87R14012 TYPED
By: Rodriguez H.B. No. 4368
A BILL TO BE ENTITLED
AN ACT
relating to the administration of certain municipal police
retirement systems.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 1.02, Article 6243n-1, Revised Statutes,
is amended by amending Subdivisions (2), (4), and (18) and adding
Subdivisions (1-a), (2-a), (3-a), (3-b), (6-a), (6-b), (6-c),
(6-d), (6-e), (10-a), (11-a), (13-a), (13-b), (13-c), (15-a),
(15-b), (15-c), (15-d), (15-e), (17-a), (18-a), (18-b), (19-a),
(19-b), (23-a), (29-a), and (29-b) to read as follows:
(1-a) "Actuarial accrued liability" means the portion
of the actuarial present value of projected benefits of the system
attributed to past periods of member service based on the cost
method used in the risk sharing valuation study prepared under
Section 8.03 or 8.04 of this Act, as applicable.
(2) "Actuarial equivalent" means any benefit of equal
present value to a standard benefit when computed as specified by
this Act, based on the actuarial assumptions adopted by the board
for such purpose.
(2-a) "Actuarial value of assets" means the value of
the system's investments as calculated using the asset smoothing
method used in the risk sharing valuation study prepared under
Section 8.03 or 8.04 of this Act, as applicable.
(3-a) "Amortization period" means the time period
necessary to fully pay a liability layer, or when referring to the
amortization period of the system as a whole, the number of years
incorporated in a weighted average amortization factor for all
components combined, including the legacy liability.
(3-b) "Amortization rate" means, for a given calendar
year, the percent equal to the ratio of (A) divided by (B) where:
(A) is equal to the sum of the scheduled
amortization payments required to pay off the then-existing
liability layers, less the city legacy contribution amount for such
calendar year, as determined in the risk sharing valuation prepared
under Section 8.03 or 8.04 of this Act, as applicable; and
(B) is equal to the projected pensionable payroll
for the same calendar year.
(4) "Average final compensation" means the monthly
average of basic hourly earnings of a member during, as applicable:
(A) if the member has 120 months or more of
service during which the member made contributions to the system or
the predecessor system, the 36 months for a Group A member, or 60
months for a Group B member, which yielded the highest average
during the last 120 months of membership service during which the
member contributed to the system or the predecessor system;
(B) if the member has less than 120 months of
membership service during which the member contributed to the
system or the predecessor system, but has at least 36 months of
membership service for a Group A member, or 60 months of membership
service for a Group B member, during which the member made
contributions to the system or the predecessor system, the average
of the 36 months, or 60 months, as applicable, which yielded the
highest average; or
(C) if the member does not have 36 months of
membership service for a Group A member, or 60 months of membership
service for a Group B member, during which the member contributed to
the system or the predecessor system, the average of the member's
months of membership service during which the member made
contributions to the system or the predecessor system.
(6-a) "City contribution rate" means, for a given
calendar year, a percent equal to the sum of the employer normal
cost rate and the amortization rate, as adjusted under Section 8.05
or 8.06 of this Act, if applicable.
(6-b) "City legacy contribution amount" means, for
each calendar year, a predetermined payment amount expressed in
dollars in accordance with a payment schedule amortizing the legacy
liability for the calendar year ending December 31, 2020 using the
level percent of payroll method and the amortization period and
payoff year that is included in the initial risk sharing valuation
study under Section 8.03 of this Act.
(6-c) "Corridor" means the range of city contribution
rates that are:
(A) equal to or greater than the minimum city
contribution rate; and
(B) equal to or less than the maximum city
contribution rate.
(6-d) "Corridor margin" means five percentage points.
(6-e) "Corridor midpoint" means the projected city
contribution rate specified for each calendar year for 30 years as
provided in the initial risk sharing valuation study under Section
8.03 of this Act, and as may be adjusted in accordance with Section
8.04(b)(4) of this Act in connection with a subsequent risk sharing
valuation study or Section 8.04(c) of this Act, and in each case
rounded to the nearest hundredths decimal place.
(10-a) "Employer normal cost rate" means, for a given
calendar year, the normal cost rate minus the applicable member
contribution rate determined under Section 8.01 of this Act.
(11-a) "Estimated city contribution rate" means, for a
given calendar year, the city contribution rate that would be
required to maintain an amortization period for the system as a
whole of no more than 30 years as determined by the system's actuary
in a risk sharing valuation study under Section 8.03 or 8.04 of this
Act, as applicable, and prior to any adjustment to such rate under
Section 8.05 or 8.06 of this Act, as applicable.
(13-a) "Funded ratio" means the ratio of the actuarial
value of assets divided by the actuarial accrued liability.
(13-b) "Group A member" means a member who:
(A) first became a member of the system on or
before December 31, 2021 and has remained in continuous employment
with the city or the system through December 31, 2021; or
(B) returned to full-time employment on or after
January 1, 2022, and:
(i) was previously a member of the System
prior to January 1, 2022; and
(ii) either:
(a) did not withdraw the member's
accumulated deposits from the police retirement system; or
(b) received a distribution of the
member's accumulated deposits, but has reinstated all of the
member's prior membership service credit.
(13-c) "Group B member" means a member who:
(A) first became a member of the system on or
after January 1, 2022; or
(B) returned to full-time employment on or after
January 1, 2022, and:
(i) was previously a Group A member;
(ii) received a distribution of the
member's accumulated deposits; and
(iii) has not reinstated all of the member's
prior membership service credit.
(15-a) "Legacy liability" means the unfunded
actuarial accrued liability determined as of December 31, 2020, and
for each subsequent calendar year, adjusted as follows:
(A) reduced by the city legacy contribution
amount for such year allocated to the amortization of the legacy
liability; and
(B) adjusted by the assumed rate of return
adopted by the board for such year.
(15-b) "Level percent of payroll method" means the
amortization method that defines the amount of the liability layer
recognized each calendar year as a level percent of pensionable
payroll until the amount of the liability layer remaining is
reduced to zero.
(15-c) "Liability gain layer" means a liability layer
that decreases the unfunded actuarial accrued liability.
(15-d) "Liability layer" means:
(A) the legacy liability established in the
initial risk sharing valuation study under Section 8.03 of this
Act; or
(B) for calendar years after December 31, 2020,
the amount that the system's unfunded actuarial accrued liability
increases or decreases, as applicable, due to the unanticipated
change for such calendar year as determined in each subsequent risk
sharing valuation study prepared under Section 8.04 of this Act.
(15-e) "Liability loss layer" means a liability layer
that increases the unfunded actuarial accrued liability. For
purposes of this Act, the legacy liability is a liability loss
layer.
(17-a) "Maximum city contribution rate" means, for a
given calendar year, the rate equal to the corridor midpoint plus
the corridor margin.
(18) "Member" means any police officer or employee of
the police retirement system included in the system under this Act
and approved for membership by the police retirement board. Each
member shall be a Group A member or a Group B member, as applicable.
In any case of doubt regarding the eligibility of an employee to
become or remain a member of the system, the decision of the police
retirement board shall be final.
(18-a) "Minimum city contribution rate" means, for a
given calendar year, the rate equal to the corridor midpoint minus
the corridor margin.
(18-b) "Normal cost rate" means, for a given calendar
year, the salary weighted average of the individual normal cost
rates determined for the current active member population, plus the
assumed administrative expenses determined in the most recent
actuarial experience study.
(19-a) "Payoff year" means the year a liability layer
is fully amortized under the amortization period. A payoff year may
not be extended or accelerated for a period that is less than one
month.
(19-b) "Pensionable payroll" means the aggregate
basic hourly earnings of all members in active service for a
calendar year or pay period, as applicable.
(23-a) "Projected pensionable payroll" means the
estimated pensionable payroll for the calendar year beginning 12
months after the date of the risk sharing valuation study prepared
under Section 8.03 or 8.04 of this Act, at the time of calculation
by:
(A) projecting the prior calendar year's
pensionable payroll forward two years using the current payroll
growth rate assumption adopted by the board; and
(B) adjusting, if necessary, for changes in
population or other known factors, provided those factors would
have a material impact on the calculation, as determined by the
board.
(29-a) "Unfunded actuarial accrued liability" means
the difference between the actuarial accrued liability and the
actuarial value of assets.
(29-b) "Unanticipated change" means, with respect to
the unfunded actuarial accrued liability in each subsequent risk
sharing valuation study prepared under Section 8.04 of this Act,
the difference between:
(A) the remaining balance of all then-existing
liability layers as of the date of the risk sharing valuation study;
and
(B) the actual unfunded actuarial accrued
liability as of the date of the risk sharing valuation study.
SECTION 2. Section 3.10, Article 6243n-1, Revised Statutes,
is amended to read as follows:
Sec. 3.10. INVESTMENT MANAGERS. The police retirement
board may hire an investment manager or investment managers who
shall have full authority to invest the assets and manage any
portion of the portfolio of the system, as specified by the
manager's [employment] contract.
SECTION 3. Section 4.01, Article 6243n-1, Revised Statutes,
is amended by amending Subsections (c) and (e) to read as follows:
(c) Any person who becomes an employee of the city or the
system, if eligible for membership, shall become a member as a
condition of employment and shall make the required deposits
commencing with the first pay period following a probationary
period of six continuous months from date of employment, if
applicable, or eligibility, if later.
(e)(1) Membership in the police retirement system shall
consist of the following groups:
(A) Active--Contributory: the member who is in a
status which allows payroll contributions to the police retirement
system (working a normal work week, holding a full-time position,
and, if applicable, having completed a continuous period of six
months of service initially, to attain membership).
(B) Active--Noncontributory: the member whose
current employment status does not allow contributions to the
system (working less than a normal work week or on a leave of
absence under Subsection (f)(6)(A) of this section) and on return
to working a normal work week, the member will again be given
creditable service, with contributions resumed at time of status
change.
(C) Inactive--Contributory: the member who is on
a uniformed service leave of absence under Subsection (f)(6)(B) of
this section, who is allowed to make deposits to the system during
the member's absence.
(D) Vested--Noncontributory: the terminated
member who, being vested, leaves the member's accumulated deposits
in the system.
(E) Retired: the member who is receiving a
service or disability retirement annuity.
(2) It shall be the duty of the police retirement board
to determine the membership group to which each police officer or
employee of the system who becomes a member of the police retirement
system properly belongs.
SECTION 4. Section 5.03, Article 6243n-1, Revised Statutes,
is amended by amending Subsection (a) to read as follows:
(a) An eligible member or eligible surviving spouse may
establish creditable service for probationary service performed as
provided under this section according to the following conditions,
limitations, and restrictions:
(1) Probationary service creditable in the system is
any probationary service following the member's commission date or
the member's first date of employment with the system for which the
member does not have creditable service.
(2) An eligible member or eligible surviving spouse
may establish creditable service under this section by contributing
to the system a single payment equal to the contribution the member
would have made to the system for that service at the time the
service was performed and an interest charge based on the
contribution amount to be repaid times an interest factor. The
interest factor is eight percent per year for the period that begins
with the beginning of the month and year at the end of the
probationary period for which creditable service is being
established to the beginning of the month and year payment is made
to the system for the purpose of establishing said service.
(3) After the eligible member or eligible surviving
spouse makes the deposit required by Subdivision (2) of this
subsection, the system shall grant the member one month of
creditable service for each month of probationary service
established under this section.
SECTION 5. Section 5.04(a), Article 6243n-1, Revised
Statutes, is amended to read as follows:
(a) Pursuant to irrevocable action taken by the city council
on February 12, 1998, police [This section does not take effect
unless the city council authorizes the city to begin making
contributions to the police retirement system in accordance with
Section 8.01(a) of this Act for police cadets during their
employment as cadets while members of a cadet class. Police] cadets
whose cadet class begins after April 1, 1998, [the city council
makes the authorization] shall make deposits to the police
retirement system in accordance with Section 8.01(a) of this Act,
and those cadets shall be members of the police retirement system
and shall receive creditable service for employment as cadets while
members of a cadet class, notwithstanding Sections 1.02(7), (18),
and (21) of this Act.
SECTION 6. Section 6.01, Article 6243n-1, Revised Statutes,
is amended by amending Subsections (a), (d), and (f) and adding
Subsections (a-1), (a-2), (c-1), and (c-2) to read as follows:
(a) On retirement after having reached the member's normal
retirement date, members entitled thereto shall receive a service
retirement benefit in the form of a life annuity (modified cash
refund). Each monthly payment of the life annuity (modified cash
refund) shall be equal to one-twelfth of:
(1) for a Group A member, the product of 3.2 [2.88]
percent of a member's average final compensation multiplied by the
number of months of creditable service; or
(2) for a Group B member, the product of 2.5 percent of
a member's average final compensation multiplied by the number of
months of creditable service.
(a-1) The retirement benefit percent specified by this
section to calculate the amount of the monthly payment of the life
annuity (modified cash refund) may be changed [after 1997] if:
(1) the change is approved by the board's actuary;
(2) the change is adopted by the board as a board rule;
(3) [the change applies to all present members, all
retired members, and all who become members after the effective
date of the change in the retirement benefit percent;]
[(4)] a member's vested interest as of the last day of
the month immediately preceding the effective date of the change in
the retirement benefit percent is not reduced; and
(4) [(5)] a retirement annuity being paid by the police
retirement system to members or to the surviving spouses or
beneficiaries of members who retired before the effective date of
the change in the retirement benefit percent is changed as
prescribed by Subsection (d)(6) of this section, except that a
reduction in annuities may not cause the member's, surviving
spouse's, or beneficiary's annuity payment to be reduced below the
base retirement amount calculated under this Act.
(a-2) A change to the retirement benefit percentage under
this section:
(1) may be applied to different groups of members or
may apply to all members, or
(2) may be applied to all creditable service of a
member or only to creditable service of a member acquired during a
specified period.
(c-1) In lieu of the annual adjustment for a given calendar
year, before January 1 of such year, the board may authorize an
additional benefit payment be paid in a single lump-sum to retirees
or the surviving spouse or beneficiaries of members who became
entitled to benefits on or before December 31 of the preceding year.
The additional benefit payment shall be paid on or before January 1
of the succeeding calendar year.
(c-2) An annual adjustment granted under Subsection (c) or
an additional benefit payment granted under Subsection (c-1), as
applicable, may be applied to different groups of members or may
apply to all members.
(d) In determining whether to authorize the payment and the
amount of any annual adjustment or additional benefit payment, the
board shall be governed by the following conditions,
considerations, limitations, and restrictions:
(1) Any and all determinations to authorize the
payment of any amount must be based on the ability of the system to
pay such an amount and shall not be based upon the individual needs
of any particular retired members, surviving spouses, or
beneficiaries.
(2) Prior to the board's authorizing the payment of an
annual adjustment or additional benefit payment, the actuary must
approve and recommend such an adjustment or payment to the board and
certify in writing to the board that based on the sound application
of actuarial assumptions and methods consistent with sound
actuarial principles and standards, it is demonstrable that the
system has and will continue to have the ability to pay such an
amount out of its realized income after all other obligations of the
system have been paid.
(3) The amount of the adjustment payment to the
retirement benefit for each retired member, surviving spouse, or
beneficiary shall be increased or decreased by an amount, not to
exceed six percent, determined by the board and the actuary based on
the consumer price index, actuarial experience of the system,
investment experience of the system, and cost-of-living increases
granted in the past. Such increases shall be prorated for a member
who retired during the year in the ratio that the number of the
member's completed months after the member's retirement in that
year bears to 12. The cost-of-living increase presented for
approval by the board must be approved by the system's actuary.
(4) The board shall have the authority and the duty, at
any and all times and without notice to anyone, to decrease the
amount of the adjustment payment as much as is necessary to protect
the continuity of the police retirement system and to protect the
corpus of the system should the ability of the system to continue to
pay the adjustment be threatened by a change in the economic
situation of the United States, the State of Texas, the city, or the
system itself such as would dictate that a prudent trustee should
authorize such a decrease; provided that if the threatened change
should prove not to have had the predicted harmful effect on the
system, then the board shall have the authority to reinstate the
payment of all or any portion of the amount of the previously
decreased adjustment payments. If at any time the actuary in the
actuary's discretion shall deem the continuity of the system to be
threatened by whatever cause, the actuary shall have the power and
authority to order the board to make no further adjustment payments
and the board shall have the power and authority to see to it that no
further adjustment payments are made unless and until the actuary
shall order either that the same adjustment payments which were
discontinued by the actuary's order be reinstated retroactively, or
that the adjustment payments (of the same amount as those which were
discontinued) be reinstated prospectively from the date of the
actuary's order to reinstate or the actuary may recommend to the
board that the adjustment payments be decreased by whatever amount
the actuary may deem to be sufficient to protect the continuity of
the system. The board shall not have the power or authority to
authorize or permit the payment of any adjustment payments in
excess of that recommended by the actuary.
(5) Provided that the adjustment payments, if any,
shall be in addition to the benefits to which a retired member,
surviving spouse, or beneficiary is otherwise entitled under this
Act, and in no event shall a reduction in the adjustment payments
cause the retired member's, surviving spouse's, or beneficiary's
benefits to be reduced below the actual base retirement amount
calculated under the provisions of this Act.
(6) If a change to the retirement benefit percentage
under Subsection (a) applies to retired members and beneficiaries,
service [Service] and disability retirement annuities and survivor
benefits being paid by the police retirement system to members or to
the surviving spouses or beneficiaries of members who retire before
the effective date of any change in the retirement benefit percent
under this section [that occurs after 1995] shall be changed
beginning with the first payment due after the effective date of the
change in the retirement benefit percent. The amount of the change
for a member or the surviving spouse or beneficiary of the member is
equal to a percentage multiplied by the annuity payment otherwise
due. The percentage is equal to the new retirement benefit
percentage divided by the retirement benefit percent in effect
immediately before the effective date of the new retirement benefit
percent, minus one, and multiplied by 100.
(f) For purposes of this section, compensation of each
noneligible member taken into account under this Act may not exceed
the maximum amount allowed under [$200,000 per calendar year,
indexed pursuant to] Section 401(a)(17) of the Internal Revenue
Code of 1986 (26 U.S.C. Section 401). The Section 401(a)(17)
[$200,000] limit described above does not apply to an eligible
member. For purposes of this subsection, an eligible member is any
individual who first became a member before January 1, 1996. For
purposes of this subsection, a noneligible member is any other
member.
SECTION 7. Section 6.02, Article 6243n-1, Revised Statutes,
is amended by amending Subsections (a) and (b) and adding
Subsections (a-1) and (b-1) to read as follows:
(a) A Group A [Any] member shall be eligible for service
retirement if the member has attained the age of 55 years and
completed at least 20 years of creditable service with the city, or
has completed 23 years of creditable service, excluding any
military service established under Section 5.02 of this Act.
(a-1) A Group B member shall be eligible for service
retirement if the member has attained the age of 50 years and
completed at least 25 years of creditable service with the city,
excluding any military service established under Section 5.02 of
this Act.
(b) Except as provided by Subsection (c) of this section,
the age and length-of-service requirements for service retirement
may be changed if the change:
(1) is approved by the board's actuary;
(2) is adopted by the board as a board rule; and
(3) [applies to all persons who are members on the
effective date of the change and all persons who become members
after the effective date of the change; and]
[(4)] does not increase the requirements for a
person who already is eligible for service retirement on the
effective date of the change.
(b-1) A change to the age and length-of-service
requirements under Subsection (b) may be applied to different
groups of members or may apply to all members.
SECTION 8. Section 6.04, Article 6243n-1, Revised Statutes,
is amended by amending Subsection (b) to read as follows:
(b) If a member who has attained age 72 (or such later age as
required under Section 401(a)(9) of the Internal Revenue Code of
1986 (26 U.S.C. Section 401)) [70-1/2] separates or has separated
from service without applying for retirement or a refund of
accumulated deposits, the police retirement system shall attempt to
send to that member a written notice as soon as practicable after
the later of the date the member attains such age [70-1/2] or the
date the member separates from service. The written notice must
advise the member of the requirement under Section 401(a)(9) of the
Internal Revenue Code of 1986 (26 U.S.C. Section 401) to retire and
begin receiving a monthly retirement benefit. If, before the 91st
day after the date the police retirement system sends the notice,
the member has not filed an application for retirement or a refund,
the member is considered to have retired on the last day of the
third month following the later of the two dates specified by this
subsection. If applicable, the retirement option shall be
determined in accordance with the member's written selection of
optional benefit and designation of beneficiary under Section
6.06(a)(1) of this Act. Otherwise, the member shall receive the
life annuity under Section 6.01 of this Act.
SECTION 9. Section 7.02, Article 6243n-1, Revised Statutes,
is amended by amending Subsection (a) and adding Subsection (a-1)
to read as follows:
(a) On award of disability retirement benefits, the member
shall receive a disability retirement benefit computed in the same
manner that a service retirement benefit would be computed at the
member's normal retirement date, based on average final
compensation and creditable service at date of disability
retirement without reduction for early retirement. If the
disability is a direct or proximate result of the performance of the
member's employment duties with the system or the city, then the
disability retirement benefit will be subject to a minimum benefit
based on:
(1) average final compensation at date of disability
retirement;
(2) the applicable retirement benefit percentage
under Section 6.01; and
(3) the following years of creditable service:
(A) for a Group A member, 20 years of creditable
service; or
(B) for a Group B member, 25 years of creditable
service.
(a-1) The options allowed under this section are life
annuity or its actuarial equivalent payable in the form described
as Option I, Option II, Option III, Option IV, or Option V in
Section 6.03 of this Act. The disability benefits paid to the member
will be paid from Fund No. 1 until the amount received equals the
member's accumulated deposits; thereafter the benefits will be paid
from Fund No. 2.
SECTION 10. Article VIII, Article 6243n-1, Revised
Statutes, is amended by amending Section 8.01 and adding Sections
8.02, 8.03, 8.04, 8.05, 8.06, 8.07, and 8.08 to read as follows:
Sec. 8.01. MEMBER CONTRIBUTIONS [METHOD OF FINANCING].
(a)[(1)] For pay periods beginning prior to January 1, 2022,
deposits [Deposits] by the members to the police retirement system
shall be made at a rate of at least 13 percent of the basic hourly
earnings of each member. For pay periods beginning on or after
January 1, 2022, deposits by the members to the police retirement
system shall be made at a rate of at least 15 percent of the basic
hourly earnings of each member. Deposits required to be made by
members shall be deducted from payroll each pay period.
(b) On recommendation of the board, the
Active--Contributory members may by a majority of those voting
increase the rate of member deposits above the applicable [13]
percent set forth above to whatever amount the board has
recommended. If the deposit rate for members has been increased to a
rate above 15 [13] percent, the rate may be decreased if the board
recommends the decrease, the board's actuary approves the decrease,
and a majority of the Active-Contributory members voting on the
matter approve the decrease.
Sec. 8.02. CITY CONTRIBUTIONS. (a)[(2) The city shall
contribute amounts equal to 18 percent of the basic hourly earnings
of each member employed by the city for all periods on or before
September 30, 2010, subject to additional amounts as provided by
Subdivision (3) of this subsection. The city shall contribute
amounts equal to 19 percent of the basic hourly earnings of each
member employed by the city for all periods after September 30,
2010, and before October 1, 2011, subject to additional amounts as
provided by Subdivision (3) of this subsection. The city shall
contribute amounts equal to 20 percent of the basic hourly earnings
of each member employed by the city for all periods after September
30, 2011, and before October 1, 2012, subject to additional amounts
as provided by Subdivision (3) of this subsection.] The city shall
contribute amounts equal to 21 percent of the basic hourly earnings
of each member employed by the city for all pay periods beginning
after September 30, 2012, and before January 1, 2022, subject to
additional amounts as provided by Section 8.07 of this Act
[Subdivision (3) of this subsection]. For all pay periods beginning
on or after January 1, 2022, the city shall make contributions to
the police retirement system in accordance with Subsections (b) and
(c) and Sections 8.03, 8.04, 8.05, and 8.06 of this Act, as
applicable, and subject to additional amounts as provided by
Section 8.07 of this Act. The city council may also authorize the
city to make additional contributions to the police retirement
system in whatever amount the city council may determine.
Contributions by the city shall be made each pay period.
(b) For each pay period that begins on or after January 1,
2022, and on or before December 31, 2022, the city shall contribute
an amount equal to the sum of:
(1) the city contribution rate, as determined in the
initial risk sharing valuation study conducted under Section 8.03
of this Act, multiplied by the pensionable payroll for the
applicable pay period; and
(2) one twenty-sixth of the city legacy contribution
amount for the 2022 calendar year, as determined in the initial risk
sharing valuation study conducted under Section 8.03 of this Act.
(c) For each pay period that begins on or after January 1,
2023, the city shall contribute an amount equal to the sum of:
(1) the city contribution rate for the applicable
calendar year, as determined in a subsequent risk sharing valuation
study conducted under Section 8.04 of this Act and adjusted under
Section 8.05 or 8.06 of this Act, as applicable, multiplied by the
pensionable payroll for the applicable pay period; and
(2) one twenty-sixth of the city legacy contribution
amount for the applicable calendar year, as determined in the
initial risk sharing valuation study conducted under Section 8.03
of this Act.
Sec. 8.03. INITIAL RISK SHARING VALUATION STUDY. (a) The
police retirement system shall cause its actuary to prepare an
initial risk sharing valuation study that is dated as of December
31, 2020, in accordance with this section.
(b) The initial risk sharing valuation study must:
(1) except as otherwise provided by this section, be
prepared in accordance with Section 8.04 of this Act;
(2) project the corridor midpoint for the next 30
calendar years beginning with the calendar year that begins on
January 1, 2022; and
(3) include a schedule of city legacy contribution
amounts for 30 calendar years beginning with the calendar year that
begins on January 1, 2022.
Sec. 8.04. SUBSEQUENT RISK SHARING VALUATION STUDIES. (a)
For each calendar year beginning after December 31, 2020, the
police retirement system shall cause its actuary to prepare a risk
sharing valuation study in accordance with this section and
actuarial standards of practice.
(b) Each risk sharing valuation study must:
(1) be dated as of the last day of the calendar year
for which the study is required to be prepared;
(2) calculate the unfunded actuarial accrued
liability of the system as of such date, 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 whether any increase to the corridor
midpoint is to be made for any change in the estimated city
contribution rate due to the covered payroll of the system growing
at a rate different than that assumed in the most recently completed
risk sharing valuation;
(5) determine the city contribution rate for the
following calendar year, taking into account any adjustments
required under Section 8.05 or 8.06, as applicable; and
(6) be based on the assumptions and methods adopted by
the board that are consistent with actuarial standards of practice
and the following principles:
(A) closed layered amortization of liability
layers to ensure that the amortization period for each liability
layer begins 12 months after the date of the risk sharing valuation
study in which the liability layer is first recognized;
(B) each liability layer is assigned an
amortization period;
(C) each liability loss layer will be amortized
over a period of 30 years from the first day of the calendar year
beginning 12 months after the date of the risk sharing valuation
study in which the liability loss layer is first recognized, except
that the legacy liability must be amortized over a 30-year period
beginning January 1, 2022;
(D) each liability gain layer will be amortized
over:
(i) a period equal to the remaining
amortization period on the largest remaining liability loss layer
and the two layers must be treated as one layer such that if the
payoff year of the liability loss layer is accelerated or extended,
the payoff year of the liability gain layer is also accelerated or
extended; or
(ii) if there is no liability loss layer, a
period of 30 years from the first day of the calendar year beginning
12 months after the date of the risk sharing valuation study in
which the liability gain layer is first recognized;
(E) liability layers, including the legacy
liability, will be funded according to the level percent of payroll
method;
(F) payroll for purposes of determining the
corridor midpoint, city contribution rate, and city legacy
contribution amount must be projected using the annual payroll
growth rate assumption adopted by the board; and
(G) the city contribution rate will be calculated
each calendar year without inclusion of the legacy liability.
(c) The city and the board may agree on a written transition
plan for resetting the corridor midpoint (other than an adjustment
to the corridor midpoint in accordance with Subsection (b)(4)
above):
(1) if at any time the funded ratio of the system is
equal to or greater than 100 percent; or
(2) for any calendar year after the payoff year of the
legacy liability.
(d) Notwithstanding as otherwise provided in Subsection
(b)(6) above, the board may adopt through rule actuarial principles
other than those set forth in Subsections (b)(6)(A)-(G), provided
that such actuarial principles are consistent with actuarial
standards of practice, are approved by the system's actuary, and do
not operate to change the city legacy contribution amount.
Sec. 8.05. ADJUSTMENT TO CITY CONTRIBUTION RATE IF LOWER
THAN CORRIDOR MIDPOINT. (a) This section governs the determination
of the city contribution rate applicable in a calendar year under
Section 8.04(b)(5) of this Act if the estimated city contribution
rate determined under Section 8.04(b)(3) of this Act is lower than
the corridor midpoint.
(b) If the estimated city contribution rate is lower than
the corridor midpoint and the funded ratio is less than 90 percent,
the city contribution rate for the applicable year equals the
corridor midpoint.
(c) If the estimated city contribution rate is lower than
the corridor midpoint and the funded ratio is equal to or greater
than 90 percent and the city contribution rate is:
(1) equal to or greater than the minimum city
contribution rate, the estimated city contribution rate is the city
contribution rate for the calendar year; or
(2) less than the minimum city contribution rate for
the corresponding calendar year, the city contribution rate for the
calendar year equals the minimum city contribution rate.
(d) If the funded ratio is equal to or greater than 100
percent:
(1) all existing liability layers, including the
legacy liability, are considered fully amortized and paid; and
(2) the city legacy contribution amount may no longer
be included in the city contribution under Section 8.02 of this Act.
Sec. 8.06. ADJUSTMENT TO CITY CONTRIBUTION RATE IF EQUAL TO
OR GREATER THAN CORRIDOR MIDPOINT. (a) This section governs the
determination of the city contribution rate applicable in a
calendar year under Section 8.04(b)(5) of this Act if the estimated
city contribution rate determined under Section 8.04(b)(3) of this
Act is equal to or greater than the corridor midpoint.
(b) If the estimated city contribution rate is equal to or
greater than the corridor midpoint and:
(1) less than or equal to the maximum city
contribution rate for the corresponding calendar year, the
estimated city contribution rate is the city contribution rate; or
(2) greater than the maximum city contribution rate
for the corresponding calendar year, the city contribution rate is
the maximum city contribution rate, and the city and the board shall
enter into discussions to determine additional funding solutions.
Sec 8.07. ADDITIONAL CITY CONTRIBUTIONS FOR PROPORTIONATE
RETIREMENT PROGRAM PARTICIPATION. [(3)](a) The city shall
contribute amounts in addition to the amounts described by Section
8.02 of this Act [Subdivision (2) of this subsection] as required by
Section 803.101(h), Government Code, to fund the additional
liabilities incurred by the police retirement system as a result of
participating in the proportionate retirement program. The rate at
which the city shall contribute additional amounts under this
subdivision is equal to 0.737 percent of the basic hourly earnings
of each member employed by the city for all periods on and after
October 1, 2020, subject to adjustment under Subsection (b). [The
rate at which the city shall contribute additional amounts under
this subdivision is equal to 0.25 percent of the basic hourly
earnings of each member employed by the city for all periods from
January 4, 2009, through September 30, 2009. The rate at which the
city shall contribute additional amounts under this subdivision is
equal to 0.63 percent of the basic hourly earnings of each member
employed by the city for all periods after September 30, 2009,
subject to adjustment under Subdivision (4) of this subsection.]
(b) [(4)] The additional contribution rate under Subsection
(a) [Subdivision (3) of this subsection] shall increase or decrease
as considered necessary by the actuary for the police retirement
system after each five-year period of participation by the system
in the proportionate retirement program in order to update the
amount necessary to fund the additional liabilities incurred by the
system as a result of participating in the proportionate retirement
program and of the consolidation of the city's public safety and
emergency management department with the police department on
January 4, 2009. The system's actuary shall perform an experience
study that shall be the basis for a contribution rate adjustment
under this subsection [subdivision]. The effective date of the
initial contribution rate adjustment under this subsection
[subdivision] is October 1, 2015. Each later contribution rate
adjustment under this subsection [subdivision] takes effect
October 1 of every fifth year after the effective date of the
initial contribution rate adjustment. The system's actuary shall
present to the police retirement board the experience study on
which any contribution rate adjustment under this subsection
[subdivision] is based not later than 45 days before the effective
date of the adjustment, and the city's actuary shall have the
opportunity to review and comment on the study. An adjustment in the
additional contribution rate under this subsection [subdivision]
may not cause the additional contribution rate under Subsection (a)
[Subdivision (3) of this subsection] to be less than zero.
Sec. 8.08. GENERAL FINANCING PROVISIONS. (a) [(b)] Any
change of the rates of deposit and the rates of contribution shall
be published when approved by the board.
(b) [(c)] Contributions by the city shall be paid to the
system after appropriation by the city council.
(c) [(d)] Expenses involved in administration and operation
of the police retirement system shall be paid from the assets of the
police retirement system subject to approval by the board. Such
expenses shall include actuarial valuations of the system no less
frequently than on a biennial basis, annual audits and/or actuarial
studies, preparation of annual reports, and staff assistance.
Additional consulting may be authorized by the board and paid for
from the assets of the police retirement system as deemed necessary
from time to time by the board.
(d) [(e)] Expenses incurred from investment advice,
counsel, and management shall be paid from the assets of the police
retirement system.
(e) [(f)] The city shall make the police officer
contributions to the system required by Section 8.02 of this Act
[Subsection (a) of this section]. The system shall make the
administrative staff's contributions to the system. Member
contributions will be made by a reduction in their monetary
compensation. Contributions made shall be treated as employer
contributions in accordance with Section 414(h)(2), Internal
Revenue Code (26 U.S.C. Section 414(h)(2)), for the purpose of
determining tax treatment of the amounts under the federal Internal
Revenue Code. These contributions are not includible in the gross
income of the member until such time as they are distributed or made
available to the member. Member contributions made as provided by
this subsection shall be deposited to the individual account of
each affected member and shall be treated as compensation of
members for all other purposes of this Act and for the purpose of
determining contributions to the federal Old-Age, Survivors, and
Disability Insurance System (Social Security). The provisions of
this subsection shall remain in effect as long as the plan covering
members is a qualified retirement plan under Section 401(a),
Internal Revenue Code (26 U.S.C. Section 401(a)), and its related
trust is tax exempt under Section 501(a), Internal Revenue Code (26
U.S.C. Section 501(a)).
(f) [(g)] If the police retirement system is terminated,
further contributions may not be made by the city or the system, and
further deposits may not be made by the members for service after
the date of termination. Members do not accrue any additional
benefits after the date of termination. The benefit accrued by each
member on the termination of the plan or the complete
discontinuance of contributions under the plan and the benefit of
any affected member on the partial termination of the plan, to the
extent funded, become nonforfeitable notwithstanding the length of
a member's service. The benefit accrued by a member also becomes
nonforfeitable, if not already nonforfeitable, at the normal
retirement date.
(g) [(h)] A forfeiture from a member terminating employment
and withdrawing the member's accumulated deposits may not be
applied to increase the benefit that any other member would receive
from the system. The actuary shall anticipate the effect of
forfeitures in determining the costs under the system.
(h) [(i)] The assets of the police retirement system shall
be held in trust for the exclusive benefit of the members and their
beneficiaries. The corpus or income may not be used for or diverted
to a purpose other than the exclusive benefit of members or their
beneficiaries, whether by operation or natural termination of the
system, by power of revocation or amendment, by the happening of a
contingency, by collateral arrangement, or by other means.
SECTION 11. Section 13.02, Article 6243n-1, Revised
Statutes, is amended to read as follows:
Sec. 13.02. MANDATORY DISTRIBUTIONS PROHIBITED. A member
or former member who has separated from service may not be required
to receive an eligible rollover distribution, as defined in Section
13.01(b)(1) of this Act, without the member's consent unless the
member or former member is:
(1) at least 72 [70-1/2] years of age; or
(2) a later age, as required under Section 401(a)(9)
of the Internal Revenue Code of 1986 (26 U.S.C. Section 401).
SECTION 12. The following sections of law are repealed:
(1) Section 5.04(b), Article 6243n-1, Revised
Statutes; and
(2) Section 7.02(b), Article 6243n-1, Revised
Statutes.
SECTION 13. Except as otherwise provided by this Act, this
Act takes effect September 1, 2021.