SBW C.S.H.B. 1203 75(R)BILL ANALYSIS PENSIONS & INVESTMENTS C.S.H.B. 1203 By: Turner, Sylvester 4-18-97 Committee Report (Substituted) BACKGROUND The Houston Police Officers Pension System (HPOPS) is a public retirement system established by Article 6243g-1 and Article 6243g-3. Pursuant to the mandate in these Articles, HPOPS provides a retirement benefit for police officers, and their beneficiaries, of the City of Houston. As of January 1997, the total membership of HPOPS was 6,750, consisting of 1,563 retired members or their beneficiaries and 5,127 active police officer members. HPOPS board and staff, as well as active police officer members, retirees, and the City of Houston, continually review the programs administered by HPOPS as well as the enabling legislation and make recommendations resulting from this process. PURPOSE As proposed, CSHB 1203 revises the powers and duties of the system and programs under the Houston Police Officers Pension System. 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 Section 4 , Chapter 76, Acts of the 50th Legislature, 1947 (Article 6243g-1, Vernon's Texas Civil Statutes), by amending Subsection (a). (a) is amended to provide for the board of trustees to elect to reimburse non-city employees who are trustees for their loss of income while attending to business for the pension system. SECTION 2. Amends Section 5 (c), Chapter 76, Acts of the 50th Legislature, 1947 (Article 6243g-1, Vernon's Texas Civil Statutes), to mandate that the Pension Board establish the policies and procedures for disbursements from the Fund, while striking the original language which allowed the Board to make a disbursement only by a signed voucher from the treasurer. SECTION 3. Amends Section 7, Chapter 76, Acts of the 50th Legislature, 1947 (Article 6243g-1, Vernon's Texas Civil Statutes), incorporates existing language in Subsection (a) and adds Subsection (b) which states that notwithstanding Subsection (a), if a member of the pension fund is appointed after August 31, 1997 to a position not requiring competitive examination, the city's contiribution rate is required to be increased by the difference between the city's contribution as set forth in Subsection (a) actual monthly base salary for all members and the city's contribution as set forth in Subsection (a) computed for the appointed member as stated for all months participaintg after the date of appointment being basd on the salary being paid the person who holds the potion the member held immediately before being appointed. SECTION 4. Amends Section 11, Chapter 76, Acts of the 50th Legislature, 1947 (Article 6243g-1, Vernon's Texas Civil Statutes), (a) (g), (h) and adding (i) . (a) is amended to provide that future retiree's benefits, retiring on or after September 1, 1997, be adjusted to 2.5% per year of the member's base salary for the first twenty (20) years of employment as a police officer. (g) is amended to provide that the Cost of Living Adjustment (COLA) for retirees not be less than 3% or more than 8% of the pension before the adjustment. (h) is amended by raising the survivor annuity by $88.05 until the surviving spouse dies. (i) Requires the pension system to recalculate retirement benefits for all those who retired prior to September 1,1 998 whose benefit is less than 50% of the base salary for the first 20 years of service. Outlines the formula for such calculation. Restricts the recomputed annuity from exceeding the amount an active member with the same number of years of service and salary would receive. This benefit is for all payments and cost of living adjustments made after August 31, 1997. Prohibits the retiree from receiving recomputed benefits paid before September 1, 1997. SECTION 5. Amends Section 12, Chapter 76, Acts of the 50th Legislature, 1947 (Article 6243g-1, Vernon's Texas Civil Statutes), to redefine the benefit provided for total and permanent disability pensions as greater than 50% of the base salary or pension of that member. It redefines the partial disability pensions to be equal to 35% of the member's base salary. Also, if a traumatic event causes a cardiovascular condition that results in disability, partial or total, the member will receive the respective disability pension. Those members who have ten years of service and suffer partial disability on or after July 1, 1986, and not eligible for the disability pension shall receive a pension equal to 20% of the member's base salary. This section also adds the specification of ten years to those with total disability. SECTION 6. Amends Chapter 13, Chapter 76, Article 6243g-1, VTCS by adding Subsection (f). Requires the pension system to recompute the benefit of a qualifying survivor whose original benefit was calculated at a rate less than that of a survivor whose spouse died on September 1, 1997. Outlines formula for recomputation. Restricts the recomputed annuity from exceeding the amount a survivor whose spouse died on September 1, 1997 with the same base salary and service would receive. The benefit is for all payments and cost of living adjustments made after August 31, 1997. Prohibits the retiree from receiving recomputed benefits paid before September 1, 1997. SECTION 7. Amends Section 15, Chapter 76, Atricle 6243g-1 VTCS by amending Subsection (g) and adding Subsection (h). (g) A member who retires may buy back amounts withdrawn from the pension fund plus interest within the first three months after retirement. Cash payments for unused sick leave and vacation pay may be assigned toward the repayment. (h) Notwithstanding the provisions of Sections 12 or 22, a person who voluntarily or involuntarily left employment by the police department and did not receive a refund of total contributions made to the pension system is entitled to have the service credited to the person's retirement if the person was reemployed before September 1,1981 by the department within 24 months after the date of termination and is employed by the department on September 1, 1997 and remains or remained employedfor five years continuously after date of reemployment. SECTION 8. Amends Section 23A, Chapter 76, Acts of the 50th Legislature, 1947 (Article 6243g-1, Vernon's Texas Civil Statutes), to comply with IRS guidelines for qualified pension funds, by requiring that funds be used exclusively for the benefit of members even in the event of a partial termination of the pension fund. SECTION 9. Amends Chapter 76, Acts of the 50th Legislature, 1947 (Article 6243g-1, Vernon's Texas Civil Statutes), by adding Sections 23C (a)-(i) and 23D (a)-(j). Sec. 23C. MAXIMUM BENEFITS FROM THE FUND: (a) is amended by bringing the pension system into compliance with Internal Revenue Code with respect to qualified pensions and specifies that the fund be only used for members, retirees, and their survivors. (b) is amended by establishing that a member, retiree, or survivor may not receive any other benefit in excess of the limits established by the Internal Revenue Code of 1986. (c) is amended to allow for a member to receive an eligible rollover distribution as defined in Section 402(c)(4) of the Internal Revenue Code of 1986 transferred to the eligible retirement plan of that member's choice in compliance with Board rules. (d) is amended to establish the ceiling at $200,000 a year for eligible members and $150,000 a year for ineligible members, to be adjusted from time to time. This section also defines a eligible participant as a member before 1996. (e) is amended to allow the member to receive accrued benefits of 100 percent vested after the completion of 20 years of service. (f) is amended to allow for forfeited nonvested benefits to be used to reduce future plan years contributions, but not to increase benefits payable from the fund. (g) is amended to set the time limit on distribution of benefits as not later than April 1 of the year after the year the member becomes 70-1/2 years old, or at termination of employment if later. (h) is amended to define the actuarial assumptions to be used which are not already set forth by the Act as all those earnings and mortality assumptions already in use on the date of determination by the fund. These are required to be attached as an addendum to this Act, and may be changed at any time by the fund, but cannot decrease the benefits due to this change. (i) is amended to provide the power to the Board to adjust benefits by increasing those benefits reduced by Section 415 of the Internal Revenue Code of 1986 and will be considered extra payment. Sec. 23D EXCESS BENEFIT PLAN. (a) is amended by establishing an excess benefit plan outside of the fund. (b) is amended to define "excess benefit plan" as a "qualified governmental excess benefit arrangement" within Section 415(m) of the Internal Revenue Code of 1986 which is separate, nonqualified, and unfunded to be amended or restated from time to time. It defines "qualified plan" as a plan or fund for the benefit of members of the fund exclusively and falls under Section 401 of the Internal Revenue Code of 1986. It defines "maximum benefit" as the amount a member or their beneficiary may receive from all qualified plans in a month under Section 415 of the Internal Revenue Code of 1986. It defines "excess benefit participant" as a member who receives benefits from all plans without the limitations of Section 23C. Also, it defines "unrestricted benefit" as the monthly benefit which could be received under all qualified plans to a member or their beneficiary except for restrictions under this Act or Section 415 of the Internal Revenue Code of 1986. (c) is amended to establish the limitations of the amount to be received by an excess benefit participant. (d) is amended to provide for the beneficiary of a member to receive a monthly benefit under the excess benefit plan without limitations, less the maximum benefit. (e) is amended to establish that all benefits will be paid in the same way if it has not been precluded by Section 23C(a). Also, it clarifies that an excess benefit participant may not defer any part of payment. (f) is amended to establish the Board as administrator of the plan. (g) is amended to clarify that consultants, independent auditors, attorneys, and actuaries shall not receive their fee payment from the fund, and establishes that the actuary can only advise the Board on benefits which may not be provided due to Section 415 of the Internal Revenue Code of 1986 and the amount of employer contributions paid to the plan. (h) is amended to distinguish that contributions may not be used to pay future retirement benefits, and gives the requirements necessary for the employer to follow in order to make contributions allowable for retirement benefits. (i) is amended to explain that employer contributions required by this Act will be divided into contributions to pay retirement benefits and establish that employer contributions are to be kept separately. Sec. 23E AGREEMENT TO CHANGE BENEFITS. (a) The board is responsible for representing the interests and all pension issues of the fund as provided. The board may also enter into contracts with the city, with signature by a board representative and the mayor. (b) The pension payment may be increased if approved by a qualified actuary, approved by the board and city as stipulated and does not deprive a member his/her benefits as stipulated. SECTION 10. Amends Section 12(b), Atricle 6243g-3 REvised Statutes. (b) Amends the qualifications of cancellation of service credit if leaving employment with less than 20 years. Provides for a means by which a retiring member may reestablish credit with the pension system by applying sick/vacation leave and repaying withdrawn money with interest. SECTION 11. Amends Section 13, Article 6243g-3, Revised Statutes, by amending Subsection (a) and adding Subsection (d). (a) is amended to provide clarification as to the meaning of total and permanent disability and partial disability. (d)is amended to provide that a member who is either totally or partially disabled is subject at all times to reexamination by the pension board with reference to the disability. SECTION 12. Amends Section 17 (b), Article 6243g-3, Revised Statutes, Subsections (b) and (c) and adding Subsection (d) (b) Provides that future retirees' benefits be adjusted to 2.5% per year of the member's base salary for the first twenty (20) years of employment as a police officer for those who retire on or after September 1, 1997. The pension cannot exceed 80% of the member's base salary except if their classification position was not always the same, in which case, the average monthly base salary will be counted as the three years preceding retirement. (c) Provides for a cost of living increase for a surviving spouse in the amount of $88.05 per month as stipulated in order to defray medical insurance costs. (d) Provides a formula to be used in recomputing the retirement benefit for a person who retired before September 1, 1997 and who retired with less than 50% of base salary for the first 20 years of service. Restricts the newly recomputed amount from exceeding that of which an active employee with the same service and base salary would receive. Requires the pension system to do such recomputation. The recomputed benefit is intended for all payments and cost of living increases made after August 31, 1997. No benefits paid before September 1, 1997 are to be recomputed and no additional payments made. SECTION 13. Amends Section 18(c), Article 6243g-3, Revised Statutes. (c) Adds non-retired members with less than 20 years of service to the provision of who may receive a refund of contributions as stipulated. SECTION 14. Provides for a recomputation of survivor benefits as provided by Subsection (b) for those who were entitled to benfits as of September 1, 1997. Establishes qualifiers as to who may have benefits recomputed. A recomputation formula is stated. No benifits recomputed may exceed that of a survivor in which the member died on September 1, 1997 with the same base salary and service credit. The resulting recomputed payment is for benefit payments and cost of living adjustments made after August 31, 1997 and no additional payments for benefits made before September 1, 1997 are to be recomputed or made. SECTION 15. Amends Section 24 ADJUSTMENT OF BENEFITS, Article 6243g-3, Revised Statutes, by providing that the Cost of Living Adjustment (COLA) for retirees be no lower than 3% nor higher than 8% of the pension paid immediately before adjustment. SECTION 16. Amends Section 29 CONTRIBUTION BY CITY, Article 6243g-3, Revised Statutes, by creating subsections (a) and (b). (a) States the city's contribution rate to the Fund and the formula for arriving at the rate. (b) Notwithstanding Subsection (a), establishes a formula for retirement for a member appointed after August 31, 1997, to a position within the police department that is not based on a competitive exam. States the increased contribution rate by the city is based on the difference between the city's contribution rate set out in Subsection (a) based on actual monthly salary and the city's contribution rate set out in Subsection (a) computed for each member appointed as stipulated for all months of participation after the appointment date and on the monthly base salary being paid to the person who previously held the position immediately before the members appointment. SECTION 17. Repealers: (1) Section 6(b), Chapter 76, Article 6243g-1, VTCS; (2) Section 11(b), Chapter 76, Article 6243g-1, VTCS; (3) Sections 1(k) and (o), Article 6243g-3, Revised Statutes; and (4) Section 28(b), Article 6243g-3, Revised Statutes. All the above listed sections are repealed. SECTION 18: Notwithstanding Section 11(h), Chapter 76, Art. 6243g-1, VTCS and Section 17(c), Art. 6243g-3, Revised Statutes. States that a person entitled to a survivor benefit as provided by the previously mentioned sections as stipulated, is entitled to the increased benefits beginning the first payment after the effective date of the amended Act. SECTION 19. States that changes in Section 17 apply only to contributions and an annuity payment that become due afte the effective date. Requires the retirement system to recompute an annuity that was not based on the salary of the individual and payments begin when the first payment is normally due after the effective date. No payments may be less than a benefit the annuitant is currently receiving. SECTION 20. (a) Effective date, September 1, 1997 except as provided by Subsection (b). (b) If the vote required by Section 39, Article III, Texas Constitution passes, this section and Section 23E, Chapter 76, Art. 6243g-1, VTCS take effect July 1, 1997. SECTION 21. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE SECTION 1, the substitute strikes the previous Subsection M(1) and (2) of the original bill. SECTION 3, the substitute (a) adds current law language back in; and (b) is a new subsection regarding those appointed to a position (not by competitive exam) and what the contribution rate will be. SECTION 4, the substitute adds Subsection (h) which gives an $88.05 increase in survivor benefits; and (i) which stiuplates the formula to be used. SECTION 5 of the original bill is stricken. SECTION 6, the substitute provides for the recomputation of survivor benefits for those who died on September 1, 1997 and the formula to be used. SECTION 7, the substitute provides a method for repaying money that was previously withdrawn from the system. SECTION 9, Section 23E, the substitute adds language requiring the Board or it's designee to represent the interest in the fund and all pension issue. Provides for entering into contracts with the city. SECTION 10 is added to the substitute and provides for repayment for withdrawn contributions. SECTION 10 of the original bill is stricken. SECTION 12, the substitute adds subsections (c) and (d) which provides for an increase in survivor benefits and the calculation of those benefits. SECTION 13, is added and provides for recomputation of benefits of each person entitled to survivor benefits on September 1, 1997. SECTION 16, the substitute adds current law language back into the bill and adds Subsection (b) which provides for those appointed to positions in the police department that were not obtained by comptetitive exam. SECTION 17, the substitute adds additional repealers. SECTION 18, the substitute establishes the effective date for survivor benefit increases. SECTION 19, the substitute establishes the effective date for employee benefit increases. SECTION 20, the substitute provides for an accelerated effective date. Conforming changes were made with the numbering of Sections to accomodate new or deleted language.