BILL ANALYSIS
S.B. 864
By: Barrientos
Intergovernmental Relations
03-16-95
Committee Report (Amended)
BACKGROUND
The present financing provisions of Article 6243n-1, V.T.C.S.,
which govern the Austin Police Retirement System, require the
contributing members of the retirement system to contribute at
least 6 percent of pay and the City of Austin to contribute at
least 12 percent. Through the efforts of the Austin Police
Association, the contributing members voted to increase their
contribution rate to 9 percent. The board of trustees of the
Austin Police Retirement System approved the increase, and it went
into effect in October 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 percent from 12 percent to
18 percent, and increased benefits for both active and retired
members.
PURPOSE
As proposed, S.B. 864 amends provisions relating to participation
in and benefits and administration of retirement systems for police
officers.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
to the Pension Board of the Police Officer's Pension System under
SECTION 17 (Article XI, Section 11.01(j), Article 6243n-1,
V.T.C.S.) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Sections 1.02(2), (4), (6), (18), (24), and (25),
Article 6243n-1, V.T.C.S., to redefine "actuarial equivalent,"
"average final compensation," "creditable service," "normal
retirement date," "retirement," and "retirement date."
SECTION 2. Amends Section 4.01(c), Article 6243n-1, V.T.C.S., to
delete a provision requiring a member to remain a member of the
police retirement system (system) until the member is entitled to
service retirement and withdrawal benefits or to disability
retirement benefits.
SECTION 3. Amends Section 4.01(e)(1), Article 6243n-1, V.T.C.S.,
to delete membership in the police retirement system (system) of a
member who has completed 120 months of contributions at or beyond
age 62 and is no longer required to contribute as a condition of
the member's employment. Redesignates Subdivisions (D)-(E) as (E)-(F).
SECTION 4. Amends Section 4.01(f), Article 6243n-1, V.T.C.S., as
follows:
(f)(1) Makes a conforming change.
(2) Provides that an eligible member is a police officer
who, among other qualifications, is not separated from
active service. Provides that an eligible surviving spouse
is the surviving spouse of an eligible member if the member
dies before making payment to the system of the amount
required by this subsection.
(3) Authorizes an eligible surviving spouse to reinstate
previously forfeited membership service not later than the
date that is six months after the date of the member's death
and only if the benefit described by Section 6.05(a) or
6.06(a)(3) is not paid. Makes a conforming change.
(5) Authorizes the method of determining the amount of the
required payment to be changed if the effect of the change
is disclosed by the board's actuary, adopted by the Pension
Board of the Pension System (board) as a rule, and applies
to all payments for reinstating previously forfeited
membership service under this subsection made to the
retirement system after the effective date of the change.
(6) Authorizes a payment by a member after a military leave
of absence to be a single payment or be in individual
installments of not less than 20 percent of the total amount
to be paid. Authorizes a member who otherwise would be
eligible to make payment under this subdivision but who has
not made payment and for whom it has been more than five
years since the member returned to the employment of the
city to make payment during the period beginning October 1,
1995, and ending September 30, 1996.
SECTION 5. Amends Sections 5.02 and 5.03, Article 6243n-1,
V.T.C.S., as follows:
Sec. 5.02. MILITARY SERVICE CREDIT. (a) Requires an
eligible member to be a police officer employed by the city or
a staff member employed by the police system, who is not
separated from active police system service. Authorizes an
eligible surviving spouse to establish creditable service for
military service no later than the date that is six months
after the date of the member's death and only if the death
benefit described by Section 6.05(a) or 6.06(a)(3) is not
paid. Makes conforming changes.
(b) Authorizes the percent used to calculate the amount of
the required payment described by Subsection (a)(4) to be
changed if the effect of the change is disclosed by the
board's actuary, the change is adopted by the board as a
rule, and the change applies to all payments for
establishing creditable service under this section made to
the retirement system after the effective date of the
change.
Sec. 5.03. PROBATIONARY SERVICE CREDIT. Provides that an
eligible member is a police officer employed by the city who
is not separated from active service. Authorizes an eligible
surviving spouse to establish creditable service for
probationary service six months after the member's death and
only if the death benefit is not paid. Authorizes an eligible
surviving spouse to establish creditable service for
probationary service on or before February 29, 1996, if an
eligible member dies on or after December 1, 1994, but not
later than August 31, 1995, and has not made payment to the
system of the amount required by this section. Authorizes the
method of determining the amount of required payment to be
changed under certain conditions. Makes conforming changes.
SECTION 6. Amends Section 6.01, Article 6243n-1, V.T.C.S., by
amending Subsections (a), (d), and (e) and adding Subsection (f),
as follows:
(a) Sets forth the formula for obtaining the monthly payment
of the life annuity. Requires the amount of monthly payments
to be increased at a set rate for each month after age 62 for
which the member earned creditable service but made no
contributions on the basis of the law in effect before
September 1, 1995. Prohibits the amount of monthly payments
from being increased for payments that commence after the
member becomes 62 years of age for a retirement date after
December 31, 1996. Authorizes the retirement benefit percent
to calculate the amount of the monthly payment of the life
annuity to be changed after 1995, under certain conditions.
Makes conforming changes.
(d) Provides that retirement and disability annuities being
paid by the system to members, surviving spouses, or
beneficiaries of members who retired before September 1, 1995,
are increased beginning with the payments due at the end of
September 1995. Provides that the amount of increase is equal
to a percentage multiplied by the annuity payment otherwise
due. Sets forth the procedures for calculating the
percentage. Requires retirement and disability annuities
being paid before the effective date of any change in the
retirement benefit percent that occurs after 1995 to be
changed beginning with the first payment due after the
effective date of the change in the percent.
(e) Redefines "base retirement amount" and "consumer price
index." Deletes definitions of "adjustment payment,"
"averaging or leveling," and "base period."
(f) Prohibits compensation of each noneligible member taken
into account under the plan from exceeding $150,000 per
calendar year, indexed pursuant to Section 401(a)(17),
Internal Revenue Code, 1986. Provides that the $150,000 limit
does not apply to an eligible member. Defines eligible,
noneligible, and family member. Requires compensation in
excess of the limit to be prorated among the family members in
accordance with the Internal Revenue Code, 1986.
SECTION 7. Amends Section 6.02, Article 6243n-1, V.T.C.S., to
provide that any member is eligible for normal retirement if the
member has completed 25, rather than 30 years, of creditable
service, among other requirements. Deletes Subsection (c)
regarding early retirement.
SECTION 8. Amends Section 6.03, Article 6243n-1, V.T.C.S., by
adding Subsection (c), to require the UP-1984 Table to be used with
no age setback for members and an age setback of seven years for
beneficiaries, and interest to be computed at a rate of 8.5 percent
in computing the actuarial equivalent for optional forms of annuity
payment for retirement and death benefits.
SECTION 9. Amends Section 6.04, Article 6243n-1, V.T.C.S., as
follows:
Sec. 6.04. TERMINATION PRIOR TO RETIREMENT; TREATMENT OF
ACCUMULATED DEPOSITS. Requires the system to attempt to send
to a member a written notice after the later of the date the
member attains age 70-1/2 or the date the member separates
from service, if a member who has attained age 70-1/2
separates or has separated from service without applying for
retirement or a refund of accumulated deposits. Requires the
written notice to advise the member of the requirement under
Section 401(a)(9), Internal Revenue Code, 1986, to retire and
begin receiving a monthly retirement benefit. Provides that
the member is considered to have retired if the member has not
filed an application for retirement or a refund before the
91st day after the date the system sends the notice. Requires
the retirement option to be determined in accordance with the
member's written selection of optional benefit and designation
of beneficiary. Requires the member, otherwise, to receive
the life annuity under Section 6.01 of this Act.
SECTION 10. Amends Section 6.05(c), Article 6243n-1, V.T.C.S.,
to require the sum of $5,000, rather than $2,000, to be payable in
a lump sum to the member's beneficiary or to the estate in the
event of death of a member receiving a retirement allowance.
SECTION 11. Amends Sections 6.06(a)(3) and (4), Article 6243n-1,
V.T.C.S., to authorize a member's designated beneficiary, executor,
or administrator of the estate of a deceased member to elect Option
VII effective the last day, rather than at the beginning, of the
calendar month in which the death of the member occurs. Requires
an additional sum of $5,000, rather than $2,000, to be payable as
a death benefit to the beneficiary or if none exists, to the
member's estate. Makes conforming and nonsubstantive changes.
SECTION 12. Amends Sections 7.01(b) and (c), Article 6243n-1,
V.T.C.S., to require an application made for the injured member to
show that an injury sustained in performance of duties is likely to
result in the member's inability to perform the duties of a
position offered to the member in the police department or any
other department in the city that pays as much or more than the
current pay of the position the member was holding on the date of
the disability. Makes conforming changes.
SECTION 13. Amends Section 7.02, Article 6243n-1, V.T.C.S., as
follows:
(a) Created from existing text.
(b) Requires 82.5 percent of the 1965 Railroad Retirement
Board Disabled Annuitants Mortality Table to be used in
computing the actuarial equivalent for optional forms of
annuity payment for disability benefits for members, the UP-1984 Table with an age setback of six years to be used for
beneficiaries, and interest to be computed at a rate of 8.5
percent.
SECTION 14. Amends Section 7.03(c)(1), Article 6243n-1,
V.T.C.S., to authorize the board to take certain actions after
reviewing and modifying the disability benefit of certain members.
SECTION 15. Amends Section 8.01, Article 6243n-1, V.T.C.S., by
amending Subsection (a) and adding Subsections (g)-(i), as follows:
(a) Requires deposits by the members to the system to be made
at a rate of at least six percent of the basic hourly earnings
of each member. Requires the active-contributory members to
increase each member's contribution above six percent in
whatever amount the board recommends. Authorizes a deposit
rate that has been increased to a rate above 6 percent to be
decreased if the board recommends the decrease, the board's
actuary approves the decrease, and the active-contributory
members approve the decrease by a majority vote. Requires the
city to contribute amounts equal to a percentage of the basic
hourly earnings of each member employed by the city. Requires
the percentage to be 14 percent for the fiscal year ending in
1995, 16 percent for 1996, and 18 percent for each subsequent
fiscal year.
(g) Prohibits further contributions from being made by the
city and further deposits from being made by the members for
service after the date of termination of the system. Provides
that members do not accrue any additional benefits after the
date of termination. Provides that the benefit accrued by
each member on the termination of the plan or the complete
discontinuance of contributions and the benefit of any
affected member on the partial termination of the plan become
nonforfeitable notwithstanding the length of a member's
service. Provides that the benefit accrued by a member also
becomes nonforfeitable, if not so already, at the normally
retirement date.
(h) Prohibits a forfeiture from a member terminating
employment and withdrawing accumulated deposits from being
applied to increase the benefit that any other member would
receive from the system. Requires the actuary to anticipate
the effect of forfeitures in determining the costs under the
system.
(i) Requires the assets of the system to be held in trust for
the exclusive benefit of the members and their beneficiaries.
Prohibits the corpus or income from being used for or diverted
to a purpose other than the exclusive benefit of members or
their beneficiaries by any means.
SECTION 16. Amends Section 10.01, Article 6243n-1, V.T.C.S., to
require a false report or statement to be punishable by a fine not
to exceed $1,000, rather than $200.
SECTION 17. Amends Chapter 452, Article 6243n-1, V.T.C.S., by
adding Articles XI-XIII, as follows:
ARTICLE XI
Sec. 11.01. LIMITATION ON PAYMENT OF BENEFITS. (a) Defines
"annual benefit," "compensation," "highest average annual
compensation," and "qualified joint and survivor annuity."
(b) Requires the system to reduce the amount of the benefit
if the amount of any benefit payment would exceed the
limitations provided by this section.
(c) Provides that a benefit is adjusted to the actuarial
equivalent of a life annuity for the purpose of determining
limitations under this section. Provides that an actuarial
adjustment to a benefit is not required to establish the
value of a qualified joint and survivor annuity and the
value of postretirement cost-of-living increases made in
accordance with Section 415, Internal Revenue Code, 1986.
(d) Prohibits an annual benefit payable by the system from
exceeding the lesser of $118,000, or another amount as
adjusted each January 1 by the secretary of treasury for
cost-of-living increases after January 1, 1994, or 100
percent of the former member's highest average annual
compensation, including annual cost-of-living increases
after separation from service.
(e) Provides that if payment of a benefit begins before a
member attains age 62, the dollar limitation is the
actuarial equivalent of an annual benefit beginning at age
62. Prohibits a reduction from reducing the dollar
limitation below $75,000 if the benefit begins at or after
age 55 or, if the benefit begins before age 55, the
actuarial equivalent of a $75,000 limitation beginning at
age 55. Prohibits a reduction from reducing the dollar
limitation of any qualified participant below $66,000 or
another amount as determined for the applicable calendar
year by the secretary of treasury. Defines a qualified
participant.
(f) Provides that if payment of a benefit begins after a
member attains age 65, the dollar limitation is the
actuarial equivalent of an annual benefit beginning at age
65.
(g) Sets forth the calculating procedures for actuarial
equivalence and interest rate assumption.
(h) Provides that the limitations prescribed by Subsections
(d), (e), and (f) of this section do not apply to any
portion of an annual benefit payable by the system that is
attributable to the balance in the member's individual
account in Fund No. 1 as of December 31, 1985, or from
interest credited to the member's account after December 31,
1985, as a result of deposits before the date.
(i) Provides that the limitations prescribed by this
section apply to the aggregate of the benefits attributable
to city contributions under the system and any other defined
benefit plan maintained by the city. Requires all member
contributions to the system that are not picked up when
aggregated with all other annual additions made under any
defined contribution plan maintained by the city to satisfy
the limitations prescribed by Section 415(c), Internal
Revenue Code, 1986. Requires all benefits described by the
first sentence of this subsection and all annual additions
to satisfy the combined limitation prescribed by Section
415(e), Internal Revenue Code, 1986.
(j) Authorizes the board, by rule, to eliminate all or any
portion of the limitations provided by this section if the
Internal Revenue Code, 1986, is amended in a manner that
limitations similar to those provided by this section are
not required of governmental retirement plants to remain
qualified plans.
(k) Authorizes the annual benefit payable by the system
that is otherwise limited by this section to be increased
each year in accordance with cost-of-living adjustments by
the secretary of the treasury as long as it does not exceed
the amount that would be payable without limitation under
Section 415, Internal Revenue Code, 1986.
ARTICLE XII
Sec. 12.01. DISTRIBUTION RULES FOR RETIREMENT AND DEATH
ANNUITY PAYMENTS. (a) Provides that an option is limited if
a member selects, or if a member's death before retirement
results in the payment of, an optional annuity providing for
payment of a fixed number of monthly payments to the member's
beneficiary or estate if the member dies before the total
number of payments has been completed.
(b) Requires the member to select another option so that
the minimum period that monthly payments would be required
does not exceed the joint life expectancy of the person
making the selection and of the designated beneficiary, if
according to mortality tables adopted by the Internal
Revenue Service (IRS), at the time of the member's
retirement the joint life expectancy of the member making
the selection and of the designated beneficiary is less than
the minimum period that monthly payments would be required
under the option selected.
(c) Requires the retirement system to adjust the minimum
period that monthly payments will be required to a period
that is not less than 60 months and that is the greatest
multiple of 12 months that does not exceed the life
expectancy of the person to whom the benefit will be paid
if, according to mortality tables adopted by the IRS, the
life expectancy of a person to whom a benefit will be paid
as the result of a member's death before retirement is less
than at the time of the member's death than the minimum
period that monthly payments would be required under the
option selected.
(d) Requires a member to select another option so that the
minimum period that monthly payments would be required does
not exceed the member's life expectancy at the time of the
member's retirement, if the member making the selection
designates the member's estate as beneficiary and if the
life expectancy of that member is less than the minimum
period that monthly payments would be required under the
option selected.
(e) Prohibits payments to the beneficiary, who is not the
retiree's spouse, after the retiree's death from exceeding
the applicable percentage of the annuity payment that would
have been payable to the retiree using the prescribed table.
(g) Prohibits the guaranteed number of payments from
exceeding the applicable period, unless the member's spouse
is the designated beneficiary of an optional annuity that
guarantees a fixed number of monthly payments, using the
prescribed table.
Sec. 12.02. DISTRIBUTION RULES FOR DISABILITY ANNUITY
PAYMENTS. (a) Provides that an optional annuity if limited
is a member selects the option providing for payment of a
fixed number of monthly annuity payments to the member's
beneficiary or estate if the member dies before the total
number of payments has been completed.
(b) - (e) Make conforming changes.
ARTICLE XIII
Sec. 13.01. TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS. (a)
Provides that this section applies to distributions made on or
after January 1, 1993. Authorizes a distributee to elect to
have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) Defines "eligible rollover distribution," "eligible
retirement plan," "distributee," and "direct rollover."
SECTION 18. Repealer: Sections 1.02(9), (10), and (23)
(Definitions, "early retirement date," "employee," and "regular
interest"); and Section 4.01(g) (Relating to retirement of members
at age 62), Article 6243n-1, V.T.C.S.
SECTION 19. Effective date: September 1, 1995.
SECTION 20. Emergency clause.