SBW H.B. 1752 75(R)BILL ANALYSIS PENSIONS & INVESTMENTS H.B. 1752 By: Greenberg 3-18-97 Committee Report (Unamended) BACKGROUND Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes (V.T.C.S.) ) authorizes the establishment of a retirement system for employees of each municipality having a population of more than 460,000 and less than 500,000. The act (amended in 1995) contains provisions that must be amended to conform with federal law and to provide increased benefits to the members of the retirement system. PURPOSE The purpose of House Bill 1752 is to amend Article 6243n in order to (1) make sure that the retirement system remains a qualified plan under recently enacted federal law; (2) enhance employee retirement benefits by increasing the factor used to calculate a retirement benefit from 2.3 percent to 2.6 percent, authorizing retirement at age 55 with 20 years of service with no benefit reduction, allow eligible members to purchase up to 4 years of prior military service credit, allow members to purchase service credit for certain ineligible service time at full actuarial cost, allow the employer to purchase service credit to allow member to retire with unreduced benefits; and (3) clarify provisions by adding new definitions. 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 Sections 2 and 3, Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes) by amending Section 2, Subsections (3), (12), (15), (19), and (40)-(45) and Section 3, Subsections(a) and striking (b). Sec. 2. DEFINITIONS. (3) is amended to stipulate that the actuarial tables that are to be adopted must be acceptable to the Internal Revenue Service. (12) is amended by striking language which provided for applying the limitations for an employee to exceed $12,500 a month, allowing the limitation to be prorated among the family members, which included the spouse and descendants not yet 19, or adjusted in accordance with the Internal Revenue Service guidelines. (15) is amended by striking the language which reduced the monthly payments for retirement if the member's payment's commenced before the normal retirement date. Also, this section changes the 2.3% of average final compensation to 2.6% in order to calculate the service annuity. (19) is amended to replace the use of Subsection (42) with Subsection (43) as reference for the definition of retirement board. (40) is amended to define "retired member" as a person who is qualified by creditable service to receive a retirement allowance by this Act, and includes those who have already retired and are eligible to continue receiving an allowance. (41) is amended to redesignate the previous (40) as (41). (42) is amended to redesignate the previous (41) as (42). (43) is amended to redesignate the previous (42) as (43). (44) is amended to redesignate the previous (43) as (44). (45) is amended to redesignate the previous (44) as (45). Sec. 3. ESTABLISHMENT AND APPLICABILITY. (a) is amended by striking the designation of (a) and adding language to include that beneficiaries of a deceased member may receive benefits, and changing the date from September 1, 1993 to September 1, 1997 to designate the time restraint on those who have retired before this date to receive the same benefits. Also, this section adds the term "benefits" to designate what is to be received, and adds that they will receive what they are entitled to receive before that date, removing the use of the term "receiving." (b) is amended by being deleted from this Act. SECTION 2. Amends Section 6, Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statues) by amending Subsection (c) and adding Subsections (d)-(g). (c) is amended by replacing the term "military" with the term "uniformed" in the establishment for credible service. The term "Rights" has been added to the "Uniformed Services Employment and Reemployment Rights Act of 1994" along with the addition of "38 U.S.C. Section 4301 et seq." for the placement of the code the Act is to be found. Also, the use of 24 months as the maximum for the amount of service which may be credited had been changed to 48 months. (d) is amended by the addition of the language to allow for an employee, who was not highly compensated as under Section 414(g) of the 38 U.S.C. Section 4301 et. seq. to receive unreduced retirement benefits at 55 years or at the purchase of additional credit by the employer if over 55 years. The subsection requires the employer to purchase the additional credit at full actuarial cost as determined by the retirement board as on advice of the actuary. (e) is amended by the addition of the language to allow for a member to purchase noncontributory service credit equal to the period the member: took workers' compensation leave due to injury sustained by employment and verified by the employer, took an authorized leave of absence from an employer, or performed a service not creditable in the retirement system for an employer. (f) is amended by the addition of the language to stipulate that the member purchasing the credit for noncontributory creditable service as provided by Subsection (e) of this section is to buy it at full actuarial cost. (g) is amended by the addition of the language to define "noncontributory creditable service" as service in which an employer contribution is not made. SECTION 3. Amends Section 7, Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes) by amending Subsections (a) and (e). (a) is amended to clarify that a member is entitled to a retirement benefit upon the age of 55 if they have 20 years of creditable service. It deleted the language which would have made this an early retirement benefit. (e) is amended to delete the language which would have reduced the member's retirement at fivetwelfths of one percent for each month the member retired before the actual retirement date. SECTION 4. Amends Section 9, Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes) by amending Subsections (a), (i), and (j), and adding Subsection (p). (a) is amended to define the maximum annual benefit as $90,000. (i) is amended by deleting the 100 percent limitation as in Subsection (a). (j) is amended to stipulate that a member who has been in one or more defined contribution plans by an employer may not allow the defined benefit plan fraction and the defined contribution plan fraction to exceed 1.0 for any year in which Section 415(e), which determines the fraction, of the code is in effect. (p) is amended by the addition of the language to stipulate that a retired member who becomes employed fill-time with an employer will automatically resume membership as an active contributing member and lose their retirement allowance. Upon retirement for the second time, a new benefit will be computed based upon service before and after the initial retirement. This benefit will be reduced actuarially for the value of the benefits received before resumption of full-time employment. SECTION 5. Repeals Section 12(f), Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes). SECTION 6. (a) Allows a retirement allowance created under Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes) paid to a member who retired before October 1, 1997, or a beneficiary, to begin with payments due at the end of October 1997. (b) Allows the amount of change to be the percentage, which is 2.6% divided by the retirement benefit percent at the time of retirement, minus one, one multiplied by 100, multiplied to the retirement allowance otherwise due. SECTION 7. Provides the effective date for Section 6(d), Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes), as added by this Act, to be on the date the Internal Revenue Service issues the next favorable determination letter regarding qualification of the retirement system created under Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes). SECTION 8. Effective date is October 1, 1997, except as provided by Section 7. SECTION 9. Emergency Clause.