SEG C.S.H.B. 1242 75(R)BILL ANALYSIS
PENSIONS & INVESTMENTS
C.S.H.B. 1242
By: Maxey
3-12-97
Committee Report (Substituted)
BACKGROUND
This bill proposes a number of amendments to Chapter 452, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's Texas Civil
Statutes), the state statute which governs the Austin Police Retirement
System. The Board of Trustees of the Austin Police Retirement System
authorized an actuarial study of a package of benefit improvements to see
what could be financed adequately with the present financing of 9% of
basic hourly earnings by contributing members and 18% of basic hourly
earnings by the City of Austin. The results of that study are reflected
in this bill. In addition, the board authorized a complete review of the
governing state statute for compliance with federal law and for clarity,
consistency, and completeness. As a result of that review, a large number
of minor technical changes are included in this bill.
PURPOSE
The amendments proposed by this bill fall into three general categories:
(1) amendments to provisions for the amount of benefits, for benefit
options, and creditable service; (2) amendments to assure compliance by
the system with federal laws; and (3) amendments for clarity, consistency,
or completeness.
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, Vernon's Texas Civil Statutes, Section
1.02. Section 1.02 (1) is amended to set the rate of interest on
accumulated deposits at 5% per year or the rate determined by the board
instead of requiring the board to determine the rate each year. New
definitions are added in Subsections (5), (8), (11), (24), (28), (29), and
(30) of Section 1.02 to clarify words or phrases used in other places in
the statute. Other definitions in Section 1.02 are amended to clarify
meaning, to remove redundant words, to add synonyms, and to reduce the
number of phrases used to refer to the police retirement system and to the
police retirement board. Section 1.02(23) is amended to clarify that the
system is for employees of the system as well as for police officers.
SECTION 2: Amends Article 6243n-1, Vernon's Texas Civil Statutes, Section
2.01 to add language establishing a trust, a requirement to assure
"qualified plan" status with the Internal Revenue Service.
SECTION 3: Amends Article 6243n-1, Vernon's Texas Civil Statutes, Section
2.03 to reduce the number of different phrases used to refer to the
system.
SECTION 4: Amends Article 6243n-1, Vernon's Texas Civil Statutes, Section
3.02 to remove redundant words, to reduce the number of synonyms used to
refer to police officer members and to retired members, and to clarify
that only police officer members elect the four police officer members of
the police retirement board.
SECTION 5: Amends Article 6243n-1, Vernon's Texas Civil Statutes, Section
3.03 to remove redundant words and to reduce the number of synonyms used
to refer to police officer member.
SECTION 6: Amends Article 6243n-1, Vernon's Texas Civil Statutes, Section
3.05(b) to clarify that the pension officer appointed by the board is one
of the employees of the system.
SECTION 7: Amends Article 6243n-1, Vernon's Texas Civil Statutes, Section
3.06 to clarify that the board administers the system, not just the funds
of the system and to reduce the number of synonyms used to refer to the
board.
SECTION 8: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 3.08 through 3.12 to replace the use of "fund" with the word
"system" and to reduce the number of synonyms used to refer to the board
and to the system. This section also removes redundant words in Section
3.08 that are already in the definition of "accumulated deposits" in
Section 1.02(1). In Section 3.09(b) the redundant words "surviving
spouses" are removed. In addition, the board's implied authority to
litigate matters for the system is explicitly added to Section 3.12.
SECTION 9: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 4.01(c) through (f). In Section 4.01(c), the preferred phrase
"employee of the system" is substituted for "a member of the police
system's administrative staff", and some redundant words are removed. In
Section 4.01(d), the description of who is and is not eligible for
membership in the system is amended to delete language inappropriate for
police that was carried over from the predecessor system for the police
and the general employees when the police retirement system was split out
as a separate system ("working at least 75% of a normal work week but less
than full time" and similar phrases). The changes in the descriptions of
different groups of members in Section 4.01(e) are to be consistent with
the changes in Section 4.01(d), to be consistent with the definitions in
Section 1.02, and to specifically refer to leaves of absence referred to
in Section 4.01(f). The changes in Section 4.01(f) are mostly word
changes to be more precise and to be consistent in the use of words or
phrases, while some of the changes are to clarify compliance with the
Uniform Services Employment and Reemployment Rights Act of 1994. In
addition, wording is added throughout Section 4.01(f) to give employees of
the system the same privilege that police officers have to establish
credit in the system for previously forfeited creditable service.
SECTION 10: Amends Article 6243n-1, Vernon's Texas Civil Statutes, Article
V. Section 5.01 is amended to refer to "uniformed service leave of
absence" described in Section 4.01(f)(B) instead of the less complete
"military leave". The changes in Section 5.02 and 5.03 are to be more
precise, to remove redundant words, and to reduce the number of synonyms
used to refer to the system and the board. The new Section 5.04 could
possibly allow members creditable service for cadet class time. This
change would not be effective on the effective date of this bill because
it would be contingent upon the city council authorizing the city to make
contributions to the system of 18% of base pay beginning as soon as a
cadet enters the police academy. Currently the city starts making
contributions from the date of commission, which is usually six months
after a cadet enters the police academy. The change would also include
provisions allowing current police officers to establish credit for their
service while a member of a cadet class by making the contributions they
would have made to the system for that service plus an interest charge.
The effective date for the cadet service credit provisions for current
police officers is the date the board's actuary approves the changes.
SECTION 11: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 6.01 and 6.02. The title of Section 6.01 is amended to correctly
describe the content of the section. There is an increase in the benefit
multiplier from 2.80% per year of service to 2.88% for future retirees in
Section 6.01. As a result of the increase to 2.88%, present retirees will
receive a 2.86% increase in benefit [(2.88/2.80-1) x 100 = 2.86%] due to
Section 6.01(d)(6). The other changes in the section are to remove
redundant words, to reduce the number of synonyms used to refer to service
retirement benefits and to the system, to use defined terms in place of
undefined terms, to clarify meaning, and to refer to the "system" instead
of the "fund". In addition, several obsolete passages are deleted: a
transition benefit adjustment terminating in 1996 (Section 6.01(a)),
special ad hoc increases in benefits for retirees in 1985 (Section
6.01(d)(5)) and in 1995 (Section 6.01(d)(7)), an unnecessary definition
(Section 6.01(e)(3)), and a federal family aggregation rule repealed by
the Small Business Job Protection Act of 1996 (Section 6.01(f)).
SECTION 12: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 6.03(a) and (b) by deleting the Social Security Level Income
Options and by making some clarifying word changes.
SECTION 13: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Section 6.04(a) by using the newly defined term "employment termination"
instead of an undefined term, making some clarifying word changes, and
increasing the deferred retirement benefit for vested inactive members to
be based on the benefit multiplier in effect when the benefit begins
instead of when the member became inactive.
SECTION 14: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 6.05 and 6.06 by increasing the lump sum death benefit from
$5,000 to $7,500 for retirees in Section 6.05(c) and for members whose
death results in a survivor benefit in Section 6.06(a)(4) and by adding a
minimum lump sum death benefit of $7,500 for members not eligible to
retire in Section 6.05(a). Other changes in this section are to clarify
that Section 6.06 is dealing with a member eligible for service retirement
who dies and with the resulting survivor benefit, to reduce the number of
synonyms used to refer to survivor or retirement benefits, and to remove
redundant words.
SECTION 15: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Article VI by adding Section 6.07 which describes a retroactive deferred
retirement option plan (DROP). The addition of the DROP will allow an
active, retiring member to choose a retirement option which will provide
both a lump sum payment and a somewhat reduced monthly benefit. This
monthly benefit will be calculated as if the member had retired at an
earlier date he selects which can be as much as three years earlier than
the date he actually retirees. Therefore the monthly benefit will be
based on the service and average final compensation he had at that earlier
date he selects. The lump sum will be equal to the deposits made by the
member plus the monthly benefit he would have received between the earlier
selected date and the date of actual retirement plus interest.
SECTION 16: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Section 7.01 by clarifying that the disability provisions apply to
employees of the system as well as to police officers and that
determination of disability is based on the employment duties the member
had immediately before incapacitation.
SECTION 17: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Section 7.02(a) to reduce the number of synonyms used to refer to
benefits, to distinguish between service retirement benefits and
disability retirement benefits, to clarify meaning by using terms that are
defined in the Act, and to clarify that the disability provisions apply to
employees of the system as well as to police officers.
SECTION 18: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 7.03(a)-(d) to reduce the number of synonyms used to refer to
benefits, to clarify that the disability provisions apply to employees of
the system as well as to police officers, to replace the use of "fund"
with the word "system", to clarify meaning by using terms that are defined
in the Act, to clarify that determination of disability is based on the
employment duties the member had immediately before incapacitation, and to
remove redundant words.
SECTION 19: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 8.01(a), (c) and (f) to clarify that the board may recommend a
change in the contribution rate for active members and that the majority
of the active members voting must approve the change. In addition,
redundant language is removed, and the use of "fund" is replaced with the
word "system".
SECTION 20: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Section 9.01 with changes to the heading and Subsections (a), (b), and
(d) and with the addition of Subsection (e). The changes are to replace
the use of "fund" with the word "system", to remove phrases that were
appropriate when the employees of the board were paid by the city, and to
reduce the number of synonyms used to refer to benefits and to the board.
The new subsection refers to state law for administering qualified
domestic relations orders for public employee retirement systems which the
board has adopted.
SECTION 21: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Section 10.01 to reduce the number of synonyms used to refer to the
system.
SECTION 22: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Section 11.01(a)(1) to reflect changes made in federal law in the Small
Business Job Protection Act of 1996 that the Internal Revenue Code Section
415 limits for public employment retirement systems apply to service
retirement benefits but not disability benefits.
SECTION 23: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 11.01(d)-(h) to reflect changes made in federal law in the Small
Business Job Protection Act of 1996 that the 100% of compensation
limitation of Section 415 of the Internal Revenue Code is not applicable
for public employee retirement systems and that the Section 415 limits
apply to service retirement benefits but not disability benefits. In
addition, changes are made to reduce the number of synonyms used to refer
to the system.
SECTION 24: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Section 12.01, with changes to the heading and Subsections (b), (c), and
(g) to clarify that the section is for service retirement and death
annuity payments, to remove redundant words, and to reduce the number of
synonyms used to refer to the system.
SECTION 25: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 12.02(b) and (e) to remove redundant words.
SECTION 26: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Section 13.01(a) to remove a redundant sentence, to clarify a reference to
the Act, and to clarify that the board administers the plan.
SECTION 27: Amends Article 6243n-1, Vernon's Texas Civil Statutes,
Sections 13.01(b)(1) and (4) to remove a redundant word and to clarify a
reference to the system.
SECTION 28: Effective Date: September 1, 1997
SECTION 29: Emergency clause.
COMPARISON OF ORIGINAL TO SUBSTITUTE
The bills are essentially the same and no substantive changes exist. The
substitute is a Legislative Council draft whereas the originally filed
bill was not.