1-1 By: Madla S.B. No. 1568 1-2 (In the Senate - Filed March 14, 1997; March 20, 1997, read 1-3 first time and referred to Committee on Intergovernmental 1-4 Relations; April 18, 1997, reported adversely, with favorable 1-5 Committee Substitute by the following vote: Yeas 8, Nays 0; 1-6 April 18, 1997, sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 1568 By: Gallegos 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to a retirement health trust for firefighters and police 1-11 officers of certain municipalities. 1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-13 ARTICLE 1. GENERAL PROVISIONS 1-14 SECTION 1.01. PURPOSE. The purpose of a fund established by 1-15 this Act is to provide health care benefits for persons who retired 1-16 on or after October 1, 1989, from a municipal fire or police 1-17 department to which this Act applies because of the lasting health 1-18 consequences associated with the stressful nature of the 1-19 professions of firefighting and law enforcement. 1-20 SECTION 1.02. DEFINITIONS. In this Act: 1-21 (1) "Board" means the board of trustees of a fund 1-22 established by this Act. 1-23 (2) "Fund" means the firefighter's and police 1-24 officer's retiree health care fund of a municipality to which this 1-25 Act applies. 1-26 SECTION 1.03. APPLICABILITY. This Act applies to a paid 1-27 fire and police department of a municipality with a population of 1-28 750,000 or more that has adopted Chapter 174, Local Government 1-29 Code. 1-30 SECTION 1.04. STATUTORY TRUST. (a) The fund is a statutory 1-31 trust and is not a subdivision of government. 1-32 (b) The board shall administer and hold in trust the assets 1-33 of the fund for the benefit of the members and retirees of the fund 1-34 and their spouses in retirement. 1-35 (c) The fund may not be diverted, transferred, or used for 1-36 any other purpose inconsistent with this Act and with the 1-37 instruments governing the fund. 1-38 (d) A public or private agency or authority may not alter or 1-39 impair any contract made by the board or under the authority or 1-40 direction of the board. 1-41 SECTION 1.05. EXEMPTIONS. The benefits of the fund are 1-42 exempt from garnishment, assignment, attachment, judgments, other 1-43 legal processes, and inheritance or other taxes established by this 1-44 state. 1-45 ARTICLE 2. ADMINISTRATIVE PROVISIONS 1-46 SECTION 2.01. BOARD OF TRUSTEES. (a) The fund of a 1-47 municipality is governed by a board of trustees consisting of the 1-48 following nine members: 1-49 (1) the mayor of the municipality; 1-50 (2) two members of the municipal governing body, 1-51 appointed by that governing body; 1-52 (3) two active firefighters below the rank of fire 1-53 chief, elected by secret ballot by a majority of the votes cast by 1-54 the members of the fire department who are contributing members of 1-55 the fund; 1-56 (4) two active police officers below the rank of 1-57 police chief, elected by secret ballot by a majority of the votes 1-58 cast by the members of the police department who are contributing 1-59 members of the fund; 1-60 (5) a retiree or beneficiary representative of the 1-61 fire department, elected by secret ballot by a majority of the 1-62 votes cast by the retirees and the spouses of the retirees of the 1-63 fire department; and 1-64 (6) a retiree or beneficiary representative of the 2-1 police department, elected by secret ballot by a majority of the 2-2 votes cast by the retirees and the spouses of the retirees of the 2-3 police department. 2-4 (b) The board, through its secretary, shall administer the 2-5 required elections of the firefighter, police officer, and retiree 2-6 representative members. 2-7 (c) The fund is independent of the control of the 2-8 municipality. 2-9 SECTION 2.02. TERMS OF BOARD MEMBERS. (a) The mayor of the 2-10 municipality serves on the board for the term of the mayor's 2-11 office. 2-12 (b) The two members of the municipal governing body serve on 2-13 the board for the term of the office to which they were elected. 2-14 (c) The two active firefighters below the rank of fire chief 2-15 serve on the board for staggered four-year terms, with one member's 2-16 term expiring every two years. 2-17 (d) The two active police officers below the rank of police 2-18 chief serve on the board for staggered four-year terms, with one 2-19 member's term expiring every two years. 2-20 (e) The retiree or beneficiary representatives serve on the 2-21 board for staggered four-year terms, with one member's term 2-22 expiring every two years. 2-23 SECTION 2.03. REMOVAL OF BOARD MEMBERS. (a) Certain 2-24 members of the board may be removed in accordance with this 2-25 section. An active firefighter board member may be removed by the 2-26 contributing members of the fire department. An active police 2-27 officer board member may be removed by the contributing members of 2-28 the police department. A retiree or beneficiary board member may 2-29 be removed by the fund members eligible to elect the member. 2-30 (b) A petition for removal under this section must be filed 2-31 with the board within 45 days after the date the first signature on 2-32 the petition was obtained. A signature is not valid if it is not 2-33 dated. 2-34 (c) A removal election must be held within 30 days after the 2-35 date the board certifies that a proper petition for a removal 2-36 election has been signed by at least 20 percent of the membership 2-37 from which the board member was elected. A board member's term of 2-38 service ends on the entry of an order by the board declaring that 2-39 the results of a removal election under this section favor removal. 2-40 (d) On the date the board enters an order under Subsection 2-41 (c) of this section, the board shall call a special election to be 2-42 held not less than 20 and not more than 30 days after that date to 2-43 fill the vacancy for the unexpired term of the board member who was 2-44 removed. The board member who was removed is not eligible to run 2-45 in the special election but is eligible to run in all subsequent 2-46 board elections for the category in which the person is a member. 2-47 SECTION 2.04. OFFICERS. (a) The board shall elect a chair, 2-48 a vice chair, and a secretary from among the board members. 2-49 (b) The finance director of the municipality is the 2-50 treasurer of the board. 2-51 SECTION 2.05. EMPLOYEES. The board may employ an executive 2-52 director and staff to administer the fund. 2-53 SECTION 2.06. MEETINGS. The board shall hold regular 2-54 monthly meetings and special meetings at the call of the chair or 2-55 on written demand by a majority of the members of the board. 2-56 SECTION 2.07. BOARD COMMITTEES. (a) The chair of the board 2-57 may appoint committees that report to the board. 2-58 (b) Only members of the board may be appointed to a 2-59 committee under this section. 2-60 (c) A committee must be composed of not fewer than three and 2-61 not more than five members of the board, except as otherwise 2-62 specifically provided by the board. 2-63 (d) Only members of a committee may vote as committee 2-64 members. 2-65 (e) The board may direct staff and advisors to assist the 2-66 committees. 2-67 (f) All members of the board may attend committee meetings. 2-68 (g) Members of a committee serve at the pleasure of the 2-69 board. 3-1 (h) Permanent or standing committees may not be appointed. 3-2 ARTICLE 3. GENERAL POWERS AND DUTIES OF BOARD 3-3 SECTION 3.01. GENERAL POWERS AND DUTIES. (a) The board has 3-4 complete authority and power to: 3-5 (1) administer the fund; 3-6 (2) order payments to the treasurer from the fund as 3-7 required by this Act; and 3-8 (3) independently control the fund. 3-9 (b) The board shall adopt rules relating to: 3-10 (1) the disbursement of the fund's assets; and 3-11 (2) the name of the board and the fund. 3-12 (c) The board shall report annually to the governing body of 3-13 the municipality regarding the condition of the fund and the 3-14 receipts and disbursements of the fund. 3-15 SECTION 3.02. HEARINGS. (a) Any member of the fund may 3-16 appear before the board in person or through an attorney to contest 3-17 health coverage or benefit decisions. 3-18 (b) The chair of the board may issue process for witnesses, 3-19 administer oaths to those witnesses, and examine any witness in any 3-20 manner affecting a coverage or benefit under this Act. Process for 3-21 witnesses may be served on any member of the fund. On the failure 3-22 of any witness to attend and testify, that person may be compelled 3-23 to attend and testify as in any judicial proceeding, according to 3-24 the practice in a justice court. 3-25 SECTION 3.03. ORDERS FOR PAYMENTS. (a) The board shall 3-26 issue orders for payments from the fund signed by the chair or vice 3-27 chair and the secretary of the board and forward the orders to the 3-28 treasurer for payment. The order shall state the purposes for the 3-29 payments. The board shall keep a record of those orders. 3-30 (b) At each monthly board meeting, the board shall send to 3-31 the treasurer of the board a written list of the parties entitled 3-32 to a payment from the fund, stating the amount and reason for the 3-33 payment. The list must be certified and signed by the chair or 3-34 vice chair of the board and secretary of the board. 3-35 (c) The treasurer shall submit to the board a quarterly 3-36 written request that states the amount of reasonable reimbursement 3-37 owed to the municipality for the municipality's operating cost 3-38 incurred on behalf of the fund. 3-39 (d) Money may not be disbursed from the fund without a 3-40 record vote of the board. 3-41 (e) A quorum of the board is five members. When a quorum 3-42 exists, an action of the board requires a majority vote of the 3-43 members present. 3-44 ARTICLE 4. MEMBERSHIP 3-45 SECTION 4.01. MEMBERSHIP. Membership shall be determined by 3-46 the exclusive collective bargaining agents of the firefighters and 3-47 police officers recognized under Subchapter D, Chapter 174, Local 3-48 Government Code. 3-49 SECTION 4.02. CONTRIBUTIONS. (a) Contributions shall be 3-50 determined in accordance with collectively bargained agreements 3-51 between the municipality and the exclusive bargaining agents of the 3-52 firefighters and police officers under Chapter 174, Local 3-53 Government Code. 3-54 (b) Contributions shall be treated as employer's 3-55 contributions in accordance with Section 414(h)(2), Internal 3-56 Revenue Code of 1986 (26 U.S.C. Section 414(h)(2)), as amended, for 3-57 the purpose of determining tax treatment under the Internal Revenue 3-58 Code of 1986. 3-59 (c) Any donations made to the fund and all money received 3-60 from any source for the fund shall be deposited in the fund at the 3-61 earliest opportunity. 3-62 (d) The municipal contribution and benefits from the fund 3-63 are a part of the compensation for services rendered to the 3-64 municipality. This Act is considered part of the contract of 3-65 employment and appointment of the firefighters and police officers 3-66 of a municipality to which this Act applies. 3-67 SECTION 4.03. RIGHTS OF MEMBERS AND ASSOCIATIONS. A member 3-68 of the fund is entitled to all rights otherwise provided to the 3-69 member under the federal Employee Retirement Income and Security 4-1 Act of 1974 (29 U.S.C. Section 1001 et seq.), as amended, or any 4-2 other state or federal statute. A voluntary employee's beneficiary 4-3 association as described by Section 501(c), Internal Revenue Code 4-4 of 1986 (26 U.S.C. Section 501(c)), as amended, is entitled to all 4-5 rights otherwise provided to it under any state or federal statute. 4-6 ARTICLE 5. RETIREMENT HEALTH BENEFITS 4-7 SECTION 5.01. RETIREMENT HEALTH BENEFITS. Retirement health 4-8 benefits shall be determined in accordance with the collectively 4-9 bargained agreements between the municipality and the exclusive 4-10 bargaining agents of the firefighters and police officers under 4-11 Chapter 174, Local Government Code. 4-12 ARTICLE 6. INVESTMENT AND FINANCIAL PROVISIONS 4-13 SECTION 6.01. TREASURER'S DUTIES. (a) All money of the 4-14 fund is payable to the treasurer of the fund for the use of the 4-15 fund. 4-16 (b) The duties imposed on the treasurer of the fund under 4-17 this Act are considered additional duties for which the treasurer 4-18 is liable under oath and bond as the finance director of the 4-19 municipality. 4-20 (c) The finance director is not entitled to compensation for 4-21 serving as the treasurer of the fund. 4-22 SECTION 6.02. ACCOUNTS. Accounts of the fund shall be kept 4-23 as ordered by the board. 4-24 SECTION 6.03. RESERVE FUNDS. (a) The board shall determine 4-25 a reasonably safe amount of surplus assets necessary to defray 4-26 reasonable expenses of the fund. 4-27 (b) All other assets shall be designated as reserve funds. 4-28 (c) Only the board may invest and manage the reserve funds. 4-29 The reserve funds must be invested and managed for the sole benefit 4-30 of the beneficiaries. 4-31 SECTION 6.04. INVESTMENT POWERS OF BOARD. (a) The board 4-32 shall invest the reserve funds in a manner that a prudent investor 4-33 would invest the funds, considering the purposes, terms, 4-34 distribution requirements, and other circumstances of an enterprise 4-35 with a similar character and similar aims. 4-36 (b) The board shall diversify the investment of the reserve 4-37 funds to minimize the risk of large losses unless under the 4-38 circumstances it is clearly prudent not to do so. In determining 4-39 whether the board has exercised prudence concerning an investment 4-40 decision, the investment of all assets of the funds, rather than 4-41 the prudence of a single investment of the funds, shall be 4-42 considered. 4-43 (c) The board may directly manage investments of the reserve 4-44 funds or may choose to contract for professional management 4-45 services. If the funds own real estate, the board may, at its 4-46 discretion, establish a corporation described by Section 4-47 501(c)(25), Internal Revenue Code of 1986 (26 U.S.C. Section 4-48 501(c)(25)), as amended, to hold title to the real estate. 4-49 (d) The board has final responsibility for the investment of 4-50 the reserve funds. The board may purchase securities or engage in 4-51 limited partnerships or make other investments not specifically 4-52 provided by this Act and has the authority to exercise discretion 4-53 in determining the nature, type, quality, and size of any 4-54 investment consistent with the investment policies it establishes. 4-55 SECTION 6.05. PROFESSIONAL CONSULTANTS. (a) The board may 4-56 contract for professional investment management services, financial 4-57 consultants, independent auditors, and actuaries. Only the board 4-58 may enter into those contracts. The board may establish a 4-59 reasonable fee for compensation under those contracts. 4-60 (b) The board may designate its own custodian or master 4-61 custodian to perform the customary duties involving the safekeeping 4-62 of the assets and the execution of transactions of either domestic 4-63 or foreign securities. The board may engage in a securities 4-64 lending program consistent with the benefits to plan participants 4-65 and their beneficiaries. 4-66 SECTION 6.06. INVESTMENT MANAGER QUALIFICATIONS. In 4-67 appointing investment managers, the board shall require that the 4-68 investment manager be: 4-69 (1) registered under the Investment Advisors Act of 5-1 1940 (15 U.S.C. Section 80b-1 et seq.), as amended; 5-2 (2) a bank as defined by that Act; or 5-3 (3) an insurance company qualified to perform 5-4 investments services under the law of more than one state. 5-5 ARTICLE 7. STANDARDS OF CONDUCT AND FINANCIAL 5-6 DISCLOSURE REQUIREMENTS 5-7 SECTION 7.01. ETHICS POLICY. (a) A member of the board or 5-8 the executive director may not have a direct or indirect financial 5-9 or other interest, engage in a business transaction or professional 5-10 activity, or incur any obligation of any nature that is in 5-11 substantial conflict with the proper discharge of the member's or 5-12 the executive director's fiduciary duties. 5-13 (b) To implement Subsection (a) of this section and to 5-14 strengthen the faith and confidence of the members and 5-15 beneficiaries of the fund, the board shall develop standards of 5-16 conduct and financial disclosure requirements to be observed by 5-17 each member of the board and by the executive director in the 5-18 performance of official duties. 5-19 (c) The standards of conduct and financial disclosure 5-20 requirements must provide for: 5-21 (1) establishing general definitions; 5-22 (2) determining when there is substantial conflict; 5-23 (3) determining who is considered a dependent child of 5-24 a board member or the executive director; 5-25 (4) requiring each member of the board and the 5-26 executive director to file a financial disclosure statement; 5-27 (5) appointing a review board; 5-28 (6) establishing the composition of the review board; 5-29 (7) designating a custodian of records; 5-30 (8) establishing the manner in which records must be 5-31 retained; 5-32 (9) establishing which information, generally, must be 5-33 included in a financial statement; 5-34 (10) establishing the time for filing a financial 5-35 statement; 5-36 (11) establishing the form in which a financial 5-37 statement must be presented; 5-38 (12) determining compliance with this section; 5-39 (13) allowing public access to financial statements 5-40 when required by law or when appropriate; 5-41 (14) establishing sanctions for a violation of this 5-42 section that include removal of a member of the board or the 5-43 executive director in the case of a serious violation; 5-44 (15) establishing standards of conduct for board 5-45 members and the executive director; and 5-46 (16) identifying other matters relating to conduct of 5-47 board members and the executive director and to financial 5-48 disclosure that the board considers appropriate. 5-49 ARTICLE 8. TRANSITION; EFFECTIVE DATE; EMERGENCY 5-50 SECTION 8.01. APPOINTMENT OF INITIAL BOARD. 5-51 (a) Notwithstanding Article 2 of this Act, the initial elections 5-52 of the board shall be conducted in accordance with this section. 5-53 (b) The firefighters association in the municipality shall 5-54 administer the initial election of active firefighter and of 5-55 retiree or beneficiary firefighter members of the board. The 5-56 police association in the municipality shall administer the initial 5-57 election of active police officer and of retiree or beneficiary 5-58 police officer members of the board. The associations shall 5-59 conduct the elections by sending and receiving ballots by mail. 5-60 (c) Only retirees who retired after October 1, 1989, and 5-61 surviving spouses of retirees who retired after October 1, 1989, 5-62 are eligible to vote or be a candidate in the initial elections for 5-63 the retiree or beneficiary representatives to the board. 5-64 (d) One active firefighter below the rank of fire chief 5-65 elected in the initial election shall serve a two-year term, and 5-66 the other active firefighter below the rank of fire chief elected 5-67 in the initial election shall serve a four-year term. One active 5-68 police officer below the rank of police chief elected in the 5-69 initial election shall serve a two-year term, and the other active 6-1 police officer below the rank of police chief elected in the 6-2 initial election shall serve a four-year term. One retiree or 6-3 beneficiary representative elected in the initial election shall 6-4 serve a two-year term, and one retiree or beneficiary 6-5 representative elected in the initial election shall serve a 6-6 four-year term. 6-7 (e) The associations shall determine by lot and indicate on 6-8 the ballots which places on the initial board are designated for 6-9 two-year or four-year terms. 6-10 SECTION 8.02. EFFECTIVE DATE. This Act takes effect October 6-11 1, 1997. 6-12 SECTION 8.03. EMERGENCY. The importance of this legislation 6-13 and the crowded condition of the calendars in both houses create an 6-14 emergency and an imperative public necessity that the 6-15 constitutional rule requiring bills to be read on three several 6-16 days in each house be suspended, and this rule is hereby suspended. 6-17 * * * * *