ten, years of creditable service and who is eligible for disability retirement to apply for disability retirement if the member has become mentally or physically incapacitated for the performance of all employment duties. Makes a nonsubstantive change. (e) Deletes a provision which requires a disability retirement allowance to be computed without reduction for early retirement. Makes conforming changes. (f) Requires a member receiving a disability retirement allowance to periodically file a report with the retirement board concerning continued proof of disability. Requires the retirement board to adopt rules establishing the required supporting information to accompany the reports, the content of the reports, and deadlines for filing the reports. Requires the report to include a current statement of the member's physical or mental condition stating existence of continuing disability, signed by the member's attending physician. (g) Provides that the retirement board establishes the time frame in which a disabled member is required to submit the periodic report under Subsection (f). Authorizes the retirement board to require that all periodic reports, including the member's most recent tax return, be filed in the same calendar month. Authorizes the retirement board to verify all information submitted in the report. Makes conforming changes. (h) Provides that the pension director will be responsible for a yearly report to the retirement board listing those disabled members who should be examined. Requires the retirement board to have the right to order examinations of any person on disability retirement once each year until the member reaches the normal retirement date, rather than age 62. Requires the disability retirement allowance to discontinue if a member refuses or fails to submit to any examination by a physician appointed by the retirement board. Provides that the discontinuance of the allowance remains in place until the member has submitted to any examinations requested by the retirement board and has submitted the periodic report. Makes conforming changes. (i) Entitles a member to a life annuity if the member has five, rather than 10, or more years of creditable service and does not withdraw the excess. Makes conforming and nonsubstantive changes. SECTION 8. Amends Sections 9(a), (b), and (p), Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), as follows: (a) Prohibits the annual benefit provided to any member from exceeding the benefits allowed for a plan qualified under Section 415 of the Code, rather than $90,000, notwithstanding any other provisions of this Act. (b) Deletes existing text regarding adjustments to and limitations on the maximum benefit permitted. Makes conforming changes. (p) Requires a retired member's retirement allowance to be suspended if the retired member is employed by an employer for at least six months in any 12 consecutive calendar months and works, is budgeted, or is compensated for more than 29 hours in a calendar week. Makes conforming and nonsubstantive changes. SECTION 9. Amends Section 10, Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), by amending Subsections (a) and (d) and adding Subsection (g), as follows: (a) Requires each active-contributory member to make deposits to the retirement system at a rate equal to seven percent of the member's base compensation, pay, or salary, exclusive of overtime, incentive, or terminal pay, or at a higher contribution rate approved by a majority vote of regular full-time employee members. Requires deposits to be made each pay period by payroll deduction. Requires a member who chooses to be an inactivecontributory member and is eligible for that status to make deposits to the retirement system each pay period in an amount that is equal to the amount of the member's deposit for the last complete pay period that the member was a regular full-time employee. Authorizes the regular full-time employee members to increase each member's contributions above seven percent or above the higher rate in effect and approved by a majority vote. (d) Requires expenses for administration and operation of the retirement system that are approved by the retirement board to include annual audits by independent certified public accountants. (g) Authorizes the retirement board to provide additional member benefits, reduce the requirements for unreduced retirement benefits, or increase any retirement allowance or other benefit under this Act, notwithstanding any other provision of this Act, if the retirement board obtains an actuarial study indicating that a proposed change will not make the fund financially unsound and the proposed change is not inconsistent with the Code. SECTION 10. Amends Section 11(e), Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), to make a nonsubstantive change. SECTION 11. Amends Sections 12(d) and (e), Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), as follows: (d) Prohibits a municipality or its governing body from denying or abridging a vested right of any member or a right or privilege of the retirement system. Requires the retirement system to continue to be authorized by and administer this Act without regard to any action taken by the municipality or its governing body. Provides that this subsection applies notwithstanding any other provision of this Act. Deletes existing text regarding a highly compensated employee. (e) Redesignates Subdivisions (1)-(4) to Subdivisions (1)(A)-(D). Makes a conforming change. SECTION 12. Amends Sections 13(a) and (c), Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991), to make conforming changes. SECTION 13. Provides that a retirement allowance being paid to a member who retired before October 1, 1999, or the beneficiary of a member, is changed beginning with the payments due at the end of October 1999. Establishes that this change is made to reflect the change in the benefit multiplier to 2.7 percent effective October 1, 1999. Specifies that the amount of the change for a member or a beneficiary of a member is equal to the percentage multiplied by the retirement allowance otherwise due. Provides that the percentage is equal to 3.85 percent. SECTION 14. Repealers: Section 2(24) (definition of "hospital authority) and Sections 9(c)-(o) (regarding a $90,000 maximum benefit), Article 6243n, V.T.C.S. (Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991). SECTION 15. Effective date: October 1, 1999. SECTION 16. Emergency clause.