H.B. No. 4368
 
 
 
 
AN ACT
  relating to participation in, contributions to, and the benefits
  and administration of retirement systems for police officers in
  certain municipalities.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 1.02, Chapter 452 (S.B. 738), Acts of the
  72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), is amended by amending Subdivisions (2) and
  (4) and adding Subdivisions (1-a), (2-a), (3-a), (3-b), (6-a),
  (6-b), (6-c), (6-d), (6-e), (10-a), (11-a), (13-a), (13-b), (13-c),
  (15-a), (15-b), (15-c), (15-d), (15-e), (17-a), (18-a), (18-b),
  (19-a), (19-b), (23-a), (29-a), and (29-b) to read as follows:
               (1-a)  "Actuarial accrued liability" means the portion
  of the actuarial present value of projected benefits of the police
  retirement system attributed to past periods of member service
  based on the cost method used in the risk sharing valuation study
  prepared under Section 8.03 or 8.04 of this Act, as applicable.
               (2)  "Actuarial equivalent" means any benefit of equal
  present value to a standard benefit when computed as specified by
  this Act, based on the actuarial assumptions adopted by the police
  retirement board for that purpose.
               (2-a)  "Actuarial value of assets" means the value of
  the police retirement system's investments as calculated using the
  asset smoothing method used in the risk sharing valuation study
  prepared under Section 8.03 or 8.04 of this Act, as applicable.
               (3-a)  "Amortization period" means:
                     (A)  the period necessary to fully pay a liability
  layer; or
                     (B)  if referring to the amortization period of
  the police retirement system as a whole, the number of years
  incorporated in a weighted average amortization factor for the sum
  of the legacy liability and all liability layers as determined in
  each annual actuarial valuation of assets and liabilities of the
  system.
               (3-b)  "Amortization rate" means, for a given calendar
  year, the percentage rate determined by:
                     (A)  adding the scheduled amortization payments
  required to pay off the then-existing liability layers;
                     (B)  subtracting the city legacy contribution
  amount for the same calendar year, as determined in the risk sharing
  valuation study prepared under Section 8.03 or 8.04 of this Act, as
  applicable, from the sum under Paragraph (A); and
                     (C)  dividing the sum under Paragraph (B) by the
  projected pensionable payroll for the same calendar year.
               (4)  "Average final compensation" means the monthly
  average of basic hourly earnings of a member during, as applicable:
                     (A)  if the member has 120 months or more of
  service during which the member made contributions to the system or
  the predecessor system, the 36 months for a group A member or 60
  months for a group B member which yielded the highest average during
  the last 120 months of membership service during which the member
  contributed to the system or the predecessor system;
                     (B)  if the member has less than 120 months of
  membership service during which the member contributed to the
  system or the predecessor system, but has at least 36 months of
  membership service for a group A member or 60 months of membership
  service for a group B member during which the member made
  contributions to the system or the predecessor system, the average
  of the 36 months or 60 months, as applicable, which yielded the
  highest average; or
                     (C)  if the member does not have 36 months of
  membership service for a group A member or 60 months of membership
  service for a group B member during which the member contributed to
  the system or the predecessor system, the average of the member's
  months of membership service during which the member made
  contributions to the system or the predecessor system.
               (6-a)  "City contribution rate" means, for a given
  calendar year, a percentage rate equal to the sum of the employer
  normal cost rate and the amortization rate, as adjusted under
  Section 8.05 or 8.06 of this Act, if applicable.
               (6-b)  "City legacy contribution amount" means, for
  each calendar year, a predetermined payment amount expressed in
  dollars in accordance with a payment schedule amortizing the legacy
  liability for the calendar year ending December 31, 2020, that is
  included in the initial risk sharing valuation study under Section
  8.03 of this Act.
               (6-c)  "Corridor" means the range of city contribution
  rates that are:
                     (A)  equal to or greater than the minimum city
  contribution rate; and
                     (B)  equal to or less than the maximum city
  contribution rate.
               (6-d)  "Corridor margin" means five percentage points.
               (6-e)  "Corridor midpoint" means the projected city
  contribution rate specified for each calendar year for 30 years as
  provided by the initial risk sharing valuation study under Section
  8.03 of this Act, rounded to the nearest hundredths decimal place.
               (10-a)  "Employer normal cost rate" means, for a given
  calendar year, the normal cost rate minus the applicable member
  contribution rate determined under Section 8.01 of this Act.
               (11-a)  "Estimated city contribution rate" means, for a
  given calendar year, the city contribution rate that would be
  required to maintain an amortization period for the retirement
  system as a whole of no more than 30 years as determined by the
  system's actuary in a risk sharing valuation study under Section
  8.03 or 8.04 of this Act, as applicable, and before any adjustment
  to the rate under Section 8.05 or 8.06 of this Act, as applicable.
               (13-a)  "Funded ratio" means the ratio of the actuarial
  value of assets divided by the actuarial accrued liability.
               (13-b)  "Group A member" means a member included in
  group A membership under Section 4.01(e-1) of this Act.
               (13-c)  "Group B member" means a member included in
  group B membership under Section 4.01(e-1) of this Act.
               (15-a)  "Legacy liability" means the unfunded
  actuarial accrued liability determined as of December 31, 2020, and
  for each subsequent calendar year, adjusted as follows:
                     (A)  reduced by the city legacy contribution
  amount for the calendar year allocated to the amortization of the
  legacy liability; and
                     (B)  adjusted by the assumed rate of return
  adopted by the police retirement board for the calendar year.
               (15-b)  "Level percent of payroll method" means the
  amortization method that defines the amount of the liability layer
  recognized each calendar year as a level percent of pensionable
  payroll until the amount of the liability layer remaining is
  reduced to zero.
               (15-c)  "Liability gain layer" means a liability layer
  that decreases the unfunded actuarial accrued liability.
               (15-d)  "Liability layer" means:
                     (A)  the legacy liability established in the
  initial risk sharing valuation study under Section 8.03 of this
  Act; or
                     (B)  for calendar years after December 31, 2020,
  the amount that the police retirement system's unfunded actuarial
  accrued liability increases or decreases, as applicable, due to the
  unanticipated change for the calendar year as determined in each
  subsequent risk sharing valuation study prepared under Section 8.04
  of this Act.
               (15-e)  "Liability loss layer" means a liability layer
  that increases the unfunded actuarial accrued liability. For
  purposes of this Act, the legacy liability is a liability loss
  layer.
               (17-a)  "Maximum city contribution rate" means, for a
  given calendar year, the rate equal to the corridor midpoint plus
  the corridor margin.
               (18-a)  "Minimum city contribution rate" means, for a
  given calendar year, the rate equal to the corridor midpoint minus
  the corridor margin.
               (18-b)  "Normal cost rate" means, for a given calendar
  year, the salary weighted average of the individual normal cost
  rates determined for the current active member population, plus the
  assumed administrative expenses determined in the most recent
  actuarial experience study.
               (19-a)  "Payoff year" means the year a liability layer
  is fully amortized under the amortization period. A payoff year may
  not be extended or accelerated for a period that is less than one
  month.
               (19-b)  "Pensionable payroll" means the aggregate
  basic hourly earnings of all members in active service for a
  calendar year or pay period, as applicable.
               (23-a)  "Projected pensionable payroll" means the
  estimated pensionable payroll for the calendar year beginning 12
  months after the date of the risk sharing valuation study prepared
  under Section 8.03 or 8.04 of this Act, at the time of calculation
  by:
                     (A)  projecting the prior calendar year's
  pensionable payroll forward two years using the current payroll
  growth rate assumption adopted by the police retirement board; and
                     (B)  adjusting, if necessary, for changes in
  population or other known factors, provided those factors would
  have a material impact on the calculation, as determined by the
  board.
               (29-a)  "Unanticipated change" means, with respect to
  the unfunded actuarial accrued liability in each subsequent risk
  sharing valuation study prepared under Section 8.04 of this Act,
  the difference between:
                     (A)  the remaining balance of all then-existing
  liability layers as of the date of the risk sharing valuation study;
  and
                     (B)  the actual unfunded actuarial accrued
  liability as of the date of the risk sharing valuation study.
               (29-b)  "Unfunded actuarial accrued liability" means
  the difference between the actuarial accrued liability and the
  actuarial value of assets.
         SECTION 2.  Section 3.02, Chapter 452 (S.B. 738), Acts of the
  72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), is amended to read as follows:
         Sec. 3.02.  COMPOSITION OF BOARD; TRUSTEE QUALIFICATIONS.  
  (a)  The police retirement board shall be composed of 11 members as
  follows:
               (1)  one council member designated by the city council;
               (2)  the city manager or the city manager's designee;
               (3)  the director of finance or the director's
  designee;
               (4)  four [five] police officer members elected by the
  police officer members of the system, each of whom serves for a term
  of four years;
               (5)  one legally qualified voter of the city, who is a
  resident and has been a resident for the preceding five years, is
  not an employee of the city or a member of the system, and has
  demonstrated experience in the field of finance or investments, to
  be appointed by the police retirement board to serve for a term of
  four years and until the member's successor is duly selected and
  qualified; [and]
               (6)  one legally qualified voter of the city, who is a
  resident and has been a resident for the preceding five years, is
  not an employee of the city or a member of the system, and has
  demonstrated experience in the field of finance or investments, to
  be appointed by the city council to serve for a term of four years
  and until the member's successor is duly selected and qualified;
  and
               (7)  two retired members to be elected by the retired
  members to serve for a term of four years, with the term of one
  member expiring each odd-numbered year.
         (b)  The terms of two members elected as described by
  Subsection (a)(4) of this section expire in 2023 [2001] and every
  fourth subsequent year, and the terms of two [three] members
  elected as described by Subsection (a)(4) of this section expire in
  2025 [2003] and every fourth subsequent year.
         (b-1)  A member of the police retirement board appointed
  under Subsection (a)(5) or (a)(6) of this section must:
               (1)  have, at the time of taking office, the
  qualifications required for the trustee's position; and
               (2)  maintain during service on the board the
  qualifications required for the trustee's position.
         (c)  A vacancy occurring by the death, resignation, or
  removal of the member appointed under:
               (1)  Subsection (a)(5) of this section shall be filled
  by appointment by the remaining members of the police retirement
  board; and
               (2)  Subsection (a)(6) of this section shall be filled
  by appointment by the city council.
         SECTION 3.  Section 3.09(b), Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended to read as follows:
         (b)  From time to time on the advice of the actuary and at the
  direction of the board and as provided by Section 3.091 of this Act,
  the actuary shall make an actuarial investigation of the mortality,
  service, and compensation experience of members, retired members,
  and beneficiaries of the system and shall recommend for adoption by
  the board the tables and rates required by the system.  The board
  shall adopt the tables and rates to be used by the system.
         SECTION 4.  Article III, Chapter 452 (S.B. 738), Acts of the
  72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), is amended by adding Section 3.091 to read as
  follows:
         Sec. 3.091.  PROCESS FOR EXPERIENCE STUDIES AND CHANGES TO
  ACTUARIAL ASSUMPTIONS. (a)  At least once every five years, the
  police retirement board shall have the system's actuary designated
  under Section 3.09 of this Act conduct an experience study to review
  the actuarial assumptions and methods adopted by the board for the
  purposes of determining the actuarial liabilities and actuarially
  determined contribution rates of the system.  The system shall
  notify the city at the beginning of an upcoming experience study by
  the system's actuary.
         (b)  In connection with the system's experience study, the
  city will inform the system if it will:
               (1)  conduct the city's own experience study using the
  city's own actuary;
               (2)  have the city's actuary review the experience
  study of the system's actuary; or
               (3)  accept the experience study of the system's
  actuary.
         (c)  If the city chooses to:
               (1)  have the city's own experience study performed
  under Subsection (b)(1) of this section, the city must complete the
  study not later than three months after the date the system notified
  the city of the system's intent to conduct an experience study; or
               (2)  have the city's actuary review the system's
  experience study under Subsection (b)(2) of this section, the city
  must complete the review not later than one month after the date the
  preliminary results of the experience study are presented to the
  board.
         (d)  If the city chooses to have the city's own experience
  study performed under Subsection (b)(1) of this section, or to have
  the city's actuary review the system's experience study under
  Subsection (b)(2) of this section, the system's actuary and the
  city's actuary shall determine what the hypothetical city
  contribution rate would be using the proposed actuarial assumptions
  from the experience studies and data from the most recent actuarial
  valuation.
         (e)  If the difference between the hypothetical city
  contribution rates determined by the system's actuary and the
  city's actuary under Subsection (d) of this section:
               (1)  is less than or equal to two percent of pensionable
  payroll, then no further action is needed and the board shall use
  the experience study performed by the system's actuary in
  determining assumptions; or
               (2)  is greater than two percent of pensionable
  payroll, then the system's actuary and the city's actuary shall have
  20 business days to reconcile the difference in actuarial
  assumptions or methods causing the different hypothetical city
  contribution rates, and:
                     (A)  if, as a result of the reconciliation efforts
  under this subdivision, the difference between the city
  contribution rates determined by the system's actuary and the
  city's actuary is reduced to less than or equal to two percentage
  points, then no further action is needed and the board shall use the
  experience study performed by the system's actuary in determining
  actuarial assumptions; or
                     (B)  if, after 20 business days, the system's
  actuary and the city's actuary are not able to reach a
  reconciliation that reduces the difference in the hypothetical city
  contribution rates to an amount less than or equal to two percentage
  points, a third-party actuary shall be retained to opine on the
  differences in the assumptions made and actuarial methods used by
  the system's actuary and the city's actuary.
         (f)  The independent third-party actuary retained in
  accordance with Subsection (e)(2)(B) of this section shall be
  chosen by the city from a list of three actuarial firms provided by
  the system.
         (g)  If a third-party actuary is retained under Subsection
  (e)(2)(B) of this section, the third-party actuary's findings will
  be presented to the board along with the experience study conducted
  by the system's actuary and, if applicable, the city's actuary. If
  the board adopts actuarial assumptions or methods contrary to the
  third-party actuary's findings:
               (1)  the system shall provide a formal letter
  describing the rationale for the board's action to the city council
  and State Pension Review Board; and
               (2)  the system's actuary and executive director shall
  be made available at the request of the city council or the State
  Pension Review Board to present in person the rationale for the
  board's action.
         (h)  If the board proposes a change to actuarial assumptions
  or methods that is not in connection with an experience study
  described in Subsection (a) of this section, the system and the city
  shall follow the same process prescribed by this section with
  respect to an experience study in connection with the proposed
  change.
         SECTION 5.  Section 3.10, Chapter 452 (S.B. 738), Acts of the
  72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), is amended to read as follows:
         Sec. 3.10.  INVESTMENT MANAGERS.  The police retirement
  board may hire an investment manager or investment managers who
  shall have full authority to invest the assets and manage any
  portion of the portfolio of the system, as specified by the
  manager's [employment] contract.
         SECTION 6.  Section 4.01, Chapter 452 (S.B. 738), Acts of the
  72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), is amended by amending Subsections (c) and
  (e) and adding Subsections (e-1) and (e-2) to read as follows:
         (c)  Any person who becomes an employee of the city or the
  system, if eligible for membership, shall become a member as a
  condition of employment and shall make the required deposits
  commencing with the first pay period following a probationary
  period of six continuous months from date of employment, if
  applicable, or eligibility, if later.
         (e) [(1)]  Membership in the police retirement system shall
  consist of the following groups:
               (1) [(A)]  Active--Contributory: the member who is in a
  status which allows payroll contributions to the police retirement
  system (working a normal work week, holding a full-time position,
  and, if applicable, having completed a continuous period of six
  months of service initially, to attain membership).
               (2) [(B)]  Active--Noncontributory: the member whose
  current employment status does not allow contributions to the
  system (working less than a normal work week or on a leave of
  absence under Subsection (f)(6)(A) of this section) and on return
  to working a normal work week, the member will again be given
  creditable service, with contributions resumed at time of status
  change.
               (3) [(C)]  Inactive--Contributory: the member who is
  on a uniformed service leave of absence under Subsection (f)(6)(B)
  of this section, who is allowed to make deposits to the system
  during the member's absence.
               (4) [(D)]  Vested--Noncontributory: the terminated
  member who, being vested, leaves the member's accumulated deposits
  in the system.
               (5) [(E)]  Retired: the member who is receiving a
  service or disability retirement annuity.
         (e-1)  Each member is either a group A member or a group B
  member, as follows:
               (1)  a member is a group A member if the member was:
                     (A)  retired from or employed by the city or the
  system on December 31, 2021;
                     (B)  a vested--noncontributory member as of
  December 31, 2021, who has not withdrawn the member's accumulated
  deposits; or
                     (C)  formerly employed by the city or the system
  before December 31, 2021, returned to employment with the city or
  system on or after January 1, 2022, and:
                           (i)  did not withdraw the member's
  accumulated deposits from the system; or
                           (ii)  withdrew the member's accumulated
  deposits from the system, but reinstated all of the previously
  forfeited creditable service; and
               (2)  a member is a group B member if the member:
                     (A)  first became employed by the city or the
  system on or after January 1, 2022; or
                     (B)  was formerly employed by the city or the
  system before December 31, 2021, returned to employment with the
  city or system on or after January 1, 2022, and:
                           (i)  while the member was separated from
  service, withdrew the member's accumulated deposits from the
  system; and
                           (ii)  has not reinstated all of the member's
  previously forfeited creditable service.
         (e-2) [(2)]  It shall be the duty of the police retirement
  board to determine the membership group to which each police
  officer or employee of the system who becomes a member of the police
  retirement system properly belongs under Subsections (e) and (e-1)
  of this section.
         SECTION 7.  Section 5.03(a), Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended to read as follows:
         (a)  An eligible member or eligible surviving spouse may
  establish creditable service for probationary service performed as
  provided under this section according to the following conditions,
  limitations, and restrictions:
               (1)  Probationary service creditable in the system is
  any probationary service following the member's commission date or
  the member's first date of employment with the system for which the
  member does not have creditable service.
               (2)  An eligible member or eligible surviving spouse
  may establish creditable service under this section by contributing
  to the system a single payment equal to the contribution the member
  would have made to the system for that service at the time the
  service was performed and an interest charge based on the
  contribution amount to be repaid times an interest factor. The
  interest factor is eight percent per year for the period that begins
  with the beginning of the month and year at the end of the
  probationary period for which creditable service is being
  established to the beginning of the month and year payment is made
  to the system for the purpose of establishing said service.
               (3)  After the eligible member or eligible surviving
  spouse makes the deposit required by Subdivision (2) of this
  subsection, the system shall grant the member one month of
  creditable service for each month of probationary service
  established under this section.
         SECTION 8.  Section 5.04(a), Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended to read as follows:
         (a)  Under irrevocable action taken by the city council on
  February 12, 1998, police [This section does not take effect unless
  the city council authorizes the city to begin making contributions
  to the police retirement system in accordance with Section 8.01(a)
  of this Act for police cadets during their employment as cadets
  while members of a cadet class. Police] cadets whose cadet class
  begins after April 1, 1998, [the city council makes the
  authorization] shall make deposits to the police retirement system
  in accordance with Section 8.01(a) of this Act, and those cadets
  shall be members of the police retirement system and shall receive
  creditable service for employment as cadets while members of a
  cadet class, notwithstanding Sections 1.02(7), (18), and (21) of
  this Act.
         SECTION 9.  Section 6.01, Chapter 452 (S.B. 738), Acts of the
  72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), is amended by amending Subsections (a) and
  (f) to read as follows:
         (a)  On retirement after having reached the member's normal
  retirement date, members entitled thereto shall receive a service
  retirement benefit in the form of a life annuity (modified cash
  refund).  Each monthly payment of the life annuity (modified cash
  refund) shall be equal to one-twelfth of:
               (1)  for a group A member, the product of 3.2 [2.88]
  percent of a member's average final compensation multiplied by the
  number of months of creditable service; or
               (2)  for a group B member, the product of 2.5 percent of
  a member's average final compensation multiplied by the number of
  months of creditable service.  [The retirement benefit percent
  specified by this section to calculate the amount of the monthly
  payment of the life annuity (modified cash refund) may be changed
  after 1997 if:
               [(1)  the change is approved by the board's actuary;
               [(2)  the change is adopted by the board as a board
  rule;
               [(3)  the change applies to all present members, all
  retired members, and all who become members after the effective
  date of the change in the retirement benefit percent;
               [(4)  a member's vested interest as of the last day of
  the month immediately preceding the effective date of the change in
  the retirement benefit percent is not reduced; and
               [(5)  a retirement annuity being paid by the police
  retirement system to members or to the surviving spouses or
  beneficiaries of members who retired before the effective date of
  the change in the retirement benefit percent is changed as
  prescribed by Subsection (d)(6) of this section, except that a
  reduction in annuities may not cause the member's, surviving
  spouse's, or beneficiary's annuity payment to be reduced below the
  base retirement amount calculated under this Act.]
         (f)  For purposes of this section, compensation of each
  noneligible member taken into account under this Act may not exceed
  the maximum amount allowed under [$200,000 per calendar year,
  indexed pursuant to] Section 401(a)(17) of the Internal Revenue
  Code of 1986 (26 U.S.C. Section 401). The [$200,000] limit
  prescribed by this subsection does not apply to an eligible member.
  For purposes of this subsection, an eligible member is any
  individual who first became a member before January 1, 1996. For
  purposes of this subsection, a noneligible member is any other
  member.
         SECTION 10.  Section 6.02, Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended by amending Subsection
  (a) and adding Subsection (a-1) to read as follows:
         (a)  A group A [Any] member shall be eligible for service
  retirement if the member has attained the age of 55 years and
  completed at least 20 years of creditable service with the city, or
  has completed 23 years of creditable service, excluding any
  military service established under Section 5.02 of this Act.
         (a-1)  A group B member shall be eligible for service
  retirement if the member has attained the age of 50 years and
  completed at least 25 years of creditable service with the city,
  excluding any military service established under Section 5.02 of
  this Act.
         SECTION 11.  Section 6.04(b), Chapter 452 (S.B. 738), Acts
  of the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended to read as follows:
         (b)  If a member who has attained the applicable age for the
  minimum distribution required under Section 401(a)(9) of the
  Internal Revenue Code of 1986 (26 U.S.C. Section 401(a)(9)) [age
  70-1/2] separates or has separated from service without applying
  for retirement or a refund of accumulated deposits, the police
  retirement system shall attempt to send to that member a written
  notice as soon as practicable after the later of the date the member
  attains the applicable age [70-1/2] or the date the member
  separates from service.  The written notice must advise the member
  of the requirement under Section 401(a)(9) of the Internal Revenue
  Code of 1986 (26 U.S.C. Section 401(a)(9)) to retire and begin
  receiving a monthly retirement benefit.  If, before the 91st day
  after the date the police retirement system sends the notice, the
  member has not filed an application for retirement or a refund, the
  member is considered to have retired on the last day of the third
  month following the later of the two dates specified by this
  subsection.  If applicable, the retirement option shall be
  determined in accordance with the member's written selection of
  optional benefit and designation of beneficiary under Section
  6.06(a)(1) of this Act.  Otherwise, the member shall receive the
  life annuity under Section 6.01 of this Act.
         SECTION 12.  Section 6.07(e), Chapter 452 (S.B. 738), Acts
  of the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended to read as follows:
         (e)  The first monthly annuity amount that would have been
  paid during the RETRO DROP benefit accumulation period is the
  amount defined by Subsection (c) of this section. [Subsequent
  monthly annuity amounts that would have been paid during the RETRO
  DROP benefit accumulation period must include any cost-of-living
  increases or special ad hoc increases in annuity amounts granted in
  accordance with Sections 6.01(c) and (d) of this Act.]
         SECTION 13.  Section 7.02, Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended by amending Subsection
  (a) and adding Subsection (a-1) to read as follows:
         (a)  On award of disability retirement benefits, the member
  shall receive a disability retirement benefit computed in the same
  manner that a service retirement benefit would be computed at the
  member's normal retirement date, based on average final
  compensation and creditable service at date of disability
  retirement without reduction for early retirement.  If the
  disability is a direct or proximate result of the performance of the
  member's employment duties with the system or the city, then the
  disability retirement benefit will be subject to a minimum benefit
  determined in accordance with Section 6.01(a)(1) or (2) of this
  Act, as applicable, based on:
               (1)  average final compensation at date of disability
  retirement; and
               (2)  for:
                     (A)  a group A member, 20 years of creditable
  service; or
                     (B)  a group B member, 25 years of creditable
  service.
         (a-1)  The options allowed under this section are life
  annuity or its actuarial equivalent payable in the form described
  as Option I, Option II, Option III, Option IV, or Option V in
  Section 6.03 of this Act.  The disability benefits paid to the
  member will be paid from Fund No. 1 until the amount received equals
  the member's accumulated deposits; thereafter the benefits will be
  paid from Fund No. 2.
         SECTION 14.  Article VIII, Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended by amending Section 8.01
  and adding Sections 8.02 through 8.13 to read as follows:
         Sec. 8.01.  MEMBER CONTRIBUTIONS [METHOD OF FINANCING]. (a)
  [(1)]  Deposits by the members to the police retirement system shall
  be made at a rate of at least:
               (1)  13 percent of the basic hourly earnings of the
  [each] member, for each pay period beginning before January 1,
  2022; and
               (2)  15 percent of the basic hourly earnings of the
  member, for each pay period beginning on or after January 1, 2022,
  unless a different member contribution rate is required in
  accordance with Section 8.04(b)(4) of this Act, as adjusted, if
  applicable, under Section 8.065 of this Act, except that the rate
  may not exceed 17 percent.
         (a-1)  Deposits required to be made by members under
  Subsection (a) of this section shall be deducted from payroll each
  pay period.
         (a-2)  On recommendation of the board, the
  Active--Contributory members may by a majority of those voting
  increase the rate of member deposits above the minimum rate of
  deposit established by Subsection (a) of this section [13 percent]
  to whatever amount the board has recommended. If the deposit rate
  for members has been increased to a rate above the rate established
  by Subsection (a) of this section in accordance with this
  subsection [13 percent], the rate may be decreased to a rate not
  lower than the rate prescribed by Subsection (a)(2) of this section 
  if the board recommends the decrease, the board's actuary approves
  the decrease, and a majority of the Active--Contributory members
  voting on the matter approve the decrease.  If an increase in the
  member contribution rate is made solely as the result of an
  adjustment under Section 8.065 of this Act, that increase may not be
  decreased under this subsection.
         Sec. 8.02.  CITY CONTRIBUTIONS. (a) [(2)] The city shall
  contribute amounts equal to [18 percent of the basic hourly
  earnings of each member employed by the city for all periods on or
  before September 30, 2010, subject to additional amounts as
  provided by Subdivision (3) of this subsection. The city shall
  contribute amounts equal to 19 percent of the basic hourly earnings
  of each member employed by the city for all periods after September
  30, 2010, and before October 1, 2011, subject to additional amounts
  as provided by Subdivision (3) of this subsection. The city shall
  contribute amounts equal to 20 percent of the basic hourly earnings
  of each member employed by the city for all periods after September
  30, 2011, and before October 1, 2012, subject to additional amounts
  as provided by Subdivision (3) of this subsection. The city shall
  contribute amounts equal to] 21 percent of the basic hourly
  earnings of each member employed by the city for all pay periods
  beginning after September 30, 2012, and before January 1, 2022,
  subject to additional amounts as provided by Section 8.07 of this
  Act [Subdivision (3) of this subsection].  For all pay periods
  beginning on or after January 1, 2022, the city shall make
  contributions to the police retirement system in accordance with
  Subsections (b) and (c) of this section and Sections 8.03, 8.04,
  8.05, and 8.06 of this Act, as applicable, and subject to additional
  amounts as provided by Section 8.07 of this Act. The city council
  may also authorize the city to make additional contributions to the
  police retirement system in whatever amount the city council may
  determine. Contributions by the city shall be made each pay period.
         (b)  For each pay period that begins on or after January 1,
  2022, and before January 1, 2023, the city shall contribute an
  amount equal to the sum of:
               (1)  the city contribution rate, as determined in the
  initial risk sharing valuation study conducted under Section 8.03
  of this Act, multiplied by the pensionable payroll for the
  applicable pay period; and
               (2)  1/26 of the city legacy contribution amount for
  the 2022 calendar year, as determined and adjusted in the initial
  risk sharing valuation study conducted under Section 8.03 of this
  Act.
         (c)  For each pay period that begins on or after January 1,
  2023, the city shall contribute an amount equal to the sum of:
               (1)  the city contribution rate for the applicable
  calendar year, as determined in a subsequent risk sharing valuation
  study conducted under Section 8.04 of this Act and adjusted under
  Section 8.05 or 8.06 of this Act, as applicable, multiplied by the
  pensionable payroll for the applicable pay period; and
               (2)  1/26 of the city legacy contribution amount for
  the applicable calendar year, as determined and adjusted in the
  initial risk sharing valuation study conducted under Section 8.03
  of this Act.
         Sec. 8.03.  INITIAL RISK SHARING VALUATION STUDY. (a)  The
  police retirement system shall cause the system's actuary to
  prepare an initial risk sharing valuation study that is dated as of
  December 31, 2020, in accordance with this section.
         (b)  The initial risk sharing valuation study must:
               (1)  except as otherwise provided by this section, be
  prepared in accordance with the requirements of Section 8.04 of
  this Act;
               (2)  be based on the actuarial assumptions that were
  used by the system's actuary in the valuation completed for the year
  ended December 31, 2020;
               (3)  project the corridor midpoint for the next 30
  calendar years beginning with the calendar year that begins on
  January 1, 2022; and
               (4)  include a schedule of city legacy contribution
  amounts for 30 calendar years beginning with the calendar year that
  begins on January 1, 2022.
         (c)  For purposes of Subsection (b)(4) of this section, the
  schedule of city legacy contribution amounts must be determined in
  such a manner that the total annual city legacy contribution amount
  for the first three calendar years will result in a phase-in of the
  anticipated increase in the city's contribution rate from the
  calendar year that begins on January 1, 2021, in accordance with
  Subsection (a) of this section, to the rate equal to the sum of the
  estimated contribution rate for the calendar year that begins on
  January 1, 2022, and the rate of pensionable payroll equal to the
  city legacy contribution amount for January 1, 2022, determined as
  if there was no phase-in of the increase to the city legacy
  contribution amount. The phase-in must reflect approximately
  one-third of the increase each year over the three-year phase-in
  period.  The city's contribution under Section 8.02 of this Act for:
               (1)  the calendar years that begin on January 1, 2022,
  January 1, 2023, and January 1, 2024, must be adjusted to reflect
  the impact of the phase-in prescribed by this section; and
               (2)  each calendar year that begins on January 1, 2025,
  through January 1, 2051, must reflect a city legacy contribution
  amount that is three percent greater than the city legacy
  contribution amount for the preceding calendar year.
         (d)  The estimated city contribution rate for the calendar
  year that begins on January 1, 2022, must be based on the projected
  pensionable payroll, as determined under the initial risk sharing
  valuation study required by this section, assuming a payroll growth
  rate of three percent.
         Sec. 8.04.  SUBSEQUENT RISK SHARING VALUATION STUDIES. (a)  
  For each calendar year beginning after December 31, 2020, the
  police retirement system shall cause the system's actuary to
  prepare a risk sharing valuation study in accordance with this
  section and actuarial standards of practice.
         (b)  Each risk sharing valuation study must:
               (1)  be dated as of the last day of the calendar year
  for which the study is required to be prepared;
               (2)  calculate the unfunded actuarial accrued
  liability of the system as of the last day of the applicable
  calendar year, including the liability layer, if any, associated
  with the most recently completed calendar year;
               (3)  calculate the estimated city contribution rate for
  the following calendar year;
               (4)  determine the city contribution rate and the
  member contribution rate for the following calendar year, taking
  into account any adjustments required under Section 8.05, 8.06, or
  8.065 of this Act, as applicable; and
               (5)  except as provided by Subsection (d) of this
  section, be based on the assumptions and methods adopted by the
  board in accordance with Section 3.091 of this Act, if applicable,
  and that are consistent with actuarial standards of practice and
  the following principles:
                     (A)  closed layered amortization of liability
  layers to ensure that the amortization period for each liability
  layer begins 12 months after the date of the risk sharing valuation
  study in which the liability layer is first recognized;
                     (B)  each liability layer is assigned an
  amortization period;
                     (C)  each liability loss layer will be amortized
  over a period of 30 years from the first day of the calendar year
  beginning 12 months after the date of the risk sharing valuation
  study in which the liability loss layer is first recognized, except
  that the legacy liability must be amortized over a 30-year period
  beginning January 1, 2022;
                     (D)  each liability gain layer will be amortized
  over:
                           (i)  a period equal to the remaining
  amortization period on the largest remaining liability loss layer,
  and the two layers must be treated as one layer such that if the
  payoff year of the liability loss layer is accelerated or extended,
  the payoff year of the liability gain layer is also accelerated or
  extended; or
                           (ii)  if there is no liability loss layer, a
  period of 30 years from the first day of the calendar year beginning
  12 months after the date of the risk sharing valuation study in
  which the liability gain layer is first recognized;
                     (E)  liability layers will be funded according to
  the level percent of payroll method;
                     (F)  payroll for purposes of determining the
  corridor midpoint, city contribution rate, and city legacy
  contribution amount must be projected using the annual payroll
  growth rate assumption adopted by the board; and
                     (G)  the city contribution rate will be calculated
  each calendar year without inclusion of the legacy liability.
         (c)  The city and the board may agree on a written transition
  plan for resetting the corridor midpoint:
               (1)  if at any time the funded ratio of the system is
  equal to or greater than 100 percent; or
               (2)  for any calendar year after the payoff year of the
  legacy liability.
         (d)  Subject to Section 3.091 of this Act, the board may by
  rule adopt actuarial principles other than those required under
  Subsection (b)(5) of this section, provided the actuarial
  principles:
               (1)  are consistent with actuarial standards of
  practice;
               (2)  are approved by the system's actuary; and
               (3)  do not operate to change the city legacy
  contribution amount.
         Sec. 8.05.  ADJUSTMENT TO CITY CONTRIBUTION RATE IF LOWER
  THAN CORRIDOR MIDPOINT. (a)  This section governs the
  determination of the city contribution rate applicable in a
  calendar year under Section 8.04(b)(4) of this Act if the estimated
  city contribution rate determined under Section 8.04(b)(3) of this
  Act is lower than the corridor midpoint.
         (b)  If the estimated city contribution rate is lower than
  the corridor midpoint and the funded ratio is:
               (1)  less than 90 percent, the city contribution rate
  for the applicable year equals the corridor midpoint; or
               (2)  equal to or greater than 90 percent and the city
  contribution rate is:
                     (A)  equal to or greater than the minimum city
  contribution rate, the estimated city contribution rate is the city
  contribution rate for the calendar year; or
                     (B)  less than the minimum city contribution rate
  for the corresponding calendar year, the city contribution rate for
  the calendar year equals the minimum city contribution rate.
         (c)  If the funded ratio is equal to or greater than 100
  percent:
               (1)  all existing liability layers, including the
  legacy liability, are considered fully amortized and paid; and
               (2)  the city legacy contribution amount may no longer
  be included in the city contribution under Section 8.02 of this Act.
         Sec. 8.06.  ADJUSTMENT TO CITY CONTRIBUTION RATE IF EQUAL TO
  OR GREATER THAN CORRIDOR MIDPOINT. (a)  This section governs the
  determination of the city contribution rate applicable in a
  calendar year under Section 8.04(b)(4) of this Act if the estimated
  city contribution rate determined under Section 8.04(b)(3) of this
  Act is equal to or greater than the corridor midpoint.
         (b)  If the estimated city contribution rate is equal to or
  greater than the corridor midpoint and:
               (1)  less than or equal to the maximum city
  contribution rate for the corresponding calendar year, the
  estimated city contribution rate is the city contribution rate; or
               (2)  greater than the maximum city contribution rate
  for the corresponding calendar year, the city contribution rate is
  the maximum city contribution rate.
         Sec. 8.065.  INCREASED MEMBER CONTRIBUTION RATE IF ESTIMATED
  CITY CONTRIBUTION RATE GREATER THAN MAXIMUM CITY CONTRIBUTION RATE.
  (a) This section governs the determination of the member
  contribution rate applicable in a calendar year under Section
  8.04(b)(4) of this Act if the estimated city contribution rate
  determined under Section 8.04(b)(3) of this Act is greater than the
  maximum city contribution rate.
         (b)  Except as provided by Subsection (c) of this section, if
  the estimated city contribution rate is greater than the corridor
  maximum, the member contribution rate will increase by an amount
  equal to the difference between the following:
               (1)  the estimated city contribution rate; and
               (2)  the maximum city contribution rate.
         (c)  The member contribution rate may not be increased by
  more than two percentage points under this section.
         (d)  If the estimated city contribution rate is more than two
  percent of pensionable payroll greater than the maximum city
  contribution rate, the city and the board shall enter into
  discussions to determine additional funding solutions.
         Sec. 8.07.  ADDITIONAL CITY CONTRIBUTIONS FOR PROPORTIONATE
  RETIREMENT PROGRAM PARTICIPATION. (a) [(3)] The city shall
  contribute amounts in addition to the amounts described by Section
  8.02 of this Act [Subdivision (2) of this subsection] as required by
  Section 803.101(h), Government Code, to fund the additional
  liabilities incurred by the police retirement system as a result of
  participating in the proportionate retirement program. The rate at
  which the city shall contribute additional amounts under this
  section [subdivision] is equal to 0.737 [0.25] percent of the basic
  hourly earnings of each member employed by the city for all pay
  periods commencing on or after October 1, 2020, subject to
  adjustment under Subsection (b) of this section [from January 4,
  2009, through September 30, 2009. The rate at which the city shall
  contribute additional amounts under this subdivision is equal to
  0.63 percent of the basic hourly earnings of each member employed by
  the city for all periods after September 30, 2009, subject to
  adjustment under Subdivision (4) of this subsection].
         (b) [(4)]  The additional contribution rate under Subsection
  (a) of this section [Subdivision (3) of this subsection] shall
  increase or decrease as considered necessary by the actuary for the
  police retirement system after each five-year period of
  participation by the system in the proportionate retirement program
  in order to update the amount necessary to fund the additional
  liabilities incurred by the system as a result of participating in
  the proportionate retirement program and of the consolidation of
  the city's public safety and emergency management department with
  the police department on January 4, 2009. The system's actuary
  shall perform an experience study that shall be the basis for a
  contribution rate adjustment under this subsection [subdivision].
  The effective date of the initial contribution rate adjustment
  under this subsection [subdivision] is October 1, 2015. Each later
  contribution rate adjustment under this subsection [subdivision]
  takes effect October 1 of every fifth year after the effective date
  of the initial contribution rate adjustment. The system's actuary
  shall present to the police retirement board the experience study
  on which any contribution rate adjustment under this subsection
  [subdivision] is based not later than 45 days before the effective
  date of the adjustment, and the city's actuary shall have the
  opportunity to review and comment on the study. An adjustment in
  the additional contribution rate under this subsection
  [subdivision] may not cause the additional contribution rate under
  Subsection (a) of this section [Subdivision (3) of this subsection]
  to be less than zero.
         Sec. 8.08.  PUBLICATION OF CHANGES TO CONTRIBUTION RATES. 
  [(b)] Any change of the rates of deposit and the rates of
  contribution shall be published when approved by the board.
         Sec. 8.09.  EXPENSES. (a) [(c) Contributions by the city
  shall be paid to the system after appropriation by the city council.
         [(d)] Expenses involved in administration and operation of
  the police retirement system shall be paid from the assets of the
  police retirement system subject to approval by the board. Such
  expenses shall include actuarial valuations of the system no less
  frequently than on a biennial basis, annual audits and/or actuarial
  studies, preparation of annual reports, and staff assistance.
  Additional consulting may be authorized by the board and paid for
  from the assets of the police retirement system as deemed necessary
  from time to time by the board.
         (b) [(e)]  Expenses incurred from investment advice,
  counsel, and management shall be paid from the assets of the police
  retirement system.
         Sec. 8.10.  PAYMENT OF CONTRIBUTIONS. (a)  Contributions by
  the city shall be paid to the system after appropriation by the city
  council.
         (b) [(f)]  The city shall make the police officer
  contributions to the system required by Section 8.02 of this Act
  [Subsection (a) of this section].
         (c)  The system shall make the administrative staff's
  contributions to the system.
         (d)  Member contributions will be made by a reduction in
  their monetary compensation.  Contributions made shall be treated
  as employer contributions in accordance with Section 414(h)(2),
  Internal Revenue Code (26 U.S.C. Section 414(h)(2)), for the
  purpose of determining tax treatment of the amounts under the
  federal Internal Revenue Code.  These contributions are not
  includible in the gross income of the member until such time as they
  are distributed or made available to the member.
         (e)  Member contributions made as provided by Subsection (d)
  of this section [subsection] shall be deposited to the individual
  account of each affected member and shall be treated as
  compensation of members for all other purposes of this Act and for
  the purpose of determining contributions to the federal Old-Age,
  Survivors, and Disability Insurance System (Social Security).  The
  provisions of this subsection shall remain in effect as long as the
  plan covering members is a qualified retirement plan under Section
  401(a), Internal Revenue Code (26 U.S.C. Section 401(a)), and its
  related trust is tax exempt under Section 501(a), Internal Revenue
  Code (26 U.S.C. Section 501(a)).
         Sec. 8.11.  EFFECT OF SYSTEM TERMINATION ON CONTRIBUTIONS.
  [(g)] If the police retirement system is terminated, further
  contributions may not be made by the city or the system, and further
  deposits may not be made by the members for service after the date
  of termination.  Members do not accrue any additional benefits
  after the date of termination.  The benefit accrued by each member
  on the termination of the plan or the complete discontinuance of
  contributions under the plan and the benefit of any affected member
  on the partial termination of the plan, to the extent funded, become
  nonforfeitable notwithstanding the length of a member's service.  
  The benefit accrued by a member also becomes nonforfeitable, if not
  already nonforfeitable, at the normal retirement date.
         Sec. 8.12.  EFFECT OF FORFEITURE. [(h)] A forfeiture from a
  member terminating employment and withdrawing the member's
  accumulated deposits may not be applied to increase the benefit
  that any other member would receive from the system.  The actuary
  shall anticipate the effect of forfeitures in determining the costs
  under the system.
         Sec. 8.13.  SYSTEM ASSETS. [(i)] The assets of the police
  retirement system shall be held in trust for the exclusive benefit
  of the members and their beneficiaries.  The corpus or income may
  not be used for or diverted to a purpose other than the exclusive
  benefit of members or their beneficiaries, whether by operation or
  natural termination of the system, by power of revocation or
  amendment, by the happening of a contingency, by collateral
  arrangement, or by other means.
         SECTION 15.  Section 13.02, Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), is amended to read as follows:
         Sec. 13.02.  MANDATORY DISTRIBUTIONS PROHIBITED. A member
  or former member who has separated from service may not be required
  to receive an eligible rollover distribution, as defined in Section
  13.01(b)(1) of this Act, without the member's consent unless the
  member or former member has attained the applicable age for minimum
  distributions required under Section 401(a)(9) of the Internal
  Revenue Code of 1986 (26 U.S.C. Section 401(a)(9)) [is at least
  70-1/2 years of age].
         SECTION 16.  The following provisions of Chapter 452 (S.B.
  738), Acts of the 72nd Legislature, Regular Session, 1991 (Article
  6243n-1, Vernon's Texas Civil Statutes), are repealed:
               (1)  Section 5.04(b);
               (2)  Sections 6.01(c), (d), and (e);
               (3)  Section 6.02(b); and
               (4)  Section 7.02(b).
         SECTION 17.  (a) In this section, "police retirement board"
  has the meaning assigned by Section 1.02, Chapter 452 (S.B. 738),
  Acts of the 72nd Legislature, Regular Session, 1991 (Article
  6243n-1, Vernon's Texas Civil Statutes).
         (b)  Section 3.02, Chapter 452 (S.B. 738), Acts of the 72nd
  Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), does not affect the term of a member of the
  police retirement board appointed or elected under that section, as
  that section existed immediately before the effective date of this
  Act, and serving on the board on the effective date of this Act.
         (c)  When the terms of:
               (1)  the two members of the police retirement board
  elected under Section 3.02(a)(4), Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), as that section existed immediately
  before the effective date of this Act, who have terms that expire in
  December 2021, expire:
                     (A)  one of the resulting vacancies on the board
  shall be filled by appointment by the city council in accordance
  with Section 3.02(a)(6), Chapter 452 (S.B. 738), Acts of the 72nd
  Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), as amended by this Act; and
                     (B)  the other resulting vacancy shall be filled
  by election of the members in accordance with Sections 3.02(a)(4)
  and 3.03, Chapter 452 (S.B. 738), Acts of the 72nd Legislature,
  Regular Session, 1991 (Article 6243n-1, Vernon's Texas Civil
  Statutes), as applicable; and
               (2)  the three members of the police retirement board
  elected under Section 3.02(a)(4), Chapter 452 (S.B. 738), Acts of
  the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
  Vernon's Texas Civil Statutes), as that section existed immediately
  before the effective date of this Act, who have terms that expire in
  December 2023, expire, the resulting vacancies on the board shall
  be filled by an election of the members in accordance with that
  section and Section 3.03, Chapter 452 (S.B. 738), Acts of the 72nd
  Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
  Texas Civil Statutes), as applicable, except that the member
  receiving the third highest number of votes in that election shall
  serve for a term of only two years with the member's term expiring
  in December 2025.
         SECTION 18.  This Act takes effect September 1, 2021.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 4368 was passed by the House on May
  14, 2021, by the following vote:  Yeas 141, Nays 4, 2 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 4368 on May 28, 2021, by the following vote:  Yeas 126, Nays 21,
  1 present, not voting.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 4368 was passed by the Senate, with
  amendments, on May 26, 2021, by the following vote:  Yeas 31, Nays
  0.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor