HBA-SEB S.B. 1128 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1128 By: Armbrister Pensions and Investments 5/10/1999 Engrossed BACKGROUND AND PURPOSE S.B. 1128 modifies certain provisions of the law that governs the Teacher Retirement System of Texas (TRS). It allows a member to change beneficiaries after retirement, creates a partial lump-sum distribution option, requires employers to report to TRS information about member and employer contributions, authorizes TRS to contract for specific insurance services, and makes other amendments. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Teacher Retirement System of Texas (TRS) in SECTION 24 (Section 3, Article 3.50-4A, Insurance Code) and SECTION 25 (Section 618.006, Government Code) and to the board of trustees of TRS in SECTION 8 (Section 824.2045, Government Code) and SECTION 25 (Section 618.004, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 822.201, Government Code, by amending Subsection (b), as amended by Chapters 330 and 1035, Acts of the 75th Legislature, Regular Session, 1997, and adding Subsection (e), as follows: (b) Provides that the requirements of Subsection (e) are a part of performance pay awarded as part of a total compensation plan for the purpose of the definition of "salary and wages." (e) Provides that a total compensation plan must describe all elements of compensation received by all employees of the employer, provide at least one type of performance pay to classroom teachers, identify specific factors about performance pay, contain sufficient information concerning the plan to ascertain the amount of each qualifying employee's pay under the plan, contain performance criteria for earning performance pay, and satisfy any other requirements adopted by the Teacher Retirement System of Texas (TRS). SECTION 2. Amends Subchapter A, Chapter 823, Government Code, by adding Section 823.006, as follows: Sec. 823.006. PERMISSIVE SERVICE CREDIT RESTRICTIONS. Defines "nonqualified service" and "permissive service credit." Provides that the purchase of permissive service credit by a person who first becomes a member of TRS after August, 31, 2000, is subject to specific restrictions and conditions in addition to all other requirements applicable to the purchase. Establishes that the purchase by any person of permissive service credit that was first made available under TRS after December 31, 1997, is subject to those same restrictions and requirements. Prohibits a member from purchasing more than five years of permissive service credit for nonqualified service. Prohibits a member from purchasing service credit for nonqualified service before the member has at least five years of membership service credit. SECTION 3. Amends Subchapter C, Chapter 823, Government Code, by adding Section 823.203, as follows: Sec. 823.203. MEMBERSHIP SERVICE FOR OPTIONAL RETIREMENT PROGRAM. Prohibits a member from establishing service credit in TRS for any period when the member was participating in the optional retirement program. SECTION 4. Amends Sections 823.501(b) and (f), Government Code, as follows: (b) Provides that a person eligible to reinstate service credit is one who is a member, rather than a contributing member, of TRS at the time the service is reinstated. (f) Makes conforming changes. SECTION 5. Amends Section 824.101(c), Government Code, to make conforming changes. SECTION 6. Amends Section 824.1011(a), Government Code, to authorize a retiree who is receiving a standard service or disability retirement annuity and who marries after retirement to replace the annuity by selecting an optional retirement annuity and designating the person's spouse as beneficiary before the second, rather than the first, anniversary of marriage. SECTION 7. Redesignates Section 824.1012, as added by Chapter 1416, Acts of the 75th Legislature, Regular Session, 1997, as Section 824.1013. Section 824.1013, as redesignated, pertains to a change of beneficiary after retirement. SECTION 8. Amends Subchapter C, Chapter 824, Government Code, by adding Section 824.2045, as follows: Sec. 824.2045. PARTIAL LUMP-SUM OPTION. (a) Authorizes a member to select a standard service retirement annuity or an optional service retirement annuity, together with a partial lump-sum distribution, if the member is eligible for an unreduced service retirement annuity and is not participating in the deferred retirement option plan (DROP). (b) Prohibits the amount of the lump-sum distribution from exceeding the sum of 36 months of a standard service retirement annuity. (c) Requires the service retirement annuity selected by the member to be actuarially reduced to reflect the lump-sum option selected be the member. Requires the service retirement annuity to be actuarially equivalent to a standard or optional service retirement annuity, as applicable, without the partial lump-sum distribution. Requires the annuity and lump sum to be computed to result in no actuarial loss to TRS. (d) Authorizes the retiring member to choose a lump sum equal to 12 months of a standard service retirement annuity and payable at the same time that the first monthly payment of the annuity is paid, a lump sum equal to 24 months of a standard annuity and payable in one or two annual payments, or a lump sum equal to 36 months of a standard annuity and payable in one, two, or three annual payments. (e) Provides that the amount of the lump-sum distribution will be deducted from any amounts otherwise payable under Section 824.503 (Return of Excess Contributions). (f) Authorizes the partial lump-sum option to be elected only once by a member and prohibits it from being elected by a retiree. Provides that a member retiring under the proportionate retirement program is not eligible for the partial lump-sum distribution. (g) Authorizes the board of trustees of TRS (board) to adopt rules for the implementation of this section. SECTION 9. Amends Section 824.502, Government Code, to provide that a person eligible to elect to receive benefits on the death of an active member, instead of survivor benefits, is a person who has not selected optional disability retirement benefits. SECTION 10. Amends Sections 824.602(a) and (d), Government Code, as follows: (a) Prohibits TRS from withholding a monthly benefit payment if the retiree is employed in a Texas public educational institution in one or more positions on as much as a full-time basis if the work occurs in not more than six months of a school year that begins after the retiree's effective date of retirement. Makes conforming changes. (d) Makes conforming changes. SECTION 11. Amends Section 824.804(a), Government Code, to require TRS to transfer monthly from the retired reserve account to an account for a member in DROP an amount equal to 59, rather than 79, percent of the amount the member would have received that month under a standard service retirement annuity if the member had retired under the multiplier currently in effect, rather than on the effective date of participation in DROP. SECTION 12. Amends Section 824.805, Government Code, to provide that a member terminates participation in DROP by retirement, death, or expiration of the approved participation period, with an exception. Authorizes a member participating in DROP on September 1, 1999, to elect to continue participation in DROP before September 1, 2000, on a specific form. Requires TRS to make account transfers and change records for a member who elects to discontinue participation in DROP as if the member had never participated in DROP. SECTION 13. Amends Section 825.103(a), Government Code, to authorize the board to delegate responsibility, discretion, and authority to employees, investment managers, custodians, and other agencies and entities in the manner that a prudent person would delegate under the circumstances. Requires the board to act with prudence and in the exclusive best interests of the members and beneficiaries of TRS in deciding whether and how to delegate and in the selection and supervision of those to whom it has delegated. SECTION 14. Amends Section 825.301, Government Code, as follows: Sec. 825.301. INVESTMENT OF ASSETS. (a) Defines "securities" for the purposes of the board's investment authority. (b) Authorizes the board to contract with one or more professional investment managers. Provides the eligibility requirements for an investment manager. Authorizes an appointed investment manager to be authorized to invest, reinvest, select, purchase, manage, retain, exchange, sell, or otherwise acquire or dispose of investments or interests in investments on behalf of TRS. Requires the board to exercise reasonable care, skill, and caution in appointing investment mangers, establishing the scope and terms of the delegation with due regard for the purposes of and laws governing TRS, and periodically reviewing an investment manager's compliance with the terms of the delegation. Requires the board to adopt policies and procedures for monitoring the performance of the board's investment managers. Establishes that the board and an individual member of the board or an employee of TRS are not liable for the acts, omissions, or decisions of an investment manager to whom fiduciary responsibilities have been properly delegated. (c) Deletes existing text requiring a performance measure service to compare the investment of the assets being evaluated and analyzed with the investment of other public funds. (d) Makes no change. (e) Requires the board to develop written investment strategies, policies, and guidelines. Authorizes the board to adopt a statement that provides the expected rate of return on system assets generally, the expected rates of return and acceptable levels of risk for each investment class in light of prevailing circumstances, asset allocation goals, guidelines for delegation of authority to TRS employees and the board's professional investment staff, information about the types of reports to be used to evaluate investment performance, and any other relevant considerations. Requires the board to review any statement adopted and to modify or reaffirm it at least biennially. (f) Requires an appointed professional investment manager to acknowledge in writing that the investment manager assumes fiduciary responsibilities to TRS and its members and beneficiaries. Requires an investment manager to perform its responsibilities to the system with the care, skill, diligence, and caution of a prudent person and with the same aims and in accordance with the documents governing the delegation of responsibilities by the board. (g) Provides that a professional investment manager assuming fiduciary responsibilities to TRS is considered to agree that the laws of this state govern the performance of its responsibilities to TRS and to submit to the jurisdiction of the courts of this state. Establishes that venue of action involving a breach of duty owed by an investment manager to TRS or its members and beneficiaries is in Travis County. (h) Provides that the selection by TRS of professionals and other agents and consultants, actuaries, accountants, and attorneys to provide services necessary for the performance of the fiduciary duties of the board is exempt from all requirements that would otherwise be applicable to TRS. SECTION 15. Amends the heading of Section 825.303, Government Code, to read as follows: Sec. 825.303. New title: SECURITIES CUSTODY AND SECURITIES LENDING. SECTION 16. Amends Section 825.303(a), Government Code, to authorize TRS to select one or more commercial banks, depository trust companies, or other entities to act independently of the custodian and lend the securities under board rules as required by this section. SECTION 17. Amends Section 825.405(c), Government Code, to require employers, on a monthly basis, to report to TRS in a specific form a certification of the total amount of salary paid above the statutory minimum salary and the total amount of employer contributions due for the payroll period. Requires employers, monthly, to also retain information, as determined by TRS, sufficient to allow the administration of this section (Tables for Determination of Death Benefit Annuity). SECTION 18. Amends Section 825.406(c), Government Code, to require employers, on a monthly basis, to report to TRS in a specific form a certification of the total amount of salary paid from federal funds and private grants and the total amounts provided by the funds and grants for state contributions for the employees. Requires employers, monthly, to also retain specific information. Redesignates Subdivisions (1)-(5) to Subdivisions (2)(A)-(E). SECTION 19. Amends Section 825.407(c), Government Code, to require the designated disbursing officer of each general academic teaching institution and of each medical and dental unit to submit to TRS, at a time and in a manner prescribed by TRS, a monthly report containing a certification of the total amount of salary paid from noneducational and general funds and the total amount of employer contributions due for the payroll period and to maintain specific information. Redesignates Subdivisions (1), (2), and (4) to Subdivisions (2)(A), (2)(B), and (2)(C), respectively. Makes a conforming change. SECTION 20. Amends Section 825.408(a), Government Code, to require an employing district that fails to remit documentation of all member and all employer deposits within a specific time frame each month to pay to TRS interest on the undocumented amounts at an annual rate compounded monthly. SECTION 21. Amends Section 825.515, Government Code, to require TRS, at least annually, to acquire and maintain records identifying members and the types of positions they hold as members. Requires the type of position to be identified as Administrative/Professional, Teacher/Full-Time Librarian, or Bus Driver. Deletes existing text requiring specific information to be provided to the commissioner of education. SECTION 22. Amends Sections 825.516(a) and (b), Government Code, to authorize a retiree who is receiving an annuity from TRS to request TRS to withhold membership dues from the member's annuity for a nonprofit association of retired school employees in this state if the association is statewide and its membership includes at least five percent of all retirees of TRS. Authorizes, rather than requires, TRS to make requested deductions within a specific time frame. SECTION 23. Amends Section 16A(d), Article 3.50-4, Insurance Code, to make conforming changes. SECTION 24. Amends Subchapter E, Chapter 3, Insurance Code, by adding Article 3.50-4A, as follows: ART. 3.50-4A. INSURANCE FOR SCHOOL DISTRICT EMPLOYEES AND RETIREES Sec. 1. DEFINITIONS. Defines "employee," "retiree," and "trustee." Sec. 2. INSURANCE COVERAGE. (a) Requires TRS, as trustee, to contract with one or more carriers authorized to provide life insurance in this state to offer employees and retirees optional permanent life insurance coverage. (b) Requires TRS to contract with one or more carriers authorized to provide long-term health care insurance in this state to offer employees and retirees optional long-term health insurance coverage. Requires the long-term insurance coverage to include home, community, and institutional care. (c) Requires TRS to contract with one or more carriers authorized to provide disability insurance in this state to offer employees optional insurance against short-term or longterm loss of salary because of a disability. (d) Requires competitive bidding to be required under rules adopted by TRS. Authorizes the rules to provide criteria to determine qualified carriers. Provides that TRS is not required to select the lowest bid, but may consider ability to service contracts, past experience, financial stability, and other relevant criteria. Requires deviation from a contract to be recorded and the reasons for the deviation to be fully justified in the minutes of the next TRS meeting. (e) Requires insurance coverage provided under this section to be made available periodically during open enrollment periods determined by TRS. Sec. 3. ADMINISTRATION. Requires TRS to adopt rules for the selection of contractors. Provides that the rules must require the contractors to administer enrollment, adjudication of claims, and coordination of services under the insurance coverages and must require the contractors to account for premiums collected and disbursed. Authorizes TRS to adopt other rules necessary to administer the program under this article. Sec. 4. PARTICIPATION IN COVERAGE. Requires TRS to offer the coverages to employees through their employers and to retirees through the administration of TRS. Establishes that the full cost of premiums in a plan of insurance coverage is the responsibility of the enrollees. Requires an employee participating in a plan of insurance coverage to pay premiums by payroll deduction at the times and in the manner provided by TRS. Requires a retiree participating in a plan of insurance coverage to pay premiums by deduction from the retiree's monthly retirement annuity. Sec. 5. SCHOOL DISTRICT EMPLOYEES AND RETIREES OPTIONAL INSURANCE TRUST FUND. Creates the school district employees and retirees optional insurance trust fund as a trust fund with the comptroller and administered by TRS on behalf of the participants in the plans of insurance coverage. Requires premiums paid by enrollees, amounts recovered under contracts, and investment and depository income to be credited to the fund. Authorizes money in the fund to be used only for the purpose of providing the program of insurance coverage, including the expenses of administering the program. Authorizes TRS to invest the fund in the manner provided by Section 67(a)(3), Article XVI, Texas Constitution (regarding the investment of funds of state and local retirement systems). SECTION 25. Amends Subtitle A, Title 6, Government Code, by adding Chapter 618, as follows: CHAPTER 618. ANNUITIES OR INVESTMENTS FOR EDUCATIONAL EMPLOYEES Sec. 618.001. DEFINITION. Defines "retirement system." Sec. 618.002. ESTABLISHMENT OF PLAN. Provides that the board is the trustee of a plan it shall establish under this chapter to offer contributing members of the retirement system the opportunity to purchase certain annuities or investments. Sec. 618.003. ADMINISTRATION OF PLAN. Requires the board to contract with one or more persons to administer the plan. Sec. 618.004. SELECTION OF VENDORS AND PRODUCTS. Requires the board to adopt rules for the selection of companies to provide annuities or other investment products under the plan. Establishes that the rules must provide for the selection of vendors of a wide variety of annuities or other investment products. Requires the board to select vendors for the plan under the process it adopts by rule. Provides that a vendor or investment product having an ownership or other financial interest in a contractor selected by TRS to administer the plan is not qualified to be selected as a vendor or investment product under the plan. Requires the board to select vendors or investment products based on the quality of investment performance, proven ability to manage institutional assets, minimum net worth requirements, fee structure, compliance with applicable federal and state laws, and other criteria established by the board. Requires the board to determine the minimum and maximum number of vendors and investment products that may be offered under the plan at any particular time. Sec. 618.005. ELIGIBILITY AND ELECTION TO PARTICIPATE. Establishes that a contributing member of TRS is eligible to participate in the plan established under this chapter. Provides that participation is in addition to participation as a contributing member of TRS. Authorizes an eligible person to elect to participate on a form prescribed by and filed with TRS. Provides that a participant must execute a salary reduction agreement under which contributions for the purchase of annuities or other investment products under the plan are deducted from the participant's salary. Establishes that persons employed by an institution of higher education offering certain annuities or other investments are not eligible to participate in this plan. Sec. 618.006. RULES. Authorizes TRS to adopt other rules for the administration of the plan and this chapter. SECTION 26. Amends Sections 22.004(c) and (d), Education Code, as follows: (c) Requires each district to report the district's compliance with this subsection to the executive director of TRS not later than March 1 of each even-numbered year, rather than November 1 of each year. Provides that the report must be based on the district group coverage plan in effect during the current plan year. Makes a conforming change. (d) Requires the executive director to submit a report to the legislature not later than September 1 of each even-numbered year, rather than January 1 of each odd-numbered year, describing the status of each district's group health coverage program based on the information contained in the report under Subsection (c) and a specific certification. SECTION 27. Establishes that monthly benefits of a death or retirement benefit annuity by TRS are increased beginning with the payment due at the end of September 1999. Provides that the increase does not apply to payments under Section 824.304(a) (regarding disability retirement benefits for a person with less that 10 years of service credit), 824.404 (Survivor Benefits), or 824.501 (Survivor Benefits), Government Code. Sets forth the computation for the amount of the monthly increase, ranging from five to seven percent, depending upon the latest retirement date or, if applicable, date of death. Requires TRS to increase each annuity on September 1, 1999, other than an annuity under Section 824.304(a), 824.404, or 824.501, Government Code, by 10 percent, which is a benefit equivalent to the benefit provided by using a 2.2 percent multiplier for computing annuities. SECTION 28. (a) Authorizes a person, before September 1, 2000, to replace an annuity by selecting an optional annuity and designating the person's spouse as beneficiary if the person is receiving a standard service or disability retirement annuity and married after retirement but before September 1, 1999. Provides that this subsection applies notwithstanding Section 824.1011, Government Code, as amended by this Act, and as if the person had married after September 1, 1999. (b) Authorizes a person receiving a standard disability retirement annuity on the effective date of this Act to replace the annuity before September 1, 2001, by selecting an optional annuity described by Section 824.308, Government Code (Optional Disability Retirement Benefits), if the person retired before September 1, 1992. Requires an optional annuity selected under this subsection to be actuarially reduced according to the ages of the retiree and the designated beneficiary at the time the annuity is selected. Provides that this subsection applies notwithstanding Section 824.1011, Government Code, as amended by this Act. SECTION 29. Effective date: September 1, 1999. SECTION 30. Emergency clause.