By:  Wentworth, Nixon                                 S.B. No. 1179
                                A BILL TO BE ENTITLED
                                       AN ACT
 1-1     relating to an optional defined contribution retirement plan for
 1-2     persons eligible to participate in the Employees Retirement System
 1-3     of Texas.
 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-5           SECTION 1.  Subtitle B, Title 8, Government Code, is amended
 1-6     by adding Chapter 820 to read as follows:
 1-7              CHAPTER 820.  OPTIONAL DEFINED CONTRIBUTION PLAN
 1-8           Sec. 820.001.  DEFINITIONS.  In this chapter:
 1-9                 (1)  "Optional defined contribution plan" means the
1-10     plan established under this chapter.
1-11                 (2)  "Qualified plan" means an employee benefit plan
1-12     qualified under Section 401(a), Internal Revenue Code of 1986, as
1-13     amended.
1-14           Sec. 820.002.  ESTABLISHMENT OF PLAN.  (a)  The retirement
1-15     system shall establish and administer an optional defined
1-16     contribution plan that is a qualified plan and under which persons
1-17     eligible for membership in the system may elect to pay
1-18     contributions to the optional defined contribution plan for the
1-19     purchase of investment products selected by the participant from
1-20     among products that are authorized to be provided under a qualified
1-21     plan and that are offered by companies authorized to provide the
1-22     products in this state and selected by the retirement system under
1-23     Subsection (b).
1-24           (b)  The retirement system shall adopt rules for the
 2-1     selection of companies to provide investment products under the
 2-2     optional defined contribution plan.  The rules must provide for the
 2-3     selection of vendors of a wide variety of investment products
 2-4     authorized for a qualified plan.  The retirement system shall
 2-5     select vendors every two years.
 2-6           (c)  A provider of investment products is exempt from the
 2-7     payment of franchise or premium taxes on products issued under the
 2-8     optional defined contribution plan.
 2-9           Sec. 820.003.  ELIGIBILITY AND ELECTION TO PARTICIPATE IN
2-10     PLAN.  (a)  A person who holds a position included in the coverage
2-11     of the retirement system is eligible to participate in the optional
2-12     defined contribution plan unless the person is participating in the
2-13     optional retirement program under Chapter 830.
2-14           (b)  Participation in the optional defined contribution plan
2-15     is an alternative to participation as a contributing member of the
2-16     retirement system for the same period.
2-17           (c)  A person eligible to participate in the optional defined
2-18     contribution plan may elect to participate in the plan not later
2-19     than the 90th day after the date the person begins service in a
2-20     position included in the coverage of the retirement system.  The
2-21     election must be on a form prescribed by and filed with the
2-22     retirement system.  If a person does not make an election as
2-23     provided by this subsection, the person is considered to have
2-24     elected to begin or continue active membership in the retirement
2-25     system.
2-26           (d)  An election made under this section is irrevocable
 3-1     except as provided by Section 820.007.
 3-2           Sec. 820.004.  EFFECT OF EMPLOYMENT CHANGES.  A person
 3-3     participating in the optional defined contribution plan continues
 3-4     to participate in the plan when the person changes employment to
 3-5     another position included in the coverage of the retirement system.
 3-6           Sec. 820.005.  WITHDRAWAL OF RETIREMENT SYSTEM CONTRIBUTIONS.
 3-7     A person who participates in the optional defined contribution plan
 3-8     may withdraw accumulated contributions from the retirement system
 3-9     in the manner and with the effect provided by Subchapter B, Chapter
3-10     812.
3-11           Sec. 820.006.  VESTING OF BENEFITS; TERMINATION OF
3-12     PARTICIPATION.  (a)  Benefits in the optional defined contribution
3-13     plan vest in a participant on the first anniversary of the person's
3-14     participation in the plan.
3-15           (b)  A person terminates participation in the optional
3-16     defined contribution program, without losing any vested benefits,
3-17     by:
3-18                 (1)  death;
3-19                 (2)  retirement; or
3-20                 (3)  termination of employment in all positions
3-21     included in the coverage of the retirement system.
3-22           (c)  The benefits of a product purchased under the optional
3-23     defined contribution plan become available under the terms of the
3-24     product but not before the member terminates participation as
3-25     provided by Subsection (b) or attains the age of 70-1/2 years.
3-26           Sec. 820.007.  RESUMPTION OF RETIREMENT SYSTEM MEMBERSHIP.  A
 4-1     participant in the optional defined contribution plan is not
 4-2     eligible to begin or resume active membership in the retirement
 4-3     system unless the person terminates participation under Section
 4-4     820.006 and assumes or resumes, after the month following the month
 4-5     in which plan participation is terminated, a position included in
 4-6     the coverage of the retirement system.  A person who so assumes or
 4-7     resumes a position becomes an active member of the retirement
 4-8     system unless the member elects to resume participation in the
 4-9     optional defined contribution plan in the manner and within the
4-10     time provided for beginning participation under Section 820.003.
4-11           Sec. 820.008.  CREDITABLE SERVICE.  A member may not
4-12     establish in the retirement system credit for service performed
4-13     during a period the person was participating in the optional
4-14     defined contribution plan.
4-15           Sec. 820.009.  INVESTMENT ADVISORY FEES.  (a)  A participant
4-16     in the optional defined contribution plan may authorize the payment
4-17     of investment advisory fees from the amount in the participant's
4-18     custodial account or product if:
4-19                 (1)  the investment advisory fees for each fiscal year
4-20     do not exceed two percent of the annual value of the participant's
4-21     custodial account or product as of the last day of that fiscal
4-22     year;
4-23                 (2)  the fees comply with applicable regulations of the
4-24     Securities and Exchange Commission;
4-25                 (3)  the investment advisor to whom the fees are paid
4-26     is registered with the Securities and Exchange Commission under the
 5-1     Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.)
 5-2     and its subsequent amendments and is engaged full-time in the
 5-3     business of providing investment advice;
 5-4                 (4)  the participant and the investment advisor enter
 5-5     into a contract for services that may be terminated by either party
 5-6     at any time and that provides for the payment of fees as provided
 5-7     by this section; and
 5-8                 (5)  the retirement system has received an official
 5-9     determination from the Internal Revenue Service that payment of
5-10     investment advisory fees as prescribed by this section is not a
5-11     distribution of funds that is prohibited or subject to taxation and
5-12     penalty under the Internal Revenue Code of 1986, as amended.
5-13           (b)  The executive director of the retirement system shall
5-14     request an official determination from the Internal Revenue Service
5-15     concerning whether the payment of investment advisory fees as
5-16     prescribed by this section is a distribution of funds that is
5-17     prohibited or subject to taxation and penalty under the Internal
5-18     Revenue Code of 1986, as amended.  If the executive director
5-19     receives an official determination from the Internal Revenue
5-20     Service as specified by this subsection, the executive director
5-21     shall file the determination with the secretary of state's office
5-22     for publication in the Texas Register.
5-23           Sec. 820.010.  CONTRIBUTIONS.  (a)  A participant in the
5-24     optional defined contribution plan shall make contributions to the
5-25     plan at the same rate that a member of the retirement system is
5-26     required to make for current service, and the state shall make
 6-1     contributions to the plan for each participant at the same rate as
 6-2     is made for contributing members of the retirement system.
 6-3           (b)  A participant in the optional defined contribution plan
 6-4     and the participant's employer shall execute an agreement under
 6-5     which the salary of the participant is reduced by the amount of the
 6-6     contribution required by Subsection (a).  An agreement under this
 6-7     subsection is irrevocable until the participant terminates
 6-8     participation in the plan under Section 820.006.
 6-9           (c)  Participant contributions shall be made in the manner
6-10     provided by Section 815.402, and state contributions shall be made
6-11     in the manner provided by Section 815.403.
6-12           Sec. 820.011.  EXCESS BENEFIT ARRANGEMENT.  The retirement
6-13     system may establish a governmental excess benefit arrangement as
6-14     provided by Section 415(m), Internal Revenue Code of 1986, as
6-15     amended, for the purpose of providing to participants in the
6-16     optional defined contribution plan any portion of a participant's
6-17     benefits that would otherwise be payable under the terms of the
6-18     plan except for the limitation on benefits imposed by Section 415,
6-19     Internal Revenue Code of 1986, as amended.
6-20           Sec. 820.012.  ENROLLMENT AND ANNUAL FEE; ACCOUNT.  (a)  A
6-21     person who elects to participate in the optional defined
6-22     contribution plan shall pay an enrollment fee of $15 and an annual
6-23     administrative fee of $10 accompanied by a form prescribed by and
6-24     filed with the retirement system.
6-25           (b)  Fees collected under this section shall be deposited to
6-26     the credit of the Employees Retirement System of Texas optional
 7-1     defined contribution account in the general revenue fund and may be
 7-2     appropriated only to the retirement system for administration of
 7-3     this chapter.
 7-4           Sec. 820.013.  RULES.  The retirement system may adopt any
 7-5     rules necessary to administer this chapter.
 7-6           SECTION 2.  Subsection (a), Section 812.101, Government Code,
 7-7     is amended to read as follows:
 7-8           (a)  A member of the retirement system may withdraw all of
 7-9     the member's accumulated contributions for service credited in the
7-10     employee class of membership if:
7-11                 (1)  the member does not hold a position included in
7-12     that class or is participating in the optional defined contribution
7-13     plan under Chapter 820;
7-14                 (2)  the member does not assume or resume, during the
7-15     calendar month following the month in which the member terminates
7-16     employment, a position included in that class; and
7-17                 (3)  the member's application for withdrawal is filed
7-18     before the member assumes or resumes a position included in that
7-19     class.
7-20           SECTION 3.  Subsections (b), (d), and (e), Section 815.403,
7-21     Government Code, are amended to read as follows:
7-22           (b)  Before November 2 of each even-numbered year, the
7-23     retirement system shall certify to the Legislative Budget Board and
7-24     to the budget division of the governor's office for review:
7-25                 (1)  an estimate of the amount necessary to pay the
7-26     state's contribution under Subsections (a)(1), (a)(2), (a)(3), and
 8-1     (a)(5) for the following biennium; [and]
 8-2                 (2)  as a separate item, an estimate of the amount
 8-3     required to administer the law enforcement and custodial officer
 8-4     supplemental retirement fund for the following biennium; and
 8-5                 (3)  an estimate of the amount necessary to pay the
 8-6     state's contribution under Section 820.010(a).
 8-7           (d)  Before September 1 of each year, the retirement system
 8-8     shall certify to the state comptroller of public accounts:
 8-9                 (1)  an estimate of the amount necessary to pay the
8-10     state's contribution under Subsection (a)(1) for the following
8-11     fiscal year;
8-12                 (2)  an estimate of the amount necessary to pay
8-13     membership fees for the following fiscal year, if the legislature
8-14     has appropriated money for that purpose; [and]
8-15                 (3)  an estimate of the amount required to pay lump-sum
8-16     death benefits for retirees under Section 814.501 for the following
8-17     fiscal year; and
8-18                 (4)  an estimate of the amount necessary to pay the
8-19     state's contribution under Section 820.010(a) for the following
8-20     fiscal year.
8-21           (e)  All money allocated and appropriated by the state to the
8-22     retirement system for benefits provided by the retirement system,
8-23     except money for the payment of lump-sum death benefits, [and] for
8-24     the payment of benefits from the law enforcement and custodial
8-25     officer supplemental retirement fund, and for the payment of the
8-26     state's contribution under Section 820.010(a), shall be paid, based
 9-1     on the annual estimate of the retirement system, in monthly
 9-2     installments to the state accumulation fund.  The money required
 9-3     for state contributions and membership fees shall be from
 9-4     respective funds appropriated to pay the compensation of the member
 9-5     for whose benefit the contribution or fee is paid.  If the total of
 9-6     the estimated required payments is not equal to the total of the
 9-7     actual payments required for a fiscal year, the retirement system
 9-8     shall certify to the state comptroller of public accounts at the
 9-9     end of that year the amount required for necessary adjustments, and
9-10     the comptroller shall make the required adjustments.
9-11           SECTION 4.  (a)  The Employees Retirement System of Texas
9-12     shall offer participation in the optional defined contribution plan
9-13     described by Chapter 820, Government Code, as added by this Act,
9-14     beginning September 1, 2000.
9-15           (b)  Notwithstanding Subsection (c), Section 820.003,
9-16     Government Code, as added by this Act, a contributing member of the
9-17     Employees Retirement System of Texas who has not more than five
9-18     years of service credit in the retirement system on September 1,
9-19     2000, may elect to participate in the optional defined contribution
9-20     plan in the manner provided by Section 820.003 not later than
9-21     November 30, 2000.
9-22           (c)  A contributing member of the Employees Retirement System
9-23     of Texas may, during the summer enrollment period in 1999 for other
9-24     programs administered by the retirement system, pay a preenrollment
9-25     fee of $15 and an annual administrative fee of $10 to cover the
9-26     first year of participation in the optional defined contribution
 10-1    plan provided under Chapter 820, Government Code, as added by this
 10-2    Act.  Notwithstanding Section 820.012, Government Code, as added by
 10-3    this Act, the enrollment fee for a person who makes an election
 10-4    under Subsection (b) of this section  is $30 and the first year's
 10-5    annual administrative fee is $20.
 10-6          SECTION 5.  The importance of this legislation and the
 10-7    crowded condition of the calendars in both houses create an
 10-8    emergency and an imperative public necessity that the
 10-9    constitutional rule requiring bills to be read on three several
10-10    days in each house be suspended, and this rule is hereby suspended,
10-11    and that this Act take effect and be in force from and after its
10-12    passage, and it is so enacted.