BILL ANALYSIS C.S.H.B. 679 By: Craddick March 14, 1995 Committee Report (Substituted) BACKGROUND Members of the Employee Retirement System may currently choose, under Section 814.108 of the Government Code, an "Optional Service Retirement Annuity," (hereinafter OSRA) in which case a portion of the member's annuity will be paid to a named beneficiary after the death of the member. The realization of this benefit is contingent on the beneficiary's living longer than the member. The designation of a beneficiary for the OSRA becomes irrevocable at the time the member retires, such that if the retiree divorces, the retiree may not change the beneficiary. Under current law, the beneficiary of the OSRA can be changed as many times as the member chooses before such time that the member retires. But after the member retires, the beneficiary can only be changed if the designated beneficiary was not at the time of designation and is not currently the retiree's spouse or child, in which case the retiree may choose to change the annuity selection to a standard service retirement annuity (Section 814.1081, Government Code). Under this bill, if a divorce decree attempted to revoke the designation of a beneficiary to receive an OSRA, and the E.R.S. receives a certified copy of a divorce decree which attempts to revoke the designation of a beneficiary of an OSRA, then the member could change the beneficiary of the OSRA to any other person, or choose to only have a standard annuity in which case the member's benefit would be higher than if an OSRA were selected. If a retiree seeks to change the beneficiary under H.B. 679, the bill requires the E.R.S. to recompute the annuity to reflect the change. The actuarial value of the OSRA at the time of retirement stays fixed, so that is a beneficiary younger than the original OSRA beneficiary were named, the estimated benefit would be lower than the original estimated OSRA benefit. PURPOSE The purpose of the bill would allow the substitution of a beneficiary under the "Optional Service Retirement Annuity" after retirement for retirees of the Employees Retirement System of Texas, where a divorce decree has revoked the beneficiary. RULEMAKING AUTHORITY This bill grants rulemaking authority to the Employees Retirement System in Subchapter A, chapter 814, Government Code, SECTION 1, Subsection (d). SECTION BY SECTION ANALYSIS SECTION 1: Amends Section 814, Subchapter A, Government Code, by adding Section 814.006: Section 814.006: REVOCATION OF BENEFICIARY BY DIVORCE DECREE (a) defines "divorce decree" (b) directs the E.R.S. to change its records in accordance with a divorce decree. (c) allows members whose divorce decree revokes the designation of a beneficiary to select a standard retirement annuity and to later select their spouse as beneficiary for the optional retirement annuity. (d) directs the E.R.S. by rule to recompute the annuity to reflect the selection of Subsection(c), and allows for the recovery of actuarial value based on the difference of original and recomputed payments. (e) specifies the payment of the recomputed annuity. (f) specifies that if the divorce decree does not clearly include a beneficiary change as part of the decree, ERS may decline to implement a beneficiary change, and the retiree may go back to court to clarify that the decree includes a beneficiary change. SECTION 2: Retroactive clause. SECTION 3: Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The committee substitute to HB 679 provides for a "pop-up" to a standard annuity when a beneficiary is deleted, but no new beneficiary is added. It permits the retiree one opportunity to name a new spouse as the beneficiary with actuarial recomputation. The substitute requires both a certified copy of the divorce decree and a written directive from the retiree before the ERS implements a change. It makes the change on a prospective basis only, beginning the month after the receipt of the actuarial recomputation, but allows decrees entered before the effect date of the Act to make the change. The substitute includes other optional annuity options now only provided for by rule. It deletes references to "member" and "death benefit plans." It also permits the system to reject unclear orders or decrees, but permits the retiree to return to the original court for a clarifying order; and allows the seeking of judicial review in the Travis County District Court. The substitute also grants rulemaking authority to the trustee and relieves its employees of liability. SUMMARY OF COMMITTEE ACTION Public notice was posted in accordance to the rules and a public hearing was held on February 20, 1995. Rep. Tom Craddick testified for the bill as the bill's author. William Nail representing the Employees Retirement System testified neutrally on the bill. The bill was referred to a subcommittee consisting of the following members: Rangel, McCall & Berlanga. On February 27, 1995, the subcommittee met in a formal meeting and voted to report the measure as substituted. On March 6, 1995, the full committee voted to report HB 679 as substituted with the recommendation that it do pass by a record vote of 5 ayes, 0 nays, 0 pnv and 4 absent. On March 13, 1995, the vote by which HB 679 as substituted was passed to the full House was reconsidered. The full committee voted to report HB 679 as substituted to the full House with the recommendation that it do pass and be placed on the Local and Consent Calendar by a record vote of 6 ayes, 0 nays, 0 pnv and 3 absent.