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