HBA-SEB C.S.H.B. 3377 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3377 By: Turner, Sylvester Pensions and Investments 4/8/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, Articles 6243g-1 and 6243g-3, V.T.C.S., provide for police officers pension systems in cities with populations of 1,200,000 or more. To date, these articles only apply to the City of Houston. Consolidation of these articles, with modifications, may make the administration of police officer pension systems in applicable cities simpler and more efficient. C.S.H.B. 3377 repeals Articles 6243g-1 and 6243g-3, V.T.C.S., and replaces them with Article 6243g-4. 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 Title 109, V.T.C.S., by adding Article 6243g-4, as follows: ART. 6243g-4. POLICE OFFICERS PENSION SYSTEM IN CERTAIN MUNICIPALITIES Sec. 1. PURPOSE. Provides that the purpose of this article is to restate and amend the provisions of former law governing a police officers pension system (pension system) in each city in this state having a population of 1.5 million or more to permit the consolidation of the terms of certain pension plans. Sec. 2. DEFINITIONS. Defines "active member," "average total district pay," "base salary," "board," "code," "dependent," "dependent child," "dependent parent," "DROP," "employee," "former member," "fund," "inactive member," "member," "normal retirement date," "pension," "pension system" or "system," "school," "retired member," "separation from service," "service," "surviving spouse," and "total direct pay." Sec. 3. PENSION BOARD. Provides that the board of trustees of the pension system (board) that was created under Article 6243g-1, V.T.C.S. (Police Officer's Pension System in Cities of 1,200,000 or more), continues to be responsible for the general administration, management, and operation of the pension system, including the direction of investment and oversight of the fund's assets. Provides that the board is composed of seven members: the administrative head of the city or the administrative head's representative, three employees of the police department having membership in the pension system, two retired members who are receiving pensions from the pension system and are not officers or employees of the city, and the treasurer of the city or the person discharging the treasurer's duties. Establishes that the three employees of the police department and the two retired members are elected in the manner determined at a one-time election held for the pension system before October 1, 1999. Sets forth the terms of office, election procedure, and the process of filling vacancies for the three elected board members who are employees of the police department and for the two elected board members who are retired. Provides that a board member vacates the member's seat on the board if the member is removed under Section 7 of this article or ceases to meet the qualifications of the seat. Prohibits an officer or employee of any employee or retiree organization or of the pension system from being elected to, appointed to, or in any other way becoming a board member if it is so determined at the onetime election held for the pension system before October 1, 1999. Requires each board member to take an oath of office within a specific time frame. Sec. 4. BOARD MEMBER LEAVE AND COMPENSATION. Entitles elected members of the board who are employees of the city's police department to leave from their employer to attend the official business of the pension system. Authorizes the pension system to elect to compensate the city for the loss of service of such a member if the city would withhold the member's salary while the member attends the board's business. Requires the amounts of the compensation to be remitted from the fund to the city if the board makes the election by a vote of at least four board members. Requires the city to pay the board member's salary as if no loss of service had occurred. Authorizes the board to elect to reimburse board members who are not employees of the city by a vote of at least four members. Prohibits the amount of reimbursement from exceeding $350 per month for each affected board member. Sec. 5. OFFICERS; MEETINGS; EMPLOYEES. Requires the board to annually elect a chairman, vice chairman, and secretary from its membership. Authorizes the board to hire one or more employees at salaries set by the board. Requires the employees to keep all of the records of and perform all of the clerical services for the board. Authorizes the board to employ professional investment managers and advisors to manage or advise the board about the management and investment of the fund. Authorizes the board to employ an actuary, legal counsel, accountant, or other professional and to pay the compensation for the services from the fund. Requires the board to hold regular monthly meetings at the time and place it designates by resolution. Authorizes the chairman, secretary, or any four members to call a special meeting. Entitles each board member to one vote. Requires adequate notice to be given to all board members of any proposed meeting by any reasonable method unless the notice is waived in writing. Provides that failure to give notice is excused if all board members attend a meeting. Requires the board to keep accurate minutes of its meetings and records of its proceedings. Sec. 6. GENERAL POWERS AND DUTIES. (a) Requires the board to retain control over all money collected or to be collected for the pension system. Requires the board to keep all money for the use and benefit of the system to be kept separately from all other funds. Requires the board to keep a record of all claims, receipts, and disbursements in books. (b) Requires the board to establish the policies and procedures for appropriate disbursements from the fund. (c) Authorizes the board to reimburse a board member, officer, or employee of the board for liability imposed as damages and for costs and expenses incurred in defense of a claim because of an alleged act, error, or omission committed in the individual's capacity as fiduciary of the fund's assets, officer, or employee of the fund. Authorizes the board to purchase insurance that provides for the reimbursement. Authorizes no reimbursement to be made nor policy of insurance to be purchased if a board member, officer, or employee of the board imposed liability or incurred expenses because of the person's dishonesty, fraudulent breach of trust, lack of good faith, intentional fraud or deception, or intentional failure to act prudently. Requires the cost of reimbursement or insurance coverage to be paid from money in the fund. (d) Requires the board to administer the pension system consistent with the applicable provisions of the federal Internal Revenue Code of 1986, or any successor, as amended (code). (e) Provides that the board is vested with the power to adopt rules and guidelines for the administration of the pension system that is consistent with this article. Establishes that the rules and guidelines include those that ensure that the pension system and the fund meet the qualification requirements of the code and regulations and rulings issued under the code that are applicable to governmental plans. (f) Specifies that the board has full discretion and authority to administer the pension system, to construe and interpret this article, and to do all other acts necessary to carry out the purpose of this article. Provides that all board decisions are final and binding on all affected parties. Sec. 7. REMOVAL OF BOARD MEMBER. (a) Authorizes the removal from office of an elected board member either by a vote of the membership of the pension system at a specific election or by a special vote of the board. (b) Authorizes an appointed member of the board to be removed from the board by the administrative head of the city. (c) Sets forth the initiation, time frame, and results processes of a removal election for the members of the pension system. (d) Requires the board to call a special election to be held within a specific time frame of the members' vote to remove a board member from office. Provides that the special election is to fill the vacancy for the unexpired term of the removed board member. Specifies that the person who was removed is not eligible to run in the special election, but is eligible to run in all subsequent board elections. (e) Authorizes a board member to be removed as provided by Subsections (f) and (g), except as otherwise provided by Subsections (a) and (b). Requires the board or its designee and the board member whose removal is proposed to agree on the selection of an impartial hearing examiner after the board votes to remove the member. Requires the parties to agree to an arbitrator from a specific list of arbitrators by means of a specific process if the parties do not agree on the selection of a hearing examiner within a specific time frame. Provides that the parties or their designees must agree on a date for the hearing that is within a specific time frame. (f) Sets forth the hearing process. Authorizes the hearing examiner's final decision to be to remove or not to remove the board member. Authorizes the board member to be removed only if the hearing examiner determines that the board member violated Subchapter A, Chapter 121, Property Code (Pension Trusts). Requires the pension system to pay the fees and costs of the hearing examiner and the costs of a witness to be paid by the party who call the witness. (g) Entitles a person removed from the board to have the hearing examiner's decision reviewed. Sets forth the process of having the decision reviewed. Requires the board member to be reinstated if a majority of the active and retired members of the pension system cast votes in an election favoring overruling the decision. Provides that a replacement election must be held within a specific time frame if a majority did not vote to overrule the decision. (h) Establishes that a person's privileges as a board member are suspended during the period between the board members' vote for removal and the member's reinstatement. Sec. 8. CONTRIBUTIONS BY MEMBERS. Requires each active member to pay 8-3/4 percent of the member's total direct pay into the pension system. Requires the payments to be deducted by the city from the salary of each active member monthly and paid into the pension system. Prohibits a person from being required or permitted to make payments into the pension system after the person separates from service, except for the repayment of withdrawn contributions. Provides that this article does not increase or decrease the contribution obligation of any member that arose before September 1, 1999, or give rise to any claim for refund for any contributions made before that date. Sec. 9. MONTHLY PAYMENT BY CITY. (a) Requires the city to make contributions to the fund for fiscal years ending before June 30, 2002, after each payroll period in an amount previously agreed to by the city and board. Sets forth the contribution rate for the fiscal year ending June 30, 2002, and another rate for each fiscal year ending after June 30, 2002. (b) Requires the city to also contribute to the fund each month an amount equal to the aggregate payments the city would have paid during that month to members who have separated from service for unused sick leave, vacation pay, and accumulated overtime pay to which the members were entitled at the time of separation from service. Provides that this contribution applies if the members had 10 years or more of service after application of these amounts to provide additional service. Establishes that members described by this section may no longer receive these payments directly. (c) Authorizes the governing body of a city, by ordinance or resolution, to provide that the city pick up active member contributions required by Section 8 so that the contributions of all active members qualify as picked up contributions under Section 414(h)(2) (regarding the tax treatment of certain contributions) of the code. Requires the city, board, and any other necessary party to implement an action adopted under this section as soon as practicable. Requires picked up contributions to be included in the determination of an active member's total pay, deposited to the member's individual account, and treated as if they had been deducted from the member's salary, except for federal tax purposes. Sec. 10. INVESTMENT OF SURPLUS. Requires the board to invest a surplus of funds of the pension system in the manner provided by Chapter 802, Government Code (Administrative Requirements). Authorizes the board to select an investment manager or investment advisor from a firm that has made a presentation to the board if the board determines the service is desirable. Authorizes the board to terminate a contract with an investment advisor at any time and to terminate a contract with an investment manager on appropriate notice. Prohibits a contract from requiring the pension system to pay a penalty for early termination. Requires the costs of the services to be paid from the fund. Sec. 11. SERVICE CREDIT. Entitles a member to credit for previous service, to the extent provided by Section 19, if the member returns to service after an interruption in service. Requires a member who is retiring to receive one-half day of service for each day of unused sick leave, vacation pay, or accumulated overtime except if the member elects to have the amounts credited to the member's deferred retirement option plan (DROP) account. Prohibits a previous period of service from being counted in determining years of service unless the contributions are repaid to the pension system, notwithstanding the earlier provision of this section entitling a member to credit for previous service. Prohibits a member from having any service credited for unused sick leave, vacation pay, or accumulated overtime until the member retires, at which time the member must apply all of the service to satisfy the requirements for retirement or DROP entry. Requires the board to determine the prior service to be credited to each employee of the police department who becomes an active member of the pension system. Requires the board to rely on personnel records for that determination. Sec. 12. RETIREMENT; AMOUNT OF PENSION; ANNUAL ADJUSTMENTS. (a) Provides that a member who separates from service after earning 20 or more years of service is eligible to receive a monthly service pension beginning in the month of separation. Establishes that a person who has earned between 10 and 20 years of service in any of the city's pension systems and who separates from service after November 23, 1998, is eligible to receive a monthly service pension beginning in the month the individual attains 60 years of age if the member complies with all applicable requirements. Prohibits a member from receiving a pension while still an active member except as provided by Subsection (f). Specifies that all service pensions end with the month in which the retired member dies. (b) Sets forth the monthly service pension for a member who separates from service after November, 23, 1998. Requires a member who separates from service after that date, including a member who was a DROP participant, to receive a lump-sum payment of $5,000 at the time the first monthly pension is made. Provides that the lump-sum payment is not available for a person who has previously received a $5,000 payment under this section or Section 16. (c) Requires the pension payable to each retired member to be adjusted annually, effective April 1 of each year, upward at a specific rate. Prohibits the amount of the annual adjustment from being less than three percent or more than eight percent of the pension being paid immediately before the adjustment. (d) Entitles a retired member who receives a service pension to receive an additional $88.05 each month from the start of the pension until the member dies. Provides that this amount is intended to defray medical insurance costs. (e) Requires the pension system, at the end of each calendar year, to make a 13th benefit payment to each person receiving a service retirement pension, subject to certain conditions. Sets forth the amount of the payment. Authorizes the 13th payment to be made only for those calendar years in which the fund meets specific requirements. (f) Authorizes an active member to participate in the executive official pension plan, if eligible, and elect to begin receiving an immediate pension benefit and be considered a retired member if the member has 20 years or more of service and is eligible for retirement. Authorizes such an active member to enter DROP if the member satisfies all requirements for DROP membership. Authorizes an inactive member to begin receiving an immediate pension at a specific rate and to be entitled to all rights and privileges afforded a retired member. Provides that the participation begins while continuing employ and applies notwithstanding anything to the contrary. (g) Requires service pensions that began before September 1, 1999, to continue to be paid in accordance with applicable prior law, notwithstanding anything to the contrary and subject only to the adjustments specifically provided in this section. Sec. 13. RESUMPTION OF SERVICE AS DEPARTMENT HEAD AFTER RETIREMENT. Requires the pension system to suspend all pension payments to a retired member who has separated from service and is subsequently appointed as the department head of the police department. Provides that the suspension of payments begins on the effective date of the person's appointment and that the pension payments do not accrue during this period, but rather the person again becomes an active, contributing member of the pension system. Establishes that the department head retains all previously established credit and acquires credit for the subsequent service unless the department head is or becomes a DROP participant. Requires the pension benefits to resume once the department head again separates from service. Sec. 14. DEFERRED RETIREMENT OPTION PLAN. (a) Defines "DROP benefit." (b) Authorizes an active member who has at least 20 years of service to file an irrevocable election to participate in DROP and receive a DROP benefit instead of the standard pension. Provides that the election is made under procedures established by the board. (c) Establishes that the monthly service pension and death benefits of an active member who becomes a DROP participant will be determined as if the active member had separated from service and begun receiving a pension on the effective date of the DROP election. Specifies that the active member does not retire but does accrue additional service credit and does receive cost-of-living adjustments to the pension effective on or after the date of the election. Prohibits increases in pay that occur on or after that date from being used to compute the active member's monthly service pension. (d) Sets forth the computation of the amount of a member's DROP benefit and takes into account a 13th payment and unused sick leave, vacation pay, and accumulated overtime. (e) Provides that one-twelfth of a hypothetical earnings rate is credited to each active member's notional DROP account at the end of each month. Sets forth the computation for a hypothetical earnings rate. Authorizes the board to lower any future rate to the extent necessary to ensure that the DROP does not adversely affect the financial condition of the fund. (f) Authorizes a member, a member's spouse, or any person eligible for receiving benefits to either receive an amount equal to the member's DROP account or revoke the member's DROP election and elect to receive benefits if a DROP participant separates from service because of disability or death. Authorizes the board to adopt a procedure for revocation and election. Authorizes the person eligible to receive the benefits to receive a distribution that is equal to the member's DROP account and benefits. (g) Authorizes a retired member who has been a DROP participant to leave the retired member's DROP account with the pension system in lieu of receiving a lump sum DROP benefit on separation from service. Requires interest in that case to be credited to the DROP account for any month in the manner described by this subsection. Sets forth the interest rate. (h) Authorizes a retired member who is a DROP participant to elect to have part or all of the amount that would otherwise be paid as a monthly service pension credited to a DROP account instead of beginning to receive a service pension on separation from service. Provides that in that case, the additional amounts will become eligible to be credited with hypothetical earnings in the same manner as the amounts described by Subsection (g). (i) Authorizes a retired member who has not attained age 70-1/2, whether or not a DROP participant, to elect to have credited to a DROP account part or all of an amount equal to the monthly service pension to which the retired member would otherwise be entitled. Provides that in that case, the additional amounts will become eligible to be credited with hypothetical earnings in the same manner as the amounts described by Subsection (g). Authorizes the retired member under this subsection to direct that the credits stop and the monthly service pension resume at any time. Prohibits such a member from resuming the credits after stopping them after September 1, 1999. (j) Authorizes a retired member who is a DROP participant to elect to receive distribution of the DROP account in a one-time lump sum payment or in any other form of distribution that is approved by the board and satisfies the code. Requires distributions to a deceased member's survivors, as described by Subsection (f), to be made in a lump sum as soon as administratively feasible after the deceased member's death. (k) Requires any pension or DROP distribution that was being paid to a retired member to be suspended if the retired member is rehired as an employee. Provides that the monthly amount under Subsection (d) will again begin to be credited to the DROP account while the member continues to be an employee. Establishes that a new notional account will be created to receive the member's monthly credits if the member's DROP account has been completely distributed. Requires a member to be eligible to elect participation in DROP on the same basis as any other member if a retired member who was never a DROP participant is rehired. (l) Authorizes the board to take action as necessary to mitigate the unanticipated costs of DROP, if any, including discontinuing acceptance of additional elections to participate in DROP. Requires the pension system to continue to administer DROP for the members who were participating before the discontinuance of enrollment. Sec. 15. DISABILITY BENEFITS. (a) Requires an active member to be retired and to receive an immediate duty-connected disability pension, the amount of which is specified, if the member becomes totally and permanently incapacitated for the performance of the member's duties as a result of the performance of those duties. Provides that the member is eligible for a duty-connected disability pension if the injury or illness involves a traumatic event that directly causes an immediate cardiovascular condition resulting in a total disability. Requires a disability pension granted by the board to be paid to the member for the remainder of the member's life or for as long as the incapacity remains. (b) Provides that a member is eligible for an immediate monthly pension computed in the same manner as a service retirement pension but based on average total direct pay and service accrued to the date of the disability. Establishes that such a member is eligible if the member becomes totally and permanently incapacitated for the performance of the member's duties, has 10 years or more of credited service, and is not eligible for either an immediate service retirement pension or a duty-connected disability pension. (c) Entitles a member to receive a one-time lump-sum payment of $5,000 if the member becomes entitled to receive a disability pension after November 23, 1998, if the member has not previously received a $5,000 payment under Section 12. Requires the person to also receive $88.05 beginning on the date the pension begins and continuing as long as the disability pension continues in order to defray the cost of group medical insurance. Entitles a retired member whose disability pension was in pay status on November 23, 1998, to receive a one-time lump-sum payment of $5,000 as soon as administratively feasible after that date. Establishes that this payment has no effect on the amount of the retired member's pension. Requires a 13th payment to also be paid to members who have retired under this section for any year a 13th payment is made to retired members. (d) Prohibits a person from receiving a disability pension unless the person files an application for disability pension not later than 180 days after separation from service. Requires the board at that time to have the person examined by a physician chosen and compensated by the board. Requires the physician to make a report and recommendations to the board regarding the extent of any disability and whether any disability that is diagnosed is a duty-connected disability. Prohibits a person from receiving a disability pension for an injury received on or illness incurred after separation from service. (e) Provides that a retired member who has been retired for disability is subject at all times to reexamination by the board's physician. Requires the disabled retiree to submit to further examination as the board may require. Authorizes the board to order disability payments stopped if the retired member refuses to submit to an examination. Requires the board to order a member's disability pension stopped if, in the opinion of the board, the retired member recovers so that the retired member can perform the usual and customary duties of the police department. Provides that the retired member who recovers is to be reinstated or offered reinstatement to the member's former position. (f) Requires the board to require any person who first becomes an active member of the pension system on or after September 1, 1999, and subsequently begins to receive a nonduty-connected disability pension to provide the board annually at a specific time a copy of the retired member's federal or, if applicable, state tax return indicating the member's occupations and earned income for the previous calendar year. Authorizes the pension system to waive the requirement if the member provides the board with a copy of the extension request for filing a tax return. Requires the board to reduce future disability payments according to a specific formula if the retired member is or has been receiving earned income from one or more employments, including self-employment, during the previous year. (g) Provides that, for the purposes of this section, a member is totally and permanently incapacitated from performing duties if the member is prevented by a physical or mental injury or illness from performing duties in the police department after any reasonable accommodation offered by the police department and this condition is expected to be permanent. Sec. 16. RIGHTS OF SURVIVORS. (a) Provides that a marriage, for the purposes of this article, is considered to exist only if the marriage is recorded in the records of the recorder's office in the county in which the marriage ceremony was performed or, in the case of a declaration of common-law marriage, if the declaration is signed by the member and member's common-law spouse before a notary public and filed with the board. Prohibits a marriage that is evidenced by a declaration of common-law marriage signed before a notary public after December 31, 1999, from being treated as effective earlier than the date on which it was signed before the notary public. (b) Requires the board, if a retired member dies after becoming entitled to a service or disability pension, to pay a monthly benefit in a sum equal to the pension that was being received by the retired member at the time of death to the member's surviving spouse, to the guardian of any dependant children, or to any dependent parents, prioritized in descending order (appropriate beneficiary). (c) Entitles a member's appropriate beneficiary, if the member of the pension system who has not completed 10 years of service in the police department is killed or dies from any cause not associated with the member's official duty, to a refund of the member's contributions to the pension system. (d) Entitles a member's appropriate beneficiary, if the member has completed 10 or more years of service in the police department and is killed or dies from a cause associated with the member's official duty, to an immediate benefit, computed in accordance with Subsection (b), but based on the deceased member's service and average total direct pay at the time of death. Entitles a member's appropriate beneficiary, if the inactive member dies from any cause after completing 10 or more years of service in the police department, to benefits computed as provided by the preceding sentence and beginning at the time the member would have attained age 60 if the member had lived. (e) Entitles a member's appropriate beneficiary, if the active member is killed or dies from any cause associated with the member's duty, to receive immediate benefits computed in accordance with Subsection (b), except that the benefit payable to the beneficiary is equal to 100 percent of the member's average total direct pay, computed as of the date of the death. (f) Entitles a surviving spouse who receives a survivor's benefit under this article to receive an additional amount each month equal to $88.50, beginning with the first payment of the survivor's benefit and continuing until the end of the month in which the surviving spouse dies. (g) Entitles a surviving spouse or dependent who was in pay status on November 23, 1998, to receive a one-time lump-sum payment of $5,000 as soon as administratively feasible after November 23, 1998. Entitles the surviving spouse or dependent who become eligible to receive benefits with respect to an active member who dies in active service after November 23, 1998, to receive a one-time lump-sum payment of $5,000 at the time the first monthly pension benefit is paid, if the member has not already received a $5,000 lump-sum payment under Section 12 or 15(c). Requires that the $5,000, if more than one dependent is eligible to receive payment under this subsection, be divided among those dependents. Provides that this payment has no effect on the amount of the surviving spouse's or dependents' monthly pension, and prohibits it from being paid more than once. (h) Requires that the monthly benefits of surviving spouses or dependants provided under this section, except the $88.05 monthly payments described by Subsection (f), be increased annually at the same time and by the same percentage as the pensions of retired members are increased in accordance with Section 12(c). Requires that a 13th payment, in any year in which one is made pursuant to Section 12(e), be made to survivors who are entitled to receive death benefits at that time. (i) Requires that the monthly payments, if a member or beneficiary dies before monthly payments have been made for at least five years, leaving no person otherwise entitled to receive further monthly payments, continue to be made to the designated beneficiary of the member or survivor, or to the estate of the member or survivor if a beneficiary was not designated, in the same amount as the last monthly payment made to the member, survivor, or estate, until payments have been made for five years with respect to the member. Requires that the amount of each monthly payment over the five-year period, if the member dies after becoming vested but before payments begin, leaving no survivors eligible for benefits, be the same as the monthly payment had the member taken disability retirement on the date of death. Authorizes a member to designate a beneficiary in lieu of the member's estate to receive the remaining payments in the event the member and all survivors die before payments have been received for five years. Provides that the member's estate or a beneficiary who is not a survivor or dependent is not entitled to receive the payment described by Subsection (g) of this section. Sec. 17. TERMINATION OF EMPLOYMENT; REFUNDS; REDEPLOYMENT. (a) Provides that a member ceases to be an active member of the pension system when the member separates from service, either voluntarily or involuntarily, before becoming eligible for an immediate service retirement or disability pension. (b) Provides that a member who has not completed 20 years of service at the time of separation from service with the police department is entitled to a refund of the total of the contributions the member made to the pension system, plus any amount that was contributed for the member by the city and not applied in accordance with this section to provide the member with 10 years of service. Provides that the refund does not include interest, and neither the city nor the member is entitled to a refund of the contributions the city made on the member's behalf, except as expressly provided by this subsection. Provides that the member, by receiving the refund, forfeits any service earned before separation from service, even if it is otherwise nonforfeitable (c) Requires the board to notify each member of the pension system of the right to a refund as authorized by this section. (d) Provides that a member must apply to the board for a refund within one year after the date of separation from service. Provides that failure to apply for the refund within the one-year period results in a forfeiture of the right to the refund except for an inactive member whose right to a pension is nonforfeitable. Authorizes the board to reinstate any amount forfeited and allow the refund on application by the former member. (e) Provides that heirs, executors, administrators, personal representatives, or assignees are not entitled to apply for and receive the refund authorized by this section except as provided by Section 16(c). (f) Requires a person who separates from service and is subsequently reemployed as an employee of the police department to be reinstated as an active member of the pension system. Prohibits prior service of the active member from being counted toward a retirement pension unless the member pays an amount equal to any contributions previously refunded to the member within a specific time frame. Provides that a person is not eligible to repay any withdrawn contributions unless the person is reemployed by the police department of the city for which the prior service was performed, except as provided by Section 18. (g) Authorizes a member to receive a return of the member's contributions and be separated from service on receipt of the contributions if the member is contesting an indefinite suspension action. Provides that otherwise, a suspended member is considered to have a separation from service when a final decision of the arbitrator adverse to the member is rendered. (h) Authorizes city contributions based on unused sick leave, vacation pay, and accumulated overtime of a member who has separated from service to be applied to pay a refund of member contributions if the contributions are not used to satisfy a service requirement for retirement. Sec. 18. EMPLOYMENT BY ANOTHER DEPARTMENT (a) Prohibits credit from being allowed to any person for service with any department in the city other than the police department. Provides that the person's service will be computed from the date of entry into the service of the police department until the date of separation from service with the police department if the person is transferred to or from some other department of the city. Provides that this section may provide an exception to this subsection. (b) Requires any person who is employed in any full-time position with the city after November 23, 1998, and has or obtains any credited service for any period of full-time employment with the same city to receive service credit for any period of full-time employment with the same city. Prohibits a person from receiving credit for service with both the police department and any other department of the city for the same period. Provides that this subsection is solely for the purposes of determining whether a person has a sufficient number of years of service to receive a retirement pension, and not for the purposes of determining the amount of the pension or DROP credit. (c) Requires a former member of the pension system to be permitted to repay withdrawn contributions and restore service credit previously earned with the pension system, notwithstanding Section 17, even if the former member is not reemployed by the police department. Provides that this subsection applies if the former member is employed by the same city in which the service credit for employment with the police department was earned, is a participant in another pension plan maintained by the city, and repays to the pension system the withdrawn contributions within a specific time frame. Sec. 19. PERSONS REJOINING OR TRANSFERRED BY CITY; SERVICE CREDIT, DOUBLE BENEFITS; RETURN TO SERVICE. (a) Provides that an employee again becomes an active member of the pension system if the employee has retired and is or has been transferred by action of the city to a classified position in a police department included in the pension system. (b) Entitles a person who rejoins the pension system under this article to receive service credit for each day of service and work performed by the person, except for any period during which the person is a DROP participant. Requires the board to add service earned after the transfer to the prior service the active member accrued in a classified position in the police department. Prohibits the active member from receiving service credit, except to the extent provided by Section 18, for service performed for the city other than in a classified position. (c) Provides that contributions of the city and the active member become payable as for other active members of the pension system after a transfer. (d) Entitles a member who has transferred to receive a pension based on a specific computation if the member subsequently retires. (e) Requires a retired member to repay pension benefits paid to the member during a period when the retired member receives both pension benefits and a salary from a classified position in the police department. Requires the board to withhold payment of pension benefits if it is determined that a retired member is receiving both pension benefits from the fund and a salary from the police department that cover the same period. Requires the city attorney or a private attorney chosen by the board to file suit to recover pension benefits owed to the pension system. (f) Provides that this article does not authorize the return to service with a police department or the resumption of active membership in the pension system by a retired member except as specifically provided by Section 13, 14, or this section. Sec. 20. DONATIONS. Authorizes the pension system to accept gifts and donations. Requires the gifts and donations to be added to the fund for the use of the pension system. Sec. 21. DETERMINATION OF BENEFITS; PROVISION OF INFORMATION. Authorizes the board to require any member, survivor, or other person or entity to furnish information the board requires for the determination of benefits. Authorizes the board to withhold payment of the pension or other benefits if a person or entity does not cooperate in the furnishing or obtaining of information. Sec. 22. LEGAL ADVICE. Requires the city attorney to handle all legal matters for the pension system that are referred by the board without additional compensation for the service. Authorizes the board to employ outside legal counsel to the exclusion of, or to assist, the city attorney and to pay any reasonable compensation for the service from the fund. Sec. 23. MEMBERS IN MILITARY SERVICE. (a) Prohibits a member of the pension system engaged in active uniformed service from being required to make monthly payments into the fund and from losing any previous years' service with the city because of the uniformed service. Requires the uniformed service to count as continuous service in the police department if the member returns to the city police department after discharge from the uniformed service as an employee within a specific period. Provides that the uniformed service must not exceed the period for which the person is entitled to have service counted. (b) Requires the city to make its regular monthly payments into the fund on behalf of each member while the member is engaged in uniformed service. Entitles a member's spouse, dependent children, dependent parent, or estate to receive a refund as described by Section 16(c) if the member dies with less than 10 years of service in the pension system directly or indirectly as a result of the uniformed service. Sec. 24. ACTIONS FOR FUNDS MISAPPLIED. Authorizes the board to recover by civil action any money paid out or obtained from the fund through fraud, misrepresentation, theft, embezzlement, or misapplication and to institute, conduct, and maintain the action in the name of the board for the use and benefit of the fund. Requires payments due on behalf of a dependent child to be paid to the dependent child's guardian, if any, or to the person with whom the dependent child is living. Authorizes the board to make payments directly to a dependent child in an appropriate case and to withhold payments otherwise due on behalf of any person if the board has reason to believe the payments are not being applied on behalf of the person entitled to receive them. Authorizes the board to request a court to appoint a person to receive and administer the payments due to any dependent child or person under a disability. Sec. 25. FEDERAL TAX QUALIFICATION OF FUND. (a) Provides that the fund described by this article is intended to qualify under the code and is for the exclusive benefit of the members and their survivors. Prohibits the use of the corpus or income of the fund or any purpose other than the benefit of members and their survivors as provided by this article. (b) Prohibits a member or survivor of a member of the pension system from accruing a retirement pension, disability retirement allowance, death benefit allowance, DROP benefit, or any other benefit under this article in excess of the benefit limits applicable to the fund under Section 415 of the code (Limitations on Benefits and Contribution Under Qualified Plans). Requires the board to reduce the amount of any benefit that exceeds those limits by the amount of the excess. Requires the reductions of benefits to a member that is receiving benefits in excess of the amounts allowed by Section 415 of the code. (c) Provides that any member or survivor who receives any distribution that is an eligible rollover distribution as defined by Section 402(c)(4) (regarding an eligible rollover distribution) of the code is entitled to have that distribution transferred directly to another eligible retirement plan of the member's or survivor's choice on providing direction to the pension system regarding that transfer in accordance with procedures established by the board. (d) Prohibits any member of the pension system from having a salary in excess of $200,000 for any year for an eligible participant, or $150,000 a year for an ineligible participant. Requires these dollar limits to be adjusted from time to time in accordance with guidelines provided by the United States Secretary of the Treasury. Provides that an eligible participant is a person who first became an active member before 1996, and an ineligible participant is a member who is not an eligible participant. (e) Provides that accrued benefits under this article become 100 percent nonforfeitable for a member on the date the member has completed 10 years of service. Prohibits a reversion of funds to the employer if the pension system or the fund is terminated or partially terminated or city contributions to the fund are discontinued completely. Requires the fund held by the pension system to be used exclusively for benefits for members and their surviving spouses and dependents and the affected employees' rights to the benefits, to the extent funded, to be nonforfeitable if not already nonforfeitable and if there is a complete or partial termination or discontinuance of city contributions. (f) Prohibits amounts representing forfeited nonvested benefits of terminated members from being used to increase benefits payable from the fund. (g) Provides that distribution of benefits must begin not later than April 1 of the year following the calendar year during which the member entitled to the benefits becomes 701/2 years of age or terminates employment with the employer, whichever is later, and must otherwise conform to Section 401(a)(9) (regarding required distributions) of the code. (h) Provides that if the amount of any benefit is to be determined on the basis of actuarial assumptions that are not otherwise specifically set forth for that purpose in this article, the actuarial assumptions to be used are those earnings and mortality assumptions being used on the date of the determination by the pension system's actuary and approved by the board. Requires the actuarial assumptions being used at any particular time to be attached as an addendum to a copy of this article and treated for all purposes as a part of this article. Authorizes the actuarial assumptions to be changed by the pension system's actuary at any time if approved by the board, but a change in actuarial assumptions may not result in any decrease in benefits accrued as of the effective date of the change. (i) Authorizes the board to adjust the benefits of retired members and survivors by increasing any benefit that was reduced because of Section 415 of the code. Authorizes the board to permit the payment of amounts previously precluded under Section 415 if it is amended. Authorizes the board to adjust the benefits of retired members or their surviving spouses or dependents, including the restoration of benefits previously denied. Provides that benefits paid under this subsection are not considered as extra base salary earned after retirement but as the delayed payment of benefits earned before retirement. (j) Authorizes the board to make any change in this article to the extent that the change is necessary to assure compliance with the qualification requirements of Section 401 of the code (Qualified Pension, Profit-Sharing, and Stock Bonus Plans) or any other federal law. Sec. 26. EXCESS BENEFIT PLAN. (a) Creates a separate, nonqualified, unfunded excess benefit plan outside the fund. (b) Defines "excess benefit plan" or "plan," "qualified plan," "maximum benefit," "excess benefit participant," and "unrestricted benefit." (c) Entitles an excess benefit participant who is receiving benefits from the pension system to a monthly benefit under this excess benefit plan in an amount equal to the lesser of the member's unrestricted benefit less the maximum benefit or the amount by which the member's monthly benefit from the fund has been reduced because of the limitations of Section 415 of the code. (d) Provides that a spouse, dependent child, or dependent parent that is entitled to preretirement or postretirement death benefits under a qualified plan is entitled to a monthly benefit under the excess benefit plan equal to the benefit determined in accordance with this article without regard to the limitations under Section 25(b) of this article or Section 415 of the code, less the maximum benefit after the death of an excess benefit participant. (e) Requires any benefit to which a person is entitled under this section to be paid at the same time and in the same manner as the benefit would have been paid from the pension system if payment of the benefit from the pension system had not been precluded by Section 25(b) of this article. Prohibits an excess benefit participant or any beneficiary from election to defer the receipt of all or any part of a payment due under this section. (f) Requires the board to administer the plan, and the board's designee to also carry out the business of the board with respect to the plan. Provides that the rights, duties, and responsibilities of the board and the board's designee are the same for the plan as for the funds of the pension system. (g) Requires the consultants, independent auditors, attorneys, and actuaries selected to perform services for the fund to perform services for the plan, but the fees for their service are prohibited from being paid by the fund. Requires the actuary engaged to perform services for the fund to advise the board of the amount of benefits that may not be provided from the fund solely by reason of the limitations of Section 415 of the code and the amount of employer contributions that will be made to the plan rather than to the fund. (h) Prohibits contributions from accumulating under the plan to pay future retirement benefits. Requires each payment of city contributions that would otherwise be made to the fund under Section 9 of this article to be reduced by the amount determined by the board or its designee as necessary to meet the requirements for retirement benefits under the plan, including reasonable administrative expenses, until the next payment of city contributions is expected to be made to the pension system. Requires the city to pay to the plan from the withheld contributions, no more than 30 days before the distribution of monthly retirement benefits is to be made, the amount necessary to satisfy the obligation to pay monthly retirement benefits from the plan. Requires the board or its designee to satisfy the obligation of the plan to pay retirement benefits from the employer contributions so transferred for that month. (i) Provides that employer contributions otherwise required to be made to the pension system under Section 9 of this article and requires any other qualified plan to be divided into those contributions required to pay retirement benefits under this section and those contributions paid into and accumulated to pay the maximum benefits permitted under the qualified plan. Prohibits employer contributions made to provide retirement benefits under this section from being commingled with the money of the fund forming part of the pension system or any other qualified plan. Sec. 27. AGREEMENT TO CHANGE BENEFITS. Provides that the board or a designee of the board is responsible for representing the interests of the pension system and all pension issues and benefits affecting the pension system or its members and beneficiaries under this article. Authorizes the board to enter into a written agreement with the city on behalf of the pension system and members and beneficiaries of the pension system if the agreement is approved by the board and signed by the mayor and the board or the board's designee. Authorizes the increase of a pension benefit or allowance under certain circumstances. Sec. 28. NONREDUCTION, NONALIENATION, AND NONASSIGNEMNT OF BENEFITS. (a) Prohibits the seizure, taking, subjection to, detention, or levy upon by virtue of any execution, attachment, garnishment, injunction, or other writ, and provides that no order or decree and no process may issue out of or by any court of this state on any portion of the funds held by the pension system, before or after an order for its disbursement by the board, and no amounts due or to become due to any member or survivor under this article. (b) Prohibits the assignment or transfer of any funds or any claim to the funds, and any attempt to do so is void. (c) Requires the funds to be held, kept, and disbursed for the purposes provided by this article, and for no other purpose, except that a retired member, survivor, or dependent, at the person's discretion, may have deducted from the person's pension the monthly premium cost of any group insurance program in which the retired member is participating. (d) Prohibits a benefits payable under this article from being reduced or discontinued for any person except under the terms applicable to the benefit at the time the person becomes eligible to receive the benefit. (e) Provides that this section does not prevent the division of the benefits accrued by a member under any court order determined by the board or its designee to be a qualified domestic relations order and the payment of a share of a retired member's benefits or contributions to an alternate payee in accordance with the order. SECTION 2. Repealer: Article 6243g-1, V.T.C.S., (Chapter 76, Acts of the 50th Legislature, Regular Session, 1947) (Police Officers' Pension System in cities of 1,200,000 or More) and Article 6243g-3, V.T.C.S. (Police officers' retirement plan in certain cities). SECTION 3. Requires the board of each pension system to which Article 6243g-4, V.T.C.S., as added by this Act, applies to hold an election among all of its members. Requires the board to select an independent party not affiliated with the board, the pension system, or any employee or retiree organization to conduct and tabulate the results of the election. Establishes that each active, inactive, or retired member of the pension system is eligible to vote in the election and has one vote. Sets forth the language of the propositions involving the composition of the board and the effective dates, if applicable, of the election by a majority of the votes of a proposition. SECTION 4. Provides that the monthly benefits of a person who retires or retired after November 23, 1998, and before January 1, 2000, is determined by the benefit formula in effect immediately before the effective date of this Act, notwithstanding Article 6243g-4, V.T.C.S., as added by this Act. SECTION 5. Effective date: September 1, 1999. SECTION 6. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original in SECTION 1 by modifying proposed Article 6243g-4, V.T.C.S., as follows: The substitute redefines "average total direct pay" in proposed Section 2, Article 6243g-4, V.T.C.S., to mean a member's total direct pay for the 26 pay periods, rather than the 26 weekly pay periods, immediately preceding the date of separation from service or the date of entry into DROP, if earlier, divided by 12. The substitute provides for a one-time election held for the pension system before October 1, 1999, in proposed Section 3(b), Article 6243g-4, V.T.C.S., in order to determine the manner in which three employees of the police department and two retired members are elected to the board of trustees of the pension system (board). The election will determine whether those board members are elected by the active, inactive, or retired members or a combination of the three groups. The election will also determine whether officers and employees of any employee or retiree organization are prohibited from being board members. The substitute makes conforming and nonsubstantive changes in proposed Section 3. The substitute modifies proposed Section 7(c), Article 6243g-4, V.T.C.S., to provide that each signature on a petition for removal of a board member must contain the signer's printed name and employee payroll number, if any, rather than the signer's home address and telephone number. Prohibits an employee's payroll number from being publicly disclosed. Makes a conforming change in proposed Section 7(g). The substitute modifies proposed Section 11(a), Article 6243g-4, V.T.C.S., to require a member who is retiring, rather than a member who is retiring or entering a deferred retirement option plan (DROP), to receive one-half day, rather than one day, of service for each day for which the city is required to make contributions with respect to the member's unused sick leave, vacation pay, or accumulated overtime, except to the extent that the member elects to have the amounts credited to the member's DROP account. Makes a conforming change. The substitute modifies proposed Section 14(e), Article 6243g-4, V.T.C.S., to authorize the board to lower any future earnings rate to the extent necessary to ensure that the DROP does not adversely affect the financial, rather than actuarial, condition of the fund. The substitute makes a nonsubstantive change in proposed Section 14(g). The substitute modifies proposed Section 15(a), Article 6243g-4, V.T.C.S., to establish that a member is eligible for a duty-connected disability pension if an injury or illness involves a traumatic event that directly causes an immediate cardiovascular condition resulting in a total disability. Section 15(a) of the original would have provided for a partial or total dutyconnected disability pension for an illness or injury that results in a partial or total disability. The substitute modifies proposed Section 15(f) to specify that a person who joins the pension system on or after September 1, 1999, and subsequently begins to receive a non-dutyconnected disability pension, rather than any disability pension, is required to submit to the board a copy of the member's federal tax return and state tax return, if applicable. The substitute modifies proposed Section 17, Article 6243g-4, V.T.C.S., by adding Subsection (h), to authorize city contributions based on unused sick leave, vacation pay, and accumulated overtime of a member who has separated from service to be applied to pay a refund of member contributions if the contributions are not used to satisfy a service requirement for retirement. The substitute modifies proposed Section 28, Article 6243g-4, V.T.C.S., as follows: Sec. 28. New title: NONREDUCTION, NONALIENATION, AND NONASSIGNMENT OF BENEFITS. Requires the funds of the pension system to be held, kept, and disbursed, rather than sacredly held, kept, and disbursed, for the purposes provided by this article. Adds new Subsection (d) to prohibit a benefit payable under this article from being reduced or discontinued for any person except under the terms applicable to the benefit at the time the person becomes eligible to receive the benefit. Redesignates Subsection (d) to (e). The substitute modifies the original by redesignating SECTIONS 3 and 4 of the original to SECTIONS 5 and 6 of the substitute. SECTION 3 of the substitute formally calls for the one-time election for the pension system to be held before October 1, 1999, and sets forth the language of the propositions to appear on the ballot. SECTION 4 of the substitute provides that the monthly benefits of a person who retires or retired after November 23, 1998, and before January 1, 2000, is determined by the benefit formula in effect immediately before the effective date of this Act, notwithstanding Article 6243g-4, V.T.C.S., as added by this Act.