78R622 SMJ-D
By: Isett H.B. No. 951
A BILL TO BE ENTITLED
AN ACT
relating to an optional defined contribution retirement plan for
persons eligible to participate in the Employees Retirement System
of Texas.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle B, Title 8, Government Code, is amended
by adding Chapter 816 to read as follows:
CHAPTER 816. OPTIONAL DEFINED CONTRIBUTION PLAN
Sec. 816.001. DEFINITIONS. In this chapter:
(1) "Optional defined contribution plan" means the
plan established under this chapter.
(2) "Qualified plan" means an employees deferred
compensation plan qualified under Section 401(k) or Section 457,
Internal Revenue Code of 1986, and regulations adopted under those
sections.
Sec. 816.002. ESTABLISHMENT OF PLAN. (a) The retirement
system shall establish and administer an optional defined
contribution plan that is a qualified plan and under which a person
eligible for membership in the system may elect to pay
contributions to the optional defined contribution plan for the
purchase of investment products selected by the person from among
products that are authorized to be provided under a qualified plan
and that are offered by companies authorized to provide the
products in this state and selected by the board of trustees under
Subsection (b).
(b) The board of trustees shall adopt rules for the
selection of companies that may provide investment products under
the optional defined contribution plan. The rules must provide for
the selection of vendors of a variety of investment products
authorized for a qualified plan. The retirement system shall select
vendors every two years.
(c) A provider of investment products is exempt from the
payment of franchise or premium taxes on products issued under the
optional defined contribution plan.
Sec. 816.003. ELIGIBILITY AND ELECTION TO PARTICIPATE IN
PLAN. (a) A person who holds a position included in the coverage of
the retirement system is eligible to participate in the optional
defined contribution plan unless the person is participating in the
optional retirement program under Chapter 830.
(b) Participation in the optional defined contribution plan
is an alternative to participation as a contributing member of the
retirement system for the same period.
(c) A person eligible to participate in the optional defined
contribution plan may elect to participate in the plan not later
than the 90th day after the date the person begins service in a
position included in the coverage of the retirement system. The
election must be on a form prescribed by and filed with the board of
trustees. If a person does not make an election as provided by this
subsection, the person is considered to have elected to begin or
continue active membership in the retirement system.
(d) An election made under this section is irrevocable
except as provided by Section 816.007.
Sec. 816.004. EFFECT OF EMPLOYMENT CHANGES. A person
participating in the optional defined contribution plan continues
to participate in the plan when the person changes employment to
another position included in the coverage of the retirement system.
Sec. 816.005. WITHDRAWAL OF RETIREMENT SYSTEM
CONTRIBUTIONS. A person who participates in the optional defined
contribution plan may withdraw benefits attributable to
contributions in the manner and with the effect provided by
Subchapter B, Chapter 812.
Sec. 816.006. VESTING OF BENEFITS; TERMINATION OF
PARTICIPATION. (a) Benefits in the optional defined contribution
plan that are attributable to a participant's contribution under
Section 816.010(a) vest in the participant immediately.
(b) Benefits in the optional defined contribution plan that
are attributable to the state's contribution under Section
816.010(a) vest in a participant as follows:
(1) 20 percent on the first anniversary of the person's
participation in the plan;
(2) 40 percent on the second anniversary of the
person's participation in the plan;
(3) 60 percent on the third anniversary of the person's
participation in the plan;
(4) 80 percent on the fourth anniversary of the
person's participation in the plan; and
(5) 100 percent on the fifth anniversary of the
person's participation in the plan.
(c) A person terminates participation in the optional
defined contribution plan, without losing any vested benefits, by:
(1) death;
(2) retirement; or
(3) termination of employment in all positions
included in the coverage of the retirement system.
(d) The benefits of a product purchased under the optional
defined benefit plan become available under the terms of the
product but not before the participant terminates participation
under Subsection (c) or attains 70-1/2 years of age.
(e) Benefits in the optional defined contribution plan that
are attributable to the state's contribution under Section
816.010(a) that are not vested in a participant who terminates
participation shall be used to offset the amount of the state's
contribution.
Sec. 816.007. RESUMPTION OF RETIREMENT SYSTEM MEMBERSHIP.
A participant in the optional defined contribution plan is not
eligible to begin or resume active membership in the retirement
system unless the person terminates participation under Section
816.006 and assumes or resumes, after the month following the month
in which the person terminates participation, a position included
in the coverage of the retirement system. A person who assumes or
resumes a position becomes an active member of the retirement
system unless the person elects to resume participation in the
optional defined contribution plan in the manner and within the
time provided for beginning participation under Section 816.003.
Sec. 816.008. CREDITABLE SERVICE. A person may not
establish in the retirement system credit for service performed
during a period the person was participating in the optional
defined contribution plan.
Sec. 816.009. INVESTMENT ADVISORY FEES. (a) A participant
in the optional defined contribution plan may authorize the payment
of investment advisory fees from the amount in the participant's
custodial account or product if:
(1) the investment advisory fees for each fiscal year
do not exceed two percent of the annual value of the participant's
custodial account or product as of the last day of that fiscal year;
(2) the fees comply with applicable regulations of the
Securities and Exchange Commission;
(3) the investment advisor to whom the fees are paid is
registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.)
and regulations adopted under that Act and is engaged full-time in
the business of providing investment advice;
(4) the participant and the investment advisor enter
into a contract for services that may be terminated by either party
at any time and that provides for the payment of fees as provided by
this section; and
(5) the retirement system has received an official
determination from the Internal Revenue Service that payment of
investment advisory fees as prescribed by this section is not a
distribution of funds that is prohibited or subject to taxation and
penalty under the Internal Revenue Code of 1986 and regulations
adopted under that code.
(b) The executive director of the retirement system shall
request an official determination from the Internal Revenue Service
concerning whether the payment of investment advisory fees as
prescribed by this section is a distribution of funds that is
prohibited or subject to taxation and penalty under the Internal
Revenue Code of 1986 and regulations adopted under that code. If
the executive director receives an official determination from the
Internal Revenue Service as specified by this subsection, the
executive director shall file the determination with the secretary
of state's office for publication in the Texas Register.
Sec. 816.010. CONTRIBUTIONS. (a) A participant in the
optional defined contribution plan shall make contributions to the
plan at the same rate that a member of the retirement system is
required to make for current service, and the state shall make
contributions to the plan for each participant at the same rate as
the state is required to make for contributing members of the
retirement system.
(b) A participant in the optional defined contribution plan
and the participant's employer shall execute an agreement under
which the salary of the participant is reduced by the amount of the
contribution required by Subsection (a). An agreement under this
subsection is irrevocable until the participant terminates
participation in the plan under Section 816.006.
(c) Participant contributions shall be made in the manner
provided by Section 815.402 for member contributions to the
retirement system, and state contributions shall be made in the
manner provided by Section 815.403 for state contributions to the
retirement system.
Sec. 816.011. EXCESS BENEFIT ARRANGEMENT. The retirement
system may establish a governmental excess benefit arrangement as
provided by Section 415(m), Internal Revenue Code of 1986, and
regulations adopted under that section, for the purpose of
providing to participants in the optional defined contribution plan
any portion of a participant's benefits that would otherwise be
payable under the terms of the plan except for the limitation on
benefits imposed by Section 415, Internal Revenue Code of 1986, and
regulations adopted under that section.
Sec. 816.012. RULES. The board of trustees may adopt any
rules necessary to administer this chapter.
SECTION 2. Section 812.101(a), Government Code, is amended
to read as follows:
(a) A member of the retirement system may withdraw all of
the member's accumulated contributions for service credited in the
employee class of membership if:
(1) the member does not hold a position included in
that class or is participating in the optional defined contribution
plan under Chapter 816;
(2) the member does not assume or resume, during the 30
days after the date on which the member terminates employment, a
position included in that class; and
(3) the member's application for withdrawal is filed
before the member assumes or resumes a position included in that
class.
SECTION 3. Sections 815.403(b), (d), and (e), Government
Code, are amended to read as follows:
(b) Before November 2 of each even-numbered year, the
retirement system shall certify to the Legislative Budget Board and
to the budget division of the governor's office for review:
(1) an estimate of the amount necessary to pay the
state's contribution under Subsections (a)(1), (a)(2), (a)(3), and
(a)(5) for the following biennium; [and]
(2) as a separate item, an estimate of the amount
required to administer the law enforcement and custodial officer
supplemental retirement fund for the following biennium; and
(3) an estimate of the amount necessary to pay the
state's contribution under Section 816.010(a) for the following
biennium.
(d) Before September 1 of each year, the retirement system
shall certify to the state comptroller of public accounts:
(1) an estimate of the amount necessary to pay the
state's contribution under Subsection (a)(1) for the following
fiscal year;
(2) an estimate of the amount necessary to pay
membership fees for the following fiscal year, if the legislature
has appropriated money for that purpose; [and]
(3) an estimate of the amount required to pay lump-sum
death benefits for retirees under Section 814.501 for the following
fiscal year; and
(4) an estimate of the amount necessary to pay the
state's contribution under Section 816.010(a) for the following
fiscal year.
(e) All money allocated and appropriated by the state to the
retirement system for benefits provided by the retirement system,
except money for the payment of lump-sum death benefits, [and] for
the payment of benefits from the law enforcement and custodial
officer supplemental retirement fund, and for the payment of the
state's contribution under Section 816.010(a), shall be paid, based
on the annual estimate of the retirement system, in monthly
installments to the state accumulation fund. The money required
for state contributions and membership fees shall be from
respective funds appropriated to pay the compensation of the member
for whose benefit the contribution or fee is paid. If the total of
the estimated required payments is not equal to the total of the
actual payments required for a fiscal year, the retirement system
shall certify to the state comptroller of public accounts at the end
of that year the amount required for necessary adjustments, and the
comptroller shall make the required adjustments.
SECTION 4. (a) The Employees Retirement System of Texas
shall offer participation in the optional defined contribution plan
described by Chapter 816, Government Code, as added by this Act,
beginning September 1, 2004.
(b) The change in law made by this Act applies only to a
period of service described by Section 816.003(c), Government Code,
as added by this Act, that begins on or after September 1, 2004.
SECTION 5. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2003.