SBW C.S.H.B. 2644 75(R)BILL ANALYSIS PENSIONS & INVESTMENTS C.S.H.B. 2644 By: Telford 4-4-97 Committee Report (Substituted) BACKGROUND The Teacher Retirement System of Texas (TRS) was established by a Constitutional Amendment in 1937. Today TRS provides retirement benefits to 150,000 annuitants and has more than 660,000 active and deferred vested members. The mission of TRS is to deliver retirement and related benefits authorized by law for members and their beneficiaries through prudent investment and management of assets held in trust for them in an actuarially sound system administered in accordance with applicable fiduciary principles. PURPOSE CSHB 2644 would make a number of changes to clarify the law, delete unnecessary language, and update designations in current law. Flexibility is given the retirement system to administer the insurance plan specified by law. Many of the concepts were recommended by Value Health Management in a study commissioned by the Legislative Audit Committee during the last interim. The plan could be self-insured and could contract with any entity needed to provide applicable benefits. The third in a series of ad hoc increases for retirees is provided. Increases for each retiree year are calculated to bring retirement annuities up to 75% of the remaining amount needed to catch up to Consumer Price Index increases since retirement. 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 822.005, Subsection (c), Government Code, to specify that a person who is employed is not eligible to withdraw TRS contributions. SECTION 2: Amends Section 822.201, Subsection (c), Government Code, by deleting driver's education service from salary exclusion. SECTION 3: Amends Section 823.202, Subsection (b), Government Code, by deleting membership fees from amounts required to reestablish service credit for service performed during a period of waived membership. SECTION 4: Amends Section 823.301, Subsection (b), Government Code, to allow the purchase of military service in one year increments unless otherwise provided by this subchapter. SECTION 5: Amends Section 823.3021, Subsection (d), Government Code, by deleting "Retired" from the reference to the Texas Public School Retired Employees Group Insurance Act. SECTION 6: Amends Section 823.303. MILITARY LEAVE CREDIT, Government Code, to specify that allowable military leave credit, which is used for eligibility but not purchased, must be requested in writing before the later of the retirement application date or the effective retirement date. SECTION 7: Amends Section 823.401, Government Code, by amending (a) and (d). (a) is amended to state that a school receiving funds under 22 U.S.C. Section 2701 is considered a public school for the purposes of this section. (d) is amended to specify that a member establishing credit for out-of-state service must pay 12% of the full-time rate of the member's annual compensation. Further specifies that any additional eligible compensation is included in the required payment to establish out-of-state service credit. SECTION 8: Amends Section 823.402, Subsection (e), Government Code, by deleting membership fees from the calculation of the amount which must be deposited in order to establish credit for developmental leave. SECTION 9: Amends Section 823.501, Government Code, by amending Subsections (b) and (c), and adding Subsections (e) and (f). (b) is amended to clarify that a person eligible to reinstate service credit is a contributing member of the retirement system at the time of reinstated service under this section. (c) is amended to specify that a description of credit reinstated under this section as canceled credit; and deletes membership fees during the period of membership termination from the amount which must be deposited for reinstatement. (e) is added to require that service credit canceled by a withdrawal of contributions which were not authorized by Section 822.005 must be reinstated. (f) is added to provide that a contributing member may have an account that was terminated by absence from service reactivated upon written request. Provides that the beneficiary of a decedent who was a contributing member at the time of death may have an account that was terminated by the decedent's absence from service reactivated by written request before the first anniversary of the decedent's death. SECTION 10: Amends Section 823.502, Subsection (c), Government Code, by deleting membership fees from the amount required for deposit to reinstate retirees returning to active service. SECTION 11: Amends Section 824.1011, Subsection (a), Government Code, to add that a retiree receiving disability retirement annuity under Sec. 824.203 or 824.304(b) to the provision allowing a beneficiary change in cases of marriage after the date of retirement when utilized within one year after the marriage. SECTION 12: Amends Sections 824.202(a) and (c), Government Code. (a) Adds subdivision (4) to state that if the sum of the member's age and the years of creditable service equals 80, the member is eligible for retirement. (Commonly called the Rule of 80). (c) Strikes certain numerical calculations regarding years of service and member's age to coincide with the newly created Rule of 80. SECTION 13: Amends Section 824.203, Government Code, by amending Subsection (d). (d) is amended to delete the $6.50 monthly minimum for a standard service retirement annuity. SECTION 14: Amends Section 824.204, Subsection (d), Government Code, to provide that if a beneficiary predeceases the retiree, the annuity previously reduced due to selection of an optional service retirement annuity under Subsection (c)(5) is increased to the standard service retirement annuity. SECTION 15: Amends Section 824.304, Government Code, by amending Subsection (b), and adding Subsection (d). (b) is amended to delete the $6.50 monthly minimum for disability retirement benefits. (d) is added to state that the minimum benefits provided by this section are subject to reduction in the same manner as other benefits due to selection of an optional retirement annuity. SECTION 16: Amends Section 825.206, Government Code, by adding Subsection (f). (f) is added to require an actuarial audit to be performed in conjunction with an actuarial experience study or at least every five years. Requires the audit to include: an analysis of the appropriateness of the actuarial assumptions; a review of the assumptions and methodology for compliance with the funding standards; verification of demographic data; and confirmation of the valuation results. SECTION 17: Amends Section 825.207, Government Code, Subsections (a), (b), (c), and (d) to replace "state treasurer" with "comptroller." SECTION 18: Amends Section 825.209, Government Code, Subsections (a), (b), and (c). (a) requires that the comptroller give surety bond in the amount of at least $50,000. (b) requires that the trustee give surety bond in the amount of at least 25,000. (c) allows the board to increase the minimum amount of a bond required by Subsection (a) or (b). SECTION 19: Amends Section 825.410, Government Code, by amending (a) and (c). (a) is amended to delete from the provision for installment payments for special service credit Sections 823.202, waived service, and 823.402, developmental leave; specifies that the use of the installment method is disallowed for three years after a refund of installment payments for the same service. (c) is amended to add to the current deadline for installment payments, the service retirement date, the last day of the month in which the member's application for service retirement is submitted, whichever is later. SECTION 20: Amends Section 825.512(e), Government Code, by changing the deadline for TRS to submit an annual investment performance report from the 25th day following each fiscal year to the 45th day after the end of each fiscal year. SECTION 21: Amends Subsection F, Chapter 825, Government Code by adding Sec. 825.516. Sec. 825.516 NONPROFIT ASSOCIATION DUES: This section provides for a dues check off system for retirees who are members of nonprofit associations. (a) Permits the dues for the membership fee for the nonprofit organization to be deducted from the retirees annuity check. (b) Requires the retirement system to begin deducting the association fees upon request by the retiree until the annuity is terminated or the retiree requests to cancel the deduction. (c) Requires the retirement system to forward the dues withheld from the annuity checks to the appropriate nonprofit association monthly. SECTION 22: Amends the heading of Article 3.50-4, Insurance Code, Texas Public School Retired Employees Group Insurance Program, by deleting "Retired." SECTION 23: Amends Sections 7A, Article 3.50-4, Insurance Code, by amending (a) and (e). (a) is amended to allow local school districts the option of participating in the TRS insurance program while still offering an alternative health benefit plan if approved by the TRS plan trustee. (e) is amended to lower the required district contribution toward the employee's premium from 100% to a minimum of 75%. This section requires the district to certify to the TRS trustee the amount to be contributed monthly toward the cost of coverage, requires the trustee to determine if the amount is sufficient to underwrite the plan for the district based on sound group benefit underwriting principles, and establishes the trustees' determination pursuant to this subsection as final. Deletes language which prohibited a district from contributing more than what is contributed for each state employee by the state under the Texas Employees Uniform Group Insurance Benefits Act. SECTION 24: Amends Section 8, Article 3.50-4, Insurance Code, by amending Subsections (a), (b), (e)-(k), and strikes (l). (a) is amended to allow the TRS trustee to establish one or more plans that are self-insured. (b) is amended to delete the phrase "group insurance" from group insurance coverages; adds long-term care to the sample list of coverages provided. (e) is amended to delete the word "insurance" from group health insurance benefit plans. (f) is amended by striking all previous language and redesignate the previous (g) as (f) and strikes the requirement that the TRS trustee contract with a carrier or carriers. (g) is amended by redesignating the previous (h) as (g), and deletes "carrier or carriers" for "entity" and strikes "insurance" for "benefits." (h) is amended by redesignating the previous (i) as (h). (i) is amended by redesignating the previous (j) as (i), and substitutes "benefits" for "insurance and "an entity" for "a carrier." (j) is amended by redesignating the previous (k) as (j). (k) is amended by redesignating the previous (l) as (k) and allows a TRS trustee to contract directly with HMOs, PPOs, carriers, administrators and other qualified vendors; deletes list of what coverage may include. SECTION 25: Amends Section 15(c), Article 3.50-4, Insurance Code, to eliminate a 1% (of contributions) limit on administrative expenses for the insurance plan. SECTION 26: Amends Section 16(b), Article 3.50-4, Insurance Code, to eliminate outdated language regarding the state contribution. Clarifies legislative authority to make contributions in addition to those required by this subsection. SECTION 27: (a) provides for increased monthly death or retirement benefit annuities beginning at the end of September 1997. (b) excludes payments made under Section 824.304(a), 824.404, or 824.501, Government Code, from the increase. (c) establishes a table of percentage increases to be applied to each retirement year as specified through fiscal year 1996. SECTION 28: Instructional language regarding the driver's education credit in SECTION 2. The restored provision would be effective for retirements after enactment of this bill, but would include credit earned during the 2-year period it was excluded. SECTION 29: Effective date is September 1, 1997. SECTION 30: Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute bill adds a New SECTION 12 which creates the Rule of 80 for employees of the Teacher Retirement System. It also restores language in SECTION 2 which was stricken last session regarding driver's education teaching credit; SECTION 28 provides instructional language for the implementation of SECTION 2. CSHB 2644 deletes reference to allowing the board to grant a 2.25 multiplier if fiscally responsible and strikes the creation of a Deferred Retirement Option Plan in SECTIONS 15 & 16 of the original bill. The substitute makes conforming changes to current law and sets the minimum limits for surety bond issuance at $25,000 and $50,000 in SECTION 18 of the substitute bill. Again, strikes reference to the Deferred Retirement Option Plan in SECTIONS 20 & 21 of the original bill. A new SECTION 21 is added to allow for dues check off for retirees who are members of nonprofit associations. The substitute bill makes conforming changes for sections that were deleted or added to allow for proper numbering of sections.