Texas 2023 - 88th Regular

Texas House Bill HB4000 Compare Versions

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1	1	88R12600 KFF-F
2	2	By: Bucy H.B. No. 4000
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to the public retirement systems for employees of certain
8	8	municipalities.
9	9	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	10	SECTION 1. Section 2, Chapter 451, Acts of the 72nd
11	11	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
12	12	Civil Statutes), is amended by adding Subdivisions (2A), (3A),
13	13	(5A), (5B), (10A), (10B), (13A), (13B), (13C), (19A), (19B), (19C),
14	14	(20A), (26A), (26B), (26C), (26D), (26E), (29A), (31A), (31B),
15	15	(33A), (33B), (35A), (44A), and (44B) to read as follows:
16	16	(2A) "Actuarial accrued liability" means the portion
17	17	of the actuarial present value of projected benefits of the
18	18	retirement system attributed to past periods of member service
19	19	based on the cost method used in the risk sharing valuation study
20	20	under Section 10B or 10C of this Act, as applicable.
21	21	(3A) "Actuarial value of assets" means the value of
22	22	the retirement system's assets as calculated using the asset
23	23	smoothing method used in the risk sharing valuation study under
24	24	Section 10B or 10C of this Act, as applicable.
25	25	(5A) "Amortization period" means:
26	26	(A) the period necessary to fully pay a liability
27	27	layer; or
28	28	(B) if referring to the amortization period of
29	29	the retirement system as a whole, the number of years incorporated
30	30	in a weighted average amortization factor for the sum of the legacy
31	31	liability and all liability layers as determined in each annual
32	32	actuarial valuation of assets and liabilities of the system.
33	33	(5B) "Amortization rate" means, for a given calendar
34	34	year, the percentage rate determined by:
35	35	(A) adding the scheduled amortization payments
36	36	required to pay off the then-existing liability layers;
37	37	(B) subtracting the city legacy contribution
38	38	amount for the same calendar year, as determined in the risk sharing
39	39	valuation study under Section 10B or 10C of this Act, as applicable,
40	40	from the sum under Paragraph (A); and
41	41	(C) dividing the difference under Paragraph (B)
42	42	by the projected pensionable payroll for the same calendar year.
43	43	(10A) "City" means a municipality described in Section
44	44	1 of this Act.
45	45	(10B) "City legacy contribution amount" means, for
46	46	each calendar year, a predetermined payment amount expressed in
47	47	dollars in accordance with a payment schedule amortizing the legacy
48	48	liability for the calendar year ending December 31, 2022, that is
49	49	included in the initial risk sharing valuation study under Section
50	50	10B of this Act.
51	51	(13A) "Corridor" means the range of employer
52	52	contribution rates that are:
53	53	(A) equal to or greater than the minimum employer
54	54	contribution rate; and
55	55	(B) equal to or less than the maximum employer
56	56	contribution rate.
57	57	(13B) "Corridor margin" means five percentage points.
58	58	(13C) "Corridor midpoint" means the projected
59	59	employer contribution rate specified for each calendar year for 30
60	60	years as provided by the initial risk sharing valuation study under
61	61	Section 10B of this Act, rounded to the nearest hundredths decimal
62	62	place.
63	63	(19A) "Employer contribution rate" means, for a given
64	64	calendar year, a percentage rate equal to the sum of the employer
65	65	normal cost rate and the amortization rate, as adjusted under
66	66	Section 10D or 10E of this Act, as applicable.
67	67	(19B) "Employer normal cost rate" means, for a given
68	68	calendar year, the normal cost rate minus the applicable member
69	69	contribution rate determined under Section 10 of this Act.
70	70	(19C) "Estimated employer contribution rate" means,
71	71	for a given calendar year, an employer contribution rate equal to
72	72	the sum of the employer normal cost rate and the amortization rate
73	73	of the liability layers, as applicable, excluding the legacy
74	74	liability layer, and before any adjustments under Section 10D or
75	75	10E of this Act.
76	76	(20A) "Funded ratio" means the ratio of the actuarial
77	77	value of assets divided by the actuarial accrued liability.
78	78	(26A) "Legacy liability" means the unfunded actuarial
79	79	accrued liability determined as of December 31, 2022, and for each
80	80	subsequent calendar year, adjusted as follows:
81	81	(A) reduced by the city legacy contribution
82	82	amount for the calendar year allocated to the amortization of the
83	83	legacy liability; and
84	84	(B) adjusted by the assumed rate of return
85	85	adopted by the retirement system for the calendar year;
86	86	(26B) "Level percent of payroll method" means the
87	87	amortization method that defines the amount of a liability layer
88	88	recognized each calendar year as a level percent of pensionable
89	89	payroll until the amount of the liability layer remaining is
90	90	reduced to zero.
91	91	(26C) "Liability gain layer" means a liability layer
92	92	that decreases the unfunded actuarial accrued liability.
93	93	(26D) "Liability layer" means:
94	94	(A) the legacy liability established in the
95	95	initial risk sharing valuation study under Section 10B or 10C of
96	96	this Act, as applicable; or
97	97	(B) for calendar years after December 31, 2022,
98	98	the amount that the retirement system's unfunded actuarial accrued
99	99	liability increases or decreases, as applicable, due to the
100	100	unanticipated change for the calendar year as determined in each
101	101	subsequent risk sharing valuation study under Section 10C of this
102	102	Act.
103	103	(26E) "Liability loss layer" means a liability layer
104	104	that increases the unfunded actuarial accrued liability. For
105	105	purposes of this Act, the legacy liability is a liability loss
106	106	layer.
107	107	(29A) "Maximum employer contribution rate" means, for
108	108	a given calendar year, the rate equal to the corridor midpoint plus
109	109	the corridor margin.
110	110	(31A) "Minimum employer contribution rate" means, for
111	111	a given calendar year, the rate equal to the corridor midpoint minus
112	112	the corridor margin.
113	113	(31B) "Normal cost rate" means, for a given calendar
114	114	year, the salary weighted average of the individual normal cost
115	115	rates determined for the current active member population, plus the
116	116	assumed administrative expenses determined in the most recent
117	117	actuarial experience study.
118	118	(33A) "Payoff year" means the year a liability layer
119	119	is fully amortized under the amortization period.
120	120	(33B) "Pensionable payroll" means the aggregate basic
121	121	hourly earnings of all active-contributory members for a calendar
122	122	year or pay period, as applicable.
123	123	(35A) "Projected pensionable payroll" means the
124	124	estimated pensionable payroll for the calendar year beginning 12
125	125	months after the date of any risk sharing valuation study under
126	126	Section 10B or 10C of this Act, as applicable, at the time of
127	127	calculation by:
128	128	(A) projecting the prior calendar year's
129	129	pensionable payroll forward two years using the current payroll
130	130	growth rate assumption adopted by the retirement board; and
131	131	(B) adjusting, if necessary, for changes in
132	132	population or other known factors, provided those factors would
133	133	have a material impact on the calculation, as determined by the
134	134	retirement board.
135	135	(44A) "Unanticipated change" means, with respect to
136	136	the unfunded actuarial accrued liability in each subsequent risk
137	137	sharing valuation study under Section 10B or 10C of this Act, as
138	138	applicable, the difference between:
139	139	(A) the remaining balance of all then-existing
140	140	liability layers as of the date of the risk sharing valuation study
141	141	that were created before the date of the study; and
142	142	(B) the actual unfunded actuarial accrued
143	143	liability as of the date of the study.
144	144	(44B) "Unfunded actuarial accrued liability" means
145	145	the difference between the actuarial accrued liability and the
146	146	actuarial value of assets.
147	147	SECTION 2. Section 3, Chapter 451, Acts of the 72nd
148	148	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
149	149	Civil Statutes), is amended to read as follows:
150	150	Sec. 3. ESTABLISHMENT AND APPLICABILITY. Subject to the
151	151	authority granted under [the retirement board in Section 7(d) of]
152	152	this Act:
153	153	(1) members who retired, and the beneficiaries of
154	154	members who died, prior to October 1, 2011, shall continue to
155	155	receive the same retirement allowances or benefits they were
156	156	entitled to receive prior to that date, together with any benefit
157	157	increase authorized under this Act;
158	158	(2) members of the retirement system on or before
159	159	December 31, 2011, shall be enrolled as members of Group A; and
160	160	(3) persons that first become members of the
161	161	retirement system on or after January 1, 2012, shall be enrolled in
162	162	Group B.
163	163	SECTION 3. Section 4(b), Chapter 451, Acts of the 72nd
164	164	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
165	165	Civil Statutes), is amended to read as follows:
166	166	(b) The retirement board consists of 11 members as follows:
167	167	(1) place one: one member of the governing body,
168	168	designated by the governing body;
169	169	(2) place two: the city manager of the municipality or
170	170	the manager's designee;
171	171	(3) places three through five: three qualified voters
172	172	of the city who:
173	173	(A) have been city residents for the preceding
174	174	five years;
175	175	(B) have experience in the field of securities
176	176	investment, pension administration, pension law, or governmental
177	177	finance; and
178	178	(C) [who] are not employees, former employees, or
179	179	officers of an employer;
180	180	(4) place [places] six: the director of finance of the
181	181	municipality or the director's designee;
182	182	(5) places seven through nine: three [four]
183	183	active-contributory members elected by the active-contributory
184	184	members; and
185	185	(6) [(5)] places ten and eleven: two retired members
186	186	elected by the retired members.
187	187	SECTION 4. Section 4(c)(3), Chapter 451, Acts of the 72nd
188	188	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
189	189	Civil Statutes), is amended to read as follows:
190	190	(3) The places seven [six] through nine retirement
191	191	board members each serve on the retirement board for a four-year
192	192	term, unless service is earlier terminated by the death,
193	193	resignation, termination of employment, disability, retirement, or
194	194	removal of the retirement board member. The retirement board shall
195	195	appoint an active-contributory member to fill a vacancy in each of
196	196	places seven [six] through nine for the remainder of the unexpired
197	197	term if the remainder of the unexpired term is 364 days or fewer. If
198	198	the remainder of the unexpired term is 365 days or more, the vacancy
199	199	shall be filled by the active-contributory members voting at a
200	200	special election.
201	201	SECTION 5. Sections 4(d), (e), (f), (k), (t), and (w),
202	202	Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
203	203	(Article 6243n, Vernon's Texas Civil Statutes), are amended to read
204	204	as follows:
205	205	(d) Members for places seven [six] through eleven shall be
206	206	elected in accordance with Subsections (e)-(m) of this section.
207	207	(e) Only active-contributory members shall be eligible for
208	208	election for places seven [six] through nine. Only retired members
209	209	shall be eligible for election for places ten and eleven. Not more
210	210	than one active-contributory member shall be eligible for election
211	211	from any one department or office or similar organizational unit
212	212	that is established in the annual budget of an employer and is not
213	213	part of any department.
214	214	(f) Members for places seven [six] through nine shall be
215	215	elected to four-year [staggered] terms with the place seven term
216	216	beginning January 1, 2024, and the terms of places eight and nine
217	217	[two of such retirement board members] beginning January 1 of the
218	218	following [each] even-numbered year.
219	219	(k) Elections for places seven [six] through nine shall be
220	220	held in December of odd-numbered years. Elections for places 10 and
221	221	11 shall be held in December of every second even-numbered year.
222	222	The candidates receiving the highest number of eligible votes shall
223	223	be deemed elected. In case of a tie vote, selection shall be by lot
224	224	drawn by an existing member of the retirement board at a meeting of
225	225	the retirement board held after the election but before the first
226	226	day of January of the year after the election.
227	227	(t) The retirement board shall have charge of and administer
228	228	the fund as trustee of the fund and [,] shall order payments from
229	229	the fund in accordance with this Act[, and may increase, under
230	230	Section 10(g) of this Act, the benefits and allowances the board
231	231	pays from the fund]. If practicable, the retirement board shall
232	232	collect underpayments and refund overpayments. The retirement
233	233	board shall report annually to the members on the condition of the
234	234	fund and the receipts and disbursements on account of the fund.
235	235	(w) At least once every five years [From time to time on the
236	236	advice of the actuary and the direction of the retirement board],
237	237	the actuary shall make an actuarial investigation of the mortality,
238	238	service, and compensation experience of members, retired members,
239	239	surviving spouses, and beneficiaries of the retirement system and
240	240	shall make a valuation of the assets and liabilities of the funds of
241	241	the system. Taking into account the result of such investigation
242	242	and valuation, the retirement board shall adopt for the retirement
243	243	system such mortality, service, and other actuarial tables or rates
244	244	as are deemed necessary. On the basis of tables and rates adopted
245	245	by the retirement board, the actuary shall make a valuation at least
246	246	once every two years of the assets and liabilities of the funds of
247	247	the retirement system.
248	248	SECTION 6. Chapter 451, Acts of the 72nd Legislature,
249	249	Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
250	250	Statutes), is amended by adding Section 4A to read as follows:
251	251	Sec. 4A. EXPERIENCE STUDY AND DETERMINING ACTUARIAL
252	252	ASSUMPTIONS. (a) At least once every five years, the retirement
253	253	board shall cause the retirement system's actuary to conduct an
254	254	experience study to review the actuarial assumptions and methods
255	255	adopted by the retirement board for the purposes of determining the
256	256	actuarial liabilities and actuarially determined contribution
257	257	rates of the system. The system shall notify the city at the
258	258	beginning of an upcoming experience study by the system's actuary.
259	259	(b) In connection with the retirement system's experience
260	260	study, the city may:
261	261	(1) conduct a separate experience study using an
262	262	actuary chosen by the city;
263	263	(2) have the city's actuary review the experience
264	264	study prepared by the system's actuary; or
265	265	(3) accept the experience study prepared by the
266	266	system's actuary.
267	267	(c) If the city conducts a separate experience study using
268	268	the city's actuary, the city shall complete the study not later than
269	269	the 91st day after the date the retirement system notified the city
270	270	of the system's intent to conduct an experience study.
271	271	(d) If the city elects to have the city's actuary review the
272	272	retirement system's experience study, the city shall complete the
273	273	review not later than the 31st day after the date the preliminary
274	274	results of the experience study are presented to the retirement
275	275	board.
276	276	(e) If the city chooses to have the city's own experience
277	277	study performed or to have the city's actuary review the system's
278	278	experience study, the system's actuary and the city's actuary shall
279	279	determine what the hypothetical employer contribution rate would be
280	280	using the proposed actuarial assumptions from the experience
281	281	studies and data from the most recent actuarial valuation.
282	282	(f) If the difference between the hypothetical employer
283	283	contribution rates determined by the retirement system's actuary
284	284	and the city's actuary:
285	285	(1) is less than or equal to two percent of pensionable
286	286	payroll, no further action is needed and the retirement board shall
287	287	use the experience study performed by the retirement system's
288	288	actuary in determining assumptions; or
289	289	(2) is greater than two percent of pensionable
290	290	payroll, the system's actuary and the city's actuary shall have 20
291	291	days to reconcile the difference in actuarial assumptions or
292	292	methods causing the different hypothetical employer contribution
293	293	rates, and if:
294	294	(A) as a result of the reconciliation efforts
295	295	under this subdivision, the difference between the employer
296	296	contribution rates determined by the system's actuary and the
297	297	city's actuary is reduced to less than or equal to two percentage
298	298	points, no further action is needed and the retirement board shall
299	299	use the experience study performed by the system's actuary in
300	300	determining actuarial assumptions; or
301	301	(B) after the 20th business day, the system's
302	302	actuary and the city's actuary are not able to reach a
303	303	reconciliation that reduces the difference in the hypothetical
304	304	employer contribution rates to an amount less than or equal to two
305	305	percentage points, a third-party actuary shall be retained to opine
306	306	on the differences in the assumptions made and actuarial methods
307	307	used by the system's actuary and the city's actuary.
308	308	(g) The independent third-party actuary retained under this
309	309	section must be chosen by the city from a list of three actuarial
310	310	firms provided by the retirement system.
311	311	(h) If a third-party actuary is retained under this section,
312	312	the third-party actuary's findings must be presented to the
313	313	retirement board with the experience study conducted by the
314	314	system's actuary and, if applicable, the city's actuary. If the
315	315	retirement board adopts actuarial assumptions or methods contrary
316	316	to the third-party actuary's findings:
317	317	(1) the system shall provide a formal letter
318	318	describing the rationale for the retirement board's action to the
319	319	governing body and State Pension Review Board; and
320	320	(2) the system's actuary and executive director shall
321	321	be made available at the request of the governing body or the State
322	322	Pension Review Board to present in person the rationale for the
323	323	retirement board's action.
324	324	(i) If the retirement board proposes a change to actuarial
325	325	assumptions or methods that is not in connection with an experience
326	326	study described by this section, the retirement system and the city
327	327	shall follow the same process prescribed by this section with
328	328	respect to an experience study in connection with the proposed
329	329	change.
330	330	SECTION 7. Effective January 1, 2024, Section 5(e), Chapter
331	331	451, Acts of the 72nd Legislature, Regular Session, 1991 (Article
332	332	6243n, Vernon's Texas Civil Statutes), is amended to read as
333	333	follows:
334	334	(e) Any person who has ceased to be a member and has received
335	335	a distribution of the person's accumulated deposits may have the
336	336	person's membership service in the original group in which the
337	337	membership service was earned reinstated if the person is
338	338	reemployed as a regular full-time employee and deposits into the
339	339	system the accumulated deposits withdrawn by that person, together
340	340	with an interest payment equal to the amount withdrawn multiplied
341	341	by an interest factor. The interest factor is equal to the annually
342	342	compounded interest rate assumed to have been earned by the fund
343	343	beginning with the month and year in which the person withdrew the
344	344	person's accumulated deposits and ending with the month and year in
345	345	which the deposit under this subsection is made. The interest rate
346	346	assumed to have been earned by the fund for any period is equal to
347	347	the actuarial assumed [interest] rate of return in effect on the
348	348	date of purchase [credited for that period to the accumulated
349	349	deposits of members, divided by 0.75].
350	350	SECTION 8. Section 6(b), Chapter 451, Acts of the 72nd
351	351	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
352	352	Civil Statutes), is amended to read as follows:
353	353	(b) The retirement board shall determine by
354	354	nondiscriminatory rules and regulations consistently applied,
355	355	subject to the provisions of this Act, in case of absence, illness,
356	356	or other temporary interruption in service as a regular full-time
357	357	employee, the portion of each calendar year to be allowed as
358	358	creditable service. No credit shall be allowed as creditable
359	359	service for any period exceeding one month during which an employee
360	360	was absent continuously without pay, except for an authorized leave
361	361	of absence as provided in this Act. Subject [The retirement board
362	362	shall verify the records for creditable service claims filed by the
363	363	members of the retirement system, subject] to the provisions of
364	364	this Act and in accordance with such administrative rules and
365	365	regulations as the retirement board may from time to time adopt, the
366	366	retirement board shall:
367	367	(1) verify the records for creditable service claims
368	368	filed by the members of the retirement system; and
369	369	(2) establish time frames during which a member must
370	370	act to ensure that the purchase of creditable service or the
371	371	conversion of sick leave to creditable service coincides with the
372	372	member's retirement.
373	373	SECTION 9. Effective January 1, 2024, Section 6(c)(3),
374	374	Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
375	375	(Article 6243n, Vernon's Texas Civil Statutes), is amended to read
376	376	as follows:
377	377	(3) A member may establish uniformed creditable
378	378	service for active federal duty service in the armed forces of the
379	379	United States, other than service as a student at a service academy,
380	380	as a member of the reserves, or any continuous active military
381	381	service lasting less than 90 days, performed before the first day of
382	382	employment of the member's most recent membership in the retirement
383	383	system or its predecessor system. To establish creditable service
384	384	under this subdivision, the member must contribute at retirement a
385	385	lump-sum payment equal to [25 percent of] the full actuarial cost of
386	386	the additional creditable service, as determined by the retirement
387	387	board acting on the advice of the actuary [estimated cost of the
388	388	retirement benefits the member will be entitled to receive]. The
389	389	retirement board will determine the required contribution based on
390	390	a procedure recommended by the actuary and approved by the
391	391	retirement board.
392	392	SECTION 10. Effective January 1, 2024, Sections 6(e),
393	393	(e-1), and (e-2), Chapter 451, Acts of the 72nd Legislature,
394	394	Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
395	395	Statutes), are amended to read as follows:
396	396	(e) At [any time before a member's actual] retirement
397	397	[date], the member may purchase noncontributory creditable service
398	398	equal in amount to the period the member:
399	399	(1) was on verifiable workers' compensation leave due
400	400	to an injury sustained in the course and scope of employment by an
401	401	employer;
402	402	(2) was on an authorized leave of absence from an
403	403	employer; or
404	404	(3) performed service for an employer in a position
405	405	the service for which is not otherwise creditable in the retirement
406	406	system.
407	407	(e-1) An active contributory member that is eligible for
408	408	retirement may file a written application to convert to creditable
409	409	service at retirement all or part of the member's sick leave accrued
410	410	with the employer that is eligible for conversion. The application
411	411	must be approved by the retirement board. The member may not
412	412	convert sick leave for which the member is entitled to be paid by
413	413	the employer. Sick leave hours may be converted in pay period
414	414	increments for the purpose of increasing creditable service that is
415	415	used in the calculation of benefits. Sick leave hours may not be
416	416	used to reach retirement eligibility. The [Both the employer and
417	417	the] member must make the equivalent amount of retirement
418	418	contributions that would have been made had the sick hours been
419	419	exercised and used as sick leave hours. The employer's cost for
420	420	sick leave conversions must be funded through the contribution
421	421	rates.
422	422	(e-2) Nonqualified permissive creditable service may be
423	423	purchased only as provided by this subsection. At retirement, a [A]
424	424	member may purchase nonqualified permissive creditable service:
425	425	(1) only to the extent permitted under both this
426	426	subsection and Section 415(n) of the code;
427	427	(2) in an amount that:
428	428	(A) for each purchase, is not less than one
429	429	month; and
430	430	(B) when all amounts purchased under this
431	431	subsection are combined, is not more than 60 months; and
432	432	(3) only if the member has reinstated all prior
433	433	membership service in:
434	434	(A) Groups A and B if the member was initially
435	435	enrolled as a member of Group A, but ceased to be a member of Group
436	436	A, by:
437	437	(i) first reinstating all prior membership
438	438	service in Group A;
439	439	(ii) next reinstating all prior membership
440	440	service in Group B; and
441	441	(iii) then purchasing the nonqualified
442	442	permissive creditable service; or
443	443	(B) Group B, if the member was initially enrolled
444	444	as a member of Group B, by:
445	445	(i) first reinstating all prior membership
446	446	service in Group B; and
447	447	(ii) then purchasing the nonqualified
448	448	permissive creditable service.
449	449	SECTION 11. Sections 7(h) and (hh), Chapter 451, Acts of the
450	450	72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's
451	451	Texas Civil Statutes), are amended to read as follows:
452	452	(h) Before a cost of living [Prior to the retirement board's
453	453	authorizing the payment of an] adjustment or additional payment to
454	454	retirees, beneficiaries, or other payees may be provided:
455	455	(1) [,] the retirement system's actuary must
456	456	[recommend such an adjustment or additional payment to the
457	457	retirement board and] certify in writing that, based on the sound
458	458	application of actuarial assumptions and methods consistent with
459	459	sound actuarial principles and standards, it is demonstrable that
460	460	the fund has and likely will continue to have the ability to pay
461	461	such an amount [out of its realized income] after all other
462	462	obligations of the fund have been paid;
463	463	(2) the retirement board must approve the adjustment
464	464	or additional payment;
465	465	(3) the governing body must approve the adjustment or
466	466	additional payment; and
467	467	(4) this Act must be amended to provide for the
468	468	adjustment or additional payment.
469	469	(hh) Forfeitures that may result from the termination of any
470	470	right of a member may not be used to increase benefits to remaining
471	471	members. This subsection shall not preclude an increase in
472	472	benefits by amendment to this Act, including by amendment [or
473	473	action of the retirement board] in accordance with Subsection (h)
474	474	[(d)] of this section, if applicable, that is made possible by
475	475	forfeitures or for any other reason.
476	476	SECTION 12. Chapter 451, Acts of the 72nd Legislature,
477	477	Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
478	478	Statutes), is amended by amending Section 10 and adding Sections
479	479	10A through 10G to read as follows:
480	480	Sec. 10. MEMBER CONTRIBUTIONS [METHOD OF FINANCING].
481	481	(a) Subject to adjustment under this Act and except as provided by
482	482	Subsection (a-2) of this section, each [Each] active-contributory
483	483	member shall make deposits to the retirement system at a rate equal
484	484	to:
485	485	(1) beginning with the first pay period of:
486	486	(A) the 2024 calendar year, nine [eight] percent
487	487	of the member's base [compensation,] pay, [or salary,] exclusive of
488	488	overtime, incentive, or terminal pay; and
489	489	(B) the 2025 calendar year, 10 percent of the
490	490	member's base pay exclusive of overtime, incentive, or terminal
491	491	pay; or
492	492	(2) the member contribution rate otherwise prescribed
493	493	by this section [at a higher contribution rate approved by a
494	494	majority vote of regular full-time employee members].
495	495	(a-1) Deposits shall be made by payroll deduction each pay
496	496	period. If a regular full-time employee works at least 75 percent
497	497	of a normal 40-hour work week but less than the full 40 hours, the
498	498	employee shall make deposits as though working a normal 40-hour
499	499	work week even though the rate of contribution may exceed the member
500	500	contribution prescribed by this section [eight percent of the
501	501	employee's actual compensation, pay, or salary], and the employee's
502	502	average final compensation shall be computed on the basis of the
503	503	compensation, pay, or salary for a normal 40-hour work week. No
504	504	deposits may be made nor membership service credit received for
505	505	periods during which an employee's authorized normal work week is
506	506	less than 75 percent of a normal 40-hour work week. A person who is
507	507	eligible for inactive-contributory membership status and who
508	508	chooses to be an inactive-contributory member shall make deposits
509	509	to the retirement system each pay period in an amount that is equal
510	510	to the amount of the member's deposit for the last complete pay
511	511	period that the member was a regular full-time employee.
512	512	(a-2) The contribution rate of active-contributory [regular
513	513	full-time employee] members may be increased [increase,] by a
514	514	majority vote of all such members voting at an election to consider
515	515	an increase in contributions to a rate[, each member's
516	516	contributions] above 10 [eight] percent or a [above the] higher
517	517	rate than the rate that was in effect at the time of the election
518	518	[and approved by majority vote in whatever amount the retirement
519	519	board recommends].
520	520	Sec. 10A. EMPLOYER CONTRIBUTIONS. (a) Beginning with the
521	521	first pay period of:
522	522	(1) calendar year 2024, and before the first pay
523	523	period of calendar year 2025, the [Each] employer shall contribute
524	524	an amount [amounts] equal to the sum of:
525	525	(A) the employer contribution rate, as
526	526	determined in the initial risk sharing valuation study as of
527	527	December 31, 2022, multiplied by the pensionable payroll for the
528	528	applicable pay period; and
529	529	(B) 1/26 of the city's legacy contribution amount
530	530	for the 2024 calendar year, as determined and adjusted in the
531	531	initial risk sharing valuation study conducted under Section 10B of
532	532	this Act; and
533	533	(2) calendar year 2025, and for each subsequent
534	534	calendar year, the employer shall contribute an amount equal to the
535	535	sum of:
536	536	(A) the employer's contribution rate for the
537	537	applicable calendar year, as determined in a subsequent risk
538	538	sharing valuation study conducted and adjusted under Section 10C of
539	539	this Act, as applicable, multiplied by the pensionable payroll for
540	540	the applicable pay period; and
541	541	(B) 1/26 of the city's legacy contribution amount
542	542	for the applicable calendar year, as determined and adjusted in the
543	543	initial risk sharing valuation study conducted under Section 10B of
544	544	this Act [eight percent of the compensation, pay, or salary of each
545	545	active-contributory member and each inactive-contributory member
546	546	employed by the employer, exclusive of overtime, incentive, or
547	547	terminal pay, or a higher contribution rate agreed by the
548	548	employer].
549	549	(b) If the employer elects to change the employer's payroll
550	550	period to a period other than a biweekly payroll period, the
551	551	fractional amounts of the employer's legacy contribution stated in
552	552	Subsections (a)(1)(B) and (a)(2)(B) of this section must be
553	553	adjusted such that the employer's calendar year contribution equals
554	554	the contribution required under Subsection (a)(1) or (a)(2), as
555	555	applicable.
556	556	Sec. 10B. INITIAL RISK SHARING VALUATION STUDY. (a) The
557	557	retirement system's actuary shall prepare an initial risk sharing
558	558	valuation study as of December 31, 2022. The initial risk sharing
559	559	valuation study must:
560	560	(1) except as otherwise provided by this section, be
561	561	prepared in accordance with the requirements of Section 10C of this
562	562	Act;
563	563	(2) be based on the actuarial assumptions that were
564	564	used by the system's actuary in the valuation completed for the year
565	565	ended December 31, 2022;
566	566	(3) project the corridor midpoint for the next 30
567	567	calendar years beginning with the calendar year that begins on
568	568	January 1, 2024;
569	569	(4) include a schedule of city legacy contribution
570	570	amounts for 30 calendar years beginning with the calendar year that
571	571	begins on January 1, 2024; and
572	572	(5) include an employer contribution:
573	573	(A) for the calendar years under Sections
574	574	10A(a)(1) and (2) of this Act that begin on January 1, 2024, and
575	575	January 1, 2025, that must be adjusted to reflect the impact of the
576	576	phase-in prescribed by Subsection (b) of this section; and
577	577	(B) for each calendar year under Section
578	578	10A(a)(2) of this Act that begins on January 1, 2026, through
579	579	January 1, 2053, that must reflect a city legacy contribution
580	580	amount that is three percent greater than the city legacy
581	581	contribution amount for the preceding calendar year.
582	582	(b) The schedule of city legacy contribution amounts under
583	583	Subsection (a)(4) of this section must be determined such that the
584	584	total annual city legacy contribution amount for the first two
585	585	calendar years results in a phase-in of the anticipated increase in
586	586	the employer's contribution rate from the calendar year that begins
587	587	on January 1, 2023, to the rate equal to the sum of the estimated
588	588	contribution rate for the calendar year that begins on January 1,
589	589	2024, and the rate of pensionable payroll equal to the city legacy
590	590	contribution amount for January 1, 2024, determined as if there was
591	591	no phase-in of the increase to the city legacy contribution amount.
592	592	The phase-in must reflect approximately one-half of the increase
593	593	each year over the two-year phase-in period.
594	594	(c) The estimated employer contribution rate for the
595	595	calendar year that begins on January 1, 2024, must be based on the
596	596	projected pensionable payroll, as determined under the initial risk
597	597	sharing valuation study required by this section, assuming a
598	598	payroll growth rate adopted by the retirement board.
599	599	Sec. 10C. SUBSEQUENT RISK SHARING VALUATION
600	600	STUDIES. (a) For each calendar year beginning with January 1, 2024,
601	601	the retirement system shall cause the system's actuary to prepare a
602	602	risk sharing valuation study in accordance with this section and
603	603	actuarial standards of practice. Each risk sharing valuation study
604	604	must:
605	605	(1) be dated as of the last day of the calendar year
606	606	for which the study is required to be prepared;
607	607	(2) calculate the unfunded actuarial accrued
608	608	liability of the system as of the last day of the applicable
609	609	calendar year, including the liability layer, if any, associated
610	610	with the most recently completed calendar year;
611	611	(3) calculate the estimated employer contribution
612	612	rate for the following calendar year;
613	613	(4) determine the employer contribution rate and the
614	614	member contribution rate for the following calendar year, taking
615	615	into account any adjustments required under this section, as
616	616	applicable; and
617	617	(5) except as provided by Subsection (d) of this
618	618	section, be based on the assumptions and methods adopted by the
619	619	retirement board, if applicable, and be consistent with actuarial
620	620	standards of practice and the following principles:
621	621	(A) closed layered amortization of liability
622	622	layers to ensure that the amortization period for each liability
623	623	layer begins 12 months after the date of the risk sharing valuation
624	624	study in which the liability layer is first recognized;
625	625	(B) each liability layer is assigned an
626	626	amortization period;
627	627	(C) each liability loss layer is amortized at the
628	628	remaining amortization period of the legacy liability but not less
629	629	than 20 years from the first day of the calendar year beginning 12
630	630	months after the date of the risk sharing valuation study in which
631	631	the liability loss layer is first recognized, except that the
632	632	legacy liability must be amortized over a 30-year period beginning
633	633	January 1, 2024;
634	634	(D) each liability gain layer is amortized over:
635	635	(i) a period equal to the remaining
636	636	amortization period on the largest remaining liability loss layer;
637	637	or
638	638	(ii) if there is no liability loss layer, a
639	639	period of 20 years from the first day of the calendar year beginning
640	640	12 months after the date of the risk sharing valuation study in
641	641	which the liability gain layer is first recognized;
642	642	(E) liability layers are funded according to the
643	643	level percent of payroll method;
644	644	(F) payroll for purposes of determining the
645	645	corridor midpoint, employer contribution rate, and city legacy
646	646	contribution amount must be projected using the annual payroll
647	647	growth rate assumption adopted by the retirement board; and
648	648	(G) the employer contribution rate is calculated
649	649	each calendar year without inclusion of the legacy liability.
650	650	(b) The city may contribute an amount in addition to the
651	651	scheduled city legacy contribution amounts to reduce the number or
652	652	amount of scheduled future city legacy contribution payments. If
653	653	the city contributes an additional amount under this subsection,
654	654	the retirement system's actuary shall create a new schedule of city
655	655	legacy contribution amounts that reflects payment of the additional
656	656	contribution.
657	657	(c) The city and the retirement board may agree on a written
658	658	transition plan for resetting the corridor midpoint, member
659	659	contribution rates, or employer contribution rates:
660	660	(1) if at any time the funded ratio of the retirement
661	661	system is equal to or greater than 100 percent; or
662	662	(2) for any calendar year after the payoff year of the
663	663	legacy liability.
664	664	(d) The retirement board may, by rule, adopt actuarial
665	665	principles other than those required under this section, provided
666	666	the actuarial principles:
667	667	(1) are consistent with actuarial standards of
668	668	practice;
669	669	(2) are approved by the retirement system's actuary;
670	670	and
671	671	(3) do not operate to change the city legacy
672	672	contribution amount.
673	673	Sec. 10D. ADJUSTMENT TO EMPLOYER CONTRIBUTION RATE IF
674	674	ESTIMATED EMPLOYER CONTRIBUTION RATE LOWER THAN CORRIDOR
675	675	MIDPOINT. (a) Subject to Subsection (b) of this section, for the
676	676	calendar year beginning January 1, 2024, and for each subsequent
677	677	calendar year, if the estimated employer contribution rate is lower
678	678	than the corridor midpoint, the employer contribution rate for the
679	679	applicable year is:
680	680	(1) the corridor midpoint if the funded ratio is less
681	681	than 90 percent; or
682	682	(2) the estimated employer contribution rate if the
683	683	funded ratio is 90 percent or greater.
684	684	(b) The employer contribution rate may not be lower than the
685	685	minimum employer contribution rate.
686	686	(c) If the funded ratio is equal to or greater than 100
687	687	percent:
688	688	(1) all existing liability layers, including the
689	689	legacy liability, are considered fully amortized and paid; and
690	690	(2) the city legacy contribution amount may no longer
691	691	be included in the employer contribution.
692	692	Sec. 10E. ADJUSTMENT TO EMPLOYER CONTRIBUTION RATE IF
693	693	ESTIMATED EMPLOYER CONTRIBUTION RATE EQUAL TO OR GREATER THAN
694	694	CORRIDOR MIDPOINT. For the calendar year beginning January 1,
695	695	2024, and for each subsequent calendar year, if the estimated
696	696	employer contribution rate is equal to or greater than the corridor
697	697	midpoint and:
698	698	(1) less than or equal to the maximum employer
699	699	contribution rate for the corresponding calendar year, the employer
700	700	contribution rate is the estimated employer contribution rate; or
701	701	(2) greater than the maximum employer contribution
702	702	rate for the corresponding calendar year, the employer contribution
703	703	rate is the maximum employer contribution rate.
704	704	Sec. 10F. ADJUSTMENT TO MEMBER CONTRIBUTION RATE IF
705	705	ESTIMATED EMPLOYER CONTRIBUTION RATE GREATER THAN CORRIDOR
706	706	MAXIMUM. (a) Except as provided by Subsection (b) of this section,
707	707	if the estimated employer contribution rate is ever greater than
708	708	the corridor maximum, the member contribution rate will increase by
709	709	an amount equal to the difference between the estimated employer
710	710	contribution rate and the maximum employer contribution rate.
711	711	(b) The member contribution rate may not be increased by
712	712	more than two percentage points under Subsection (a) of this
713	713	section.
714	714	(c) If the estimated employer contribution rate is more than
715	715	two percentage points above the maximum employer contribution rate,
716	716	the city and the retirement board shall enter into discussions to
717	717	determine additional funding solutions.
718	718	Sec. 10G. ADDITIONAL EMPLOYER CONTRIBUTIONS; OTHER
719	719	PROVISIONS GOVERNING METHODS OF FINANCING. (a) If a regular
720	720	full-time employee of the employer works at least 75 percent of a
721	721	normal 40-hour work week but less than the full 40 hours, the
722	722	employer shall make contributions for that employee as though that
723	723	employee works a normal 40-hour work week even though the rate of
724	724	contribution may exceed the member contribution rate required by
725	725	Section 10 of this Act [eight percent of that employee's actual
726	726	compensation, pay, or salary]. The governing body of the city may
727	727	authorize the city to make additional contributions to the system
728	728	in whatever amount the governing body may determine. If the
729	729	governing body authorizes additional contributions to the system by
730	730	the city for city employees, the board of each other employer shall
731	731	increase the contributions for such employer's respective
732	732	employees by the same percentage. Employer contributions shall be
733	733	made each pay period.
734	734	(b) In addition to the contributions [by the city] required
735	735	by Section 10A of this Act [Subsection (a) of this section], the
736	736	city shall contribute to the retirement fund each month two-thirds
737	737	of such amounts as are required for the payment of prior service
738	738	pensions that are payable during that month, and one-third of each
739	739	prior service pension payable that month shall be made from Fund
740	740	No. 2.
741	741	(c) Employer contributions shall be paid to the retirement
742	742	system after appropriation by the respective governing body or
743	743	board.
744	744	(d) Expenses for administration and operation of the
745	745	retirement system that are approved by the retirement board shall
746	746	be paid by the retirement board from funds of the retirement
747	747	system. Such expenses shall include salaries of retirement board
748	748	employees and fees for actuarial services, legal counsel services,
749	749	physician services, accountant services, annual audits by
750	750	independent certified public accountants, investment manager
751	751	services, investment consultant services, preparation of annual
752	752	reports, and staff assistance.
753	753	(e) Each employer shall pick up the contributions required
754	754	to be made to the fund by its respective employees. Active
755	755	contributory member deposits will be picked up by each employer by a
756	756	reduction in each such employee's monetary compensation. All such
757	757	employee contributions shall be treated as employer contributions
758	758	in accordance with Section 414(h)(2) of the code for the purpose of
759	759	determining tax treatment of the amounts under the code. Such
760	760	contributions are not includable in the gross income of the
761	761	employee until such time as they are distributed or made available
762	762	to the employee. Each employee deposit picked up as provided by
763	763	this subsection shall be credited to the individual accumulated
764	764	deposits account of each such employee and shall be treated as
765	765	compensation of the employee for all other purposes of this Act and
766	766	for the purpose of determining contributions to social
767	767	security. The provisions of this subsection shall remain in effect
768	768	as long as the plan covering employees of the employers is a
769	769	qualified retirement plan under Section 401(a) of the code and its
770	770	related trust is tax exempt under Section 501(a) of the code.
771	771	(f) Under no circumstances and in no event may any of the
772	772	contributions and income of the retirement system revert to the
773	773	employer or otherwise be diverted to or used for any purpose other
774	774	than the exclusive benefit of the members, retirees and their
775	775	beneficiaries. It shall be impossible for the diversion or use
776	776	prohibited by the preceding sentence to occur, whether by operation
777	777	or natural termination of the retirement system, by power of
778	778	revocation or amendment, by the happening of a contingency, by
779	779	collateral arrangement, or by any other means.
780	780	SECTION 13. Sections 7(d), (e), (f), (g), (i), and (j),
781	781	Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
782	782	(Article 6243n, Vernon's Texas Civil Statutes), are repealed.
783	783	SECTION 14. (a) In this section, "retirement board" has the
784	784	meaning assigned by Section 2, Chapter 451, Acts of the 72nd
785	785	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
786	786	Civil Statutes).
787	787	(b) Section 4, Chapter 451, Acts of the 72nd Legislature,
788	788	Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
789	789	Statutes), as amended by this Act, does not affect the term of a
790	790	member of the retirement board appointed or elected under that
791	791	section, as that section existed immediately before the effective
792	792	date of this Act, and serving on the board on the effective date of
793	793	this Act.
794	794	(c) When the terms of the members serving in place six and
795	795	place seven of the retirement board elected under Section 4(b)(4),
796	796	Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
797	797	(Article 6243n, Vernon's Texas Civil Statutes), as that section
798	798	existed immediately before the effective date of this Act, who have
799	799	terms that expire in December 2023, expire:
800	800	(1) the resulting vacancy in place six on the
801	801	retirement board shall be filled by the director of finance of the
802	802	municipality or the director's designee in accordance with Section
803	803	4(b)(4), Chapter 451, Acts of the 72nd Legislature, Regular
804	804	Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes), as
805	805	amended by this Act; and
806	806	(2) the resulting vacancy in place seven on the board
807	807	shall be filled by election of the active-contributory members in
808	808	accordance with Section 4, Chapter 451, Acts of the 72nd
809	809	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
810	810	Civil Statutes), as amended by this Act.
811	811	SECTION 15. Section 5(e), Chapter 451, Acts of the 72nd
812	812	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
813	813	Civil Statutes), as amended by this Act, applies only to a person
814	814	who applies to reinstate membership service on or after the
815	815	effective date of this Act. A person who applies to reinstate
816	816	membership service before the effective date of this Act is
817	817	governed by the law in effect immediately before the effective date
818	818	of this Act, and the former law is continued in effect for that
819	819	purpose.
820	820	SECTION 16. Section 6, Chapter 451, Acts of the 72nd
821	821	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
822	822	Civil Statutes), as amended by this Act, applies to a person who
823	823	retires on or after the effective date of this Act. A person who
824	824	retires before the effective date of this Act is governed by the law
825	825	in effect immediately before that date, and the former law is
826	826	continued in effect for that purpose.
827	827	SECTION 17. This Act takes effect September 1, 2023.