SBW C.S.S.B. 1568 75(R)BILL ANALYSIS PENSIONS & INVESTMENTS C.S.S.B. 1568 By: Madla (Van de Putte) 5-7-97 EngCommittee Report (Substituted) BACKGROUND Currently, the San Antonio Fire and Police Retiree Health Fund was created by the 1988-1989 contract. The fire and police associations and the city staff of San Antonio negotiated a savings plan which would cover the cost of health care for fire and police officers who retired after October 1, 1989. Employees who retired prior to this date would be covered by an existing system. City staff currently administers the trust, therefore the money in the trust is treated as city funds. State law prohibits the investment of city funds in equities, which limits the return potential of the Retiree Health Fund. The Retiree Health Fund has averaged less than 3.9 percent in returns within the eight years it has existed. The Fire and Police Pension Fund has averaged over 13 percent over the last 10 years. C.S.S.B. 1568 would create an administrative board composed of elected active and retired fire and police members as well as city council representatives for the retiree health care trust in order to permit the moneys in the trust to be invested in a diversified portfolio similar to pension funds. PURPOSE As proposed, C.S.S.B. 1568 outlines provisions regarding a health trust for firefighters and police officers of certain municipalities. RULEMAKING AUTHORITY Rulemaking authority is granted to Board of Trustees in Article 3, SECTION 3.01 GENERAL POWERS AND DUTIES Subsection (b). SECTION BY SECTION ANALYSIS SECTION 1.01. PURPOSE. Provides that the purpose of a fund established by this Act is to provide health care benefits for persons who retired on or after October 1, 1989, from a municipal fire or police department to which this Act applies because of the lasting health consequences associated with the stressful nature of the professions of fire fighting and law enforcement. SECTION 1.02. DEFINITIONS. Defines "board," and "fund." SECTION 1.03. APPLICABILITY. Provides that this Act applies to a paid fire and police department of a municipality with a population of 750,000 or more that has adopted Chapter 174, Local Government Code. SECTION 1.04. STATUTORY TRUST. (a) Provides that the fund is a statutory trust and is not a subdivision of government. (b) Requires the board of trustees of a fund established by this Act (board) to administer and hold in trust the assets of the firefighter's and police officer's retiree health care fund of a municipality to which this Act applies (fund) for the benefit of the members and retirees of the fund and their spouses in retirement. (c) Prohibits the fund from being diverted, transferred, or used for any other purpose inconsistent with this Act and with the instruments governing the fund. (d) Prohibits a public or private agency or authority from altering or impairing any contract made by the board or under the authority or direction of the board. SECTION 1.05. EXEMPTIONS. Provides that the benefits of the fund are exempt from garnishment, assignment, attachment, judgments, other legal processes, and inheritance or other taxes established by this state. ARTICLE 2. ADMINISTRATIVE PROVISIONS SECTION 2.01. BOARD OF TRUSTEES. (a) Sets forth the composition of the funds board of trustees within a municipality. (b) Requires the board, through its secretary, to administer the required elections of the firefighter, police officer, and retiree representative members. (c) Provides that the fund is independent of the control of the municipality. SECTION 2.02. TERMS OF BOARD MEMBERS. Sets forth the terms of the board members. (a) Mayoral term is defined as length of time mayor is in office; (b) Two municipal governing body members terms are defined as the length of time they are elected; (c) Active firefighters terms are defined as staggered four year terms, with a new member being elected every two years; (d) Two active police officers terms are defined as staggered four year terms, with a new member being elected every two years; (e) Retiree or beneficiary representatives terms are defined as staggered four year terms, with one members' term expiring every two years. SECTION 2.03. REMOVAL OF BOARD MEMBERS. Outlines provisions and sets forth requirements regarding the removal of board members. (a) Set forth the parameter under which active firefighters and police officers may be remove by the contributing members of their respective departments. While a retiree or beneficiary board member may be removed by the fund members eligible to elect the member. (b) Sets forth the period for filing a petition of removal with Board as 45 days; and requires that signatures be validated by the accompaniment of a date (of same). (c) Sets forth the period that a removal election can be conducted as 30 days after receipt of 20% of the membership from which the board was elected. Defines the termination of the board members service as ending on the entry of an order the result of the removal election (d) Set forth the special election for the unexpired term of a vacated seat, after a removal election and certification has been conducted, as being not less the 20 days and not more that 30 days from this date of the vacancy. Restricts the removed board member from reelection to the vacated seat. SECTION 2.04. OFFICERS. (a) Requires the board to elect a chair, a vice chair, and a secretary from among the board members. (b) Provides that the finance director of the municipality is the treasurer of the board. SECTION 2.05. EMPLOYEES. Authorizes the board to employ an executive director and staff to administer the fund. SECTION 2.06. MEETINGS. Requires the board to hold regular monthly meetings and special meetings at the call of the chair or on written demand by a majority of the board members. SECTION 2.07. BOARD COMMITTEES. (a) Sets forth requirements and outlines provisions regarding the chairs appointment and establishment of committees. (b) Sets forth who may be appointed to committees of the board as only member of the board. (c) Sets forth composition of board committees as not less than 3, but not more than 5 members; except as specified by the board. (d) Set forth that members of the committee may vote on business of the committee. (e) Sets forth that the board may direct staff and advisors to assist committees. (f) Sets forth that all members of the board may attend committees meetings. (g) Sets forth that members of the committee serve at the pleasure of the board. (h) Relates to the prohibition of permanent or standing committees ARTICLE 3. GENERAL POWERS AND DUTIES OF BOARD SECTION 3.01. GENERAL POWERS AND DUTIES. (a) Sets forth the board's general authority and powers to administer the fund and order payments. (b) Sets forth the board's ability to adopt rules relating to disbursement and the name of the board. (c) Requires the board to report annually to the governing body of the municipality regarding the condition of the fund and the receipts and disbursements of the fund. SECTION 3.02. AUTHORITY OF MUNICIPALITY. Sets forth the authority and powers of the municipality in relation to the fund. SECTION 3.03. ORDERS FOR PAYMENTS. (a) Sets forth requirements regarding orders for payments and authorization for same. (b) Sets forth monthly lists providing for the payments from the fund; the amounts to be paid; and, the reasons for payment. (c) Requires the treasurer of the board to submit to the board a quarterly written request that states the amount of reasonable reimbursement owed to the municipality for the municipality's operating cost incurred on behalf of the fund. (d) Prohibits money from being disbursed from the fund without a record vote of the board. (e) Provides that a quorum of the board is five members and when a quorum exists, an action of the board requires a majority vote of the members present. ARTICLE 4. MEMBERSHIP SECTION 4.01. MEMBERSHIP. Requires membership to be determined by the exclusive collective bargaining agents of the firefighters and police officers recognized under Chapter 174D, Local Government Code. SECTION 4.02. CONTRIBUTIONS. (a) Sets forth requirements regarding contributions in accordance with collectively bargained agreements between the municipality and the exclusive bargaining agents as outlined in Chapter 174 of the Local Government Code. (b) Sets forth collections of collectively bargained agreements in accordance with applicable Internal Revenue Code. (c) Requires any donations made to the fund and all money received from any source for the fund to be deposited in the fund at the earliest opportunity. (d) Provides that the municipal contribution and benefits from the fund are a part of the compensation for services rendered to the municipality. Provides that this Act is considered part of the contract of employment and appointment of the firefighters and police officers of a municipality to which this Act applies. SECTION 4.03. RIGHTS OF MEMBERS AND ASSOCIATIONS. Provides that a member of the fund is entitled to all rights otherwise provided to the member under the Federal Employee Retirement Income and Security Act (29 U.S.C. Section 1001 et seq.), as amended, or any other state or federal statute. Provides that a voluntary employee's beneficiary association as described by Section 501(c), Internal Revenue Code of 1986 (26 U.S.C. Section 501(c)), as amended, is entitled to all rights otherwise provided to it under any state or federal statute. ARTICLE 5. RETIREMENT HEALTH BENEFITS SECTION 5.01. RETIREMENT HEALTH BENEFITS. Requires retirement health benefits to be determined in accordance with the collectively bargained agreements between the municipality and the exclusive bargaining agents of the firefighters and police officers under Chapter 174, Local Government Code. ARTICLE 6. INVESTMENT AND FINANCIAL PROVISIONS. SECTION 6.01. TREASURER'S DUTIES. (a) Provides that all money is payable to the treasurer of the fund for the use of the fund. (b) Provides that the duties imposed on the treasurer of the fund under this Act are considered additional duties for which the treasurer is liable under oath and bond as the finance director of the municipality. (c) Provides that the finance director is not entitled to compensation for serving as the treasurer of the fund. SECTION 6.02. ACCOUNTS. Requires accounts to be kept as ordered by the board. SECTION 6.03. RESERVE FUNDS. (a) Requires the board to determine a reasonably safe amount of surplus assets necessary to defray reasonable expenses of the fund. (b) Requires all other assets to be designated as reserve funds. (c) Provides that only the board may invest and manage the reserve funds. Requires the reserve funds to be invested and managed for the sole benefit of the beneficiaries. SECTION 6.04. INVESTMENT POWERS OF BOARD. Sets forth requirements and outlines provisions regarding the investment powers of the board. (a) Sets forth the manner in which the board shall invest the reserve funds and the aims of these same investments. (b) Sets forth the manner in which the board diversifies the investment in order to minimize the risks to the fund. Provides that the board in determining the criteria for prudence, as including all investments, not just a single investment subject to question. (c) Sets for the requirements and the contracting of professional managements services. Defines the funds investment into real estate and the establishment of a corporation as described in applicable Internal Revenue Service code. (d) Sets forth the final responsibility of the board for the investment of reserve funds. SECTION 6.05. PROFESSIONAL CONSULTANTS. Outlines provisions regarding professional consultants to the board. (a) Sets forth the powers of the board to enter into contracts for professional management services, financial consultants, independent auditors and actuaries; and the compensation for same services. (b) Sets forth the designation of a custodian or master custodian to perform the safekeeping of assets and the execution of transaction of either domestic or foreign securities. SECTION 6.06. INVESTMENT MANAGER QUALIFICATIONS. Sets forth qualifications for the investments of the board. ARTICLE 7. STANDARDS OF CONDUCT AND FINANCIAL DISCLOSURE REQUIREMENTS SECTION 7.01. ETHICS POLICY. Sets forth requirements and outlines provisions regarding the ethics policy of the board. (a) Sets forth the officer sof the board should not have direct or indirect financial benefits of their fiduciary duties. (b) Sets forth the development of standards of conduct for the members of the board in the performance of their official duties. (c) Sets forth the standards of conduct and financial disclosure requirements. ARTICLE 8. TRANSITION; EFFECTIVE DATE; EMERGENCY SECTION 8.01. APPOINTMENT OF INITIAL BOARD. (a) Sets forth requirements and outlines provisions regarding the appointment of the initial board. (b) Sets forth the administration of the initial election of active, retired or beneficiary members by the association of firefighters and police officers respectively. (c) Sets forth who is eligible to participate or be a candidate in the initial election under the provisions of this bill. (d) Sets forth the staggered terms of the firefighters and police officers elected in the initial election. (e) Sets forth the designation by lot on the ballot which places are two and which are four year slots. SECTION 8.02. TRANSFER OF ASSETS. A municipality shall transfer to the fund all assets it currently holds on the earliest of the two following dates: (1) October 1, 1998; or (2) a complete actuarial analysis of the existing trust fund. SECTION 8.03. Effective date: October 1, 1997. SECTION 8.04. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE Article 1: SECTION 1.01 does not change any intent, but restates the PURPOSE of this legislation. Article 3: SECTION 3.02 HEARINGS is deleted in the substitute bill and replaced by AUTHORITY OF MUNICIPALITY which specifies the authority and power a municipality is granted regarding this fund. Article 4: SECTION 4.03 in siting the Federal Employee Retirement Income and Security Act, omits reference to the year 1974. Article 8: TRANSFER OF ASSETS. Specifies the date or condition in which the established prefunded health account monies are to be transferred and to whom. Conforming changes are made regarding the numbering of sections in the subsequent sections.