Texas 2023 - 88th Regular

Texas Senate Bill SB1444 Compare Versions

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1	1	S.B. No. 1444
2	2
3	3
4	4	AN ACT
5	5	relating to the public retirement systems for employees of certain
6	6	municipalities.
7	7	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
8	8	SECTION 1. Section 2, Chapter 451, Acts of the 72nd
9	9	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
10	10	Civil Statutes), is amended by adding Subdivisions (2A), (3A),
11	11	(5A), (5B), (10A), (10B), (13A), (13B), (13C), (19A), (19B), (19C),
12	12	(20A), (26A), (26B), (26C), (26D), (26E), (29A), (31A), (31B),
13	13	(33A), (33B), (35A), (44A), and (44B) to read as follows:
14	14	(2A) "Actuarial accrued liability" means the portion
15	15	of the actuarial present value of projected benefits of the
16	16	retirement system attributed to past periods of member service
17	17	based on the cost method used in the risk sharing valuation study
18	18	under Section 10B or 10C of this Act, as applicable.
19	19	(3A) "Actuarial value of assets" means the value of
20	20	the retirement system's assets as calculated using the asset
21	21	smoothing method used in the risk sharing valuation study under
22	22	Section 10B or 10C of this Act, as applicable.
23	23	(5A) "Amortization period" means:
24	24	(A) the period necessary to fully pay a liability
25	25	layer; or
26	26	(B) if referring to the amortization period of
27	27	the retirement system as a whole, the number of years incorporated
28	28	in a weighted average amortization factor for the sum of the legacy
29	29	liability and all liability layers as determined in each annual
30	30	actuarial valuation of assets and liabilities of the system.
31	31	(5B) "Amortization rate" means, for a given calendar
32	32	year, the percentage rate determined by:
33	33	(A) adding the scheduled amortization payments
34	34	required to pay off the then-existing liability layers;
35	35	(B) subtracting the city legacy contribution
36	36	amount for the same calendar year, as determined in the risk sharing
37	37	valuation study under Section 10B or 10C of this Act, as applicable,
38	38	from the sum under Paragraph (A); and
39	39	(C) dividing the difference under Paragraph (B)
40	40	by the projected pensionable payroll for the same calendar year.
41	41	(10A) "City" means a municipality described in Section
42	42	1 of this Act.
43	43	(10B) "City legacy contribution amount" means, for
44	44	each calendar year, a predetermined payment amount expressed in
45	45	dollars in accordance with a payment schedule amortizing the legacy
46	46	liability for the calendar year ending December 31, 2022, that is
47	47	included in the initial risk sharing valuation study under Section
48	48	10B of this Act.
49	49	(13A) "Corridor" means the range of employer
50	50	contribution rates that are:
51	51	(A) equal to or greater than the minimum employer
52	52	contribution rate; and
53	53	(B) equal to or less than the maximum employer
54	54	contribution rate.
55	55	(13B) "Corridor margin" means five percentage points.
56	56	(13C) "Corridor midpoint" means the projected
57	57	employer contribution rate specified for each calendar year for 30
58	58	years as provided by the initial risk sharing valuation study under
59	59	Section 10B of this Act, rounded to the nearest hundredths decimal
60	60	place.
61	61	(19A) "Employer contribution rate" means, for a given
62	62	calendar year, a percentage rate equal to the sum of the employer
63	63	normal cost rate and the amortization rate, as adjusted under
64	64	Section 10D or 10E of this Act, as applicable.
65	65	(19B) "Employer normal cost rate" means, for a given
66	66	calendar year, the normal cost rate minus the applicable member
67	67	contribution rate determined under Section 10 of this Act.
68	68	(19C) "Estimated employer contribution rate" means,
69	69	for a given calendar year, an employer contribution rate equal to
70	70	the sum of the employer normal cost rate and the amortization rate
71	71	of the liability layers, as applicable, excluding the legacy
72	72	liability layer, and before any adjustments under Section 10D or
73	73	10E of this Act.
74	74	(20A) "Funded ratio" means the ratio of the actuarial
75	75	value of assets divided by the actuarial accrued liability.
76	76	(26A) "Legacy liability" means the unfunded actuarial
77	77	accrued liability determined as of December 31, 2022, and for each
78	78	subsequent calendar year, adjusted as follows:
79	79	(A) reduced by the city legacy contribution
80	80	amount for the calendar year allocated to the amortization of the
81	81	legacy liability; and
82	82	(B) adjusted by the assumed rate of return
83	83	adopted by the retirement system for the calendar year;
84	84	(26B) "Level percent of payroll method" means the
85	85	amortization method that defines the amount of a liability layer
86	86	recognized each calendar year as a level percent of pensionable
87	87	payroll until the amount of the liability layer remaining is
88	88	reduced to zero.
89	89	(26C) "Liability gain layer" means a liability layer
90	90	that decreases the unfunded actuarial accrued liability.
91	91	(26D) "Liability layer" means:
92	92	(A) the legacy liability established in the
93	93	initial risk sharing valuation study under Section 10B or 10C of
94	94	this Act, as applicable; or
95	95	(B) for calendar years after December 31, 2022,
96	96	the amount that the retirement system's unfunded actuarial accrued
97	97	liability increases or decreases, as applicable, due to the
98	98	unanticipated change for the calendar year as determined in each
99	99	subsequent risk sharing valuation study under Section 10C of this
100	100	Act.
101	101	(26E) "Liability loss layer" means a liability layer
102	102	that increases the unfunded actuarial accrued liability. For
103	103	purposes of this Act, the legacy liability is a liability loss
104	104	layer.
105	105	(29A) "Maximum employer contribution rate" means, for
106	106	a given calendar year, the rate equal to the corridor midpoint plus
107	107	the corridor margin.
108	108	(31A) "Minimum employer contribution rate" means, for
109	109	a given calendar year, the rate equal to the corridor midpoint minus
110	110	the corridor margin.
111	111	(31B) "Normal cost rate" means, for a given calendar
112	112	year, the salary weighted average of the individual normal cost
113	113	rates determined for the current active member population, plus the
114	114	assumed administrative expenses determined in the most recent
115	115	actuarial experience study.
116	116	(33A) "Payoff year" means the year a liability layer
117	117	is fully amortized under the amortization period.
118	118	(33B) "Pensionable payroll" means the aggregate basic
119	119	hourly earnings of all active-contributory members for a calendar
120	120	year or pay period, as applicable.
121	121	(35A) "Projected pensionable payroll" means the
122	122	estimated pensionable payroll for the calendar year beginning 12
123	123	months after the date of any risk sharing valuation study under
124	124	Section 10B or 10C of this Act, as applicable, at the time of
125	125	calculation by:
126	126	(A) projecting the prior calendar year's
127	127	pensionable payroll forward two years using the current payroll
128	128	growth rate assumption adopted by the retirement board; and
129	129	(B) adjusting, if necessary, for changes in
130	130	population or other known factors, provided those factors would
131	131	have a material impact on the calculation, as determined by the
132	132	retirement board.
133	133	(44A) "Unanticipated change" means, with respect to
134	134	the unfunded actuarial accrued liability in each subsequent risk
135	135	sharing valuation study under Section 10B or 10C of this Act, as
136	136	applicable, the difference between:
137	137	(A) the remaining balance of all then-existing
138	138	liability layers as of the date of the risk sharing valuation study
139	139	that were created before the date of the study; and
140	140	(B) the actual unfunded actuarial accrued
141	141	liability as of the date of the study.
142	142	(44B) "Unfunded actuarial accrued liability" means
143	143	the difference between the actuarial accrued liability and the
144	144	actuarial value of assets.
145	145	SECTION 2. Section 3, Chapter 451, Acts of the 72nd
146	146	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
147	147	Civil Statutes), is amended to read as follows:
148	148	Sec. 3. ESTABLISHMENT AND APPLICABILITY. Subject to the
149	149	authority granted under [the retirement board in Section 7(d) of]
150	150	this Act:
151	151	(1) members who retired, and the beneficiaries of
152	152	members who died, prior to October 1, 2011, shall continue to
153	153	receive the same retirement allowances or benefits they were
154	154	entitled to receive prior to that date, together with any benefit
155	155	increase authorized under this Act;
156	156	(2) members of the retirement system on or before
157	157	December 31, 2011, shall be enrolled as members of Group A; and
158	158	(3) persons that first become members of the
159	159	retirement system on or after January 1, 2012, shall be enrolled in
160	160	Group B.
161	161	SECTION 3. Section 4(b), Chapter 451, Acts of the 72nd
162	162	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
163	163	Civil Statutes), is amended to read as follows:
164	164	(b) The retirement board consists of 11 members as follows:
165	165	(1) place one: one member of the governing body,
166	166	designated by the governing body;
167	167	(2) place two: the city manager of the municipality or
168	168	the manager's designee;
169	169	(3) places three through five: three qualified voters
170	170	of the city who:
171	171	(A) have been city residents for the preceding
172	172	five years;
173	173	(B) have experience in the field of securities
174	174	investment, pension administration, pension law, or governmental
175	175	finance; and
176	176	(C) [who] are not employees, former employees, or
177	177	officers of an employer;
178	178	(4) place [places] six: the director of finance of the
179	179	municipality or the director's designee;
180	180	(5) places seven through nine: three [four]
181	181	active-contributory members elected by the active-contributory
182	182	members; and
183	183	(6) [(5)] places ten and eleven: two retired members
184	184	elected by the retired members.
185	185	SECTION 4. Section 4(c)(3), Chapter 451, Acts of the 72nd
186	186	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
187	187	Civil Statutes), is amended to read as follows:
188	188	(3) The places seven [six] through nine retirement
189	189	board members each serve on the retirement board for a four-year
190	190	term, unless service is earlier terminated by the death,
191	191	resignation, termination of employment, disability, retirement, or
192	192	removal of the retirement board member. The retirement board shall
193	193	appoint an active-contributory member to fill a vacancy in each of
194	194	places seven [six] through nine for the remainder of the unexpired
195	195	term if the remainder of the unexpired term is 364 days or fewer. If
196	196	the remainder of the unexpired term is 365 days or more, the vacancy
197	197	shall be filled by the active-contributory members voting at a
198	198	special election.
199	199	SECTION 5. Sections 4(d), (e), (f), (k), (t), and (w),
200	200	Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
201	201	(Article 6243n, Vernon's Texas Civil Statutes), are amended to read
202	202	as follows:
203	203	(d) Members for places seven [six] through eleven shall be
204	204	elected in accordance with Subsections (e)-(m) of this section.
205	205	(e) Only active-contributory members shall be eligible for
206	206	election for places seven [six] through nine. Only retired members
207	207	shall be eligible for election for places ten and eleven. Not more
208	208	than one active-contributory member shall be eligible for election
209	209	from any one department or office or similar organizational unit
210	210	that is established in the annual budget of an employer and is not
211	211	part of any department.
212	212	(f) Members for places seven [six] through nine shall be
213	213	elected to four-year [staggered] terms with the place seven term
214	214	beginning January 1, 2024, and the terms of places eight and nine
215	215	[two of such retirement board members] beginning January 1 of the
216	216	following [each] even-numbered year.
217	217	(k) Elections for places seven [six] through nine shall be
218	218	held in December of odd-numbered years. Elections for places 10 and
219	219	11 shall be held in December of every second even-numbered year.
220	220	The candidates receiving the highest number of eligible votes shall
221	221	be deemed elected. In case of a tie vote, selection shall be by lot
222	222	drawn by an existing member of the retirement board at a meeting of
223	223	the retirement board held after the election but before the first
224	224	day of January of the year after the election.
225	225	(t) The retirement board shall have charge of and administer
226	226	the fund as trustee of the fund and[,] shall order payments from the
227	227	fund in accordance with this Act[, and may increase, under Section
228	228	10(g) of this Act, the benefits and allowances the board pays from
229	229	the fund]. If practicable, the retirement board shall collect
230	230	underpayments and refund overpayments. The retirement board shall
231	231	report annually to the members on the condition of the fund and the
232	232	receipts and disbursements on account of the fund.
233	233	(w) At least once every five years [From time to time on the
234	234	advice of the actuary and the direction of the retirement board],
235	235	the actuary shall make an actuarial investigation of the mortality,
236	236	service, and compensation experience of members, retired members,
237	237	surviving spouses, and beneficiaries of the retirement system and
238	238	shall make a valuation of the assets and liabilities of the funds of
239	239	the system. Taking into account the result of such investigation
240	240	and valuation, the retirement board shall adopt for the retirement
241	241	system such mortality, service, and other actuarial tables or rates
242	242	as are deemed necessary. On the basis of tables and rates adopted
243	243	by the retirement board, the actuary shall make a valuation at least
244	244	once every two years of the assets and liabilities of the funds of
245	245	the retirement system.
246	246	SECTION 6. Chapter 451, Acts of the 72nd Legislature,
247	247	Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
248	248	Statutes), is amended by adding Section 4A to read as follows:
249	249	Sec. 4A. EXPERIENCE STUDY AND DETERMINING ACTUARIAL
250	250	ASSUMPTIONS. (a) At least once every five years, the retirement
251	251	board shall cause the retirement system's actuary to conduct an
252	252	experience study to review the actuarial assumptions and methods
253	253	adopted by the retirement board for the purposes of determining the
254	254	actuarial liabilities and actuarially determined contribution
255	255	rates of the system. The system shall notify the city at the
256	256	beginning of an upcoming experience study by the system's actuary.
257	257	(b) In connection with the retirement system's experience
258	258	study, the city may:
259	259	(1) conduct a separate experience study using an
260	260	actuary chosen by the city;
261	261	(2) have the city's actuary review the experience
262	262	study prepared by the system's actuary; or
263	263	(3) accept the experience study prepared by the
264	264	system's actuary.
265	265	(c) If the city conducts a separate experience study using
266	266	the city's actuary, the city shall complete the study not later than
267	267	the 91st day after the date the retirement system notified the city
268	268	of the system's intent to conduct an experience study.
269	269	(d) If the city elects to have the city's actuary review the
270	270	retirement system's experience study, the city shall complete the
271	271	review not later than the 31st day after the date the preliminary
272	272	results of the experience study are presented to the retirement
273	273	board.
274	274	(e) If the city chooses to have the city's own experience
275	275	study performed or to have the city's actuary review the system's
276	276	experience study, the system's actuary and the city's actuary shall
277	277	determine what the hypothetical employer contribution rate would be
278	278	using the proposed actuarial assumptions from the experience
279	279	studies and data from the most recent actuarial valuation.
280	280	(f) If the difference between the hypothetical employer
281	281	contribution rates determined by the retirement system's actuary
282	282	and the city's actuary:
283	283	(1) is less than or equal to two percent of pensionable
284	284	payroll, no further action is needed and the retirement board shall
285	285	use the experience study performed by the retirement system's
286	286	actuary in determining assumptions; or
287	287	(2) is greater than two percent of pensionable
288	288	payroll, the system's actuary and the city's actuary shall have 20
289	289	days to reconcile the difference in actuarial assumptions or
290	290	methods causing the different hypothetical employer contribution
291	291	rates, and if:
292	292	(A) as a result of the reconciliation efforts
293	293	under this subdivision, the difference between the employer
294	294	contribution rates determined by the system's actuary and the
295	295	city's actuary is reduced to less than or equal to two percentage
296	296	points, no further action is needed and the retirement board shall
297	297	use the experience study performed by the system's actuary in
298	298	determining actuarial assumptions; or
299	299	(B) after the 20th business day, the system's
300	300	actuary and the city's actuary are not able to reach a
301	301	reconciliation that reduces the difference in the hypothetical
302	302	employer contribution rates to an amount less than or equal to two
303	303	percentage points, a third-party actuary shall be retained to opine
304	304	on the differences in the assumptions made and actuarial methods
305	305	used by the system's actuary and the city's actuary.
306	306	(g) The independent third-party actuary retained under this
307	307	section must be chosen by the city from a list of three actuarial
308	308	firms provided by the retirement system.
309	309	(h) If a third-party actuary is retained under this section,
310	310	the third-party actuary's findings must be presented to the
311	311	retirement board with the experience study conducted by the
312	312	system's actuary and, if applicable, the city's actuary. If the
313	313	retirement board adopts actuarial assumptions or methods contrary
314	314	to the third-party actuary's findings:
315	315	(1) the system shall provide a formal letter
316	316	describing the rationale for the retirement board's action to the
317	317	governing body and State Pension Review Board; and
318	318	(2) the system's actuary and executive director shall
319	319	be made available at the request of the governing body or the State
320	320	Pension Review Board to present in person the rationale for the
321	321	retirement board's action.
322	322	(i) If the retirement board proposes a change to actuarial
323	323	assumptions or methods that is not in connection with an experience
324	324	study described by this section, the retirement system and the city
325	325	shall follow the same process prescribed by this section with
326	326	respect to an experience study in connection with the proposed
327	327	change.
328	328	SECTION 7. Effective January 1, 2024, Section 5(e), Chapter
329	329	451, Acts of the 72nd Legislature, Regular Session, 1991 (Article
330	330	6243n, Vernon's Texas Civil Statutes), is amended to read as
331	331	follows:
332	332	(e) Any person who has ceased to be a member and has received
333	333	a distribution of the person's accumulated deposits may have the
334	334	person's membership service in the original group in which the
335	335	membership service was earned reinstated if the person is
336	336	reemployed as a regular full-time employee and deposits into the
337	337	system the accumulated deposits withdrawn by that person, together
338	338	with an interest payment equal to the amount withdrawn multiplied
339	339	by an interest factor. The interest factor is equal to the annually
340	340	compounded interest rate assumed to have been earned by the fund
341	341	beginning with the month and year in which the person withdrew the
342	342	person's accumulated deposits and ending with the month and year in
343	343	which the deposit under this subsection is made. The interest rate
344	344	assumed to have been earned by the fund for any period is equal to
345	345	the actuarial assumed [interest] rate of return in effect on the
346	346	date of purchase [credited for that period to the accumulated
347	347	deposits of members, divided by 0.75].
348	348	SECTION 8. Section 6(b), Chapter 451, Acts of the 72nd
349	349	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
350	350	Civil Statutes), is amended to read as follows:
351	351	(b) The retirement board shall determine by
352	352	nondiscriminatory rules and regulations consistently applied,
353	353	subject to the provisions of this Act, in case of absence, illness,
354	354	or other temporary interruption in service as a regular full-time
355	355	employee, the portion of each calendar year to be allowed as
356	356	creditable service. No credit shall be allowed as creditable
357	357	service for any period exceeding one month during which an employee
358	358	was absent continuously without pay, except for an authorized leave
359	359	of absence as provided in this Act. Subject [The retirement board
360	360	shall verify the records for creditable service claims filed by the
361	361	members of the retirement system, subject] to the provisions of
362	362	this Act and in accordance with such administrative rules and
363	363	regulations as the retirement board may from time to time adopt, the
364	364	retirement board shall:
365	365	(1) verify the records for creditable service claims
366	366	filed by the members of the retirement system; and
367	367	(2) establish time frames during which a member must
368	368	act to ensure that the purchase of creditable service or the
369	369	conversion of sick leave to creditable service coincides with the
370	370	member's retirement.
371	371	SECTION 9. Effective January 1, 2024, Section 6(c)(3),
372	372	Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
373	373	(Article 6243n, Vernon's Texas Civil Statutes), is amended to read
374	374	as follows:
375	375	(3) A member may establish uniformed creditable
376	376	service for active federal duty service in the armed forces of the
377	377	United States, other than service as a student at a service academy,
378	378	as a member of the reserves, or any continuous active military
379	379	service lasting less than 90 days, performed before the first day of
380	380	employment of the member's most recent membership in the retirement
381	381	system or its predecessor system. To establish creditable service
382	382	under this subdivision, the member must contribute at retirement a
383	383	lump-sum payment equal to [25 percent of] the full actuarial cost of
384	384	the additional creditable service, as determined by the retirement
385	385	board acting on the advice of the actuary [estimated cost of the
386	386	retirement benefits the member will be entitled to receive]. The
387	387	retirement board will determine the required contribution based on
388	388	a procedure recommended by the actuary and approved by the
389	389	retirement board.
390	390	SECTION 10. Effective January 1, 2024, Sections 6(e),
391	391	(e-1), and (e-2), Chapter 451, Acts of the 72nd Legislature,
392	392	Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
393	393	Statutes), are amended to read as follows:
394	394	(e) At [any time before a member's actual] retirement
395	395	[date], the member may purchase noncontributory creditable service
396	396	equal in amount to the period the member:
397	397	(1) was on verifiable workers' compensation leave due
398	398	to an injury sustained in the course and scope of employment by an
399	399	employer;
400	400	(2) was on an authorized leave of absence from an
401	401	employer; or
402	402	(3) performed service for an employer in a position
403	403	the service for which is not otherwise creditable in the retirement
404	404	system.
405	405	(e-1) An active contributory member that is eligible for
406	406	retirement may file a written application to convert to creditable
407	407	service at retirement all or part of the member's sick leave accrued
408	408	with the employer that is eligible for conversion. The application
409	409	must be approved by the retirement board. The member may not
410	410	convert sick leave for which the member is entitled to be paid by
411	411	the employer. Sick leave hours may be converted in pay period
412	412	increments for the purpose of increasing creditable service that is
413	413	used in the calculation of benefits. Sick leave hours may not be
414	414	used to reach retirement eligibility. The [Both the employer and
415	415	the] member must make the equivalent amount of retirement
416	416	contributions that would have been made had the sick hours been
417	417	exercised and used as sick leave hours. The employer's cost for
418	418	sick leave conversions must be funded through the contribution
419	419	rates.
420	420	(e-2) Nonqualified permissive creditable service may be
421	421	purchased only as provided by this subsection. At retirement, a [A]
422	422	member may purchase nonqualified permissive creditable service:
423	423	(1) only to the extent permitted under both this
424	424	subsection and Section 415(n) of the code;
425	425	(2) in an amount that:
426	426	(A) for each purchase, is not less than one
427	427	month; and
428	428	(B) when all amounts purchased under this
429	429	subsection are combined, is not more than 60 months; and
430	430	(3) only if the member has reinstated all prior
431	431	membership service in:
432	432	(A) Groups A and B if the member was initially
433	433	enrolled as a member of Group A, but ceased to be a member of Group
434	434	A, by:
435	435	(i) first reinstating all prior membership
436	436	service in Group A;
437	437	(ii) next reinstating all prior membership
438	438	service in Group B; and
439	439	(iii) then purchasing the nonqualified
440	440	permissive creditable service; or
441	441	(B) Group B, if the member was initially enrolled
442	442	as a member of Group B, by:
443	443	(i) first reinstating all prior membership
444	444	service in Group B; and
445	445	(ii) then purchasing the nonqualified
446	446	permissive creditable service.
447	447	SECTION 11. Sections 7(h) and (hh), Chapter 451, Acts of the
448	448	72nd Legislature, Regular Session, 1991 (Article 6243n, Vernon's
449	449	Texas Civil Statutes), are amended to read as follows:
450	450	(h) Before a cost of living [Prior to the retirement board's
451	451	authorizing the payment of an] adjustment or additional payment to
452	452	retirees, beneficiaries, or other payees may be provided:
453	453	(1) [,] the retirement system's actuary must
454	454	[recommend such an adjustment or additional payment to the
455	455	retirement board and] certify in writing that, based on the sound
456	456	application of actuarial assumptions and methods consistent with
457	457	sound actuarial principles and standards, it is demonstrable that
458	458	the fund has and likely will continue to have the ability to pay
459	459	such an amount [out of its realized income] after all other
460	460	obligations of the fund have been paid;
461	461	(2) the retirement board must approve the adjustment
462	462	or additional payment;
463	463	(3) the governing body must approve the adjustment or
464	464	additional payment; and
465	465	(4) this Act must be amended to provide for the
466	466	adjustment or additional payment.
467	467	(hh) Forfeitures that may result from the termination of any
468	468	right of a member may not be used to increase benefits to remaining
469	469	members. This subsection shall not preclude an increase in
470	470	benefits by amendment to this Act, including by amendment [or
471	471	action of the retirement board] in accordance with Subsection (h)
472	472	[(d)] of this section, if applicable, that is made possible by
473	473	forfeitures or for any other reason.
474	474	SECTION 12. Chapter 451, Acts of the 72nd Legislature,
475	475	Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
476	476	Statutes), is amended by amending Section 10 and adding Sections
477	477	10A through 10G to read as follows:
478	478	Sec. 10. MEMBER CONTRIBUTIONS [METHOD OF FINANCING].
479	479	(a) Subject to adjustment under this Act and except as provided by
480	480	Subsection (a-2) of this section, each [Each] active-contributory
481	481	member shall make deposits to the retirement system at a rate equal
482	482	to:
483	483	(1) beginning with the first pay period of:
484	484	(A) the 2024 calendar year, nine [eight] percent
485	485	of the member's base [compensation,] pay, [or salary,] exclusive of
486	486	overtime, incentive, or terminal pay; and
487	487	(B) the 2025 calendar year, 10 percent of the
488	488	member's base pay exclusive of overtime, incentive, or terminal
489	489	pay; or
490	490	(2) the member contribution rate otherwise prescribed
491	491	by this section [at a higher contribution rate approved by a
492	492	majority vote of regular full-time employee members].
493	493	(a-1) Deposits shall be made by payroll deduction each pay
494	494	period. If a regular full-time employee works at least 75 percent
495	495	of a normal 40-hour work week but less than the full 40 hours, the
496	496	employee shall make deposits as though working a normal 40-hour
497	497	work week even though the rate of contribution may exceed the member
498	498	contribution prescribed by this section [eight percent of the
499	499	employee's actual compensation, pay, or salary], and the employee's
500	500	average final compensation shall be computed on the basis of the
501	501	compensation, pay, or salary for a normal 40-hour work week. No
502	502	deposits may be made nor membership service credit received for
503	503	periods during which an employee's authorized normal work week is
504	504	less than 75 percent of a normal 40-hour work week. A person who is
505	505	eligible for inactive-contributory membership status and who
506	506	chooses to be an inactive-contributory member shall make deposits
507	507	to the retirement system each pay period in an amount that is equal
508	508	to the amount of the member's deposit for the last complete pay
509	509	period that the member was a regular full-time employee.
510	510	(a-2) The contribution rate of active-contributory [regular
511	511	full-time employee] members may be increased [increase,] by a
512	512	majority vote of all such members voting at an election to consider
513	513	an increase in contributions to a rate[, each member's
514	514	contributions] above 10 [eight] percent or a [above the] higher
515	515	rate than the rate that was in effect at the time of the election
516	516	[and approved by majority vote in whatever amount the retirement
517	517	board recommends].
518	518	Sec. 10A. EMPLOYER CONTRIBUTIONS. (a) Beginning with the
519	519	first pay period of:
520	520	(1) calendar year 2024, and before the first pay
521	521	period of calendar year 2025, the [Each] employer shall contribute
522	522	an amount [amounts] equal to the sum of:
523	523	(A) the employer contribution rate, as
524	524	determined in the initial risk sharing valuation study as of
525	525	December 31, 2022, multiplied by the pensionable payroll for the
526	526	applicable pay period; and
527	527	(B) 1/26 of the city's legacy contribution amount
528	528	for the 2024 calendar year, as determined and adjusted in the
529	529	initial risk sharing valuation study conducted under Section 10B of
530	530	this Act; and
531	531	(2) calendar year 2025, and for each subsequent
532	532	calendar year, the employer shall contribute an amount equal to the
533	533	sum of:
534	534	(A) the employer's contribution rate for the
535	535	applicable calendar year, as determined in a subsequent risk
536	536	sharing valuation study conducted and adjusted under Section 10C of
537	537	this Act, as applicable, multiplied by the pensionable payroll for
538	538	the applicable pay period; and
539	539	(B) 1/26 of the city's legacy contribution amount
540	540	for the applicable calendar year, as determined and adjusted in the
541	541	initial risk sharing valuation study conducted under Section 10B of
542	542	this Act [eight percent of the compensation, pay, or salary of each
543	543	active-contributory member and each inactive-contributory member
544	544	employed by the employer, exclusive of overtime, incentive, or
545	545	terminal pay, or a higher contribution rate agreed by the
546	546	employer].
547	547	(b) If the employer elects to change the employer's payroll
548	548	period to a period other than a biweekly payroll period, the
549	549	fractional amounts of the employer's legacy contribution stated in
550	550	Subsections (a)(1)(B) and (a)(2)(B) of this section must be
551	551	adjusted such that the employer's calendar year contribution equals
552	552	the contribution required under Subsection (a)(1) or (a)(2), as
553	553	applicable.
554	554	Sec. 10B. INITIAL RISK SHARING VALUATION STUDY. (a) The
555	555	retirement system's actuary shall prepare an initial risk sharing
556	556	valuation study as of December 31, 2022. The initial risk sharing
557	557	valuation study must:
558	558	(1) except as otherwise provided by this section, be
559	559	prepared in accordance with the requirements of Section 10C of this
560	560	Act;
561	561	(2) be based on the actuarial assumptions that were
562	562	used by the system's actuary in the valuation completed for the year
563	563	ended December 31, 2022;
564	564	(3) project the corridor midpoint for the next 30
565	565	calendar years beginning with the calendar year that begins on
566	566	January 1, 2024;
567	567	(4) include a schedule of city legacy contribution
568	568	amounts for 30 calendar years beginning with the calendar year that
569	569	begins on January 1, 2024; and
570	570	(5) include an employer contribution:
571	571	(A) for the calendar years under Sections
572	572	10A(a)(1) and (2) of this Act that begin on January 1, 2024, and
573	573	January 1, 2025, that must be adjusted to reflect the impact of the
574	574	phase-in prescribed by Subsection (b) of this section; and
575	575	(B) for each calendar year under Section
576	576	10A(a)(2) of this Act that begins on January 1, 2026, through
577	577	January 1, 2053, that must reflect a city legacy contribution
578	578	amount that is three percent greater than the city legacy
579	579	contribution amount for the preceding calendar year.
580	580	(b) The schedule of city legacy contribution amounts under
581	581	Subsection (a)(4) of this section must be determined such that the
582	582	total annual city legacy contribution amount for the first two
583	583	calendar years results in a phase-in of the anticipated increase in
584	584	the employer's contribution rate from the calendar year that begins
585	585	on January 1, 2023, to the rate equal to the sum of the estimated
586	586	contribution rate for the calendar year that begins on January 1,
587	587	2024, and the rate of pensionable payroll equal to the city legacy
588	588	contribution amount for January 1, 2024, determined as if there was
589	589	no phase-in of the increase to the city legacy contribution amount.
590	590	The phase-in must reflect approximately one-half of the increase
591	591	each year over the two-year phase-in period.
592	592	(c) The estimated employer contribution rate for the
593	593	calendar year that begins on January 1, 2024, must be based on the
594	594	projected pensionable payroll, as determined under the initial risk
595	595	sharing valuation study required by this section, assuming a
596	596	payroll growth rate adopted by the retirement board.
597	597	Sec. 10C. SUBSEQUENT RISK SHARING VALUATION
598	598	STUDIES. (a) For each calendar year beginning with January 1, 2024,
599	599	the retirement system shall cause the system's actuary to prepare a
600	600	risk sharing valuation study in accordance with this section and
601	601	actuarial standards of practice. Each risk sharing valuation study
602	602	must:
603	603	(1) be dated as of the last day of the calendar year
604	604	for which the study is required to be prepared;
605	605	(2) calculate the unfunded actuarial accrued
606	606	liability of the system as of the last day of the applicable
607	607	calendar year, including the liability layer, if any, associated
608	608	with the most recently completed calendar year;
609	609	(3) calculate the estimated employer contribution
610	610	rate for the following calendar year;
611	611	(4) determine the employer contribution rate and the
612	612	member contribution rate for the following calendar year, taking
613	613	into account any adjustments required under this section, as
614	614	applicable; and
615	615	(5) except as provided by Subsection (d) of this
616	616	section, be based on the assumptions and methods adopted by the
617	617	retirement board, if applicable, and be consistent with actuarial
618	618	standards of practice and the following principles:
619	619	(A) closed layered amortization of liability
620	620	layers to ensure that the amortization period for each liability
621	621	layer begins 12 months after the date of the risk sharing valuation
622	622	study in which the liability layer is first recognized;
623	623	(B) each liability layer is assigned an
624	624	amortization period;
625	625	(C) each liability loss layer is amortized at the
626	626	remaining amortization period of the legacy liability but not less
627	627	than 20 years from the first day of the calendar year beginning 12
628	628	months after the date of the risk sharing valuation study in which
629	629	the liability loss layer is first recognized, except that the
630	630	legacy liability must be amortized over a 30-year period beginning
631	631	January 1, 2024;
632	632	(D) each liability gain layer is amortized over:
633	633	(i) a period equal to the remaining
634	634	amortization period on the largest remaining liability loss layer;
635	635	or
636	636	(ii) if there is no liability loss layer, a
637	637	period of 20 years from the first day of the calendar year beginning
638	638	12 months after the date of the risk sharing valuation study in
639	639	which the liability gain layer is first recognized;
640	640	(E) liability layers are funded according to the
641	641	level percent of payroll method;
642	642	(F) payroll for purposes of determining the
643	643	corridor midpoint, employer contribution rate, and city legacy
644	644	contribution amount must be projected using the annual payroll
645	645	growth rate assumption adopted by the retirement board; and
646	646	(G) the employer contribution rate is calculated
647	647	each calendar year without inclusion of the legacy liability.
648	648	(b) The city may contribute an amount in addition to the
649	649	scheduled city legacy contribution amounts to reduce the number or
650	650	amount of scheduled future city legacy contribution payments. If
651	651	the city contributes an additional amount under this subsection,
652	652	the retirement system's actuary shall create a new schedule of city
653	653	legacy contribution amounts that reflects payment of the additional
654	654	contribution.
655	655	(c) The city and the retirement board may agree on a written
656	656	transition plan for resetting the corridor midpoint, member
657	657	contribution rates, or employer contribution rates:
658	658	(1) if at any time the funded ratio of the retirement
659	659	system is equal to or greater than 100 percent; or
660	660	(2) for any calendar year after the payoff year of the
661	661	legacy liability.
662	662	(d) The retirement board may, by rule, adopt actuarial
663	663	principles other than those required under this section, provided
664	664	the actuarial principles:
665	665	(1) are consistent with actuarial standards of
666	666	practice;
667	667	(2) are approved by the retirement system's actuary;
668	668	and
669	669	(3) do not operate to change the city legacy
670	670	contribution amount.
671	671	Sec. 10D. ADJUSTMENT TO EMPLOYER CONTRIBUTION RATE IF
672	672	ESTIMATED EMPLOYER CONTRIBUTION RATE LOWER THAN CORRIDOR
673	673	MIDPOINT. (a) Subject to Subsection (b) of this section, for the
674	674	calendar year beginning January 1, 2024, and for each subsequent
675	675	calendar year, if the estimated employer contribution rate is lower
676	676	than the corridor midpoint, the employer contribution rate for the
677	677	applicable year is:
678	678	(1) the corridor midpoint if the funded ratio is less
679	679	than 90 percent; or
680	680	(2) the estimated employer contribution rate if the
681	681	funded ratio is 90 percent or greater.
682	682	(b) The employer contribution rate may not be lower than the
683	683	minimum employer contribution rate.
684	684	(c) If the funded ratio is equal to or greater than 100
685	685	percent:
686	686	(1) all existing liability layers, including the
687	687	legacy liability, are considered fully amortized and paid; and
688	688	(2) the city legacy contribution amount may no longer
689	689	be included in the employer contribution.
690	690	Sec. 10E. ADJUSTMENT TO EMPLOYER CONTRIBUTION RATE IF
691	691	ESTIMATED EMPLOYER CONTRIBUTION RATE EQUAL TO OR GREATER THAN
692	692	CORRIDOR MIDPOINT. For the calendar year beginning January 1,
693	693	2024, and for each subsequent calendar year, if the estimated
694	694	employer contribution rate is equal to or greater than the corridor
695	695	midpoint and:
696	696	(1) less than or equal to the maximum employer
697	697	contribution rate for the corresponding calendar year, the employer
698	698	contribution rate is the estimated employer contribution rate; or
699	699	(2) greater than the maximum employer contribution
700	700	rate for the corresponding calendar year, the employer contribution
701	701	rate is the maximum employer contribution rate.
702	702	Sec. 10F. ADJUSTMENT TO MEMBER CONTRIBUTION RATE IF
703	703	ESTIMATED EMPLOYER CONTRIBUTION RATE GREATER THAN CORRIDOR
704	704	MAXIMUM. (a) Except as provided by Subsection (b) of this
705	705	section, if the estimated employer contribution rate is ever
706	706	greater than the corridor maximum, the member contribution rate
707	707	will increase by an amount equal to the difference between the
708	708	estimated employer contribution rate and the maximum employer
709	709	contribution rate.
710	710	(b) The member contribution rate may not be increased by
711	711	more than two percentage points under Subsection (a) of this
712	712	section.
713	713	(c) If the estimated employer contribution rate is more than
714	714	two percentage points above the maximum employer contribution rate,
715	715	the city and the retirement board shall enter into discussions to
716	716	determine additional funding solutions.
717	717	Sec. 10G. ADDITIONAL EMPLOYER CONTRIBUTIONS; OTHER
718	718	PROVISIONS GOVERNING METHODS OF FINANCING. (a) If a regular
719	719	full-time employee of the employer works at least 75 percent of a
720	720	normal 40-hour work week but less than the full 40 hours, the
721	721	employer shall make contributions for that employee as though that
722	722	employee works a normal 40-hour work week even though the rate of
723	723	contribution may exceed the member contribution rate required by
724	724	Section 10 of this Act [eight percent of that employee's actual
725	725	compensation, pay, or salary]. The governing body of the city may
726	726	authorize the city to make additional contributions to the system
727	727	in whatever amount the governing body may determine. If the
728	728	governing body authorizes additional contributions to the system by
729	729	the city for city employees, the board of each other employer shall
730	730	increase the contributions for such employer's respective
731	731	employees by the same percentage. Employer contributions shall be
732	732	made each pay period.
733	733	(b) In addition to the contributions [by the city] required
734	734	by Section 10A of this Act [Subsection (a) of this section], the
735	735	city shall contribute to the retirement fund each month two-thirds
736	736	of such amounts as are required for the payment of prior service
737	737	pensions that are payable during that month, and one-third of each
738	738	prior service pension payable that month shall be made from Fund
739	739	No. 2.
740	740	(c) Employer contributions shall be paid to the retirement
741	741	system after appropriation by the respective governing body or
742	742	board.
743	743	(d) Expenses for administration and operation of the
744	744	retirement system that are approved by the retirement board shall
745	745	be paid by the retirement board from funds of the retirement
746	746	system. Such expenses shall include salaries of retirement board
747	747	employees and fees for actuarial services, legal counsel services,
748	748	physician services, accountant services, annual audits by
749	749	independent certified public accountants, investment manager
750	750	services, investment consultant services, preparation of annual
751	751	reports, and staff assistance.
752	752	(e) Each employer shall pick up the contributions required
753	753	to be made to the fund by its respective employees. Active
754	754	contributory member deposits will be picked up by each employer by a
755	755	reduction in each such employee's monetary compensation. All such
756	756	employee contributions shall be treated as employer contributions
757	757	in accordance with Section 414(h)(2) of the code for the purpose of
758	758	determining tax treatment of the amounts under the code. Such
759	759	contributions are not includable in the gross income of the
760	760	employee until such time as they are distributed or made available
761	761	to the employee. Each employee deposit picked up as provided by
762	762	this subsection shall be credited to the individual accumulated
763	763	deposits account of each such employee and shall be treated as
764	764	compensation of the employee for all other purposes of this Act and
765	765	for the purpose of determining contributions to social
766	766	security. The provisions of this subsection shall remain in effect
767	767	as long as the plan covering employees of the employers is a
768	768	qualified retirement plan under Section 401(a) of the code and its
769	769	related trust is tax exempt under Section 501(a) of the code.
770	770	(f) Under no circumstances and in no event may any of the
771	771	contributions and income of the retirement system revert to the
772	772	employer or otherwise be diverted to or used for any purpose other
773	773	than the exclusive benefit of the members, retirees and their
774	774	beneficiaries. It shall be impossible for the diversion or use
775	775	prohibited by the preceding sentence to occur, whether by operation
776	776	or natural termination of the retirement system, by power of
777	777	revocation or amendment, by the happening of a contingency, by
778	778	collateral arrangement, or by any other means.
779	779	SECTION 13. Sections 7(d), (e), (f), (g), (i), and (j),
780	780	Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
781	781	(Article 6243n, Vernon's Texas Civil Statutes), are repealed.
782	782	SECTION 14. (a) In this section, "retirement board" has the
783	783	meaning assigned by Section 2, Chapter 451, Acts of the 72nd
784	784	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
785	785	Civil Statutes).
786	786	(b) Section 4, Chapter 451, Acts of the 72nd Legislature,
787	787	Regular Session, 1991 (Article 6243n, Vernon's Texas Civil
788	788	Statutes), as amended by this Act, does not affect the term of a
789	789	member of the retirement board appointed or elected under that
790	790	section, as that section existed immediately before the effective
791	791	date of this Act, and serving on the board on the effective date of
792	792	this Act.
793	793	(c) When the terms of the members serving in place six and
794	794	place seven of the retirement board elected under Section 4(b)(4),
795	795	Chapter 451, Acts of the 72nd Legislature, Regular Session, 1991
796	796	(Article 6243n, Vernon's Texas Civil Statutes), as that section
797	797	existed immediately before the effective date of this Act, who have
798	798	terms that expire in December 2023, expire:
799	799	(1) the resulting vacancy in place six on the
800	800	retirement board shall be filled by the director of finance of the
801	801	municipality or the director's designee in accordance with Section
802	802	4(b)(4), Chapter 451, Acts of the 72nd Legislature, Regular
803	803	Session, 1991 (Article 6243n, Vernon's Texas Civil Statutes), as
804	804	amended by this Act; and
805	805	(2) the resulting vacancy in place seven on the board
806	806	shall be filled by election of the active-contributory members in
807	807	accordance with Section 4, Chapter 451, Acts of the 72nd
808	808	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
809	809	Civil Statutes), as amended by this Act.
810	810	SECTION 15. Section 5(e), Chapter 451, Acts of the 72nd
811	811	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
812	812	Civil Statutes), as amended by this Act, applies only to a person
813	813	who applies to reinstate membership service on or after the
814	814	effective date of this Act. A person who applies to reinstate
815	815	membership service before the effective date of this Act is
816	816	governed by the law in effect immediately before the effective date
817	817	of this Act, and the former law is continued in effect for that
818	818	purpose.
819	819	SECTION 16. Section 6, Chapter 451, Acts of the 72nd
820	820	Legislature, Regular Session, 1991 (Article 6243n, Vernon's Texas
821	821	Civil Statutes), as amended by this Act, applies to a person who
822	822	retires on or after the effective date of this Act. A person who
823	823	retires before the effective date of this Act is governed by the law
824	824	in effect immediately before that date, and the former law is
825	825	continued in effect for that purpose.
826	826	SECTION 17. This Act takes effect September 1, 2023.
827	827	______________________________ ______________________________
828	828	President of the Senate Speaker of the House
829	829	I hereby certify that S.B. No. 1444 passed the Senate on
830	830	April 12, 2023, by the following vote: Yeas 31, Nays 0.
831	831	______________________________
832	832	Secretary of the Senate
833	833	I hereby certify that S.B. No. 1444 passed the House on
834	834	May 16, 2023, by the following vote: Yeas 129, Nays 12, two
835	835	present not voting.
836	836	______________________________
837	837	Chief Clerk of the House
838	838	Approved:
839	839	______________________________
840	840	Date
841	841	______________________________
842	842	Governor