HBA-SEB C.S.H.B. 3532 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3532 By: Coleman Pensions and Investments 4/9/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, the municipal pension system in a city of 1,500,000 or more (pension system) provides retirement, disability, and death benefits to employees of that municipality. The pension system offers two plans, Group A and Group B. Members of Group A make contributions to the pension system along with the employer, while only the employer contributes to the pension system on behalf of members of Group B. C.S.H.B. 3532 amends benefits for members of the pension system and their beneficiaries. It expands retirement eligibility, increases the benefit multiplier, increases survivor benefits, modifies participation in the deferred retirement option plan, provides Group A participation for new and rehired employees, increases the amount of military service credit a member may purchase, and allows a supplemental payment to retirees under special circumstances. 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 Section 2, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), by amending Subdivisions (b), (f), (g), (j), and (l) and adding Subdivisions (m) and (n) to redefine "member," "separation from service," "employee," "previous service," and "pension fund" and to define "effective retirement date" and "military service." SECTION 2. Amends Section 3, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to provide that a person who becomes an employee on or after September 1, 1999, becomes a Group A member of the municipal pension system for employees of cities of 1,500,000 or more (pension system) except as otherwise provided by this section or Section 4 (regarding persons ineligible for membership). Establishes that an elected official who is first elected on or after September 1, 1999, becomes a Group A member and is entitled to receive credit for all previous service on specific conditions, except as otherwise provided by this Act. Makes conforming and nonsubstantive changes. SECTION 3. Amends Section 3A(a), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to make a conforming change. SECTION 4. Amends Section 3B(a), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to authorize, rather than require, each member of the pension system as an employee or elected official to make a one-time, irrevocable election determined by the board of the pension system in a city (board) to change membership from Group B to Group A and to make the appropriate contributions to the pension system. Deletes existing text regarding other elections. SECTION 5. Amends Section 5, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), by amending Subsections(d) and (h) and adding Subsections (m), (n), and (o), as follows: (d) Requires the board to elect a chairman, vice chairman, and secretary from the elected members of the board in each odd-numbered year. Provides that any person who serves on the board's administrative staff is a member of Group A, rather than is entitled to join Group B, if the person does not have accrued credits with the pension system at the time of employment. Requires the pension board to have the authority to institute, conduct, and maintain legal action in the name of the board on behalf of the pension system. Makes conforming changes. (m) Authorizes the board, by resolution, to make the implementation of a provision of this Act contingent on receipt of a favorable determination letter from the Internal Revenue Service if the board determines that the action is in the best interest of the pension system. (n) Provides that a member is subject to the schedule of benefits and provisions in effect at the time of the member's separation from service or retirement, except as otherwise provided by this Act. (o) Establishes that a person receiving or eligible for a survivor benefit is subject to the schedule of benefits and provisions in effect at the time of separation from service of the deceased participant for whom the person is claiming survivor status, except as expressly provided otherwise in this Act. SECTION 6. Amends Section 7, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to require each Group A member to make periodic contributions during employment in an amount determined by the board and expressed as a percentage of salary, rather than in an amount of four percent of salary. Requires the contributions to be paid to the pension system, rather than the treasurer of the pension fund. Makes conforming and nonsubstantive changes. SECTION 7. Amends Sections 7A(a), (b), and (c), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to make conforming and nonsubstantive changes. SECTION 8. Amends Section 8(b), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to prohibit a city's contribution rate from being an amount less than 10 percent of the salaries paid to Group A members or two times the contributions rate of Group A members, whichever is greater. Provides that this minimum amount applies when added to any contributions with respect to a qualified governmental excess benefit arrangement maintained in accordance with Section 31D of this Act (Excess Benefit Plan) and notwithstanding any other provision of this Act. SECTION 9. Amends Section 9, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to establish that in addition to the postretirement increases provided by Section 11, rather than Sections 11 and 31, the board may increase annuities payable under this Act by an amount that does not exceed the annual increase in the amount of premiums being paid under a group insurance program being paid under a group insurance program provided for retirees of the city. Authorizes the board to distribute a supplemental payment to all retirees, survivors, or participants in the deferred retirement option plan (DROP) if the pension system is fully funded and has met the actuarial investment assumption for the previous fiscal year and if the issuance of the supplemental check will not cause the city's contribution rate to increase. SECTION 10. Amends Sections 11(a) and (b), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), effective September 1, 1999, to provide that any member of the pension system who is 50 years old with 25 years of credited service, 55 years old with 20 years of credited service, 60 years old with 10 years of credited service, or 62 years old with five years of credited service is eligible for a normal retirement pension. Requires the multiplier for the monthly pension to be applied to each year of credited service, prorated to the nearest 12th of a year. SECTION 11. Amends Sections 11(a) and (b), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), effective August 1, 2000, to provide that any member of the pension system who is 62 years old with five or more years of credited service or a combination of years of age and years of credited service equal to the number 70 is eligible for a normal retirement pension. Increases the multiplier for a member's monthly pension from two and one quarter percent to two and one half percent for each year of the member's first 20 years of credited service, and from two and three quarters percent to three and one quarter percent for each additional year of credited service, prorated to the nearest 12th of a year. Makes conforming changes. SECTION 12. Amends Section 11(g), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to require pensions for all members, retirees, or their survivors to be adjusted annually upward by three and one half percent, not compounded. Makes a conforming change. SECTION 13. Amends Section 12, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), as follows: Sec. 12. (a) Requires any member who has completed five, rather than 10, years or more of service and who becomes totally disabled for further duty to be retired, regardless of age, for "ordinary disability." Requires the retired member to receive a monthly pension computed in accordance with Section 11 for Group A members and Section 24 (Amount of Pension) for Group B members. (b) Requires any member to be retired for "service disability, " rather than "accidental disability," for a personal injury or hazard undergone while in the performance of the member's duties. Requires the pension for the member, if a Group A member, to be 20 percent of the member's monthly salary at the time of injury plus one percent of the salary for each year of credited service. Provides that if that number exceeds 40 percent of the monthly salary, the pension is computed in accordance with the appropriate section of this Act dependant upon whether the member is a Group A or Group B member. Makes conforming changes. (c) Establishes that "totally disabled" means completely and permanently incapacitated from performing usual duties. (d) Provides that a person retired for disability under this Act or a person receiving survivor benefits as a disabled child under this Act must file an annual report of employment activities and earnings with the board. Requires the board to establish the form of the report and the time for filing it. Prohibits a disability pension recipient from being required to submit the report if the person's disability does not cease after the recipient reaches the recipient's retirement eligibility date or 65 years of age. Requires a person who is receiving survivor benefits as a disabled child to be subject to reexamination by the board members. Requires the board to consider the result of an examination, report by a physician, or report of employment activities and earnings in determining whether the benefits shall be continued, increased, decreased, or discontinued. Authorizes the board to reduce, suspend, or discontinue benefits to a person who, after notice from the board, fails to submit the report of employment activities and earnings, fails to appear for an examination, or files a misleading or false report, as determined by the board. Makes conforming changes. (e) Establishes that in order to apply for a disability pension, a person must be an employee or former employee whose separation from service occurred not later than the 30th day before the date the pension system receives the person's request to apply for a disability pension as a result of a disability that arose during employment. SECTION 14. Amends Section 13, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), effective September 1, 1999, to entitle the surviving spouse of a member to 85 percent, rather than one half, of the retirement benefits that the member, having completed five years of active service but who dies before retirement, would have been entitled to had the member been totally disabled at the time of retirement or death. Entitles a surviving spouse of a member to 100, rather than 80, percent of the member's final average salary if the member dies from a cause directly resulting from a specific incident in the performance of duty. Entitles the surviving spouse of a member to 85, rather than 75, percent of the member's retirement benefits if the member dies after beginning to receive the benefits. Provides that a death benefit being paid a surviving spouse with dependent children is proportionally reduced until no benefit is payable to a dependent child. Requires each dependent child, if there is no surviving spouse, to receive 50 to 100 percent of what the surviving spouse benefit would have been had there been a surviving spouse. Requires benefits payable to each dependent child to be paid if the child is unmarried, under 21, rather than 18, years old, or is permanently or totally disabled because of illness, injury, or retardation, that began before the death of the member and before the child reached age 18. Deletes existing text entitling a full-time student who is up to 23 years of age to receive a dependent child benefit. Redesignates Subsections (b)-(g) to (c)-(h). Makes conforming and nonsubstantive changes. SECTION 15. Amends Section 13, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), effective August 1, 2001, to entitle the surviving spouse of a member to 100 percent of the retirement benefits that the member, having completed five years of active service but who dies before retirement, would have been entitled to had the member been totally disabled at the time of retirement or death. Entitles the surviving spouse of a member to 100 percent of the member's retirement benefits if the member dies after beginning to receive the benefits. Makes conforming changes. SECTION 16. Amends Section 14, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to prohibit any member from being paid a pension if the member's employment by the city is terminated for a reason other than a service disability prior to the completion of five, rather than 10, years of service. Requires such a member to receive the amount paid by the member into the pension fund or other authorized contributions without interest. SECTION 17. Amends Section 15, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to provide that an express provision in this act may be an exception to the prohibition of credit being allowed for a period of interruptions of service for more than three months. Makes conforming changes. SECTION 18. Amends Section 16, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to authorize a member, after the completion of five years of creditable service and in a manner determined by the board, to elect to receive a deferred retirement benefit that begins on the effective retirement date if the member's employment is terminated for a reason other than death or receipt of a retirement or disability pension. Requires the amount of monthly benefit to be computed in the same manner as for a service retirement benefit, but based on average monthly salary and creditable service as of the date of separation from service and subject to the provisions of this Act in effect on that date. Sets forth the computation of a member's disability or survivor benefits depending on the member's number of years of service credit. Requires a retiree who is reemployed by the city to cease receiving a pension on reemployment. Sets forth the computation of the benefits payable on subsequent separation. Deletes existing text regarding a member's election to leave the member's contributions in the pension fund. Makes conforming and nonsubstantive changes. SECTION 19. Amends Section 20, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to authorize a pensioner, survivor, or dependant to have an amount required by law or a voluntary amount authorized by law and the board deducted from the person's pension at the person's discretion. Makes a conforming change. SECTION 20. Amends Section 21, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to require a member to receive credited service for military service under the following circumstances: the member is employed in a position in the city covered by the pension system immediately before the military service and leaves the position to enter the armed forces, the member applies for reemployment within a specific time period, the member and the city make the required contributions based on a specific rate for each month of military service credit, the period of service claimed under this subsection does not exceed five years, and the period of service claimed is in the group in which the person was a member immediately before military service. Authorizes any member to receive military service credit for military service if the member is ineligible to claim the service on proper actions by the board if the member has completed a minimum of five years of credited service, the military service is claimed only as service earned in the group in which the member belongs, the military service does not exceed 60 months, the member obtains a specific report approved by the board of the actuarially determined cost of the service, and the member pays that cost and other specific costs. Makes conforming changes. SECTION 21. Amends Section 22(a), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to require any employee who is initially hired or reemployed after September 1, 1981, and before September 1, 1999, to become a Group B member, except as otherwise provided by this Act. SECTION 22. Amends Section 24, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), effective August 1, 2000, to increase the multiplier for the normal pension of a retired Group B member from one and one half percent to one and three quarters percent for the first 10 years of credited service, from one and three quarters percent to two percent for the next 10 years of credited service, and from two percent to two and one half percent for each additional year of credited service. SECTION 23. Amends Section 30, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to make conforming and nonsubstantive changes. SECTION 24. Amends Section 31A(a), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to require the board to determine whether to pay a member or beneficiary a lump-sum payment in lieu of any other benefit payable as soon as practicable after eligibility under this section has been determined by the board. Deletes existing text regarding eligibility for a lump-sum payment. SECTION 25. Amends Sections 31B(a), (c), (d), (e), and (h), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), as follows: (a) Defines "DROP entry date" and "DROP election date." (c) Authorizes a person to file an election to participate in the DROP and receive a DROP benefit if the person is eligible to receive a normal retirement pension, has been separated from service within the last 30 days, and has not otherwise applied for a benefit. Provides that a member's DROP participation ceases when the member terminates employment unless it is revoked. Sets forth a member's DROP entry date. Authorizes any active member to make a one-time revocation of an election to participate in the DROP if the member made the election before September 1, 1999. Makes conforming and nonsubstantive changes. (d) Provides that a credit to a member's DROP account is a monthly amount equal to the member's normal accrued monthly retirement based on the member's credited service and average monthly salary as of the DROP entry date. Establishes that the provisions of this Act applicable on the DROP election date, adjusted for cost-of-living adjustments, would apply if the member's DROP entry date had been the person's date of eligibility for a normal retirement benefit. Makes conforming changes. (e) Sets forth the accumulation period for credits to a member's DROP account. Prohibits credit from being made to a member's DROP account for a period that occurs after the member terminates active service with the city, except that interest at a rate determined by the board may be paid on the amount remaining in a person's DROP account after the person terminates active service. Makes conforming and nonsubstantive changes. (h) Makes a nonsubstantive change. SECTION 26. Amends Section 31C(e), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to provide that accrued benefits under this Act become 100 percent vested for a member on the date the member has completed five years of credited service, except as otherwise provided by law. SECTION 27. Amends Section 33, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to provide that unless a city's municipal employees are already covered by this Act, the terms of this Act shall not apply to any city operating a municipal employees pension program under the terms and provisions of its charter. SECTION 28. Repealers: Sections 25 (Disability Eligibility), 26 (Disability Pension Amount and Duration), 27 (Disability Review), and 31 (Postretirement Adjustments), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943). SECTION 29. Effective date: September 1, 1999, except as otherwise expressly provided by this Act. SECTION 30. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original in SECTION 1 by modifying proposed Section 2(m), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to provide that a person's effective retirement date for a service or ordinary disability retirement is the day following the person's last day of credited service, rather than the last day itself, or the date the pension system receives a request to apply for disability retirement, whichever is later. The substitute modifies the original in SECTION 5 by deleting proposed amendments to Section 5(b), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943). The proposed amendments to Section 5(b) would have altered the method by which three legally qualified taxpayers of the city are appointed to the board of the pension system in a city. The substitute modifies the original in SECTION 9 by amending Section 9, Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to delete a reference to postretirement increases provided by Section 31, regarding postretirement adjustments. The substitute modifies the original in SECTION 10 by amending Section 11(b), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), effective September 1, 1999, to require the multiplier for the monthly pension to be applied to each year of credited service, prorated to the nearest 12th of a year. The original would have required the multiplier to be applied to each month of credited service. The substitute modifies the original in SECTION 11 by amending Section 11(b), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), effective August 1, 2000, to make conforming changes. The substitute modifies the original in SECTION 13 by modifying proposed Section 12(e), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to establish that in order to apply for a disability pension, a person must be an employee or former employee whose separation from service occurred within a specific time frame. The original specifically excluded an employee or former employee on indefinite suspension from the pension system. The substitute modifies the original in SECTION 18 by modifying proposed Section 16(f), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to require any disability or survivor benefit, rather than any retirement, disability, or survivor benefit, to be computed on the basis of a schedule of benefits in effect at the time of a member's previous separation from service if the member has two years or less of continuing credited service following the date of reemployment. The substitute modifies the original in SECTION 20 by modifying proposed Section 21(b)(4), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to specify that a member establishing military service credit with the pension system must make the necessary contributions to the pension system in a period of three times the period of the person's military service or before the fifth anniversary of reemployment, rather than discharge, whichever is lesser. The substitute makes nonsubstantive changes. The substitute modifies the original in SECTION 25 by amending Section 31B(e), Article 6243g, V.T.C.S. (Chapter 358, Acts of the 48th Legislature, Regular Session, 1943), to provide that the accumulation period for credits to a member's deferred retirement option plan (DROP) account includes each month beginning with the member's DROP entry date, rather than the member's participation in DROP, through the date the DROP member terminates active service with the city.