HBA-SEB S.B. 1130 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1130 By: Armbrister Pensions and Investments 5/3/1999 Engrossed BACKGROUND AND PURPOSE Currently, the Employees Retirement System of Texas (ERS) provides a service retirement program in addition to disability, death, and survivor benefits to state employees and elected state officials. ERS also administers the Uniform Group Insurance Program which provides health coverage and optional dental, disability, life, and accident insurance to employees, retirees, and dependents of state agencies and institutions of higher education. Additionally, ERS provides a deferred compensation plan and cafeteria plan and distributes Social Security payments. During the interim following the 75th Texas Legislature, Regular Session, the Senate State Affairs Committee reviewed the policies and procedures of ERS and made recommendations that serve as the basis for this bill. S.B. 1130 expedites the refund of member accounts, modifies retirement eligibility for certain peace officers, allows service credit for annual leave and accrued compensatory time for the purpose of determining retirement eligibility, provides a partial lump sum distribution option, modifies the composition and investment authority of the system's insurance contingency reserve fund, provides an annuity increase for ERS retirees and survivor annuitants, allows annuitants to obtain accelerated benefits from life insurance policies, and authorizes a continued state contribution toward survivor insurance coverage, and makes other administrative and technical changes. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the board of trustees of the Employees Retirement System of Texas in SECTION 10 (Section 814.1082, Government Code), SECTION 19 (Section 815.511, Government Code), and SECTION 23 Section 4B, Article 3.50-2, V.T.C.S.) of this bill. It is also the opinion of the Office of House Bill Analysis that rulemaking authority previously delegated to the board of trustees of the Employees Retirement System of Texas is modified in SECTION 28 (Section 11A, Article 3.50-2, V.T.C.S.) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 805.008, Government Code, by amending Subsection (c) and adding Subsection (h), as follows: (c) Establishes that Subsection (h) is an exception to this subsection, which authorizes the Employees Retirement System of Texas (ERS) and the Teacher Retirement System of Texas, by rule, to require the retirement system from which credit is transferred to pay monthly a specific amount. (h) Requires a transfer of an amount equal to the portion of the actual value of a lump sum payment that represents the percentage of the amount of service credit transferred to be made at the time the lump sum is made if a person elects to receive a partial lump-sum payment under the law governing the retirement system from which the person is retiring. SECTION 2. Amends Section 812.101(a), Government Code, to provide that one condition of a member of ERS being authorized to withdraw all of the member's accumulated contributions for service credited in the employee class is if the member does not assume or resume a position included in that class during the 30 days after the date on which the member terminates employment, rather than during the calendar month following the month of termination. SECTION 3. Amends Section 812.104, Government Code, by amending Subsection (a) and adding Subsection (c), as follows (a) Provides that Subsection (c) is an exception to this subsection, which provides that deposits representing interest or membership fees that are required of a member to establish service credit are not refundable. (c) Requires ERS to refund any contributions, interest, or membership fees used to establish service credit that is not used in computing the amount of an annuity at the time a service retirement, disability retirement, or death benefit annuity becomes payable. SECTION 4. Amends Section 813.104(b), Government Code, to prohibit payments from being made under a rule adopted under this section (Alternative Payments to Establish or Reestablish Service Credit) to establish service credit under Section 813.511. Makes conforming and nonsubstantive changes. SECTION 5. Amends Section 813.201(b), Government Code, to prohibit a member from accruing or establishing service credit in the employee class of membership when the total amount of service credit, multiplied by the percentage in effect for computing annuities, would exceed the number 100. Makes this prohibition effective after August 31, 1997, rather than August 31, 1991. Makes conforming changes. SECTION 6. Amends Subchapter F, Chapter 813, Government Code, by adding Section 813.511, as follows: Sec. 813.511. CREDIT FOR ACCUMULATED ANNUAL LEAVE. (a) Entitles a member to service credit in ERS for the member's annual leave that has accumulated and is unused on the last day of employment if the member holds a position in the employee class of membership during the month of the member's effective date of retirement and if the member retires based on service or a disability. Sets forth the rate used to establish credit in ERS for annual leave. (b) Authorizes a member in the employee class to use annual leave creditable under this section to satisfy service requirements for retirement under Section 814.104 (Eligibility of Member for Service Retirement) or 814.107 (Service Retirement Benefits for Certain Peace Officers) if the annual leave attributed to the eligibility requirements remains otherwise unused on the last day of employment. (c) Requires the disbursing officer of each department or agency to certify to ERS the name of each person whose retirement from the department or agency, and from state service, became effective during the preceding month and the amount of the person's accumulated annual leave on the last day of employment. Requires this certification to take place before the 11th day after the effective date of retirement and except as provided by Subsection (d). (d) Requires the disbursing officer of a department or agency to certify to ERS the amount a member's accumulated and unused annual leave if the department or agency employs a member who applies for retirement under Subsection (b). Requires this certification to take place between 30 and 90 days before the effective date of the member's retirement. Requires the officer to immediately notify ERS if the member uses annual leave after the date of certification. (e) Requires ERS to grant any credit to which a retiring member or retiree who is a subject of a certification is entitled on receipt of a certification under Subsection (c) or (d). Provides that an increase in the computation of an annuity because of credit for accumulated annual leave after a certification under Subsection (d) begins with the first payment that becomes due after the certification. (f) Requires ERS to cancel the retirement of a person who used creditable annual leave to qualify for service retirement if the annual leave is otherwise used by the person before the effective date of retirement. SECTION 7. Amends Section 814.104, Government Code, by amending Subsection (a) and adding Subsection (c), as follows: (a) Provides that a member who has service credit in ERS is eligible to retire and receive a service retirement annuity if the member has at least five years of service credit in the employee class and the member is either 60 years old or the sum of the member's years of service and age equals or exceeds the number 80. Makes conforming changes. (c) Requires ERS, for the sole purpose of determining eligibility to receive a service retirement annuity, to consider service performed as a participant in the optional retirement program under Chapter 830 (Optional Retirement Program) as if it were service for which credit is established in ERS. SECTION 8. Amends Subchapter B, Chapter 814, Government Code, by adding Section 814.1042, as follows: Sec. 814.1042. SERVICE FOR CERTAIN GOVERNMENTAL EMPLOYERS. Requires ERS to consider not more than 60 months or portions of months of service performed for a Texas governmental employer that does not participate in the proportionate retirement program by a member who has at least five years of service credit, excluding military service, in the employee class as if it were service for which credit is established in ERS. Provides that this consideration is for the sole purpose of determining eligibility to receive a service retirement annuity according to the sum of the member's years of service and age. Provides that a member who seeks the application of this section must provide documentation satisfactory to ERS of the amount of service performed for the governmental employer. Prohibits service described by this section from being used in determining eligibility in the Texas Employees Uniform Group Insurance Act. SECTION 9. Amends Sections 814.107(c), (d), and (e), Government Code, as follows: (c) Provides that the standard combined service retirement annuity that is payable to certain peace officers under this section is based on retirement on or after the attainment of the normal retirement age, which is the age of 50 or the age at which the sum of the member's age and years of service credit in the employee class equals the number 80, whichever is earlier. Entitles a law enforcement officer or custodial officer to an annuity that is actuarially reduced if the officer retires before reaching the normal retirement age. Makes conforming changes. (d) Makes a conforming change. (e) Makes a conforming change. SECTION 10. Amends Subchapter B, Chapter 814, Government Code, by adding Section 814.1082, as follows: Sec. 814.1082. PARTIAL LUMP SUM OPTION. Authorizes a member to select a standard service retirement annuity or an optional retirement annuity described by Section 814.108 (Optional Service Retirement Benefits) together with a partial lump sum distribution. Prohibits the amount of the lump sum payment from exceeding the sum of 36 months of a standard service retirement annuity computed without regard to this section. Requires the service retirement annuity selected by the member to be actuarially reduced to reflect the lump sum option elected by the member and 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 ERS. Provides that unless otherwise specified in rules adopted by the board of trustees of ERS (board), the lump sum distribution will be made as a single payment payable at the time that the first monthly annuity payment is paid to the retiree. Establishes that the amount of the lump sum distribution will be deducted from any amount otherwise payable under Section 814.505 (Return of Excess Contributions in Other Circumstances). 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. Authorizes the board to adopt rules for the implementation of this section and to authorize the option to be used for a death benefit annuity. Establishes that this section does not apply to a disability retirement annuity. SECTION 11. Amends Section 814.202, Government Code, by adding Subsection (d), to require ERS, for the sole purpose of determining eligibility to receive a disability retirement annuity under Subsection (a)(3) (regarding a member's eligibility for a nonoccupational disability with 10 years of service credit), to consider service performed in the optional retirement program as if it were service for which credit is established in ERS. SECTION 12. Amends Section 814.302(b), Government Code, to authorize a person's surviving spouse to select a plan in the same manner that the decedent could have made the selection if the decedent had retired on the last day of the month of death if the decedent was a contributing member of the employee class, had at least three years of service credit in that class, and would have been eligible to retire under the proportionate retirement program. SECTION 13. Amends Section 815.103, Government Code, by adding Subsection (d), to authorize the board to accept gifts of money or other property on behalf of ERS from any public or private source. SECTION 14. Amends Section 815.110(e), Government Code, to require that the board's selection of an independent auditor be in accordance with the requirements of Chapter 2254 (Professional and Consulting Services) for obtaining the services of a certified public accountant. Makes conforming and nonsubstantive changes. SECTION 15. Amends Section 815.202(f), Government Code, to authorize the executive director of the board (executive director) to delegate to an employee of ERS any right, power, or duty assigned to the executive director if the board does not specifically delegate them to another employee of ERS. SECTION 16. Amends Section 815.208, Government Code, by adding Subsection (d), to authorize the board to compensate employees of ERS at the rate equal to the employees' regular rate of pay for work performed on a legal holiday or for other compensatory time accrued when taking compensatory time off would be disruptive to the system's normal business functions, whether subject to or exempt from the overtime provisions of the Fair Labor Standards Act of 1938. SECTION 17. Amends Section 815.322, Government Code, to require the executive director, rather than the board, to make a transfer to make the amount in the retirement annuity reserve account equal to the actuarial present value of the annuities for which a transfer of assets has been made under Section 815.319 (Transfer of Assets on Retirement and Restoration to Active Service), after making other specific transfers. SECTION 18. Amends Section 815.502(a), Government Code, to authorize, rather than require, ERS to mail a notice to the member if a valid application for payment is not filed with ERS before the expiration of five years after the last month for which credit was established. SECTION 19. Amends Section 815.511, Government Code, as follows: Sec. 815.511. New title: ADMINISTRATIVE DECISION; APPEAL. (a) Authorizes the board to modify or delete a proposed finding of fact or conclusion of law contained in a proposal for decision submitted by an administrative law judge or other hearing examiner, or to make alternative findings of fact and conclusions of law in a proceeding considered to be a contested case under Chapter 2001 (Administrative Procedure). Requires the board to state in writing the specific reason for its determination and authorizes the board to adopt rules for the implementation of this subsection. (b) Provides that an appeal of a decision of ERS is considered to be an appeal of a contested case under the administrative procedure law. SECTION 20. Amends Section 840.103(b), Government Code, to require ERS to certify specific costs to the Legislative Budget Board and to the budget division of the governor's office for review not later than December 31, rather than before November 2, of each even-numbered year. SECTION 21. Amends Section 3(a)(18), Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), to delete existing text stating that the term "institution of higher education" does not include Texas Tech University and the University of Houston System unless either of those entities elects to participate in the Texas Employees Uniform Group Insurance Benefits Program. SECTION 22. Amends Section 3A, Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), as follows: Sec. 3A. New title: PARTICIPATION BY CERTAIN ENTITIES. (a) Requires the Texas Municipal Retirement System and the Texas County and District Retirement System (TCDRS) to participate in the Texas Employees Uniform Group Insurance Program administered by ERS under this Act. Provides that participation is limited to the officers and employees of the systems, and eligible dependents of those persons, and certain persons who have retired from either system. Specifies that an officer or employee of either system is an annuitant for purposes of this Act. Establishes that participation does not include the governing bodies of either system, municipalities or subdivisions participating in either system or the trustees, officers, employees, or their dependents of the participating municipalities or subdivisions. Prohibits a participant from receiving a state contribution for premiums. Makes conforming changes. (b) Authorizes a person to obtain coverage for the person's dependents as any other participating annuitant if the person meets specific conditions. An eligible person is one who began employment with or became an officer of the Texas Turnpike Authority within the three-year period preceding August 31, 1997, was an officer or employee of the Texas Turnpike Authority on that date, became an officer or employee of the North Texas Tollway Authority on September 1, 1997, and retires or is eligible to retire with at least 10 years of service credit under the proportionate retirement program or under one of the public retirement systems to which Chapter 803 applies. SECTION 23. Amends Section 4B, Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), by adding Subsection (c-1), to authorize the board to modify or delete a proposed finding of fact or conclusion of law contained in a proposal for decision submitted by an administrative law judge or to make alternative findings of fact and conclusions of law in a proceeding considered to be a contested case. Requires the board to state in writing the specific reason for the determination and authorizes the board to adopt rules for the implementation of this subsection. SECTION 24. Amends Section 5, Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), by amending Subsections (a), (d), and (f) and adding Subsection (e), as follows: (a) Requires the board to determine the coverages desired for state employees and other eligible participants. Requires an actuary selected by the board to advise the board as to the actuarial soundness of bids received for a contract. Requires the board to submit the coverages provided by the group plan for competitive bidding at least every six years. Deletes existing text regarding the State Board of Insurance. Makes conforming and nonsubstantive changes. (d) Deletes an exception to the prohibition against a department establishing, continuing, or authorizing payroll deductions or reductions for any benefits or coverage without the express approval of the board. (e) Requires the board, within a specific time frame, to estimate the expenditures from the fund anticipated for self-funded plans for an average 60-day period during the biennium, considering claims and administrative expenses that are projected to be incurred. Requires the board to place the estimated amount in a contingency reserve fund to provide for adverse fluctuations in claims or administrative expenses. Requires the board to include in each request for legislative appropriations to the program the amount the board determines to be necessary to maintain the contingency reserve fund at the level required by this subsection. Authorizes the board to invest and reinvest any portion of the contingency reserve fund under a certain standard of care, considering the functional need to provide for adverse fluctuations in claims or administrative expenses. Requires the interest on, earnings of, and proceeds from the sale of investments to be credited to the contingency fund. (f) Deletes existing text regarding an unrestricted balance of the fund. Makes a conforming change. SECTION 25. Amends Section 8, Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), to authorize the board, in its sole discretion and under conditions it approves, to reinsure any coverage that it has determined will be provided directly with the fund. Deletes existing text regarding reinsurance. SECTION 26. Amends Section 10, Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), by adding Subsection (c), to provide that the records of a participant in the Texas Employee Uniform Group Insurance Program in the custody of the board, or of an administrator or carrier acting on the board's behalf, are confidential and not subject to disclosure and are exempt from public access, except as provided by this subsection. Authorizes records to be released to a participant or to an authorized attorney, family member, or representative acting on behalf of the participant. Authorizes the board to release the records to an administrator, carrier, or agent or attorney acting on behalf of the board, to another governmental entity or to a medical provider of the participant for the purpose of carrying out the purposes of this Act, or to a party in response to a subpoena. Provides that the records of a participant remain confidential after release to a person authorized under this subsection. Authorizes a participant's records to become part of the public record of an administrative or judicial proceeding, unless the records are closed to public access by a protective order. SECTION 27. Amends Section 11(e)(3), Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), to provide that an annuitant participating in optional term life insurance coverage is eligible for accelerated life insurance benefits as provided by rules adopted under the authority of Subsection (d) (regarding rules adopted by the board for accelerated life insurance benefits for terminally ill, terminally injured, or permanently disabled participants), as added by Chapter 1048, Acts of the 75th Legislature, Regular Session, 1997. Makes conforming and nonsubstantive changes. SECTION 28. Amends Section 11A, Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), to require the board to adopt rules that include a provision authorizing an employee, annuitant, or dependent to make, in conjunction with receipt of a viatical settlement, an irrevocable designation of beneficiary for part or all of the group life coverage benefits. Provides that a viatical settlement is not valid for coverage under the Texas Employees Uniform Group Insurance Program unless the employee, annuitant, or dependent has a terminal illness or terminal injury, as defined by rules adopted by the board, at the time application for benefits is made. Makes a conforming change. SECTION 29. Amends Section 13, Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), by adding Subsection (e), to provide that a former member of a board or commission described by Section 3(a)(5)(A)(vi) (regarding the definition of "employee") or a former member of the governing body of an institution of higher education remains eligible for participation in a group health coverage plan offered under this Act as long as no lapse in coverage occurs after the end of the former member's term, except as provided by Section 13A (Expulsion from Group Insurance Program). Prohibits a participant from receiving a state contribution for premiums. Sets forth a limit for the participant's contribution for coverage under a group health coverage plan. SECTION 30. Amends Secion 13B, Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), to delete an exception to the requirement that each employee be enrolled in the premium conversion benefit portion of the cafeteria plan. SECTION 31. Amends Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), by adding Section 16A, as follows: Sec. 16A. MANAGEMENT OF ASSETS. Authorizes the board, for investment purposes, to commingle the assets of any fund created under this Act with any other fund created under this Act or any other trust fund administered by the board, as long as proportionate ownership records are maintained and credited. SECTION 32. Amends Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), by adding Section 16C, as follows: Sec. 16C. EMPLOYEE'S HEALTH CARE STABILIZATION TRUST FUND. Provides that the employee's health care stabilization trust fund is a special fund in the treasury outside the general revenue fund. Provides that the fund is composed of money transferred to the fund at the direction of the legislature, gifts and grants, and the returns received as interest. Requires the board to administer the fund. Authorizes the board to manage and invest the money in the fund under a specific standard of care, and requires the board to make investments in a manner that preserves the fund's purchasing power. Prohibits money in the fund from being spent for any purpose, except that the interest and investment returns may be appropriated only for the purpose of stabilizing the cost of the state and participant contributions for health care coverage by minimizing increases in those contributions. Exempts the fund from the application of Section 403.095, Government Code (Use of Dedicated Revenue). SECTION 33. Amends Section 18(a), Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), to require that one member of the group benefits advisory committee be a state employee of a state agency eligible for membership in the Texas Small State Agency Task Force, rather than an agency other than one of the eight largest state agencies. SECTION 34. Amends Section 19(b), Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act), to require the state, if funds are specifically appropriated for the purpose, to pay the same portion of the cost of the required contributions for a deceased retiree's surviving spouse or other surviving dependent who elects to retain coverage as it pays for similar dependent coverage for an employee or retiree participating in the program. SECTION 35. Amends Section 403.026(a), Government Code, to delete a requirement that the comptroller determine the number of fraudulent claims under the group health insurance programs administered through ERS for active and retired state employees. SECTION 36. Amends Section 609.007, Government Code, by adding Subsection (d), to provide that a contract created for deferment of compensation need not be in writing. Authorizes the contract to be communicated to the plan administrator electronically or by any other means approved by the plan's trustees. SECTION 37. Amends Section 609.505, Government Code, by amending Subsection (a) and adding Subsections (c) and (d), as follows: (a) Makes a nonsubstantive change. (c) Provides that a vendor or investment product having an ownership or other financial interest in the contractor selected by the board to administer a deferred compensation plan is not qualified to participate in that plan. (d) Requires the board to select vendors or investment products based on the quality of investment performance, proven ability to manage institutional assets, minimum net worth requirements, fee structure, compliance with applicable federal and state laws, and other criteria established by the board. Requires the board to determine the minimum and maximum number of vendors and investment products that may be offered by a plan at any particular time. SECTION 38. Amends Section 615.001, Government Code, to decrease the age of a minor child in the definition of that term from 21 to 18 years. SECTION 39. Provides that monthly payments of a retirement or death benefit annuity by ERS under Subtitle B, Title 8, Government Code (Employees Retirement System of Texas), are increased beginning with the first payment of the annuities that becomes due on or after the effective date of this section. Establishes that the increase does not apply to annuities payable under Section 814.103, Government Code. Sets forth the computation of the amount of the monthly increase according to a specific table. SECTION 40. Repealers: Sections 5(b) (requiring the board to justify the selection of a carrier whose bid was not the lowest), (c) (requiring the board to submit the group plan's coverages for competitive bidding every six years), and (g) (requiring the board to submit specific information regarding contributions to the State Board of Insurance for examination and evaluation), Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act). SECTION 41. (a) Provides that Section 814.302(b), Government Code, as amended by this Act, applies only to deaths of contributing members of ERS that occur on or after the effective date of this Act, except as provided by Subsection (b). (b) Authorizes the surviving spouse of a contributing member of ERS to apply for and receive a death benefit annuity under Section 814.302(b), as amended by this Act, if the contributing member died before the effective date of this Act and if the member's account has not been refunded. Establishes that the effective date of an annuity under this subsection is the last day of the month in which the member died. Provides that the amount of an annuity payable under this subsection will be determined under the plan terms in effect in the month in which the member died. Requires ERS to make a lump sum payment of all unpaid annuity payments under this subsection at the time the first payment of the annuity becomes due on or after the effective date of this Act. Provides that this subsection expires December 31, 1999. SECTION 42. Provides that a person who retires from TCDRS or the Texas Municipal Retirement System on or after the effective date of this Act but before September 1, 2002, is not required to meet the requirement of three years of service for a department whose employees are authorized to participate in the program provided by the Texas Employees Uniform Group Insurance Benefits Act to continue participation authorized by Section 3A of that Act, notwithstanding that section, as amended by this Act. SECTION 43. Establishes that Section 814.1082, Government Code, as added by this Act, applies only to retirements that occur on or after January 1, 2000. SECTION 44. Effective date: September 1, 1999, except that Sections 27, 28, and 39, take effect January 1, 2000. SECTION 45. Emergency clause.