HBA-SEB H.B. 1697 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1697 By: Greenberg Pensions and Investments 3/16/1999 Introduced BACKGROUND AND PURPOSE Currently, municipalities with populations between 460,000 and 500,000 have retirement systems in place for the employees of those municipalities. H.B. 1697 modifies the statutes governing those retirement systems by providing disability benefits for off-the-job injuries or illness after five years of service, amending the rights of members participating in the proportionate retirement program, providing additional opportunities for voting members to fill a vacancy on the retirement system's board of trustees, establishing lump-sum distributions to retirees without affecting base annuities, increasing the benefit multiplier from 2.6 to 2.7, and allowing additional benefit improvements contingent on increased contributions and actuarial soundness. 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 Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, V.T.C.S.), as follows: Sec. 1. SCOPE. Prohibits any act of any city authorized to have a retirement system created by this Act for a city governed by this Act (retirement system) from denying or abridging any right or privilege of the pension system or its members. Requires the retirement system to operate and perform governmental functions pursuant to this Act regardless of any action by the city and to continue to be authorized by this Act. Makes conforming changes. Sec. 2. DEFINITIONS. Redefines "agency of the municipality," "board," "creditable service," "current service annuity," "designated beneficiary," "employer," "Fund No. 2," "governing body," "investment manager," "member," "normal retirement age," "normal retirement date," "prior service pension," "qualified domestic relations order," "regular fulltime employee," "retired member," "retirement allowance," "retirement system," "retirement and pensioning system," "pension system," and "system." Deletes definition of "hospital authority." Redesignates Subdivisions (26)-(45) to Subdivisions (25)-(44). Makes conforming changes. Sec. 3. ESTABLISHMENT AND APPLICABILITY. Requires members of the retirement system (members) who retired and the beneficiaries of members who died prior to October 1, 1999, rather than September 1, 1997, to continue to receive the same retirement allowances or benefits that they were entitled to receive prior to that date, together with any benefit increases, rather than cost of living adjustments, authorized pursuant to this Act. Makes conforming changes. Sec. 4. ADMINISTRATION. (a) Provides that the retirement board of the retirement system (retirement board) has the power and responsibility for the proper and effective general administration, management, and operation of the retirement system for the exclusive benefit of the present and future members of the retirement system and their beneficiaries. (b) Deletes existing text authorizing the removal and replacement or redesignation of the place one member of the 11 retirement board members by the city council of a municipality (governing body) at any time. (c) Requires the retirement board to appoint an active-contributory member to fill a vacancy on the retirement board for a member in the sixth through ninth places whose term on the retirement board is eliminated early if the remainder of the unexpired term is less than 365 days and, if more than 365 days, to fill the vacancy by a vote of the activecontributory members at a special election. Requires the retirement board to appoint a retired member of the retirement system (retired member) to fill the remainder of an unexpired term in the 10th or 11th place on the retirement board if the unexpired term is less than 365 days and, if more than 365 days, to fill the vacancy by voting at a special election. (d) Requires only one active-contributory member to be eligible for election from any one department or from any one similar organizational unit or office that is established in the annual budget of a city or municipality (employer) and that is not a part of any other department. Requires elections for places six through nine on the retirement board to be held in December of odd-numbered years and elections for places ten and eleven to be held in December of every second even-numbered year. Requires the retirement board to approve written procedures that include comprehensive provisions for the conduct of the election and early voting. Makes conforming changes. (e) Requires each member of the retirement board to take an oath of office within 30 days after appointment or election. Makes conforming changes. (f) Makes nonsubstantive changes. (g) Requires the retirement board to hire a pension director, rather than a pension officer, as an employee of the retirement board. Requires the retirement board to establish the title and duties of the pension director. Prohibits the pension director's title and duties from being inconsistent with this Act. Requires the pension director to employ a staff of the retirement system, rather than a staff of the retirement board. Makes conforming changes. (h) Requires the retirement board to establish rules and regulations for the administration of the funds authorized to be created hereunder and for the transaction of the retirement system's business, rather than the retirement board's business. Makes a nonsubstantive change. (i) Requires each employer to provide to the retirement board the records necessary and useful to administer the system and the trust fund containing the aggregate of the assets of the members' contributions and the city's contributions (fund). Authorizes the retirement board to increase the benefits and allowances to be paid from the fund in pursuance of the provisions of this Act and pursuant to Subsection 10(f) (regarding obtaining an actuarial study to show that the proposed change will not make the fund financially unsound). Requires the retirement board to collect all under payments and refund all known over payments made to the system, where not impracticable. Requires the retirement board to keep a complete record of the retired members, surviving spouses, and beneficiaries of the fund and the amounts paid to them. Provides that a certified public accounting firm selected by the retirement board performs an annual independent audit of the system accounts. Makes conforming and nonsubstantive changes. (j) Makes a nonsubstantive change. (k) Authorizes the retirement board to adopt rules, establish policies, regulations, and procedures that the retirement board considers necessary or advisable to carry out this Act. Makes conforming and nonsubstantive changes. (l) Requires the provisions of this Act to be construed and administered in a manner that the retirement system's benefit plan will be considered a qualified plan under Section 401 of the United States Internal Revenue Code of 1986 (Code) (Qualified Pension, ProfitSharing, and Stock Bonus Plans). Authorizes the retirement board to adopt rules that modify the plan to the extent necessary for the retirement system to be a qualified plan. Requires the retirement board to adopt rules to ensure that benefits paid to a retired member or beneficiary do not exceed the limits established by Section 415 of the Code (Limitations on Benefits and Contribution under Qualified Plans). Establishes that rules adopted by the retirement board are a part of the plan. Authorizes the retirement board to adopt rules that establish a separate qualified excess benefit arrangement as defined in 26 U.S.C. Section 415 to provide any benefits that would have been provided under the qualified plan but for the limits in that section. (m) Redesignated from Subsection (l). (n) Redesignated from Subsection (m). Authorizes the retirement board to remove a retirement board member from office for malfeasance by a vote of six retirement board members or more at any time after notice and hearing. Sec. 5. MEMBERSHIP. Deletes existing text regarding the time frame in which an employee becomes an active-contributory member of the retirement system. Provides that members of the retirement system who belong to the inactive-noncontributory group consists of all members whose status as an employee has been terminated before retirement or disability retirement but who are still entitled to or who may become entitled to or whose beneficiary may become entitled to benefits. Makes conforming and nonsubstantive changes. Sec. 6. CREDITABLE SERVICE. Authorizes a member to establish uniformed creditable service for an authorized leave of absence for military service. Prohibits a member's lump sum contribution to the retirement system for time the member spent on authorized leave of absence from exceeding the amount required under the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended. Requires the member's employer to make a single payment in an amount equal to the contributions the employer would have made on the member's behalf if the member had made deposits to the fund during the member's leave of absence and if the member chooses to contribute to the retirement system in a lump sum payment. Authorizes the employer of a member to purchase additional creditable service for the member at any time before the last day of the month during which the member retires (actual retirement date). Requires the additional service credit purchased to be credited to the member. Deletes existing text regarding unreduced retirement benefits for a member who is at least 55 years old. Makes conforming and nonsubstantive changes. Sec. 7. New title: SERVICE RETIREMENT AND WITHDRAWAL BENEFITS. (a) Entitles a member to a distribution of the member's accumulated deposits in a single lump sum if the member's employment terminates before the member's normal retirement date, unless Section 8 of this Act applies. Deletes existing text regarding the entitlement of a member to withdraw deposits after 20 years of service on attaining age 55. Makes a conforming change. (b) Provides that unless a member is eligible to receive a retirement allowance and participates in a proportionate retirement program authorized by state law, the member is not entitled to receive a retirement allowance if the member terminates employment with the employer and has less than five years of creditable service. (c) Makes nonsubstantive changes. (d) Requires the retirement board to have the power once each year in December to authorize a cost of living adjustment (adjustment) or a one-time additional benefit payment (additional payment), subject to the conditions, limitations, and restrictions set forth in this Act. Requires the additional payment to be made to each retired member receiving a retirement annuity, pension, or allowance if the member became entitled to benefits on or before December 31 of the year preceding the year in which the additional payment is approved. Prohibits an additional payment from exceeding an amount equal to the amount of the monthly payment being received by a member prior to the addition of any adjustment made during that year. Makes conforming and nonsubstantive changes. (e) Requires any member to be eligible for proportionate retirement if the member qualifies for retirement by reason of creditable service attained with one or more retirement programs participating in the proportionate retirement program established by state law. Requires a member who qualifies for proportionate retirement and retirees to begin receiving the retirement benefits beginning on the last day of the month after the month in which the member retired. Deletes existing text regarding early retirement. (f) Deletes existing text establishing Option V (Level Income Option) and Option VI (662/3 Percent Joint and Survivor/Level Income Option). Redesignates Subdivisions (7) and (8) to (5) and (6), respectively. Redesignates Option VII to Option V (15-Year Certain and Life Annuity) and Option VIII to Option VI (Equivalent Benefit Plan). (g) Makes conforming changes. (h) Makes a conforming change. (i) Makes a conforming change. (j) Makes no change. (k) Requires a member's accumulated deposits to be returned to the member or the member's beneficiary within seven years after termination of employment by a member with less than five years of creditable service if a designation of intent to participate in proportionate retirement has not been filed with the retirement system or a prior demand for withdrawal of accumulated deposits has not been made. Requires a member's account to be reinstated and credited, but not refunded, an amount equal to all of the previous deposits plus interest that would have been earned, and requires the member to receive a proportionate retirement allowance if the member's accumulated deposits are not withdrawn and the member gives intent to participate in proportionate retirement. Requires the retirement board to consider the system's records and evidence presented by a member or beneficiary to determine if any payment is due to either party if a demand for withdrawal of funds is made more than ten years after termination of employment and the records of the system do not affirmatively establish whether such deposits remain in the fund. Creates Subdivision 2(A) from existing Subdivision (2). Redesignates Subdivision (2)(A)-(D) to Subdivision (2)(A)(ii)-(iv) and Subdivision (3) to Subdivision (2)(B). Makes a conforming change. (l) Makes no change. (m) Makes no change. (n) Makes conforming and nonsubstantive changes. (o) Requires the reduced annuity of a retired member who elected the optional lifetime retirement annuity to be increased to the standard service retirement annuity that the retired member would be entitled to receive if the retired member had not selected Option I (100 Percent Joint and Survivor Annuity), Option II (50 Percent Joint and Survivor Annuity), Option III (66-2/3 Percent Joint and Survivor Annuity), or Option IV (Joint and 66-2/3 Percent Last Survivor Annuity) and if a person who is nominated by the member in the written designation under Option I, II, III, or IV predeceases the retired member after the effective date of this Act. Requires the standard service retirement annuity to be adjusted as appropriate for early retirement, as permitted by law, and postretirement increases in retirement benefits authorized by law after the date of retirement. Provides that an increase in the annuity is payable to the retired member for the remainder of the retired member's life. Sets forth the beginning date for an increase in the annuity. (p) Makes no change. (q) Redesignated from Subsection (p). Sec. 8. DISABILITY RETIREMENT. (a) Requires a member to be deemed to remain in one of the following categories for 90 days following termination of employment for inability to perform all employment duties: active-contributory member, inactive-contributory member, or member on approved medical leave of absence. (b) Makes no change. (c) Makes no change. (d) Authorizes a member who has more than five, rather than ten, years of creditable service and who is eligible for disability retirement to apply for disability retirement if the member has become mentally or physically incapacitated for the performance of all employment duties. (e) Deletes a provision which requires a disability retirement allowance to be computed without reduction for early retirement. Makes conforming changes. (f) Requires a member receiving a disability retirement allowance to file periodic reports with the retirement board concerning continued proof of disability. Requires the retirement board to adopt a policy establishing the required supporting information and documentation and the content and time requirements for such reports. Requires the report to include a current statement of the member's physical or mental condition stating existence of continuing disability, signed by the member's attending physician. (g) Provides that the retirement board establishes the time frame in which a disabled member is required to submit the periodic report under Subsection (f). Authorizes the retirement board to require that all periodic reports, including the member's most recent tax return, be filed in the same calendar month. Authorizes the retirement board to verify all information submitted in the report. Makes conforming changes. (h) Provides that the pension director will be responsible for a yearly report to the retirement board listing those disabled members who should be examined. Requires the retirement board to have the right to order one or more examinations of any person on disability retirement once each year until the member reaches the normal retirement date, rather than age 62. Requires the disability retirement allowance to discontinue if a member refuses or fails to submit to any examination by a physician appointed by the retirement board. Provides that the discontinuance of the allowance remains in place until the member has submitted to any examinations requested by the retirement board and has submitted the periodic report. Makes conforming changes. (i) Makes conforming and nonsubstantive changes. (j) Requires all membership service credits and prior service credit accumulated before disability to be restored to the full amount standing to a member's credit as of the date the retirement board found the member eligible for disability retirement if the member is reinstated as an active-contributory member. Sec. 9. LIMITATIONS ON BENEFITS. Prohibits the annual benefit provided to any member from exceeding the benefits permitted to be provided with a qualified status by Section 415 of the Code, notwithstanding any other provisions of this Act. Requires a retired member's retirement allowance to be suspended if the retired member is employed by an employer for more than six months in any 12 consecutive calendar months and who works, is budgeted, or is compensated for more than 29 hours in a calendar week. Deletes existing text regarding adjustments to and limitations on the maximum benefit permitted. Redesignates Subsection (p) to (b). Makes conforming and nonsubstantive changes. Sec. 10. METHOD OF FINANCING. Requires each active-contributory member to make deposits to the retirement system at a rate equal to seven percent of the member's base compensation, pay, or salary, exclusive of overtime, incentive, or terminal pay, or at a higher contribution rate approved by a majority vote of the regular full-time employee members. Requires deposits to be made each pay period by payroll deduction. Requires a member who chooses to be an inactive-contributory member and is eligible for that status to make deposits to the retirement system each pay period in an amount that is equal to the amount of the member's deposit for the last complete pay period that the member was a regular full-time employee. Authorizes the regular full-time employee members to increase each member's contributions above seven percent or above such higher rate as is then in effect and approved by a majority vote of all such members. Requires expenses for administration and operation of the retirement system that are approved by the retirement board to include annual audits by independent certified public accountants. Authorizes the retirement board to provide additional member benefits, to reduce the requirements for unreduced retirement benefits, or to increase any retirement allowance or other benefit under this Act, notwithstanding any contrary provision of this Act, if an actuarial study shows that a proposed change in benefits will not make the fund financially unsound and the proposed change is not inconsistent with the Code. Redesignates Subsection (f) to (g). Makes conforming and nonsubstantive changes. Sec. 11. INVESTMENTS OF THE RETIREMENT BOARD. Makes nonsubstantive changes. Sec. 12. MISCELLANEOUS. Provides that a retirement allowance being paid to a member of the retirement system changes beginning with the payments due at the end of October, 1999, rather than 1997. Establishes that this change reflects the change in the benefit multiplier to 2.7, rather than 2.6, percent effective October 1999, rather than 1997. Provides that the amount of the change for a member or a member's beneficiary equals 3.85, rather than 13.04, percent, multiplied by the retirement allowance otherwise due. Deletes existing text regarding the benefit of any highly compensated current or former employee in the event of a termination of the retirement system. Deletes existing text regarding the application of changes made by H.B. 2799, Acts of the 73rd Legislature, Regular Session, 1993. Redesignates Subsections (e) and (f) to (d) and (e). Makes conforming changes. Sec. 13. CONFIDENTIALITY. Makes conforming changes. Sec. 14. SEVERABILITY. Requires that any portion or provision of this Act remain valid and unaffected by any other portion of this Act that is declared invalid or unconstitutional. Sec. 15. SAVINGS CLAUSE. Requires that provisions of this Act be cumulative of and in addition to all laws relating to pensions, which are continued in full force and effect, provided that in the event of conflict this Act controls, expressly excluding any statutes relating to federal tax exemption. Requires that employee pensions in a city covered by this Act be administered in accordance with this Act. SECTION 2. Effective date: October 1, 1999, rather than 1997. SECTION 3. Emergency clause.