SBW C.S.H.B. 1780 75(R)BILL ANALYSIS PENSIONS & INVESTMENTS C.S.H.B. 1780 By: Greenberg 3-26-97 Committee Report (Substituted) BACKGROUND The Employees Retirement System and the Teachers Retirement System both allow members to purchase creditable service in order to increase the total number of years upon which a retirement benefit is based. For example, the type of service that may be purchased can be for years for which a member has previously received a lump sum payment because of termination of employment. Sometimes members have difficulty in purchasing creditable service under the current way these purchases are administered by either retirement systems. Texas Performance Review's Disturbing the Peace: The Challenge of Change in Texas Government Report EI 7 recommends that the Employees Retirement System of Texas (ERS) and the Teachers Retirement System of Texas (TRS) improve the procedures for purchasing creditable service. PURPOSE This bill will make the process for purchasing creditable service at either retirement system more employee-friendly by increasing the time period for purchasing creditable service and providing for easier and improved access to information regarding the purchasing of creditable service. RULEMAKING AUTHORITY SECTION 1. Section. 813.104(c) permits the Employees Retirement System of Texas to adopt rules. SECTION 4. Section. 825.411(h) permits the Teachers Retirement System of Texas to adopt rules to administer the proposed changes. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 813.104, Government Code, by rewording Subsection (a) to permit the ERS Board to adopt rules allowing installment payments to establish or reestablish credit for periods less than one year as an alternative to lump sum payments and allowing payroll deductions to do so. These changes are necessary to replace the authority currently found in Section 813.105 which this bill would repeal. Also deletes Subsections (b) and (c) in their entirety for consistency purposes. Also changes Subsection (e) to Subsection (c) and addresses the Board's new rulemaking authority express in Subsection (a) for consistency purposes. SECTION 2. Amends Section 813.106, Government Code, by deleting reference to Section 813.105 in purchasing membership or military time by adding a reference to the new Section 813.202(c) for purposes of calculating benefits. This bill would repeal Section 813.105. SECTION 3. Conforming language to make repeal of Section 813.105 consistent. SECTION 4. Amends Subchapter E, Chapter 825, Government Code by adding Section 825.411. Section 825.411(a) is added to permit contributing members of TRS to purchase service credit via payroll deduction by making payments over a period of up to five years in lieu of lump sum payments except as provided by Section 823.411(c). Section 825.411(b) is added and states that monthly payroll deduction payment should equal an amount not less than one-twelfth of the contribution required to establish at least one year of service credit, including interest and membership fees, except as provided by Section 825.411(c). Section 825.411(c) is added and states that payments for members who plan to retire in less than a year may be made via payroll deduction for a period determined by TRS. Section 825.411(d) is added and states that payroll deduction payments shall be made and submitted to TRS at the times and in the manner provided for under Section 825.403, Government Code. Section 825.411(e) is added and requires TRS to credit a member's payments to a suspense account in the trust fund until the sum of the payments equals the amount required for one year of service credit, at which time TRS is required to deposit the payments in the appropriate accounts in the trust fund and grant the applicable amount of service credit. Section 825.411(f) is added and states that if the member ceases to hold a position or withdraws the authority for payroll deduction, the member may ask for one of the options in Section 825.411(f) subsections (1), (2) or (3). Section 825.411(f)(1) states that the member, described in Section 825.411(f), may contract with TRS for an alternative method of continuing the payments. Section 825.411(f)(2) states that the member, described in Section 825.411(f), may receive a prorated amount of service based on the payments made. Section 825.411(f)(3) states that the member, described in Section 825.411(f), may receive a refund of the payments that have not yet been transferred to a trust fund account. Section 825.411(g) is added and requires payments to establish service credit of a person who has retired or died may not be made via payroll deduction, except that a beneficiary may make payment in a lump sum for the remainder of service credit that had begun before the TRS member's death. Section 825.411(h) allows TRS to adopt rules to administer this section. SECTION 5. Repeals Section 813.105, Government Code. SECTION 6. This Act takes effect September 1, 1997. SECTION 7. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE Deletes SECTION 1 from H.B. 1780 which amended Section 813.102(b), Government Code to provide that the interest charged for members of the Employees Retirement System who are reestablishing service credit previously canceled with a lump sum payment be computed on the basis of the state fiscal year at an annual rate based on actuarial recommendations instead of a stated rate of five percent. Adds SECTION 1 to C.S.H.B. 1780 which amends Section 813.104, Government Code, by rewording Subsection (a) to permit the ERS Board to adopt rules allowing installment payments to establish or reestablish credit for periods less than one year as an alternative to lump sum payments and allowing payroll deductions to do so. These changes are necessary to replace the authority currently found in Section 813.105 which this bill would repeal. Also deletes Subsections (b) and (c) in their entirety for consistency purposes. Also changes Subsection (e) to Subsection (c) and addresses the Board's new rulemaking authority express in Subsection (a) for consistency purposes Deletes SECTION 2 from H.B. 1780 which amended Sections 813.105(a) and (f), Government Code. Section 813.105(a) was amended to permit an eligible member of the Employees Retirement System to purchase service credit via payroll deduction over a period of up to five years under an agreement under this section of the Government Code. Section 813.105(f) was amended to provide that if a member of the Employees Retirement System, who is making payments via payroll deduction, ceases to hold a position or withdraws the authority for payroll deduction may: contract with ERS for an alternative method of continuing the payments; receive a prorated amount of service based on the payments made; or receive a refund of the payments that have not yet been transferred to a trust fund account. Adds SECTION 2 to C.S.H.B. 1780 which amends Section 813.106, Government Code, by deleting reference to Section 813.105 in purchasing membership or military time by adding a reference to the new Section 813.202(c) for purposes of calculating benefits. This bill would repeal Section 813.105. Deletes SECTION 3 from H.B. 1780 which amended Subchapter B, Chapter 813, Government Code by adding Section 813.107. Section 813.107(a) was added to require ERS to provide the certain information regarding the establishment of service. Section 813.107(a)(1) was added to require ERS to permit members to inquire by telephone about the cost to establish or reestablish service credit. Section 813.107(a)(2) was added to require ERS to provide written information about the cost of establishing or reestablishing service to members in a timely manner. Section 813.107(a)(3) was added to require ERS to provide each member who is purchasing service credit through a payment plan under Section 813.104, Government Code, or payroll deductions under Section 813.105, Government Code, an annual statement showing the amount paid by the member for the establishment or reestablishment of service, the number of months purchased, the number of months remaining to be purchased, and the cost of the months remaining to be purchased. Section 813.107(b) was added to require ERS to inform members of the following information in subsections (1), (2) and (3) before the end of a fiscal year, that is the last fiscal year of a period in which a member is establishing or reestablishing service through a payment plan under Section 813.104, Government Code or through payroll deduction under Section 813.105, Government Code. Section 813.107(b)(1) was added to require ERS to inform the member that a new cost estimate must be made to renew the installment plan. Section 813.107(b)(2) was added to require ERS to perform the cost estimate. Section 813.107(b)(3) was added to require ERS to report the cost estimate to the member. Section 813.107(c) was added to state that a member who receives this cost estimate can renew the installment plan in the following fiscal year without a lapse in payment or deduction if the member notifies ERS in a timely manner. Section 813.107(d) was added to allow ERS to adopt rules to administer this section. Adds SECTION 3 to C.S.H.B. 1780 to make language conform with the repeal of Section 813.105 for consistency. Deletes SECTION 4 from H.B. 1780 which amended Section 813.202(c), Government Code to provide that the interest charged for members of the ERS who are establishing credit for membership not previously established be computed on the basis of the state fiscal year at an annual rate based on actuarial recommendations instead of the stated rate of ten percent. Adds SECTION 4 to C.S.H.B. 1780 which is SECTION 7 from H.B. 1780 regarding TRS. Deletes SECTION 5 from H.B. 1780 which amended Section 813.302(c), Government Code to provide that the interest charged for members of the ERS who are establishing credit for military service not previously established be computed on the basis of the state fiscal year at an annual rate based on actuarial recommendations instead of the stated rate of ten percent. Adds SECTION 5 to C.S.H.B. 1780 which repeals Section 813.105, Government Code. Deletes SECTION 6 from H.B. 1780 which amended Section. 813.405(b), Government Code to provide that the interest charged for members of the ERS elected class establishing credit for service previously canceled be computed at the rate based on actuarial recommendations from the fiscal year in which the service was performed to the date of deposit instead of the stated ten percent. Adds SECTION 6 to C.S.H.B. 1780 which states that the effective date of the Act is September 1, 1997. Deletes SECTION 7 from H.B. 1780 which pertained to TRS and is included in C.S.H.B. 1780 as SECTION 4 in its entirety. Adds SECTION 7 to C.S.H.B. 1780 which is the emergency clause. Deletes SECTION 8 from H.B. 1780 which stated that the effective date of the Act is September 1, 1997. Deletes SECTION 9 from H.B. 1780 which is the emergency clause.