BILL ANALYSIS H.B. 2283 By: Kuempel March 29, 1995 Committee Report (Unamended) BACKGROUND The Texas County and District Retirement System (TCDRS) is the statewide system which administers retirement, disability and death benefits for officers and employees of counties and other political subdivisions (excluding cities and school districts) which voluntarily elect to participate in the system. Each participating subdivision (251 counties, 232 districts) is separately funded. Funding is by joint employer-employee contributions; benefits are funded either under the original fixed-rate plan of employer contributions, or under an annually-determined employer contribution rate ("ADCR") calculated actuarially as necessary to fund employer-selected benefits. PURPOSE Several sections in H.B. 2283 relate to and expand the authority of the Board of Trustees as to asset investment. The bill also clarifies the authority of the Trustees regarding acquisition, management and sale of real estate owned by TCDRS for its own offices. Several provisions strengthen the actuarial soundness of any subdivision plan that is underfunded. Several changes are designed to conform the plan to federal law mandates. Other changes are designed to clarify ambiguities, simplify administrative details, and effect other technical changes in the act. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1: Defines "compensation" (on which benefits are based) as limited to amounts now prescribed (or as increased) under IRC §401(a)(17), a change to conform to federal law. Defines "temporary employee" for whom membership is not required. SECTION 2: Specifies that if a temporary employee becomes an employee, the effective date of this change is the date the subdivision certifies the change to the retirement system. SECTION 3: Renames the heading of the Section amended in Section 4 (Section 842.110 of the Government Code). SECTION 4: Changes the provisions requiring suspension of payment of benefits to a retiree who returns to work for any participating subdivision, to suspension if retiree returns to employment of same subdivision from which member retired. SECTION 5: Adds provisions dealing with employment of retiree by subdivision other than former employer; also adds new provisions delineating procedures and time limits for correction of claimed errors in enrolling employee as member. SECTION 6: Eliminates the requirement that certain officials compensated by the state but receiving supplemental compensation from a county participate in TCDRS, allowing such persons an election not to participate, or not to make contributions, in TCDRS. SECTION 7: Provides for the resumption of contributions by members. SECTION 8: Clarifies present provisions relating to mandatory benefit payment starting dates for persons over age 70 1/2. SECTION 9: Clarifies the time within which a retiree is allowed to change optional form of benefit, or to change beneficiary under optional benefit. SECTION 10: Makes a slight modification to the method of calculating monthly benefits and proration of the initial distributive benefit of a person retiring at a date other than year-end. SECTION 11: Clarifies the meaning of "annual benefit" SECTION 12: Defines "annual benefit" for purposes of IRC §415 limitations; incorporates post-retirement increases allowed by §415. SECTION 13: Incorporates into the annual benefit post-retirement increases allowed by §415; and adopts the exclusion for small annuities from §415 limitations on benefits. SECTION 14: Shortens the time between a member applying for retirement and actually retiring. SECTION 15: Incorporates into the statutory list of optional annuities which a member may choose in lieu of either a standard service retirement benefit or disability retirement benefit, the three optional forms now allowed by Board rule, and eliminates authority of the Board to devise other options. SECTION 16: Adds a new section allowing heirs of a small estate, under prescribed circumstances, to make elections as to death benefits to which the estate is entitled under other provisions of the act. SECTION 17: Amends the provisions relating to annuity selection by the surviving beneficiary of a vested decedent, to allow the election of benefit to be made by the personal representative, or heirs, where the estate is the designated beneficiary, or by not more than three designated beneficiaries. SECTION 18: Shortens the time between a member applying for retirement and actually retiring. SECTION 19: Incorporates into the statutory list of optional annuities which a member may choose in lieu of either a standard service retirement benefit or disability retirement benefit, the three optional forms now allowed by Board rule, and eliminates authority of the Board to devise other options. SECTION 20: Allows TCDRS to require disability retirees under age 60 to file annual reports of earnings, and to submit to physical examination. SECTION 21: Prohibits payment of benefits to a person convicted of causing death of a member or annuitant, and designating other persons to whom the payment is to be made. SECTION 22: Allows, with stated exceptions, a trust to be designated as beneficiary for payment of benefits of a member. SECTION 23: Specifies effect on benefit selections or payments of the simultaneous death of a member or retiree and the spouse or designated beneficiary of the member or retiree. SECTION 24: Simplifies and clarifies procedures for allowing "extended coverage" in the supplemental death benefits program. SECTION 25: Amends the supplemental death benefits program to allow a retiree death benefit (a) if the retiree was receiving an annuity from any subdivision in the program and (b) if the retiree's annuity was suspended because of reemployment, and no employee-death benefit is payable. SECTION 26: Increases the maximum supplemental contribution rate which fixed-rate plans may adopt to reduce funding periods longer than 40 years, or to reinstate benefit levels in effect January 1, 1994. SECTION 27: Adds a provision authorizing (and requiring) reduction in employee contribution rate to as low as 1% where necessary to reduce a subdivision's amortization period to 40 years, if other remedies are inadequate. SECTION 28: Authorizes reductions in employee contribution rates to as low as 1% where necessary for funding. SECTION 29: Authorizes an optional increase in the maximum employer (subdivision) contribution rate in ADCR plans where necessary to maintain existing levels of benefits, or to restore January 1, 1994 levels of benefits. SECTION 30: Amends the present law to authorize the Board of Trustees to lease (or sell) the old building, to lease presently unneeded space, and to otherwise manage the new building. SECTION 31: Removes the investment of assets from the duties of the Director. SECTION 32: Authorizes investments meeting the "prudent person" rule; permits assets to be held in name of nominees, depository trust companies and other entities; provides for investment operations to be supervised by an "investment officer", instead of by the Director; and authorizes employment of professional investment managers and investment performance measurement services. SECTION 33: Authorizes Board to select custodian(s) of system's cash and other assets. SECTION 34: Authorizes Board to engage in securities lending. SECTION 35: Amends present provisions to preclude possibility that suspension of monthly benefit payment to member because of §415 limitations would reduce the distributive payment to the member. SECTION 36: Changes the formula for calculating "current interest" so as to correct an error in a previous amendment. SECTION 37: Requires employing subdivisions to certify annually as to each employee the amount of compensation subject to federal income tax. SECTION 38: Effective date is September 1, 1995 except for Sections 32, 33, 34 and 38, which take effect immediately. SECTION 39: Emergency clause. SUMMARY OF COMMITTEE ACTION Public notice was posted in accordance to the rules and a public hearing was held on March 20, 1995. Rep. Edmund Kuempel testified as the bill's author. The bill was referred to a subcommittee consisting of the following members: Averitt-Chair, Rangel & McCall. On March 23, 1995, the subcommittee met in a formal meeting and voted to report the measure without amendments. On March 27, 1995 the full committee voted to report HB 2283 to the House without amendments with the recommendation that it do pass and be placed on the Local & Consent Calendar by a record vote of 8 ayes, 0 nays, 1 absent & 0 pnv.