AN ACT 1-1 relating to a retirement health trust for firefighters and police 1-2 officers of certain municipalities. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 ARTICLE 1. GENERAL PROVISIONS 1-5 SECTION 1.01. PURPOSE. Because of the lasting health 1-6 consequences associated with the stressful nature of the 1-7 professions of firefighting and law enforcement, the purpose of a 1-8 fund established by this Act is to provide health care benefits for 1-9 persons who retired on or after October 1, 1989, from a municipal 1-10 fire or police department to which this Act applies. 1-11 SECTION 1.02. DEFINITIONS. In this Act: 1-12 (1) "Board" means the board of trustees of a fund 1-13 established by this Act. 1-14 (2) "Fund" means the firefighter's and police 1-15 officer's retiree health care fund of a municipality to which this 1-16 Act applies. 1-17 SECTION 1.03. APPLICABILITY. This Act applies to a paid 1-18 fire and police department of a municipality with a population of 1-19 750,000 or more that has adopted Chapter 174, Local Government 1-20 Code. 1-21 SECTION 1.04. STATUTORY TRUST. (a) The fund is a statutory 1-22 trust and is not a subdivision of government. 1-23 (b) The board shall administer and hold in trust the assets 2-1 of the fund for the benefit of the members and retirees of the fund 2-2 and their spouses in retirement. 2-3 (c) The fund may not be diverted, transferred, or used for 2-4 any other purpose inconsistent with this Act and with the 2-5 instruments governing the fund. 2-6 (d) A public or private agency or authority may not alter or 2-7 impair any contract made by the board or under the authority or 2-8 direction of the board. 2-9 SECTION 1.05. EXEMPTIONS. The benefits of the fund are 2-10 exempt from garnishment, assignment, attachment, judgments, other 2-11 legal processes, and inheritance or other taxes established by this 2-12 state. 2-13 ARTICLE 2. ADMINISTRATIVE PROVISIONS 2-14 SECTION 2.01. BOARD OF TRUSTEES. (a) The fund of a 2-15 municipality is governed by a board of trustees consisting of the 2-16 following nine members: 2-17 (1) the mayor of the municipality; 2-18 (2) two members of the municipal governing body, 2-19 appointed by that governing body; 2-20 (3) two active firefighters below the rank of fire 2-21 chief, elected by secret ballot by a majority of the votes cast by 2-22 the members of the fire department who are contributing members of 2-23 the fund; 2-24 (4) two active police officers below the rank of 2-25 police chief, elected by secret ballot by a majority of the votes 3-1 cast by the members of the police department who are contributing 3-2 members of the fund; 3-3 (5) a retiree or beneficiary representative of the 3-4 fire department, elected by secret ballot by a majority of the 3-5 votes cast by the retirees and the spouses of the retirees of the 3-6 fire department; and 3-7 (6) a retiree or beneficiary representative of the 3-8 police department, elected by secret ballot by a majority of the 3-9 votes cast by the retirees and the spouses of the retirees of the 3-10 police department. 3-11 (b) The board, through its secretary, shall administer the 3-12 required elections of the firefighter, police officer, and retiree 3-13 representative members. 3-14 (c) The fund is independent of the control of the 3-15 municipality. 3-16 SECTION 2.02. TERMS OF BOARD MEMBERS. (a) The mayor of the 3-17 municipality serves on the board for the term of the mayor's 3-18 office. 3-19 (b) The two members of the municipal governing body serve on 3-20 the board for the term of the office to which they were elected. 3-21 (c) The two active firefighters below the rank of fire chief 3-22 serve on the board for staggered four-year terms, with one member's 3-23 term expiring every two years. 3-24 (d) The two active police officers below the rank of police 3-25 chief serve on the board for staggered four-year terms, with one 4-1 member's term expiring every two years. 4-2 (e) The retiree or beneficiary representatives serve on the 4-3 board for staggered four-year terms, with one member's term 4-4 expiring every two years. 4-5 SECTION 2.03. REMOVAL OF BOARD MEMBERS. (a) Certain 4-6 members of the board may be removed in accordance with this 4-7 section. An active firefighter board member may be removed by the 4-8 contributing members of the fire department. An active police 4-9 officer board member may be removed by the contributing members of 4-10 the police department. A retiree or beneficiary board member may 4-11 be removed by the fund members eligible to elect the member. 4-12 (b) A petition for removal under this section must be filed 4-13 with the board within 45 days after the date the first signature on 4-14 the petition was obtained. A signature is not valid if it is not 4-15 dated. 4-16 (c) A removal election must be held within 30 days after the 4-17 date the board certifies that a proper petition for a removal 4-18 election has been signed by at least 20 percent of the membership 4-19 from which the board member was elected. A board member's term of 4-20 service ends on the entry of an order by the board declaring that 4-21 the results of a removal election under this section favor removal. 4-22 (d) On the date the board enters an order under Subsection 4-23 (c) of this section, the board shall call a special election to be 4-24 held not less than 20 and not more than 30 days after that date to 4-25 fill the vacancy for the unexpired term of the board member who was 5-1 removed. The board member who was removed is not eligible to run 5-2 in the special election but is eligible to run in all subsequent 5-3 board elections for the category in which the person is a member. 5-4 SECTION 2.04. OFFICERS. (a) The board shall elect a chair, 5-5 a vice chair, and a secretary from among the board members. 5-6 (b) The finance director of the municipality is the 5-7 treasurer of the board. 5-8 SECTION 2.05. EMPLOYEES. The board may employ an executive 5-9 director and staff to administer the fund. 5-10 SECTION 2.06. MEETINGS. The board shall hold regular 5-11 monthly meetings and special meetings at the call of the chair or 5-12 on written demand by a majority of the members of the board. 5-13 SECTION 2.07. BOARD COMMITTEES. (a) The chair of the board 5-14 may appoint committees that report to the board. 5-15 (b) Only members of the board may be appointed to a 5-16 committee under this section. 5-17 (c) A committee must be composed of not fewer than three and 5-18 not more than five members of the board, except as otherwise 5-19 specifically provided by the board. 5-20 (d) Only members of a committee may vote as committee 5-21 members. 5-22 (e) The board may direct staff and advisors to assist the 5-23 committees. 5-24 (f) All members of the board may attend committee meetings. 5-25 (g) Members of a committee serve at the pleasure of the 6-1 board. 6-2 (h) Permanent or standing committees may not be appointed. 6-3 ARTICLE 3. GENERAL POWERS AND DUTIES 6-4 SECTION 3.01. GENERAL POWERS AND DUTIES OF BOARD. (a) The 6-5 board has complete authority and power to: 6-6 (1) administer the fund; 6-7 (2) order payments to the treasurer from the fund as 6-8 required by this Act; and 6-9 (3) independently control the fund. 6-10 (b) The board shall adopt rules relating to: 6-11 (1) the disbursement of the fund's assets; and 6-12 (2) the name of the board and the fund. 6-13 (c) The board shall report annually to the governing body of 6-14 the municipality regarding the condition of the fund and the 6-15 receipts and disbursements of the fund. 6-16 SECTION 3.02. AUTHORITY OF MUNICIPALITY. The municipality 6-17 has the authority and power to: 6-18 (1) process the claims that may be paid from the fund, 6-19 including the power to contract with a third party administrator to 6-20 process the claims; and 6-21 (2) control the internal functions of the municipality 6-22 relating to the municipality's interactions with or activities on 6-23 behalf of the fund. 6-24 SECTION 3.03. ORDERS FOR PAYMENTS. (a) The board shall 6-25 issue orders for payments from the fund signed by the chair or vice 7-1 chair and the secretary of the board and forward the orders to the 7-2 treasurer for payment. The order shall state the purposes for the 7-3 payments. The board shall keep a record of those orders. 7-4 (b) At each monthly board meeting, the board shall send to 7-5 the treasurer of the board a written list of the parties entitled 7-6 to a payment from the fund, stating the amount and reason for the 7-7 payment. The list must be certified and signed by the chair or 7-8 vice chair of the board and the secretary of the board. 7-9 (c) The treasurer shall submit to the board a quarterly 7-10 written request that states the amount of reasonable reimbursement 7-11 owed to the municipality for the municipality's operating cost 7-12 incurred on behalf of the fund. 7-13 (d) Money may not be disbursed from the fund without a 7-14 record vote of the board. 7-15 (e) A quorum of the board is five members. When a quorum 7-16 exists, an action of the board requires a majority vote of the 7-17 members present. 7-18 ARTICLE 4. MEMBERSHIP 7-19 SECTION 4.01. MEMBERSHIP. Membership shall be determined by 7-20 the exclusive collective bargaining agents of the firefighters and 7-21 police officers recognized under Subchapter D, Chapter 174, Local 7-22 Government Code. 7-23 SECTION 4.02. CONTRIBUTIONS. (a) Contributions shall be 7-24 determined in accordance with collectively bargained agreements 7-25 between the municipality and the exclusive bargaining agents of the 8-1 firefighters and police officers under Chapter 174, Local 8-2 Government Code. 8-3 (b) Contributions shall be treated as employer's 8-4 contributions in accordance with Section 414(h)(2), Internal 8-5 Revenue Code of 1986 (26 U.S.C. Section 414(h)(2)), as amended, for 8-6 the purpose of determining tax treatment under the Internal Revenue 8-7 Code of 1986. 8-8 (c) Any donations made to the fund and all money received 8-9 from any source for the fund shall be deposited in the fund at the 8-10 earliest opportunity. 8-11 (d) The municipal contribution and benefits from the fund 8-12 are a part of the compensation for services rendered to the 8-13 municipality. This Act is considered part of the contract of 8-14 employment and appointment of the firefighters and police officers 8-15 of a municipality to which this Act applies. 8-16 SECTION 4.03. RIGHTS OF MEMBERS AND ASSOCIATIONS. A member 8-17 of the fund is entitled to all rights otherwise provided to the 8-18 member under the federal Employee Retirement Income and Security 8-19 Act of 1974 (29 U.S.C. Section 1001 et seq.), as amended, or any 8-20 other state or federal statute. A voluntary employee's beneficiary 8-21 association as described by Section 501(c), Internal Revenue Code 8-22 of 1986 (26 U.S.C. Section 501(c)), as amended, is entitled to all 8-23 rights otherwise provided to it under any state or federal statute. 8-24 ARTICLE 5. RETIREMENT HEALTH BENEFITS 8-25 SECTION 5.01. RETIREMENT HEALTH BENEFITS. Retirement health 9-1 benefits shall be determined in accordance with the collectively 9-2 bargained agreements between the municipality and the exclusive 9-3 bargaining agents of the firefighters and police officers under 9-4 Chapter 174, Local Government Code. 9-5 ARTICLE 6. INVESTMENT AND FINANCIAL PROVISIONS 9-6 SECTION 6.01. TREASURER'S DUTIES. (a) All money of the 9-7 fund is payable to the treasurer of the fund for the use of the 9-8 fund. 9-9 (b) The duties imposed on the treasurer of the fund under 9-10 this Act are considered additional duties for which the treasurer 9-11 is liable under oath and bond as the finance director of the 9-12 municipality. 9-13 (c) The finance director is not entitled to compensation for 9-14 serving as the treasurer of the fund. 9-15 SECTION 6.02. ACCOUNTS. Accounts of the fund shall be kept 9-16 as ordered by the board. 9-17 SECTION 6.03. RESERVE FUNDS. (a) The board shall determine 9-18 a reasonably safe amount of surplus assets necessary to defray 9-19 reasonable expenses of the fund. 9-20 (b) All other assets shall be designated as reserve funds. 9-21 (c) Only the board may invest and manage the reserve funds. 9-22 The reserve funds must be invested and managed for the sole benefit 9-23 of the beneficiaries. 9-24 SECTION 6.04. INVESTMENT POWERS OF BOARD. (a) The board 9-25 shall invest the reserve funds in a manner that a prudent investor 10-1 would invest the funds, considering the purposes, terms, 10-2 distribution requirements, and other circumstances of an enterprise 10-3 with a similar character and similar aims. 10-4 (b) The board shall diversify the investment of the reserve 10-5 funds to minimize the risk of large losses unless under the 10-6 circumstances it is clearly prudent not to do so. In determining 10-7 whether the board has exercised prudence concerning an investment 10-8 decision, the investment of all assets of the funds, rather than 10-9 the prudence of a single investment of the funds, shall be 10-10 considered. 10-11 (c) The board may directly manage investments of the reserve 10-12 funds or may choose to contract for professional management 10-13 services. If the funds own real estate, the board may, at its 10-14 discretion, establish a corporation described by Section 10-15 501(c)(25), Internal Revenue Code of 1986 (26 U.S.C. Section 10-16 501(c)(25)), as amended, to hold title to the real estate. 10-17 (d) The board has final responsibility for the investment of 10-18 the reserve funds. The board may purchase securities or engage in 10-19 limited partnerships or make other investments not specifically 10-20 provided by this Act and has the authority to exercise discretion 10-21 in determining the nature, type, quality, and size of any 10-22 investment consistent with the investment policies it establishes. 10-23 SECTION 6.05. PROFESSIONAL CONSULTANTS. (a) The board may 10-24 contract for professional investment management services, financial 10-25 consultants, independent auditors, and actuaries. Only the board 11-1 may enter into those contracts. The board may establish a 11-2 reasonable fee for compensation under those contracts. 11-3 (b) The board may designate its own custodian or master 11-4 custodian to perform the customary duties involving the safekeeping 11-5 of the assets and the execution of transactions of either domestic 11-6 or foreign securities. The board may engage in a securities 11-7 lending program consistent with the benefits to plan participants 11-8 and their beneficiaries. 11-9 SECTION 6.06. INVESTMENT MANAGER QUALIFICATIONS. In 11-10 appointing investment managers, the board shall require that the 11-11 investment manager be: 11-12 (1) registered under the Investment Advisors Act of 11-13 1940 (15 U.S.C. Section 80b-1 et seq.), as amended; 11-14 (2) a bank as defined by that Act; or 11-15 (3) an insurance company qualified to perform 11-16 investment services under the law of more than one state. 11-17 ARTICLE 7. STANDARDS OF CONDUCT AND FINANCIAL 11-18 DISCLOSURE REQUIREMENTS 11-19 SECTION 7.01. ETHICS POLICY. (a) A member of the board or 11-20 the executive director may not have a direct or indirect financial 11-21 or other interest, engage in a business transaction or professional 11-22 activity, or incur any obligation of any nature that is in 11-23 substantial conflict with the proper discharge of the member's or 11-24 the executive director's fiduciary duties. 11-25 (b) To implement Subsection (a) of this section and to 12-1 strengthen the faith and confidence of the members and 12-2 beneficiaries of the fund, the board shall develop standards of 12-3 conduct and financial disclosure requirements to be observed by 12-4 each member of the board and by the executive director in the 12-5 performance of official duties. 12-6 (c) The standards of conduct and financial disclosure 12-7 requirements must provide for: 12-8 (1) establishing general definitions; 12-9 (2) determining when there is substantial conflict; 12-10 (3) determining who is considered a dependent child of 12-11 a board member or the executive director; 12-12 (4) requiring each member of the board and the 12-13 executive director to file a financial disclosure statement; 12-14 (5) appointing a review board; 12-15 (6) establishing the composition of the review board; 12-16 (7) designating a custodian of records; 12-17 (8) establishing the manner in which records must be 12-18 retained; 12-19 (9) establishing which information, generally, must be 12-20 included in a financial statement; 12-21 (10) establishing the time for filing a financial 12-22 statement; 12-23 (11) establishing the form in which a financial 12-24 statement must be presented; 12-25 (12) determining compliance with this section; 13-1 (13) allowing public access to financial statements 13-2 when required by law or when appropriate; 13-3 (14) establishing sanctions for a violation of this 13-4 section that include removal of a member of the board or the 13-5 executive director in the case of a serious violation; 13-6 (15) establishing standards of conduct for board 13-7 members and the executive director; and 13-8 (16) identifying other matters relating to conduct of 13-9 board members and the executive director and to financial 13-10 disclosure that the board considers appropriate. 13-11 ARTICLE 8. TRANSITION; EFFECTIVE DATE; EMERGENCY 13-12 SECTION 8.01. APPOINTMENT OF INITIAL BOARD. 13-13 (a) Notwithstanding Article 2 of this Act, the initial elections 13-14 of the board shall be conducted in accordance with this section. 13-15 (b) The firefighters association in the municipality shall 13-16 administer the initial election of active firefighter and of 13-17 retiree or beneficiary firefighter members of the board. The 13-18 police association in the municipality shall administer the initial 13-19 election of active police officer and of retiree or beneficiary 13-20 police officer members of the board. The associations shall 13-21 conduct the elections by sending and receiving ballots by mail. 13-22 (c) Only retirees who retired after October 1, 1989, and 13-23 surviving spouses of retirees who retired after October 1, 1989, 13-24 are eligible to vote or be a candidate in the initial elections for 13-25 the retiree or beneficiary representatives to the board. 14-1 (d) One active firefighter below the rank of fire chief 14-2 elected in the initial election shall serve a two-year term, and 14-3 the other active firefighter below the rank of fire chief elected 14-4 in the initial election shall serve a four-year term. One active 14-5 police officer below the rank of police chief elected in the 14-6 initial election shall serve a two-year term, and the other active 14-7 police officer below the rank of police chief elected in the 14-8 initial election shall serve a four-year term. One retiree or 14-9 beneficiary representative elected in the initial election shall 14-10 serve a two-year term, and one retiree or beneficiary 14-11 representative elected in the initial election shall serve a 14-12 four-year term. 14-13 (e) The associations shall determine by lot and indicate on 14-14 the ballots which places on the initial board are designated for 14-15 two-year or four-year terms. 14-16 SECTION 8.02. TRANSFER OF ASSETS. A municipality shall 14-17 transfer to the fund all assets it holds in an existing 14-18 firefighters' or police officers' prefunded health trust fund 14-19 determined in accordance with the applicable collectively bargained 14-20 agreement between the municipality and the exclusive bargaining 14-21 agents of the firefighters and of the police officers under Chapter 14-22 174, Local Government Code. The municipality shall transfer the 14-23 assets on the earlier of the following dates: 14-24 (1) October 1, 1998; or 14-25 (2) the first day on which the board and the manager 15-1 of the municipality, or the manager's designee, approve a completed 15-2 actuarial analysis of the existing trust fund. 15-3 SECTION 8.03. EFFECTIVE DATE. This Act takes effect October 15-4 1, 1997. 15-5 SECTION 8.04. EMERGENCY. The importance of this legislation 15-6 and the crowded condition of the calendars in both houses create an 15-7 emergency and an imperative public necessity that the 15-8 constitutional rule requiring bills to be read on three several 15-9 days in each house be suspended, and this rule is hereby suspended. _______________________________ _______________________________ President of the Senate Speaker of the House I hereby certify that S.B. No. 1568 passed the Senate on April 23, 1997, by a viva-voce vote; and that the Senate concurred in House amendment on May 27, 1997, by a viva-voce vote. _______________________________ Secretary of the Senate I hereby certify that S.B. No. 1568 passed the House, with amendment, on May 16, 1997, by a non-record vote. _______________________________ Chief Clerk of the House Approved: _______________________________ Date _______________________________ Governor