By Isett H.B. No. 2031
77R5547 GJH-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to an optional defined contribution retirement plan for
1-3 persons eligible to participate in the Employees Retirement System
1-4 of Texas.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Subtitle B, Title 8, Government Code, is amended
1-7 by adding Chapter 820 to read as follows:
1-8 CHAPTER 820. OPTIONAL DEFINED CONTRIBUTION PLAN
1-9 Sec. 820.001. DEFINITIONS. In this chapter:
1-10 (1) "Optional defined contribution plan" means the
1-11 plan established under this chapter.
1-12 (2) "Qualified plan" means an employees deferred
1-13 compensation plan qualified under Section 401(k) or Section 457,
1-14 Internal Revenue Code of 1986, and regulations adopted under those
1-15 sections.
1-16 Sec. 820.002. ESTABLISHMENT OF PLAN. (a) The retirement
1-17 system shall establish and administer an optional defined
1-18 contribution plan that uses a qualified plan and under which
1-19 persons eligible for membership in the system may elect to pay
1-20 contributions to the optional defined contribution plan for the
1-21 purchase of investment products selected by the participant from
1-22 among products that are authorized to be provided under a qualified
1-23 plan and that are offered by companies authorized to provide the
1-24 products in this state and selected by the board of trustees under
2-1 Subsection (b).
2-2 (b) The board of trustees shall adopt rules for the
2-3 selection of companies to provide investment products under the
2-4 optional defined contribution plan. The rules must provide for the
2-5 selection of vendors of a variety of investment products authorized
2-6 for a qualified plan. The retirement system shall select vendors
2-7 every two years.
2-8 (c) A provider of investment products is exempt from the
2-9 payment of franchise or premium taxes on products issued under the
2-10 optional defined contribution plan.
2-11 Sec. 820.003. ELIGIBILITY AND ELECTION TO PARTICIPATE IN
2-12 PLAN. (a) A person who holds a position included in the coverage
2-13 of the retirement system is eligible to participate in the optional
2-14 defined contribution plan unless the person is participating in the
2-15 optional retirement program under Chapter 830.
2-16 (b) Participation in the optional defined contribution plan
2-17 is an alternative to participation as a contributing member of the
2-18 retirement system for the same period.
2-19 (c) A person eligible to participate in the optional defined
2-20 contribution plan may elect to participate in the plan not later
2-21 than the 90th day after the date the person begins service in a
2-22 position included in the coverage of the retirement system. The
2-23 election must be on a form prescribed by and filed with the board
2-24 of trustees. If a person does not make an election as provided by
2-25 this subsection, the person is considered to have elected to begin
2-26 or continue active membership in the retirement system.
2-27 (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 benefits attributable to contributions in the manner
3-9 and with the effect provided by Subchapter B, Chapter 812.
3-10 Sec. 820.006. VESTING OF BENEFITS; TERMINATION OF
3-11 PARTICIPATION. (a) Benefits in the optional defined contribution
3-12 plan that are attributable to a member's contribution under Section
3-13 820.010(a) vest in a participant immediately.
3-14 (b) Benefits in the optional defined contribution plan that
3-15 are attributable to the state's contribution under Section
3-16 820.010(a) vest in a participant as follows:
3-17 (1) 20 percent on the first anniversary of the
3-18 person's participation in the plan;
3-19 (2) 40 percent on the second anniversary of the
3-20 person's participation in the plan;
3-21 (3) 60 percent on the third anniversary of the
3-22 person's participation in the plan;
3-23 (4) 80 percent on the fourth anniversary of the
3-24 person's participation in the plan; and
3-25 (5) 100 percent on the fifth anniversary of the
3-26 person's participation in the plan.
3-27 (c) A person terminates participation in the optional
4-1 defined contribution plan, without losing any vested benefits, by:
4-2 (1) death;
4-3 (2) retirement; or
4-4 (3) termination of employment in all positions
4-5 included in the coverage of the retirement system.
4-6 (d) The benefits of a product purchased under the optional
4-7 defined benefit plan become available under the terms of the
4-8 product but not before the member terminates participation under
4-9 Subsection (c) or attains 70-1/2 years of age.
4-10 (e) Benefits in the optional defined contribution plan that
4-11 are attributable to the state's contribution under Section
4-12 820.010(a) that are not vested in a participant who terminates
4-13 participation shall be used to offset the amount of state
4-14 contributions under Section 820.010(a).
4-15 Sec. 820.007. RESUMPTION OF RETIREMENT SYSTEM MEMBERSHIP. A
4-16 participant in the optional defined contribution plan is not
4-17 eligible to begin or resume active membership in the retirement
4-18 system unless the person terminates participation under Section
4-19 820.006 and assumes or resumes, after the month following the month
4-20 in which plan participation is terminated, a position included in
4-21 the coverage of the retirement system. A person who assumes or
4-22 resumes a position becomes an active member of the retirement
4-23 system unless the member elects to resume participation in the
4-24 optional defined contribution plan in the manner and within the
4-25 time provided for beginning participation under Section 820.003.
4-26 Sec. 820.008. CREDITABLE SERVICE. A member may not
4-27 establish in the retirement system credit for service performed
5-1 during a period the person was participating in the optional
5-2 defined contribution plan.
5-3 Sec. 820.009. INVESTMENT ADVISORY FEES. (a) A participant
5-4 in the optional defined contribution plan may authorize the payment
5-5 of investment advisory fees from the amount in the participant's
5-6 custodial account or product if:
5-7 (1) the investment advisory fees for each fiscal year
5-8 do not exceed two percent of the annual value of the participant's
5-9 custodial account or product as of the last day of that fiscal
5-10 year;
5-11 (2) the fees comply with applicable regulations of the
5-12 Securities and Exchange Commission;
5-13 (3) the investment advisor to whom the fees are paid
5-14 is registered with the Securities and Exchange Commission under the
5-15 Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.)
5-16 and regulations adopted under that Act and is engaged full-time in
5-17 the business of providing investment advice;
5-18 (4) the participant and the investment advisor enter
5-19 into a contract for services that may be terminated by either party
5-20 at any time and that provides for the payment of fees as provided
5-21 by this section; and
5-22 (5) the retirement system has received an official
5-23 determination from the Internal Revenue Service that payment of
5-24 investment advisory fees as prescribed by this section is not a
5-25 distribution of funds that is prohibited or subject to taxation and
5-26 penalty under the Internal Revenue Code of 1986 and regulations
5-27 adopted under that code.
6-1 (b) The executive director of the retirement system shall
6-2 request an official determination from the Internal Revenue Service
6-3 concerning whether the payment of investment advisory fees as
6-4 prescribed by this section is a distribution of funds that is
6-5 prohibited or subject to taxation and penalty under the Internal
6-6 Revenue Code of 1986 and regulations adopted under that code. If
6-7 the executive director receives an official determination from the
6-8 Internal Revenue Service as specified by this subsection, the
6-9 executive director shall file the determination with the secretary
6-10 of state's office for publication in the Texas Register.
6-11 Sec. 820.010. CONTRIBUTIONS. (a) A participant in the
6-12 optional defined contribution plan shall make contributions to the
6-13 plan at the same rate that a member of the retirement system is
6-14 required to make for current service, and the state shall make
6-15 contributions to the plan for each participant at the same rate as
6-16 is made for contributing members of the retirement system.
6-17 (b) A participant in the optional defined contribution plan
6-18 and the participant's employer shall execute an agreement under
6-19 which the salary of the participant is reduced by the amount of the
6-20 contribution required by Subsection (a). An agreement under this
6-21 subsection is irrevocable until the participant terminates
6-22 participation in the plan under Section 820.006.
6-23 (c) Participant contributions shall be made in the manner
6-24 provided by Section 815.402, and state contributions shall be made
6-25 in the manner provided by Section 815.403.
6-26 Sec. 820.011. EXCESS BENEFIT ARRANGEMENT. The retirement
6-27 system may establish a governmental excess benefit arrangement as
7-1 provided by Section 415(m), Internal Revenue Code of 1986, and
7-2 regulations adopted under that section, for the purpose of
7-3 providing to participants in the optional defined contribution plan
7-4 any portion of a participant's benefits that would otherwise be
7-5 payable under the terms of the plan except for the limitation on
7-6 benefits imposed by Section 415, Internal Revenue Code of 1986, and
7-7 regulations adopted under that section.
7-8 Sec. 820.012. RULES. The board of trustees may adopt any
7-9 rules necessary to administer this chapter.
7-10 SECTION 2. Section 812.101(a), Government Code, is amended
7-11 to read as follows:
7-12 (a) A member of the retirement system may withdraw all of
7-13 the member's accumulated contributions for service credited in the
7-14 employee class of membership if:
7-15 (1) the member does not hold a position included in
7-16 that class or is participating in the optional defined contribution
7-17 plan under Chapter 820;
7-18 (2) the member does not assume or resume, during the
7-19 30 days after the date on which the member terminates employment, a
7-20 position included in that class; and
7-21 (3) the member's application for withdrawal is filed
7-22 before the member assumes or resumes a position included in that
7-23 class.
7-24 SECTION 3. Sections 815.403(b), (d), and (e), Government
7-25 Code, are amended to read as follows:
7-26 (b) Before November 2 of each even-numbered year, the
7-27 retirement system shall certify to the Legislative Budget Board and
8-1 to the budget division of the governor's office for review:
8-2 (1) an estimate of the amount necessary to pay the
8-3 state's contribution under Subsections (a)(1), (a)(2), (a)(3), and
8-4 (a)(5) for the following biennium; [and]
8-5 (2) as a separate item, an estimate of the amount
8-6 required to administer the law enforcement and custodial officer
8-7 supplemental retirement fund for the following biennium; and
8-8 (3) an estimate of the amount necessary to pay the
8-9 state's contribution under Section 820.010(a) for the following
8-10 biennium.
8-11 (d) Before September 1 of each year, the retirement system
8-12 shall certify to the state comptroller of public accounts:
8-13 (1) an estimate of the amount necessary to pay the
8-14 state's contribution under Subsection (a)(1) for the following
8-15 fiscal year;
8-16 (2) an estimate of the amount necessary to pay
8-17 membership fees for the following fiscal year, if the legislature
8-18 has appropriated money for that purpose; [and]
8-19 (3) an estimate of the amount required to pay lump-sum
8-20 death benefits for retirees under Section 814.501 for the following
8-21 fiscal year; and
8-22 (4) an estimate of the amount necessary to pay the
8-23 state's contribution under Section 820.010(a) for the following
8-24 fiscal year.
8-25 (e) All money allocated and appropriated by the state to the
8-26 retirement system for benefits provided by the retirement system,
8-27 except money for the payment of lump-sum death benefits, [and] for
9-1 the payment of benefits from the law enforcement and custodial
9-2 officer supplemental retirement fund, and for the payment of the
9-3 state's contribution under Section 820.010(a), shall be paid, based
9-4 on the annual estimate of the retirement system, in monthly
9-5 installments to the state accumulation fund. The money required
9-6 for state contributions and membership fees shall be from
9-7 respective funds appropriated to pay the compensation of the member
9-8 for whose benefit the contribution or fee is paid. If the total of
9-9 the estimated required payments is not equal to the total of the
9-10 actual payments required for a fiscal year, the retirement system
9-11 shall certify to the state comptroller of public accounts at the
9-12 end of that year the amount required for necessary adjustments, and
9-13 the comptroller shall make the required adjustments.
9-14 SECTION 4. (a) The Employees Retirement System of Texas
9-15 shall offer participation in the optional defined contribution plan
9-16 described by Chapter 820, Government Code, as added by this Act,
9-17 beginning September 1, 2002.
9-18 (b) The change in law made by this Act applies only to a
9-19 period of service described by Section 820.003(c), Government Code,
9-20 as added by this Act, that begins on or after September 1, 2002.
9-21 SECTION 5. This Act takes effect immediately if it receives
9-22 a vote of two-thirds of all the members elected to each house, as
9-23 provided by Section 39, Article III, Texas Constitution. If this
9-24 Act does not receive the vote necessary for immediate effect, this
9-25 Act takes effect September 1, 2001.