SBW H.B. 1113 75(R)BILL ANALYSIS PENSIONS & INVESTMENTS H.B. 1113 By: Kuempel 2-26-97 Committee Report (Amended) BACKGROUND The Texas Municipal Retirement System (TMRS) is the statewide system which administers retirement, disability, and death benefits for employees of those Texas cities which voluntarily elect to participate in the system. The plan of each of the 692 participating cities is separately funded; funding is provided by employee contribution at a percentage of compensation selected by the city, and by employer contributions actuarially determined as necessary to provide the level of benefits selected. PURPOSE HB1113 proposes 16 changes in the Act governing TMRS (Government Code, Title 8, Subtitle G), all of which have been approved by the Board of Trustees of the System. The proposed changes fall into five categories. Five changes relate to the amortization period within which a city must meet its funding requirements; three changes relate to military service credit; one change relates to restricted prior service credit for former service with other governmental entities; three changes relate to the retirement options a member may select; and one change allows a partial lump-sum distribution on retirement; and three changes represent technical or clarifying provisions. RULEMAKING AUTHORITY HB 1113 grants rulemaking authority to the Board of Trustees of TMRS in the following sections: SECTION 7. Subchapter F, Chapter 853 Government Code, Section 853.506 and SECTION 15. Subchapter G, Chapter 855, Government Code, Section 855.607. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 851.001(15), Government Code, by amending (A) and (B) and adding (C). (A) is amended by the deletion of the use of "or." (B) is amended by the addition of the use of "or." (C) is amended by the addition of the language which further defines the "Amortization period" to include that period determined by Section 855.407(h), listed later in this Act. SECTION 2. Amends Section 853.305, Government Code, by amending Subsections (a) and (c) and adding Subsection (f). (a)(1) is amended by the addition of the language to clarify the term "employee" as a full-time, paid employee who is of the United States in any of the following areas created by or of the United States: any public authority or agency, any state or territory, any political subdivision of any state, or any public agency or authority created by a state or territory. Also added is the term "service" to clarify the employment which has not otherwise been considered credited service in this system. Several areas have been stricken from the Act as areas not able to be considered for service credit in the retirement system including: any incorporated city or town, any council of government in this state, an airport board or authority governing an airport for two cities with a combined population greater than 1,000,000. (c) is amended by broadening the definition of the official from whom a member is to obtain a detailed record of service in order to receive restricted prior service credit as the official custodian of personnel records of the entity for which they performed service. (f) is amended by the addition of the language to describe the phrase "full-time, paid-employee" of this section to have the same meaning as the definition of "employee" in Section 851.001, but they do not have to perform their services for a municipality. SECTION 3. Amends Section 853.403(a), Government Code, to provide an exact period of time in which the ordinance adopted under Section 853.401 may take effect as the amortization period on the date updated service credits take effect. Also, the time period of before the 25th anniversary of the date the updated service credits took effect has been deleted from this Act. SECTION 4. Amends Section 853.404(d), Government Code, to determine when the municipality may make contributions to the municipality contribution fund as within the amortization period, effective the next January 1. This section also deletes the use of before the 25th anniversary of the next January 1. SECTION 5. Amends Section 853.503, Government Code. Section 853.503. CONDITIONS FOR RECEIVING MILITARY SERVICE CREDIT: (1) is amended by the addition of the term "and" to include more than one stipulation of when a member may receive credit for service. (2) is amended by the deletion of all the original language, and renames (3) as (2). (3) is amended to become (2). SECTION 6. Amends Section 853.505(b), Government Code to add an exception provided by Section 853.506 to the language which describes the conditions of military service credit. SECTION 7. Amends Subchapter F, Chapter 853, Government Code, by adding Section 853.506 CURRENT SERVICE FOR REEMPLOYED VETERANS: to clarify that contributions, benefits and service credit for qualified military service will be provided as stipulated by Section 414(u) of the Internal Revenue Code of 1986 (26 U.S.C. Section 414). Also, rules may be adopted by the board of trustees to modify the terms of the subtitle for compliance with the Uniformed Services Employment and Reemployment Rights Act (38 U.S.C. Section 4301 et seq.). SECTION 8. Amends Section 854.007, Government Code, Subsections (d) and (e). (d) is amended by striking language to clarify that an annual benefit payment may not exceed the amount stated by (d)(1), and deleting (d)(1) and (d)(2) to become (d). (e) is amended by the clarification (d), and by the new description of a reduction not to exceed that which is required by the Internal Revenue Code of 1986, and striking the original stipulations. SECTION 9. Amends Subchapter A, Chapter 854, Government Code, by adding Section 854.008 Section 854.008 PARTIAL LUMP-SUM DISTRIBUTION ON RETIREMENT: (a) is amended by the addition of the language which clarifies that an eligible member for service retirement can apply for a partial lump-sum distribution if they terminate employment with all participating municipalities. (b) is amended by the addition of the language which places a limitation on a lump-sum distribution under this section may not surpass one-half that of the member's individual account in the employee's saving fund at the time of retirement including the total contributions to that account and interest accumulated. (c) is amended by the addition of the language which allows for the lump-sum distribution to be equal to monthly annuity payments if the member chooses in accordance to the limitation in Subsection (b), but they must be received without distributive benefit payments that would have been received by the member if the member had selected the standard service retirement annuity from Section 854.103 over the periods of 12 months, 24 months, or 36 months after the member's date of retirement. (d) is amended by the addition of the language which clarifies that the lump-sum distribution payment will be paid in a single payment, available at the same time as the first monthly annuity payment for that member. (e) is amended by the addition of the language which stipulates the deduction of the sum used in computing the member's current service annuity under Section 854.002(c) for use of the lumpsum payment distribution. If this occurs, then the lump-sum will be considered to be included in the payments of the annuity. SECTION 10. Amends Section 854.104, Government Code, by amending Subsection (c), and adding Subsection (g). (c) is amended by broadening the specifications of an optional annuity an eligible person may select by the deletion of the language which specified that the annuity must be approved by the board of trustees. (c)(5) is amended by the addition of the description of how the beneficiaries may collect, including receiving two-thirds of the reduced annuity throughout their lifetimes, and the renaming of the original (c)(5) as (c)(6). (c)(6) is amended by the renaming of (c)(5) as (c)(6). (g) is amended by the addition of the language to allow for a person retiring after August 31, 1997 to receive increased retirement annuity payments if the retiree survives their designated beneficiary under Subsection (e). These increased payments will occur monthly as if, at the time of retirement, the retiree had elected to receive a lifetime only annuity, and adjustments had occurred for post-retirement increases. SECTION 11. Amends Section 854.203(g), Government Code, to redefine the time period in which a municipality may fund an ordinance to be within its amortization period, effective on the effective date of increases. This section deletes the tine frame of before the 25th anniversary of the effective date. SECTION 12. Amends Section 854.305, Government Code, by amending Subsection (c) and adding Subsection (g). (c) is amended by the deletion of the language which allowed for an eligible person to select any optional annuity approved by the board of trustees and is the actuarial equivalent of the annuity the person is entitled. The section allows that an optional annuity follow the guidelines stated in the section. Subsection (c) also adds a new option which allows for the beneficiary of the retiree to receive two-thirds of the reduced annuity throughout their lifetime. (g) is amended by the addition of the language which allows for a person retiring after August 31, 1997 to receive increased retirement annuity payments if the retiree survives their beneficiary as designated under Subsection (e). These increased payments will occur monthly as if, at the time of retirement, the retiree had elected to receive a lifetime only annuity, and adjustments had occurred for post-retirement increases. SECTION 13. Amends Section 854.410, Government Code, by amending Subsection (c) and adding Subsection (g). (c) is amended by the deletion of the language which allowed for an eligible person to select any optional annuity approved by the board of trustees and is the actuarial equivalent of the annuity to which the person is entitled. The section allows that an optional annuity follow the guidelines stated in the section. Subsection (c) also adds a new option which allows for the beneficiary of the retiree to receive two-thirds of the reduced annuity throughout their lifetime. (g) is amended by the addition of the language which allows for a person retiring after August 31, 1997 to receive increased retirement annuity payments if the retiree survives the beneficiary as designated under Subsection (e). These increased payments will occur monthly as if, at the time of retirement, the retiree had elected to receive a lifetime only annuity, and adjustments had occurred for post-retirement increases. SECTION 14. Amends Section 855.407, Government Code, by adding Subsections (g) and (h). (g) is amended by the addition of the language to provide for the allotment of the governing body of a municipality to elect to contribute to its accumulation fund at the rate of total compensation for all its employees as determined by the actuary during the municipality's amortization period, regardless of other provisions in the subtitle. (h) is amended by the addition of the language to allow for a municipality to receive a new amortization period, equal to the lesser of (h)(1) and (h)(2), if the governing body adopts a resolution requesting a change, and the municipality has received an increase in its combined contribution rate of more than one-half of 1 percent of the total compensation paid to employees. (h)(1) is amended by the addition of the language to provide for the designation of the length of the new amortization period in Subsection (h). It requires a limit of the increase in the combined rate to be one-half of 1 percent of total compensation paid. (h)(2) is amended by the addition of the language to provide for the designation of the length of the new amortization period in Subsection (h). It requires that the maximum number of years should be specified by the board of trustees and should not exceed 40 years. SECTION 15. Amends Subchapter G, Chapter 855, Government Code, by adding Sections 855.606 and 855.607. Section 855.606 APPEAL OF ADMINISTRATIVE DECISION: is amended by the addition of the language which clarifies that a board of trustees decision on denying or limiting membership, service credit, eligibility for benefits, or deciding to whom benefits should be paid is a matter for a contested case as designated by the administrative procedure law in Chapter 2001, and, under the substantial evidence rule, is subject to judicial review as provided by Sections 2001.1742001.177. Section 855.607 PLAN QUALIFICATION: is amended by the addition of the language which allows for the provisions of the subtitle be administered and construed so that the benefit plan will be a qualified plan under Section 401(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 401). Rules may be adopted to modify the plan by the board of trustees if it is necessary for the system to be considered qualified. These rules are to be considered part of the plan. SECTION 16. Repeals Section 852.004(c) of the Government Code which provided for the board of trustees to receive proof from the municipality which had fewer than 10 members that the members were all in good health. SECTION 17. Effective date is September 1, 1997. SECTION 18. Emergency Clause. EXPLANATION OF AMENDMENTS Amendment No. 1 strikes completely SECTION 5.