Honorable Joan Huffman, Chair, Senate Committee on State Affairs
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
SB1752 by Bettencourt (Relating to authorizing certain municipalities to establish defined contribution plans to provide retirement benefits to certain employees.), As Introduced
The bill would require a home-rule municipality that provides benefits to municipal employees under a defined benefit (DB) plan to hold an election to authorize the creation of a defined contribution (DC) plan upon receipt of a petition requesting such an election that is signed by at least ten percent of the number of voters who voted in the most recent election of the municipality. The election must be held as part of the next regularly scheduled general election for municipal officials that allows for sufficient time to prepare a ballot in compliance with election laws.
If authorized as such by an election, the governing body of a municipality would establish by ordinance a qualified DC plan to be administered by the existing public retirement system for newly hired or a category of newly hired municipal employees. Any person who resumes work after the DC plan is created, and who was previously a member of the DB plan, would not be considered a new employee for purpose of required participation in the DC plan and would remain eligible for the DB plan. Any employee who participates in a DC plan established under the bill would not be eligible to participate in the DB plan administered by the municipality.
Under provisions of the bill, the rate of contributions to the DC plan for both employees and the municipality shall be equal to the contributions made by the employees and the municipality towards the DB plan. An employee who participates in the DC plan would be eligible for any health benefits and other coverages to the same extent as an employee who participates in the DB plan.
The bill would take effect September 1, 2017.
Home-rule municipalities are municipalities with populations of more than 5,000 in which citizens have adopted home-rule charters. Currently there are over 350 home-rule municipalities in the State of Texas (Texas Home Rule Charters, Texas Municipal League, 2010). The Pension Review Board has determined that of the 93 DB plans registered with the agency, a majority of the plans, including the major municipal plans and plans created under the Texas Local Fire Fighters Retirement Act could be affected by this bill. There is also a possibility that this bill would affect a number of plans within the Texas Municipal Retirement System, which is a statewide agent multiple-employer retirement system.
The bill, if enacted, would not have an immediate significant actuarial effect because it does not propose to change the funding or obligations of any public retirement system. However, the bill could have an impact on a municipality and its DB plan if the municipality is required to close its DB plan to new entrants and create a DC plan for new hires. At this time, the PRB cannot determine the cost of closing these DB plans, which would vary from system to system.