HBA-SEB S.B. 292 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 292 By: Nixon Pensions and Investments 5/10/1999 Engrossed BACKGROUND AND PURPOSE Currently, Texas statutes contain no self-directed investment option for members of the Teacher Retirement System of Texas (TRS). Because of a growing interest in alternatives to traditional benefit plans, eight states have enhanced their retirement systems by including a defined contribution plan which allows investment in a personal account throughout a teacher's career. S.B. 292 creates an optional defined contribution plan for members of TRS. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delgated in SECTION 1 (Section 826.004, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subtitle C, 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 Teachers Retirement System of Texas (TRS) to establish and administer an optional defined contribution plan that is a qualified plan and under which a member of TRS may elect to pay a portion of the member contributions to the optional defined contribution plan for the purchase of securities selected by the member from among various products offered by companies authorized to provide the products in this state. Exempts a provider of securities from the payment of franchise or premium taxes on products issued under the optional defined contribution plan. Sec. 826.003. ELECTION TO PARTICIPATE IN PLAN. (a) Authorizes a contributing member who is not participating in the deferred retirement option plan to file an election with TRS, on a form prescribed by TRS, to participate in the optional defined contribution plan. (b) Provides that the election must include the percentage of the member's contributions to be used under the optional defined contribution plan. Prohibits the percentage of required contributions to be used under the plan from exceeding 50 percent. (c) Establishes that an election made under this section is irrevocable, with exceptions. Authorizes a member to increase the percentage of contributions to be used under the optional defined contribution plan within the 50 percent limit when the member changes employers. Authorizes a member to make a withdrawal as provided by Section 826.005 when the member ceases to be employed by any employer. (d) Provides that, for purposes of Subsection (c), a change of employers is a transfer from one school district or state agency participating in TRS to another school district or state agency participating in TRS. (e) Establishes that a member participating in the optional defined contribution plan continues to participate in TRS and becomes eligible to receive an annuity and other benefits payable by TRS in the same manner as other members, except that the benefits will be reduced under tables adopted under Section 826.006. Sec. 826.004. RULES. Authorizes TRS to adopt rules for administration of the optional defined contribution plan, including rules requiring notice of a member's choice to transfer contributions among investment products and rules for the temporary deposit of contributions under the plan pending transmittal to the appropriate vendors. Requires TRS to adopt rules requiring vendors to administer the selection of investment products, the transfer of account information and balances among investment products, and the coordination of services under the optional defined contribution plan; account for contributions invested, including any dividends or capital gains earned; and provide participants any notices of changes related to the offering of investment products. Sec. 826.005. WITHDRAWAL OF CONTRIBUTIONS. Authorizes a member participating in the optional defined contribution plan to withdraw amounts earned under the plan under the terms of the instrument governing the investment product when the member ceases to be employed by any employer. Authorizes the withdrawal whether or not the member concurrently retires under TRS. Sec. 826.006. REDUCTION OF BENEFITS UNDER RETIREMENT SYSTEM. Requires the board of trustees of TRS to adopt tables providing for reduction of annuities and other benefits payable by TRS in proportion to the percentage of member contributions diverted to the optional defined contribution plan, after recommendation by the actuary of TRS. Sec. 826.007. INFORMATION TO MEMBERS. Requires TRS, as appropriate, to provide information about the optional defined contribution plan to the contributing members of TRS. Provides that the information must include information about the possible federal tax consequences of participation in the plan, notice that amounts contributed in the plan are not guaranteed by the state, and information about the ability to transfer assets from the plan to other retirement plans, including TRS. Sec. 826.008. ENROLLMENT FEE. (a) Authorizes TRS to establish an enrollment fee for participation in the optional defined contribution plan in an amount that does not exceed $15 and is sufficient to recover TRS's costs of administering the plan. Requires any fees collected under this section to be deposited in the expense account. SECTION 2. Amends Section 825.312(a), Government Code, to require TRS to deposit fees collected under Section 826.008 in the expense account. SECTION 3. Authorizes TRS to establish a reduced preenrollment fee in an amount that does not exceed $15 and to offer it instead of the enrollment fee provided by Section 826.008, Government Code, as added by this Act, to persons who remit the fee at least 90 days before the date Chapter 826, Government Code, as added by this Act, is implemented. SECTION 4. Requires TRS to implement Chapter 826, Government Code, as added by this Act, beginning with the 2000-2001 school year. SECTION 5. Emergency clause.