By: Bucy H.B. No. 2802

A BILL TO BE ENTITLED

AN ACT

relating to the public retirement systems for employees of certain municipalities.

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

SECTION 1. SECTION 1. Section 1.02, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 1.02. DEFINITIONS. In this Act:

(1) "Accumulated contributions" means all sums of money, including interest, in the individual account of a member or former firefighter, as shown on the books and records of the fund.

(2) "Actuarial accrued liability" means the portion of the actuarial present value of projected benefits of the fund attributed to past periods of member service based on the cost method used in the risk sharing valuation study under Section 10.01B of this Act, as applicable.

(23) "Actuarial equivalent" means a benefit that, at the time that it begins being paid, has the same present value as the benefit it replaces, based on the recommendations of the board's actuary.

(4) "Actuarial value of assets" means the value of the fund's assets as calculated using the asset smoothing method used in the risk sharing valuation study under Section 10.01B of this Act, as applicable.

(5) "Amortization period" means:

(A) the period necessary to fully pay a liability layer; or

(B) if referring to the amortization period of the fund 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.

(6) "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 under Section 10.01A or 10.01B of this Act, as applicable, from the sum under Subsection (A); and

(C) dividing the difference under Subsection (B) by the projected pensionable payroll for the same calendar year.

(37) "Board of trustees" means the board of firefighters relief and retirement fund trustees of the fund existing pursuant to this Act.

(48) "Board's actuary" means the actuary employed under Section 12.03 of this Act.

(9) "City" means a municipality to which this Act applies.

(10) "City contribution rate" means, for a given calendar year, a percentage rate equal to the sum of the city normal cost rate and the amortization rate, as adjusted under Sections 10.01C or 10.01D of this Act, as applicable.

(11) "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, 2024, that is included in the initial risk sharing valuation study under Section 10.01A of this Act.

(12) "City normal cost rate" means, for a given calendar year, the normal cost rate minus the applicable member contribution rate determined under Section 10.02 of this Act.

(513) "Compensation" means a firefighter's monthly salary, excluding overtime pay, any temporary pay in higher classifications, educational incentive pay, assignment pay, Christmas Day bonus pay, and pay for automobile and clothing allowances.

(14) "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.

(15) "Corridor margin" means five percentage points.

(16) "Corridor midpoint" means the projected city contribution rate specified for each calendar year for 25 years as provided by the initial risk sharing valuation study under Section 10.01A of this Act, rounded to the nearest hundredths decimal place.

(617) "Dependent child" or "dependent children" means a deceased member's unmarried children under the age of 22, other than a child who has been determined by the board of trustees not to have been dependent on the deceased member.

(18) "Employer" means the municipality described in Section 1.01 of this Act or the board of trustees.

(19) "Estimated city contribution rate" means, for a given calendar year, a city contribution rate equal to the sum of the city normal cost rate and the amortization rate of the liability layers, as applicable, excluding the legacy liability layer, and before any adjustments under Sections 10.01C or 10.01D of this Act.

(720) "Fire department" means a regularly organized fire department of a city to which this Act applies.

(821) "Firefighter" means a commissioned civil service and Texas state-certified member of a fire department.

(922) "Fund" means the firefighters relief and retirement fund existing pursuant to this Act.

(23) "Funded ratio" means the ratio of the actuarial value of the fund's assets divided by the fund's actuarial accrued liability.

(24) "Group A member" means a member who was initially hired by the city as a firefighter prior to January 1, 2026.

(25) "Group A retiree" means a retiree who was initially hired by the city as a firefighter prior to January 1, 2026.

(26) "Group B member" means a member who was initially hired by the city as a firefighter on or after January 1, 2026.

(27) "Group B retiree" means a retiree who was initially hired by the city as a firefighter on or after January 1, 2026.

(1028) "Internal Revenue Code" means the Internal Revenue Code of 1986.

(29) "Legacy liability" means the unfunded actuarial accrued liability determined as of December 31, 2024, 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 board of trustees for the calendar year.

(30) "Level percent of payroll method" means the amortization method that defines the amount of a 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.

(31) "Liability gain layer" means a liability layer that decreases the unfunded actuarial accrued liability.

(32) "Liability layer" means:

(A) the legacy liability established in the initial risk sharing valuation study under Section 10.01A of this Act; or

(B) for calendar years after December 31, 2024, the amount that the fund'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 under Section 10.01B of this Act.

(33) "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.

(34) "Life annuity" means a series of equal monthly payments, payable after retirement for a member's life, consisting of a combination of prior service pension and current service annuity, or early retirement annuity, to which the member is entitled.

(35) "Market value of assets" means the value at which assets could be traded on the market.

(36) "Maximum employer contribution rate" means, for a given calendar year, the rate equal to the corridor midpoint plus the corridor margin.

(1137) "Member" means any firefighter or retiree included in a fund under this Act.

(38) "Minimum employer contribution rate" means, for a given calendar year, the rate equal to the corridor midpoint minus the corridor margin.

(39) "Normal cost rate" means, for a given calendar year, the salary weighted average of the individual normal cost rates determined for the current active firefighter population, plus the assumed administrative expenses determined in the most recent actuarial experience study.

(40) "Payoff year" means the year a liability layer is fully amortized under the amortization period.

(41) "Pensionable payroll" means the aggregate basic hourly earnings of all active-contributory firefighters for a calendar year or pay period, as applicable.

(42) "Projected pensionable payroll" means the estimated pensionable payroll for the calendar year beginning 12 months after the date of any risk sharing valuation study under Section 10.01A or 10.01B of this Act, as applicable, 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 board of trustees; 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 of trustees.

(43) "Qualified domestic relations order" has the meaning assigned by Section 804.001, Government Code, and its subsequent amendments.

(1244) "Retiree" means a person who has retired under Article 5 or 6 of this Act and is receiving or is entitled to receive an annuity from the fund.

(1345) "Spouse" means an individual to whom a member is legally married under Subtitle A, Title 1, Family Code, or a comparable law of another jurisdiction, provided that, in the case of an informal marriage in this state, the marriage must be evidenced by a declaration of informal marriage recorded in accordance with Subchapter E, Chapter 2, Family Code.

(46) "Unanticipated change" means, with respect to the unfunded actuarial accrued liability in each risk sharing valuation study under Section 10.01A or 10.01B of this Act, as applicable, the difference between:

(A) the remaining balance of all then-existing liability layers as of the date of the risk sharing valuation study that were created before the date of the study; and

(B) the actual unfunded actuarial accrued liability as of the date of the study.

(47) "Unfunded actuarial accrued liability" means the difference between the actuarial accrued liability and the actuarial value of assets.

SECTION 2. Section 2.02, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 2.02. COMPOSITION OF BOARD. (a) The board of trustees is composed of:

(1) the mayora member of the city council of the municipalitycity, designated by the mayor;

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

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

(4) one qualified voter of the city appointed by the city council who:

(A) has been a city resident for the preceding five years;

(B) has experience in the field of securities investment, pension administration, pension law, or finance; and

(C) is not a current or former employee of the city, a current or former employee of the fund, a current or former officer of the city, a current or former officer of the fund, a current or former member of the fund, or a current beneficiary of the fund.

(5) one qualified voter of the city appointed by the board of trustees who:

(A) has been a city resident for the preceding five years;

(B) has experience in the field of securities investment, pension administration, pension law, or governmental finance; and

(C) is not a current or former employee of the city, a current or former employee of the fund, a current or former officer of the city, a current or former officer of the fund, a current or former member of the fund, or a current beneficiary of the fund.

(b) A person appointed under subsections (4) or (5) of this section shall serve for a term of three years and until appointment of the person's successor.

SECTION 3. Section 2.05, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 2.05. OFFICERS. The mayorcity council member designated in Section 2.02(1) of this Act is the presiding officer. Alternatively, the city council member designated in Section 2.02(1) of this Act may designate another member of the board to be the presiding officer.and tThe city treasurerperson designated in Section 2.02(2) of this Act is the secretary-treasurer of the board of trustees. Alternatively, the person designated in Section 2.02(2) of this Act may designate another member of the board to be the secretary-treasurer. The board shall elect annually from its membership an alternate presiding officer who shall preside in the absence or disability of the mayorperson designated in Section 2.02(1) of this Act. Any designations of officer positions made under this section shall remain in effect for one year or until the designated member leaves the board, whichever occurs sooner.

SECTION 4. Section 2.07, Article 2, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 2.07. MEETINGS; MINUTES. The board of trustees shall hold regular monthly meetings, no less frequently than quarterly, at a time and place that it designates and may hold special meetings on the call of the presiding officer or alternate presiding officer. The board of trustees shall keep accurate minutes of its meetings and records of its proceedings.

SECTION 5. Article 2, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended by adding a new Section 2.08A to read as follows:

Sec. 2.08A EXPERIENCE STUDY; SETTING ACTUARIAL ASSUMPTIONS.

(a) At least once every five years, the board of trustees shall cause the board's actuary to conduct an experience study to review the actuarial assumptions and methods adopted by the board of trustees for purposes of determining the actuarial liabilities and actuarially determined contribution rates of the fund. The fund shall notify the city at the beginning of an upcoming experience study by the board's actuary.

(b) In connection with the fund's experience study, the city may:

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

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

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

(c) If the city conducts a separate experience study using the city's actuary, the city shall complete the study not later than the 91st day after the date the fund notified the city of its intent to conduct an experience study.

(d) If the city elects to have the city's actuary review the experience study prepared by the board's actuary, the city shall complete the review not later than the 31st day after the date the preliminary results of the experience study prepared by the board's actuary are presented to the board of trustees.

(e) If the city chooses to have the city's own experience study performed or to have the city's actuary review the fund's experience study, the board's actuary and the city's actuary shall determine what the hypothetical employer contribution rate would be using the proposed actuarial assumptions from the experience studies and data from the most recent actuarial valuation.

(f) If the difference between the hypothetical employer contribution rates determined by the board's actuary and the city's actuary:

(1) is less than or equal to two percent of pensionable payroll, no further action is needed and the board of trustees shall use the experience study performed by the board's actuary in determining assumptions; or

(2) is greater than two percent of pensionable payroll, the board's actuary and the city's actuary shall have 20 days to reconcile the difference in actuarial assumptions or methods causing the different hypothetical employer contribution rates, and if:

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

(B) after the 20th business day, the board's actuary and the city's actuary do not reach a reconciliation that reduces the difference in the hypothetical employer contribution rates to an amount less than or equal to two percentage points, an independent 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.

(g) The independent third-party actuary retained under this section must be chosen by the city from a list of three actuarial firms provided by the fund.

(h) If a third-party actuary is retained under this section, the third-party actuary's findings must be presented to the board of trustees with the experience study conducted by the board's actuary and, if applicable, the city's actuary. If the board of trustees adopts actuarial assumptions or methods contrary to the independent third-party actuary's findings:

(1) the fund shall provide a formal letter to the city council for the city and to the Texas Pension Review Board describing the rationale for the retirement board's action; and

(2) the board's actuary and executive director shall be made available at the request of the city council or the Texas Pension Review Board to present in person the rationale for the board of trustees' action.

(i) If the board of trustees proposes a change to actuarial assumptions or methods that is not in connection with an experience study described by this section, the fund and the city shall follow the same process set out in this section with respect to an experience study in connection with the proposed change.

SECTION 6. Section 5.04, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 5.04. NORMAL SERVICE RETIREMENT BENEFIT. (a) The service retirement annuity of a Group A member person who retires under Section 5.01 of this Act on or after January 1, 1995, is a monthly payment that is equal to three and three-tenths percent of the Group A member's average monthly compensation multiplied by the Group A member's number of years of service credit and any fraction of a year of service credit.

(b) The three percent factor used in this section may be changed to some other percent if the change:

(1) is first approved by the board's actuary;

(2) is approved by the board of trustees;

(3) applies to one or any combination of the following groups:

(A) firefighters who are employed on an active, full-time basis in the fire department at the time of the change;

(B) firefighters who begin service with the fire department after the change becomes effective; and

(C) members who retire under Section 5.06 of this Act after the change becomes effective; and

(4) does not reduce a member's benefit for service credit accumulated before the date of the change.

(b-1) In determining whether to approve an increase in the factor under Subsection (b) of this section, the board's actuary shall take into consideration whether the fund has reserves sufficient to enable the payment of a cost-of-living adjustment under Section 9.04(a) of this Act to all current members and survivors at a level that is equal to the average percentage increase in the Consumer Price Index for All Urban Consumers as determined by the United States Department of Labor for the 10 annual periods preceding the proposed effective date of the change.

(b) The service retirement annuity of a Group B member is a monthly payment that is equal to three percent of the Group B member's average monthly compensation multiplied by the Group B member's number of years of service credit and any fraction of a year of service credit.

(c) The service retirement annuity of a person who retired before 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 of trustees after the person's retirement.

SECTION 7. Section 5.05, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 5.05. EARLY RETIREMENT. (a) 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:

(1) has attained the age of 45 years and has at least 10 years of service credit in the fund; or

(2) has at least 20 years of service credit, regardless of age.

(b) The retirement annuity of a Group A memberperson who retires under this section after September 1, 1997, is the same as for normal service retirement, but may not be increased under Section 9.04 of this Act until the Group A memberperson would have met the requirements of Section 5.01 of this Act if the Group A memberperson had remained in active service as a firefighter.

(c) This section does not apply to a Group B member.

Section 8. Section 5.06, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 5.06. ELIGIBILITY AFTER 10 YEARS OF SERVICE. (a) A member may terminate employment with the fire department and later retire and receive a service retirement benefit if, at the time of the member's retirement:

(1) the member has accumulated at least 10 years of service credit in the fund and made required contributions to the fund for at least 10 years;

(2) the member does not withdraw the member's contributions from the fund at the time of or after the termination of employment; and

(3) the member has either attained 50 years of age or, if the member is a Group A member, the Group A member would have accumulated at least 25 years of service credit if the Group A member had not terminated employment with the fire department.

(b) The retirement benefit payable to a member on retirement under this section is the service retirement benefit described by Section 5.04 of this Act, computed on the basis of the formula in effect at the time of the member's retirement under this Act.

SECTION 9. Section 5.07, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 5.07. WITHDRAWAL OF CONTRIBUTIONS. A personmember who has terminated employment with the fire department and left the person's member's contributions with the fund under Section 5.06 of this Act may at any time apply for and receive the person'smember's accumulated contributions under Section 9.06 of this Act, with the effect provided by that section. If a person member eligible for a refund of contributions elects to have all or a portion of the accumulated contributions paid directly to an eligible retirement plan and specifies the eligible retirement plan to which the contributions are to be paid on a form approved for that purpose by the fund, the fund shall make the payment in the form of a direct trustee-to-trustee transfer but is under no obligation to determine whether the other plan in fact is an eligible retirement plan for that purpose.

Section 10. Article 2, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended by adding a new Section 7.015 to read as follows:

Sec. 7.015. AUTHORITY TO ELECT CERTAIN ACTUARIALLY REDUCED BENEFITS. (a) The Board of trustees shall adopt policies under which a Group B firefighter who is leaving active service may elect to accept an actuarially reduced life annuity benefit upon retirement to provide a joint survivor benefit for the Group B member's surviving spouse.

(b) The joint survivor benefit shall be an optional retirement annuity that is certified by the Board of trustees' actuary to be the actuarial equivalent of the annuity provided under Section 5.04 of this Act and the survivor's benefits provided under Section 7.02(b) of this Act. An optional retirement annuity is payable throughout the life of the retiree.

SECTION 11. Section 7.02, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 7.02. SURVIVING SPOUSE OF RETIREE. (a) On the death of a Group A retiree who did not select a Life Annuity option, the Group A retiree's surviving spouse is entitled to receive an immediate monthly benefit from the fund of 75 percent of the retirement benefit that was being paid to the Group A retiree if the spouse:

(1) was married to the Group A retiree at the time of the Group A retiree's retirement; or

(2) married the Group A retiree after the Group A retiree's retirement and was married to the Group A retiree for at least 24 consecutive months.

(b) On the death of a Group B retiree who did not select a Life Annuity option, the Group B retiree's surviving spouse is entitled to receive an immediate monthly benefit from the fund of 75 percent of the retirement benefit that was being paid to the Group B retiree if the spouse was married to the Group B retiree at the time of the Group B retiree's retirement.

(bc) For purposes of Subsection (a)(1) of this section, with respect to an informal marriage established in this state, a surviving spouse is considered married to a Group A retiree as of the date a declaration of informal marriage was recorded in accordance with Subchapter E, Chapter 2, Family Code.

SECTION 12. Section 7.07, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is repealed.

SECTION 13. Section 7.09, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 7.09. SURVIVING BENEFICIARY OF CERTAIN UNMARRIED MEMBERS. (a) On the death of a Group A retiree or of a Group A member who is eligible for retirement but has not retired, a benefit is payable under this section if:

(1) the Group A retiree or Group A member designated a beneficiary to receive the benefit payable under this section on a form filed with the fund; and

(2) this Act does not otherwise provide a benefit payable to a surviving spouse or child of the Group A member or Group A retiree.

(b) The benefit payable under this section is an immediate monthly benefit from the fund of 75 percent of the amount of the:

(1) retirement benefit that was being paid to the Group A retiree; or

(2) normal service retirement benefit that the member would have received if the member had retired on the date of death.

(c) If the designated beneficiary of a Group A retiree or Group A member is 10 or more years younger than the Group A retiree or Group A member at the time of the Group A retiree's or Group A member's death, the amount of the benefit payable under Subsection (b) of this section shall be reduced to the actuarial equivalent of the benefit that would have been payable if the beneficiary and the Group A retiree or Group A member were the same age.

(d) The board of trustees may adopt rules to establish procedures for and requirements governing a member's designation of a beneficiary under this section.

(e) This section does not apply to Group B retirees or Group B members.

SECTION 14. Section 8.01, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 8.01. MEMBER REMAINING IN ACTIVE SERVICE. 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, a member who is eligible to receive a normal service retirement benefit under Section 5.01 of this Act may remain in active service, become a participant in the deferred retirement option plan ("DROP") in accordance with Sections 8.02 and 8.03 of this Act this Article, and defer the beginning of the person's retirement annuity. Once an election to participate in the DROP has been made, the election continues in effect as long as the member remains in active service as a firefighter. When the member leaves active service, the member may apply for a service retirement annuity under Section 5.01 of this Act.

SECTION 15. Section 8.02, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 8.02. ELECTION TO PARTICIPATE IN DROP. (a) The election to participate in the DROP shall be made in accordance with procedures adopted by the board of trustees. The election may be made at any time on or after the date the member becomes eligible for normal service retirement under Section 5.01 of this Act or early retirement under Section 5.05 of this Act and becomes effective on the first day of the first month after the date of the election.

(b) At the same time that a Group A member makes an election to participate in the DROP, the Group A member must agree in writing to terminate service with the fire department on a date not later than the seventh anniversary of the effective date of the election under this section.

(c) At the same time that a Group B member makes an election to participate in the DROP, the Group B member must agree in writing to terminate service with the fire department on a date not later than the fifth anniversary of the effective date of the election under this section.

(d) An agreement to terminate service is binding on the member and the fire department, except that the member may terminate active service at any time before the date selected. An election to participate in the DROP has no effect on either the municipality's city's or the member's contributions under Section 10.01 of this Act.

SECTION 16. Section 8.03, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 8.03. CREDITS TO MEMBER'S DROP ACCOUNT. (a) Each month after a member makes an election to participate in the DROP and until the member's retirement, the board of trustees shall cause an amount equal to the retirement annuity that the member would have received under Section 5.04 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) The A Group A member's contributions under Section 10.01(d) of this Act made after the effective date of the election to participate in the DROP shall also be credited to the Group A member's DROP account. This subsection does not apply to a Group B member.

(c) Amounts held in a Group A member's DROP account shall be credited at the end of each calendar month with interest at a rate equal to one-twelfth of five percent until the Group A member's retirement.

(d) Amounts held in a Group B member's DROP account shall be credited at the end of each calendar month with interest at a rate equal to one-twelfth of three percent until the Group B member's retirement, but only if the return on investment of all assets held by the fund was greater than zero for the preceding calendar year.

SECTION 17. Section 8.04, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 8.04. AMOUNT OF CREDITS TO GROUP A MEMBER'S DROP ACCOUNT. The amount credited monthly to the Group A member's DROP account:

(1) shall 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;

(2) shall be increased by any annual cost-of-living adjustments under Section 9.04 of this Act that occur between the effective date of the Group A member's election to participate in the DROP and the effective date of the Group A member's retirement but only as to amounts credited to the Group A member's DROP account after a cost-of-living adjustment; and

(32) is subject to the limitations prescribed by Section 9.03 of this Act.

SECTION 18. Section 8.05, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 8.05. DISTRIBUTIONS FROM MEMBER'S DROP ACCOUNT. (a) On leaving active service as a firefighter and beginning to receive a retirement annuity, a member who participates in the DROP shall begin to receive the amount credited to the person's DROP account under either of the following methods of distribution selected by the member:

(1) a single-payment distribution made at a time selected by the member but not later than April 1 of the year after the member attains 70-1/2 years of age; or

(2) in not more than four payments, which may be equal or unequal as the member may determine, all of which must occur not later than April 1 of the year after the member attains 70-1/2 years of age.

(b) The DROP account balance of a Group A member shall be credited at the end of each calendar month with interest at a rate equal to one-twelfth of five percent. The DROP account balance of a Group B member shall be credited at the end of each calendar month with interest at a rate equal to one-twelfth of three percent, but only if the return on investment of all assets held by the fund was greater than zero for the preceding calendar year.

(c) A member may not receive a distribution from the member's DROP account before termination of active service as a firefighter. A member shall notify the fund in writing, on a form that the board of trustees may prescribe, at least 30 days before each distribution made under this section.

(d) The board of trustees may adopt rules that modify the availability of distributions under Subsection (a) of this section, provided that the modifications do not:

(1) impair the distribution rights under that subsection; or

(2) cause distributions to occur later than required under Section 401(a)(9), Internal Revenue Code of 1986.

SECTION 19. Section 8.06, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 8.06. ESTABLISHMENT OF DROP ACCOUNT AT RETIREMENT. (a) In lieu of electing to participate in the DROP before actual retirement, 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 may establish a DROP account under this section.

(b) A Group A member who is eligible to receive a service retirement benefit under Section 5.06 of this Act may establish a DROP account under this section on retiring under Section 5.06 of this Act.

(c) If a Group A member elects to participate in the DROP under this section:

(1) the board of trustees shall 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 Group A member's DROP account would have received, including interest, if the Group A member had established the DROP account after becoming eligible for service retirement, but not more than seven years before the effective date of the person's retirement;

(2) the date used in computations under Subdivision (1) of this section as if the Group A member had established the DROP account on that date is the effective date of the Group A member's election to participate in the DROP;

(3) the Group A member will receive payments from the Group A member's DROP account as the Group A member may select under Section 8.05 of this Act; and

(4) the Group A member's DROP account shall be credited with interest as provided by Section 8.05 of this Act.

(d) If a Group A member who did not establish a DROP account under this section but was eligible to do so dies before retirement, the surviving spouse, if any, of that Group A member may elect to participate in the DROP if the surviving spouse has not received any benefit payments under Section 7.01 of this Act. If a surviving spouse makes an election under this subsection:

(1) the board of trustees shall cause to be paid to the surviving spouse in a lump sum, as soon as administratively possible after the fund receives notice of the election, an amount equal to the credits that the Group A member's DROP account would have received, including interest, if the Group A member had established the DROP account after becoming eligible for service retirement, but not more than seven years before the date of the Group A member's death; and

(2) the amount of the benefit payable to the surviving spouse under Section 7.03 of this Act is 75 percent of the benefit the Group A member would have been eligible to receive if the Group A member had established the DROP account on becoming eligible for service retirement, but not more than seven years before the date of the Group A member's death.

(e) If a Group A member who did not establish a DROP account under this section but was eligible to do so dies before retirement without leaving a surviving spouse, the surviving dependent children, if any, may elect to participate in the DROP if the dependent children have not received any benefit payments under Section 7.05 of this Act. An election under this subsection must be made by all of the surviving dependent children of the member, except that the guardian of any child who is younger than 18 years of age at the time of the election makes a binding election for the child. If the surviving dependent children make an election under this subsection:

(1) the board of trustees shall cause to be paid jointly to the dependent children in a lump sum, as soon as administratively possible after the fund receives notice of the election, an amount equal to the credits the Group A member's DROP account would have received, including interest, if the Group A member had established the DROP account after becoming eligible for service retirement, but not less than the credits the DROP account would have received, including interest, based on 20 years of service credit; and

(2) the amount of the benefit payable to the dependent children under Section 7.05(a) is 75 percent of the benefit the Group A member would have been entitled to receive if the Group A member had established the DROP account on becoming eligible for service retirement, but based on not less than 20 years of service credit.

(f) This section does not apply to a Group B member.

SECTION 20. Section 8.09, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 8.09. RETIREMENT BENEFIT PAYABLE TO DROP PARTICIPANT. The retirement benefit payable under Article 5 or 6 of this Act to a person who participates in the DROP:

(1) may not 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;

(2) may not be increased as a result of any increase in the member's compensation that occurs after the effective date of the member's election to participate in the DROP;

(32) shall be increased by any 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;

(43) may not be increased for additional service credit after the effective date of the member's election to participate in the DROP; and

(54) is subject to the limitations prescribed by Section 9.03 of this Act.

SECTION 21. Section 9.04, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 9.04. COST-OF-LIVING ADJUSTMENTS; OTHER ADJUSTMENTS. (a) Subject to this section and except as provided by Section 5.05 of this Act, a person receiving a retirement or survivor's benefit under this Act is entitled each calendar year to a cost-of-living adjustment of that person's benefitthe board of trustees may approve a cost of living adjustment for retirees and persons receiving survivor benefits under Article 7 of this Act in an amount not to exceed the amount that is determined and calculated in accordance with this section.

(a-1) TheAnyannual cost-of-living adjustment under this section:

(1) is based on the collective adjustment amount calculated in accordance with Subsection (a-2) of this section and allocated among persons eligible for an adjustment under this section in a manner and in an amount determined by the board of trustees;

(2) may take effect at any time during a given calendar year, as determined by the board of trustees; and

(3) may not reduce a person's benefit to an amount less than the person received when the benefit first was paid to that person.

(a-2) The collective adjustment amount described by Subsection (a-1) of this section:

(1) is 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 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:,

(A) is reduced by an amount that the board's actuary determines is necessary to maintain the financial stability of the fund and comply with Subsections (b) and (c) of this section; or

(B) is increased in accordance with Subsection (b) of this section.

(a-3) For purposes of Subsection (a-2) of this section, the applicable determination period is the shorter of:

(1) 12 months; or

(2) the period since the last adjustment under this section.

(a-4) In determining whether to reduce the collective adjustment amount under Subsection (a-2) of this section, the board's actuary may not take into consideration the cost of future adjustments under this section.

(b) The board of trustees may increase the collective adjustment amount under Subsection (a-2) of this section if:

(1) the board's actuary has advised the board of trustees that the increase would not impair the financial stability of the fund; and

(2) the increase has been approved by the affirmative vote of a majority of the board of trustees.

(b) The board of trustees may not approve a cost-of-living adjustment unless the board's actuary certifies that the funding period required to amortize the total unfunded accrued actuarial liability after the cost-of-living adjustment does not exceed:

(1) 25 years for cost-of-living adjustments beginning in years 2026 through 2030;

(2) 20 years for cost-of-living adjustments beginning in years 2031 through 2035;

(3) 15 years for cost-of-living adjustments beginning in years 2036 through 2040;

(4) 10 years for cost-of-living adjustments beginning in years 2041 through 2045; and

(5) five years for cost-of-living adjustments beginning in years after 2046-2050.

(b-1) In determining whether an adjustment would impair the financial stability of the fund under Subsection (b) of this section, the board's actuary shall take into consideration the cost of future adjustments under this section.

(c) Repealed by Acts 2009, 81st Leg., R.S., Ch. 707, Sec. 10, eff. September 1, 2009.

(c) The board of trustees may not approve a cost-of-living adjustment unless the board's actuary certifies that the funded ratio after the cost-of-living adjustment is not:

(1) less than 80 percent for any year during the remainder of the amortization period for cost-of-living adjustments beginning in years 2026 through 2035;

(2) less than 85 percent for any year during the remainder of the amortization period for cost-of-living adjustments beginning in years 2036 through 2040;

(3) less than 90 percent for any year during the remainder of the amortization period or for a period of ten years, whichever is greater, for cost-of-living adjustments beginning in years 2041 through 2045;

(4) less than 95 percent for any year during the remainder of the amortization period or for a period of ten years, whichever is greater, for cost-of-living adjustments beginning in years 2046 through 2050;

(5) less than 100 percent for any year for a period of ten years for cost-of-living adjustments beginning after 2050.

(d) Repealed by Acts 2009, 81st Leg., R.S., Ch. 707, Sec. 10, eff. September 1, 2009.

(d) No cost-of-living adjustment that would result in an increase in employer contributions in any year during the remainder of the amortization period, or in any year during the ten years immediately following the cost-of-living adjustment, whichever is longer, shall be effective unless and until approved by the city council of the city.

SECTION 22. Section 9.10, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 9.10. OPTIONAL RETIREMENT ANNUITY. (a) 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 any applicable survivor's benefits provided under Article 7 of this Act. An optional retirement annuity is payable throughout the life of the retiree.

(b) Instead of the annuity payable under Section 5.04 of this Act, a member who retires may elect to receive an optional retirement annuity approved by the board of trustees under this section.

(c) The survivor's benefits provided under Article 7 of this Act are not payable on the death of a retiree who elects an optional retirement annuity under this section.

(d) The board of trustees by rule may provide that:

(1) an optional retirement annuity is payable after a member's death throughout the life of a person designated by the member; or

(2) 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.

(e) To elect an optional retirement annuity, a member must make the election and designate a beneficiary on a form prescribed by the board of trustees. The member must file the form with the board on or before the effective date of the member's retirement.

(f) Except as provided by Subsections (g), (h), and (i) of this section, if a Group A member elects an optional retirement annuity that, on the Group A member's death, pays to the Group A member's 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 Group A member's spouse, the spouse must consent to the election. The spouse's consent must be in writing and witnessed by an officer or employee of the fund or acknowledged by a notary public.

(g) If a Group A member's spouse has been adjudicated incompetent, the consent required under Subsection (f) of this section may be given by the spouse's guardian.

(h) If a physician determines that a Group A member's spouse is not mentally capable of managing the spouse's affairs, the consent required under Subsection (f) of this section may be given by the Group A member if the Group A member would be qualified to serve as a guardian of the spouse and the board of trustees determines that a guardianship of the estate is not necessary.

(i) Spousal consent under Subsection (f) of this section is not required if the board of trustees determines that:

(1) a spouse does not exist;

(2) the spouse cannot be located;

(3) the first anniversary of the marriage will not occur before the date the annuity first becomes payable; or

(4) a former spouse is entitled to receive a portion of the member's optional retirement benefit under a qualified domestic relations order.

(j) If a Group B member is married, spousal consent is required for the Group B member to select a retirement annuity that provides the Group B member's spouse with any benefit less than the joint survivor benefit provided in Section 7.02(b) of this Act upon the Group B member's death. Spousal consent is not required if it is established to the satisfaction of the retirement board that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or other circumstances exist as prescribed by United States Treasury regulations. Notwithstanding other provisions of this section, the option election or beneficiary designation made by a member and consented to by the member's spouse may be revoked by the member in writing without consent of the spouse at any time before retirement. The number of revocations is not limited. A former spouse's waiver or consent is not binding on a new spouse. An option selection becomes effective on the member's actual retirement date. The member retains the right to change the option selected or the beneficiary designated until the member's actual retirement date, subject to this subsection.

SECTION 23. Section 10.01, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 10.01. MUNICIPAL AND MEMBER CONTRIBUTIONS. (a) Each municipality city in which a fire department to which this Act applies is located shall appropriate and contribute to the fund an amounts as determined under this section. equal to a percentage of the compensation of all members during that month as follows:

(1) 19.05 percent, beginning on the first pay date following September 30, 2010, through the pay date immediately preceding September 30, 2011;

(2) 20.05 percent, beginning on the first pay date following September 30, 2011, through the pay date immediately preceding September 30, 2012;

(3) 21.05 percent, for 24 pay dates of the municipality beginning on the first pay date following September 30, 2012; and

(4) 22.05 percent, for all pay dates of the municipality that follow the 24 pay dates referenced in Subdivision (3) of this subsection.

(b) Each firefighter shall pay into the fund each month a percentage of the firefighter's compensation for that month as follows:

(1) 15.70 percent, for the pay dates of the municipality following September 30, 2010, through the pay date immediately preceding September 30, 2011;

(2) 16.20 percent, beginning on the first pay date of the municipality following September 30, 2011, through the pay date immediately preceding September 30, 2012;

(3) 16.70 percent, beginning on the first pay date of the municipality following September 30, 2012, through the pay date immediately preceding September 30, 2013;

(4) 17.20 percent, beginning on the first pay date of the municipality following September 30, 2013, through the pay date immediately preceding September 30, 2014;

(5) 17.70 percent, beginning on the first pay date of the municipality following September 30, 2014, through the pay date immediately preceding September 30, 2015;

(6) 18.20 percent, beginning on the first pay date of the municipality following September 30, 2015, through the pay date immediately preceding September 30, 2016; and

(7) 18.70 percent, for the first pay date of the municipality following September 30, 2016, and all subsequent pay dates of the municipality.

(b) Beginning with the first pay period of:

(1) calendar year 2026, and before the first pay period of calendar year 2027, the city shall contribute an amount equal to the sum of:

(A) the city contribution rate, as determined in the initial risk sharing valuation study as of December 31, 2024, multiplied by the pensionable payroll for the applicable pay period; and

(B) 1/26 of the city's legacy contribution amount for the 2026 calendar year, as determined and adjusted in the initial risk sharing valuation study conducted under Section 10.01A of this Act; and

(2) calendar year 2027, and for each subsequent calendar year, the city shall contribute an amount equal to the sum of:

(A) the city contribution rate for the applicable calendar year, as determined in a subsequent risk sharing valuation study conducted and adjusted under Section 10.01B of this Act multiplied by the pensionable payroll for the applicable pay period; and

(B) 1/26 of the city's legacy contribution amount for the applicable calendar year, as determined and adjusted in the initial risk sharing valuation study conducted under Section 10.01A of this Act.

(c) If the employer elects to change the employer's payroll period to a period other than a biweekly payroll period, the fractional amounts of the employer's legacy contribution stated in subsections (b)(1)(B) and (b)(2)(B) of this section must be adjusted such that the employer's calendar year contribution equals the contribution required under subsection (b)(1) or (b)(2), as applicable.

(c) The governing body of each municipality may authorize the municipality to contribute a portion of the contribution required of each firefighter under this section. In that event:

(1) the municipality shall appropriate and contribute to the fund 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 shall be credited each month as if the firefighter had made the entire contribution required of that firefighter under Section 10.01(b).

(d) The governing body of each municipalitycity may authorize the municipalitycity to make an additional contribution to the fund in whatever amount the governing body may determine. The members of the fund, by a majority vote in favor of an increase in contributions above 13.70 percent, may increase each firefighter's contribution above 13.70 percent to any percentage recommended by a majority vote of the board of trustees.

SECTION 24. Article 10, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended by adding a new Section 10.01A to read as follows:

Sec. 10.01A. INITIAL RISK SHARING VALUATION STUDY. (a) The board's actuary shall prepare an initial risk sharing valuation study as of December 31, 2024. The initial risk sharing valuation study must:

(1) except as otherwise provided by this section, be prepared in accordance with the requirements of Section 10.01B of this Act;

(2) be based on the actuarial assumptions that were used by the board's actuary in the valuation completed for the year ended December 31, 2023 using the market value of assets;

(3) project the corridor midpoint for the next 25 calendar years beginning with the calendar year that begins on January 1, 2026;

(4) include a schedule of city legacy contribution amounts for 25 calendar years beginning with the calendar year that begins on January 1, 2026; and

(5) include a city contribution for the calendar years under Sections 10.01(b)(1) and (2) of this Act that begin on January 1, 2026, January 1, 2027, and January 1, 2028 that must be adjusted to reflect the impact of the phase-in prescribed by subsection (b) of this section.

(b) The schedule of city legacy contribution amounts under subsection (a)(4) of this section must be determined such that the total annual city legacy contribution amount for the first three calendar years results in a phase-in of the anticipated increase in the employer's contribution rate from the calendar year that begins on January 1, 2026, to the rate equal to the sum of the estimated contribution rate for the calendar year that begins on January 1, 2028, and the rate of pensionable payroll equal to the city legacy contribution amount for January 1, 2026, 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.

(c) The estimated employer contribution rate for the calendar year that begins on January 1, 2026, 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 adopted by the board of trustees.

SECTION 25. Article 10, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended by adding a new Section 10.01B to read as follows:

Sec. 10.01B. SUBSEQUENT RISK SHARING VALUATION STUDIES. (a) For each calendar year beginning with January 1, 2027, the fund shall cause the board's actuary to prepare a risk sharing valuation study in accordance with this section and actuarial standards of practice. 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 fund 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 this Article, as applicable; and

(5) except as provided by subsection (d) of this section, be based on the assumptions and methods adopted by the board of trustees, if applicable, and be 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) an amortization period assigned to each liability layer;

(C) amortization of each liability loss layer over a period of 20 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 25-year period beginning January 1, 2026;

(D) amortization of each liability gain layer over:

(i) a period equal to the remaining amortization period on the largest remaining liability loss layer; or

(ii) if there is no liability loss layer, a period of 20 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) funding of liability layers according to the level percent of payroll method;

(F) projection of payroll for purposes of determining the corridor midpoint, employer contribution rate, and city legacy contribution amount using the annual payroll growth rate assumption adopted by the board of trustees; and

(G) calculation of the city contribution rate each calendar year without inclusion of the legacy liability.

(b) The city may contribute an amount in addition to the scheduled city legacy contribution amounts to reduce the number or amount of scheduled future city legacy contribution payments. If the city contributes an additional amount under this subsection, the board's actuary shall create a new schedule of city legacy contribution amounts that reflects payment of the additional contribution.

(c) The city and the board of trustees may agree on a written transition plan for resetting the corridor midpoint, member contribution rates, or employer contribution rates:

(1) if at any time the funded ratio of the fund is equal to or greater than 100 percent; or

(2) for any calendar year after the payoff year of the legacy liability.

(d) The board of trustees may, by rule, adopt actuarial principles other than those required under this section, provided the actuarial principles:

(1) are consistent with actuarial standards of practice;

(2) are approved by the retirement board's actuary; and

(3) do not operate to change the city legacy contribution amount.

SECTION 26. Article 10, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended by adding a new Section 10.01C to read as follows:

Sec. 10.01C. ADJUSTMENT TO EMPLOYER CONTRIBUTION RATE IF ESTIMATED EMPLOYER CONTRIBUTION RATE LOWER THAN CORRIDOR MIDPOINT. (a) Subject to subsection (b) of this section, for the calendar year beginning January 1, 2026, and for each subsequent calendar year, if the estimated employer contribution rate is lower than the corridor midpoint, the employer contribution rate for the applicable year is:

(1) the corridor midpoint if the funded ratio is less than 90 percent; or

(2) the estimated employer contribution rate if the funded ratio is 90 percent or greater.

(b) The employer contribution rate may not be lower than the minimum employer 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 employer contribution.

SECTION 27. Article 10, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended by adding a new Section 10.01D to read as follows:

Sec. 10.01D. ADJUSTMENT TO CITY CONTRIBUTION RATE IF ESTIMATED CITY CONTRIBUTION RATE IS EQUAL TO OR GREATER THAN CORRIDOR MIDPOINT. For the calendar year beginning January 1, 2026, and for each subsequent calendar year, if the estimated employer contribution rate is equal to or greater than the corridor midpoint and:

(1) less than or equal to the maximum employer contribution rate for the corresponding calendar year, the employer contribution rate is the estimated employer contribution rate; or

(2) greater than the maximum employer contribution rate for the corresponding calendar year, the employer contribution rate is the maximum employer contribution rate.

SECTION 28. Article 10, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended by adding a new Section 10.01E to read as follows:

Sec. 10.01E. ADJUSTMENT TO CONTRIBUTION RATES IF ESTIMATED CITY CONTRIBUTION RATE IS GREATER THAN CORRIDOR MAXIMUM. (a) Except as provided by Subsection (b) of this section, if the estimated employer contribution rate is greater than the corridor maximum, the member contribution rate will increase by an amount equal to the difference between the estimated city contribution rate and the maximum city contribution rate.

(b) The member contribution rate may not be increased by more than two percent under Subsection (a) of this section.

(c) If the estimated employer contribution rate is more than two percentage points above the maximum employer contribution rate, the city and the board of trustees shall enter into discussions to determine additional options for achieving funding soundness.

SECTION 29. Sec. 10.02, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 10.02. PICKUP OF FIREFIGHTER CONTRIBUTIONS. (a) Beginning on the first pay date of the city following January 1, 2026, each firefighter shall pay into the fund each month 18.70 percent of the firefighter's compensation for that month. The firefighter contribution rate established by this section is subject to adjustment as determined by Section 10.01E of this Act and 10.02(d) of this Section.

(b) A municipalitycity to which this Act applies shall pick up the firefighter contributions to the fund that are required or authorized pursuant to Section 10.01 of this Actunder this section, whichever is higher. Firefighter contributions will be picked up by a reduction in the monetary compensation of the firefighters. Contributions picked up shall be treated as employer contributions in accordance with Section 414(h)(2) of the Internal Revenue Code for the purpose of determining tax treatment of the amounts under that code. These contributions will be deposited to the credit of the individual accounts of the firefighters in the fund and shall be treated as the monthly contributions of the firefighters for all purposes of this Act. These contributions are not includable in the gross income of a firefighter until the time that they are distributed or made available to the firefighter or survivors of the firefighter. The board of trustees may at any time, by majority vote, discontinue the pickup of firefighter contributions by the municipality city.

(c) The governing body of each city may authorize the city to contribute a portion of the contribution required of each firefighter under this section. In that event:

(1) the city shall appropriate and contribute to the fund each month at the higher percentage of compensation necessary to make all contributions required and authorized to be made by the city under this section; and

(2) each firefighter's individual account with the fund shall be credited each month as if the firefighter had made the entire contribution required of that firefighter under Section 10.01(b).

(d) The members of the fund, by a majority vote in favor of an increase in contributions above 18.70 percent, may increase each firefighter's contribution above 18.70 percent to any percentage and for any period of time recommended by a majority vote of the board of trustees.

SECTION 30. Sec. 10.04, Chapter 183 (S.B. No. 509), Acts of the 64th Legislature, Regular Session, 1975 (Article 6243e.1, Vernon's Texas Civil Statutes), is amended to read as follows:

Sec. 10.04. INTEREST ON INDIVIDUAL ACCOUNTS. (a) For Group A members,Tthe fund shall credit interest on December 31 of each year to the account of each firefighter, and of each former firefighter, who has not retired in an amount equal to five percent of the accumulated contributions, including previously credited interest, on deposit on January 1 of that year. The fund may not pay interest on a firefighter's or former firefighter's contributions for part of a year or for any period that is more than five calendar years after the date of termination of employment.

(b) For Group B members, the fund shall credit interest on December 31 of each year to the account of each firefighter, and of each former firefighter, who has not retired in an amount equal to three percent of the accumulated contributions for Group B members, including previously credited interest, on deposit on January 1 of that year. The fund may not pay interest on a firefighter's or former firefighter's contributions for part of a year or for any period that is more than five calendar years after the date of termination of employment.

SECTION 31. This Act shall become effective January 1, 2026.