BILL ANALYSIS S.B. 864 By: Barrientos (Greenberg) April 6, 1995 Committee Report (Unamended) BACKGROUND This bill proposes a number of amendments to Chapter 452, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n-1, V.T.C.S.), the state statute which governs the Austin Police Retirement System. The present financing provisions require the contributing members to contribute at least 6% of pay and the City of Austin to contribute at least 12% of the pay of contributing members. Through the efforts of the Austin Police Association, the contributing members voted to increase their contribution rate from 6% to 9%. The Board of Trustees of the Austin Police Retirement System approved the increase, and it went into effect in October of 1993. The Austin Police Association and the board of trustees of the system worked with the City of Austin to develop an agreement on a package of increased financing by the city, increasing the rate in steps of 2% from 12% to 18%, and increased benefits for both active and retired members. PURPOSE The amendments in this bill fall into three general categories: (1) amendments to provisions for the amount of benefits, eligibility for benefits, and the financing of benefits; (2) new provisions to assure compliance by the system with federal laws; and (3) amendments that are corrective or administrative in nature. 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: Amends Article 6243n-1, V.T.C.S., Sections 1.02(2), (4), (6), (18), (24), and (25). The amended definitions contain (1) corrective changes to be consistent with the way the system is administered and with other provisions in the statute, (2) changes which will enable the system to comply with the Federal Age Discrimination in Employment Act, and (3) changes to authorize a member to retire with 25 years of service regardless of age. SECTION 2: Amends Article 6243n-1, V.T.C.S., Section 4.01(c) to be consistent with other provisions in the statute. SECTION 3: Amends Article 6243n-1, V.T.C.S., Section 4.01(e)(1) to change the definition of Active-Noncontributory Member to enable compliance with the Federal Age Discrimination in Employment Act. SECTION 4: Amends Article 6243n-1, V.T.C.S., Section 4.01(f) to amend provisions for establishing credit for previously forfeited service and for military leave of absence. For previously forfeited service, this Section makes changes to allow a surviving spouse up to 6 months after a member's death to establish credit for previously forfeited service that the active employee member had not established before death, to make the opportunity to establish credit open ended for a member, and to give the board of trustees flexibility to change the method of determining the amount to be paid to establish credit without legislation amending the statute. For military leave of absence, this section makes changes to allow installment payments to establish credit in order to comply with federal law and provides for a one-year window ending September 31, 1996, to establish credit for military leave of absence if a member has been reemployed for more than 5 years. SECTION 5: Amends Article 6243n-1, V.T.C.S., Sections 5.02 and 5.03 to amend provisions for establishing credit for premembership military service and for certain probationary service and to give the board of trustees flexibility to change the method of determining the amount to be paid to establish credit without legislation amending the statute. This Section makes changes to allow a surviving spouse up to six months after a member's death to establish credit for premembership military service or for certain probationary service that the active employee member had not established before death. This Section also makes this change for probationary service retroactive for deaths occurring December 1, 1994 through August 31, 1995. SECTION 6: Amends Article 6243n-1, V.T.C.S., Sections 6.01(a), (d), (e) and adds Subsection (f) to increase benefits for both future retirees and current retirees, to comply with federal law, and to change some definitions in order to be consistent with the way the system is administered and with other provisions in the statute. This Section increases for future retirees the benefit formula multiplier from 2.3% of average final compensation per year of service to 2.8%. For current retirees, this Section provides a special increase in benefit based on the proposed 2.8% multiplier effective September 1, 1995, and would provide future special increases whenever the multiplier is changed. This Section also adds language to give the board of trustees flexibility to change the benefit multiplier without legislation amending the statute. This Section adds a limitation on compensation taken into account, which is necessary to assure continued "qualified plan" status of the Austin Police Retirement System with the Internal Revenue Code. This Section also contains amendments which will enable compliance with the Federal Age Discrimination in Employment Act. SECTION 7: Amends Article 6243n-1, V.T.C.S., Section 6.02 to authorize a member to retire with 25 years of service regardless of age and to enable the system to comply with the Federal Age Discrimination in Employment Act. This new provision replaces provisions which allow retirement with 30 years of service regardless of age or before age 50 with an actuarially reduced benefit with 25-29 years of service. SECTION 8: Amends Article 6243n-1, V.T.C.S., Section 6.03 to state the actuarial assumptions that are used to determine actuarially equivalent optional forms of monthly retirement or death benefits. This change is required to comply with federal law to assure continued "qualified plan" status. SECTION 9: Amends Article 6243n-1, V.T.C.S., Section 6.04 to prescribe the latest beginning date of benefit payments. This change is required to comply with federal law to assure continued "qualified plan" status. SECTION 10: Amends Article 6243n-1, V.T.C.S., Section 6.05(c) to increase the lump sum death benefit for retirees from $2,000 to $5,000. SECTION 11: Amends Article 6243n-1, V.T.C.S., Section 6.06(a)(3) and (4) to increase the lump sum death benefit from $2,000 to $5,000 for a member whose death results in a monthly survivor benefit and to change a definition to be consistent with the way the system is administered and with other provisions in the statute. SECTION 12: Amends Article 6243n-1, V.T.C.S., Sections 7.01(b) and (c) to make minor, technical changes that are either administrative or clarifying in nature relating to disability benefits eligibility and administration. SECTION 13: Amends Article 6243n-1, V.T.C.S., Section 7.02 to state the actuarial assumptions that are used to determine actuarially equivalent optional forms of monthly disability benefits. This change is required to comply with federal law to assure continued "qualified plan" status. SECTION 14: Amends Article 6243n-1, V.T.C.S., Section 7.03(c)(1) to make minor, technical changes that are either administrative or clarifying in nature relating to disability benefits eligibility and administration. SECTION 15: Amends Article 6243n-1, V.T.C.S., Section 8.01 to codify the increases in the city contribution rate to which the City of Austin has agreed: 14% for the fiscal year ending in 1995, 16% for the fiscal year ending in 1996, and 18% beginning with the fiscal year ending in 1997 and for each fiscal year thereafter. Section 15 also clarifies that the member contribution rate is at least 6% and would add flexibility for changing the rate in the future. This Section also deletes language which will enable the system to comply with the Federal Age Discrimination in Employment Act. This Section also adds language required to comply with federal law to assure continued "qualified plan" status to state that the assets are for the exclusive benefit of members, that forfeitures are not used for increasing benefits, and that accrued benefits become nonforfeitable if the plan should ever be terminated. This Section also changes language to be consistent with the way the system is administered and with other provisions in the statute. SECTION 16: Amends Article 6243n-1, V.T.C.S., Section 10.01 to increase the maximum amount of the fine for falsifying a report or record from $200 to $1,000. SECTION 17: Amends Article 6243n-1, V.T.C.S., Chapter 452, by adding Articles XI-XIII to prescribe the duration of benefits payable to persons other than the member or the member's spouse, to prescribe limits on the benefit allowable to a member, and to authorize a transfer of a distribution to another plan. These changes are required to comply with federal law to assure continued "qualified plan" status. SECTION 18: Repeals Sections 1.02 (9), (10), and (23), and Section 4.01(g), Chapter 452, Article 6243n-1, V.T.C.S. so that the statute will be consistent with the way the system is administered and with other provisions in the statute. SECTION 19: Effective Date: September 1, 1995 SECTION 20: Emergency clause SUMMARY OF COMMITTEE ACTION SB 864 was considered by the committee in a public hearing on April 3, 1995. Rep. Sherri Greenberg testified as the House sponsor of the bill. The following person testified for the bill: Robert M. May representing the Austin Police Retirement System The bill was reported favorably without amendments with the recommendation that it do pass and be printed and be sent to the Committee on Local & Consent Calendars by a record vote of 5 ayes, 0 nays, 0 pvn & 4 absent. Committee of Pensions & Investments