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.