By: Rodriguez, et al. (Senate Sponsor - Buckingham) H.B. No. 4368
(In the Senate - Received from the House May 17, 2021;
May 17, 2021, read first time and referred to Committee on Finance;
May 22, 2021, reported adversely, with favorable Committee
Substitute by the following vote: Yeas 10, Nays 0; May 22, 2021,
sent to printer.)
Click here to see the committee vote
COMMITTEE SUBSTITUTE FOR H.B. No. 4368 By: Buckingham
A BILL TO BE ENTITLED
AN ACT
relating to participation in, contributions to, and the benefits
and administration of retirement systems for police officers in
certain municipalities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 1.02, Chapter 452 (S.B. 738), Acts of the
72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), is amended by amending Subdivisions (2) and
(4) and adding Subdivisions (1-a), (2-a), (3-a), (3-b), (6-a),
(6-b), (6-c), (6-d), (6-e), (10-a), (11-a), (13-a), (13-b), (13-c),
(15-a), (15-b), (15-c), (15-d), (15-e), (17-a), (18-a), (18-b),
(19-a), (19-b), (23-a), (29-a), and (29-b) to read as follows:
(1-a) "Actuarial accrued liability" means the portion
of the actuarial present value of projected benefits of the police
retirement system attributed to past periods of member service
based on the cost method used in the risk sharing valuation study
prepared under Section 8.03 or 8.04 of this Act, as applicable.
(2) "Actuarial equivalent" means any benefit of equal
present value to a standard benefit when computed as specified by
this Act, based on the actuarial assumptions adopted by the police
retirement board for that purpose.
(2-a) "Actuarial value of assets" means the value of
the police retirement system's investments as calculated using the
asset smoothing method used in the risk sharing valuation study
prepared under Section 8.03 or 8.04 of this Act, as applicable.
(3-a) "Amortization period" means:
(A) the period necessary to fully pay a liability
layer; or
(B) if referring to the amortization period of
the police retirement system as a whole, the number of years
incorporated in a weighted average amortization factor for the sum
of the legacy liability and all liability layers as determined in
each annual actuarial valuation of assets and liabilities of the
system.
(3-b) "Amortization rate" means, for a given calendar
year, the percentage rate determined by:
(A) adding the scheduled amortization payments
required to pay off the then-existing liability layers;
(B) subtracting the city legacy contribution
amount for the same calendar year, as determined in the risk sharing
valuation study prepared under Section 8.03 or 8.04 of this Act, as
applicable, from the sum under Paragraph (A); and
(C) dividing the sum under Paragraph (B) by the
projected pensionable payroll for the same calendar year.
(4) "Average final compensation" means the monthly
average of basic hourly earnings of a member during, as applicable:
(A) if the member has 120 months or more of
service during which the member made contributions to the system or
the predecessor system, the 36 months for a group A member or 60
months for a group B member which yielded the highest average during
the last 120 months of membership service during which the member
contributed to the system or the predecessor system;
(B) if the member has less than 120 months of
membership service during which the member contributed to the
system or the predecessor system, but has at least 36 months of
membership service for a group A member or 60 months of membership
service for a group B member during which the member made
contributions to the system or the predecessor system, the average
of the 36 months or 60 months, as applicable, which yielded the
highest average; or
(C) if the member does not have 36 months of
membership service for a group A member or 60 months of membership
service for a group B member during which the member contributed to
the system or the predecessor system, the average of the member's
months of membership service during which the member made
contributions to the system or the predecessor system.
(6-a) "City contribution rate" means, for a given
calendar year, a percentage rate equal to the sum of the employer
normal cost rate and the amortization rate, as adjusted under
Section 8.05 or 8.06 of this Act, if applicable.
(6-b) "City legacy contribution amount" means, for
each calendar year, a predetermined payment amount expressed in
dollars in accordance with a payment schedule amortizing the legacy
liability for the calendar year ending December 31, 2020, that is
included in the initial risk sharing valuation study under Section
8.03 of this Act.
(6-c) "Corridor" means the range of city contribution
rates that are:
(A) equal to or greater than the minimum city
contribution rate; and
(B) equal to or less than the maximum city
contribution rate.
(6-d) "Corridor margin" means five percentage points.
(6-e) "Corridor midpoint" means the projected city
contribution rate specified for each calendar year for 30 years as
provided by the initial risk sharing valuation study under Section
8.03 of this Act, rounded to the nearest hundredths decimal place.
(10-a) "Employer normal cost rate" means, for a given
calendar year, the normal cost rate minus the applicable member
contribution rate determined under Section 8.01 of this Act.
(11-a) "Estimated city contribution rate" means, for a
given calendar year, the city contribution rate that would be
required to maintain an amortization period for the retirement
system as a whole of no more than 30 years as determined by the
system's actuary in a risk sharing valuation study under Section
8.03 or 8.04 of this Act, as applicable, and before any adjustment
to the rate under Section 8.05 or 8.06 of this Act, as applicable.
(13-a) "Funded ratio" means the ratio of the actuarial
value of assets divided by the actuarial accrued liability.
(13-b) "Group A member" means a member included in
group A membership under Section 4.01(e-1) of this Act.
(13-c) "Group B member" means a member included in
group B membership under Section 4.01(e-1) of this Act.
(15-a) "Legacy liability" means the unfunded
actuarial accrued liability determined as of December 31, 2020, and
for each subsequent calendar year, adjusted as follows:
(A) reduced by the city legacy contribution
amount for the calendar year allocated to the amortization of the
legacy liability; and
(B) adjusted by the assumed rate of return
adopted by the police retirement board for the calendar year.
(15-b) "Level percent of payroll method" means the
amortization method that defines the amount of the liability layer
recognized each calendar year as a level percent of pensionable
payroll until the amount of the liability layer remaining is
reduced to zero.
(15-c) "Liability gain layer" means a liability layer
that decreases the unfunded actuarial accrued liability.
(15-d) "Liability layer" means:
(A) the legacy liability established in the
initial risk sharing valuation study under Section 8.03 of this
Act; or
(B) for calendar years after December 31, 2020,
the amount that the police retirement system's unfunded actuarial
accrued liability increases or decreases, as applicable, due to the
unanticipated change for the calendar year as determined in each
subsequent risk sharing valuation study prepared under Section 8.04
of this Act.
(15-e) "Liability loss layer" means a liability layer
that increases the unfunded actuarial accrued liability. For
purposes of this Act, the legacy liability is a liability loss
layer.
(17-a) "Maximum city contribution rate" means, for a
given calendar year, the rate equal to the corridor midpoint plus
the corridor margin.
(18-a) "Minimum city contribution rate" means, for a
given calendar year, the rate equal to the corridor midpoint minus
the corridor margin.
(18-b) "Normal cost rate" means, for a given calendar
year, the salary weighted average of the individual normal cost
rates determined for the current active member population, plus the
assumed administrative expenses determined in the most recent
actuarial experience study.
(19-a) "Payoff year" means the year a liability layer
is fully amortized under the amortization period. A payoff year may
not be extended or accelerated for a period that is less than one
month.
(19-b) "Pensionable payroll" means the aggregate
basic hourly earnings of all members in active service for a
calendar year or pay period, as applicable.
(23-a) "Projected pensionable payroll" means the
estimated pensionable payroll for the calendar year beginning 12
months after the date of the risk sharing valuation study prepared
under Section 8.03 or 8.04 of this Act, at the time of calculation
by:
(A) projecting the prior calendar year's
pensionable payroll forward two years using the current payroll
growth rate assumption adopted by the police retirement board; and
(B) adjusting, if necessary, for changes in
population or other known factors, provided those factors would
have a material impact on the calculation, as determined by the
board.
(29-a) "Unanticipated change" means, with respect to
the unfunded actuarial accrued liability in each subsequent risk
sharing valuation study prepared under Section 8.04 of this Act,
the difference between:
(A) the remaining balance of all then-existing
liability layers as of the date of the risk sharing valuation study;
and
(B) the actual unfunded actuarial accrued
liability as of the date of the risk sharing valuation study.
(29-b) "Unfunded actuarial accrued liability" means
the difference between the actuarial accrued liability and the
actuarial value of assets.
SECTION 2. Section 3.02, Chapter 452 (S.B. 738), Acts of the
72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), is amended to read as follows:
Sec. 3.02. COMPOSITION OF BOARD; TRUSTEE QUALIFICATIONS.
(a) The police retirement board shall be composed of 11 members as
follows:
(1) one council member designated by the city council;
(2) the city manager or the city manager's designee;
(3) the director of finance or the director's
designee;
(4) four [five] police officer members elected by the
police officer members of the system, each of whom serves for a term
of four years;
(5) one legally qualified voter of the city, who is a
resident and has been a resident for the preceding five years, is
not an employee of the city or a member of the system, and has
demonstrated experience in the field of finance or investments, to
be appointed by the police retirement board to serve for a term of
four years and until the member's successor is duly selected and
qualified; [and]
(6) one legally qualified voter of the city, who is a
resident and has been a resident for the preceding five years, is
not an employee of the city or a member of the system, and has
demonstrated experience in the field of finance or investments, to
be appointed by the city council to serve for a term of four years
and until the member's successor is duly selected and qualified;
and
(7) two retired members to be elected by the retired
members to serve for a term of four years, with the term of one
member expiring each odd-numbered year.
(b) The terms of two members elected as described by
Subsection (a)(4) of this section expire in 2023 [2001] and every
fourth subsequent year, and the terms of two [three] members
elected as described by Subsection (a)(4) of this section expire in
2025 [2003] and every fourth subsequent year.
(b-1) A member of the police retirement board appointed
under Subsection (a)(5) or (a)(6) of this section must:
(1) have, at the time of taking office, the
qualifications required for the trustee's position; and
(2) maintain during service on the board the
qualifications required for the trustee's position.
(c) A vacancy occurring by the death, resignation, or
removal of the member appointed under:
(1) Subsection (a)(5) of this section shall be filled
by appointment by the remaining members of the police retirement
board; and
(2) Subsection (a)(6) of this section shall be filled
by appointment by the city council.
SECTION 3. Section 3.09(b), Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended to read as follows:
(b) From time to time on the advice of the actuary and at the
direction of the board and as provided by Section 3.091 of this Act,
the actuary shall make an actuarial investigation of the mortality,
service, and compensation experience of members, retired members,
and beneficiaries of the system and shall recommend for adoption by
the board the tables and rates required by the system. The board
shall adopt the tables and rates to be used by the system.
SECTION 4. Article III, Chapter 452 (S.B. 738), Acts of the
72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), is amended by adding Section 3.091 to read as
follows:
Sec. 3.091. PROCESS FOR EXPERIENCE STUDIES AND CHANGES TO
ACTUARIAL ASSUMPTIONS. (a) At least once every five years, the
police retirement board shall have the system's actuary designated
under Section 3.09 of this Act conduct an experience study to review
the actuarial assumptions and methods adopted by the board for the
purposes of determining the actuarial liabilities and actuarially
determined contribution rates of the system. The system shall
notify the city at the beginning of an upcoming experience study by
the system's actuary.
(b) In connection with the system's experience study, the
city will inform the system if it will:
(1) conduct the city's own experience study using the
city's own actuary;
(2) have the city's actuary review the experience
study of the system's actuary; or
(3) accept the experience study of the system's
actuary.
(c) If the city chooses to:
(1) have the city's own experience study performed
under Subsection (b)(1) of this section, the city must complete the
study not later than three months after the date the system notified
the city of the system's intent to conduct an experience study; or
(2) have the city's actuary review the system's
experience study under Subsection (b)(2) of this section, the city
must complete the review not later than one month after the date the
preliminary results of the experience study are presented to the
board.
(d) If the city chooses to have the city's own experience
study performed under Subsection (b)(1) of this section, or to have
the city's actuary review the system's experience study under
Subsection (b)(2) of this section, the system's actuary and the
city's actuary shall determine what the hypothetical city
contribution rate would be using the proposed actuarial assumptions
from the experience studies and data from the most recent actuarial
valuation.
(e) If the difference between the hypothetical city
contribution rates determined by the system's actuary and the
city's actuary under Subsection (d) of this section:
(1) is less than or equal to two percent of pensionable
payroll, then no further action is needed and the board shall use
the experience study performed by the system's actuary in
determining assumptions; or
(2) is greater than two percent of pensionable
payroll, then the system's actuary and the city's actuary shall have
20 business days to reconcile the difference in actuarial
assumptions or methods causing the different hypothetical city
contribution rates, and:
(A) if, as a result of the reconciliation efforts
under this subdivision, the difference between the city
contribution rates determined by the system's actuary and the
city's actuary is reduced to less than or equal to two percentage
points, then no further action is needed and the board shall use the
experience study performed by the system's actuary in determining
actuarial assumptions; or
(B) if, after 20 business days, the system's
actuary and the city's actuary are not able to reach a
reconciliation that reduces the difference in the hypothetical city
contribution rates to an amount less than or equal to two percentage
points, a third-party actuary shall be retained to opine on the
differences in the assumptions made and actuarial methods used by
the system's actuary and the city's actuary.
(f) The independent third-party actuary retained in
accordance with Subsection (e)(2)(B) of this section shall be
chosen by the city from a list of three actuarial firms provided by
the system.
(g) If a third-party actuary is retained under Subsection
(e)(2)(B) of this section, the third-party actuary's findings will
be presented to the board along with the experience study conducted
by the system's actuary and, if applicable, the city's actuary. If
the board adopts actuarial assumptions or methods contrary to the
third-party actuary's findings:
(1) the system shall provide a formal letter
describing the rationale for the board's action to the city council
and State Pension Review Board; and
(2) the system's actuary and executive director shall
be made available at the request of the city council or the State
Pension Review Board to present in person the rationale for the
board's action.
(h) If the board proposes a change to actuarial assumptions
or methods that is not in connection with an experience study
described in Subsection (a) of this section, the system and the city
shall follow the same process prescribed by this section with
respect to an experience study in connection with the proposed
change.
SECTION 5. Section 3.10, Chapter 452 (S.B. 738), Acts of the
72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), is amended to read as follows:
Sec. 3.10. INVESTMENT MANAGERS. The police retirement
board may hire an investment manager or investment managers who
shall have full authority to invest the assets and manage any
portion of the portfolio of the system, as specified by the
manager's [employment] contract.
SECTION 6. Section 4.01, Chapter 452 (S.B. 738), Acts of the
72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), is amended by amending Subsections (c) and
(e) and adding Subsections (e-1) and (e-2) to read as follows:
(c) Any person who becomes an employee of the city or the
system, if eligible for membership, shall become a member as a
condition of employment and shall make the required deposits
commencing with the first pay period following a probationary
period of six continuous months from date of employment, if
applicable, or eligibility, if later.
(e) [(1)] Membership in the police retirement system shall
consist of the following groups:
(1) [(A)] Active--Contributory: the member who is in a
status which allows payroll contributions to the police retirement
system (working a normal work week, holding a full-time position,
and, if applicable, having completed a continuous period of six
months of service initially, to attain membership).
(2) [(B)] Active--Noncontributory: the member whose
current employment status does not allow contributions to the
system (working less than a normal work week or on a leave of
absence under Subsection (f)(6)(A) of this section) and on return
to working a normal work week, the member will again be given
creditable service, with contributions resumed at time of status
change.
(3) [(C)] Inactive--Contributory: the member who is
on a uniformed service leave of absence under Subsection (f)(6)(B)
of this section, who is allowed to make deposits to the system
during the member's absence.
(4) [(D)] Vested--Noncontributory: the terminated
member who, being vested, leaves the member's accumulated deposits
in the system.
(5) [(E)] Retired: the member who is receiving a
service or disability retirement annuity.
(e-1) Each member is either a group A member or a group B
member, as follows:
(1) a member is a group A member if the member was:
(A) retired from or employed by the city or the
system on December 31, 2021;
(B) a vested--noncontributory member as of
December 31, 2021, who has not withdrawn the member's accumulated
deposits; or
(C) formerly employed by the city or the system
before December 31, 2021, returned to employment with the city or
system on or after January 1, 2022, and:
(i) did not withdraw the member's
accumulated deposits from the system; or
(ii) withdrew the member's accumulated
deposits from the system, but reinstated all of the previously
forfeited creditable service; and
(2) a member is a group B member if the member:
(A) first became employed by the city or the
system on or after January 1, 2022; or
(B) was formerly employed by the city or the
system before December 31, 2021, returned to employment with the
city or system on or after January 1, 2022, and:
(i) while the member was separated from
service, withdrew the member's accumulated deposits from the
system; and
(ii) has not reinstated all of the member's
previously forfeited creditable service.
(e-2) [(2)] It shall be the duty of the police retirement
board to determine the membership group to which each police
officer or employee of the system who becomes a member of the police
retirement system properly belongs under Subsections (e) and (e-1)
of this section.
SECTION 7. Section 5.03(a), Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended to read as follows:
(a) An eligible member or eligible surviving spouse may
establish creditable service for probationary service performed as
provided under this section according to the following conditions,
limitations, and restrictions:
(1) Probationary service creditable in the system is
any probationary service following the member's commission date or
the member's first date of employment with the system for which the
member does not have creditable service.
(2) An eligible member or eligible surviving spouse
may establish creditable service under this section by contributing
to the system a single payment equal to the contribution the member
would have made to the system for that service at the time the
service was performed and an interest charge based on the
contribution amount to be repaid times an interest factor. The
interest factor is eight percent per year for the period that begins
with the beginning of the month and year at the end of the
probationary period for which creditable service is being
established to the beginning of the month and year payment is made
to the system for the purpose of establishing said service.
(3) After the eligible member or eligible surviving
spouse makes the deposit required by Subdivision (2) of this
subsection, the system shall grant the member one month of
creditable service for each month of probationary service
established under this section.
SECTION 8. Section 5.04(a), Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended to read as follows:
(a) Under irrevocable action taken by the city council on
February 12, 1998, police [This section does not take effect unless
the city council authorizes the city to begin making contributions
to the police retirement system in accordance with Section 8.01(a)
of this Act for police cadets during their employment as cadets
while members of a cadet class. Police] cadets whose cadet class
begins after April 1, 1998, [the city council makes the
authorization] shall make deposits to the police retirement system
in accordance with Section 8.01(a) of this Act, and those cadets
shall be members of the police retirement system and shall receive
creditable service for employment as cadets while members of a
cadet class, notwithstanding Sections 1.02(7), (18), and (21) of
this Act.
SECTION 9. Section 6.01, Chapter 452 (S.B. 738), Acts of the
72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), is amended by amending Subsections (a) and
(f) to read as follows:
(a) On retirement after having reached the member's normal
retirement date, members entitled thereto shall receive a service
retirement benefit in the form of a life annuity (modified cash
refund). Each monthly payment of the life annuity (modified cash
refund) shall be equal to one-twelfth of:
(1) for a group A member, the product of 3.2 [2.88]
percent of a member's average final compensation multiplied by the
number of months of creditable service; or
(2) for a group B member, the product of 2.5 percent of
a member's average final compensation multiplied by the number of
months of creditable service. [The retirement benefit percent
specified by this section to calculate the amount of the monthly
payment of the life annuity (modified cash refund) may be changed
after 1997 if:
[(1) the change is approved by the board's actuary;
[(2) the change is adopted by the board as a board
rule;
[(3) the change applies to all present members, all
retired members, and all who become members after the effective
date of the change in the retirement benefit percent;
[(4) a member's vested interest as of the last day of
the month immediately preceding the effective date of the change in
the retirement benefit percent is not reduced; and
[(5) a retirement annuity being paid by the police
retirement system to members or to the surviving spouses or
beneficiaries of members who retired before the effective date of
the change in the retirement benefit percent is changed as
prescribed by Subsection (d)(6) of this section, except that a
reduction in annuities may not cause the member's, surviving
spouse's, or beneficiary's annuity payment to be reduced below the
base retirement amount calculated under this Act.]
(f) For purposes of this section, compensation of each
noneligible member taken into account under this Act may not exceed
the maximum amount allowed under [$200,000 per calendar year,
indexed pursuant to] Section 401(a)(17) of the Internal Revenue
Code of 1986 (26 U.S.C. Section 401). The [$200,000] limit
prescribed by this subsection does not apply to an eligible member.
For purposes of this subsection, an eligible member is any
individual who first became a member before January 1, 1996. For
purposes of this subsection, a noneligible member is any other
member.
SECTION 10. Section 6.02, Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended by amending Subsection
(a) and adding Subsection (a-1) to read as follows:
(a) A group A [Any] member shall be eligible for service
retirement if the member has attained the age of 55 years and
completed at least 20 years of creditable service with the city, or
has completed 23 years of creditable service, excluding any
military service established under Section 5.02 of this Act.
(a-1) A group B member shall be eligible for service
retirement if the member has attained the age of 50 years and
completed at least 25 years of creditable service with the city,
excluding any military service established under Section 5.02 of
this Act.
SECTION 11. Section 6.04(b), Chapter 452 (S.B. 738), Acts
of the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended to read as follows:
(b) If a member who has attained the applicable age for the
minimum distribution required under Section 401(a)(9) of the
Internal Revenue Code of 1986 (26 U.S.C. Section 401(a)(9)) [age
70-1/2] separates or has separated from service without applying
for retirement or a refund of accumulated deposits, the police
retirement system shall attempt to send to that member a written
notice as soon as practicable after the later of the date the member
attains the applicable age [70-1/2] or the date the member
separates from service. The written notice must advise the member
of the requirement under Section 401(a)(9) of the Internal Revenue
Code of 1986 (26 U.S.C. Section 401(a)(9)) to retire and begin
receiving a monthly retirement benefit. If, before the 91st day
after the date the police retirement system sends the notice, the
member has not filed an application for retirement or a refund, the
member is considered to have retired on the last day of the third
month following the later of the two dates specified by this
subsection. If applicable, the retirement option shall be
determined in accordance with the member's written selection of
optional benefit and designation of beneficiary under Section
6.06(a)(1) of this Act. Otherwise, the member shall receive the
life annuity under Section 6.01 of this Act.
SECTION 12. Section 6.07(e), Chapter 452 (S.B. 738), Acts
of the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended to read as follows:
(e) The first monthly annuity amount that would have been
paid during the RETRO DROP benefit accumulation period is the
amount defined by Subsection (c) of this section. [Subsequent
monthly annuity amounts that would have been paid during the RETRO
DROP benefit accumulation period must include any cost-of-living
increases or special ad hoc increases in annuity amounts granted in
accordance with Sections 6.01(c) and (d) of this Act.]
SECTION 13. Section 7.02, Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended by amending Subsection
(a) and adding Subsection (a-1) to read as follows:
(a) On award of disability retirement benefits, the member
shall receive a disability retirement benefit computed in the same
manner that a service retirement benefit would be computed at the
member's normal retirement date, based on average final
compensation and creditable service at date of disability
retirement without reduction for early retirement. If the
disability is a direct or proximate result of the performance of the
member's employment duties with the system or the city, then the
disability retirement benefit will be subject to a minimum benefit
determined in accordance with Section 6.01(a)(1) or (2) of this
Act, as applicable, based on:
(1) average final compensation at date of disability
retirement; and
(2) for:
(A) a group A member, 20 years of creditable
service; or
(B) a group B member, 25 years of creditable
service.
(a-1) The options allowed under this section are life
annuity or its actuarial equivalent payable in the form described
as Option I, Option II, Option III, Option IV, or Option V in
Section 6.03 of this Act. The disability benefits paid to the
member will be paid from Fund No. 1 until the amount received equals
the member's accumulated deposits; thereafter the benefits will be
paid from Fund No. 2.
SECTION 14. Article VIII, Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended by amending Section 8.01
and adding Sections 8.02 through 8.13 to read as follows:
Sec. 8.01. MEMBER CONTRIBUTIONS [METHOD OF FINANCING]. (a)
[(1)] Deposits by the members to the police retirement system shall
be made at a rate of at least:
(1) 13 percent of the basic hourly earnings of the
[each] member, for each pay period beginning before January 1,
2022; and
(2) 15 percent of the basic hourly earnings of the
member, for each pay period beginning on or after January 1, 2022,
unless a different member contribution rate is required in
accordance with Section 8.04(b)(4) of this Act, as adjusted, if
applicable, under Section 8.065 of this Act, except that the rate
may not exceed 17 percent.
(a-1) Deposits required to be made by members under
Subsection (a) of this section shall be deducted from payroll each
pay period.
(a-2) On recommendation of the board, the
Active--Contributory members may by a majority of those voting
increase the rate of member deposits above the minimum rate of
deposit established by Subsection (a) of this section [13 percent]
to whatever amount the board has recommended. If the deposit rate
for members has been increased to a rate above the rate established
by Subsection (a) of this section in accordance with this
subsection [13 percent], the rate may be decreased to a rate not
lower than the rate prescribed by Subsection (a)(2) of this section
if the board recommends the decrease, the board's actuary approves
the decrease, and a majority of the Active--Contributory members
voting on the matter approve the decrease. If an increase in the
member contribution rate is made solely as the result of an
adjustment under Section 8.065 of this Act, that increase may not be
decreased under this subsection.
Sec. 8.02. CITY CONTRIBUTIONS. (a) [(2)] The city shall
contribute amounts equal to [18 percent of the basic hourly
earnings of each member employed by the city for all periods on or
before September 30, 2010, subject to additional amounts as
provided by Subdivision (3) of this subsection. The city shall
contribute amounts equal to 19 percent of the basic hourly earnings
of each member employed by the city for all periods after September
30, 2010, and before October 1, 2011, subject to additional amounts
as provided by Subdivision (3) of this subsection. The city shall
contribute amounts equal to 20 percent of the basic hourly earnings
of each member employed by the city for all periods after September
30, 2011, and before October 1, 2012, subject to additional amounts
as provided by Subdivision (3) of this subsection. The city shall
contribute amounts equal to] 21 percent of the basic hourly
earnings of each member employed by the city for all pay periods
beginning after September 30, 2012, and before January 1, 2022,
subject to additional amounts as provided by Section 8.07 of this
Act [Subdivision (3) of this subsection]. For all pay periods
beginning on or after January 1, 2022, the city shall make
contributions to the police retirement system in accordance with
Subsections (b) and (c) of this section and Sections 8.03, 8.04,
8.05, and 8.06 of this Act, as applicable, and subject to additional
amounts as provided by Section 8.07 of this Act. The city council
may also authorize the city to make additional contributions to the
police retirement system in whatever amount the city council may
determine. Contributions by the city shall be made each pay period.
(b) For each pay period that begins on or after January 1,
2022, and before January 1, 2023, the city shall contribute an
amount equal to the sum of:
(1) the city contribution rate, as determined in the
initial risk sharing valuation study conducted under Section 8.03
of this Act, multiplied by the pensionable payroll for the
applicable pay period; and
(2) 1/26 of the city legacy contribution amount for
the 2022 calendar year, as determined and adjusted in the initial
risk sharing valuation study conducted under Section 8.03 of this
Act.
(c) For each pay period that begins on or after January 1,
2023, the city shall contribute an amount equal to the sum of:
(1) the city contribution rate for the applicable
calendar year, as determined in a subsequent risk sharing valuation
study conducted under Section 8.04 of this Act and adjusted under
Section 8.05 or 8.06 of this Act, as applicable, multiplied by the
pensionable payroll for the applicable pay period; and
(2) 1/26 of the city legacy contribution amount for
the applicable calendar year, as determined and adjusted in the
initial risk sharing valuation study conducted under Section 8.03
of this Act.
Sec. 8.03. INITIAL RISK SHARING VALUATION STUDY. (a) The
police retirement system shall cause the system's actuary to
prepare an initial risk sharing valuation study that is dated as of
December 31, 2020, in accordance with this section.
(b) The initial risk sharing valuation study must:
(1) except as otherwise provided by this section, be
prepared in accordance with the requirements of Section 8.04 of
this Act;
(2) be based on the actuarial assumptions that were
used by the system's actuary in the valuation completed for the year
ended December 31, 2020;
(3) project the corridor midpoint for the next 30
calendar years beginning with the calendar year that begins on
January 1, 2022; and
(4) include a schedule of city legacy contribution
amounts for 30 calendar years beginning with the calendar year that
begins on January 1, 2022.
(c) For purposes of Subsection (b)(4) of this section, the
schedule of city legacy contribution amounts must be determined in
such a manner that the total annual city legacy contribution amount
for the first three calendar years will result in a phase-in of the
anticipated increase in the city's contribution rate from the
calendar year that begins on January 1, 2021, in accordance with
Subsection (a) of this section, to the rate equal to the sum of the
estimated contribution rate for the calendar year that begins on
January 1, 2022, and the rate of pensionable payroll equal to the
city legacy contribution amount for January 1, 2022, determined as
if there was no phase-in of the increase to the city legacy
contribution amount. The phase-in must reflect approximately
one-third of the increase each year over the three-year phase-in
period. The city's contribution under Section 8.02 of this Act for:
(1) the calendar years that begin on January 1, 2022,
January 1, 2023, and January 1, 2024, must be adjusted to reflect
the impact of the phase-in prescribed by this section; and
(2) each calendar year that begins on January 1, 2025,
through January 1, 2051, must reflect a city legacy contribution
amount that is three percent greater than the city legacy
contribution amount for the preceding calendar year.
(d) The estimated city contribution rate for the calendar
year that begins on January 1, 2022, must be based on the projected
pensionable payroll, as determined under the initial risk sharing
valuation study required by this section, assuming a payroll growth
rate of three percent.
Sec. 8.04. SUBSEQUENT RISK SHARING VALUATION STUDIES. (a)
For each calendar year beginning after December 31, 2020, the
police retirement system shall cause the system's actuary to
prepare a risk sharing valuation study in accordance with this
section and actuarial standards of practice.
(b) Each risk sharing valuation study must:
(1) be dated as of the last day of the calendar year
for which the study is required to be prepared;
(2) calculate the unfunded actuarial accrued
liability of the system as of the last day of the applicable
calendar year, including the liability layer, if any, associated
with the most recently completed calendar year;
(3) calculate the estimated city contribution rate for
the following calendar year;
(4) determine the city contribution rate and the
member contribution rate for the following calendar year, taking
into account any adjustments required under Section 8.05, 8.06, or
8.065 of this Act, as applicable; and
(5) except as provided by Subsection (d) of this
section, be based on the assumptions and methods adopted by the
board in accordance with Section 3.091 of this Act, if applicable,
and that are consistent with actuarial standards of practice and
the following principles:
(A) closed layered amortization of liability
layers to ensure that the amortization period for each liability
layer begins 12 months after the date of the risk sharing valuation
study in which the liability layer is first recognized;
(B) each liability layer is assigned an
amortization period;
(C) each liability loss layer will be amortized
over a period of 30 years from the first day of the calendar year
beginning 12 months after the date of the risk sharing valuation
study in which the liability loss layer is first recognized, except
that the legacy liability must be amortized over a 30-year period
beginning January 1, 2022;
(D) each liability gain layer will be amortized
over:
(i) a period equal to the remaining
amortization period on the largest remaining liability loss layer,
and the two layers must be treated as one layer such that if the
payoff year of the liability loss layer is accelerated or extended,
the payoff year of the liability gain layer is also accelerated or
extended; or
(ii) if there is no liability loss layer, a
period of 30 years from the first day of the calendar year beginning
12 months after the date of the risk sharing valuation study in
which the liability gain layer is first recognized;
(E) liability layers will be funded according to
the level percent of payroll method;
(F) payroll for purposes of determining the
corridor midpoint, city contribution rate, and city legacy
contribution amount must be projected using the annual payroll
growth rate assumption adopted by the board; and
(G) the city contribution rate will be calculated
each calendar year without inclusion of the legacy liability.
(c) The city and the board may agree on a written transition
plan for resetting the corridor midpoint:
(1) if at any time the funded ratio of the system is
equal to or greater than 100 percent; or
(2) for any calendar year after the payoff year of the
legacy liability.
(d) Subject to Section 3.091 of this Act, the board may by
rule adopt actuarial principles other than those required under
Subsection (b)(5) of this section, provided the actuarial
principles:
(1) are consistent with actuarial standards of
practice;
(2) are approved by the system's actuary; and
(3) do not operate to change the city legacy
contribution amount.
Sec. 8.05. ADJUSTMENT TO CITY CONTRIBUTION RATE IF LOWER
THAN CORRIDOR MIDPOINT. (a) This section governs the
determination of the city contribution rate applicable in a
calendar year under Section 8.04(b)(4) of this Act if the estimated
city contribution rate determined under Section 8.04(b)(3) of this
Act is lower than the corridor midpoint.
(b) If the estimated city contribution rate is lower than
the corridor midpoint and the funded ratio is:
(1) less than 90 percent, the city contribution rate
for the applicable year equals the corridor midpoint; or
(2) equal to or greater than 90 percent and the city
contribution rate is:
(A) equal to or greater than the minimum city
contribution rate, the estimated city contribution rate is the city
contribution rate for the calendar year; or
(B) less than the minimum city contribution rate
for the corresponding calendar year, the city contribution rate for
the calendar year equals the minimum city contribution rate.
(c) If the funded ratio is equal to or greater than 100
percent:
(1) all existing liability layers, including the
legacy liability, are considered fully amortized and paid; and
(2) the city legacy contribution amount may no longer
be included in the city contribution under Section 8.02 of this Act.
Sec. 8.06. ADJUSTMENT TO CITY CONTRIBUTION RATE IF EQUAL TO
OR GREATER THAN CORRIDOR MIDPOINT. (a) This section governs the
determination of the city contribution rate applicable in a
calendar year under Section 8.04(b)(4) of this Act if the estimated
city contribution rate determined under Section 8.04(b)(3) of this
Act is equal to or greater than the corridor midpoint.
(b) If the estimated city contribution rate is equal to or
greater than the corridor midpoint and:
(1) less than or equal to the maximum city
contribution rate for the corresponding calendar year, the
estimated city contribution rate is the city contribution rate; or
(2) greater than the maximum city contribution rate
for the corresponding calendar year, the city contribution rate is
the maximum city contribution rate.
Sec. 8.065. INCREASED MEMBER CONTRIBUTION RATE IF ESTIMATED
CITY CONTRIBUTION RATE GREATER THAN MAXIMUM CITY CONTRIBUTION RATE.
(a) This section governs the determination of the member
contribution rate applicable in a calendar year under Section
8.04(b)(4) of this Act if the estimated city contribution rate
determined under Section 8.04(b)(3) of this Act is greater than the
maximum city contribution rate.
(b) Except as provided by Subsection (c) of this section, if
the estimated city contribution rate is greater than the corridor
maximum, the member contribution rate will increase by an amount
equal to the difference between the following:
(1) the estimated city contribution rate; and
(2) the maximum city contribution rate.
(c) The member contribution rate may not be increased by
more than two percentage points under this section.
(d) If the estimated city contribution rate is more than two
percent of pensionable payroll greater than the maximum city
contribution rate, the city and the board shall enter into
discussions to determine additional funding solutions.
Sec. 8.07. ADDITIONAL CITY CONTRIBUTIONS FOR PROPORTIONATE
RETIREMENT PROGRAM PARTICIPATION. (a) [(3)] The city shall
contribute amounts in addition to the amounts described by Section
8.02 of this Act [Subdivision (2) of this subsection] as required by
Section 803.101(h), Government Code, to fund the additional
liabilities incurred by the police retirement system as a result of
participating in the proportionate retirement program. The rate at
which the city shall contribute additional amounts under this
section [subdivision] is equal to 0.737 [0.25] percent of the basic
hourly earnings of each member employed by the city for all pay
periods commencing on or after October 1, 2020, subject to
adjustment under Subsection (b) of this section [from January 4,
2009, through September 30, 2009. The rate at which the city shall
contribute additional amounts under this subdivision is equal to
0.63 percent of the basic hourly earnings of each member employed by
the city for all periods after September 30, 2009, subject to
adjustment under Subdivision (4) of this subsection].
(b) [(4)] The additional contribution rate under Subsection
(a) of this section [Subdivision (3) of this subsection] shall
increase or decrease as considered necessary by the actuary for the
police retirement system after each five-year period of
participation by the system in the proportionate retirement program
in order to update the amount necessary to fund the additional
liabilities incurred by the system as a result of participating in
the proportionate retirement program and of the consolidation of
the city's public safety and emergency management department with
the police department on January 4, 2009. The system's actuary
shall perform an experience study that shall be the basis for a
contribution rate adjustment under this subsection [subdivision].
The effective date of the initial contribution rate adjustment
under this subsection [subdivision] is October 1, 2015. Each later
contribution rate adjustment under this subsection [subdivision]
takes effect October 1 of every fifth year after the effective date
of the initial contribution rate adjustment. The system's actuary
shall present to the police retirement board the experience study
on which any contribution rate adjustment under this subsection
[subdivision] is based not later than 45 days before the effective
date of the adjustment, and the city's actuary shall have the
opportunity to review and comment on the study. An adjustment in
the additional contribution rate under this subsection
[subdivision] may not cause the additional contribution rate under
Subsection (a) of this section [Subdivision (3) of this subsection]
to be less than zero.
Sec. 8.08. PUBLICATION OF CHANGES TO CONTRIBUTION RATES.
[(b)] Any change of the rates of deposit and the rates of
contribution shall be published when approved by the board.
Sec. 8.09. EXPENSES. (a) [(c) Contributions by the city
shall be paid to the system after appropriation by the city council.
[(d)] Expenses involved in administration and operation of
the police retirement system shall be paid from the assets of the
police retirement system subject to approval by the board. Such
expenses shall include actuarial valuations of the system no less
frequently than on a biennial basis, annual audits and/or actuarial
studies, preparation of annual reports, and staff assistance.
Additional consulting may be authorized by the board and paid for
from the assets of the police retirement system as deemed necessary
from time to time by the board.
(b) [(e)] Expenses incurred from investment advice,
counsel, and management shall be paid from the assets of the police
retirement system.
Sec. 8.10. PAYMENT OF CONTRIBUTIONS. (a) Contributions by
the city shall be paid to the system after appropriation by the city
council.
(b) [(f)] The city shall make the police officer
contributions to the system required by Section 8.02 of this Act
[Subsection (a) of this section].
(c) The system shall make the administrative staff's
contributions to the system.
(d) Member contributions will be made by a reduction in
their monetary compensation. Contributions made shall be treated
as employer contributions in accordance with Section 414(h)(2),
Internal Revenue Code (26 U.S.C. Section 414(h)(2)), for the
purpose of determining tax treatment of the amounts under the
federal Internal Revenue Code. These contributions are not
includible in the gross income of the member until such time as they
are distributed or made available to the member.
(e) Member contributions made as provided by Subsection (d)
of this section [subsection] shall be deposited to the individual
account of each affected member and shall be treated as
compensation of members for all other purposes of this Act and for
the purpose of determining contributions to the federal Old-Age,
Survivors, and Disability Insurance System (Social Security). The
provisions of this subsection shall remain in effect as long as the
plan covering members is a qualified retirement plan under Section
401(a), Internal Revenue Code (26 U.S.C. Section 401(a)), and its
related trust is tax exempt under Section 501(a), Internal Revenue
Code (26 U.S.C. Section 501(a)).
Sec. 8.11. EFFECT OF SYSTEM TERMINATION ON CONTRIBUTIONS.
[(g)] If the police retirement system is terminated, further
contributions may not be made by the city or the system, and further
deposits may not be made by the members for service after the date
of termination. Members do not accrue any additional benefits
after the date of termination. The benefit accrued by each member
on the termination of the plan or the complete discontinuance of
contributions under the plan and the benefit of any affected member
on the partial termination of the plan, to the extent funded, become
nonforfeitable notwithstanding the length of a member's service.
The benefit accrued by a member also becomes nonforfeitable, if not
already nonforfeitable, at the normal retirement date.
Sec. 8.12. EFFECT OF FORFEITURE. [(h)] A forfeiture from a
member terminating employment and withdrawing the member's
accumulated deposits may not be applied to increase the benefit
that any other member would receive from the system. The actuary
shall anticipate the effect of forfeitures in determining the costs
under the system.
Sec. 8.13. SYSTEM ASSETS. [(i)] The assets of the police
retirement system shall be held in trust for the exclusive benefit
of the members and their beneficiaries. The corpus or income may
not be used for or diverted to a purpose other than the exclusive
benefit of members or their beneficiaries, whether by operation or
natural termination of the system, by power of revocation or
amendment, by the happening of a contingency, by collateral
arrangement, or by other means.
SECTION 15. Section 13.02, Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), is amended to read as follows:
Sec. 13.02. MANDATORY DISTRIBUTIONS PROHIBITED. A member
or former member who has separated from service may not be required
to receive an eligible rollover distribution, as defined in Section
13.01(b)(1) of this Act, without the member's consent unless the
member or former member has attained the applicable age for minimum
distributions required under Section 401(a)(9) of the Internal
Revenue Code of 1986 (26 U.S.C. Section 401(a)(9)) [is at least
70-1/2 years of age].
SECTION 16. The following provisions of Chapter 452 (S.B.
738), Acts of the 72nd Legislature, Regular Session, 1991 (Article
6243n-1, Vernon's Texas Civil Statutes), are repealed:
(1) Section 5.04(b);
(2) Sections 6.01(c), (d), and (e);
(3) Section 6.02(b); and
(4) Section 7.02(b).
SECTION 17. (a) In this section, "police retirement board"
has the meaning assigned by Section 1.02, Chapter 452 (S.B. 738),
Acts of the 72nd Legislature, Regular Session, 1991 (Article
6243n-1, Vernon's Texas Civil Statutes).
(b) Section 3.02, Chapter 452 (S.B. 738), Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), does not affect the term of a member of the
police retirement board appointed or elected under that section, as
that section existed immediately before the effective date of this
Act, and serving on the board on the effective date of this Act.
(c) When the terms of:
(1) the two members of the police retirement board
elected under Section 3.02(a)(4), Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), as that section existed immediately
before the effective date of this Act, who have terms that expire in
December 2021, expire:
(A) one of the resulting vacancies on the board
shall be filled by appointment by the city council in accordance
with Section 3.02(a)(6), Chapter 452 (S.B. 738), Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), as amended by this Act; and
(B) the other resulting vacancy shall be filled
by election of the members in accordance with Sections 3.02(a)(4)
and 3.03, Chapter 452 (S.B. 738), Acts of the 72nd Legislature,
Regular Session, 1991 (Article 6243n-1, Vernon's Texas Civil
Statutes), as applicable; and
(2) the three members of the police retirement board
elected under Section 3.02(a)(4), Chapter 452 (S.B. 738), Acts of
the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,
Vernon's Texas Civil Statutes), as that section existed immediately
before the effective date of this Act, who have terms that expire in
December 2023, expire, the resulting vacancies on the board shall
be filled by an election of the members in accordance with that
section and Section 3.03, Chapter 452 (S.B. 738), Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's
Texas Civil Statutes), as applicable, except that the member
receiving the third highest number of votes in that election shall
serve for a term of only two years with the member's term expiring
in December 2025.
SECTION 18. This Act takes effect September 1, 2021.
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