HBA-DMH C.S.S.B. 273 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 273 By: Armbrister Pensions & Investments 5/15/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, there is ambiguity regarding the confidentiality of records of the members of the Teacher Retirement System of Texas (TRS). In addition, it is believed that changes to provisions governing annuity payments and premium taxes may better serve the members of TRS. C.S.S.B. 273 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 3 (Section 823.405, Government Code) and SECTION 15 (Section 8, Article 6228a-5, V.T.C.S.) and to the Teachers Retirement System of Texas in SECTION 15 (Section 6, Article 6228a-5, V.T.C.S.) of this bill. ANALYSIS C.S.S.B. 273 amends the Government Code to prohibit a Teacher Retirement System of Texas (TRS) member from establishing more than three years of equivalent membership service credit if the member has at least seven 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 required deposits, 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 (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 annual 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 extends from September 1, 2000, to December 31, 2001, the date on which a member participating in the deferred retirement option plan on September 1, 2001, rather than September 1, 1999, may elect to discontinue participation in the plan (Sec. 824.805, 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 5th 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 authorizes a company to certify to TRS that the company offers a qualified investment product if the company is authorized to issue annuity contracts in this state at the time the application is filed and the company complies with the standards established in the bill for financial strength criteria. The bill requires a company that makes such a certification to notify TRS if, at any time, the company is no longer in compliance or if an investment product that the company offers is the subject of a salary reduction agreement and the investment product is not a qualified investment product. 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 provides the financial strength criteria standards that a company is required to meet to certify to TRS that it offers a qualified investment product (Sec. 6, Art. 6228a-5, V.T.C.S.). 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. After consultation with the Texas Department of Insurance (TDI) and the State Securities Board, the bill authorizes TRS to adopt rules to administer provisions relating to an educational institution's conduct regarding qualified investment products. The bill requires TRS to refer all complaints about qualified investment products to the appropriate division of TDI or the State Securities Board and requires TDI and the State Securities Board to cooperate with TRS in administering these provisions. The bill requires TDI and the State Securities Board to notify TRS of any action or determination regarding a product or a company that violates the certification provisions. The bill requires TRS to reject the certification of a company if TRS receives notification from TDI or the State Securities Board of a company's violation. The bill authorizes a company to recertify to the board of trustees of TRS (Sec. 6, Art. 6228a-5, V.T.C.S.). The bill sets forth provisions regarding a certification fee TRS is authorized to collect and requires the fee to be deposited to the credit of the 403(b) administrative trust fund to be created with the comptroller of public accounts and administered by TRS. The bill authorizes a company that offers qualified investment products other than annuity contracts to certify to TRS based on rules adopted by the board of trustees of TRS and requires the rules to be based on certain reasonable factors. The bill requires TRS to establish and maintain a list of certified companies. The list must be available on TRS's website (Secs. 7 and 8, 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 knows or reasonably believes will be the subject of a salary reduction agreement (Secs. 9 and 10, 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. The bill provides that an equity-based index contract must state in plain language how the annuity contract will be credited with growth. 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. 11, 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 the reporting of the earnings of a disability retiree and a reinstatement of the 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 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 each annuity payable 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 relating to an educational institution's conduct regarding qualified investment products, conduct that constitutes an offense, and notice to a potential purchaser regarding an annuity contract that is or will likely be the subject of a salary reduction agreement take effect June 1, 2003. Provisions relating to deadline waiver and deposit remittance provisions take effect September 1, 2002. The provision regarding acute teacher shortages, including the transfer of authority for determining such shortages and the prohibition relating to withholding monthly benefits, takes effect on passage, or if the Act does not receive the necessary vote, the provision takes effect September 1, 2001. This provision applies beginning with the 2001-2002 school year. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.S.B. 273 differs from the original bill by restoring existing law relating to the cancellation of a teacher certificate, exceptions to the Teacher Retirement System of Texas (TRS) membership requirement, computation of and payment for credit, establishment of prior service, membership service previously waived and the revocation of a beneficiary designation for certain retirement benefit options. The substitute provides that a TRS member may not establish more than three years of equivalent membership service credit if the member has at least seven years of actual membership service, sets forth provisions relating to the credit purchase option, and authorizes the board of trustees of TRS to adopt rules to administer the credit purchase option (Sec. 823.405, Government Code). The substitute modifies the multiplier for each year of service credit in TRS that is utilized to compute TRS member's standard service retirement annuity, annual standard service retirement annuity, or annual death benefit annuity (Sec. 824.203, Government Code). The substitute modifies the original by adding provision regarding acute teacher shortages and monthly benefit payments to a retiree who is employed as a bus driver (Sec. 824.602, Government Code). The substitute extends from September 1, 2000, to December 31, 2001, the date on which a member participating in the deferred retirement option plan on September 1, 2001, rather than September 1, 1999, may elect to discontinue participation in the plan (Sec. 824.805, Government Code). The substitute restores the provision that requires TRS to deposit in a TRS member's individual account in the member savings account the portion of a deposit to establish membership service credit previously waived (Sec. 825.307, Government Code). The substitute authorizes TRS to grant a waiver of the imposed deadline for remittance of member deposits, on request, based on the employing district's financial or technological resources and modifies the remittance deadline date (Sec. 825.408, Government Code and Sec. 16, Art. 3.50-4, Insurance Code). The substitute differs from the original bill by modifying provisions relating to the release, disclosure, and confidentiality of records of certain individuals and restoring current law regarding TRS mailings (Sec. 825.507, Government Code). The substitute modifies the original bill to expand the criteria used by TRS to approve investment products by including provisions relating to a company's certification to offer a qualified investment product. The substitute also provides the financial strength criteria standards that a company is required to meet to certify to TRS that it offers a qualified investment product and sets forth provisions relating to TRS's offering of a qualified investment product. The substitute includes provisions requiring the Texas Department of Insurance and the State Securities Board to cooperate with TRS in the administration of the Act. The substitute sets forth provisions regarding the certification fee TRS is required to collect and requires the fee to be deposited to the credit of the 403(b) administrative trust fund to be created with the comptroller of public accounts and administered by TRS. The substitute sets forth provisions relating to an educational institution's conduct regarding qualified investment products and specifies the conduct that constitutes an offense with regard to a qualified investment product. The substitute includes requirements for TRS to prescribe a notice for a potential purchaser of an annuity contract that is or will likely be the subject of a salary reduction agreement (Secs. 5-11, Art. 6228a-5, V.T.C.S. and SECTION 26). The substitute sets forth the procedure by which certain monthly payments of death or retirement benefit annuities are to be paid by TRS and provides the computation method of monthly payments for certain retirees (SECTION 24). The substitute differs from the original by removing transitional provision that extended the establishment of services credit to certain employees of public institutions of higher education.