HBA-DMH C.S.H.B. 783 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 783 By: Tillery Pensions & Investments 5/3/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, the confidentiality of Teacher Retirement System of Texas (TRS) members' records may be ambiguous. In addition, it is believed that changes to provisions governing annuity payments and premium taxes may better serve the members of TRS. C.S.H.B. 783 increases annuity payments for certain individuals, specifies that optional insurance coverage is not subject to a premium tax, and clarifies language relating to TRS member investment products. 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 Teacher Retirement System of Texas in SECTION 4 (Section 823.405, Government Code) and SECTION 15 (Sections 5 and 6, Article 6228a-5, V.T.C.S.) of this bill. ANALYSIS C.S.H.B. 783 amends the Government Code to provide that a Teacher Retirement System of Texas (TRS) member may not establish more than three years of equivalent membership service credit if the member has at least 12 years of actual membership service. The bill authorizes a TRS member to establish service credit by depositing with TRS, for each year of service credit, the actuarial present value, at the time of deposit, of the additional standard retirement annuity benefits that would be attributable to the purchase of the service credit, based on rates and tables recommended by TRS's actuary and adopted by the board of trustees of TRS. After a TRS member makes the deposits required, the bill requires TRS to grant the member one year of equivalent membership service credit for each year of credit approved. The bill requires TRS to deposit the amount of the actuarial present value of the service credit purchased in the TRS member's individual account in the employees saving account. The bill authorizes the board of trustees of TRS to adopt rules to administer the credit purchase option provisions, including rules that impose restrictions on its application (Sec. 823.405, Government Code). The bill increases from 2.2 to 2.3 percent the multiplier for each year of service credit in TRS that is utilized to compute members' standard service retirement annuity and the standard service retirement annuity or the annual death benefit annuity for those who were classroom teachers or full-time librarians immediately before retirement or at the time of death (Sec. 824.203, Government Code). The bill increases the monthly TRS member survivors death benefit by $50 (Sec. 824.404, Government Code). The bill transfers the authority to determine areas with an acute shortage of teachers from the commissioner of education (commissioner) to the board of trustees of a school district for the purpose of allowing a retiree to work full time as a classroom teacher while still receiving monthly benefits from TRS. The bill prohibits TRS from withholding a monthly benefit payment if the retiree is employed as a bus driver on as much as a full-time basis for a school district. The bill requires the board of trustees of a school district by rule to determine, for the purposes of monthly benefit payment withholdings, whether there are acute shortage areas in the district. A determination must be based on acute shortage area guidelines that are adopted by the commissioner. The bill provides what the guidelines adopted by the commissioner must include. (Sec. 824.602, Government Code). The bill amends the Government and Insurance codes to provide that employing districts that fail to remit all required member and employer deposits before the 4th day, rather than the 11th day, after the last day of a month are required to pay the deposits and interest on the unpaid or undocumented amounts at a specified rate. The bill authorizes TRS to grant a waiver of the imposed deadline, on request, based on the employing district's financial or technological resources (Sec. 825.408, Government Code and Sec. 16, Art. 3.50-4, Insurance Code). The bill modifies the provisions relating to the release, disclosure, and confidentiality of records of certain individuals (Sec. 825.507, Government Code). The bill amends law to authorize an educational institution to enter into a salary reduction agreement with an employee of the institution only if the qualified investment product is an eligible qualified investment product. The bill requires the board of trustees of TRS to approve a company that offers a qualified investment product that is an annuity contract if the company meets certain requirements. In determining compliance, the bill authorizes TRS to require the company to provide documentation of the company's rating by nationally recognized rating services that rate the financial strength of life and health insurance companies or to rely on nationally recognized publications that are commonly used in the financial industry. The bill requires the board of trustees of TRS to make a determination on an application not later that the 90th day after the date the application is filed. The bill authorizes the board of trustees of TRS to adopt rules for the approval of qualified investment products other than annuity contracts if the rules are based on reasonable factors. The bill requires TRS to establish and maintain a list of approved companies and provides for the distribution and availability of that list (Sec. 5, Art. 6228a-5, V.T.C.S.). The bill requires the board of trustees of TRS by rule to adopt minimum standards of the financial strength that an annuity company must attain to be approved. Such standards must be based on the ratings of at least four nationally recognized rating services that evaluate the financial strength of life and health insurance companies. The bill prohibits the board of trustees of TRS from unreasonably restricting an employee's access to a reasonable variety of qualified investment products that are annuity contracts (Sec. 6, Art. 6228a-5, V.T.C.S.) The bill sets forth provisions relating to an educational institution's conduct regarding qualified investment products. The bill specifies the conduct that constitutes an offense with regard to a qualified investment product that a person reasonably believes will be subject of a salary reduction agreement (Secs. 7 and 8, Art. 6228a-5, V.T.C.S.). The bill requires a person who offers to sell an annuity contract that is or will likely be the subject of a salary reduction agreement to provide notice with a potential purchaser. The bill requires TRS to prescribe the notice not later than December 1, 2001, make the notice available on request, and post the notice on its website. The bill provides what the notice must include. In addition to the notice, a variable annuity must be accompanied by the prospectus and any other purchasing information required by law. If the appropriate information is not provided, any annuity contract is voidable at the discretion of the purchaser. Not later than the 30th day after the date an employee notifies the seller in writing of the employee's election to void the contract, the bill requires the seller to refund to the employee a specified amount. A seller who receives a refund request is not required to make a refund otherwise required if, not later than the 30th day after the date the seller receives a request for a refund from the employee, the seller provides a copy of the notice signed by the employee (Sec. 9, Art. 6228a-5, V.T.C.S. and SECTION 26). The bill provides that a premium or contribution on a policy, insurance contract, or other authorized agreement is not subject to any state tax, regulatory fee, or surcharge (Art. 3.50-4a, Insurance Code). The bill repeals provisions relating to TRS members receiving credit for work experience in a career or technological field and a reinstatement of service credit of a retiree (SECTION 23). The bill sets forth the procedure by which monthly payments of death or retirement benefit annuities are paid by TRS beginning with the payment due at the end of September 2001 and provides for the computation method of monthly payments for certain retirees. For the purpose of computing the monthly payments of annuities for retirees who retired on or before August 31, 2000, the amount of the monthly payment is equal to the amount of the last monthly payment made before the effective date of the Act multiplied by 1.06. After making this computation, TRS is required to increase the monthly payment of each annuity made by TRS by 4.5 percent beginning on September 1, 2001. The increase does not apply to payments made for disability retirement benefits if a member has less than 10 years of service credit in TRS or to specified survivor benefits (SECTION 24). EFFECTIVE DATE September 1, 2001. Provisions regarding salary reduction agreements and qualified investment products take effect January 1, 2002, and deadline waiver and deposit remittance provisions take effect September 1, 2002. Provisions regarding acute teacher shortages, including transfer of authority and the prohibition relating to withholding monthly benefits take effect on passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001. This provision applies beginning with the 2001-2002 school year. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 783 differs from the original bill by including provisions relating to the credit purchase option plan for Teacher Retirement System of Texas (TRS) members and salary reduction agreements for qualified investment products (Secs. 823.405, Government Code and Secs. 4-9, Art. 6228a-5, V.T.C.S.). The substitute transfers the authority to determine areas with an acute shortage of teachers from the commissioner of education to the board of trustees of a school district and prohibits TRS from withholding a monthly benefit payment for certain retirees (Sec. 824.602, Government Code). The substitute increases the monthly TRS member survivors death benefit (Sec. 824.404, Government Code). The substitute authorizes a deadline waiver to be granted (Sec. 825.408, Government Code and Art. 3.50-4, Insurance Code) The substitute modifies the rulemaking authority of the board of trustees of TRS to provide that the board of trustees of TRS: _may adopt rules to administer the credit purchase option provisions, including rules that impose restrictions on its application; _may adopt rules for the approval of qualified investment products other than annuity contracts if the rules are based on reasonable factors; and _shall adopt minimum standards of the financial strength that an annuity company must attain to be approved (Sec. 823.405, Government Code and Secs. 5 and 6, Art. 6228a-5, V.T.C.S.). The substitute requires the board of trustees of a school district by rule to determine, for the purposes of monthly benefit withholdings, whether there are acute shortage areas in the district (Sec. 824.602, Government Code). The substitute repeals provisions relating to TRS members receiving credit for work experience in a career or technological field and a reinstatement of service credit of a retiree and modifies the effective date language (SECTIONS 23 and 27). The substitute amends the Business & Commerce Code to provide for the liability damages of a seller who commits a false, misleading, or deceptive act or practice when entering into an annuity contract that will be the subject of a salary reduction agreement if the annuity contract is not an eligible qualified investment (SECTIONS 21 and 22). The substitute modifies the original bill to expand the criteria used to approve qualified investment products (Secs. 5 and 6, Art. 6228a-5, V.T.C.S.). The substitute removes from the original bill the requirement that employers of employees who participate in the offered investment program require that contributions to investments be directly deposited into investment accounts by automatic payroll deductions.