85R10036 LED-D

By: Alonzo H.B. No. 3601

A BILL TO BE ENTITLED

AN ACT

relating to the creation of a state-administered retirement plan.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle D, Title 2, Labor Code, is amended by adding Chapter 83 to read as follows:

CHAPTER 83. SECURE RETIREMENT PLAN FOR TEXANS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 83.001. PURPOSE. (a) The secure retirement plan for Texans is established for the purpose of promoting greater retirement savings for Texans in a convenient, voluntary, low-cost, and portable manner.

(b) The secure retirement plan for Texans is an agency of the state.

Sec. 83.002. DEFINITIONS. In this chapter:

(1) "Board" means the governing board of the secure retirement plan for Texans.

(2) "Eligible employee":

(A) means an individual who resides in this state and:

(i) whose employer reports to the Texas Workforce Commission for the purpose of paying unemployment taxes; or

(ii) is self-employed; and

(B) does not include, except to the extent authorized under the United States Constitution or federal law, an employee who is:

(i) covered under the federal Railway Labor Act (45 U.S.C. Section 151 et seq.); or

(ii) engaged in interstate commerce not subject to the legislative powers of this state.

(3) "Eligible employer" means a person engaged in a business, industry, profession, trade, or other enterprise in this state, whether for profit or not for profit. The term includes state agencies and political subdivisions, whose employees are not participating in a public retirement system. The term does not include any agency or entity of the federal government.

(4) "Governing body of a public retirement system" has the meaning assigned by Section 802.001, Government Code.

(5) "Individual retirement account" means an individual retirement account or individual retirement annuity within the meaning of Section 408 or a Roth IRA described by Section 408A, Internal Revenue Code of 1986.

(6) "Normal retirement age" has the meaning assigned by 26 C.F.R. Section 1.401(a)-1 as interpreted under board rule.

(7) "Participant" means an individual who is contributing to the plan.

(8) "Participating employer" means an eligible employer that provides a payroll deposit retirement savings arrangement under this chapter for an eligible employee.

(9) "Plan" means the secure retirement plan for Texans authorized by this chapter.

(10) "Public retirement system" has the meaning assigned by Section 802.001, Government Code.

(11) "Vendor" means a registered investment company or admitted life insurance company qualified to do business in this state that provides retirement investment products. The term includes a company that is registered to do business in this state that provides payroll services or recordkeeping services and offers retirement plans or payroll deduction individual retirement account arrangements using products of regulated investment companies and insurance companies qualified to do business in this state. The term does not include individual registered representatives, brokers, financial planners, or agents.

Sec. 83.003. COMPOSITION OF BOARD. (a) The plan's governing board consists of:

(1) the comptroller, who serves as chair;

(2) an individual with retirement savings and investment expertise appointed by the comptroller at the recommendation of the chair of the Senate Committee on State Affairs;

(3) an employee representative appointed by the comptroller at the recommendation of the speaker of the house;

(4) a public interest member appointed by the attorney general; and

(5) a business representative appointed by the governor.

(b) A member appointed under Subsection (a) serves for a term of two years.

Sec. 83.004. BOARD MEMBER COMPENSATION. A member of the board serves without compensation but is entitled to receive reimbursement of travel expenses incurred by the member while conducting the business of the board as provided in the General Appropriations Act.

Sec. 83.005. FIDUCIARY DUTY. Each board member, plan administrator, plan employee, and contracted administrator or consultant shall discharge the person's duties as a fiduciary with respect to the plan solely in the interest of the participants by:

(1) providing benefits in an actuarially sound manner to participants and defraying reasonable expenses of administering the plan; and

(2) investing with the care, skill, prudence, and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an enterprise of a like character and with like aims.

Sec. 83.006. POWERS AND DUTIES OF BOARD. (a) The board may:

(1) enter into contracts necessary or appropriate for the administration of the plan;

(2) adopt and amend a seal;

(3) hold, invest, and reinvest money in the plan fund;

(4) accept any grant, gift, legislative appropriation, and other money from the state, a unit of federal, state, or local government, or any other person for deposit to the administrative fund or the plan fund;

(5) contract with a plan administrator and determine the duties of the plan administrator;

(6) provide for the payment of costs of administration and operation of the plan;

(7) hire employees;

(8) retain and contract with the governing body of a public retirement system, private financial institution, other financial and service provider, consultant, actuary, counsel, auditor, third-party administrator, and other professionals as necessary or appropriate;

(9) obtain insurance against loss in connection with the property, assets, or activities of the plan;

(10) obtain insurance indemnifying each member of the board from personal loss or liability resulting from a member's action or inaction as a member of the board;

(11) set minimum and maximum investment levels in accordance with contribution limits for individual retirement accounts and 401(k) plans under the Internal Revenue Code of 1986;

(12) collaborate and cooperate with the governing body of a public retirement system, a private financial institution, a service provider, or a business, financial, trade, membership, or other organization to the extent necessary or desirable for the effective and efficient design, implementation, and administration of the plan and to maximize outreach to eligible employers and eligible employees;

(13) pay expenses incurred to initiate, implement, maintain, and administer the plan from contributions to, or investment returns or assets of, the plan or arrangements established under the plan, to the extent permitted under state and federal law;

(14) facilitate compliance by the plan or arrangements established under the plan with all applicable requirements for the plan under the Internal Revenue Code of 1986, including tax qualification requirements or any other applicable law and accounting requirements, including providing or arranging for assistance to plan sponsors and individuals in complying with applicable law and tax qualification requirements in a cost-effective manner; and

(15) carry out the duties and obligations of the plan and exercise any other power appropriate to accomplish the purposes, objectives, and provisions of this chapter.

(b) The board also may:

(1) design, establish, and operate the plan in a manner that:

(A) is in accordance with best practices for retirement savings mechanisms;

(B) encourages participation; and

(C) provides ease of administration for participating employers and portability of benefits;

(2) arrange for collective, common, or pooled investment of assets of the plan, including investments in conjunction with other funds with which the assets are permitted to be collectively invested, to save costs through efficiencies of economies of scale;

(3) distribute educational information to educate participants about the benefits of planning and saving for retirement and information to help decide the appropriate level of plan participation;

(4) distribute information concerning:

(A) tax credits available to small business owners for allowing employees to participate in the plan; and

(B) the federal retirement savings contribution credit available to lower and moderate-income households for qualified savings contributions;

(5) submit progress and status reports to participating employers and eligible employees;

(6) if necessary, determine the eligibility of an employer, employee, or other individual to participate in the plan;

(7) evaluate and establish the process by which an eligible employee may contribute a portion of the employee's salary or wages to the plan for automatic deposit and the participating employer may provide a payroll deposit retirement savings arrangement to forward the employee contribution and related information to the plan or its agents, including financial services companies and third-party administrators with the capability to receive and process employee information and contributions for payroll deposit retirement savings arrangements or other arrangements authorized by this chapter;

(8) design and establish the process for the enrollment of participants;

(9) allow a participating employer to use the plan to remit an employee's contributions to the employee's individual retirement account on the employee's behalf;

(10) allow a participating employer to make contributions to an employee's individual retirement account, provided that the contributions are permitted under the Internal Revenue Code of 1986 and do not cause the plan to be treated as an employee benefit plan under the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.); and

(11) evaluate and establish the process by which an individual or an employee of a nonparticipating employer may enroll in and make contributions to the plan.

Sec. 83.007. EXECUTIVE DIRECTOR. The comptroller shall, with the consent of the board, hire an executive director who is not a member of the board and who shall serve at the pleasure of the board. The comptroller shall determine the duties and set the compensation of the executive director and other employees as appropriate. The board may authorize the executive director to enter into contracts on behalf of the board or conduct any business necessary for the efficient operation of the board.

Sec. 83.008. PROHIBITED ACTIVITIES. A board member, plan administrator, or plan employee may not:

(1) directly or indirectly have an interest in the making of a plan investment or in the gains or profits accruing from a plan investment;

(2) borrow or use any funds or deposits of the plan for personal use or as an agent or partner of others; or

(3) become an endorser, surety, or obligor on an investment by the board.

Sec. 83.009. RULES. The board shall adopt rules necessary to implement this chapter consistent with the Internal Revenue Code of 1986 and regulations issued under that code to ensure that the plan meets all criteria for federal tax-deferral or tax-exempt benefits, or both.

Sec. 83.010. ENFORCEMENT. The board may request that the attorney general bring an enforcement action against an eligible employer in violation of this chapter.

SUBCHAPTER B. PLAN DESIGN AND OPERATION

Sec. 83.051. PLAN DESIGN. (a) The board shall design and implement the plan.

(b) The plan consists of a state-administered automatic individual retirement account savings program and a state-sponsored open multiple employer plan, as permitted by Sections 401(k) and 413(c), Internal Revenue Code of 1986.

(c) The plan is a lifetime investment intended to provide participants with a source of retirement income for life.

(d) In designing the plan, the board shall:

(1) consider whether:

(A) the plan meets all state and federal requirements;

(B) the appropriate employer of record is identified for the purpose of satisfying all the plan's employer requirements; and

(C) the payroll deduction can be implemented at a reasonable cost; and

(2) ensure that:

(A) the plan does not create a financial liability for the state or employer of record; and

(B) the state is prohibited from incurring liabilities associated with administering the plan and that the state has no liability for the plan or plan investments.

(e) The board shall determine necessary costs associated with outreach, customer service, enforcement, staffing, consultants, and all other costs necessary to administer the plan.

(f) The board shall consult with employer representatives to create an administrative structure that facilitates employee participation while addressing employer needs, including clearly defining an employer's duties and liability.

(g) The board shall establish the minimum amount of savings required to create an adequate lifetime annuity.

Sec. 83.052. INVESTMENT AND RISK MANAGEMENT; ANNUAL STATEMENT. (a) The board shall develop investment recommendations that address risk sharing and smoothing of market losses and gains. Investment requirements include creating a reserve to guarantee that participants do not lose the principal amount of their contributions.

(b) The board shall annually prepare and adopt a written statement of investment policy that includes a risk management and oversight program. The board shall consider the statement of investment policy and any changes in the investment policy at a public hearing.

(c) The risk management and oversight program must include an effective risk management system to monitor the risk levels of the plan investment portfolio and ensure that the risks taken are prudent and properly managed. The majority of invested funds must be maintained in market-indexed funds. The board shall manage the program to provide an integrated process for overall risk management on a pooling of funds basis and to monitor investment returns as well as risk to determine if the risks taken are adequately compensated compared to applicable performance benchmarks and standards.

(d) The board shall approve one or more investment management entities, the costs of which shall be paid out of funds held in the plan and may not be attributed to the administrative costs of the board in operating the plan. Not later than the 30th day after the last day of each month, the board shall make available for public inspection during business hours a report of investments made under this chapter and a report of deposits in financial institutions.

Sec. 83.053. USE OF PLAN FUNDS. (a) After sufficient money is available for the plan to be operative, the plan must, as a self-sustaining trust, pay all costs of administration only from money on deposit in the plan.

(b) The board shall hold contributions to the plan in trust and segregate money received by the plan as the plan fund and the administrative fund.

(c) Money in the plan fund may be invested or reinvested by the comptroller or may be invested in whole or in part under contract with the governing body of a statewide public retirement system, private money managers, or a combination of these entities as determined by the board.

(d) Transfers may be made from the plan fund to the administrative fund to pay operating costs associated with administering the plan and as required by this chapter, including board operations, plan administrator and investment expenses, and enforcement and compliance costs.

(e) Costs of administering the plan may only be paid from the administrative fund. Expenditures from the administrative fund may not exceed 0.5 percent of the total plan fund.

(f) Employee and employer contributions to the plan may be used only for the purpose of paying benefits to the participants of the plan, for the cost of administration of the plan, and for investments made for the benefit of the plan.

Sec. 83.054. PLAN OPERATIONS. (a) Not later than September 1, 2018, the board shall:

(1) develop and implement an investment policy that defines the plan's investment objectives;

(2) establish policies and procedures enabling investment objectives to be met in a prudent manner; and

(3) seek to minimize participant fees and strive to implement plan features that provide maximum possible income replacement.

(b) Contributions to the plan are deposited into a pooled or common fund, which is managed under the direction of the board. The participants' rate of return is set annually by the board to provide maximum benefits to the participants while maintaining an appropriate reserve. The plan contribution mechanisms include:

(1) a payroll deduction individual retirement account arrangement for employees of eligible employers;

(2) a multiple employer plan to permit employer contributions; and

(3) direct contributions by self-employed persons.

(c) Participants are not responsible for choosing investments through the plan.

Sec. 83.055. BENEFITS. The board shall:

(1) one year in advance of a participant's normal retirement age, provide to each participant a disclosure explaining:

(A) the rights and features of the lifetime income investment;

(B) that the participant may elect to invest a higher percentage of the participant's account balance in the lifetime income option; and

(C) that the participant may elect to have a variable annuity that increases over time, and that the annuity may not be transferred or liquidated during the participant's lifetime, except as required by state law;

(2) on the date a participant reaches the participant's normal retirement age, invest 50 percent of the participant's account balance, or a higher amount specified by the participant, in the lifetime income investment;

(3) begin making distributions not later than the 90th day after the date the participant reaches the participant's normal retirement age, unless the participant elects a later date on which to begin receiving distributions; and

(4) establish a procedure by which each participant may elect to invest a higher percentage of the participant's account balance in the lifetime income investment.

Sec. 83.056. EDUCATION AND OUTREACH. (a) The board shall provide comprehensive worker education and outreach. The board may collaborate with state and local government agencies, community-based and nonprofit organizations, foundations, vendors, and other entities the board considers appropriate to develop and secure ongoing resources for education and outreach that reflect the cultures and languages of the state's diverse workforce population.

(b) The board shall provide comprehensive employer education and outreach, with an emphasis on employers with fewer than 100 employees, developed in consultation with employer representatives, that includes:

(1) an Internet website to assist the employers of participating employees;

(2) a toll-free help line for employers with live and automated assistance;

(3) online web-based training;

(4) live presentations to business associations; and

(5) targeted outreach to small businesses with 10 or fewer employees.

Sec. 83.057. REQUIRED INFORMATION FOR PARTICIPANTS. (a) Before opening the plan for enrollment, the board shall design and disseminate to employers an employee information packet that is available in an electronic format. The packet must include background information on the plan and appropriate disclosures for employees.

(b) The disclosure form must include a description of:

(1) the benefits and risks associated with making contributions to the plan;

(2) how to make contributions to the plan;

(3) how to opt out of the plan;

(4) the process for withdrawal of retirement savings; and

(5) how to obtain additional information on the plan.

(c) The disclosure form must clearly state that:

(1) the plan is not sponsored by the employer, and the employer is not responsible for the plan or liable as a plan sponsor; and

(2) the plan fund is not guaranteed by the state.

(d) The disclosure form must include a method for the employee to acknowledge that the employee has read all of the disclosures and understands the content.

(e) The employee information packet must include an opt-out form for an eligible employee to note the employee's decision to opt out of participation in the plan. The opt-out notation must be simple, concise, and drafted in a manner that the board considers necessary to appropriately demonstrate evidence of the employee's understanding that the employee is choosing not to deduct earnings automatically to save for retirement.

(f) An employer shall provide the employee information packet with the disclosure and opt-out forms to an employee at the time of hiring. All new employees shall review the packet and acknowledge having received it.

(g) An employer shall provide the employee information packet with the disclosure and opt-out forms to an existing employee when the plan is initially open for enrollment for that participating employer.

(h) The board shall inform participants about their right to withdraw money in conformity with the plan's provisions.

Sec. 83.058. REQUIRED PARTICIPATION; EXCEPTION. (a) After the board opens the plan for enrollment, an employer may choose to have a payroll deposit retirement savings arrangement to allow employee participation in the plan under the terms and conditions prescribed by the board.

(b) Not later than the first anniversary of the date the board opens the plan for enrollment, an eligible employer with more than 100 eligible employees shall provide for automatic payroll deduction to the plan.

(c) Not later than the second anniversary of the date the board opens the plan for enrollment, an eligible employer with more than 50 eligible employees shall provide for automatic payroll deduction to the plan.

(d) Not later than the third anniversary of the date the board opens the plan for enrollment, all eligible employers shall provide for automatic payroll deduction to the plan.

(e) The board, in its discretion, may extend the time limits established by Subsections (b), (c), and (d) for unforeseen circumstances.

(f) Each eligible employee shall be enrolled in the plan unless the employee elects not to participate in the plan. An eligible employee may elect to opt out of the plan by signing the opt-out form provided with the employee information packet described by Section 83.057.

(g) The board shall designate an open enrollment period during which an eligible employee who previously opted out of the plan may enroll in the plan.

(h) An employee who has elected to opt out of the plan and subsequently wants to participate through the employer's payroll deposit retirement savings arrangement may enroll only during the board's designated open enrollment period or, if permitted by the board, at an earlier time.

(i) An employer retains the option at all times to offer a tax-qualified retirement plan other than the plan established by this chapter.

(j) An eligible employee may terminate participation in the plan but may not withdraw the employee's contributions unless the employee becomes eligible for disability benefits administered by the United States Social Security Administration or reaches retirement age.

(k) A participating employee shall contribute a percentage of the employee's wages, by pay period, to the plan.

(l) The board shall adopt rules allowing an employee to choose the percentage amount of the employee's wages to contribute to the plan. The contribution must be at least two percent and not more than the annual limit established by Section 401(k), Internal Revenue Code of 1986.

(m) The board may implement annual automatic escalation of employee contributions. An employee's contribution subject to automatic escalation may not exceed five percent of the employee's wages. Automatic escalation may not result in an increase in contribution of more than one percent of the employee's wages for each calendar year. A participating employee may elect to opt out of automatic escalation and, subject to Subsection (l), may set the employee's contribution percentage rate at a level determined by the employee.

(n) Employees who are contributing members of a public retirement system are not required to participate in the plan.

(o) A participant who moves out of state may elect to continue participating in the plan by making direct contributions.

Sec. 83.059. EMPLOYER LIABILITY. (a) An employer may not be held liable for an employee's decision to participate in or opt out of the plan.

(b) An employer is not a fiduciary and may not be considered a fiduciary in relation to the plan. If the plan is found to be preempted by federal law or regulation, an employer may not be held liable as a plan sponsor and may not be held liable with regard to investment returns, plan design, or benefits paid to participants. An employer does not bear responsibility for the administration, investment, or investment performance of the plan.

(c) An employer's voluntary contribution does not affect the employer's liability under this section or change the employer's relationship to the plan or the employer's obligations to employees.

(d) An employer may not be held civilly liable for any action in accordance with rules adopted by the board under this chapter.

Sec. 83.060. STATE LIABILITY. (a) The state is not liable for payment of the retirement savings benefit earned by participants under this chapter. The state has no obligation for payment of the benefits arising from this chapter.

(b) This chapter does not waive the state's immunity from suit or liability.

Sec. 83.061. CONFORMITY WITH FEDERAL LAW. (a) The board may not implement the plan if the individual retirement account arrangements offered do not qualify for the favorable federal income tax treatment ordinarily accorded to individual retirement accounts under the Internal Revenue Code of 1986, or if it is determined that the plan is an employee benefit plan under the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.).

(b) Before opening the plan for enrollment, the board shall report to the governor and legislature that the following prerequisites and requirements for the plan have been met:

(1) the United States Department of Labor has finalized a regulation establishing a safe harbor for savings arrangements established by states for nongovernmental employees for the purposes of the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.), and that the plan is structured in a manner that meets the criteria of the United States Department of Labor regulation;

(2) the payroll deduction offered by the plan qualifies for the favorable federal income tax treatment ordinarily accorded to individual retirement account arrangements under the Internal Revenue Code of 1986;

(3) the board has adopted rules defining the roles and responsibilities of employers under the criteria outlined in the United States Department of Labor regulation described by Subdivision (1) and any associated guidance; and

(4) the board has adopted a third-party administrator operational model that limits employer interaction and transactions with employees to the extent feasible.

Sec. 83.062. INDIVIDUAL RETIREMENT ACCOUNT STATUS. A payroll deposit individual retirement account arrangement offered under the plan has the same status as, and is to be treated consistently with, any other individual retirement account for the purpose of determining eligibility or benefit level for a program that uses a means test.

Sec. 83.063. UNCLAIMED FUNDS. (a) The board shall adopt rules regarding disposition of the proceeds from an account earned on behalf of a participant who has reached normal retirement age plus three years but has not made an election under Section 83.055.

(b) The plan administrator shall contact the participant, and if the participant does not respond, the plan administrator shall contact the participant's beneficiaries. If the administrator is unable to verify the existence of either the participant or the participant's beneficiaries, the proceeds of the participant's account shall be tendered as unclaimed property to the comptroller as provided by Chapter 74, Property Code.

SECTION 2. The legislature may appropriate money from the general revenue fund to the board of the secure retirement plan for Texans established by this Act for initial expenses of the plan and first-year administrative costs. Not later than September 1, 2019, the board shall repay to the credit of the general revenue fund the amount appropriated plus interest calculated at the rate earned by the economic stabilization fund.

SECTION 3. Not later than September 1, 2018, the governing board of the secure retirement plan for Texans shall open the plan for enrollment in accordance with Chapter 83, Labor Code, as added by this Act.

SECTION 4. This Act takes effect September 1, 2017.