HBA-SEB H.B. 2851 76(R) BILL ANALYSIS
Office of House Bill AnalysisH.B. 2851
By: Telford
Pensions and Investments
4/19/1999
Introduced
BACKGROUND AND PURPOSE
Currently, a public school employee is a member of the Teacher Retirement
System of Texas (TRS) and contributes 6.4 percent of each paycheck to TRS.
TRS offers a defined benefit program that is similar to social security and
distributed upon retirement to eligible participants. Unlike private
industry, school districts do not match employee contributions for a
defined contribution plan which supplements the TRS benefit. A district
contribution of three percent into a defined contribution annuity combined
with an employee's matching contribution could return as much as twice the
benefits earned through social security.
H.B. 2851 establishes an optional defined contribution plan for
contributing members of TRS. The plan is separate from and in addition to
the current TRS defined benefit program. The employee selects the
contribution level, a minimum of three percent, and the state or school
district matches the contribution. This plan also provides for the
purchase of investment products selected by the participant.
RULEMAKING AUTHORITY
It is the opinion of the Office of House Bill Analysis that rulemaking
authority is expressly delegated to the Teacher Retirement System of Texas
in SECTION 1 (Sections 826.002 and 826.009, Government Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Subtitle B, Title 8, Government Code, by adding Chapter
826, as follows:
CHAPTER 826. OPTIONAL DEFINED CONTRIBUTION PLAN
Sec. 826.001. DEFINITIONS. Defines "optional defined contribution plan"
and "qualified plan."
Sec. 826.002. ESTABLISHMENT OF PLAN. (a) Requires the Teacher Retirement
System of Texas (TRS) to establish and administer an optional defined
contribution plan that is a qualified plan and under which members of TRS
may elect to pay contributions to the optional defined contribution plan.
Provides that the plan is for the purchase of investment products selected
by the participant from among products that are authorized to be provided
under a qualified plan and that are offered by TRS or companies that are
authorized to provide the products and are selected by TRS.
(b) Requires TRS to offer at least one investment product invested and
administered by TRS. Authorizes TRS to adopt rules for the selection of
companies to provide investment products under the optional defined
contribution plan. Establishes that any rules must provide for the
selection of vendors of a wide variety of investment products authorized
for a qualified plan and that any selection of vendors must occur every
two years.
(c) Specifies that a provider of investment products is exempt from the
payment of franchise or premium taxes on products issued under the optional
defined contribution plan.
Sec. 826.003. ELIGIBILITY AND ELECTION TO PARTICIPATE IN PLAN.
Establishes that a contributing member of TRS is eligible to participate in
the optional defined contribution plan. Provides that participation in the
plan is in addition to participation as a contributing member of TRS for
the same period. Authorizes a person eligible to participate in the
optional defined contribution plan to elect to participate in the plan on a
form prescribed by and filed with TRS. Requires TRS to provide an annual
enrollment period during which a contributing member of TRS may make an
election.
Sec. 826.004. EFFECT OF EMPLOYMENT CHANGES. Establishes that a person
participating in the optional defined contribution plan continues to
participate in the plan when the person changes employment to another
position included in the coverage of TRS.
Sec. 826.005. VESTING OF BENEFITS; TERMINATION OF PARTICIPATION. Provides
that benefits in the optional defined contribution plan vest in a
participant on the first anniversary of the person's participation in the
plan. Establishes that a person terminates participation in the program,
without losing any vested benefits by death, retirement, or termination of
employment in all positions included in the coverage of TRS. Provides that
the benefits of an annuity purchased under the plan become available under
the terms of the annuity but not before the member terminates participation
or attains the age of 70-1/2 years.
Sec. 826.006. INVESTMENT ADVISORY FEES. Authorizes a participant in the
optional defined contribution plan to authorize the payment of investment
advisory fees from the amount in the participant's custodial account or
annuity under specific circumstances. Requires the executive director of
TRS to request an official determination from the Internal Revenue Service
(IRS) concerning whether the payment of investment advisory fees is a
distribution of funds that is prohibited or subject to taxation and
penalty. Requires the executive director to file the determination with
the secretary of state's office for publication in the Texas Register if
the executive director receives an official determination from the IRS.
Sec. 826.007. CONTRIBUTIONS. Requires a participant in the optional
defined contribution plan to make contributions to the plan at a rate
chosen by the participant that is at least three percent of the
participant's monthly compensation. Requires the participant's employer to
make contributions to the plan in an amount equal to the participant's
contributions unless the legislature appropriates matching contributions.
Requires a plan participant and the participant's employer to execute an
agreement under which the salary of the participant is reduced by the
determined amount of the contribution. Provides that an agreement is
irrevocable until the participant terminates participation in the plan.
Requires participant contributions to be made in the manner provided by
Section 825.403 (Collection of Member's Contributions), and employer
contributions to be made in the manner provided by Section 825.405
(Contributions Based on Compensation Above Statutory Minimum).
Sec. 826.008. OPTIONAL DEFINED CONTRIBUTION PLAN ACCOUNT. Establishes
that the optional defined contribution plan account is an account in the
trust fund of TRS. Requires TRS to deposit contributions to the plan in the
account. Requires TRS to separately account for contributions made for
delivery to vendors offering investment products under the plan and
contributions made for an investment product invested by TRS. Authorizes
TRS to commingle assets of the optional defined contribution account with
other assets of the trust fund for the purposes of investment, as long as
proportionate ownership records are maintained and credited.
Sec. 826.009. RULES. Authorizes TRS to adopt any rules necessary to
administer this chapter.
SECTION 2. Requires TRS to offer participation in the optional defined
contribution plan beginning with the 2000-2001 school year.
SECTION 3. Emergency clause.
Effective date: 90 days after adjournment.