BILL ANALYSIS S.B. 774 By: Barrientos (Greenberg) April 11, 1995 Committee Report (Unamended) BACKGROUND Chapter 183, Article 6243e.1, V.T.C.S., is the act governing the retirement, disability, and death benefits fund for fire fighters of the City of Austin, Texas. The act, originally enacted in 1975, has been repeatedly amended, and now contains obsolete and ambiguous provisions. PURPOSE As proposed, S.B. 774 amends provisions relating to the participation in, contributions to, and benefits and administration of retirement systems for fire fighters. RULEMAKING AUTHORITY It is the committee's opinion that rulemaking authority is granted to the board of trustees of the fire fighters relief and retirement fund under SECTION 1 (Section 2.11, Article 6243e.1, V.T.C.S.) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 183, Article 6243e.1, V.T.C.S., as follows: ARTICLE 1. GENERAL PROVISIONS Sec. 1.01. APPLICABILITY. Provides that this Act applies only to a municipality having a population of more than 450,000 and less than 500,000. Sec. 1.02. DEFINITIONS. Defines "accumulated contributions," "actuarial equivalent," "board of trustees," "board's actuary," "compensation," "dependent child or dependent children," "fire department," "fire fighter," "fund," "internal revenue code," "member," and "retiree." Sec. 1.03. CONTINUED EXISTENCE. Provides that a fire fighters relief and retirement fund is continued in existence in each municipality to which this Act applies. Requires the name of a fund to be the name of the municipality as prescribed. Sec. 1.04. EXEMPTION FROM EXECUTION. Provides that all retirement annuity payments, other benefit payments, and a member's accumulated contributions are unassignable and are exempt from execution, garnishment, attachment, and state and local taxation. ARTICLE 2. ADMINISTRATION Sec. 2.01. RESPONSIBILITY. Provides that each fund established under this Act is a trust and that the board of trustees (board) is responsible for the administration of the fund. Sec. 2.02. COMPOSITION OF BOARD. Sets forth the composition of the board. Sec. 2.03. ELECTED MEMBERS OF BOARD. (a) Requires the elected members of the board to be elected and hold office in accordance with this section. (b) Requires the board to hold an election to elect one member of the board between November 1 of each year and before the first Monday in January of the following year. (c) Provides that each election is by secret written ballot on a date determined by the board. Authorizes only persons who have been nominated to be listed on the written ballot. Authorizes nominations to be made in person, by mail, or by telephone to the office of the fund and must be received between October 1 and October 15. (d) Requires the board of trustees to certify the results of each election. Provides that a newly elected board member takes office at the first board meeting in January. (e) Sets forth the length of term members of the board are to serve in office. (f) Provides that a vacancy in the position of an elected member of the board is to be filled for the remainder of the term at an election to be held within 60 days after the date of the event that caused the vacancy. (g) Provides that the fire fighter or retiree receiving the highest number of votes in an election under this section is elected, except when no person receives a majority of the votes cast, a runoff election shall be held between the two persons receiving the highest number of votes. Provides that a runoff election is held on a date determined by the board, and the person receiving the highest number of votes in the runoff election is elected. (h) Authorizes the administrative expenses of an election to be paid from the assets of the fund. Prohibits assets of the fund from being used to pay campaign expenses incurred by or for a member. Prohibits office supplies and equipment belonging to the fund from being used to assist any candidate or person seeking to assist a candidate for a position on the board. Sec. 2.04. COMPENSATION. Prohibits a member of the board from receiving compensation for service on the board. Sec. 2.05. OFFICERS. Provides that the mayor is the presiding officer and the city treasurer is the secretary-treasurer of the board. Requires the board to elect annually from its membership an alternate presiding officer who will preside in the absence or disability of the mayor. Sec. 2.06. QUORUM AND VOTING. Provides that each member of the board is entitled to one vote. Provides that it is necessary to have a majority vote of the board at a meeting in which a quorum is present. Requires a resolution or order of the board to be made by a vote recorded in the minutes of the proceedings. Sec. 2.07. MEETINGS; MINUTES. Requires the board of trustees to hold regular monthly meetings at a time and place that it designates and authorizes the board to hold special meetings on the call of the presiding officer or alternate presiding officer. Requires the board to keep accurate minutes of its meetings and records of its proceedings. Sec. 2.08. ADMINISTRATION OF FUNDS. Sets forth the administration of funds by the board of trustees. Sec. 2.09. DETERMINATION BY BOARD. Authorizes the board of trustees to hear and determine all matters regarding eligibility of certain persons to receive benefits or participate in a fund. Sec. 2.10. TESTIMONY. Authorizes the board of trustees to compel witnesses to attend and testify before the board regarding all matters related to the fund and authorizes the presiding officer or alternate to administer oaths to witnesses. Sec. 2.11. RULEMAKING. Requires the board to adopt rules and perform activities necessary for the efficient administration of the fund. ARTICLE 3. MEMBERSHIP Sec. 3.01. GENERAL REQUIREMENT. Provides that a person who begins service as a fire fighter in a municipality and who is not ineligible for membership in the fund becomes a member of the fund as a condition of that person's appointment. Sec. 3.02. APPOINTMENT TO CHIEF. Provides that a fire fighter who is a member of the fund continues to be a member if the fire fighter is appointed to the rank of chief or the rank immediately below chief. Sec. 3.03. TERMINATION OF MEMBERSHIP. Provides that a person ceases to be a member of the fund on the date of death or refund or escheat of the person's contributions while absent from service. ARTICLE 4. SERVICE CREDIT Sec. 4.01. GENERAL PROVISION. Provides that one month of service credit is earned in the fund for each month a member makes a required contribution to the fund. Sec. 4.02. MILITARY SERVICE. Provides that a member retains all accumulated service credit and is allowed service credit for each month during which the member performs active duty service in the armed forces or reserves of the United States, with exceptions and conditions. Sec. 4.03. FORMER SERVICE. Provides that a member who is absent from service with the department for reasons other than military service retains all accumulated service credit for the member's former service with the department, but receives no credit for the period of absence, if the length of the absence is less than five years and the member leaves the member's contributions in the fund during the absence. Sec. 4.04. OTHER ABSENCE. Provides that if a member who has less than 10 years of service credit in the fund is absent from service with the department for at least five years for any other reason, the fund will refund the member's accumulated contributions and cancel the person's credited service. Sec. 4.05. PERIODS OF DISABILITY. Prohibits a fire fighter from being granted service credit for time during which the person receives a disability benefit from the fund. ARTICLE 5. SERVICE RETIREMENT BENEFITS Sec. 5.01. NORMAL SERVICE RETIREMENT ELIGIBILITY. Provides that a member is eligible to retire and receive a normal service retirement if the member meets certain age and service requirements. Sec. 5.02. CONTINUED SERVICE. Requires a member who continues to actively serve in the department after the date of retirement eligibility to continue to make contributions to the fund and accrue service credit until the date of actual retirement. Sec. 5.03. DETERMINATION OF AVERAGE MONTHLY SALARY. Sets forth the procedures for determining a member's average monthly salary. Sec. 5.04. NORMAL SERVICE RETIREMENT BENEFIT. Sets forth the procedures for determining a monthly payment of a service retirement annuity of a person retiring on or after January 1, 1995 based on a three percent factor. Provides for the change of calculating percentage under certain conditions. Sets forth the procedures for determining a monthly payment of a service retirement annuity of a person retiring before January 1, 1995, based on a benefit formula. Sec. 5.05. EARLY RETIREMENT. (a) Provides that a member is eligible to retire and receive a reduced service retirement annuity if the member meets certain age and service requirements. (b) Sets forth the procedures for determining a monthly payment of a reduced service retirement annuity of a person who retires early based on early retirement tables adopted by the board. Sec. 5.06. ELIGIBILITY AFTER 10 YEARS OF SERVICE. (a) Authorizes a member to terminate employment with the department and later retire and receive a service retirement benefit if the member meets certain age and service requirements and conditions at the time of retirement. (b) Provides that the retirement benefit payable to a member on retirement is computed on the bases of the formula in effect at the time the member terminated employment with the department. Sec. 5.07. WITHDRAWAL OF CONTRIBUTIONS. Authorizes a person who has terminated employment with the department and left contributions with the fund to apply at any time for and receive the accumulated contributions. Requires the fund to make the payment in the form of a direct trustee-to-trustee transfer if a person eligible for a refund of contributions elects and specifies to have all or a portion of the accumulated contributions paid directly to an eligible retirement plan to which the contributions are to be paid on a form approved for the purpose by the fund. ARTICLE 6. DISABILITY RETIREMENT BENEFITS Sec. 6.01. INITIAL ELIGIBILITY FOR DISABILITY RETIREMENT. Sets forth conditions which make a fire fighter eligible to retire and receive a disability retirement. Sec. 6.02. NO REQUIREMENT OF ON-THE-JOB INJURY. Provides that to qualify for disability retirement, a person's disability does not have to be incurred in connection with the person's performance of duties as a fire fighter and may be incurred while employed by some person or entity other than the fire department. Sec. 6.03. AMOUNT OF DISABILITY BENEFIT. Provides that the disability retirement benefit payable to a member, subject to adjustment, is the normal service retirement benefit under Section 5.04, but not less than the member would have received after 20 years of service credit. Sec. 6.04. TERMINATION DURING FIRST 2-1/2 YEARS. Authorizes the board to terminate a retirement benefit and restore a person to active service at not less than the same rank the person held at the time of disability retirement, if during the first 2-1/2 years of disability retirement, a retiree recovers to the extent that the person is able to perform the duties as a fire fighter. Sec. 6.05. CONTINUATION AFTER FIRST 2-1/2 YEARS. Authorizes the board to review from time to time the situation of the person to determine the status of disability after a retiree has received disability retirement benefits for at least 2-1/2 years. Authorizes the board to ask the medical board for its opinion of the status of the disability. Authorizes the board to continue to pay full or reduced payment or discontinue payment of a disability benefit, if the board determines that person has recovered to the extent that the person is able to be employed. Sec. 6.06. APPLICATION; PHYSICIAN'S STATEMENT; MEDICAL BOARD ACTION. (a) Requires an application for disability retirement to be accompanied by a written statement, on a board-approved form, and signed by a physician of the member's choice. Requires the member to pay any costs of or fees for obtaining the physician's statement and to file the application and statement with the fund. Requires the board to evaluate the medical and other pertinent information concerning the member's application as soon as possible after the application is filed. (b) Authorizes the medical board to require any fire fighter to obtain additional medical opinions before issuing a certificate that the member is unable, as a result of physical or mental disability, to perform the duties of the a fire fighter. Requires the fund to pay any examination costs or fees by a person other than the member's own physician. (c) Authorizes a certificate from the medical board to include a finding by the medical board that the disability is likely to be temporary or total and permanent. (d) Authorizes the board to require a person receiving a disability retirement benefit to appear and undergo a medical examination by a physician selected by the board or the medical board for the purpose. Requires the result of the examination and report by the physician to be considered by the board in determining whether the benefit will be continued, increased, if less than the maximum, decreased, or discontinued. Sec. 6.07. EVIDENCE OF INCOME OF DISABILITY RETIREE. Authorizes the board to require a person receiving disability retirement benefits to provide evidence of annual income. Authorizes the board to consider the evidence in any determination of ability to be employed. Authorizes the board to reduce or discontinue disability retirement benefit payments to a person who fails or refuses to produce information which the board has required under this section. Sec. 6.08. REINSTATEMENT; SERVICE RETIREMENT ELIGIBILITY. (a) Authorizes the board to reinstate any disability retirement benefit that previously has been terminated or reduced if the disabled fire fighter's condition has worsened as a result of the same cause for which the person was previously granted disability retirement. (b) Provides that a person is entitled to the service retirement benefit on meeting all requirements for that benefit, reduced by the amount of any disability retirement benefit that the person continues to receive from the fund, if a person's disability retirement benefit is reduced or discontinued and the person is or subsequently becomes eligible for service retirement under other provisions of this Act. Sec. 6.09. NO BENEFITS WHILE RECEIVING SALARY. Prohibits a person from receiving disability retirement benefits for any period during which the person receives full salary or compensation from the department, including payments received while on sick leave. ARTICLE 7. SURVIVOR'S BENEFITS Sec. 7.01. SURVIVING SPOUSE OR FIRE FIGHTER. Provides that a fire fighter's surviving spouse, if the fire fighter dies before retirement, is entitled to receive an immediate monthly benefit from the fund of 75 percent of the service retirement benefit that the fire fighter would have received if the fire fighter had retired on the date of death, but not less than 75 percent of the monthly payment the decedent would have received based on 20 years of service credit. Sec. 7.02. SURVIVING SPOUSE OF RETIREE. Entitles the retiree's surviving spouse, if any, to receive an immediate monthly benefit of 75 percent of the benefit paid to the retiree. Sec. 7.03. SURVIVING SPOUSE OF FORMER FIRE FIGHTER. (a) Provides that an immediate monthly benefit is payable to the surviving spouse of a former fire fighter who met certain service requirements and conditions. (b) Provides that the benefit is payable only if the spouse was married to the former fire fighter on the date of the former fire fighter's termination of employment with the department, if the former firefighter died before attaining 50 years of age. (c) Provides that the benefit is payable only if the spouse was married to the former firefighter when the member attained 50 years of age, if the former firefighter died after attaining 50 years of age. (d) Provides that the amount of the benefit payable is 75 percent of the retirement benefit the former firefighter either was receiving or was entitled to receive at age 50. Sec. 7.04. TERMINATION OF SPOUSE'S BENEFIT. Provides that if, at the time of termination of employment with the department, the deceased firefighter or retiree met the requirements for normal retirement eligibility, the benefit payable to a surviving spouse is payable throughout the surviving spouse's remaining lifetime. Provides that otherwise, the benefit ceases on the earlier of the spouse's death or marriage to any other person. Sec. 7.05. SURVIVING CHILDREN'S BENEFIT. (a) Provides that a benefit is payable to the decedent's surviving dependent children, if any, on the death of a member if there is no surviving spouse. Provides that if there is more than one dependant child of the decedent, each dependent child is entitled to receive an equal share of the total monthly payment. Makes a conforming change. (b) Provides that a benefit is payable to each of the decedent's surviving dependent children, if any, and if there is a surviving spouse. Provides that the monthly amount of the benefit payable to each child is 15 percent of the monthly payment that the decedent would have received under the service retirement benefit, but not less than 15 percent of the monthly payment the decedent would have received based on 20 years of service credit. Provides that if the decedent left more than five surviving dependent children, the monthly benefit payable to each child is to be reduced so that the total monthly benefit does not exceed the total monthly benefit that would have been payable if the decedent had left no surviving spouse. (c) Requires payments by the fund to a dependent child to cease on the earliest of the date of the child's death, marriage, or attainment of age 22. Sec. 7.06. PAYMENTS TO DEPENDENT PARENTS; PAYMENT TO ESTATE. Provides that one or more surviving parents is entitled to receive a monthly benefit payment equal to the monthly amount that would have been payable to a surviving spouse of the deceased, if a deceased member leaves no surviving spouse and no surviving children entitled to receive a benefit. Provides that all payments cease upon the death of the surviving dependent parent. Sec. 7.07. INCREASE IN SURVIVORS' BENEFITS. Authorizes benefits to dependent children and to surviving spouses, on an affirmative vote of a majority of the board, to be increased to an amount not to exceed the amount approved by the actuary. Sec. 7.08. PERSON CAUSING DEATH OF MEMBER OR BENEFICIARY. (a) Prohibits a benefit payable on the death of a member or beneficiary from being paid to a person convicted of causing that death, but instead a benefit is payable to a person who would be entitled to the benefit had the convicted person predeceased the decedent. Provides that the benefit is payable to the decedent's estate if no person would be entitled to the benefit. (b) Provides that the fund is not required to pay a benefit under Subsection (a) unless it receives actual notice of the conviction of the person who would have been entitled to the benefits. Authorizes the fund to delay payment of a benefit payable on the death of a member pending the results of a criminal investigation and of legal proceedings relating to the cause of death. (c) Provides that the benefit payable under this section is a refund of the member's accumulated contributions and interest, reduced by any annuity payments that may have been made as a result of the member's retirement. (d) Provides that a person has been convicted of causing the death of a member or beneficiary if the person has pleaded guilty or nolo contendere to or has been found guilty by a court and has no appeal of the conviction pending and the deadline for an appeal has expired. ARTICLE 8. DEFERRED RETIREMENT OPTION PLAN Sec. 8.01. MEMBER REMAINING IN ACTIVE SERVICE. Authorizes a member who is eligible to receive a normal service retirement benefit to remain in action service, become a participant in the deferred retirement option plan (DROP), and defer the beginning of a retirement annuity, in lieu of either leaving active service or remaining in active service and continuing to accrue additional service credit. Provides that once an election to participate in the DROP has been made, the election continues in effect as long as the member remains in active service as a firefighter. Authorizes the member to apply for a service retirement annuity when the member leaves active service. Sec. 8.02. ELECTION TO PARTICIPATE IN DROP. Requires the election to participate in the DROP to be made in accordance with adopted procedures by the board. Authorizes the election to be made at any time on or after the date the member becomes eligible for normal service retirement and becomes effective on the first day of the first month after the date of the election. Requires a member, at the same time a member elects to participate in the DROP, to agree in writing to terminate service with the department on a date not later than the second anniversary of the effective date of the election. Provides that an agreement to terminate service is binding on the member and the fire department, except that the member may terminate active service at any time before the date selected. Provides that an election to participate in the DROP has no effect on either the municipality's or the member's contributions. Sec. 8.03. CREDITS TO MEMBER'S DROP ACCOUNT. Requires the board to cause an amount equal to the retirement annuity that the member would have received for that month if the member had left active service and been granted a retirement annuity on the effective date of the election to be credited to a separate DROP account maintained within the fund for the benefit of the member, each month after a member makes an election to participate in the DROP and until the member's retirement. Requires a member's contributions made after the effective date of the election to participate in the DROP to be credited to the member's DROP account. Requires amounts held in a member's DROP account to be credited at the end of each calendar month with interest at a rate equal to 1/12th of 5 percent until the member's retirement. Sec. 8.04. AMOUNT OF CREDITS TO MEMBER'S DROP ACCOUNT. Sets forth provisions for the amount credited monthly to the member's DROP account. Sec. 8.05. DISTRIBUTIONS FROM MEMBER'S DROP ACCOUNT. (a) Requires a member who participates in the DROP to begin to receive the amount credited to the person's DROP account on leaving active service as a firefighter and beginning to receive a retirement annuity under certain methods of distribution selected by the member. (b) Makes a conforming change. (c) Prohibits a member from receiving a distribution from the member's DROP account before termination of active service as a firefighter. Requires a member to notify the fund in writing, on a form that the board may prescribe, at least 30 days before each distribution made under this section. Sec. 8.06. ESTABLISHMENT OF DROP ACCOUNT AT RETIREMENT. Authorizes a member who is eligible for normal service retirement to elect to terminate active service as a firefighter and establish a DROP account, in lieu of electing to participate in the DROP before actual retirement. Sets forth provisions and requirements for the account. Sec. 8.07. PAYMENTS FROM DROP ACCOUNT AT MEMBER'S DEATH. (a) Provides that the provisions of Article 7 relating to death benefits of qualified survivors do not apply to amounts credited to a member's DROP account. Authorizes a member who participates in the DROP to designate a beneficiary to receive any balance in the member's DROP account at the member's death. Requires the beneficiary designation to be made on a form prescribed by the board and filed with the fund before the member's death. Provides that a designation of a beneficiary other than the member's spouse, if the member is married at the time of the designation, is valid only if the spouse consents to the designation in writing on the same form that is used to designate the beneficiary. Requires distribution from a member's DROP account after the death of the member to be made as provided by this section. (b) Provides for the payment distribution to a designated beneficiary after the death of a member who participated in the DROP but died while in active service or who did not file an election with the board within a certain time period. (c) Requires the balance of a member's DROP account to be distributed to the designated beneficiary in a manner selected by the member, if a member who participates in the DROP dies after terminating active service and has filed an election with the board. (d) Requires a member's DROP account to be distributed in a single-sum payment to any surviving spouse or the estate after a member's death, if the member did not designate a beneficiary or if the designated person does not survive the member. Sec. 8.08. SUBSEQUENT DISABILITY OF DROP PARTICIPANT. Provides that a member who participates in the DROP becomes ineligible for any disability benefits. Requires the board to grant a normal service retirement annuity and to pay the member both the service retirement annuity and a distribution of the DROP account, if the board determines that the member would have been eligible for disability retirement. Sec. 8.09. RETIREMENT BENEFIT PAYABLE TO DROP PARTICIPANT. Provides that the retirement benefit payable under Article 5 or 6 of this Act to a person who participates in the DROP may or may not be increased under certain conditions. Sec. 8.10. TERMINATION OR MODIFICATION OF DROP BY FUND. Authorizes the board to reduce the interest paid on DROP accounts that are established after the effective date of action by the board or terminate the deferred retirement option for all members who have not at the time established a DROP account if the board's actuary, no sooner than January 1, 2000, certifies to the board that DROP participation is resulting in a significant actuarial loss to the fund. ARTICLE 9. MISCELLANEOUS PROVISIONS REGARDING BENEFITS Sec. 9.01. TIME FOR PAYMENT TO RETIRED MEMBERS. Provides that benefits to a person who retires under this Act are payable on the first day of each month beginning with the month following the month in which the person retires. Sec. 9.02. TIME FOR PAYMENT TO SURVIVORS; PAYMENT TO ESTATE. Provides that benefits to a surviving spouse, dependent child, or dependent parent are payable on the first day of each month beginning with the month following the month in which the death of the member of former firefighter occurs. Provides that, after all payments cease, any amount by which the member's or former firefighter's total accumulated contributions at the date of the person's death exceed the amount of all retirement and death benefits paid by the fund is payable to the estate of the member or former firefighter. Sec. 9.03. LIMITATION ON PAYMENT OF BENEFITS. (a) Requires the amount of the payment of any benefit that would exceed the limitations set forth in this section to be reduced in accordance with this section. (b) Defines "compensation" and "highest average annual compensation." (c) Prohibits an annual benefit payable by the fund from exceeding 100 percent of the member's highest average annual compensation. (d) Prohibits an annual benefit, if payment begins before a member attains age 55, from exceeding the greater of the actuarial equivalent of a $75,000 annual benefit beginning at age 55, a $90,000 annual benefit beginning at age 62, or $50,000. (e) Provides that the $50,000 limitation is inapplicable if a member does not have at least 15 years of service credit as a firefighter with the department. (f) Provides that the annual benefit may not exceed the greater of the actuarial equivalent of a $90,000 annual benefit beginning at age 62, or $75,000 if payment of a benefit begins when or after a member attains age 55, but before the member attains age 62. (g) Provides that the annual benefit may not exceed $90,000 if payment of a benefit begins when or after a member attains age 62, but before the member attains age 65. (h) Provides that the annual benefit may not exceed the actuarial equivalent of a $90,000 annual benefit beginning at age 65, if payment of a benefit begins when or after a member attains age 65. (i) Provides the $90,000 and $50,000 limitations are automatically adjusted to the amounts determined by the secretary of treasury in effect at the time of the member's retirement. (j) Provides that to determine the actuarial equivalent of a benefit under this section, the interest rate assumption is the rate not to exceed five percent that is adopted by the board in the proper administration of the fund. (k) Prohibits a person's vested accrued benefit in effect on September 1, 1995, from being reduced. Sec. 9.04. COST-OF-LIVING ADJUSTMENT. (a) Entitles a person receiving a retirement or survivor's benefit entitled to an annual cost-of-living adjustment of that person's benefit based on any increase in the Consumer Price Index for All Urban Consumers as determined by the U.S. Department of Labor since the last increase in benefits under this section. (b) Prohibits an adjustment from being made unless the board's actuary has advised the board that the adjustment would not impair the financial stability of the fund and the adjustment has been approved by the affirmative vote of a majority of the board. (c) Requires the amount of an adjustment to be determined by the board. Prohibits an adjustment of a benefit from reducing any person's benefit to an amount less than the person received when the benefit first was paid to that person. Sec. 9.05. NO INTEGRATION WITH SOCIAL SECURITY. Prohibits a benefit payable from being integrated with benefits payable under the Social Security Act and Social Security benefits from being taken into account when determining the amount of benefits to which a person is entitled. Sec. 9.06. WITHDRAWAL OF CONTRIBUTIONS. (a) Authorizes a living person who has terminated all employment with the department and who has not retired to withdraw, on application, all of the accumulated contributions credited to that person's individual account with the fund in excess of the amount of benefits that the person previously has received from the fund. Provides that on withdrawal, the person's account will be closed and all service credit the person has accumulated will be canceled. (b) Authorizes the estate of a member who dies before retirement without a surviving beneficiary to withdraw all of the accumulated contributions credited to that person's individual account with the fund in excess of the amount of benefits that the person previously has received from the fund. Sec. 9.07. ESCHEAT OF CONTRIBUTIONS. Requires a person's accumulated contributions to escheat to the fund if an application for withdrawal of contributions from or on behalf of a person who has ceased to be an employee of the department or the person's estate has not been received by the fund before the seventh anniversary of the termination of the person's employment with the department for a reason other than retirement. Requires the fund to refund the contributions regardless of the earlier escheatment if the person or the person's estate later applies for the contributions. Sec. 9.08. INSUFFICIENT FUNDS; PRORATED REDUCTION IN BENEFITS. Requires all benefits being paid by the fund to be reduced pro rata for the time funds are insufficient to pay in full any benefit payable under this Act. Sec. 9.09. REDUCTION IN BENEFIT PAYMENTS ON REQUEST. Requires the fund to pay the lesser amount specified in the request if a person receiving a benefit from the fund requests in writing that the amount of the benefit be reduced to a specified monthly amount. Requires the fund to pay the increased amount specified if the amount does not exceed the amount originally payable. Requires the fund to discontinue payment of the benefit if a person requests in writing the payment of the benefit to be discontinued. Requires the fund to resume payment of the benefit if the person subsequently requests the payment to be resumed. Provides that any amounts not paid by the fund pursuant to a request are forfeited to the fund and are not recoverable by any person. ARTICLE 10. COLLECTION OF CONTRIBUTIONS; INTEREST Sec. 10.01. MUNICIPAL AND MEMBER CONTRIBUTIONS. (a) Requires each municipality in which a fire department is located to appropriate and contribute to the fund an amount equal to 14 percent, or a higher percentage that the municipality authorizes, of the compensation of all members during that month, each month before October 1, 1994. (b) Requires each municipality in which a fire department is located to appropriate and contribute to the fund an amount equal to 16.05 percent of the compensation of all members during that month, each calendar month after September 30, 1994, and before October 1, 1995. (c) Requires each municipality in which a fire department is located to appropriate and contribute to the fund an amount equal to 18.05 percent of the compensation of all members during that month, each month after September 30, 1995. (d) Requires each firefighter to pay into the fund each month 13.70 percent of the firefighter's compensation for that month. (e) Authorizes the governing body of each municipality to authorize the municipality to make an additional contribution to the fund in whatever amount the governing body may determine. Authorizes the members of the fund to increase, by majority vote, each firefighter's contribution above 13.70 percent to any percentage recommended by a majority vote of the board. Sec. 10.02. PICKUP OF FIREFIGHTER CONTRIBUTIONS. Requires a municipality to pick up the firefighter contributions to the fund that are required or authorized pursuant to Section 10.01, whichever is higher. Provides that firefighter contributions will be picked up by a reduction in the monetary compensation of the firefighters. Requires contributions picked up to be treated as employer contributions in accordance with Section 414(h)(2) of the Internal Revenue Code for the purposed of determining tax treatment of the amounts under the code. Requires the contributions to be deposited to the credit of the individual accounts of the firefighters and to be treated as the monthly contributions of the firefighters. Provides that these contributions are not includable in the gross income of a firefighter until the time that they are distributed or made available to the firefighter or survivors of the firefighter. Authorizes the board, by majority vote, to discontinue the pickup of firefighter contributions by the municipality. Sec. 10.03. CONTRIBUTIONS AND INCOME AS ASSETS OF FUND. Provides that all contributions paid to the fund become a part of the assets of the fund. Requires all interest and dividends on investments of the assets of the fund to be deposited into the fund and are part of it. Sec. 10.04. INTEREST ON INDIVIDUAL ACCOUNTS. Requires the fund to credit interest on December 31 of each year to the account of each firefighter, and of each former firefighter, who has not retired in an amount equal to five percent of the accumulated contributions, including previously credited, on deposit on January 1 of that year. Prohibits the fund from paying interest on a firefighter's contributions for part of a year or for any period that is more than five calendar years after the date of termination of employment. ARTICLE 11. INVESTMENT OF ASSETS Sec. 11.01. PERMITTED INVESTMENTS. Authorizes the board to invest a surplus in the fund in certain commercial products. Sec. 11.02. REDUCTION IN RATING. Provides that an investment in corporate bonds at the time of purchase is not required to be sold. Sec. 11.03. LIMITATIONS ON INVESTMENTS. Prohibits the fund from owning more than five percent of the voting stock of any one corporation. Sec. 11.04. FIDUCIARIES. (a) Provides that a person or financial institution is a fiduciary of the fund to the extent that the person or the financial institution exercises or renders any authority, control, or responsibility over the fund. (d) Authorizes the board to purchase insurance indemnifying the members of the board against personal loss or accountability from liability resulting from a member's act or omission as a member of the board. ARTICLE 12. OFFICERS, EMPLOYEES, AND PROFESSIONALS Sec. 12.01. ADMINISTRATOR AND EMPLOYEES. Requires the board to appoint an administrator to administer the fund under the supervision and direction of the board. Requires the board to employ such other employees as are required for the efficient administration of the fund. Sec. 12.02. LEGAL COUNSEL. Requires the board to retain legal counsel for matters affecting the operation of the fund. Sec. 12.03. ACTUARY. (a) Requires the board to employ an actuary who may be the consultant and technical advisor to the board regarding the operation of the fund and may perform such duties as may be required by the board. (b) Requires the actuary to make a valuation at least once every two years of the assets and liabilities of the fund on the basis of assumptions and methods that are reasonable and that offer the actuary's best estimate of anticipated experience under the fund. (c) Requires the actuary to make recommendations to the board to ensure the actuarial soundness of the fund on the basis of the valuation. Requires the actuary to define each actuarial assumption used in making the valuation in making recommendations. Requires the information to be included either in the actuarial study or in a separate report made available as a public record. (d) Requires the board to file with the State Pension Review Board a copy of each actuarial study and each separate report made as required by law. (e) Requires an actuary employed to be a fellow of the Society of Actuaries, a member of the American Academy of Actuaries, or an enrolled actuary under the federal Employee Retirement Income Security Act of 1974. (f) Requires the municipality to pay all or part of the cost of the actuarial services. Provides that any cost not paid directly by the municipality is payable from assets of the fund. Sec. 12.04. INVESTMENT COUNSELORS AND MANAGERS; CUSTODIAN OF ASSETS. (a) Authorizes the board to employ professional investment counselors to advise and assist the board in the investment of the assets of the fund. Requires the investment counseling service to be provided by a nationally known organization whose business functions include rendering continuous investment advisory service to public pension and retirement funds. Authorizes the municipality to pay the entire cost of this counseling service. Provides the cost to be paid from the assets of the fund if not paid by the municipality. (b) Requires the board to appoint investment managers for the fund by contracting for professional investment services with one or more organizations, which may include a bank if it has a trust department, that are in the business of managing investments. (c) Requires an investment manager to meet certain requirements to be eligible for appointment. (d) Requires the board to specify any policies, requirements, or restrictions, that the board adopts for investments of the fund in a contract. (e) Authorizes the municipality to pay all or part of the cost of professional investment management services under a contract. Provides that any cost not paid directly by the municipality is payable from assets of the fund. (f) Requires the board to monitor the investments made by any investment manager for the fund at frequent intervals. Authorizes the board to contract for professional evaluation services to fulfill this requirement. (g) Authorizes the municipality to pay all or part of the cost of professional evaluation services. Provides that any cost not paid directly by the municipality is payable from assets of the fund. (h) Authorizes the board to enter into an investment custody account agreement designating a state or national bank or a trust company as custodian for all assets allocated to or generated under the investment management contract. (i) Requires the board to require the designated custodian to perform the duties and assume the responsibilities for assets under the contract for which the agreement is established under the custody account agreement. (j) Authorizes the municipality to pay all or part of the cost of services under a custody account agreement. Provides that any cost not paid directly by the municipality is payable from assets of the fund. (k) Prohibits an investment manager other than a bank having a contract with the fund from being a custodian of any assets of the fund. (l) Requires the board to withdraw from a custodian of fund assets money for use in paying benefits to members and other beneficiaries of the fund and expenses of administering the fund when demands of the fund require. Sec. 12.05. MEDICAL BOARD. Authorizes the board to designate a medical board composed of three persons who must be licensed physicians in good standing in this state. Authorizes the board to designate persons who are not physicians to serve on the medical board. Requires the medical board to review, investigate, and report on all medical examinations and reports. Sec. 12.06. RETIREMENT COUNSELING. Authorizes the board to pay for the cost of counseling for members of the fund regarding retirement matters. Sec. 12.07. AUDITS; EMPLOYMENT OF CERTIFIED PUBLIC ACCOUNTANTS. Requires the board to employ a certified public accountant (CPA) or firm of CPAs to perform an audit of the fund at least annually. Authorizes the municipality to pay the entire cost of an audit. Authorizes the cost to be paid from the assets of the fund, if not paid by the municipality. Sec. 12.08. CIVIL ACTIONS FOR MONEY WRONGFULLY PAID OUT OR OBTAINED. Authorizes the board to recover by civil action from any offending party or from the party's sureties, any money paid out or obtained from the fund through fraud, misrepresentation, defalcation, theft, embezzlement, or misapplication and institute, conduct, and maintain the action in the name of the board for the use and benefit of the fund. Deletes existing Sections 1-23. SECTION 2. Effective date: September 1, 1995. SECTION 3. Emergency clause. SUMMARY OF COMMITTEE ACTION SB 774 was considered by the committee in a public hearing on April 10, 1995. Rep. Sherri Greenberg testified as the House Sponsor of the bill. The bill was reported favorably without amendment with the recommendation that it do pass and be printed, and be sent to the Committee on Local and Consent Calendars, by a record vote of 6 ayes, 0 nays, 0 pnv & 3 absent.