By:  Armbrister                                        S.B. No. 522
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to participation and credit in, contributions to, and
 1-3     benefits and administration of the Texas Municipal Retirement
 1-4     System.
 1-5           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-6           SECTION 1.  Section 851.001, Government Code, is amended  by
 1-7     adding Subdivisions (17), (18), and (19), to read as follows:
 1-8                 (17)  "Beneficiary" means a person designated by a
 1-9     member, annuitant, or by statute to receive a benefit payable under
1-10     this subtitle as a result of the death of a member or annuitant.
1-11                 (18)  "Director" means the person appointed executive
1-12     director under Section 855.201.
1-13                 (19)  "Vested member"  means a member who may withdraw
1-14     from employment with all participating municipalities, leave the
1-15     member's accumulated contributions on deposit with the retirement
1-16     system and, on meeting the age and length of service requirements,
1-17     file an application for retirement and begin to receive a service
1-18     retirement benefit.
1-19           SECTION 2.  Section 852.106, Government Code, is amended by
1-20     amending Subsection (a) and adding Subsection (e) to read as
1-21     follows:
1-22           (a)  Except as provided by this section,[:]
1-23                 [(1)]  a person who is elected to public office is not
1-24     an employee eligible for membership in the retirement system[; and]
1-25                 [(2)  a person is not an employee eligible for
 2-1     membership and is not eligible to receive credited service in this
 2-2     retirement system for service performed that makes a person
 2-3     eligible for membership or is creditable in another pension fund or
 2-4     retirement system that is at least partly supported at public
 2-5     expense].
 2-6           (e)  A person may simultaneously be a member of this
 2-7     retirement system and another state or local retirement system
 2-8     authorized or established under Section 67, Article XVI, Texas
 2-9     Constitution.  However, a person may receive a benefit from this
2-10     system only to the extent that the amount of the benefit is
2-11     computed solely with respect to the member's compensation and
2-12     accumulated contributions as those terms are defined in this
2-13     subtitle.  Service credited with or allowed by another retirement
2-14     system may not be counted for purposes of retirement eligibility in
2-15     this retirement system except in accordance with the provisions of
2-16     the proportionate retirement program described by Chapter 803.
2-17           SECTION 3.  Subsection (g), Section 852.108, Government Code,
2-18     is amended to read as follows:
2-19           (g)  If a person with credited service under this section
2-20     dies before a payment under Subsection (i) is made, the person's
2-21     beneficiary, or if there is no beneficiary surviving, the executor
2-22     or administrator of the person's estate, may elect payment as
2-23     provided by Section 854.105 [854.105(c)].
2-24           SECTION 4.  Subsection (c), Section 852.109, Government Code,
2-25     is amended to read as follows:
2-26           (c)  If a person with credited service under this section
 3-1     dies before a payment under Subsection (e) is made, the person's
 3-2     beneficiary, or if there is no beneficiary surviving, the executor
 3-3     or administrator of the person's estate, may elect payment as
 3-4     provided by Section 854.105 [854.105(c)].
 3-5           SECTION 5.  Subsection (f), Section 853.105, Government Code,
 3-6     is amended to read as follows:
 3-7           (f)  Interest on a prior service credit is earned for each
 3-8     whole calendar year beginning on the effective date of membership
 3-9     and ending on the effective date of retirement.  If a person
3-10     retires under this subtitle on a date other than December 31,
3-11     interest on a prior service credit is earned for the partial year
3-12     in which the retirement occurs, prorated from January 1 of the year
3-13     in which the retirement occurs to the effective date of retirement.
3-14           SECTION 6.  Subsections (b), (c), and (d), Section 853.304,
3-15     Government Code, are amended to read as follows:
3-16           (b)  After the retirement system receives a copy of a
3-17     municipality's ordinance described by Subsection (a), the
3-18     retirement system shall furnish to the municipality a report
3-19     containing the names of employees who, according to the retirement
3-20     system's records, are eligible to receive prior service credit for
3-21     probationary employment.  [A member may claim prior service credit
3-22     under this section by filing a detailed statement of such service
3-23     with the city clerk or secretary of the municipality for which the
3-24     service was performed at any time within one year from the
3-25     effective date of the ordinance or resolution authorizing such
3-26     credit.]
 4-1           (c)  As soon as practicable[,] after the municipality
 4-2     receives a report under Subsection (b) [a member has filed a
 4-3     statement of prior service under this section], the [affected]
 4-4     municipality shall verify the information in the report [prior
 4-5     service claimed] and certify to the retirement system [board of
 4-6     trustees] the number of months of probationary employment to which
 4-7     each employee listed on the report appears to be entitled
 4-8     [creditable prior service (not exceeding six months) approved] and
 4-9     the average monthly compensation paid to the member during the
4-10     period of probationary employment.
4-11           (d)  The certification by the municipality must be received
4-12     by the retirement system not later than the first anniversary of
4-13     the effective date of the ordinance allowing the credit.  After
4-14     receiving the [a] certification from the municipality described by
4-15     Subsection (c) [of prior service under this section and the average
4-16     compensation paid the member], the board of trustees shall
4-17     determine the prior service credit allowable to the member in the
4-18     manner provided in Section 853.105.
4-19           SECTION 7.  Section 853.402, Government Code, is amended by
4-20     amending Subsection (f) and by adding Subsection (g) to read as
4-21     follows:
4-22           (f)  Interest on an updated service credit is earned for each
4-23     whole calendar year beginning on the date the updated service
4-24     credit takes effect and ending on the effective date of retirement.
4-25     If a person retires under this subtitle on a date other than
4-26     December 31, interest on an updated service credit is earned for
 5-1     the partial year in which the retirement occurs, prorated from
 5-2     January 1 of the year in which the retirement occurs to the
 5-3     effective date of retirement.
 5-4           (g)  If, before January 1, 1999, a person terminated
 5-5     employment with a participating municipality without applying for
 5-6     retirement or a refund of accumulated contributions and the person
 5-7     did not perform credited service in each of the 36 months described
 5-8     by Subsection (b)(1), the individual's updated service compensation
 5-9     shall be computed as the average monthly compensation for the
5-10     number of months of credited service performed during the 36-month
5-11     period.  If the person did not perform any service during the 36
5-12     months, the person's updated service compensation is computed as
5-13     the average monthly compensation for the number of months of
5-14     credited service performed during the 36-month period ending with
5-15     the last month of the calendar year of the member's most recent
5-16     service.
5-17           SECTION 8.  Subsection (d), Section 854.002, Government Code,
5-18     is amended to read as follows:
5-19           (d)  Notwithstanding any other provision of this subtitle,
5-20     instead of an annuity, a person will receive from the retirement
5-21     system a single payment equal to the sum of the following if on the
5-22     date of that person's retirement that sum is $10,000 [$5,000] or
5-23     less:
5-24                 (1)  any updated service credit or any prior service,
5-25     special prior service, or antecedent service credit for that person
5-26     on the date of retirement, plus accumulated interest;
 6-1                 (2)  the amount credited to the person's individual
 6-2     account in the employees saving fund; and
 6-3                 (3)  the amount from the municipality accumulation fund
 6-4     equal to the amount in the member's individual account or a greater
 6-5     amount authorized by a participating municipality under Section
 6-6     855.501.
 6-7           SECTION 9.  Section 854.003, Government Code, is amended by
 6-8     amending Subsection (b) and by adding Subsection (h) to read as
 6-9     follows:
6-10           (b)  If a member dies before retirement and an annuity
6-11     becomes payable under Section 854.105 [has a valid optional
6-12     retirement annuity selection on file with the retirement system],
6-13     the member is considered to have retired on the last day of the
6-14     month immediately preceding the month in which death occurred,
6-15     except as provided by Subsection (h).
6-16           (h)  If the person who is eligible to receive an annuity
6-17     under Subsection (b) is the member's surviving spouse, the person
6-18     may elect, by notifying the retirement system not later than the
6-19     180th day after the date of the member's death, to leave the
6-20     member's  accumulated contributions on deposit with the retirement
6-21     system until the date the member would have been eligible for
6-22     service retirement.  If a surviving spouse makes an election under
6-23     this subsection, the deceased member is considered to have retired
6-24     on the last day of the month in which the member would have
6-25     attained an age for service retirement eligibility.  An election
6-26     under this subsection is revocable before the payment of the first
 7-1     annuity payment by filing a written application approved by the
 7-2     board of trustees to receive the member's accumulated
 7-3     contributions.
 7-4           SECTION 10.  Section 854.007, Government Code, is amended to
 7-5     read as follows:
 7-6           Sec. 854.007.  LIMITATION ON PAYMENT OF BENEFITS.  If the
 7-7     amount of a benefit payment under this subtitle would exceed the
 7-8     limitations provided by Section 415, Internal Revenue Code of 1986,
 7-9     and its subsequent amendments, and the regulations adopted under
7-10     that section, the retirement system shall reduce the amount of the
7-11     benefit to comply with that section [(a) In this section:]
7-12                 [(1)  "Annual benefit" means the total of all annuity
7-13     payments by the retirement system on behalf of a person who has
7-14     retired under this Subtitle during a calendar year, including any
7-15     distributive benefit payments.]
7-16                 [(2)  "Compensation" has the meaning assigned by
7-17     Section 415, Internal Revenue Code, and the regulations adopted
7-18     under that section, instead of the meaning assigned by Section
7-19     851.001.]
7-20                 [(3)  "Highest average annual compensation" means the
7-21     average compensation for the three consecutive calendar years of
7-22     service that produces the highest average.]
7-23                 [(4)  "Internal Revenue Code" means the Internal
7-24     Revenue Code of 1986 (Title 26, United States Code).]
7-25           [(b)  If the amount of any benefit payment under this
7-26     subtitle would exceed the limitations provided by this section, the
 8-1     retirement system shall reduce the amount of the benefit in
 8-2     accordance with this section.]
 8-3           [(c)  Except as otherwise provided by this section, a benefit
 8-4     is adjusted to an actuarially equivalent straight life annuity for
 8-5     the purpose of determining limitations under this section.  An
 8-6     actuarial adjustment to a benefit is not required for the value of
 8-7     a qualified joint and survivor annuity and the value of
 8-8     postretirement cost-of-living increases made in accordance with
 8-9     Section 415, Internal Revenue Code.]
8-10           [(d)  Except as provided by Subsections (f), (h), and (i), an
8-11     annual benefit payable by the retirement system may not exceed
8-12     $115,641, or another amount as adjusted each January 1 by the
8-13     secretary of the treasury under Section 415 of the Internal Revenue
8-14     Code of 1986 (26 U.S.C. Section 415) for cost-of-living increases
8-15     after January 1, 1993.]
8-16           [(e)  If payment of a benefit begins before a member attains
8-17     age 62, the dollar limitation is the actuarial equivalent of an
8-18     annual benefit beginning at age 62 as described by Subsection (d)
8-19     for a person at age 62.  A reduction under this subsection may not
8-20     exceed that required by the Internal Revenue Code of 1986.]
8-21           [(f)  If payment of a benefit begins after the member attains
8-22     age 65, the dollar limitation is the actuarial equivalent of an
8-23     annual benefit beginning at age 65 as described by Subsection
8-24     (d)(1).]
8-25           [(g)  To determine actuarial equivalence, the interest rate
8-26     assumption under Subsection (c) or (e) is the greater of the rate
 9-1     specified by Section 855.316(a) or five percent, and the interest
 9-2     rate assumption under Subsection (f) is the lesser of those rates.]
 9-3           [(h)  The limitations provided by Subsections (d), (e), and
 9-4     (f) do not apply to any portion of an annual benefit payable by the
 9-5     retirement system that is paid from the balance in the member's
 9-6     individual account in the employees saving fund as of December 31,
 9-7     1983, or from interest credited to the member's account after
 9-8     December 31, 1983, as a result of deposits before that date.]
 9-9           [(i)  This section may not be applied to reduce the annual
9-10     benefit payable to any person who retired under the retirement
9-11     system before January 1, 1994, or to reduce the vested accrued
9-12     benefit as of December 31, 1993, of any person who was a member of
9-13     the retirement system on that date.]
9-14           [(j)  If the Internal Revenue Code is amended in such a
9-15     manner that limitations similar to those provided by this section
9-16     are not required of governmental retirement plans to constitute
9-17     qualified plans, the board of trustees may by rule eliminate all or
9-18     any portion of the limitations provided by this section.]
9-19           [(k)  An employer may not provide employee retirement or
9-20     deferred benefits to the extent that, when considered together with
9-21     the benefits authorized by this subtitle as required by the
9-22     Internal Revenue Code, would result in the failure of the
9-23     retirement system's plan to meet federal qualification standards as
9-24     applied to governmental retirement plans.]
9-25           [(l)  The annual benefit payable by the retirement system
9-26     that is otherwise limited by Subsection (d) may be increased each
 10-1    year in accordance with cost-of-living adjustments by the secretary
 10-2    of the treasury of the dollar limitation or the compensation
 10-3    limitation, as long as the benefit does not exceed the amount that
 10-4    would be payable without the limitation of Section 415 of the
 10-5    Internal Revenue Code of 1986 (26 U.S.C. Section 415).]
 10-6          [(m)  The limitations provided by this section may not be
 10-7    applied to reduce the benefit of any person whose retirement
 10-8    benefits payable under this and all other defined benefit plans of
 10-9    the member's employer do not exceed $10,000, plus the benefit
10-10    provided under Subsection (h), for the plan year or for any
10-11    previous plan year and who has not at any time participated in a
10-12    defined contribution plan maintained by the person's employer].
10-13          SECTION 11.  Section 854.008, Government Code, is amended by
10-14    amending Subsection (a) and adding Subsections (f) and (g) to read
10-15    as follows:
10-16          (a)  A member who is eligible for service retirement and who
10-17    terminates employment with all participating municipalities may
10-18    apply for a partial lump-sum distribution under this section.  The
10-19    board of trustees may adopt rules to allow the beneficiary of a
10-20    deceased member who at the time of death was eligible for service
10-21    retirement but had not retired to make the same election that the
10-22    member could have made under this section at the time of
10-23    retirement.
10-24          (f)  If a benefit payable under this section is subject to a
10-25    domestic relations order that the retirement system determines is
10-26    qualified under Section 804.003, the alternate payee under that
 11-1    order may elect to receive a partial lump-sum distribution under
 11-2    Subsection (g).
 11-3          (g)  The partial lump-sum distribution under Subsection (f)
 11-4    shall be paid as a single payment, payable at the same time as the
 11-5    first monthly annuity payment paid to the alternate payee, and
 11-6    shall be deducted from the sum used in computing the alternate
 11-7    payee's annuity.  The amount of the lump-sum distribution shall be
 11-8    equal to the monthly payments, excluding any distributive benefit
 11-9    payments that the alternate payee would otherwise have received,
11-10    during the:
11-11                (1)  12 months after the effective date of the member's
11-12    retirement;
11-13                (2)  24 months after the effective date of the member's
11-14    retirement; or
11-15                (3)  36 months after the effective date of the member's
11-16    retirement.
11-17          SECTION 12.  Section 854.102, Government Code, is amended by
11-18    adding Subsection (h) to read as follows:
11-19          (h)  A member is eligible to retire and receive a service
11-20    retirement annuity if the member is at least 60 years old and has
11-21    at least five years of credited service in the retirement system
11-22    that is performed for one or more municipalities to which the
11-23    five-year vesting provision under Section 854.205 applies.
11-24          SECTION 13.  Subsection (b), Section 854.103, Government
11-25    Code, is amended to read as follows:
11-26          (b)  A standard service retirement annuity is payable
 12-1    throughout the life of a retiree.  [If a retiree dies before 60
 12-2    monthly payments of a standard service retirement annuity have been
 12-3    made, the remainder of the 60 monthly payments are payable to the
 12-4    retiree's designated beneficiary.]
 12-5          SECTION 14.  Section 854.104, Government Code, is amended by
 12-6    amending Subsection (c) and by adding Subsections (h), (i), and (j)
 12-7    to read as follows:
 12-8          (c)  An eligible person may select an optional annuity that
 12-9    provides that:
12-10                (1)  after the retiree's death, the reduced annuity is
12-11    payable throughout the life of a person designated by the retiree;
12-12                (2)  after the retiree's death, one-half of the reduced
12-13    annuity is payable throughout the life of a person designated by
12-14    the retiree;
12-15                (3)  if the retiree dies before 120 monthly annuity
12-16    payments have been made, the remainder of the 120 payments are
12-17    payable to the retiree's beneficiary or, if one does not exist, to
12-18    the retiree's estate;
12-19                (4)  if the retiree dies before 180 monthly annuity
12-20    payments have been made, the remainder of the 180 payments are
12-21    payable to the retiree's beneficiary or, if one does not exist, to
12-22    the retiree's estate;
12-23                (5)  after the retiree's death, three-fourths
12-24    [two-thirds] of the reduced annuity is payable throughout the life
12-25    of a person designated by the retiree; or
12-26                (6)  if the retiree dies before 60 monthly payments
 13-1    have been made, the remainder of the 60 payments are payable to the
 13-2    retiree's beneficiary or, if one does not exist, to the retiree's
 13-3    estate [the annuity is payable only during the retiree's lifetime].
 13-4          (h)  Subsection (i) applies only to a person who retired
 13-5    before September 1, 1997, and who elected, at retirement, to
 13-6    receive a reduced annuity that is payable until the death of the
 13-7    last to die of the retiree and a person designated as a beneficiary
 13-8    under Subsection (e).
 13-9          (i)  If both the retiree and the beneficiary described in
13-10    Subsection (h) are alive, they may jointly elect in the manner
13-11    provided by Subsection (j) to modify the annuity being received.
13-12    An annuity modified under this subsection:
13-13                (1)  begins with the first payment after one calendar
13-14    month has passed since the date the form under Subsection (j) is
13-15    filed, with the amount of the monthly payments, while the
13-16    beneficiary is alive, being the actuarial equivalent of the
13-17    previous annuity; and
13-18                (2)  increases to the amount of the standard service
13-19    retirement annuity that the retiree would otherwise be entitled to
13-20    receive if the retiree had not selected the optional annuity with
13-21    adjustments made for any postretirement increase in that benefit
13-22    and  becomes payable the month following the month in which the
13-23    beneficiary dies and continues until the retiree dies.
13-24          (j)  To make the election under Subsection (i), the retiree
13-25    and beneficiary must execute and acknowledge, as provided by this
13-26    subsection, a form stating that they are requesting a modification
 14-1    under Subsection (i) and that they understand that the modified
 14-2    annuity will be smaller than the standard service annuity while
 14-3    they are both living and if the beneficiary survives the member.
 14-4    The acknowledgment must be on a form prescribed by the board of
 14-5    trustees and be made before a notary public or other officer
 14-6    authorized to take acknowledgments.  The retiree and beneficiary
 14-7    must file the executed form with the retirement system before
 14-8    January 1, 2003.
 14-9          SECTION 15.  Section 854.105, Government Code, is amended to
14-10    read as follows:
14-11          Sec. 854.105.  SELECTION OF OPTIONAL SERVICE RETIREMENT
14-12    ANNUITY.  (a)  A vested member [who is eligible for service
14-13    retirement] may, while continuing to perform service for a
14-14    participating municipality or after terminating all service, file
14-15    with the board of trustees, on a form prescribed by the board, a
14-16    selection of an optional service retirement annuity available under
14-17    Section 854.104 and a designation of beneficiary or a designation
14-18    of beneficiary without selecting a retirement option.  An annuity
14-19    selected as provided by this section is payable [on the member's
14-20    retirement or] on the member's death before retirement.
14-21          (b)  A member may change a selection of an optional annuity
14-22    or a designation of beneficiary at any time before the member's
14-23    retirement or death in the same manner that the original selection
14-24    or [and] designation was [were] made.
14-25          (c)  If a member eligible under this section to select an
14-26    optional service retirement annuity dies before retirement without
 15-1    having made a selection, the beneficiary designated under
 15-2    Subsection (a)  may select an optional annuity in the same manner
 15-3    as if the member had made the selection, subject only to the
 15-4    requirements of the Internal Revenue Code of 1986, and its
 15-5    subsequent amendments, as to the length of time over which the
 15-6    payments can be made.
 15-7          (d)  If a beneficiary has not been designated under
 15-8    Subsection (a), the member's surviving spouse may elect to receive
 15-9    a refund of the member's accumulated contributions or [select] an
15-10    optional annuity in the same manner as if the member had made the
15-11    selection.
15-12          (e)  If a beneficiary has not been designated under
15-13    Subsection (a) and no surviving spouse exists, the member's
15-14    surviving children jointly may elect to receive:
15-15                (1)  a refund of the member's accumulated
15-16    contributions; or
15-17                (2)  an optional annuity in the same manner as if the
15-18    member had made the selection, subject only to the requirements of
15-19    the Internal Revenue Code of 1986, and its subsequent amendments,
15-20    as to the length of time over which the payments can be made.
15-21          (f)  If there is no surviving spouse or surviving child and
15-22    no beneficiary designated under Subsection (a)  exists, the last
15-23    person designated by the member as a beneficiary on a form filed
15-24    with the retirement system may elect to receive:
15-25                (1)  a refund of the member's accumulated
15-26    contributions; or
 16-1                (2)  an optional annuity in the same manner as if the
 16-2    member had made the selection, subject only to the requirements of
 16-3    the Internal Revenue Code of 1986, and its subsequent amendments,
 16-4    as to the length of time over which the payments can be made.
 16-5          (g)  If there is not a person who is eligible to make a
 16-6    selection under Subsections (c)-(f), the executor or administrator
 16-7    of the member's estate may elect:
 16-8                (1)  for an estate beneficiary to receive the optional
 16-9    annuity under Section 854.104(c)(4), in which case the member will
16-10    be considered to have retired on the last day of the month
16-11    immediately preceding the month in which death occurred; or
16-12                (2)  for the estate to receive a refund of the member's
16-13    accumulated contributions under Section 854.501, in which case the
16-14    member will be considered to have been a contributing member at the
16-15    time of death.
16-16          SECTION 16.  Subsection (a), Section 854.106, Government
16-17    Code, is amended to read as follows:
16-18          (a)  If a surviving spouse, or the executor or administrator
16-19    of a member's estate, would be entitled to make an election under
16-20    Section 854.105 [854.105(c)] because of the death of the member,
16-21    the heirs of the deceased member may make that election if:
16-22                (1)  no surviving spouse exists;
16-23                (2)  no petition for the appointment of a personal
16-24    representative of the member is pending or has been granted;
16-25                (3)  30 days have elapsed since the death of the
16-26    member;
 17-1                (4)  the value of the entire assets of the member's
 17-2    estate, excluding homestead and exempt property, does not exceed
 17-3    $50,000;
 17-4                (5)  there are not more than three heirs; and
 17-5                (6)  on file with the retirement system is a certified
 17-6    copy of a small estates affidavit that has been approved and filed
 17-7    in accordance with Section 137, Texas Probate Code, or an original
 17-8    affidavit as described by Subsection (b).
 17-9          SECTION 17.  Subchapter B, Chapter 854, Government Code, is
17-10    amended by adding Sections 854.107 and 854.108 to read as follows:
17-11          Sec. 854.107.  DESIGNATION OF BENEFICIARY AFTER RETIREMENT
17-12    UNDER STRAIGHT LIFE OR GUARANTEED TERM ANNUITY.  (a)  This section
17-13    applies only to a retiree who marries after the date of the
17-14    person's retirement and who at the time of retirement selected
17-15    either:
17-16                (1)  a service or disability retirement annuity that
17-17    would be payable throughout the retiree's life and would not be
17-18    paid after the retiree's death, except as provided by Section
17-19    854.502; or
17-20                (2)  a service or disability retirement annuity that
17-21    would be payable throughout the retiree's life and, if the retiree
17-22    dies before 60, 120, or 180 monthly annuity payments, as
17-23    appropriate, have been made, would be payable for the remainder of
17-24    those months.
17-25          (b)  A retiree described under Subsection (a)  may replace
17-26    the annuity by selecting an optional retirement annuity under
 18-1    Section 854.104(c)(1), (2), or (5) and by designating the person's
 18-2    spouse as beneficiary in the same manner as an annuity selection
 18-3    and designation of beneficiary may be made before retirement.
 18-4          (c)  The selection under Subsection (b) must be filed with
 18-5    the retirement system before the first anniversary of the date of
 18-6    the marriage unless the postretirement marriage occurred before
 18-7    January 1, 2002, in which case the selection must be filed with the
 18-8    retirement system before January 1, 2003.
 18-9          (d)  A person may make a postretirement designation of a
18-10    beneficiary under this section only once.
18-11          (e)  The retirement system shall adjust the monthly payments
18-12    of the annuity under the option selected to an actuarial equivalent
18-13    amount of the annuity being paid immediately before the change in
18-14    benefit option and beneficiary selection.
18-15          (f)  The selection of an optional annuity and designation of
18-16    a beneficiary under this section is not effective if the retiree or
18-17    beneficiary dies before the date the change is to take effect.
18-18          Sec. 854.108.  DESIGNATION OF BENEFICIARY AFTER RETIREMENT
18-19    UNDER JOINT AND SURVIVOR ANNUITY.  (a)  This section applies only
18-20    to a retiree who:
18-21                (1)  at the time of retirement selected an optional
18-22    annuity providing that, after the retiree's death, payments would
18-23    be made to a beneficiary throughout the remaining life of the
18-24    beneficiary and the beneficiary predeceases the retiree;
18-25                (2)  marries after the date of the person's retirement;
18-26    and
 19-1                (3)  has not previously replaced an annuity under this
 19-2    section.
 19-3          (b)  A retiree described by Subsection (a) may replace an
 19-4    annuity by selecting an optional annuity under Section
 19-5    854.104(c)(1), (2), or (5) and designating the person's spouse as
 19-6    beneficiary in the same manner as an annuity selection and
 19-7    designation of beneficiary may be made before retirement.
 19-8          (c)  The selection under Subsection (b) must be filed with
 19-9    the retirement system before the first anniversary of the date of
19-10    the marriage unless the postretirement marriage occurred before
19-11    January 1, 2002, in which case the selection must be filed with the
19-12    retirement system before January 1, 2003.
19-13          (d)  The retirement system shall adjust the monthly payments
19-14    of the annuity under the option selected to an actuarial equivalent
19-15    amount of the annuity being paid immediately before the change in
19-16    benefit option and beneficiary selection.
19-17          (e)  The selection of an optional annuity and designation of
19-18    a beneficiary under this section is not effective if the retiree or
19-19    beneficiary dies before the date the change is to take effect.
19-20          SECTION 18.  Section 854.202, Government Code, is amended by
19-21    adding Subsection (j) to read as follows:
19-22          (j)  A member is eligible to retire and receive a service
19-23    retirement annuity if the member:
19-24                (1)  is at least 60 years of age; and
19-25                (2)  has at least five years of credited service
19-26    performed for one or more municipalities to which the five-year
 20-1    vesting provision under Section 854.205 applies.
 20-2          SECTION 19.  Subchapter C, Chapter 854, Government Code, is
 20-3    amended by adding Section 854.205 to read as follows:
 20-4          Sec. 854.205.  FIVE-YEAR VESTING.  (a)  This section applies
 20-5    to each municipality unless the municipality's governing board
 20-6    files with the board of trustees before December 31, 2001, an
 20-7    election to not provide for five-year vesting.  A governing board
 20-8    that elects to not provide five-year vesting may revoke that
 20-9    election by sending notice to the board of trustees to provide for
20-10    five-year vesting.
20-11          (b)  After December 31, 2001, a member may terminate covered
20-12    employment and remain eligible to retire and receive a service
20-13    retirement annuity at any time after the member attains an
20-14    applicable age as provided by law if the member has at least five
20-15    years of credited service performed for one or more municipalities
20-16    to which the five-year vesting provision under this section
20-17    applies.
20-18          SECTION 20.  Subsection (c), Section 854.304,  Government
20-19    Code, is amended to read as follows:
20-20          (c)  A standard disability retirement annuity is payable
20-21    throughout the life of a retiree.  [If a retiree dies before 60
20-22    monthly payments of a standard disability retirement annuity have
20-23    been made, the remainder of the 60 monthly payments is payable to
20-24    the retiree's designated beneficiary.]  When a retiree who receives
20-25    an annuity under this section dies, an additional benefit may be
20-26    payable under Section 854.502.
 21-1          SECTION 21.  Subsection (c), Section 854.305,  Government
 21-2    Code, is amended to read as follows:
 21-3          (c)  An eligible person may select an optional annuity under
 21-4    Section 854.104(c) [that provides that:]
 21-5                [(1)  after the retiree's death, the reduced annuity is
 21-6    payable throughout the life of a person designated by the retiree;]
 21-7                [(2)  after the retiree's death, one-half of the
 21-8    reduced annuity is payable throughout the life of a person
 21-9    designated by the retiree;]
21-10                [(3)  if the retiree dies before 120 monthly annuity
21-11    payments have been made, the remainder of the 120 payments are
21-12    payable to the retiree's beneficiary or, if one does not exist, to
21-13    the retiree's estate;]
21-14                [(4)  if the retiree dies before 180 monthly annuity
21-15    payments have been made, the remainder of the 180 payments are
21-16    payable to the retiree's beneficiary or, if one does not exist, to
21-17    the retiree's estate;]
21-18                [(5)  after the retiree's death, two-thirds of the
21-19    reduced annuity is payable throughout the life of a person
21-20    designated by the retiree; or]
21-21                [(6)  the annuity is payable only during the retiree's
21-22    lifetime].
21-23          SECTION 22.  Section 854.605,  Government Code, is amended by
21-24    adding Subsection (c) to read as follows:
21-25          (c)  If a member or retiree who has designated a beneficiary
21-26    to receive supplemental death benefits under Section 854.603 or
 22-1    854.604 subsequently designates a different beneficiary to receive
 22-2    other benefits under this subtitle in the event of the death of the
 22-3    member or retiree, the supplemental death benefits shall be paid to
 22-4    the subsequently designated beneficiary unless the member or
 22-5    retiree contemporaneously or subsequently designates another
 22-6    beneficiary to receive the supplemental death benefit.
 22-7          SECTION 23.  Section 855.201, Government Code, is amended to
 22-8    read as follows:
 22-9          Sec. 855.201.  EXECUTIVE DIRECTOR.  (a)  The board of
22-10    trustees shall appoint an executive [a] director.
22-11          (b)  The executive director shall:
22-12                (1)  manage and administer the retirement system under
22-13    the supervision and direction of the board; and
22-14                (2)  invest the assets of the system.
22-15          (c)  The board of trustees may delegate to the executive
22-16    director powers and duties in addition to those stated by
22-17    Subsection (b).
22-18          (d)  The executive director annually shall:
22-19                (1)  prepare an itemized budget showing the amount
22-20    required to pay the retirement system's expenses for the following
22-21    fiscal year; and
22-22                (2)  submit the report to the board for review,
22-23    amendment, and adoption.
22-24          SECTION 24.  Section 855.301, Government Code, is amended by
22-25    adding Subsection (c) to read as follows:
22-26          (c)  The board of trustees, in the exercise of its discretion
 23-1    to manage the assets of the retirement system, may select one or
 23-2    more commercial banks or other entities experienced in short-term
 23-3    cash management to invest the system's cash balances through its
 23-4    short-term investment fund or funds and in such short-term
 23-5    securities as the board of trustees determines and as authorized by
 23-6    this section.
 23-7          SECTION 25.  Subchapter D, Chapter 855, Government Code, is
 23-8    amended by adding Section 855.3011 to read as follows:
 23-9          Sec. 855.3011.  SECURITIES LENDING.  (a)  The board of
23-10    trustees, in the exercise of its discretion to manage the assets of
23-11    the retirement system, may select a person, including a commercial
23-12    bank or depository trust company, to lend retirement system
23-13    securities as provided by this section and  rules adopted by the
23-14    board of trustees.
23-15          (b)  To be eligible to lend securities under this section, a
23-16    person must:
23-17                (1)  be experienced in the operations of a fully
23-18    secured securities lending program;
23-19                (2)  maintain capital adequate in the prudent judgment
23-20    of the retirement system to assure the safety of the securities;
23-21                (3)  execute an indemnification agreement, satisfactory
23-22    in form and content to the retirement system, fully indemnifying
23-23    the retirement system against any loss resulting from borrower
23-24    default or the failure of the securities lending agent to properly
23-25    execute the agent's responsibilities under the applicable
23-26    securities lending agreement;
 24-1                (4)  require any securities broker or dealer to whom
 24-2    the agent lends securities belonging to the retirement system to
 24-3    deliver and maintain with the custodian collateral in the form of
 24-4    cash or United States government securities eligible for book
 24-5    entry, the market value of which must equal not less than 100
 24-6    percent of the market value, from time to time, of the loaned
 24-7    securities; and
 24-8                (5)  comply with the guidelines adopted by the board of
 24-9    trustees relating to the investment of cash collateral, borrower
24-10    limits, and other items.
24-11          SECTION 26.  Subchapter G, Chapter 855, Government Code, is
24-12    amended by adding Section 855.608 to read as follows:
24-13          Sec. 855.608.  FULL BENEFIT ARRANGEMENT.  (a)  A separate
24-14    fund for the payment of benefits under Section 415(m), Internal
24-15    Revenue Code of 1986, and its subsequent amendments, is created
24-16    solely for the purpose of providing benefits to participants equal
24-17    to the amount by which the participant's annual benefit otherwise
24-18    payable under this subtitle exceeds the limitation on benefits
24-19    imposed by Section 415, Internal Revenue Code of 1986, and its
24-20    subsequent amendments.
24-21          (b)  The board of trustees shall administer this section.
24-22    Except as otherwise provided by this section, the board of trustees
24-23    has the same rights, duties, and responsibilities concerning the
24-24    full benefits arrangement as it has for the trust fund.
24-25          (c)  Money for the payment of benefits to a participant under
24-26    this section shall be transferred to the separate fund created by
 25-1    this section from the municipality accumulation fund account of the
 25-2    municipality that employed the member.  If the benefit is payable
 25-3    as a result of service with more than one participating
 25-4    municipality, there shall be transferred from the municipality
 25-5    accumulation fund account of each such municipality the amount
 25-6    chargeable to that municipality for the member.  The monthly amount
 25-7    to pay benefits under this section shall be transferred at least 15
 25-8    days before the date of a monthly payment to a person receiving
 25-9    annuity benefits under this section.
25-10          (d)  The full benefits arrangement shall be administered as a
25-11    governmental excess benefit arrangement.  The board of trustees may
25-12    adopt rules for the efficient administration of this section and to
25-13    maintain compliance with Section 415(m), Internal Revenue Code of
25-14    1986, and its subsequent amendments.
25-15          SECTION 27.  Section 854.204, Government Code, is repealed.
25-16          SECTION 28.  (a)  Except as provided by Subsection (b) of
25-17    this section, this Act takes effect January 1, 2002.
25-18          (b)  Section 854.205, Government Code, as added by this Act,
25-19    takes effect September 1, 2001.