BILL ANALYSIS

Senate Research Center	H.B. 2802
89R24121 KFF-F	By: Bucy et al. (Schwertner)
	Finance
	5/12/2025
	Engrossed

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

The Austin Firefighters Retirement Fund (AFRF) was first established in 1937. In 2022, the board provided a statutory cost-of-living adjustment based on market conditions. The following year, the fund was deemed actuarially unsound by the pension review board and received a funding soundness restoration plan (FSRP) "at risk" letter. As a result, the AFRF board created the "pension funding working group" to assess the current financial health of the plan, to project any future funding concerns, and to keep the membership apprised of the situation. H.B. 2802 would codify the voluntary FSRP working group recommendations to ensure the fund has sufficient assets in the long-term to preserve the ability to pay promised benefits, better match AFRF liabilities, and provide a more predictable COLA that can be adequately pre-funded.

H.B. 2802 amends current law relating to the administration of, contributions to, and benefits under retirement systems for firefighters in certain municipalities.

RULEMAKING AUTHORITY

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends the heading to Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), to read as follows:

Art. 6243e.1. FIREFIGHTERS RELIEF AND RETIREMENT FUND IN CITIES OF 950,000 TO 1,050,000.

SECTION 2. Amends Section 1.02, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by amending Subdivisions (1), (2), (3), and (4) and adding Subdivisions (1-a), (2-a), (2-b), (2-c), (2-d), (2-e), (5-a), (5-b), (5-c), (6-a), (6-b), (6-c), (6-d), (6-e), (8-a), (9-a), (9-b), (9-c), (9-d), (10-a), (10-b), (10-c), (10-d), (10-e), (10-f), (11-a), (11-b), (11-c), (11-d), (11-e), (11-f), (11-g), (13-a), and (13-b), to redefine "accumulated contributions," "actuarial equivalent," "board of trustees," and "board's actuary," and to define "actuarial accrued liability," "actuarial value of assets," "adjustment factor," "amortization period," "amortization rate," "annual investment return," "board," "corridor," "corridor margin," "corridor midpoint," "DROP," "DROP participant," "DROP period," "employer normal cost rate," "estimated municipal contribution rate," "five-year investment return," "funded ratio," "group A member," "group B cost-of-living adjustment percentage," "group B member," "legacy liability," "level percent of payroll method," "liability gain layer," "liability layer," "liability loss layer," "maximum municipal contribution rate," "minimum municipal contribution rate," "municipal contribution rate," "municipal legacy contribution amount," "normal cost rate," "payoff year," "pensionable payroll," "projected pensionable payroll," "unanticipated change," and "unfunded actuarial accrued liability."

SECTION 3. Amends Article 1, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Section 1.031, as follows:

Sec. 1.031. OPERATING NAME. Authorizes the board of firefighters relief and retirement fund trustees (board) by rule to adopt a name under which the firefighters relief and retirement fund (fund) is authorized to operate other than the name prescribed by Section 1.03 (Continued Existence) of this Act.

SECTION 4. Amends Article 2, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Section 2.015, as follows:

Sec. 2.015. FUND QUALIFICATION. Requires that this Act be construed, and the fund be administered, in a manner that maintains the qualified status of the fund under Section 401(a) of the Internal Revenue Code.

SECTION 5. Amends Section 2.02, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 2.02. COMPOSITION OF BOARD. (a) Creates this subsection from existing text. Provides that the board is composed of:

(1) the mayor of the municipality or a member of the governing body of the municipality designated by the mayor;

(2) the chief financial officer of the municipality or a person designated by the chief financial officer, rather than the city treasurer or, if there is no treasurer, the person who by law, charter provision, or ordinance performs the duty of city treasurer;

(3) four, rather than three, members of the fund to be selected by vote of the firefighters and retirees in the manner provided by this Act; and

(4) one member of the public selected and appointed by the governing body of the municipality in accordance with Section 2.025 of this Act.

Makes a nonsubstantive change to this subsection.

(b) Authorizes the board by rule to specify the number of elected members of the board under Subsection (a) of this section who are required to be firefighters or retirees.

SECTION 6. Amends Article 2, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Section 2.025, as follows:

Sec. 2.025. APPOINTED PUBLIC MEMBER OF BOARD. (a) Provides that, to serve on the board under Section 2.02(a)(4) of this Act, a person:

(1) is required to be a qualified voter, be a resident and have been a resident of the municipality for the five-year period preceding the date of the appointment, and have demonstrated experience in the field of finance or investments; and

(2) is prohibited from being a current or former employee or officer of the municipality, a current or former employee of the fund or a current or former member of the board, or a current or former member or beneficiary of the fund.

(b) Provides that a member of the board under Section 2.02(a)(4) of this Act holds office for a term of four years and serves during the term for which the member was appointed and until the member's successor is selected and has qualified, unless a vacancy results because of death, resignation, or removal.

(c) Requires that a vacancy on the board of trustees in the position under Section 2.02(a)(4) of this Act be filled in the same manner as the original appointment.

SECTION 7. Amends Section 2.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by amending Subsections (c), (e), and (h) and adding Subsection (c-1), as follows:

(c) Provides that each election is by secret ballot, rather than by secret written ballot, on a date and using a method the board of trustees determines. Provides that nominations:

(1) are authorized to be made in person, by mail, by telephone, rather than by telephone to the office of the fund, or by any other method approved by the board of trustees; and

(2) are required to be received between September 1 and September 15.

Makes conforming and nonsubstantive changes to this subsection.

(c-1) Authorizes nominations or elections to be conducted by electronic means.

(e) Provides that the elected members of the board hold office for staggered terms of four, rather than three, years, with the term of one trustee expiring each year.

(h) Prohibits assets of the fund from being used to pay campaign expenses incurred by or for a candidate, rather than a member.

SECTION 8. Amends Section 2.05, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 2.05. OFFICERS. Requires the board to elect annually from its membership a chair to serve as the presiding officer and a vice-chair to serve as the alternate presiding officer who is required to preside in the absence or disability of the chair. Deletes existing text providing that the mayor is the presiding officer and the city treasurer is the secretary-treasurer of the board. Makes a conforming and a nonsubstantive change.

SECTION 9. Amends Section 2.07, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 2.07. MEETINGS; MINUTES. Provides that the board is required to hold regular, rather than monthly, meetings not fewer than four times each calendar year at a time and place that it designates and authorized to hold special meetings on the call of the presiding officer or alternate presiding officer.

SECTION 10. Amends Section 2.08, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 2.08. ADMINISTRATION OF FUNDS. Requires the board to perform certain actions, including keeping a record of all claims, receipts, and disbursements and make disbursements only by such persons as the board of trustees designates, rather than on voucher signed by such person as the board designates by resolution.

SECTION 11. Amends Section 2.09, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 2.09. DETERMINATION BY BOARD. (a) Creates this subsection from existing text. Provides that the board is authorized to hear and determine certain matters, including matters regarding any other determinations related to the administration of the fund. Makes nonsubstantive changes.

(b) Requires that all determinations made by the board be final and binding.

SECTION 12. Amends Section 2.13(a), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

(a) Provides that information contained in records in the custody of the fund concerning an individual member, retiree, annuitant, or beneficiary is confidential and not subject to public disclosure under Chapter 552 (Public Information), rather than Section 552.101 (Exception: Confidential Information), Government Code, and is prohibited from being disclosed in a form identifiable with a specific individual unless:

(1) the information is disclosed to:

(A) the individual or the individual's attorney, guardian, executor, administrator, conservator, or other person who the executive director, rather than the administrator, of the fund determines is acting in the interest of the individual or the individual's estate;

(B)-(C) makes conforming changes to these paragraphs; or

(D) makes no changes to this paragraph; or

(2) makes a conforming change to this subdivision.

SECTION 13. Amends Article 2, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Section 2.14, as follows:

Sec. 2.14. PROCESS FOR EXPERIENCE STUDIES AND CHANGES TO ACTUARIAL ASSUMPTIONS. (a) Requires the board, at least once every five years, to have the board's actuary 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 fund. Requires that the fund notify the municipality at the beginning of an upcoming experience study by the board's actuary.

(b) Authorizes the municipality, in connection with the fund's experience study, to:

(1) conduct a separate experience study using an actuary chosen by the municipality;

(2) have the municipality's actuary review the experience study prepared by the board's actuary; or

(3) accept the experience study prepared by the board's actuary.

(1) have a separate experience study performed under Subsection (b)(1) of this section, the municipality is required to complete the study not later than three months after the date the fund notified the municipality of the fund's intent to conduct an experience study; or

(2) have the municipality's actuary review the fund's experience study under Subsection (b)(2) of this section, the municipality is required to complete the review not later than one month after the date the preliminary results of the experience study are presented to the board.

(d) Requires the board's actuary and the municipality's actuary, if the municipality chooses to have a separate experience study performed under Subsection (b)(1) of this section, or to have the municipality's actuary review the fund's experience study under Subsection (b)(2) of this section, to determine what the hypothetical municipal contribution rate would be using the proposed actuarial assumptions from the experience studies and data from the most recent actuarial valuation.

(e) Provides that, if the difference between the hypothetical municipal contribution rates determined by the board's actuary and the municipality'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 is required to use the experience study performed by the board's actuary in determining assumptions; or

(2) is greater than two percent of pensionable payroll, then the board's actuary and the municipality's actuary are required to have not more than 20 business days after the date of determination to reconcile the difference in actuarial assumptions or methods causing the different hypothetical municipal contribution rates, and:

(A) if, as a result of the reconciliation efforts under this subdivision, the difference between the municipal contribution rates determined by the board's actuary and the municipality's actuary is reduced to less than or equal to two percentage points, then no further action is needed and the board is required to use the experience study performed by the board's actuary in determining actuarial assumptions; or

(B) if, after 20 business days, the board's actuary and the municipality's actuary are not able to reach a reconciliation that reduces the difference in the hypothetical municipal contribution rates to an amount less than or equal to two percentage points, an independent third-party actuary is required to be retained to opine on the differences in the assumptions made and actuarial methods used by the board's actuary and the municipality's actuary.

(f) Requires the independent third-party actuary retained in accordance with Subsection (e)(2)(B) of this section to be chosen by the municipality from a list of three actuarial firms provided by the fund.

(g) Provides that, if an independent 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 board's actuary and, if applicable, the municipality's actuary. Provides that, if the board adopts actuarial assumptions or methods contrary to the third-party actuary's findings:

(1) the fund is required to provide a formal letter describing the rationale for the board's action to the governing body of the municipality and State Pension Review Board (PRB); and

(2) the board's actuary and executive director are required to be made available at the request of the governing body of the municipality or the PRB to present in person the rationale for the board's action.

(h) Requires the fund and the municipality, if the board proposes a change to actuarial assumptions or methods that is not in connection with an experience study described by this section, to follow the same process prescribed by this section with respect to an experience study in connection with the proposed change.

SECTION 14. Amends Section 3.01, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 3.01. GENERAL REQUIREMENT. Provides that a person who begins service as a firefighter in a municipality to which this Act applies and who is not ineligible for membership in the fund becomes a member of the fund as a condition of that person's employment, rather than appointment. Requires each member to be a group A member or group B member in accordance with Section 3.011.

SECTION 15. Amends Article 3, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Section 3.011, as follows:

Sec. 3.011. GROUP A AND GROUP B MEMBERSHIP. Provides that each member of the fund is either a group A member or a group B member as follows:

(1) a member of the fund is a group A member if the member was:

(A) a retiree on December 31, 2025;

(B) employed by the municipality as a firefighter on December 31, 2025; or

(C) terminated from employment with the municipality as a firefighter on or before December 31, 2025, if the member has at least 10 years of accumulated service credit and has not withdrawn the member's accumulated contributions under Section 9.06 (Withdrawal of Contributions) of this Act or refunded the member's accumulated contributions under Section 4.04 (Other Absence) of this Act; and

(2) a member of the fund is a group B member if the member, except as provided by Subdivision (1)(C) of this section, became employed by the municipality as a firefighter on or after January 1, 2026, or otherwise does not satisfy the requirements of a group A member.

SECTION 16. Amends Section 4.02, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 4.02. MILITARY SERVICE. (a) Creates this subsection from existing text. Provides that a member of the fund retains all accumulated service credit and is allowed service credit for each month during which the member leaves employment with the fire department and performs active duty service in the armed forces or the armed forces reserves of the United States or their auxiliaries, except that:

(1) makes no changes to this subdivision;

(2)-(3) makes nonsubstantive changes to these subdivisions; and

(4) for military service credit related to military service performed on or after January 1, 2026, the member and the municipality are required to each deposit to the fund an amount equal to the sum of contributions that would have been contributed to the fund by the member and the municipality, respectively, if the member had remained in active employment with the fire department during the period the claimed military service was performed.

(b) Requires that the payments required under this section be made in accordance with the applicable requirements of Section 414(u) of the Internal Revenue Code and the Uniformed Services Employment and Reemployment Rights Act of 1994 (38 U.S.C. Section 4301 et seq.). Authorizes the board to adopt rules relating to the payment of contributions under this section as the board considers necessary for the administration of this section.

SECTION 17. Amends Section 5.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 5.03. DETERMINATION OF AVERAGE MONTHLY SALARY. (a) Creates this subdivision from existing text. Provides that a member's average monthly salary is computed as:

(1) for a group A member, the average of the member's compensation for the 36 months of highest compensation during the group A member's credited service; or

(2) for a group B member, the average of the member's compensation for the 60 months of highest compensation during the group B member's credited service.

(b) Creates this subsection from existing text. Provides that, if a member, rather than a person, has less than 36 or 60 months of credited service, as applicable, the average monthly salary is computed, as if the member had been employed by the fire department for 36 or 60 months, as applicable, by attributing to a period that is immediately before the member's employment and that is equal to the difference between the number of months the member has been employed by the fire department and 36 or 60 months, as applicable, of compensation the member would have received at the rank the member held when the person became a member.

SECTION 18. Amends Section 5.04(a), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

(a) Provides that the service retirement annuity of:

(1) a group A member who retires under Section 5.01 (Normal Service Retirement Eligibility) of this Act, rather than a person who retires under Section 5.01 of this Act on or after January 1, 1995, is a monthly payment that is equal to 3.3, rather than three, percent of the member's average monthly compensation multiplied by the member's number of years of service credit and any fraction of a year of service credit; or

(2) a group B member who retires under Section 5.01 of this Act is a monthly payment that is equal to three percent of the member's average monthly compensation multiplied by the member's number of years of service credit and any fraction of a year of service credit.

SECTION 19. Amends Section 5.05, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 5.05. EARLY RETIREMENT. (a) Provides that a group A member is eligible to retire and receive a normal service retirement annuity if the member, while serving as a firefighter in the fire department, meets certain criteria.

(b) Provides that the retirement annuity of a group A member who retires under this section after September 1, 1997, is the same as for normal service retirement, but is prohibited from being increased under Section 9.04 of this Act until the person would have met the requirements of Section 9.041(b) of this Act, rather than the requirements of Section 5.01 of this Act if the person had remained in active service as a firefighter.

SECTION 20. Amends Section 6.01, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 6.01. INITIAL ELIGIBILITY FOR DISABILITY RETIREMENT. Deletes existing text providing that a firefighter is eligible to retire and receive a disability retirement annuity if the board determines that, although no application has been filed, retirement is for the good of the fire department.

SECTION 21. Amends Section 6.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 6.03. AMOUNT OF DISABILITY BENEFIT. Provides that, subject to adjustment under Section 6.05 (Continuation After First 2-1/2 Years) or Section 9.04 or 9.042, as applicable, of this Act, the disability retirement benefit payable to a member is the normal service retirement benefit described by Section 5.04 of this Act, but not less than the member would have received after 20 years of service credit.

SECTION 22. Amends Section 6.04, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 6.04. TERMINATION DURING FIRST 2-1/2 YEARS. Authorizes the board, if, during the first 2-1/2 years of disability retirement, a retiree recovers to the extent that the person is able to perform the duties of the person's job as a firefighter, to terminate the disability retirement benefit. Deletes existing text authorizing the board to restore the person to active service at not less than the same rank the person held at the time of disability retirement.

SECTION 23. Amends Section 7.01, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 7.01. SURVIVING SPOUSE OF FIREFIGHTER. Entitles the firefighter's surviving spouse, if a firefighter dies before retirement, regardless of whether the firefighter is a group A or group B member, to receive an immediate monthly benefit from the fund of 75 percent of the service retirement benefit that the firefighter would have received if the firefighter had retired on the date of death, but not less than 75 percent of the monthly payment the decedent would have received based on 20 years of service credit.

SECTION 24. Amends Section 7.02, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 7.02. SURVIVING SPOUSE OF GROUP A RETIREE. (a) Entitles the retiree's surviving spouse, on the death of a retiree who is a group A member, to receive an immediate monthly benefit from the fund of 75 percent of the retirement benefit that was being paid to the retiree if the spouse was married to the retiree at the time of the retiree's retirement. Deletes existing text entitling the retiree's surviving spouse to certain benefits if the spouse married the retiree after the retiree's retirement and was married to the retiree for at least 24 consecutive months. Makes a nonsubstantive change.

(b) Makes conforming and nonsubstantive changes to this subsection.

SECTION 25. Amends the heading to Section 7.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), to read as follows:

Sec. 7.03. SURVIVING SPOUSE OF FORMER GROUP A FIREFIGHTER.

SECTION 26. Amends Section 7.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by amending Subsection (a) and adding Subsection (e), as follows:

(a) Provides that an immediate monthly benefit is payable to the surviving spouse of a former firefighter who meets certain criteria, including being a group A member. Makes nonsubstantive changes.

(e) Provides that this section does not apply to the surviving spouse of a group B member.

SECTION 27. Amends Section 7.05, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by amending Subsections (a) and (b) and adding Subsection (d), as follows:

(a) Provides that, on the death of a member who at the time of the member's death was a firefighter, regardless of whether the member is a group A or group B member, or a retired group A member, if there is no surviving spouse, a benefit is payable to the decedent's surviving dependent children, if any.

(b) Provides that, on the death of a member who was a firefighter or a retired group A member, rather than on the death of a member under this Act, if there is a surviving spouse, a benefit is payable to each of the decedent's surviving dependent children, if any.

(d) Provides that this section does not apply to the surviving children of a group B member.

SECTION 28. Amends Section 7.06, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 7.06. PAYMENTS TO DEPENDENT PARENTS. (a) Creates this subsection from existing text. Entitles the dependent parent, or one of the surviving parents designated by the board, if a deceased member who was a retired group A member meets certain criteria, to receive a monthly benefit payment equal to the monthly amount that would have been payable to a surviving spouse of the deceased.

(b) Provides that this section does not apply to the surviving dependent parents of a group B member.

SECTION 29. Amends Section 7.09, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 7.09. New heading: SURVIVING BENEFICIARY OF CERTAIN UNMARRIED GROUP A MEMBERS. (a) Provides that, on the death of a member, including a retiree, who is a group A member and, at the time of the member's death, was eligible for retirement but had not retired, a benefit is payable under this section if certain conditions are met. Makes conforming and nonsubstantive changes.

(b)-(d) Makes conforming changes to these subsections.

(e) Provides that this section does not apply to a group B member.

SECTION 30. Amends Section 8.01, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 8.01. MEMBER REMAINING IN ACTIVE SERVICE. Authorizes a member who is eligible to receive a normal service retirement benefit under Section 5.01 of this Act, in lieu of either leaving active service and beginning to receive a service retirement annuity under Section 5.01 of this Act or remaining in active service and continuing to accrue additional service credit under Section 5.02 of this Act, to remain in active service, become a participant in the DROP in accordance with this Act, rather than in accordance with Sections 8.02 and 8.03 of this Act, and defer the beginning of the person's retirement annuity. Makes a nonsubstantive change.

SECTION 31. Amends Section 8.02, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 8.02. ELECTION TO PARTICIPATE IN DROP. Provides that an election to participate in the DROP has no effect on either the municipality's or the member's contributions under Article 10 (Collection of Contributions; Interest), rather than under Section 10.01 (Municipal and Member Contributions), of this Act.

SECTION 32. Amends Section 8.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 8.03. New heading: CREDITS TO MEMBER'S DROP ACCOUNT DURING DROP PERIOD. (a) Creates this subsection from existing text. Requires the board, each month during a member's DROP period, rather than after a member makes an election to participate in the DROP and until the member's retirement, to cause an amount equal to the retirement annuity that the member would have received under Section 5.04 (Normal Service Retirement Benefit) of this Act for that month if the member had left active service and been granted a retirement annuity on the effective date of the election under Section 8.02 of this Act to be credited to a separate DROP account maintained within the fund for the benefit of the member.

(b) Requires the board, in addition to the amounts credited under Subsection (a) of this section, to cause an amount equal to all or a portion of the firefighter's, contributions under Section 10.011 of this Act, rather than the member's contributions under Section 10.01(d) of this Act, made after the effective date of the election to participate in the DROP to be credited, rather than is required to be credited, to the member's DROP account as follows:

(1) if the member is a group A member, 100 percent of the contributions; or

(2) if the member is a group B member, 50 percent of the contributions.

(c) Creates this subsection from existing text. Requires that amounts held in a member's DROP account during the DROP period be credited with interest on December 31 of each calendar year, rather than at the end of each calendar month with interest, at a rate equal to one-twelfth of five percent, for a group A member or four percent for a group B member, rather than five percent until the member's retirement.

SECTION 33. Amends Article 8, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Section 8.031, as follows:

Sec. 8.031. INTEREST CREDITED AFTER DROP PERIOD. Requires that amounts held in a member's DROP account after the DROP period be credited with interest:

(1) if the member is a group A member, for each period, before January 1, 2026, at the end of each calendar month at a rate equal to one-twelfth of five percent or on or after January 1, 2026, on December 31 of each calendar year at a rate equal to five percent; or

(2) if the member is a group B member, on December 31 of each calendar year at a rate equal to four percent, if the fund's annual investment return for the preceding calendar year is greater than zero percent or two percent, if the fund's annual investment return for the preceding calendar year is equal to or less than zero percent.

SECTION 34. Amends Section 8.04, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 8.04. New heading: ADJUSTMENTS TO CREDITS TO MEMBER'S DROP ACCOUNT. (a) Creates this subsection from existing text. Provides that the amount credited to the member's DROP account:

(1) is required to be increased by any cost-of-living adjustments under Section 9.04 of this Act that occur during the group A member's DROP period, including adjustments granted before January 1, 2026, but only as to amounts credited to the member's DROP account after a cost-of-living adjustment; and

(2) redesignates existing Subdivision (3) as Subdivision (2) and makes no further changes.

Deletes existing text providing that the amount credited monthly to the member's DROP account is required to be increased as a result of any increase in the formula used in computing service retirement benefits under Section 5.04 of this Act that occurs after the effective date of the member's election to participate in the DROP but before the effective date of the member's retirement and is required to be increased by an annual cost-of-living adjustments under Section 9.04 of this Act that occur between the effective date of the member's election to participate in the DROP and the effective date of the member's retirement but only as to amounts credited to the member's DROP account after a cost-of-living adjustment.

(b) Provides that Subsection (a)(1) of this section does not apply to a group B member.

SECTION 35. Amends Section 8.05(d), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), to make a nonsubstantive change.

SECTION 36. Amends Section 8.06, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 8.06. New heading: ESTABLISHMENT OF DROP ACCOUNT AT RETIREMENT FOR GROUP A MEMBERS. (a) Authorizes a group A member who is eligible for normal service retirement or early retirement and who terminates or has terminated active service as a firefighter, in lieu of electing to participate in the DROP before actual retirement, to establish a DROP account under this section.

(b) Makes a conforming change to this subsection.

(1) the board is required to cause to be credited to a DROP account maintained within the fund for the benefit of that person an amount equal to the credits that the member's DROP account would have received, including interest in accordance with Section 8.03 of this Act, if the member had established the DROP account after becoming eligible for service retirement, but not more than seven years before the actual date of the member's retirement from the fire department;

(2) makes a nonsubstantive change to this subdivision;

(3) makes no changes to this subdivision; and

(4) the member's DROP account is required to be credited with interest as provided by Section 8.03, rather than Section 8.05 (Distributions from Member's DROP Account), of this Act during the DROP period or Section 8.031 of this Act after the DROP period.

Makes nonsubstantive changes to this subsection.

(d)-(e) Makes conforming and nonsubstantive changes to these subsections.

(f) Provides that a group B member is not eligible to establish a DROP account under this section.

SECTION 37. Amends Section 8.08, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 8.08. SUBSEQUENT DISABILITY OF DROP PARTICIPANT. Requires the board, if the board determines that the member would have been eligible for disability retirement, to grant a normal service retirement annuity as described by Section 5.04 of this Act and to pay the member both the service retirement annuity as calculated under Section 8.03(a) of this Act and a distribution of the DROP account that has accumulated as of the date of termination of employment in accordance with, rather than as described by, Section 8.05 of this Act. Makes nonsubstantive changes.

SECTION 38. Amends Section 8.09, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 8.09. RETIREMENT BENEFIT PAYABLE TO DROP PARTICIPANT. (a) Creates this subsection from existing text. Provides that the retirement benefit payable under Article 5 (Service Retirement Benefits) or 6 (Disability Retirement Benefits) of this Act to a person who participates in the DROP:

(1) redesignates existing Subdivision (2) as Subdivision (1) and makes no further changes;

(2) is required to be increased by any cost-of-living adjustments under Section 9.04 of this Act that occur during the group A member's DROP period, including adjustments granted before January 1, 2026, rather than between the effective date of the member's election to participate in the DROP and the effective date of the member's retirement; and

(3)-(4) makes nonsubstantive changes to these subdivisions.

Deletes existing text providing that the retirement benefit payable under Article 5 or 6 of this Act to a person who participates in the DROP is prohibited from being increased as a result of any increase in the formula used in computing service retirement benefits under Section 5.04 of this Act that occurs after the effective date of the member's election to participate in the DROP. Makes nonsubstantive changes.

(b) Provides that Subsection (a)(2) of this section does not apply to a group B member.

SECTION 39. Amends Section 8.10, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 8.10. TERMINATION OR MODIFICATION OF DROP BY FUND. Authorizes the board, to maintain the actuarial soundness of the fund, to take certain actions, including to reduce the interest paid on DROP accounts or take other action that would reduce the future credits to DROP account on or after the effective date of the reduction, rather than only for all DROP accounts that are established after the effective date of the action by the board. Deletes existing text authorizing the board, if the board's actuary, not sooner than January 1, 2000, certifies to the board that DROP participation is resulting in a significant actuarial loss to the fund, to take certain actions.

SECTION 40. Amends Section 9.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 9.03. LIMITATION ON PAYMENT OF BENEFITS. (a) Makes a nonsubstantive change to this subsection.

(b) Prohibits a person's vested accrued benefit in effect on September 1, 2025, rather than on September 1, 1995, from being reduced under this section.

SECTION 41. Amends the heading to Section 9.04, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), to read as follows:

Sec. 9.04. COST-OF-LIVING ADJUSTMENTS FOR GROUP A MEMBERS AND SURVIVORS.

SECTION 42. Amends Section 9.04, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by amending Subsections (a), (a-1), and (a-2) and adding Subsections (c), (d), and (e), as follows:

(a) Authorizes the board, subject to this section and Sections 5.05 and 9.041 of this Act, to approve a cost-of-living adjustment for eligible retirees who were group A members and beneficiaries entitled to survivor benefits under this Act after the death of a group A member. Deletes existing entitling a person receiving a retirement or survivor's benefit under this Act each calendar year, subject to this section and except as provided by Section 5.05 of this Act, to a cost-of-living adjustment of that person's benefit calculated in accordance with this section.

(a-1) Provides that the cost-of-living adjustment, rather than the annual cost-of-living adjustment, approved under this section is:

(1) prohibited from exceeding, rather than is based on, the collective adjustment amount calculated in accordance with Subsection (a-2) of this section for a given calendar year;

(1-a) authorized to be allocated among persons eligible for an adjustment under this section in a manner and in an amount determined by the board of trustees;

(2) prohibited from taking effect earlier than January 1 of the calendar year following the date the board of trustees approves the adjustment, but is authorized to take effect at any time during the given calendar year, as determined by the board; and

(3) makes no changes to this subdivision.

Makes nonsubstantive changes to this subsection.

(a-2) Requires that the collective adjustment amount, rather than the collective adjustment amount described by Subsection (a-1) of this section, be:

(1) except as provided by Subdivision (2) of this subsection, an amount equal to the actuarial value, as determined by the board's actuary based on the interest and mortality assumptions adopted by the board of trustees for the most recent actuarial valuation of the fund, of 1.5 percent, rather than the percentage increase in the Consumer Price Index for All Urban Consumers as determined by the United States Department of Labor for the applicable determination period ending in a calendar month that precedes by not more than four months the month in which the cost-of-living adjustment is to take effect, multiplied by the total amount of benefits payable in the month immediately preceding the date an adjustment is to take effect to persons who are eligible to receive an adjustment under this section; and

(2) if applicable, reduced by an amount that the board's actuary determines is necessary to comply with limitations prescribed by this section, except the adjustment under this section is prohibited from being reduced to an amount that is less than zero, rather than to maintain the financial stability of the fund.

Deletes existing text providing that the collective adjustment amount, if applicable, is increased in accordance with Subsection (b) of this section.

(1) unless the board's actuary certifies that:

(A) the amortization period of the fund as a whole, after taking into account the cost-of-living adjustment, will not exceed 25 years for a cost-of-living adjustment payable beginning in calendar years 2026 through 2035, 20 years for a cost-of-living adjustment payable beginning in calendar years 2036 through 2040, or 15 years for a cost-of-living adjustment payable beginning in calendar year 2041 or a subsequent calendar year; and

(B) the funded ratio for any year during the remainder of the amortization period of the fund as a whole or for 10 years, whichever is greater, after taking into account the cost-of-living adjustment, is 80 percent or more for a cost-of-living adjustment payable beginning in calendar years 2026 through 2040, 85 percent or more for a cost-of-living adjustment payable beginning in calendar years 2041 through 2045, or 90 percent or more for a cost-of-living adjustment beginning in calendar year 2046 or a subsequent calendar year;

(2) that begins on the second January 1 following a calendar year in which the annual investment return as reported in the fund's annual report for the calendar year is less than zero or the five-year investment return as reported in the fund's annual report for the calendar year is less than the fund's assumed rate of return used in the actuarial valuation for the calendar year; or

(3) in which the estimated municipal contribution rate, after taking into account the cost-of-living adjustment, would exceed four percent above the corridor midpoint.

(d) Requires the board's actuary, for purposes of Subsection (c)(1) of this section, to:

(1) use the actuarial valuation dated as of the second December 31 preceding the calendar year in which the cost-of-living adjustment is to take effect, including the unfunded actuarial accrued liability, amortization period, and funded ratio as of that December 31; and

(2) make the certifications required by that subdivision not later than October 31 of the calendar year immediately preceding the calendar year in which the cost-of-living adjustment is to take effect.

(e) Authorizes the governing body of the municipality, notwithstanding any of the limitations prescribed by this section or Section 9.041 of this Act, to approve a cost-of-living adjustment for any calendar year in which a cost-of-living adjustment is prohibited from otherwise being granted due to the limitations under this section in a manner and in an amount determined by the governing body of the municipality based on a recommendation from the board.

SECTION 43. Amends Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Sections 9.041 and 9.042, as follows:

Sec. 9.041. COST-OF-LIVING ADJUSTMENT ELIGIBILITY FOR CERTAIN GROUP A MEMBERS AND SURVIVORS. (a) Provides that, except as provided by Subsection (b) of this section, for each calendar year beginning on or after January 1, 2027, a retiree who is a group A member or a beneficiary who is receiving survivor benefits under this Act after the death of a group A member is not eligible for a cost-of-living adjustment under this Act until January 1 of the calendar year immediately following the later of the year in which the member or beneficiary, as applicable, attains 67 years of age or that is the fifth anniversary of the member's actual date of retirement from the fire department.

(b) Provides that, for each calendar year beginning on or after January 1, 2027, a retiree who is a group A member who is receiving an early retirement annuity benefit under Section 5.05 of this Act is not eligible for a cost-of-living adjustment under this Act until January 1 of the calendar year immediately following the year in which the member attains 69 years of age.

Sec. 9.042. COST-OF-LIVING ADJUSTMENT FOR GROUP B MEMBERS AND SURVIVORS. Requires that the retirement annuity of a retiree who is a group B member or the survivor benefit of a beneficiary who is receiving survivor benefits under this Act after the death of a group B member be increased by the group B cost-of-living adjustment percentage each year on a compounding basis beginning on January 1 of the calendar year immediately following the later of the year in which the member or beneficiary, as applicable, attains 67 years of age, that is the fifth anniversary of the member's actual date of retirement from the fire department, or if applicable, in which the member's DROP account is fully distributed.

SECTION 44. Amends Sections 9.10(a), (d), and (f), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

(a) Provides that an optional retirement annuity is an annuity that is certified by the board's actuary to be the actuarial equivalent of the annuity provided under Section 5.04 of this Act and the survivor's benefits provided under Article 7 of this Act, as applicable. Deletes existing text providing that an optional retirement annuity is payable throughout the life of the retiree.

(d) Authorizes the board by rule to provide for different forms of optional retirement annuities, including an optional retirement annuity that is payable:

(1) after a member's death throughout the life of a person designated by the member, including an annuity that provides that, if a retiree dies before a fixed number of monthly annuity payments are made, the remaining number of payments are payable to the retiree's designated beneficiary or, if a designated beneficiary does not exist, to the retiree's estate;

(2) throughout the life of a retiree who is a group A member with no survivor benefit;

(3) with a partial lump-sum option for a member who does not elect to participate in the DROP; or

(4) as an optional joint and survivor benefit for a group B member.

Deletes existing text authorizing the board by rule to provide that an optional retirement annuity is payable after a member's death throughout the life of a person designated by the member. Makes nonsubstantive changes.

(f) Requires a member's spouse, except as provided by certain subsections, if a group A member elects an optional retirement annuity that, on the group A member's death, pays to spouse an amount that is less than 75 percent of the annuity that is payable during the joint lives of the group A member and the spouse, to consent to the election.

SECTION 45. Amends Article 9, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Section 9.11, as follows:

Sec. 9.11. BENEFITS PAYABLE TO ALTERNATE PAYEES UNDER QUALIFIED DOMESTIC RELATIONS ORDERS. (a) Authorizes benefits payable under the fund, including service retirement benefits, disability retirement benefits, survivor benefits, or DROP account benefits, or a withdrawal of contributions, to be paid to a former spouse or other alternate payee under the terms of a domestic relations order, but only if the fund determines that the order constitutes a qualified domestic relations order under Chapter 804 (Domestic Relations Orders and Spousal Consent), Government Code.

(b) Provides that an alternate payee will receive a full distribution of any portion of a member's DROP account awarded to the alternate payee pursuant to a qualified domestic relations order as soon as administratively practicable after the alternate payee is first entitled to distribution of such amounts as determined by the fund.

(c) Provides that, on the death of an alternate payee under a qualified domestic relations order, the interest of the alternate payee in the benefits under this Act ends and remaining benefits are required to be paid as if the qualified domestic relations order had not existed.

SECTION 46. Amends the heading to Section 10.01, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), to read as follows:

Sec. 10.01. MUNICIPAL CONTRIBUTIONS.

SECTION 47. Amends Section 10.01, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by amending Subsections (a), (b), (c), and (d) and adding Subsections (b-1) and (b-2), as follows:

(a) Requires each municipality in which a fire department to which this Act applies is located to appropriate and contribute to the fund each pay period in accordance with the following:

(1) for all pay periods beginning after September 30, 2012, and before January 1, 2026, an amount equal to 22.05 percent of the compensation of all members during the pay period; and

(2) for all pay periods beginning on or after January 1, 2026, the amount determined in accordance with Subsections (b) and (c) of this section and Sections 10.05, 10.06, 10.07, and 10.08 of this Act, as applicable.

Deletes existing text requiring each municipality in which a fire department to which this Act applies is located to appropriate and contribute to the fund an amount equal to certain percentages of the compensation of all members during that month.

(b) Requires the municipality, for each pay period that begins on or after January 1, 2026, and before January 1, 2027, to contribute an amount equal to the sum of:

(1) the municipal contribution rate, as determined in the initial risk sharing valuation study conducted under Section 10.05 of this Act, multiplied by the pensionable payroll for the applicable pay period; and

(2) 1/26 of the municipal legacy contribution amount for the 2026 calendar year, as determined and adjusted in the initial risk sharing valuation study conducted under Section 10.05 of this Act

Deletes existing text requiring each firefighter to pay into the fund each month certain percentages of the firefighter's compensation for that month.

(b-1) Requires the municipality, for each pay period that begins on or after January 1, 2027, to contribute an amount equal to the sum of:

(1) the municipal contribution rate for the applicable calendar year, as determined in a subsequent risk sharing valuation study conducted under Section 10.06 of this Act and adjusted under Section 10.07 or 10.08 of this Act, as applicable, multiplied by the pensionable payroll for the applicable pay period; and

(2) 1/26 of the municipal legacy contribution amount for the applicable calendar year, as determined and adjusted in the initial risk sharing valuation study conducted under Section 10.05 of this Act.

(b-2) Authorizes the fractional amounts of the municipal legacy contribution stated in Subsections (b)(2) and (b-1)(2) of this section, if the municipality elects to change the municipality's payroll period to a period other than a biweekly payroll period or for any calendar year that has more than 26 pay periods, to be appropriately adjusted such that the municipality's municipal legacy contribution for such calendar year equals the contribution required under Subsection (b)(2) or (b-1)(2) of this section, as applicable.

(c) Authorizes the governing body of each municipality to authorize the municipality to contribute a portion of the contribution required of each firefighter under Section 10.011 of this Act, rather than this section. Provides that, in that event:

(1) the municipality is required to appropriate and contribute to the fund each pay period, rather than each month, at the higher percentage of compensation necessary to make all contributions required and authorized to be made by the municipality under this section; and

(2) each firefighter's individual account with the fund is required to be credited each pay period, rather than each month, as if the firefighter had made the entire contribution required of that firefighter under Section 10.011 of this Act, rather than Section 10.01(b).

(d) Deletes existing text authorizing the members of the fund, by a majority vote in favor of an increase in contributions above 13.70 percent, to increase each firefighter's contribution above 13.70 percent to any percentage recommended by a majority vote of the board.

SECTION 48. Amends Article 10, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Section 10.011, as follows:

Sec. 10.011. FIREFIGHTER CONTRIBUTIONS. (a) Requires each firefighter who is a member of the fund, subject to Subsection (b) of this section or Section 10.09 of this Act, to pay into the fund an amount equal to 18.70 percent of the firefighter's compensation for the first pay period of the municipality beginning on or after September 30, 2016, and all subsequent pay periods of the municipality thereafter.

(b) Authorizes the firefighters described by Subsection (a) of this section, by a majority vote, to voluntarily increase the firefighter contribution to a rate that is higher than the rate prescribed by Subsection (a) of this section and recommended by a majority vote of the board.

SECTION 49. Amends Section 10.02, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 10.02. PICKUP OF FIREFIGHTER CONTRIBUTIONS. Provides that the firefighter contributions to the fund will be credited to, rather than deposited to the credit of, the individual accounts of the firefighters in the fund and are required to be treated as the monthly contributions of the firefighters for all purposes of this Act. Makes a conforming change.

SECTION 50. Amends Section 10.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 10.03. CONTRIBUTIONS AND INCOME AS ASSETS OF FUND. Provides that all contributions paid to the fund under this article, rather than under Sections 10.01 and 10.02 of this Act, become a part of the assets of the fund.

SECTION 51. Amends Section 10.04, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 10.04. INTEREST ON INDIVIDUAL ACCOUNTS. (a) Creates this subsection from existing text. Provides that this subsection applies only to a group A member. Prohibits the fund from paying interest on a firefighter's or former firefighter's contributions for any period that is more than five calendar years after the date of termination of employment, rather than for part of a year or for any period that is more than five calendar years after the date of termination of employment. Provides that this subsection expires December 31, 2025.

(a-1) Provides that, beginning January 1, 2026, a group A member is not entitled to interest on amounts credited to the member's individual account.

(b) Provides that a group B member is not entitled to interest on amounts credited to the member's individual account for any period.

SECTION 52. Amends Article 10, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), by adding Sections 10.05, 10.06, 10.07, 10.08, and 10.09, as follows:

Sec. 10.05. INITIAL RISK SHARING VALUATION STUDY. (a) Requires that the fund cause the board's actuary to prepare an initial risk sharing valuation study that is dated as of December 31, 2024, in accordance with this section.

(b) Requires that the initial risk sharing valuation study meet certain criteria.

(c) Requires that, for purposes of Subsection (b)(4) (relating to requiring that the risk sharing valuation study determine the municipal contribution rate and the firefighter contribution rate for the following calendar year) of this section, the schedule of municipal legacy contribution amounts be determined in such a manner that the total annual municipal legacy contribution amount for the first three calendar years will result in a phase-in of the anticipated increase in the municipal contribution rate from the calendar year that begins on January 1, 2025, to the rate equal to the sum of the estimated municipal contribution rate for the calendar year that begins on January 1, 2026, and the rate of pensionable payroll equal to the municipal legacy contribution amount for January 1, 2026, determined as if there was no phase-in of the increase to the municipal legacy contribution amount. Requires that the phase-in reflect approximately one-third of the increase each year over the three-year phase-in period.

(d) Requires that the municipality's contribution under Section 10.01 of this Act for the calendar years that begin on January 1, 2026, January 1, 2027, and January 1, 2028, be adjusted to reflect the impact of the phase-in prescribed by this section and requires that each calendar year that begins on January 1, 2029, through January 1, 2055, reflect a municipal legacy contribution amount that is 2.5 percent greater than the municipal legacy contribution amount for the preceding calendar year.

(e) Requires that the estimated municipal contribution rate for the calendar year that begins on January 1, 2026, 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 2.5 percent.

Sec. 10.06. SUBSEQUENT RISK SHARING VALUATION STUDIES. (a) Requires that the fund cause the board's actuary to prepare a risk sharing valuation study that is dated as of December 31 of each calendar year beginning with the 2025 calendar year in accordance with this section and actuarial standards of practice.

(b) Requires that each risk sharing valuation study meet certain criteria.

(c) Authorizes the municipality to contribute an amount in addition to the scheduled municipal legacy contribution amounts to reduce the number or amount of scheduled future municipal legacy contribution payments. Requires the board's actuary, if the municipality contributes an additional amount under this subsection, to create a new schedule of municipal legacy contribution amounts that reflects payment of the additional contribution.

(d) Authorizes the municipality and the board to agree on a written transition plan for resetting the corridor midpoint, firefighter contribution rate, and municipal contribution rate if at any time the funded ratio of the fund is equal to or greater than 100 percent or for any calendar year after the payoff year of the legacy liability.

(e) Authorizes the board, subject to Section 2.14 of this Act, to by rule adopt actuarial principles other than those required under Subsection (b)(5) (relating to requiring that each risk sharing evaluation be based on the assumptions and methods adopted by the board and that are consistent with actuarial standards of practice and certain principles) of this section, provided the actuarial principles are consistent with actuarial standards of practice, are approved by the board's actuary, and do not operate to change the municipal legacy contribution amount.

Sec. 10.07. ADJUSTMENT TO MUNICIPAL CONTRIBUTION RATE IF ESTIMATED MUNICIPAL CONTRIBUTION RATE LOWER THAN CORRIDOR MIDPOINT. (a) Provides that, subject to Subsection (b) of this section, for the calendar year beginning January 1, 2026, and for each subsequent calendar year, if the estimated municipal contribution rate is lower than the corridor midpoint, the municipal contribution rate for the applicable year is the corridor midpoint if the funded ratio is less than 90 percent or the estimated municipal contribution rate if the funded ratio is 90 percent or greater.

(b) Prohibits the municipal contribution rate from being lower than the minimum municipal contribution rate.

(c) Provides that, if the funded ratio is equal to or greater than 100 percent, all existing liability layers, including the legacy liability, are considered fully amortized and paid and the municipal legacy contribution amount is no longer authorized to be included in the municipal contribution under Section 10.01 of this Act.

Sec. 10.08. ADJUSTMENT TO MUNICIPAL CONTRIBUTION RATE IF ESTIMATED MUNICIPAL CONTRIBUTION RATE EQUAL TO OR GREATER THAN CORRIDOR MIDPOINT. Provides that, for the calendar year beginning January 1, 2026, and for each subsequent calendar year, if the estimated municipal contribution rate is equal to or greater than the corridor midpoint and less than or equal to the maximum municipal contribution rate for the corresponding calendar year, the municipal contribution rate is the estimated municipal contribution rate or greater than the maximum municipal contribution rate for the corresponding calendar year, the municipal contribution rate is the maximum municipal contribution rate.

Sec. 10.09. INCREASED FIREFIGHTER CONTRIBUTION RATE IF ESTIMATED MUNICIPAL CONTRIBUTION RATE GREATER THAN MAXIMUM MUNICIPAL CONTRIBUTION RATE. (a) Provides that this section governs the determination of the firefighter contribution rate applicable in a calendar year under Section 10.011 of this Act if the estimated municipal contribution rate determined under Section 10.06(b)(3) (relating to requiring that each risk sharing valuation study calculate the estimated municipal contribution rate for the following calendar year) of this Act is greater than the maximum municipal contribution rate.

(b) Provides that, except as provided by Subsection (c) of this section, if the estimated municipal contribution rate is greater than the corridor maximum, the firefighter contribution rate will increase by an amount equal to the difference between the following the estimated municipal contribution rate and the maximum municipal contribution rate.

(c) Prohibits the firefighter contribution rate from being increased by more than two percentage points under this section.

(d) Requires the municipality and the board, if the estimated municipal contribution rate is more than two percentage points greater than the maximum municipal contribution rate, to enter into discussions to determine additional funding solutions.

SECTION 53. Amends Section 11.03(b), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

(b) Prohibits the board from adopting an amendment to the investment policy adopted under this section unless the proposed amendment is approved by the affirmative vote of the board, rather than by the affirmative vote of a majority of the members of the board at not fewer than three regular meetings of the board.

SECTION 54. Amends Section 12.01, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 12.01. New heading: EXECUTIVE DIRECTOR AND EMPLOYEES. Requires the board to appoint an executive director, rather than an administrator, who is required to administer the fund under the supervision and direction of the board of trustees.

SECTION 55. Amends Sections 12.03(a) and (e), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

(a) Requires the board to engage, rather than employ, an actuary who is authorized to be the consultant and technical advisor to the board regarding the operation of the fund and is authorized to perform such duties as may be required by the board.

(e) Makes a conforming change to this subsection.

SECTION 56. Amends Section 12.07, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as follows:

Sec. 12.07. New heading: AUDITS; ENGAGEMENT OF CERTIFIED PUBLIC ACCOUNTANTS. Makes a conforming change to this section.

SECTION 57. Repealers: Sections 5.04(b-1) (relating to requiring the board's actuary to take into consideration whether the fund has reserves sufficient to enable the payment of a cost-of-living adjustment to all current members and survivors at a certain level) and (c) (relating to providing that the service retirement annuity of a person who retired January 1, 1995, is a monthly payment based on the benefit formula in effect at the time of the person's retirement, together with any increases for retirees approved by the board after the person's retirement), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.).

Repealer: Section 7.07 (Increase in Survivors' Benefits), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.).

Repealer: Section 8.05(b) (relating to requiring that the DROP account balance of a member be credited at the end of each calendar month with interest at a certain rate), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.).

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Repealers: Sections 9.04(a-4) (relating to prohibiting the board's actuary from taking into consideration the cost of future adjustments in determining whether to reduce the collective adjustment amount) and (b) (relating to authorizing the board to increase the collective adjustment amount under certain circumstances), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.).

Repealer: Section 9.04(b-1) (relating to requiring the board's actuary to take into consideration the cost of future adjustments in determining whether an adjustment would impair the financial stability of the fund, the cost of future adjustments under this section), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.).

SECTION 58. (a) Defines "board of trustees."

(b) Provides that Section 2.02, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as amended by this Act, does not affect the term of a member of the board elected under that section, as that section existed immediately before the effective date of this Act, and serving on the board of trustees on the effective date of this Act.

(c) Provides that, when the term of the member of the board elected under Section 2.02(3), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as that section existed immediately before the effective date of this Act, who has a term that expires in December 2025, expires:

(1) the resulting vacancy on the board and the new position on the board of trustees created by the amendment of Section 2.02(3), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), is required to be filled by election of the members of the fund in accordance with Section 2.03, Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as amended by this Act, by an election held in November 2025;

(2) the candidate who receives the highest number of votes in the election is required to serve a four-year term, ending in December 2029; and

(3) notwithstanding Section 2.03(e), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as amended by this Act, the candidate who receives the second highest number of votes in the election is required to serve an initial three-year term, ending in December 2028.

(d) Requires the governing body of a municipality subject to Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as soon as practicable after September 1, 2025, to appoint a member to the board under Section 2.02(a)(4), Chapter 183 (S.B. 598), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, V.T.C.S.), as added by this Act, to serve a term beginning January 1, 2026.

SECTION 59. Effective date: September 1, 2025.