HBA-TBM H.B. 1573 77(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1573 By: Thompson Pensions & Investments 2/20/2001 Introduced BACKGROUND AND PURPOSE The Houston Municipal Employees Pension System (system) has approximately 20,000 active and retired participants and more than $1 billion in assets. The system provides retirement, disability, and survivor benefits for eligible City of Houston and system employees. House Bill 1573 restates the current law concerning the system, with amendments, to consolidate provisions, organize sections, delete inoperable provisions, and improve benefits. 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. ANALYSIS House Bill 1573 creates law relating to the establishment of a retirement system (system) for officers and employees of certain municipalities with a population of more than 1,500,000 and employees of the system, and the transfer of credit from the predecessor system to the system established by this bill. The bill requires the pension board (board) of the predecessor system to continue to administer, manage, and operate the system and sets forth provisions describing the board's composition, powers, duties, and functions, and the election and appointment of trustees. The board is authorized to adopt written rules for the administration of the pension fund (SECTION 2). The bill sets forth additional powers of the board to engage third parties, employ staff, take legal action, recover or offset amounts misapplied or paid in error, require records and information, and suspend implementation of a provision pending receipt of an Internal Revenue Service ruling. The bill also authorizes the board to adopt rules that qualify the pension plan to the extent necessary for the system to be a qualified plan under the federal Internal Revenue Code of 1986 (SECTION 3). The bill specifies employees who are not eligible to be members of the system and employees who are eligible to be members of the system in groups A and B. The bill sets forth requirements for changing service from group B to group A, including payment of contributions and interest (SECTIONS 4 and 5). The bill specifies employees who are eligible to be members of group C. The bill authorizes conversion of service into group C and sets forth the requirements for conversion of service into group C. The bill establishes benefit accrual rates and eligibility requirements, and sets forth the method for determining retirement, deferred, and disability pensions, and survivor benefits for Group C members (SECTION 6). The bill describes service and credited service in the pension system, prohibits duplication of service, and explains contribution and work requirements to purchase or earn otherwise forfeited service. The bill establishes employee contribution requirements and authorizes the city to pick up the contributions of group A members in compliance with federal tax law. The bill sets forth the minimum city contribution rate and the method for determining the rate (SECTIONS 7 and 8). The bill provides for the refund of contributions for members whose employment is terminated for a reason other than a service disability by the city or system without attaining five years of credited service. The bill establishes the eligibility requirements for a normal retirement pension and the formula for calculating the amount of the pension. The bill creates a new benefit accrual tier in group A for credited service and increases the benefit percentage in group A and Group B. The bill also increases the annual payments for all retirees and eligible survivors. The bill describes the benefit options available to group B participants who terminated employment or died on or before September 1, 1997. The bill sets forth provisions regarding the benefits a designated survivor of a group B member receives (SECTIONS 9-11). The bill sets forth provisions regarding the deferred retirement option plan (DROP) and provisions regarding a surviving spouse or designated beneficiary to make an election to receive the maximum DROP benefit that otherwise would have been available to a deceased member eligible to participate in DROP prior to death. The bill authorizes the board to adopt rules for the implementation and operation of DROP, including rules regarding payment of DROP benefits (SECTION 12). The bill describes the eligibility and qualification requirements for ordinary service disability pensions. The bill sets forth the method by which the pensions are calculated, reporting requirements to maintain eligibility for disability pensions, and procedures for suspending and discontinuing disability pensions. The bill describes the eligibility and qualification requirements for survivor benefits for surviving spouses and dependent children, and provides the method by which the survivor benefits are calculated (SECTIONS 13 and 14). The bill authorizes a postretirement increase in annuities to offset increases in medical coverage premiums. The bill also authorizes the board to distribute supplemental payments to retirees and eligible survivors, and to credit such payments to DROP accounts if certain conditions are met. The bill authorizes the payment of a lump sum to a member, deferred participant, eligible survivor, alternate payee, or beneficiary in lieu of a benefit if the lump sum does not exceed $10,000. If the lump sum is at least $5,000 but less than $10,000, the board is authorized to make a lump-sum payment only on written request by the designated person. The bill authorizes a reemployed member who previously received a lump-sum payment in lieu of a deferred retirement pension to reinstate the service covered by the lump-sum payment by paying into the pension the amount of the lump sum, plus interest that is not compounded (SECTIONS 15 and 16). The bill sets forth provisions regarding receipt of a deferred retirement benefit if the member's employment is terminated for a reason other than death or the receipt of a retirement or disability pension, and sets forth the computation for such benefits and of a member's survivor benefits. The bill requires a retiree who is reemployed by the city to cease receiving a pension on reemployment and sets forth the computation of the benefits payable on the subsequent separation of a reemployed retiree or deferred participant. The bill prohibits retroactive payments of any benefits for the termination of employment, death, or reemployment of a member (SECTION 17). The bill sets forth provisions regarding credited service if the member is eligible for reemployment rights with the city after service in the uniformed services, and establishes requirements for contributions by the city (SECTION 18). The bill authorizes a member of the pension system who is a firefighter or a police officer to elect to terminate membership in the pension system and participate in the pension system covering firefighters and police officers for future service. The bill authorizes a member of the system who is a retiree of another pension system to which the city contributes and who was previously ineligible to participate in the system to purchase credited service in group A for all of the time that the member was drawing another retirement pension while working in an otherwise covered municipal position (SECTIONS 19 and 20). The bill authorizes the board to temporarily and proportionately reduce benefits to all participants if the pension board determines the pension fund is seriously depleted and to reinstate such amounts upon a determination that the pension fund is sufficiently reestablished. The bill sets forth criteria for liquidation and dissolution of the pension system. The bill allows pension and benefit recipients to request smaller pensions or benefits (SECTION 21). The bill prohibits the alienation of benefits other than as required by a qualified domestic relations order, benefit offset by the pension board, or a voluntary amount authorized by law and approved by the board. The bill sets forth the federal tax qualification provisions and establishes the maximum benefits payable from the pension fund. The bill establishes a separate excess benefit plan for payments that exceed the maximum benefits payable from the pension fund. The bill maintains the status of each person receiving pensions or benefits under the predecessor system, unless otherwise expressly provided. (SECTIONS 22-25). The bill provides that records of the system's participants are not public information and sets forth criteria under which the records can be released. The bill authorizes the system to recognize a power of attorney executed by a participant regarding pension matters (SECTIONS 26 and 27). The bill authorizes the board to establish a program of proportionate retirement benefits for members or former members who are eligible participants and who have credited service in another pension system to which the city contributes. The bill sets forth the qualification requirements for eligible participants, and provisions for combining service credit and receiving a proportionate retirement benefit, and the amount of the benefit. The bill requires a survivor benefit, otherwise payable as a service death benefit on behalf of a person who has used combined service credit, to be computed and payable as a non-service death benefit. If the board elects to participate in the proportionate retirement program, the board is required to adopt rules for implementing and administering the proportionate retirement program (SECTION 28). The bill repeals law relating to the predecessor system, continues in effect each municipal employees pension fund established under the predecessor system, and transfers all assets, service credit reports, and liabilities relating to persons who are covered by the predecessor system to the system established by this bill (SECTIONS 29 and 30). EFFECTIVE DATE September 1, 2001.