BILL ANALYSIS
H.B. 2943
By: Greenberg (Barrientos)
Intergovernmental Relations
05-11-95
Senate Committee Report (Amended)
BACKGROUND
Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991,
Article 6243n, V.T.C.S., authorizes the establishment of a
retirement system for employees of each municipality having a
population of more than 460,000 and less than 500,000. The Act,
originally enacted in 1991 and amended in 1993, contains ambiguous
provisions that require amending in order for the retirement system
to remain a qualified plan under federal law.
PURPOSE
As proposed, H.B. 2943 amends provisions under Article 6243n,
V.T.C.S., to authorize a retirement board to adopt any amendment
that modifies this Act to the extent necessary for the retirement
system to remain a qualified plan; clarifies existing definitions
and adds new definitions; sets forth the method of calculating a
retirement benefit; amends the composition of the retirement board.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
to the retirement board of a retirement system for employees of
each municipality having a population of more than 460,000 and less
than 500,000 under SECTION 1 (Sec. 4(k), Article 6243n, V.T.C.S.)
of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 451, Article 6243n, V.T.C.S., as follows:
Sec. 1. SCOPE. Establishes a retirement system for employees
of each municipality having a population of more than 460,000
and less than 500,000; provided that once such pension system
becomes operative in any city, any right or privilege accruing
to any member thereunder shall be a vested right according to
the terms of this Act and the same shall not be denied or
abridged thereafter through any change in population of any
such city taking such city out of the population bracket as
herein prescribed, and said pension system shall continue to
operate and function regardless of whether or not any future
population exceeds or falls below said population bracket.
Sec. 2. DEFINITIONS. Defines "agency of the municipality,"
"approved medical leave of absence," "authorized leave of
absence," "board," "code," "compensation," "consumer price
index," "current service annuity," "designated beneficiary,"
"employer," "governing body," "malfeasance," "membership
service," "normal retirement date," "prior service,"
"qualified domestic relations order," "redeemed prior
service," and "retirement." Redefines "accumulated
deposits," "actuarial equivalent," "actuary," "average final
compensation," "beneficiary," "Fund No. 2," "investment
consultant," "investment manager," "life annuity (modified
cash refund)," "member," "normal retirement age," "prior
service pension," "regular full-time employee," "retirement
board," and "year of creditable service."
Sec. 3. ESTABLISHMENT AND APPLICABILITY. Requires members
who retired prior to a certain date to continue to receive the
same retirement allowances they were receiving prior to that
date, except as provided by Subsection (b) of this section and
subject to the authority granted the retirement board in
Section 7(d) of this Act.
Sec. 4. ADMINISTRATION. (a) Makes a conforming change.
(b) Amends the composition of the retirement board to
require that of the 11 members, one member be from the
governing body for place one, three be qualified voters of
the city for places three through five, and two retired
members for places six through nine.
(c) Makes conforming changes. Sets forth the length of
terms for each member.
(d) Requires members for places six through eleven to be
elected in accordance with certain provisions, including
that members for places 10 and 11 be elected to four-year
staggered terms. Requires one such retirement board member
to be elected at an election held in every other even-numbered year with the term of such retirement board member
beginning on January 1 of the following odd-numbered year.
Requires the first election for place 10 to be held in 1996
and the term of the retired member elected at that election
to begin on January 1, 1997. Requires the retirement board
to appoint a retired member, to place 10, to serve until
January 1, 1997. Requires the term of the retired member
serving in place 11 to expire on December 31, 1998.
Requires the nominating and election committee to determine
and certify that each nominee and each candidate announcing
for election is an active-contributory member or a retired
member, as applicable. Makes conforming changes.
(e)-(i) Make conforming and nonsubstantive changes.
(j) Authorizes the retirement board to retain legal counsel
as necessary in the judgment of the board to advise,
consult, assist and represent the retirement board the
system in and with respect to any legal matter, issue, cause
or claim that comes before the retirement board or that may
affect the retirement system or the operation of the fund.
(k) Authorizes the retirement board to adopt rules,
establish regulations or procedures, correct any defect,
supply any information, or reconcile any inconsistency as
the retirement board considers necessary or advisable to
carry out this Act, except as provided by Subsection (l) of
this section. Provides that the retirement board is
authorized to adopt any amendment that modifies this Act to
the extent necessary for the retirement system to be a
qualified plan.
(l) Makes conforming changes.
(m) Provides that the retirement board is authorized to
administer oaths to any person providing testimony at any
hearing or other proceeding of the retirement board.
Sec. 5. MEMBERSHIP. (a) Requires each regular full-time
employer to become an active-contributory member as a
condition of employment and to make the required deposits
commencing with the first pay period in which the employee is
compensated following the effective date of this Act.
Requires the employee to make the deposits as long as the
employee remains a regular full-time employee or a beneficiary
ceases to be entitled to any benefits, unless on approved
medical leave of absence or on leave to service in the
uniformed services. Requires the membership for all new
regular full-time employees to commence on the date their
employment commences and all current active contributory
members to be deemed to have additional creditable service
equal to the time elapsed between the date their regular full-time employment commenced and the date they became an active
contributory member, but not in excess of six months.
(b) Provides that membership in the retirement system
consists of, in addition to other groups, the active-noncontributory members group, which consists of all
employees on approved medical leave of absence and all
employees of an employer who have been active-contributory
members but who are no longer so because they are not
regular full-time employees. Makes conforming changes.
(c) No changes.
(d) Sets forth certain information that the chief
administrative officer of each employer, rather than the
city manager, is required to submit to the retirement board
in a statement. Makes conforming changes. Deletes
references to the pension officer and hospital authority
board.
(e) Makes a conforming change.
(f) Authorizes a member on authorized leave of absence to
make deposits each pay period, rather than each biweekly pay
period, to the system while on authorized leave of absence.
Requires each deposit to be in an amount that is equal to
the amount of the member's deposit for the last complete
period that the member was paid by the employer. Requires
the member's employer to make a single payment for a member
who elects to make a single payment. Provides that a member
will continue to earn membership service for the pay periods
for which the member makes deposits during a leave of
absence. Provides that membership service will be credited
at the time of payment, if a member makes a lump sum
payment. Deletes provisions requiring each hospital
authority to make contributions to the retirement fund for
a member on authorized leave of absence from the hospital
authority. Make conforming changes.
(g) Makes a conforming change.
Sec. 6. CREDITABLE SERVICE. (a) and (b) Make conforming
changes.
(c) Authorizes a member to establish creditable service for
military service performed that is creditable as provided
under this subsection according to the following conditions,
limitations, and restrictions apply:
(1) Defines military service.
(2) No changes.
(3) Prohibits a member from establishing creditable
service in the retirement system for military service for
more than the greater of the creditable service required
under the Uniformed Services Employment and Reemployment
Act of 1994, as amended.
(4) Provides that the retirement board will determine the
required contribution based on a procedure recommended by
the actuary and approved by the retirement board, provided
that such contribution may not exceed the amount required
under the Uniformed Services Employment and Reemployment
Act of 1994, as amended, in the case of a member who makes
such contributions within the time prescribed by such act.
(5) No changes.
Sec. 7. SERVICE RETIREMENT BENEFITS AND WITHDRAWAL
BENEFITS. (a)-(c) Make conforming changes.
(d) Requires the amount of the adjustment for each
retired member or beneficiary to be a uniform percentage
of the monthly payment being received by a member, or by
a beneficiary by reason of a member, who was retired at
least one year before the adjustment. Deletes a provision
granting the board authority and duty to decrease the
amount of adjustment payment at any and all times and
without notice to anyone. Makes conforming and
nonsubstantive changes.
(e) No changes.
(f) Makes a conforming change.
(g) Requires the designation of a beneficiary to be made
in writing on a form and in the manner prescribed by the
retirement board. Provides that spousal consent shall not
be required for a member to select Option I, II, III, IV,
or VI. Makes conforming changes.
(h)-(k) No changes.
(l) Requires the sum of $10,000, rather than $2,000, to
be payable in a lump sum to the member's beneficiary in
the event of the death of a member receiving a retirement
allowance.
(m) Requires an additional sum of $10,000, rather than
$2,000, to be payable as a death benefit to the member's
designated beneficiary when monthly survivor benefits are
deemed payable as a result of the death of a member before
retirement.
(n) Provides that a member's estate will receive the
excess of the retired member's accumulated deposits over
the retirement allowances paid in the event of the death
of a retired member then receiving a retirement allowance
under any retirement option and the death of the
beneficiary designated by the retired member.
(o) Makes conforming changes.
(p) Prohibits forfeitures that may result from the
termination of any right of a member from being used to
increase benefits to remaining members. Prohibits this
subsection from precluding an increase in benefits by
amendment to this Act or action of the retirement board in
accordance with Subsection (d) of this section that is
made possible by forfeitures or for any other reason.
Deletes a provision authorizing the board to adjust the
terms of payment under any form of benefit payment.
Sec. 8. DISABILITY RETIREMENT. (a) Provides that
inactive-noncontributory members are not eligible for
consideration for disability retirement and may not receive
any benefits under this section.
(b) Authorizes a member to apply for disability
retirement if a member who is eligible for consideration
for disability retirement has become mentally or
physically incapacitated for the performance of all
employment duties as a direct result of injuries sustained
in the performance of the member's employment duties
subsequent to the member's effective date of membership in
the retirement system. Makes conforming changes.
(c) Requires the retirement board to award a member who
meets the requirements of Subsection (b) of this section
a disability retirement allowance. Provides that the
decision of the retirement board is final subject to
reexamination, discontinuance and revocation rules at
Subsections (h) and (i) of this section. Makes conforming
changes.
(d) Makes conforming changes.
(e) and (f) Make no changes.
(g) Requires a disabled member to file the annual report
each calendar year as required by Subsection (f) of this
section no later than a certain date. Authorizes the
retirement board to verify all information submitted in
the report.
(h) Authorizes a retirement board to reinstate a member's
disability retirement allowance on a prospective basis
only on the member's full performance of and compliance
with all requirements of this section, if a member's
disability retirement allowance has been revoked.
(i) Requires the retirement board to discontinue the
disability retirement allowance if a member is no longer
physically or mentally incapacitated as shown by the
annual medical examination or is engaged in or is able to
engage in substantial gainful occupation. Provides that
a member is entitled to a life annuity if a member who had
10 or more years of creditable service does not withdraw
the excess. Makes conforming changes.
(j) Makes conforming changes.
Sec. 9. LIMITATIONS ON BENEFITS. (a) Prohibits the annual
benefit provided with respect to any member from exceeding
the lesser of $90,000 or 100 percent of the member's
compensation averaged over the three consecutive calendar
years during which the member had the greatest aggregate
compensation from the employer, notwithstanding any other
provisions of this Act.
(b) Requires benefits provided to a member under this Act
and under any other qualified defined benefit plan or
plans maintained by the employer to be aggregated for
purposes of determining whether the limitations in
Subsection (a) of this section are met. Requires the
reductions to be made in the benefits provided under this
Act, to the extent necessary to enable each plan or plans
to satisfy those limitations, if the aggregate benefits
otherwise payable to any member under this Act and any
other defined benefit plan or plans maintained by the
employer would otherwise exceed the limitations of
Subsection (a) of this section.
(c) Sets forth certain adjustments to which a maximum
benefit otherwise permitted under Subsection (a) or (b) is
subject.
(d) Requires the $90,000 limitation on annual benefits,
but not the $75,000 adjustment, to be adjusted annually as
provided by Section 415(d) of the code and the regulations
prescribed by the secretary of the treasury to reflect
cost of living adjustments. Provides that the adjusted
limitation is effective as of January 1 of each calendar
year.
(e) Requires the limitation provided by this section for
a member who has separated from service with a vested
right to a pension to be adjusted annually as provided by
Section 415(d) of the code and the regulations prescribed
by the secretary of the treasury.
(f) Sets forth certain interest rate assumptions to be
used in computing the limitations under this section.
(g) Prohibits an adjustment under Section 415(d) of the
code from being taken into account before the year for
which the adjustment first takes effect, for purposes of
this section. Provides that no adjustment is required for
the value of qualified joint and survivor annuity
benefits, preretirement death benefits, post-retirement
medical benefits, or post-retirement cost-of-living
increases made in accordance with Section 415(d) of the
code and Section 1.415-3(c) of the Income Tax Regulations.
(h) Authorizes this plan to still pay an annual benefit
to any member in excess of the member's maximum annual
benefit otherwise allowed under certain conditions.
Provides that member contributions under this Act are not
considered a separate defined contribution plan maintained
by the employer.
(i) Requires the $90,000 limitation, as adjusted, to be
reduced by a certain method of computation if a member has
less than 10 years of creditable service at the time the
member begins to receive benefits under the Act, with a
provision. Requires the 100 percent limitation and the
$10,000 limitation of Subsection (h) to be reduced in the
same manner as provided in the preceding sentence if the
employee has less than 10 years of employment with the
employer, with an exception.
(j) Provides that the sum of a defined benefit plan
fraction and the defined contribution plan fraction for
any year may not exceed 1.0, if a member is or has been a
member in one or more defined contributions plans
maintained by the employer.
(k) Sets forth the defined benefit plan fraction to any
year for purposes of Subsection (j) of this section.
(l) Sets forth the defined contribution plan fraction for
any year for purposes of Subsection (a) of this section.
Prohibits the annual additions from being recomputed for
years beginning January 1, 1987, to treat all member
contributions as annual additions.
(m) Requires the retirement board to first request the
person or persons responsible for the defined contribution
plan or plans, to reduce, the annual additions to the
member's account to the extent necessary for the year in
which the sum of the defined plan fraction and the defined
contribution plan fraction exceeds 1.0. Requires the
board to adjust the benefits provided under this Act so
that the sum of both fractions shall not exceed 1.0 in any
year for the member, if, after limiting to the extent
possible, the annual additions to the member's account for
the year, the sum of the plan's fraction still exceeds
1.0.
(n) Requires all qualified defined benefit plans and all
qualified defined contribution plants, whether terminated
or not, ever maintained by or contributed to by the
employer, to be treated as one defined benefit plan and
one defined contribution plan, respectively, for purposes
of determining the limits provided by this section.
(o) Requires limitations, adjustments, and other
requirements prescribed by this Act to at all time comply
with the requirements of Section 415 of the code and all
regulations promulgated under the code, notwithstanding
anything contained in this section to contrary. Prohibits
a provision from reducing the benefits of any member after
the effective date of the repeal of the provision or
during the period in which the provision is not enforced,
if any provision of Section 415 of the code is repealed or
is not enforced by the Internal Revenue Service.
Sec. 10. METHOD OF FINANCING. (a) Makes conforming
changes.
(b) No changes.
(c) and (d) Makes conforming changes.
(e) Requires each employer to pick up the contributions
required to be made to the fund by its respective
employees. Provides that active contributory member
deposits will be picked up by each employer by a reduction
in each such employee's monetary compensation. Requires
all such employee contributions to be treated as employer
contributions in accordance with Section 414(h)(2) of the
code. Makes conforming changes.
(f) Provides that under no circumstances and in no event
may any of the contributions and income of the retirement
system revert to the employer or otherwise be diverted to
or used for any purpose other than the exclusive benefit
of the member, retirees, and their beneficiaries.
Provides that it shall be impossible for the diversion or
use prohibited by the preceding section to occur, whether
by operation or natural termination of the retirement
system, by power of revocation or amendment, by the
happening of a contingency, by collateral arrangement, or
by any other means.
Sec. 11. New heading: INVESTMENTS OF THE RETIREMENT BOARD.
Makes conforming changes. Redesignates existing Section 10.
Sec. 12. MISCELLANEOUS. (a) Requires a person who with
intent to deceive falsifies records or knowingly permits any
records to be falsified to forfeit any office or rights held
by the person under the system.
(b) No changes.
(c) Makes conforming changes.
(d) Provides that the benefit of any highly compensated
employee or former employee is limited to a benefit that
is nondiscriminatory under Section 404(a)(4) of the code,
notwithstanding any other provision in this Act to the
contrary, in the event of a termination of the retirement
and pensioning system. Provides that benefits distributed
to any of the 25 most highly compensated active and former
highly compensated employees are restricted such that the
annual payments are no greater than an amount equal to the
payment that would be made on behalf of an employee under
a single life annuity that is the sum of the employees'
accrued benefit and the employee's other benefits under
the plan. Provides that the preceding sentence does not
apply under certain conditions. Sets forth what
constitutes a benefit for purposes of this section.
(e) Authorizes a distributee to elect, at the time and in
the manner prescribed by the retirement board, to have any
portion of an eligible rollover distribution paid directly
to an eligible retirement plan specified by the
distributee in a direct rollover, notwithstanding any
provision of this Act to the contrary that would otherwise
limit a distributee's election. Defines "eligible
rollover," "eligible retirement plan," "distributee," and
"direct rollover."
(f) Requires the retirement system to add six months to
the membership service of any member who was involuntarily
terminated by an employer for nondisciplinary reasons
during the period beginning April 1, 1995, and ending
September 30, 1995. Provides that the current service
annuity of a member who is described by this subsection
and who is eligible for retirement will be equal to one-twelfth of the product of 2.3 percent of the member's
average final compensation multiplied by the sum of the
number of months of membership service.
Sec. 13. CONFIDENTIALITY. (a) Provides that information
contained in records that are in the custody of the
retirement board or the system concerning an individual
member, retiree, annuitant, beneficiary, or alternate payee
is confidential under this Section 13 and may not be
disclosed in a form identifiable with a specific individual
unless the information is disclosed to certain authorized
persons or pursuant to a subpoena and the pension officer
determines that the individual will have a reasonable
opportunity to contest the subpoena.
(b) Provides that this section does not prevent the
disclosure of the status or identity of an individual as
a member, former member, retiree, deceased member or
retiree, beneficiary, or alternate payee of the retirement
system.
(c) Authorizes the pension officer to designate other
employees of the retirement system to make the necessary
determinations under Subsection (a) of this section.
(d) Authorizes a determination and disclosure under
Subsection (a) of this section to be made without notice
to the individual member, retiree, annuitant, beneficiary,
or alternate payee.
SECTION 2. (a) Provides that retirement allowances being paid
by the retirement and pensioning system created by Chapter
451, Article 6243n, V.T.C.S., to members of the retirement
system, or to the beneficiaries of those members, who retired
before October 1, 1995, are increased beginning with the
payments due at the end of October 1995.
(b) Sets forth the percentage of the amount of the increase
for a member, or the beneficiary of a member.
SECTION 3. Effective date: October 1, 1995.
SECTION 4. Emergency clause.