88R12600 KFF-F
By: Bucy H.B. No. 4000
A BILL TO BE ENTITLED
AN ACT
relating to the public retirement systems for employees of certain
municipalities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2, Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes), is amended by adding Subdivisions (2A), (3A),
(5A), (5B), (10A), (10B), (13A), (13B), (13C), (19A), (19B), (19C),
(20A), (26A), (26B), (26C), (26D), (26E), (29A), (31A), (31B),
(33A), (33B), (35A), (44A), and (44B) to read as follows:
(2A) "Actuarial accrued liability" means the portion
of the actuarial present value of projected benefits of the
retirement system attributed to past periods of member service
based on the cost method used in the risk sharing valuation study
under Section 10B or 10C of this Act, as applicable.
(3A) "Actuarial value of assets" means the value of
the retirement system's assets as calculated using the asset
smoothing method used in the risk sharing valuation study under
Section 10B or 10C of this Act, as applicable.
(5A) "Amortization period" means:
(A) the period necessary to fully pay a liability
layer; or
(B) if referring to the amortization period of
the 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.
(5B) "Amortization rate" means, for a given calendar
year, the percentage rate determined by:
(A) adding the scheduled amortization payments
required to pay off the then-existing liability layers;
(B) subtracting the city legacy contribution
amount for the same calendar year, as determined in the risk sharing
valuation study under Section 10B or 10C of this Act, as applicable,
from the sum under Paragraph (A); and
(C) dividing the difference under Paragraph (B)
by the projected pensionable payroll for the same calendar year.
(10A) "City" means a municipality described in Section
1 of this Act.
(10B) "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, 2022, that is
included in the initial risk sharing valuation study under Section
10B of this Act.
(13A) "Corridor" means the range of employer
contribution rates that are:
(A) equal to or greater than the minimum employer
contribution rate; and
(B) equal to or less than the maximum employer
contribution rate.
(13B) "Corridor margin" means five percentage points.
(13C) "Corridor midpoint" means the projected
employer contribution rate specified for each calendar year for 30
years as provided by the initial risk sharing valuation study under
Section 10B of this Act, rounded to the nearest hundredths decimal
place.
(19A) "Employer 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 10D or 10E of this Act, as applicable.
(19B) "Employer normal cost rate" means, for a given
calendar year, the normal cost rate minus the applicable member
contribution rate determined under Section 10 of this Act.
(19C) "Estimated employer contribution rate" means,
for a given calendar year, an employer contribution rate equal to
the sum of the employer normal cost rate and the amortization rate
of the liability layers, as applicable, excluding the legacy
liability layer, and before any adjustments under Section 10D or
10E of this Act.
(20A) "Funded ratio" means the ratio of the actuarial
value of assets divided by the actuarial accrued liability.
(26A) "Legacy liability" means the unfunded actuarial
accrued liability determined as of December 31, 2022, 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 retirement system for the calendar year;
(26B) "Level percent of payroll method" means the
amortization method that defines the amount of a liability layer
recognized each calendar year as a level percent of pensionable
payroll until the amount of the liability layer remaining is
reduced to zero.
(26C) "Liability gain layer" means a liability layer
that decreases the unfunded actuarial accrued liability.
(26D) "Liability layer" means:
(A) the legacy liability established in the
initial risk sharing valuation study under Section 10B or 10C of
this Act, as applicable; or
(B) for calendar years after December 31, 2022,
the amount that the 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 under Section 10C of this
Act.
(26E) "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.
(29A) "Maximum employer contribution rate" means, for
a given calendar year, the rate equal to the corridor midpoint plus
the corridor margin.
(31A) "Minimum employer contribution rate" means, for
a given calendar year, the rate equal to the corridor midpoint minus
the corridor margin.
(31B) "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.
(33A) "Payoff year" means the year a liability layer
is fully amortized under the amortization period.
(33B) "Pensionable payroll" means the aggregate basic
hourly earnings of all active-contributory members for a calendar
year or pay period, as applicable.
(35A) "Projected pensionable payroll" means the
estimated pensionable payroll for the calendar year beginning 12
months after the date of any risk sharing valuation study under
Section 10B or 10C of this Act, as applicable, at the time of
calculation by:
(A) projecting the prior calendar year's
pensionable payroll forward two years using the current payroll
growth rate assumption adopted by the 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
retirement board.
(44A) "Unanticipated change" means, with respect to
the unfunded actuarial accrued liability in each subsequent risk
sharing valuation study under Section 10B or 10C of this Act, as
applicable, the difference between:
(A) the remaining balance of all then-existing
liability layers as of the date of the risk sharing valuation study
that were created before the date of the study; and
(B) the actual unfunded actuarial accrued
liability as of the date of the study.
(44B) "Unfunded actuarial accrued liability" means
the difference between the actuarial accrued liability and the
actuarial value of assets.
SECTION 2. Section 3, Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes), is amended to read as follows:
Sec. 3. ESTABLISHMENT AND APPLICABILITY. Subject to the
authority granted under [the retirement board in Section 7(d) of]
this Act:
(1) members who retired, and the beneficiaries of
members who died, prior to October 1, 2011, shall continue to
receive the same retirement allowances or benefits they were
entitled to receive prior to that date, together with any benefit
increase authorized under this Act;
(2) members of the retirement system on or before
December 31, 2011, shall be enrolled as members of Group A; and
(3) persons that first become members of the
retirement system on or after January 1, 2012, shall be enrolled in
Group B.
SECTION 3. Section 4(b), Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes), is amended to read as follows:
(b) The retirement board consists of 11 members as follows:
(1) place one: one member of the governing body,
designated by the governing body;
(2) place two: the city manager of the municipality or
the manager's designee;
(3) places three through five: three qualified voters
of the city who:
(A) have been city residents for the preceding
five years;
(B) have experience in the field of securities
investment, pension administration, pension law, or governmental
finance; and
(C) [who] are not employees, former employees, or
officers of an employer;
(4) place [places] six: the director of finance of the
municipality or the director's designee;
(5) places seven through nine: three [four]
active-contributory members elected by the active-contributory
members; and
(6) [(5)] places ten and eleven: two retired members
elected by the retired members.
SECTION 4. Section 4(c)(3), Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes), is amended to read as follows:
(3) The places seven [six] through nine retirement
board members each serve on the retirement board for a four-year
term, unless service is earlier terminated by the death,
resignation, termination of employment, disability, retirement, or
removal of the retirement board member. The retirement board shall
appoint an active-contributory member to fill a vacancy in each of
places seven [six] through nine for the remainder of the unexpired
term if the remainder of the unexpired term is 364 days or fewer. If
the remainder of the unexpired term is 365 days or more, the vacancy
shall be filled by the active-contributory members voting at a
special election.
SECTION 5. Sections 4(d), (e), (f), (k), (t), and (w),
Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
(Article 6243n, Vernon's Texas Civil Statutes), are amended to read
as follows:
(d) Members for places seven [six] through eleven shall be
elected in accordance with Subsections (e)-(m) of this section.
(e) Only active-contributory members shall be eligible for
election for places seven [six] through nine. Only retired members
shall be eligible for election for places ten and eleven. Not more
than one active-contributory member shall be eligible for election
from any one department or office or similar organizational unit
that is established in the annual budget of an employer and is not
part of any department.
(f) Members for places seven [six] through nine shall be
elected to four-year [staggered] terms with the place seven term
beginning January 1, 2024, and the terms of places eight and nine
[two of such retirement board members] beginning January 1 of the
following [each] even-numbered year.
(k) Elections for places seven [six] through nine shall be
held in December of odd-numbered years. Elections for places 10 and
11 shall be held in December of every second even-numbered year.
The candidates receiving the highest number of eligible votes shall
be deemed elected. In case of a tie vote, selection shall be by lot
drawn by an existing member of the retirement board at a meeting of
the retirement board held after the election but before the first
day of January of the year after the election.
(t) The retirement board shall have charge of and administer
the fund as trustee of the fund and [,] shall order payments from
the fund in accordance with this Act[, and may increase, under
Section 10(g) of this Act, the benefits and allowances the board
pays from the fund]. If practicable, the retirement board shall
collect underpayments and refund overpayments. The retirement
board shall report annually to the members on the condition of the
fund and the receipts and disbursements on account of the fund.
(w) At least once every five years [From time to time on the
advice of the actuary and the direction of the retirement board],
the actuary shall make an actuarial investigation of the mortality,
service, and compensation experience of members, retired members,
surviving spouses, and beneficiaries of the retirement system and
shall make a valuation of the assets and liabilities of the funds of
the system. Taking into account the result of such investigation
and valuation, the retirement board shall adopt for the retirement
system such mortality, service, and other actuarial tables or rates
as are deemed necessary. On the basis of tables and rates adopted
by the retirement board, the actuary shall make a valuation at least
once every two years of the assets and liabilities of the funds of
the retirement system.
SECTION 6. Chapter 451, Acts of the 72nd Legislature,
Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
Statutes), is amended by adding Section 4A to read as follows:
Sec. 4A. EXPERIENCE STUDY AND DETERMINING ACTUARIAL
ASSUMPTIONS. (a) At least once every five years, the retirement
board shall cause the retirement system's actuary to conduct an
experience study to review the actuarial assumptions and methods
adopted by the retirement 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 retirement system's experience
study, the city may:
(1) conduct a separate experience study using an
actuary chosen by the city;
(2) have the city's actuary review the experience
study prepared by the system's actuary; or
(3) accept the experience study prepared by the
system's actuary.
(c) If the city conducts a separate experience study using
the city's actuary, the city shall complete the study not later than
the 91st day after the date the retirement system notified the city
of the system's intent to conduct an experience study.
(d) If the city elects to have the city's actuary review the
retirement system's experience study, the city shall complete the
review not later than the 31st day after the date the preliminary
results of the experience study are presented to the retirement
board.
(e) If the city chooses to have the city's own experience
study performed or to have the city's actuary review the system's
experience study, the system's actuary and the city's actuary shall
determine what the hypothetical employer contribution rate would be
using the proposed actuarial assumptions from the experience
studies and data from the most recent actuarial valuation.
(f) If the difference between the hypothetical employer
contribution rates determined by the retirement system's actuary
and the city's actuary:
(1) is less than or equal to two percent of pensionable
payroll, no further action is needed and the retirement board shall
use the experience study performed by the retirement system's
actuary in determining assumptions; or
(2) is greater than two percent of pensionable
payroll, the system's actuary and the city's actuary shall have 20
days to reconcile the difference in actuarial assumptions or
methods causing the different hypothetical employer contribution
rates, and if:
(A) as a result of the reconciliation efforts
under this subdivision, the difference between the employer
contribution rates determined by the system's actuary and the
city's actuary is reduced to less than or equal to two percentage
points, no further action is needed and the retirement board shall
use the experience study performed by the system's actuary in
determining actuarial assumptions; or
(B) after the 20th business day, the system's
actuary and the city's actuary are not able to reach a
reconciliation that reduces the difference in the hypothetical
employer 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.
(g) The independent third-party actuary retained under this
section must be chosen by the city from a list of three actuarial
firms provided by the retirement system.
(h) If a third-party actuary is retained under this section,
the third-party actuary's findings must be presented to the
retirement board with the experience study conducted by the
system's actuary and, if applicable, the city's actuary. If the
retirement 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 retirement board's action to the
governing body and State Pension Review Board; and
(2) the system's actuary and executive director shall
be made available at the request of the governing body or the State
Pension Review Board to present in person the rationale for the
retirement board's action.
(i) If the retirement board proposes a change to actuarial
assumptions or methods that is not in connection with an experience
study described by this section, the retirement 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 7. Effective January 1, 2024, Section 5(e), Chapter
451, Acts of the 72nd Legislature, Regular Session, 1991 (Article
6243n, Vernon's Texas Civil Statutes), is amended to read as
follows:
(e) Any person who has ceased to be a member and has received
a distribution of the person's accumulated deposits may have the
person's membership service in the original group in which the
membership service was earned reinstated if the person is
reemployed as a regular full-time employee and deposits into the
system the accumulated deposits withdrawn by that person, together
with an interest payment equal to the amount withdrawn multiplied
by an interest factor. The interest factor is equal to the annually
compounded interest rate assumed to have been earned by the fund
beginning with the month and year in which the person withdrew the
person's accumulated deposits and ending with the month and year in
which the deposit under this subsection is made. The interest rate
assumed to have been earned by the fund for any period is equal to
the actuarial assumed [interest] rate of return in effect on the
date of purchase [credited for that period to the accumulated
deposits of members, divided by 0.75].
SECTION 8. Section 6(b), Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes), is amended to read as follows:
(b) The retirement board shall determine by
nondiscriminatory rules and regulations consistently applied,
subject to the provisions of this Act, in case of absence, illness,
or other temporary interruption in service as a regular full-time
employee, the portion of each calendar year to be allowed as
creditable service. No credit shall be allowed as creditable
service for any period exceeding one month during which an employee
was absent continuously without pay, except for an authorized leave
of absence as provided in this Act. Subject [The retirement board
shall verify the records for creditable service claims filed by the
members of the retirement system, subject] to the provisions of
this Act and in accordance with such administrative rules and
regulations as the retirement board may from time to time adopt, the
retirement board shall:
(1) verify the records for creditable service claims
filed by the members of the retirement system; and
(2) establish time frames during which a member must
act to ensure that the purchase of creditable service or the
conversion of sick leave to creditable service coincides with the
member's retirement.
SECTION 9. Effective January 1, 2024, Section 6(c)(3),
Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
(Article 6243n, Vernon's Texas Civil Statutes), is amended to read
as follows:
(3) A member may establish uniformed creditable
service for active federal duty service in the armed forces of the
United States, other than service as a student at a service academy,
as a member of the reserves, or any continuous active military
service lasting less than 90 days, performed before the first day of
employment of the member's most recent membership in the retirement
system or its predecessor system. To establish creditable service
under this subdivision, the member must contribute at retirement a
lump-sum payment equal to [25 percent of] the full actuarial cost of
the additional creditable service, as determined by the retirement
board acting on the advice of the actuary [estimated cost of the
retirement benefits the member will be entitled to receive]. The
retirement board will determine the required contribution based on
a procedure recommended by the actuary and approved by the
retirement board.
SECTION 10. Effective January 1, 2024, Sections 6(e),
(e-1), and (e-2), Chapter 451, Acts of the 72nd Legislature,
Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
Statutes), are amended to read as follows:
(e) At [any time before a member's actual] retirement
[date], the member may purchase noncontributory creditable service
equal in amount to the period the member:
(1) was on verifiable workers' compensation leave due
to an injury sustained in the course and scope of employment by an
employer;
(2) was on an authorized leave of absence from an
employer; or
(3) performed service for an employer in a position
the service for which is not otherwise creditable in the retirement
system.
(e-1) An active contributory member that is eligible for
retirement may file a written application to convert to creditable
service at retirement all or part of the member's sick leave accrued
with the employer that is eligible for conversion. The application
must be approved by the retirement board. The member may not
convert sick leave for which the member is entitled to be paid by
the employer. Sick leave hours may be converted in pay period
increments for the purpose of increasing creditable service that is
used in the calculation of benefits. Sick leave hours may not be
used to reach retirement eligibility. The [Both the employer and
the] member must make the equivalent amount of retirement
contributions that would have been made had the sick hours been
exercised and used as sick leave hours. The employer's cost for
sick leave conversions must be funded through the contribution
rates.
(e-2) Nonqualified permissive creditable service may be
purchased only as provided by this subsection. At retirement, a [A]
member may purchase nonqualified permissive creditable service:
(1) only to the extent permitted under both this
subsection and Section 415(n) of the code;
(2) in an amount that:
(A) for each purchase, is not less than one
month; and
(B) when all amounts purchased under this
subsection are combined, is not more than 60 months; and
(3) only if the member has reinstated all prior
membership service in:
(A) Groups A and B if the member was initially
enrolled as a member of Group A, but ceased to be a member of Group
A, by:
(i) first reinstating all prior membership
service in Group A;
(ii) next reinstating all prior membership
service in Group B; and
(iii) then purchasing the nonqualified
permissive creditable service; or
(B) Group B, if the member was initially enrolled
as a member of Group B, by:
(i) first reinstating all prior membership
service in Group B; and
(ii) then purchasing the nonqualified
permissive creditable service.
SECTION 11. Sections 7(h) and (hh), Chapter 451, Acts of the
72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's
Texas Civil Statutes), are amended to read as follows:
(h) Before a cost of living [Prior to the retirement board's
authorizing the payment of an] adjustment or additional payment to
retirees, beneficiaries, or other payees may be provided:
(1) [,] the retirement system's actuary must
[recommend such an adjustment or additional payment to the
retirement board and] certify in writing that, based on the sound
application of actuarial assumptions and methods consistent with
sound actuarial principles and standards, it is demonstrable that
the fund has and likely will continue to have the ability to pay
such an amount [out of its realized income] after all other
obligations of the fund have been paid;
(2) the retirement board must approve the adjustment
or additional payment;
(3) the governing body must approve the adjustment or
additional payment; and
(4) this Act must be amended to provide for the
adjustment or additional payment.
(hh) Forfeitures that may result from the termination of any
right of a member may not be used to increase benefits to remaining
members. This subsection shall not preclude an increase in
benefits by amendment to this Act, including by amendment [or
action of the retirement board] in accordance with Subsection (h)
[(d)] of this section, if applicable, that is made possible by
forfeitures or for any other reason.
SECTION 12. Chapter 451, Acts of the 72nd Legislature,
Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
Statutes), is amended by amending Section 10 and adding Sections
10A through 10G to read as follows:
Sec. 10. MEMBER CONTRIBUTIONS [METHOD OF FINANCING].
(a) Subject to adjustment under this Act and except as provided by
Subsection (a-2) of this section, each [Each] active-contributory
member shall make deposits to the retirement system at a rate equal
to:
(1) beginning with the first pay period of:
(A) the 2024 calendar year, nine [eight] percent
of the member's base [compensation,] pay, [or salary,] exclusive of
overtime, incentive, or terminal pay; and
(B) the 2025 calendar year, 10 percent of the
member's base pay exclusive of overtime, incentive, or terminal
pay; or
(2) the member contribution rate otherwise prescribed
by this section [at a higher contribution rate approved by a
majority vote of regular full-time employee members].
(a-1) Deposits shall be made by payroll deduction each pay
period. If a regular full-time employee works at least 75 percent
of a normal 40-hour work week but less than the full 40 hours, the
employee shall make deposits as though working a normal 40-hour
work week even though the rate of contribution may exceed the member
contribution prescribed by this section [eight percent of the
employee's actual compensation, pay, or salary], and the employee's
average final compensation shall be computed on the basis of the
compensation, pay, or salary for a normal 40-hour work week. No
deposits may be made nor membership service credit received for
periods during which an employee's authorized normal work week is
less than 75 percent of a normal 40-hour work week. A person who is
eligible for inactive-contributory membership status and who
chooses to be an inactive-contributory member shall make deposits
to the retirement system each pay period in an amount that is equal
to the amount of the member's deposit for the last complete pay
period that the member was a regular full-time employee.
(a-2) The contribution rate of active-contributory [regular
full-time employee] members may be increased [increase,] by a
majority vote of all such members voting at an election to consider
an increase in contributions to a rate[, each member's
contributions] above 10 [eight] percent or a [above the] higher
rate than the rate that was in effect at the time of the election
[and approved by majority vote in whatever amount the retirement
board recommends].
Sec. 10A. EMPLOYER CONTRIBUTIONS. (a) Beginning with the
first pay period of:
(1) calendar year 2024, and before the first pay
period of calendar year 2025, the [Each] employer shall contribute
an amount [amounts] equal to the sum of:
(A) the employer contribution rate, as
determined in the initial risk sharing valuation study as of
December 31, 2022, multiplied by the pensionable payroll for the
applicable pay period; and
(B) 1/26 of the city's legacy contribution amount
for the 2024 calendar year, as determined and adjusted in the
initial risk sharing valuation study conducted under Section 10B of
this Act; and
(2) calendar year 2025, and for each subsequent
calendar year, the employer shall contribute an amount equal to the
sum of:
(A) the employer's contribution rate for the
applicable calendar year, as determined in a subsequent risk
sharing valuation study conducted and adjusted under Section 10C of
this Act, as applicable, multiplied by the pensionable payroll for
the applicable pay period; and
(B) 1/26 of the city's legacy contribution amount
for the applicable calendar year, as determined and adjusted in the
initial risk sharing valuation study conducted under Section 10B of
this Act [eight percent of the compensation, pay, or salary of each
active-contributory member and each inactive-contributory member
employed by the employer, exclusive of overtime, incentive, or
terminal pay, or a higher contribution rate agreed by the
employer].
(b) If the employer elects to change the employer's payroll
period to a period other than a biweekly payroll period, the
fractional amounts of the employer's legacy contribution stated in
Subsections (a)(1)(B) and (a)(2)(B) of this section must be
adjusted such that the employer's calendar year contribution equals
the contribution required under Subsection (a)(1) or (a)(2), as
applicable.
Sec. 10B. INITIAL RISK SHARING VALUATION STUDY. (a) The
retirement system's actuary shall prepare an initial risk sharing
valuation study as of December 31, 2022. The initial risk sharing
valuation study must:
(1) except as otherwise provided by this section, be
prepared in accordance with the requirements of Section 10C 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, 2022;
(3) project the corridor midpoint for the next 30
calendar years beginning with the calendar year that begins on
January 1, 2024;
(4) include a schedule of city legacy contribution
amounts for 30 calendar years beginning with the calendar year that
begins on January 1, 2024; and
(5) include an employer contribution:
(A) for the calendar years under Sections
10A(a)(1) and (2) of this Act that begin on January 1, 2024, and
January 1, 2025, that must be adjusted to reflect the impact of the
phase-in prescribed by Subsection (b) of this section; and
(B) for each calendar year under Section
10A(a)(2) of this Act that begins on January 1, 2026, through
January 1, 2053, that must reflect a city legacy contribution
amount that is three percent greater than the city legacy
contribution amount for the preceding calendar year.
(b) The schedule of city legacy contribution amounts under
Subsection (a)(4) of this section must be determined such that the
total annual city legacy contribution amount for the first two
calendar years results in a phase-in of the anticipated increase in
the employer's contribution rate from the calendar year that begins
on January 1, 2023, to the rate equal to the sum of the estimated
contribution rate for the calendar year that begins on January 1,
2024, and the rate of pensionable payroll equal to the city legacy
contribution amount for January 1, 2024, determined as if there was
no phase-in of the increase to the city legacy contribution amount.
The phase-in must reflect approximately one-half of the increase
each year over the two-year phase-in period.
(c) The estimated employer contribution rate for the
calendar year that begins on January 1, 2024, must be based on the
projected pensionable payroll, as determined under the initial risk
sharing valuation study required by this section, assuming a
payroll growth rate adopted by the retirement board.
Sec. 10C. SUBSEQUENT RISK SHARING VALUATION
STUDIES. (a) For each calendar year beginning with January 1, 2024,
the 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. 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 employer contribution
rate for the following calendar year;
(4) determine the employer contribution rate and the
member contribution rate for the following calendar year, taking
into account any adjustments required under this section, as
applicable; and
(5) except as provided by Subsection (d) of this
section, be based on the assumptions and methods adopted by the
retirement board, if applicable, and be consistent with actuarial
standards of practice and the following principles:
(A) closed layered amortization of liability
layers to ensure that the amortization period for each liability
layer begins 12 months after the date of the risk sharing valuation
study in which the liability layer is first recognized;
(B) each liability layer is assigned an
amortization period;
(C) each liability loss layer is amortized at the
remaining amortization period of the legacy liability but not less
than 20 years from the first day of the calendar year beginning 12
months after the date of the risk sharing valuation study in which
the liability loss layer is first recognized, except that the
legacy liability must be amortized over a 30-year period beginning
January 1, 2024;
(D) each liability gain layer is amortized over:
(i) a period equal to the remaining
amortization period on the largest remaining liability loss layer;
or
(ii) if there is no liability loss layer, a
period of 20 years from the first day of the calendar year beginning
12 months after the date of the risk sharing valuation study in
which the liability gain layer is first recognized;
(E) liability layers are funded according to the
level percent of payroll method;
(F) payroll for purposes of determining the
corridor midpoint, employer contribution rate, and city legacy
contribution amount must be projected using the annual payroll
growth rate assumption adopted by the retirement board; and
(G) the employer contribution rate is calculated
each calendar year without inclusion of the legacy liability.
(b) The city may contribute an amount in addition to the
scheduled city legacy contribution amounts to reduce the number or
amount of scheduled future city legacy contribution payments. If
the city contributes an additional amount under this subsection,
the retirement system's actuary shall create a new schedule of city
legacy contribution amounts that reflects payment of the additional
contribution.
(c) The city and the retirement board may agree on a written
transition plan for resetting the corridor midpoint, member
contribution rates, or employer contribution rates:
(1) if at any time the funded ratio of the retirement
system is equal to or greater than 100 percent; or
(2) for any calendar year after the payoff year of the
legacy liability.
(d) The retirement board may, by rule, adopt actuarial
principles other than those required under this section, provided
the actuarial principles:
(1) are consistent with actuarial standards of
practice;
(2) are approved by the retirement system's actuary;
and
(3) do not operate to change the city legacy
contribution amount.
Sec. 10D. ADJUSTMENT TO EMPLOYER CONTRIBUTION RATE IF
ESTIMATED EMPLOYER CONTRIBUTION RATE LOWER THAN CORRIDOR
MIDPOINT. (a) Subject to Subsection (b) of this section, for the
calendar year beginning January 1, 2024, and for each subsequent
calendar year, if the estimated employer contribution rate is lower
than the corridor midpoint, the employer contribution rate for the
applicable year is:
(1) the corridor midpoint if the funded ratio is less
than 90 percent; or
(2) the estimated employer contribution rate if the
funded ratio is 90 percent or greater.
(b) The employer contribution rate may not be lower than the
minimum employer contribution rate.
(c) If the funded ratio is equal to or greater than 100
percent:
(1) all existing liability layers, including the
legacy liability, are considered fully amortized and paid; and
(2) the city legacy contribution amount may no longer
be included in the employer contribution.
Sec. 10E. ADJUSTMENT TO EMPLOYER CONTRIBUTION RATE IF
ESTIMATED EMPLOYER CONTRIBUTION RATE EQUAL TO OR GREATER THAN
CORRIDOR MIDPOINT. For the calendar year beginning January 1,
2024, and for each subsequent calendar year, if the estimated
employer contribution rate is equal to or greater than the corridor
midpoint and:
(1) less than or equal to the maximum employer
contribution rate for the corresponding calendar year, the employer
contribution rate is the estimated employer contribution rate; or
(2) greater than the maximum employer contribution
rate for the corresponding calendar year, the employer contribution
rate is the maximum employer contribution rate.
Sec. 10F. ADJUSTMENT TO MEMBER CONTRIBUTION RATE IF
ESTIMATED EMPLOYER CONTRIBUTION RATE GREATER THAN CORRIDOR
MAXIMUM. (a) Except as provided by Subsection (b) of this section,
if the estimated employer contribution rate is ever greater than
the corridor maximum, the member contribution rate will increase by
an amount equal to the difference between the estimated employer
contribution rate and the maximum employer contribution rate.
(b) The member contribution rate may not be increased by
more than two percentage points under Subsection (a) of this
section.
(c) If the estimated employer contribution rate is more than
two percentage points above the maximum employer contribution rate,
the city and the retirement board shall enter into discussions to
determine additional funding solutions.
Sec. 10G. ADDITIONAL EMPLOYER CONTRIBUTIONS; OTHER
PROVISIONS GOVERNING METHODS OF FINANCING. (a) If a regular
full-time employee of the employer works at least 75 percent of a
normal 40-hour work week but less than the full 40 hours, the
employer shall make contributions for that employee as though that
employee works a normal 40-hour work week even though the rate of
contribution may exceed the member contribution rate required by
Section 10 of this Act [eight percent of that employee's actual
compensation, pay, or salary]. The governing body of the city may
authorize the city to make additional contributions to the system
in whatever amount the governing body may determine. If the
governing body authorizes additional contributions to the system by
the city for city employees, the board of each other employer shall
increase the contributions for such employer's respective
employees by the same percentage. Employer contributions shall be
made each pay period.
(b) In addition to the contributions [by the city] required
by Section 10A of this Act [Subsection (a) of this section], the
city shall contribute to the retirement fund each month two-thirds
of such amounts as are required for the payment of prior service
pensions that are payable during that month, and one-third of each
prior service pension payable that month shall be made from Fund
No. 2.
(c) Employer contributions shall be paid to the retirement
system after appropriation by the respective governing body or
board.
(d) Expenses for administration and operation of the
retirement system that are approved by the retirement board shall
be paid by the retirement board from funds of the retirement
system. Such expenses shall include salaries of retirement board
employees and fees for actuarial services, legal counsel services,
physician services, accountant services, annual audits by
independent certified public accountants, investment manager
services, investment consultant services, preparation of annual
reports, and staff assistance.
(e) Each employer shall pick up the contributions required
to be made to the fund by its respective employees. Active
contributory member deposits will be picked up by each employer by a
reduction in each such employee's monetary compensation. All such
employee contributions shall be treated as employer contributions
in accordance with Section 414(h)(2) of the code for the purpose of
determining tax treatment of the amounts under the code. Such
contributions are not includable in the gross income of the
employee until such time as they are distributed or made available
to the employee. Each employee deposit picked up as provided by
this subsection shall be credited to the individual accumulated
deposits account of each such employee and shall be treated as
compensation of the employee for all other purposes of this Act and
for the purpose of determining contributions to social
security. The provisions of this subsection shall remain in effect
as long as the plan covering employees of the employers is a
qualified retirement plan under Section 401(a) of the code and its
related trust is tax exempt under Section 501(a) of the code.
(f) Under no circumstances and in no event may any of the
contributions and income of the retirement system revert to the
employer or otherwise be diverted to or used for any purpose other
than the exclusive benefit of the members, retirees and their
beneficiaries. It shall be impossible for the diversion or use
prohibited by the preceding sentence to occur, whether by operation
or natural termination of the retirement system, by power of
revocation or amendment, by the happening of a contingency, by
collateral arrangement, or by any other means.
SECTION 13. Sections 7(d), (e), (f), (g), (i), and (j),
Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
(Article 6243n, Vernon's Texas Civil Statutes), are repealed.
SECTION 14. (a) In this section, "retirement board" has the
meaning assigned by Section 2, Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes).
(b) Section 4, Chapter 451, Acts of the 72nd Legislature,
Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
Statutes), as amended by this Act, does not affect the term of a
member of the 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 the members serving in place six and
place seven of the retirement board elected under Section 4(b)(4),
Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
(Article 6243n, 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:
(1) the resulting vacancy in place six on the
retirement board shall be filled by the director of finance of the
municipality or the director's designee in accordance with Section
4(b)(4), Chapter 451, Acts of the 72nd Legislature, Regular
Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes), as
amended by this Act; and
(2) the resulting vacancy in place seven on the board
shall be filled by election of the active-contributory members in
accordance with Section 4, Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes), as amended by this Act.
SECTION 15. Section 5(e), Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes), as amended by this Act, applies only to a person
who applies to reinstate membership service on or after the
effective date of this Act. A person who applies to reinstate
membership service before the effective date of this Act is
governed by the law in effect immediately before the effective date
of this Act, and the former law is continued in effect for that
purpose.
SECTION 16. Section 6, Chapter 451, Acts of the 72nd
Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
Civil Statutes), as amended by this Act, applies to a person who
retires on or after the effective date of this Act. A person who
retires before the effective date of this Act is governed by the law
in effect immediately before that date, and the former law is
continued in effect for that purpose.
SECTION 17. This Act takes effect September 1, 2023.