HBA-SEB C.S.H.B. 2701 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2701 By: Greenberg Pensions and Investments 4/30/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE C.S.H.B. 2701 modifies certain provisions of the law that governs the Teacher Retirement System of Texas (TRS). It allows a member to change beneficiaries after retirement, creates a partial lumpsum distribution option, requires employers to report to TRS information about member and employer contributions, authorizes TRS to contract for specific insurance services, and makes other amendments. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Teacher Retirement System of Texas (TRS) in SECTION 23 (Section 3, Article 3.50-4A, Insurance Code) and to the board of trustees of TRS in SECTION 9 (Section 824.2045, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 822.201, Government Code, by amending Subsection (b), as amended by Chapters 330 and 1035, Acts of the 75th Legislature, Regular Session, 1997, and adding Subsection (e), as follows: (b) Provides that the requirements of Subsection (e) are a part of performance pay awarded as part of a total compensation plan for the purpose of the definition of "salary and wages." (e) Provides that a total compensation plan must describe all elements of compensation received by all employees of the employer, provide at least one type of performance pay to classroom teachers, identify specific factors about performance pay, contain sufficient information concerning the plan to ascertain the amount of each qualifying employee's pay under the plan, contain performance criteria for earning performance pay, and satisfy any other requirements adopted by the Teacher Retirement System of Texas (TRS). SECTION 2. Amends Subchapter A, Chapter 823, Government Code, by adding Section 823.006, as follows: Sec. 823.006. PERMISSIVE SERVICE CREDIT RESTRICTIONS. Defines "nonqualified service" and "permissive service credit." Provides that the purchase of permissive service credit by a person who first becomes a member of TRS after August, 31, 2000, is subject to specific restrictions and conditions in addition to all other requirements applicable to the purchase. Establishes that the purchase by any person of permissive service credit that was first made available under TRS after December 31, 1997, is subject to those same restrictions and requirements. Prohibits a member from purchasing more than five years of permissive service credit for nonqualified service. Prohibits a member from purchasing service credit for nonqualified service before the member has at least five years of membership service credit. SECTION 3. Amends Subchapter C, Chapter 823, Government Code, by adding Section 823.203, as follows: Sec. 823.203. MEMBERSHIP SERVICE FOR OPTIONAL RETIREMENT PROGRAM. Prohibits a member from establishing service credit in TRS for any period when the member was participating in the optional retirement program. SECTION 4. Amends Sections 823.501(b) and (f), Government Code, as follows: (b) Provides that a person eligible to reinstate service credit is one who is a member, rather than a contributing member, of TRS at the time the service is reinstated. (f) Makes conforming changes. SECTION 5. Amends Section 824.101(c), Government Code, to make conforming changes. SECTION 6. Amends Section 824.1011(a), Government Code, to authorize a retiree who is receiving a standard service or disability retirement annuity and who marries after retirement to replace the annuity by selecting an optional retirement annuity and designating the person's spouse as beneficiary before the second, rather than the first, anniversary of marriage. SECTION 7. Redesignates Section 824.1012, as added by Chapter 1416, Acts of the 75th Legislature, Regular Session, 1997, as Section 824.1013. Section 824.1013, as redesignated, pertains to a change of beneficiary after retirement. SECTION 8. Amends Sections 824.203(a) and (e), Government Code, to increase the multiplier from two percent to 2.2 percent for computing a standard service retirement annuity or death benefit annuity. SECTION 9. Amends Subchapter C, Chapter 824, Government Code, by adding Section 824.2045, as follows: Sec. 824.2045. PARTIAL LUMP-SUM OPTION. (a) Authorizes a member to select a standard service retirement annuity or an optional service retirement annuity, together with a partial lump-sum distribution, if the member is eligible for an unreduced service retirement annuity and is not participating in the deferred retirement option plan (DROP). (b) Prohibits the amount of the lump-sum distribution from exceeding the sum of 36 months of a standard service retirement annuity. (c) Requires the service retirement annuity selected by the member to be actuarially reduced to reflect the lump-sum option selected be the member. Requires the service retirement annuity to be actuarially equivalent to a standard or optional service retirement annuity, as applicable, without the partial lump-sum distribution. Requires the annuity and lump sum to be computed to result in no actuarial loss to TRS. (d) Authorizes the retiring member to choose a lump sum equal to 12 months of a standard service retirement annuity and payable at the same time that the first monthly payment of the annuity is paid, a lump sum equal to 24 months of a standard annuity and payable in one or two annual payments, or a lump sum equal to 36 months of a standard annuity and payable in one, two, or three annual payments. Authorizes a payment under this subsection to be made as a direct rollover at the option of the member. (e) Provides that the amount of the lump-sum distribution will be deducted from any amounts otherwise payable under Section 824.503 (Return of Excess Contributions). (f) Authorizes the partial lump-sum option to be elected only once by a member and prohibits it from being elected by a retiree. Provides that a member retiring under the proportionate retirement program is not eligible for the partial lump-sum distribution. (g) Requires TRS to provide written notice to a member of the amount by which the member's annuity will be reduced because of the member's selection of a partial lump sum distribution. Requires the member to be asked to sign a copy of or receipt for the notice, and requires TRS to maintain the copy or receipt. (h) Authorizes the board of trustees of TRS (board) to adopt rules for the implementation of this section. SECTION 10. Amends Section 824.502, Government Code, to provide that a person eligible to elect to receive benefits on the death of an active member, instead of survivor benefits, is a person who has not selected optional disability retirement benefits. SECTION 11. Amends Sections 824.602(a) and (d), Government Code, as follows: (a) Prohibits TRS from withholding a monthly benefit payment if the retiree is employed in a Texas public educational institution in one or more positions on as much as a full-time basis of the work occurs in not more than six months of a school year that begins after the retiree's effective date of retirement, subject to Section 825.506 (Plan Qualification). Prohibits TRS from withholding the payment if the retiree is employed in a position as a classroom teacher on as much as a full-time basis, has retired without reduction for retirement at an early age, is certified to teach the subjects assigned, is teaching in an acute shortage area, and has been separated from service with all public schools for at least 12 months, subject to Section 825.506. Makes conforming changes. (d) Makes conforming changes. SECTION 12. Amends Section 824.804(a), Government Code, to require TRS to transfer monthly from the retired reserve account to an account for a member in DROP an amount equal to 60 percent of the amount the member would have received that month under a standard service retirement annuity if the member had retired under the multiplier currently in effect or, if the member began participation in the plan before September 1, 1999, 79 percent of that amount. Makes a conforming change. SECTION 13. Amends Section 824.805, Government Code, to provide that a member terminates participation in DROP by retirement, death, or expiration of the approved participation period, with an exception. Authorizes a member participating in DROP on September 1, 1999, to elect to continue participation in DROP before September 1, 2000, on a specific form. Requires TRS to make account transfers and change records for a member who elects to discontinue participation in DROP as if the member had never participated in DROP. SECTION 14. Amends the heading of Section 825.303, Government Code, to read as follows: Sec. 825.303. New title: SECURITIES CUSTODY AND SECURITIES LENDING. SECTION 15. Amends Section 825.303(a), Government Code, to authorize TRS to select one or more commercial banks, depository trust companies, or other entities to act independently of the custodian and lend the securities under board rules as required by this section. SECTION 16. Amends Section 825.405(c), Government Code, to require employers, on a monthly basis, to report to TRS in a specific form a certification of the total amount of salary paid above the statutory minimum salary and the total amount of employer contributions due for the payroll period. Requires employers, monthly, to also retain information, as determined by TRS, sufficient to allow the administration of this section (Tables for Determination of Death Benefit Annuity). SECTION 17. Amends Section 825.406(c), Government Code, to require employers, on a monthly basis, to report to TRS in a specific form a certification of the total amount of salary paid from federal funds and private grants and the total amounts provided by the funds and grants for state contributions for the employees. Requires employers, monthly, to also retain specific information. Redesignates Subdivisions (1)-(5) to Subdivisions (2)(A)-(E). SECTION 18. Amends Section 825.407(c), Government Code, to require the designated disbursing officer of each general academic teaching institution and of each medical and dental unit to submit to TRS, at a time and in a manner prescribed by TRS, a monthly report containing a certification of the total amount of salary paid from noneducational and general funds and the total amount of employer contributions due for the payroll period and to maintain specific information. Redesignates Subdivisions (1), (2), and (4) to Subdivisions (2)(A), (2)(B), and (2)(C), respectively. Makes a conforming change. SECTION 19. Amends Section 825.408(a), Government Code, to require an employing district that fails to remit documentation of all member and all employer deposits within a specific time frame each month to pay to TRS interest on the undocumented amounts at an annual rate compounded monthly. SECTION 20. Amends Section 825.515, Government Code, to require TRS, at least annually, to acquire and maintain records identifying members and the types of positions they hold as members. Requires the type of position to be identified as Administrative/Professional, Teacher/Full-Time Librarian, or Bus Driver. Deletes existing text requiring specific information to be provided to the commissioner of education. SECTION 21. Amends Sections 825.516(a) and (b), Government Code, to authorize a retiree who is receiving an annuity from TRS to request TRS to withhold membership dues from the member's annuity for a nonprofit association of retired school employees in this state if the association is statewide and its membership includes at least five percent of all retirees of TRS. Authorizes, rather than requires, TRS to make requested deductions within a specific time frame. SECTION 22. Amends Section 16A(d), Article 3.50-4, Insurance Code, to make conforming changes. SECTION 23. Amends Subchapter E, Chapter 3, Insurance Code, by adding Article 3.50-4A, as follows: ART. 3.50-4A. INSURANCE FOR SCHOOL DISTRICT EMPLOYEES AND RETIREES Sec. 1. DEFINITIONS. Defines "employee," "retiree," and "trustee." Sec. 2. INSURANCE COVERAGE. (a) Requires TRS, as trustee, to contract with one or more carriers authorized to provide life insurance in this state to offer employees and retirees optional permanent life insurance coverage. (b) Requires TRS to contract with one or more carriers authorized to provide long-term health care insurance in this state to offer employees and retirees optional long-term health insurance coverage. Requires the long-term insurance coverage to include home, community, and institutional care. (c) Requires TRS to contract with one or more carriers authorized to provide disability insurance in this state to offer employees optional insurance against short-term or longterm loss of salary because of a disability. (d) Requires competitive bidding to be required under rules adopted by TRS. Authorizes the rules to provide criteria to determine qualified carriers. Provides that TRS is not required to select the lowest bid, but may consider ability to service contracts, past experience, financial stability, and other relevant criteria. Requires deviation from a contract to be recorded and the reasons for the deviation to be fully justified in the minutes of the next TRS meeting. (e) Requires insurance coverage provided under this section to be made available periodically during open enrollment periods determined by TRS. Sec. 3. ADMINISTRATION. Requires TRS to adopt rules for the selection of contractors. Provides that the rules must require the contractors to administer enrollment, adjudication of claims, and coordination of services under the insurance coverages and must require the contractors to account for premiums collected and disbursed. Authorizes TRS to adopt other rules necessary to administer the program under this article. Sec. 4. PARTICIPATION IN COVERAGE. Requires TRS to offer the coverages to employees through their employers and to retirees through the administration of TRS. Establishes that the full cost of premiums in a plan of insurance coverage is the responsibility of the enrollees. Requires an employee participating in a plan of insurance coverage to pay premiums by payroll deduction at the times and in the manner provided by TRS. Requires a retiree participating in a plan of insurance coverage to pay premiums by deduction from the retiree's monthly retirement annuity. Sec. 5. SCHOOL DISTRICT EMPLOYEES AND RETIREES OPTIONAL INSURANCE TRUST FUND. Creates the school district employees and retirees optional insurance trust fund as a trust fund with the comptroller and administered by TRS on behalf of the participants in the plans of insurance coverage. Requires premiums paid by enrollees, amounts recovered under contracts, and investment and depository income to be credited to the fund. Authorizes money in the fund to be used only for the purpose of providing the program of insurance coverage, including the expenses of administering the program. Authorizes TRS to invest the fund in the manner provided by Section 67(a)(3), Article XVI, Texas Constitution (regarding the investment of funds of state and local retirement systems). SECTION 24. Amends Sections 22.004(c) and (d), Education Code, as follows: (c) Requires each district to report the district's compliance with this subsection to the executive director of TRS not later than March 1 of each even-numbered year, rather than November 1 of each year. Provides that the report must be based on the district group coverage plan in effect during the current plan year. Makes a conforming change. (d) Requires the executive director to submit a report to the legislature not later than September 1 of each even-numbered year, rather than January 1 of each odd-numbered year, describing the status of each district's group health coverage program based on the information contained in the report under Subsection (c) and a specific certification. SECTION 25. Establishes that monthly benefits of a death or retirement benefit annuity by TRS are increased beginning with the payment due at the end of September 1999. Provides that the increase does not apply to payments under Section 824.304(a) (regarding disability retirement benefits for a person with less that 10 years of service credit), 824.404 (Survivor Benefits), or 824.501 (Survivor Benefits), Government Code. Sets forth the computation for the amount of the monthly increase, ranging from five to seven percent, depending upon the latest retirement date or, if applicable, date of death. Requires TRS to increase each annuity on September 1, 1999, other than an annuity under Section 824.304(a), 824.404, or 824.501, Government Code, by 10 percent, which is a benefit equivalent to the benefit provided by using a 2.2 percent multiplier for computing annuities. SECTION 26. (a) Authorizes a person, before September 1, 2000, to replace an annuity by selecting an optional annuity and designating the person's spouse as beneficiary if the person is receiving a standard service or disability retirement annuity and married after retirement but before September 1, 1999. Provides that this subsection applies notwithstanding Section 824.1011, Government Code, as amended by this Act, and as if the person had married after September 1, 1999. (b) Authorizes a person receiving a standard disability retirement annuity on the effective date of this Act to replace the annuity before September 1, 2001, by selecting an optional annuity described by Section 824.308, Government Code (Optional Disability Retirement Benefits), if the person retired before September 1, 1992. Requires an optional annuity selected under this subsection to be actuarially reduced according to the ages of the retiree and the designated beneficiary at the time the annuity is selected. Provides that this subsection applies notwithstanding Section 824.1011, Government Code, as amended by this Act. SECTION 27. Effective date: September 1, 1999, except that SECTION 11 takes effect at the beginning of the 1999-2000 school year. SECTION 28. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original by adding new SECTIONS 1, 2, 10, 12, 14, and 15, deleting SECTIONS 1, 2, 8, 11, 13, and 23 of the original, and redesignating SECTIONS 9, 10, 12, 14, 15, 16, 17, 18, 19, 20, 21, and 22 of the original to SECTIONS 8, 9, 11, 13, 16, 17, 18, 19, 20, 21, 22, and 23 of the substitute. The substitute adds a new SECTION 1 which amends Section 822.201, Government Code, to modify the meaning of performance pay awarded as part of a total compensation. SECTION 1 of the original, which is now removed, would have amended Section 822.002(a), Government Code, to provide that an employee of the public school system is not permitted to be a member of the Teacher Retirement System of Texas (TRS) if the employee is eligible and elects to participate in the optional retirement program. The substitute adds a new SECTION 2 which amends Subchapter A, Chapter 823, Government Code, to add Section 823.006 (Permissive Service Credit Restrictions). SECTION 2 of the original, which is now removed, would have amended Subchapter A, Chapter 822, Government Code, by adding Section 822.0025 (Optional Membership), to authorize a person participating in the optional retirement program to make a one-time election to cease participation in that program and become a member of TRS, or the reverse. For a more complete analysis of Section 823.006, please see the Section-by-Section Analysis portion of this document. The substitute modifies the original in SECTION 8, as redesignated from SECTION 9 of the original, to increase the multiplier for computing a standard service retirement annuity or death benefit annuity from 2.1 percent in the original to 2.2 percent in the substitute. The substitute deletes SECTION 8 of the original, which would have amended Section 824.202, Government Code, by adding Subsection (g), to require TRS to consider service performed in this state as a participant in the optional retirement program as if it were service for which credit is established in TRS for the sole purpose of determining eligibility to receive a service retirement annuity. The substitute modifies the original in SECTION 9, as redesignated from SECTION 10 of the original, by modifying proposed Section 824.2045(d) to authorize a member to elect to have a specific lump-sum payment made as a direct rollover payment. The substitute adds a new Section 824.2045(g) to require TRS to provide written notice to a member of the amount by which the member's annuity will be reduced because of the member's selection of a partial lump sum distribution. Section 824.2045(g) requires the member to be asked to sign a copy of or receipt for the notice, and requires TRS to maintain the copy or receipt. The substitute redesignates proposed Section 824.2045(g) to Section 824.2045(h) in the substitute. The substitute adds new SECTION 10 which amends Section 824.502, Government Code, to provide that a person eligible to elect to receive benefits on the death of an active member, instead of survivor benefits, is a person who has not selected optional disability retirement benefits. The substitute modifies the original in SECTION 11, as redesignated from SECTION 12 of the original, by amending Section 824.602(a), Government Code, to provide that the prohibitions against TRS withholding payment for certain retirees who become reeemployed are subject to Section 825.506 (Plan Qualification). The substitute adds a provision prohibiting TRS from withholding the payment if the retiree is employed in a position as a classroom teacher on as much as a full-time basis, has retired without reduction for retirement at an early age, is certified to teach the subjects assigned, is teaching in an acute shortage area, and has been separated from service with all public schools for at least 12 months. The substitute deletes SECTION 11 of the original, which would have amended Section 824.304, Government Code, by adding Subsection (e), to require TRS to consider service performed in this state as a participant in the optional retirement program as if it were service for which credit is established in TRS, for the sole purpose of determining eligibility to receive a disability retirement annuity. The substitute adds a new SECTION 12, which amends Section 824.804(a), Government Code, to require TRS to transfer monthly from the retired reserve account to an account for a member in DROP an amount equal to 60 percent of the amount the member would have received that month under a standard service retirement annuity if the member had retired under the multiplier currently in effect or, if the member began participation in the plan before September 1, 1999, 79 percent of that amount. The substitute makes a conforming change. The substitute deletes SECTION 13 of the original, which would have amended Section 824.802(a), Government Code, to authorize a contributing member, before September 1, 1999, to elect to participate in DROP if the member is eligible to retire and receive an unreduced standard service retirement annuity, has at least 25 years of service credit in TRS, and remains an employee. The substitute adds a new SECTION 14, which amends the heading of Section 825.303, Government Code, to read as follows: Sec. 825.303. New title: SECURITIES CUSTODY AND SECURITIES LENDING. The substitute adds a new SECTION 15, which amends Section 825.303(a), Government Code, to authorize TRS to select one or more commercial banks, depository trust companies, or other entities to act independently of the custodian and lend the securities under board rules as required by this section. The substitute modifies the original in SECTION 23, as redesignated from SECTION 22 of the original, to modify proposed Article 3.50-4A, Insurance Code, as follows: Proposed Section 2(d) is modified to require competitive bidding for contracts to be required under rules adopted by TRS. Section 2(d) authorizes the rules to provide criteria to determine qualified carriers and provides that TRS is not required to select the lowest bid. Section 2(d) requires deviation from a contract to be recorded and the reasons for the deviation to be fully justified in the minutes of the next TRS meeting. These provisions expand proposed Section 2(d), which would have subjected a contract to competitive bidding. Proposed Section 5 is modified to provide that the school district employees and retirees optional insurance trust fund is with the comptroller. The original would have placed the fund outside the state treasury to be held by the Texas Treasury Safekeeping Trust Company. The substitute deletes SECTION 23 of the original, which would have amended Subchapter B, Chapter 609, Government Code, by adding Section 609.1015 (Creation of Plan; Participation). This section would have established that the board is the trustee and the plan administrator for a 457 plan it shall establish for school district employees who are members of TRS. The substitute modifies the original in SECTION 24 by amending Section 22.004(c), Education Code, to require each district to report the district's compliance to the executive director of TRS based on the district group coverage plan in effect during the current, rather than the preceding, plan year. The substitute modifies the original in SECTION 25 to set forth the computation for the amount of the monthly increase for a person who retired or died on or after September 1, 1997, but before September 1, 1998. The substitute also requires TRS to increase each annuity on September 1, 1999, other than an annuity under Section 824.304(a), 824.404, or 824.501, Government Code, by 10 percent, which is a benefit equivalent to the benefit provided by using a 2.2 percent multiplier for computing annuities. The original would have required TRS to increase each recomputed annuity by five percent, which is a benefit equivalent to the benefit provided by using a 2.1 percent multiplier for computing annuities. The substitute modifies the original in SECTION 26 to require an optional retirement annuity to be actuarially reduced according to the ages of the retiree and the designated beneficiary at the time of selection, rather than based on reduction factors as they existed at the time of retirement. The substitute modifies the original in SECTION 27 to provide that SECTION 11 takes effect at the beginning of the 1999-2000 school year. The substitute changes the emergency clause in SECTION 28 from the short version in the original to the modified long version in the substitute.