BILL ANALYSIS C.S.S.B. 1231 By: Armbrister (Telford) May 5, 1995 Committee Report (Substituted) BACKGROUND The Employees Retirement System of Texas (ERS) is a public retirement system established by Section 67, Article XVI, Texas Constitution. Pursuant to the constitutional mandate, ERS provides retirement benefits for state employees, elected state officials and members of the judiciary. Additionally, ERS administers the Texas Employees Uniform Group Insurance Program which provides group health coverage and optional disability, life, dental, and accident insurance coverage to employees and retirees of state agencies and certain institutions of higher education and their dependents. ERS also administers a cafeteria plan pursuant to Section 125 of the Internal Revenue Code and deferred compensation plan pursuant to Section 457 and 401(k) of the Internal Revenue Code. ERS board and staff, as well as state employees, retirees, judges, and elected state officials continually review the programs administered by ERS as well as the enabling legislation and make recommendations resulting from this process. PURPOSE As proposed, C.S.S.B. 1231 revises the powers and duties of the systems and programs under the Employees Retirement System of Texas, including regulations for transferring credits between the Employees Retirement System of Texas and the Teacher Retirement System of Texas, for using sick leave to satisfy service requirements for retirement, for beneficiary designations, and adjustments for certain benefits and payments. RULEMAKING AUTHORITY It is the committee's opinion that rulemaking authority is granted to the board of trustees of the Teacher Retirement System of Texas or the Employees Retirement System of Texas in SECTION 4 (Section 805.008(c), Government Code), SECTION 7 (Section 813.305, Government Code), SECTION 34 (Section 833.1031, Government Code), and in SECTION 35 (Section 838.1031, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 805.002, Government Code, by amending Subsections (a), (b), and (d), and adding Subsections (g) and (h), as follows: (a) Provides that if a person whose membership was transferred from the Teacher Retirement System (TRS) to the Employees Retirement System (ERS) pursuant to Section 43(a), Chapter 812, Acts of the 73rd Legislature, 1993, ceases to hold any position included in the membership of ERS before the earlier of the date the person retires or dies, the person's service credit accrued in TRS before the date the membership was transferred remains credited in that system, unless the person has withdrawn contributions made for the service. (b) Makes conforming and nonsubstantive changes. (d) Provides that if a member is not survived by a designated beneficiary, an alternate beneficiary, or a beneficiary provided by law or has failed to designate a beneficiary after becoming a member or resuming membership, the personal representative of the member's estate has the same right under this subsection as the designated beneficiary. Provides that a transfer of service by the beneficiary or personal representative of a deceased member's estate is not permitted unless the transfer will result in the payment of a death benefit annuity. (g) Requires a person to be the designated beneficiary of the deceased member under both retirement systems to be eligible to make a transfer pursuant to Subsection (d). (h) Authorizes a member applying for occupational disability retirement from ERS to transfer service credit from TRS only if the member was contributing to ERS at the time the disabling condition occurred. SECTION 2. Amends Section 805.003, Government Code, to require all payments for service credit reinstated or purchased under Section 805.002, to be made before retirement or the first payment of a death benefit annuity, as applicable, or before a later date if allowed for members of system in which the credit is to be reinstated or purchased. SECTION 3. Amends Sections 805.007(a) and (b), Government Code, as follows: (a) Provides that this subsection does not preclude a person from receiving benefits as a beneficiary of an account not related to the transferred service credit. (b) Provides that service credit transferred under this chapter is considered as if it had been granted for service performed under the system to which it has been transferred and is used in satisfying minimum service requirements for retirements and in determining the amount of benefits that are based on the amount of a person's service credit except, among other exceptions, service credit transferred by a member applying for occupational disability retirement. SECTION 4. Amends Section 805.008, Government Code, as follows: Sec. 805.008. RESPONSIBILITY FOR BENEFIT PAYMENTS. (a)-(b) Make conforming changes. (c) Authorizes TRS and ERS, by rule, to require the system from which service credit is transferred to pay monthly an amount equal to the portion of the actual value of the monthly payment of the annuity that represents the percentage of the total amount of service credit that is transferred. (d)-(f) Created from existing Subsections (c)-(e). Make conforming changes. (g) Requires TRS to transfer to ERS the person's service credit in TRS and, if employment with the transferring agency was continuous from the date of transfer to the date of death certain specified amounts at the time of death of a person whose membership was transferred from TRS to ERS. SECTION 5. Amends Section 805.002(c), Government Code, to authorize a member of ERS or TRS who formerly was a member of the other system, who before September 1, 1993, transferred at least three years of service credit to the system in which the person currently is a member, and who has at least three years of service credit other than the transferred credit in the system in which the person currently is a member to reinstate or purchase service credit in the other system for the purpose of making a transfer of all service credit to that other system. SECTION 6. Amends Section 813.104, Government Code, by amending Subsection (d), relettering Subsection (e) as Subsection (g), and adding Subsections (e) and (f), as follows: (d) Makes a conforming change. (e) Authorizes the designated beneficiary of a deceased member, or the personal representative of the decedent's estate to establish or reestablish service for which the member was eligible at the time of death if the establishment of the service would result in the payment of a death benefit annuity or an increase in the amount of a death benefit annuity. (f) Requires the payment for the establishment or reestablishment of service under Subsection (e) to be made in a lump sum and completed before the first payment of a death benefit annuity or an increase in the amount of a death benefit annuity, but not later than the 60th day after the date the system receives notice of the death. (g) Redesignated from existing Subsection (e). SECTION 7. Amends Chapter 813D, Government Code, by adding Section 813.305, as follows: Sec. 813.305. MILITARY SERVICE CREDIT GOVERNED BY UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT. Authorizes the retirement system to adopt rules to comply with 38 U.S.C. Section 4301 et seq. (Uniformed Services Employment and Reemployment Rights Act) and other federal laws affecting the crediting of military service. SECTION 8. Amends Section 813.506, Government Code, as follows: Sec. 813.506. CUSTODIAL OFFICER SERVICE. (a) Makes conforming and nonsubstantive changes. (c) Makes no change. (d) Redesignated from existing Subsection (e). Requires the state auditor to review biennially the standards adopted by the department under Subsection (a). Makes a conforming change. SECTION 9. Amends Section 813.509. CREDIT FOR ACCUMULATED SICK LEAVE. (a) Provides that a member who holds a position included in the employee class of membership during the month that including the effective date of the member's retirement and who retires based on service or a disability is entitled to service credit in the retirement system for the member's sick leave that has accumulated and is unused on the last day of employment. (b) Authorizes a member who holds a position included in the employee class to use sick leave creditable under this section to satisfy service requirements for retirement under Section 814.104 or 814.107 if the sick leave attributed to the eligibility requirements remains otherwise unused on the last day of employment. (c) Requires the disbursing officer of each department or agency to certify to the retirement system before the 11th day after the effective date of retirement of one or more employees of the department or agency. (d) Requires the disbursing officer of a department or agency that employs a member who applies for retirement under Subsection (b) to certify to the system the amount of the member's accumulated and unused sick leave not more than 90 or less than 30 days before the effective date of the member's retirement. Requires the officer to immediately notify the system if the member uses sick leave after the date of certification. (e) Redesignated from existing Subsection (c). Makes conforming changes. (f) Requires the system to cancel the retirement of a person who used sick leave creditable under this section to qualify for service retirement if the sick leave is otherwise used by the person before the effective date of retirement. (g) Defines "sick leave." SECTION 10. Amends Chapter 813F, Government Code, by adding Section 813.510, as follows: Sec. 813.510. CREDIT FOR CERTAIN AGRICULTURAL SERVICE. (a) Authorizes an eligible member to elect to establish service credit in the retirement system for service performed for the Department of Agriculture (TDA) as an employee of the Federal State Inspection Service of Texas. (b) Provides that a member eligible to establish credit under this section is one who became an employee of or resumed employment with the TDA in May 1992 on the creation of the Texas Cooperative Inspection Program. (c) Sets forth the necessary amount of deposit in which a member is authorized to establish credit under this section. (d) Requires an election under this section to be filed with the retirement system on a form provided by the system. Authorizes credit to be established under this section by lump-sum payment or by payments authorized by Section 813.104 or 813.105. (e) Requires the retirement system to deposit the compensation contribution in the member's individual account in the employees savings account, interest in the state accumulation account, and membership fees in the expense account. (f) Requires the retirement system to determine the amount to be deposited in each case and may not grant service credit to a member under this section until the member provides proof of eligibility for the credit that is satisfactory to the retirement system. SECTION 11. Amends Section 814.003, Government Code, by adding Subsection (e) to provide that if a person elects to receive a standard disability retirement annuity and dies during the first calendar month that begins after the effective date of the person's requirement, the person is considered to have been a contributing member at the time of death. SECTION 12. Amends Section 814.004, Government Code, as follows: Sec. 814.004. WHEN BENEFITS ARE PAYABLE. Provides that a monthly annuity payable to a retiree or beneficiary is payable to that person through the month in which the person dies. Provides that a continuation of an optional annuity or the payment of a death or survivor benefit annuity begins with the payment for the month following the month in which the death occurs. Deletes existing text. SECTION 13. Amends Chapter 814A, Government Code, by adding Sections 814.006 and 814.007, as follows: Sec. 814.006. SIMULTANEOUS DEATH OF MEMBER AND BENEFICIARY. Provides that when a member or annuitant (member) and the beneficiary have died within a period of less than 120 hours, the member is considered to have survived the beneficiary for the purpose of determining the rights to amounts payable under this subtitle on the death of the member. Sec. 814.007. BENEFICIARY CAUSING DEATH OF MEMBER OR ANNUITANT. (a) Prohibits a benefit payable on the death of a member from being paid to a person convicted of causing the death of the member but instead is payable as if the convicted person had predeceased the defendant. (b) Authorizes a person who becomes eligible under this section to select death or survivor benefits to select benefits as if the person were the designated beneficiary. (c) Requires the system to reduce any annuity computed in part on the age of the convicted person to a lump sum equal to the present value of the remainder of the annuity. Provides that the reduced amount is payable to a person entitled as provided by this section to receive the benefit. (d) Provides that the system is not required to change the recipient of benefits under this section unless it receives actual notice of the conviction of a beneficiary. Authorizes the system 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. (e) Sets forth the conditions in which a person is considered to have been convicted of causing the death of a member. SECTION 14. Amends Sections 814.107(b) and (f), Government Code, as follows: (b) Sets forth the method of calculating the compensation for a standard service retirement annuity. Deletes the previous table of calculation. (f) Prohibits the standard combined service retirement annuity payable for at least 20 years of service credit as a law enforcement or custodial officer from exceeding 100 percent, rather than 80 percent, of the higher of the average compensation computed under Section 814.105 or the average compensation computed under Subsection (b). SECTION 15. Amends Section 814.108, Government Code, by adding Subsection (g), to prohibit a person who selected an optional service retirement annuity approved by the board of trustees (board) or an optional service retirement annuity described by Subsection (c)(1) or (c)(2) from changing or revoking a beneficiary designation after the person's effective date of retirement, except as provided by Section 814.1081. SECTION 16. Amends Sections 814.207(b), (d), and (e), Government Code, to require the retirement system to increase the person's occupational disability retirement annuity to 100 percent of the officer's monthly compensation at the time of the disabling injury or disease if a retiring member or retiree presents evidence that the person's condition makes the person incapable of gainful occupation. Makes conforming changes. SECTION 17. Amends Section 814.301, Government Code, by adding Subsection (e), to provide that a beneficiary designation that names a former spouse as beneficiary is invalid unless the designation is made after the divorce. SECTION 18. Amends Section 814.302(a), Government Code, to authorize a member's designated beneficiary, rather than surviving spouse, to select a plan in the same manner as if the member had made the selection if a member eligible to select a death benefit plan dies without having made a selection. Deletes a provision prohibiting an annuity from being paid if Section 815.405 is held to be invalid by a court of competent jurisdiction and the decision becomes final. Makes conforming changes. SECTION 19. Amends Sections 814.401(b) and (d), Government Code, to provide that the benefit is payable to the beneficiary designated by the member under Section 814.403(b), rather than the person designated by the member in a signed document filed with the retirement system. Provides that the benefit is payable to the member's estate if the member does not designate a beneficiary or if the beneficiary designation cannot be made effective, rather than if the beneficiary does not survive the member. Makes conforming changes. SECTION 20. Amends Section 814.403, Government Code, to provide that the benefit provided is payable to a person designated by the member in a signed and witnessed document filed with the retirement system before the member's death, except as provided by Subsection (c). Provides that a designation, change, or revocation of a beneficiary in a will or other document not filed with the retirement system is not effective. Makes conforming changes. SECTION 21. Amends Section 814.501, Government Code, by amending Subsection (b) and adding Subsection (c), to make conforming changes. SECTION 22. Amends Sections 814.603(a) and (d), Government Code, (a) Entitles each person who receives an annuity described by this subsection to receive one payment equal to 10 percent of one month's annuity payment for each fiscal year that preceded or includes the effective date of the requirement or authorization under Subsection (d) and in which the annuity has been paid, rather than before the fiscal year beginning September 1, 1993. (d) Requires the retirement system to make a supplemental payment under this section in the fiscal year ending August 31, 1997. Authorizes the board, by rule, to authorize similar supplemental payments in succeeding fiscal years, rather than the fiscal year ending August 31, 1995, if the payments are in compliance with Section 811.006. SECTION 23. Amends Section 815.006, Government Code, to make conforming and nonsubstantive changes. SECTION 24. Amends the heading of Section 815.110, Government Code, as follows: Sec. 815.110. New heading: AUDITS. SECTION 25. Amends Section 815.110, Government Code, by adding Subsection (e), to require the board annually to select an independent auditor to perform a financial audit of the retirement system. Requires the selection to be made under a competitive bidding process in which the state auditor is eligible to bid. SECTION 26. Amends Section 815.301(b), Government Code, to authorize the board to delegate its authority under Subsection (a) to the executive director. Authorizes the executive director to perform certain actions relating to the investment of the retirement system's assets. SECTION 27. Amends Chapter 815F, Government Code, by adding Section 815.511, as follows: Sec. 815.511. APPEAL OF ADMINISTRATIVE DECISION. Authorizes a person aggrieved by a decision of any retirement system administered by the board of trustees denying or limiting membership, service credit, or eligibility for or the amount of benefits payable by a system to appeal the decision to the board. Provides that the appeal is a contested case under the administrative procedure law, Chapter 2001, Government Code. Provides that on judicial appeal, the standard of review is by substantial evidence. SECTION 28. (a) Provides that annuities that are described by Section 814.107, 814.207, 814.305, or 814.601(a), Government Code, and are based on service retirements, disability retirements, or deaths that occurred before September 1, 1995, are increased by 12.5 percent, with exceptions. (b) Provides that annuities are increased under Subsection (a) only if the actuary for ERS certifies, based on an August 31, 1995, actuarial valuation that all annuity increases and recomputations required or authorized by this Act, together with all other actuarial liabilities resulting from legislation enacted by the 74th Legislature before August 31 that has or will become law, will not cause the time required to amortize the unfunded actuarial liabilities of the retirement system to be increased to a period that exceeds 31 years. Sets forth circumstances under which a bill will become law. Provides that the increase in annuities under Subsection (a) is payable beginning with the first monthly payments of the annuities that become due after the month in which the actuarial certification required by this subsection is made to the board. (c) Provides that retirements that occurred under the provisions of Section 814.1051 or 814.1071, Government Code, are not increased by this section. (d) Requires the board to pay the increased annuities provided by this section from the retirement annuity reserve account of the retirement system and authorizes the board to transfer to that account from the state accumulation account of the retirement system any portion of the amount that exceeds the amount in the reserve account available to finance the increases in benefits, and that is actuarially determined to be necessary to finance the increases, for the duration of the annuities to which the increases apply. SECTION 29. (a) Provides that a member of ERS who is an appointed officer of the 74th House of Representatives of the State of Texas, who has at least 28 years of service credit in the retirement system, and who has attained the age of 50 is eligible to make an election under this section. (b) Provides that a member of ERS who has at least 18 years of service creditable in the retirement system, who has served as the executive head of a legislative service agency, and who has attained the age of 50 is eligible to make an election under this section. (c) Requires an election under this section to be made in writing and filed with ERS before January 1, 1996, and is irrevocable after filing. Requires a person who makes an election under Subsection (a) to retire on the first effective retirement date that occurs after the date of filing. Requires the retirement system, after the filing of an election under this section, to consider all the service credit established by the person who makes the election, including service credit established after the date the election is filed, as if it were performed as a member of the elected class of membership. SECTION 30: Provides for an ad hoc increase for employees retiring in Fiscal Year 1996. Authorizes a postretirement increase of not more than 12.5 percent for employees who retire during the next fiscal year. The increase could not be paid until the retiree has been retired one year. SECTION 31. Amends Chapter 830A, Government Code, by adding Section 830.0011, as follows: Sec. 830.0011. DEFINITION. Defines "retirement system." SECTION 32. Amends Section 830.106, Government Code, to make a conforming change. SECTION 33. Amends Chapter 832B, Government Code by adding Section 832.102 as follows: Sec. 832.102. RESUMPTION OF FULL-TIME JUDICIAL SERVICE. Prohibits a retired judge to resume service as a judicial officer other than by appointment or assignment as described to rejoin or receive credit in the retirement system for the resumed service. The judicial retiree as described, shall have his annuity payments suspended beginning the date he/she takes the oath of office and ends on a date when the retiree no longer holds the office or the retiree's beneficiary has applied for resumption of payments upon the retiree's death. The suspension of payments does not reduce the number of months payments are to be made. The retiree as specified is required to notify the retirement system in writing of the resumption of office and the projected dates of service before the oath is taken. SECTION 34. Amends Chapter 833B, Government Code, by adding Section 833.1031, as follows: Sec. 833.1031. MILITARY SERVICE CREDIT GOVERNED BY UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT. Authorizes the retirement system to adopt rules to comply with the Uniformed Services Employment and Reemployment Rights Act and other federal laws affecting the crediting of military service. SECTION 35. Amends Chapter 838B, Government Code, by adding Section 838.1031, as follows: Sec. 838.1031. MILITARY SERVICE CREDIT GOVERNED BY UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT. Makes conforming changes. SECTION 36. Amends Sections 3(a)(2) and (5), Article 3.50-2, Insurance Code (Texas Employees Uniform Group Insurance Benefits Act), to redefine "annuitant" and "employee." SECTION 37. Amends Section 4B, Article 3.50-2, Insurance Code, by adding Subsection (a-1) and amending Subsection (c), as follows: (a-1) Authorizes the executive director to rescind the coverage to the date of the inception of the coverage or to the date of the fraudulent act or material misrepresentation, deny any claim arising out of the fraudulently induced coverage, or both, if a participant has obtained coverage under any program through the authority of this Act through the use of any material misrepresentation or fraud on any application or in any communication regarding coverage. Provides that remedies available to the executive director are in addition to and independent of any expulsion action that may be instituted. Authorizes a decision of the executive director to be appealed to the trustee. (c) Provides that standing to pursue an administrative appeal is limited to employees, annuitants, and covered dependents participating in the Texas employees uniform group insurance program or, after the death of a participant, to the participant's estate, personal representative, heirs at law, or designated beneficiary. Makes conforming changes. SECTION 38. Amends Section 5(f), Article 3.50-2, Insurance Code, to exempt any plan of overages for which the trustee does not purchase insurance but provides on a self-funded basis from any other insurance law unless the law expressly applies to this plan or this Act. SECTION 39. Amends Section 13A, Article 3.50-2, Insurance Code, to make conforming changes. SECTION 40. Amends Section 14(a), Article 3.50-2, Insurance Code, to make a conforming change. SECTION 41. Amends Section 609.507, Government Code, to provide that each bank or savings and loan association that is a qualified vendor is not required to comply with Chapter 404 with regard to deferrals and investment income, but is required to comply with plan rules that deal with investment products. Deletes provisions requiring the state treasurer to monitor each bank or savings and loan that is a qualified vendor for compliance with Chapter 404. Makes conforming changes. SECTION 42. Repealer: Sections 814.107(h), 815.108, and 815.403(g), Government Code (relating to Service Retirement Benefits for Certain Peace Officers-Reports-relating to Collection of State Contributions). Repealer: Section 14(a-1), Article 3.50-2, Insurance Code (relating to Payment of Contributions). SECTION 43. (a) Requires ERS to recompute each annuity that is based on the service of a person who has retired under Section 814.1071, Government Code, to include the amount, proportional to the amount authorized for each year of credit under Section 814.107, Government Code, for each whole month of credit as a law enforcement or custodial officer that was not used in the original computation of the annuity. (b) Provides that the increases in annuities provided by this Act are payable, from the law enforcement and custodial officer supplemental retirement fund, and these annuities are to be recomputed at the same time the ad hoc increase for current retirees is recomputed. SECTION 44. Requires the Judicial Retirement System of Texas Plan One to suspend payments of an annuity to any retiree who before the effective date of this Act resumed service for which a suspension is required by Sec. 832.102, Government Code. Stipulates when the suspension of payments is to begin. SECTION 45. Effective date is August 28, 1995, except for Section 8, which takes effect September 1, 1995. SECTION 46. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute bill makes a technical change in Section 21 by restating the prohibition on beneficiary changes by will or other document. Section 30 of the original bill was deleted which would have allowed a previously retired elected class member to designate a beneficiary without spousal consent. The committee substitute removes the provision to allow former elected officials to make the one-time election to have credit considered as elected class in SECTION 29. A new SECTION 30 provides for an ad hoc increase for employees retiring in Fiscal Year 1996. It authorizes a postretirement increase of not more than 12.5 percent for employees who retire during the next fiscal year. The increase could not be paid until the retiree had been retired one year. SECTION 33 and SECTION 44 apply to the Judicial Retirement System One retirees who resume office. The committee substitute adds provisions to ensure that retired judges who return to office have their annuities suspended until the end of their service. Suspension of the annuity of a retiree who resumed office before the effective date of the bill would begin with the September 1995 payment. SECTION 43 adds a technical amendment which would have annuities of law enforcement or custodial officers under the CPO supplemental benefits program to be recomputed at the same time the ad hoc increase for current retirees is recomputed. SECTION 45 changes the effective date to August 28, 1995 except for SECTION 8, which takes effect September 1, 1995. SUMMARY OF COMMITTEE ACTION SB 1231 was considered by the committee in a public hearing on May 1, 1995. The following persons testified for the bill: Billy D. Ivey representing himself and the D.P.S.O.A. Lane Zivley representing the Texas Public Employees Assoc. Charles D. Travis representing the Employees Retirement System to speak neutrally on the bill. The committee considered 3 amendments to the bill. All of those amendments were adopted without objection. Amendment 1 returned the custodial officer supplemental retirement fund section of the bill back to current law. Amendment 2 increased the optional life insurance benefits package for state employees and required the ERS to seek requests for proposal for the program. Amendment 3 struck SECTION 30 of the bill. The bill was left pending before the committee. SB 1231 was again considered by the committee in a public hearing on May 5, 1995. The vote by which Amendment 1 was adopted was reconsidered without objection. Amendment #1 was withdrawn. The vote by which Amendment 2 was adopted was reconsidered without objection. Amendment #2 was withdrawn. The vote by which Amendment 3 was adopted was reconsidered without objection. Amendment #3 was withdrawn. The committee considered a complete substitute for the bill. The substitute was adopted without objection. The bill was reported favorably as substituted with the recommendation that it do pass and be printed by a record vote of 7 ayes, 0 nays, 0 pnv & 2 absent.