SBW H.B. 1638 75(R)BILL ANALYSIS
PENSIONS & INVESTMENTS
H.B. 1638
By: Kuempel
3-18-97
Committee Report (Unamended)
BACKGROUND
The Texas County and District Retirement System (TCDRS) is the statewide
system which administers retirement, disability and death benefits for
officers and employees of counties and other political subdivisions
(excluding cities and school districts) which voluntarily elect to
participate in the system.
Each participating subdivision (252 counties, 223 districts) is separately
funded. Funding is by joint employer-employee contributions; benefits are
funded either under the original fixed rate plan of employer
contributions, or under an annually-determined employer contribution rate
("ADCR") calculated actuarially as necessary to fund employer-selected
benefits.
PURPOSE
Many of the provisions of H. B. 1638 have been included to bring the TCDRS
into compliance with the Government Accounting Standards Board and the
requirements of the Internal Revenue Code (IRC) for tax-qualified plans.
Several sections define the process for designating beneficiaries and
closing accounts with unclaimed benefits. The bill also provides
additional options for contribution rates and funding within the
amortization period. Other changes are designed to allow broader
investment opportunities.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill grants additional rulemaking
authority in SECTION 7 (Sec. 843.603, Government Code) and SECTION 32
(Sec. 845.507, Government Code) to the board of trustees of the Texas
County and District Retirement System.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 841.001(1) to define the term "actuarial
equivalent" by identifying the interest rate to be seven percent and the
mortality tables used in the calculation.
SECTION 2. Amends Section 841.002 to add a provision that assets of the
system are held in trust for members, retirees and beneficiaries and may
not be diverted, and includes a provision that forfeitures may not be used
to increase benefits.
SECTION 3. Amends Subchapter A, Chapter 841, by adding Sections 841.010
and 841.011.
Section 841.010. DISTRIBUTION REQUIREMENTS: provides that, notwithstanding
other provisions, distribution of benefits shall be determined and made in
accordance with Section 401(a)(9) of the IRC of 1996 (26 U.S.C. Section
401), this includes the minimal incidental death benefit distribution of
Section 401(a)(9)(G). This section also describes the distribution time
frame of the vested interest, including payment for after the death of the
participant, after they have received some payments. This section also
stipulates that if the participant dies before payment has begun that
distribution must comply with Section 401(a)(9)(B) of the IRC.
Section 841.011. FULL VESTING OF ACCRUED BENEFITS AT TERMINATION: provides
for the event of termination of the retirement system, or a complete
discontinuance of contributions to the system, that each member shall
become fully vested in their accrued benefit to the extent funded as of
that date.
SECTION 4. Amends Section 842.005(g) to eliminate a provision which
allowed the Board of Trustees to refund to a subdivision which has
terminated participation in the system a portion of the sum credited to
its account, prior to the time that the subdivision has no employees who
are members and no present or potential liabilities resulting from
participation of any former employee.
SECTION 5. Amends Section 842.201(c) to delete a provision which allowed
judges and prosecuting attorneys who were made eligible for membership in
the system as to compensation paid by a county, to waive membership.
SECTION 6. Amends Subchapter C, Chapter 842, Government Code, by adding
Section 842.204. REPEAL OF OPTION TO WAIVE OR RETURN TO MEMBERSHIP: which
provides that no person who, after December 31, 1997, is participating in
the system, or becomes eligible to participate under Section 842.201 may
waive membership; and that no person who previously waived membership or
elected not to make contributions, shall be allowed to become a member, or
resume contributions after December 31, 1997.
SECTION 7. Amends Subchapter G, Chapter 843, Government Code, by adding
Section 843.603. CURRENT SERVICE FOR REEMPLOYED VETERANS: to provide
that, notwithstanding other provisions of the subtitle governing the
system, contributions, benefits and service credit shall be provided as
required by Section 414(u) of the IRC of 1986 (26 U.S.C. Section 414); and
authorizes the Board of Trustees to adopt rules modifying terms of the
TCDRS Act to comply with the Uniformed Service Employment and Reemployment
Rights Act of 1994 (38 U.S.C. Section 4301 et seq.).
SECTION 8. Amends Section 844.003 (a) and (c), Government Code, to
eliminate references to subsection (e) of that Section; subsection (e) is
repealed by Section 33 of the bill.
SECTION 9. Amends Section 844.008, Government Code by amending (a) and
(b), and striking (c)-(m).
(a) is amended to provide that, notwithstanding other provisions of
Subtitle F, Title 8, Government Code, the benefit payable to a member of
the retirement system shall not exceed the maximum benefit permitted under
Section 415(b) of the IRC of 1986; and that in determining whether the
benefit exceeds that limit, all defined benefit plans of the employer (for
Section 415 purposes) are to be treated as one defined benefit plan, and
all defined contribution plans as one defined contribution plan. This
section also eliminates the definitions for "annual benefit,"
"compensation," "highest average annual compensation," and "Internal
Revenue Code."
(b) is amended by striking all the previous Subsection (b) to redesignate
the previous Subsection (k) as Subsection (b), to provide that an employer
may not provide retirement or deferred benefits under a plan other than
the retirement system, which, together with the benefits provided under
the retirement system, provide benefits that would result in failure of
the retirement system to meet any of the limitations of subsection 415 IRC
of 1986, and that, to extent of excess benefits, the benefits provided by
such other plans shall be reduced.
SECTION 10. Amends Section 844.209, Government Code by adding Subsection
(g) to provide that if the vested member (on whose demise the death
benefit becomes payable) dies without having a beneficiary designation on
file, the member's estate shall be considered the beneficiary, and
authorizing the executor or administrator, or, if none, the persons
entitled to the estate to select the form of benefit allowable by written
notice to the board of trustees and a certified copy of a court order or
an affidavit as provided by Section 137 of the Texas Probate Code.
SECTION 11. Amends Section 844.401(a), Government Code to redefine that
the interest computed as on the balance of the deceased individual's
account in the employees saving fund on January 1 of the year of death.
SECTION 12. Amends Section 844.605, Government Code by amending (a) and
(c).
(a) is amended to define more precisely what constitutes an inadequate
funding arrangement for actuarial purposes.
(c) is amended to include that a supplemental contribution rate may not be
increased unless the actuary follows Subsection (a) to make the
determination.
SECTION 13. Amends Section 844.606, Government Code to change the heading
to conform to content by removing the term "additional."
SECTION 14. Amends Section 844.606(a), Government Code by referring to
Section 844.605(a) as amended for definition of the finding mentioned and
eliminates the language unnecessary to repeat.
SECTION 15. Amends Section 844.607, Government Code by amending (a) and
(b).
(a) is amended by substituting reference to Section 844.605(a), as
amended, to replace reference to repealed Section 844.601(b).
(b) is amended to stipulate that an order or resolution approved by the
board of trustees which authorizes additional subdivision contributions
under Section 844.605, a reduction in multiple matching credits under
Section 844.606, or both and begins the first day of the first calendar
year 90 days after notice and is not adopted by the governing body of the
subdivision, then the lower percentage of the multiple matching credits
for all future member contributions as contained becomes effective to all
members currently performing service for the subdivision on or after the
first day of the calendar year. This section also deletes language
describing the effective date as in Subsection (c) and allowing certain
determinations by the actuary.
SECTION 16. Amends Section 844.608(b), Government Code to change the
amortization period permitted in correcting plans with inadequate funding
arrangements from present 40 year period to 25 years.
SECTION 17. Amends Section 844.703, Government Code by amending (b), (c),
(d), and (f).
(b) is amended to reduce the period for amortizing over-funded ADCR plans
from perpetuity to 30 years.
(c) is amended to increase the maximum aggregate subdivision contribution
rate funding ADCR plans to 11% of payroll, deleting aggregate rates
varying with employee contribution rates.
(d) is amended to allow for the governing body of a subdivision to make
funding contributions at a rate higher than the actuarially-determined
rate, but may not be higher than the maximum rate determined by Subsection
(c). This elected rate will stay in effect until it is rescinded by the
governing body or the sum determined under Subsections (a) and (b) exceed
the elected rate, in which case the governing body will contribute the sum
under Subsections (a) and (b). In the time the elected rate exceeds the
sum, the prior service contribution rate will be increased to equal the
difference between the elected rate and the rate in Subsection (a). Also,
language is stricken which allowed for the governing body to make yearly
contribution for the above problem.
(f) is amended to empower the Board of Trustees to establish open or
closed amortization periods for ADCR plans of not more than 30 years
duration, and gives them the power to establish criteria to renew, extend,
or shorten a closed amortization period. This section strikes all the
previous language under this subsection.
SECTION 18. Amends Section 845.108. DESIGNATION OF AUTHORITY TO DISBURSE
FUNDS: Government Code, by authorizing the Director to sign checks and
authorize fund transfers and allows the Director to designate other
persons to do so, replacing the provision requiring Board action to
designate persons having signing authority. This also amended the
heading to replace "sign vouchers" with "disburse funds."
SECTION 19. Amends Section 845.202(d), Government Code, by requiring the
Director to prepare and submit the "administrative" budget, striking the
term "report."
SECTION 20. Amends Section 845.206(d), Government Code, to eliminate
another reference to calculation by the actuary and to provide that annual
actuarial valuation be made covering each participating subdivision.
SECTION 21. Amends Section 845.301, Government Code, by amending
Subsections (a) and (b) and adding Subsection (f).
(a) is amended by eliminating the previous list of permissible investments
for system assets (all the previous language), and substituting that all
assets are to be invested in accordance with the "prudent person" rule in
Section 67, Article XVI, Texas Constitution. Also, all investments
decisions are to be evaluated in the context of the whole investment
portfolio and a part of the overall retirement investment strategy.
(b) is amended to charge the investment officer with responsibility for
preparing and submitting the annual budget for investment operations.
(f) is amended by the addition of the language requiring the board of
trustees to establish written investment objectives for the investment of
assets.
SECTION 22. Amends Section 845.305, Government Code, by amending (a) and
(b).
Sec. 845.305. CREDITING SYSTEM ASSETS.
(a) is amended to allow funds received by the system to be deposited
directly with a custodian of assets.
(b) is amended by striking all previous language and redesignating (c) as
(b).
SECTION 23. Amends Section 845.307(a), Government Code, to allow for the
deposit in the subdivision accumulation fund of income and interest
allocated to the fund, striking the interest allowed on money in the fund.
This subsection also allows for the use of the former Section 845.405 to
recognize amounts established during times of war.
SECTION 24. Amends Section 845.309, Government Code by amending (a) and
(b) and adding (c)-(e).
Sec. 845.309 INTEREST FUND.
(a) is amended to establish that the interest fund must hold accounts for
distributable and nondistributable income, investment expenses, and
accounts established by resolution by the board of trustees. This
subsection strikes language which provided for the investment for all of
the income, interest, and dividends from deposits and investments.
(b) is amended to specify adjustments by the net change in carrying value
for all domestic, fixedincome securities owned by the system as part of a
passively managed long term portfolio to value at market will be made to
the non-distributable income account. This strikes the original transfer
of money according to Section 845.315 from the interest fund.
(c) is amended by the addition of the language to provide for the list of
items that are to be credited to the distributable income account
including: the interest, income, and dividends made from the retirement
system's deposits and investments; the changes made by carrying value as
described in Subsection (b) which result from any change in carrying value
not due to market change or amortization, accretion, or accrual of
interest payments; the retirement system's net gains and losses as a
result of the sale, call, maturity, or conversion of investments; all the
noncredited (as according to Subsection (b)) changes in carrying values of
investments; and transfer made under Section 845.310 by the board of
trustees.
(d) is amended by the addition of the language to allow for the charging
costs attributable to the management, selection, acquisition, maintenance,
oversight, and disposal of all investments of the system to the investment
expenses account.
(e) is amended by the addition of the language to distribute all remaining
in the distributable income and investment expenses accounts annually on
December 31 as prescribed by this subtitle.
SECTION 25. Amends Section 845.310, Government Code, by amending (b), (c),
and (e).
(b) is amended by abolishing "the distributive benefits account" from the
make-up of the endowment fund, allowing for (3) to be redesignated as (2)
and (4) to be redesignated as (3).
(c) is amended to specify that the retirement system will credit income
allocated to the endowment fund to the general reserves account, and
strikes the distribution of credit to the distributive benefits account
interest.
(e) is amended by deleting (1), (2), and (3) with references to the
distributive benefits account and provisions for payment from the
distributive benefits account of "extra-checks to annuitants and
supplemental interest" on member and subdivision accounts. This section
also provided for the retirement system to transfer all or part of an
excess in the general reserves account to the distributable income account
of the interest fund for distribution.
SECTION 26. Amends Section 845.311, Government Code, by amending (a) and
(b) and striking (c) and (d).
(a) is amended by eliminating obsolete references to "membership fees" and
"subdivision contributions to the expense fund," deleting all the previous
language to (a) and redesignating the previous (b) as (a) and clarifies
language that the transfer of money to the expense fund is for operation
of the administration and investment for the following fiscal year.
(b) is amended by redesignating the previous (c) as (b) and including
investment expenses as a payment to be made from the expense fund by the
retirement system.
SECTION 27. Amends Section 845.313, Government Code, by amending (a) and
(b) and striking (c).
Sec. 845.313. DISBURSEMENTS.
(a) is amended to permit disbursement of System funds not only by check,
but by electronic transfer or other means generally available in the
banking industry. This section also deletes the use of vouchers and adds
that the disbursements may be authorized not only by signature.
(b) is amended by striking all previous language and redesignating the
previous (c) as (b) and striking the term "voucher" for check or
authorized fund transfer.
SECTION 28. Amends Section 845.314(c), Government Code to redefine
"current interest" (which is allowed on member accounts) as 7%, beginning
on the calendar year after December 31, 1996, and deletes the formula for
a variable rate (not exceeding 7%), dependent on investment income by
striking (c)(1) and (c)(2).
SECTION 29. Amends Section 845.315, Government Code by amending (a),
(a)(2), (a)(3), (a)(5), and (b).
(a) is amended to clarify that the board of trustees will transfer monies
from the distributable income account of the interest fund only after the
investment expense account balance has been transferred to the
distributable income account on December 31 of each year.
(a)(2) is amended to include that the interest in the supplemental death
benefits fund's mean amount for the year will be transferred from the
distributable income account of the interest fund to the supplemental
death benefits fund. This strikes language which transferred the current
interest on the amount for the subdivision accumulation fund to that fund
on January 1.
(a)(3) is amended to define the amount transferred to the general reserves
account of the endowment fund to be adequate funding for the endowment
fund, as determined by the board of trustees, and will include provisions
for all special needs, contingencies, the replenishment for the amount
transferred for the employees saving fund for interest to retiring or
deceased members in that year including a matching amount which was
transferred to the subdivision accumulation fund, and the investment and
administration expenses for the following year. This strikes language
which allowed the general reserves account to receive the current interest
for January 1 of that year for the endowment fund.
(a)(5) is amended to provide for the remaining balance in the
distributable income account in the interest fund to be transferred to the
subdivision accumulation fund after Subdivisions (1)-(4) have been carried
out. This section also strikes the language which transferred the interest
from the supplemental death benefits fund to the supplemental death
benefits fund.
(b) is amended by striking all previous language and adding that each
subdivision's account will receive a share of the transferred amount from
(a)(5) in proportion to the amount credited to its account on January 1 as
to the total credited to the subdivision accumulation fund on that date.
This does not include any subdivision which has ceased participation.
SECTION 30. Amends Section 845.402, Government Code by amending (b) and
(c).
(b) is amended to set the effective date as the first day of any calendar
year for the subdivision to increase the interest rate, striking the
previous language which set it at the first anniversary of the effective
date of the rate.
(c) is amended to specify the effective date for the participating
subdivision to reduce the rate of member contributions as the first day of
any calendar year, but only if written notice of the reduction has been
given to the board of trustees and the actuary has determined it would not
impair the subdivision to fund all its obligations at least 90 days before
the reduction date. This section strikes the previous date of after the
fifth anniversary of the effective date of the existing rate.
SECTION 31. Amends Section 845.501(a), Government Code by changing the
description of the annual statement required to be sent participating
subdivisions to one containing "the basic financial statements of the
retirement system," and eliminates an enumeration of items to be included
in the report.
SECTION 32. Amends Subchapter F, Chapter 845, Government Code, by adding
Sections 845.505 (a)-(f), 845.506, and 845.507.
Section 845.505. CLOSING OF ACCOUNTS.
(a) is amended by the addition of the language which stipulates that the
retirement system must notify the beneficiary of a former member whose
membership was terminated under Section 842.109(a)(1) at their most recent
address, or if there is no beneficiary, the decedent's last known address
as under Subsection (d) if a valid application for annuity or refund for
accumulated contributions has not been filed before the end of the year in
which the member dies. Reasonable efforts must be made to locate the
beneficiary or personal representative, but if the application is not
filed in 180 days after the notice has been sent, then the amount is
transferred to the perpetual endowment account of the fund from the
decedent's individual account.
(b) is amended by the addition of the language to stipulate as Subsection
(a) only it provides for the notification of the living former member,
and not the beneficiary as under Section 842.109(a)(4).
(c) is amended by the addition of the language to also deal with the
notification of former members who have not returned their application for
retirement or for a refund of accumulated contributions before the end of
the year in which the member becomes 70-1/2 or the year in which
employment is terminated. If this is not filed before March 15 of the
year in which distribution must be made, as according to Section 841.010,
then the membership terminates on March 31 of that year. This subsection
also allows the system to transfer the money from the member's individual
account in the employees saving fund to the perpetual endowment account of
the endowment fund and close that member's account.
(d) is amended by the addition of the language to describe the notice
which is to be sent to include: the name of the member or former member,
subdivision names in which the member received credit, a statement that
the benefit is currently payable, a statement of how to receive payment,
and a statement that failure to file may cause forfeiture of benefits.
(e) is amended by the addition of the language to provide that a member
whose account had been closed under Subsection (a), (b), or (c) to have it
restored if they file a valid application and receive pay computed as of
the date on which the annuity would have begun under this subtitle. Also,
all payments which would have been paid had they began on the date
required will be paid in one sum.
(f) is amended by the addition of the language to provide that a person
will be paid out of the perpetual endowment account the sum that the
applicant is entitled if they file a valid application based on an account
which was closed under Subsection (a), (b), or (c).
(g) is amended by the addition of the language to stipulate that the
retirement system must notify a member who has not negotiated for more
than five consecutive annuity payments that they will suspend benefits,
within 30 days of the notice, and the account will be closed until a
written request has been filed. This subsection allows for the payment to
be resumed after a request has been filed and suspended payments will be
paid in one lump sum.
(h) is amended by the addition of the language to stipulate that the
retirement system must make reasonable efforts to locate any person to
whom payment should be made after the death of the member. The annuity
will be suspended and the account will be closed if information has not
been received before the expiration of one year after the member's death.
The subsection does allow for the monthly payments to be resumed and a
lump sum payment of all payments which were suspended once the system
receives all the requested information.
(i) is amended by the addition of the language to allow for a similar
process to be applied by the retirement system as in Subsections (a)-(f)
for money being held for payment if no claim is determined as likely to be
filed.
Section 845.506. APPEAL OF ADMINISTRATIVE DECISION: is amended by the
addition of the language to authorize the appeal under the Administrative
Procedures Act by persons who desire to challenge administrative denial of
claims to rights and benefits.
Section 845.507. QUALIFICATION: is amended to provide that Statutory
provisions establishing the System are intended to comply with federal law
requirements needed to make the System a tax-qualified plan, and
authorizes the Board of Trustees to adopt rules and procedures deemed
necessary to keep the plan qualified.
SECTION 33. Repeals the following sections of Government Code: Section
842.202; Section 842.203; Section 843.303; Section 844.003 (d), (e), (f),
and (g); Section 844.601; Section 844.602; Section 844.603; Section
844.604; Section 844.607(c); Section 845.111; Section 845.315(c);
Section 845.401; Section 845.402 (d), (e) and (f); Section 845.503;
Section 845.504.
SECTION 34. Effective date is December 31, 1997, except Section 21, which
has an effective date of September 1, 1997.
SECTION 35. Emergency Clause.