10 TMRS Vesting PeriodAGENDA INFORMATION SHEET
PROJECT: Provide staff direction regarding legislative changes to the Texas Municipal Retirement System.
BACKGROUND: The City of Paris is currently a member of the Texas Municipal Retirement System for
all City employees other than Fire Fighters. Fire Fighters are a member of their own retirement system. As
often happens, the Texas Legislature at its last session structured certain amendments to the Texas Municipal
Retirement System. Sometimes those TMRS changes provide a local option opportunity for cities to opt out
of the new legislation; otherwise, the legislative changes go into effect. Such is true of the past Legislature,
which adopted SB 522. SB 522, among other things, includes a provision which escalates current vesting of
TMRS members from ten (10) years to five (5) years. That is, members of TMRS who have been members
in excess often (10) years have vested their retirement benefits, and those benefits are not lost because a City
employee leaves employment. SB 522 would shorten the current ten (10) year vesting period to a five (5) year
vesting period, unless the City adopts an ordinance prior to December 31,2001, declining this benefit. Five
(5) year vesting brings TMRS in line with other public retirement systems in Texas, as well as public plans in
other states. City Finance Director Gene Anderson has calculated the financial impact on the City of Paris of
allowing this new legislation to automatically go into effect, thereby permitting five (5) year vesting, and has
determined the total cost to the City of Paris will be $13,671.00 in the ensuing fiscal year. The amount to
cover this additional cost has already been included in the City's budget.
DESCRIPTION: Provide direction to City staff as to whether or not the City should take no further action
and allow the provisions of SB 522 to automatically go into effect, which would include the new five (5) year
vesting provision. Otherwise, City Council needs to direct the City staff to prepare an ordinance for adoption
at City Council's December City Council meeting declining the benefit. Without adoption of such an ordinance
prior to December 31, 2001, the five (5) year vesting will automatically go into effect.
COST: The cost to the City of Paris of the five (5) year vesting provision has been determined to be
$13,671.00, which is already included in the City's fiscal year 2001-2002 budget.
RECOMMENDED ACTION: Provide direction to City staff as to whether or not an ordinance must be
prepared declining the five (5) year vesting provision for TMRS retirement.
STAFF CONTACT: Larry W. Schenk, City Attorney; Gene Anderson, Director of Finance; and Michael E.
Malone, City Manager
SCHEDULE: Unless an ordinance is adopted declining the five (5) year vesting provision prior to December
31,2001, five (5) year vesting will automatically go into effect and cannot be reversed without further action
of the Texas Legislature.
COUNCIL DATES: Discuss and provide staff direction at City Council's November 12, 2001, regular
Council meeting; if any action is required declining the five (5) year vesting benefit, an ordinance will be
brought forward to the City Council for consideration at the December 10, 2001, regular Council meeting.
ADDITIONAL MATERIALS: See attached memorandum, statute, and correspondence from the Texas
Municipal Retirement System.
MEMORANDUM
TO:
FROM:
SUBJECT:
Gene Anderson, Personnel Director
Larry W. Schenk, City Atto/~
Financial Impact of Senate Bill 522 - Texas Municipal Retirement System (TMRS)
DATE: November 2, 2001
Gene - I have been attempting to identify every statute adopted by the Legislature which
requires the City to take certain action, and failing to do so, may have some impact on the City.
One of those statutes is SB522, a copy of which is included with the TML summary attached
to this memo. As you will note, the primary impact of this statute is to provide a five (5) year vesting
for TMRS members effective January 1, 2002, unless the City opts out of that vesting.
For us to be able to make a meaningful presentation to the Council, and for them to make an
intelligent decision regarding whether they want to opt out or not, we will need some sort of financial
impact analysis. Could you help me in analyzing the financial impact, if any, to the City of Paris of
this new statute. Then Council will have to decide whether theyprefer to allow the statute to go into
effect automatically or opt out.
If you have any additional questions regarding this matter, please do not hesitate to contact
me.
/lw
Attachments
cc: Michael E. Malone, City Manager
S.B. 522 - Texas Municipal Retirement Systems (TMRS): makes the following changes to the
TMRS statute: (1) unless a participating city opts out, it will provide five-year vesting for
members effective January 1~ (2) a retiree will be eligible to change benefit options if the
retiree remarries; (3~a m~m~ may choose a death benefit option at the time of vesting; and (4)
pro-rated interest will be awarded ifa member retires mid-year.
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AN AC T
relating to participation and credit in, contributions to, and
benefits and administration of the Texas Municipal Retirement
System.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 851.001, Government Code, is amended by
adding Subdivisions (17), (18), and (19), to read as follows:
(17) "Beneficiary" means a person desiqn ated by a
member, annuitant, or by statute to recei ye a benefit payable under
this subtitle as a result of the death of a member or annuitant.
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(18) "Director" means the person appoint ed executive
director under Section 855.201.
(19) "Vested member" means a member who may withdraw
from employment with all participating mu nicipalities, leave the
member's accumulated contributions on deposit with the retirement
system and, on meeting the age and lenqth of service requirements,
file an application for retirement and be gin to receive a service
retirement benefit.
SECTION 2. Section 852.106, Government Code, is amended by
amending Subsection (a) and adding Subsection (e) to read as
follows:
(a) Except as provided by t his section~[~]
[-~-] a person who is elected to public office is not
an employee eligible for membership in the retirement system[ ~ nnd]
[ ~ ~ ~ ..... 4~ ~ ..... ~ ...... ~ibl~ for
(e) A person may simultaneously be a member of this
retirement system and another state or lo cal retirement system
authorized or established under Section 6 7, Article XVI, Texas
Constitution. However, a person may receive a benefit from this
system only to the extent that the amount of the benefit is
computed solely with respect to the member's compensation and
accumulated contributions as those terms are defined in this
subtitle. Service credited with or allow ed by another retirement
system may not be counted for purposes of retirement eliqibility in
this retirement system except in accordan ce with the provisions of
the proportionate retirement program described by Chapter 803.
SECTION 3. Subsection (9),
is amended to read as follows:
(g) If a person with credit
dies before a payment under Subsec
beneficiary, or if there is no ben
Section 852.108, Government Code,
ed service under this section
tion (i) is made, the person's
eficiary surviving, the executor
or administrator of the person's e state, may elect payment as
provided by Section 854.105
SECTION 4. subsection (c), Section 852.109, Government Code,
is amended to read as follows:
(c) If a person with credit ed service under this section
dies before a payment under Subsect ion (e) is made, the person's
beneficiary, or if there is no beneficiary surviving, the executor
or administrator of the person's es tare, may elect payment as
provided by Section 854.105 [o~ ~=(~? ].
SECTION 5. Subsection (f), Section 853.105, Government Code,
is amended to read as follows:
(f) Interest on a prior serv ice credit is earned for each
whole calendar year beginning on the effective date of membership
and ending on the effective date of retirement. If a person
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retires under this subtitle on a date oth er than December 31,
interest on a prior service credit is ear ned for the partial year
in which the retirement occurs, prorated from January 1 of the year
in which the retirement occurs to the effective dat~ of retirement.
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SECTION 6. Subsections (b), (c), and (d), Section 853.304,
Government Code, are amended to re ad as follows:
(b) After the retirement system receives a co py of a
municipality's ordinance described by Sub section (a), the
retirement system shall furnish to the mu nicipality a report
containinq the names of employees who, ac cordinq to the retirement
system's records, are eligible to receive prior service credit for
probationary employment. [A -^-~ ....... l=~- ~ .... _
............................
cre~;t
(c) AS soon as practicable[ ~] after the municipality
receives a report under Subsection (b) [n m?-~?~ ~"
~tntc~e~t o~ p~{~ "c~'~ce "~e~ t~° ~?c tic, I, the
municipality shall verify the information in the report [prior
___ .... ~ cTM ] and certify to the retirement system [~clTd ^f
~.~aa~-] the number of months of probationary employment to which
each employee listed on the report appear s to be entitled
the average monthly compensation pa id to the member during the
period of probationary employment.
(d) The certification by the municipality must be received
by the retirement system not later than t he first anniversary of
the effective date of the ordinance allow ing the credit. After
receivin9 the [~] certification from the municipality described by
Subsection (c) [cf ~ ~'~ ..... ~ ~q~ ~ ....
..... ~^~ ~ni~ ~ .... ~ ], the board of trustees shall
determine the prior service credit allowable to the member in the
manner provided in Section 853.105 .
SECTION 7. Subsection (a), Section 853.305, Government Code,
is amended to read as follows:
(a) The governing body of a participating municipality by
ordinance may authorize the granting of restricted prior service
credit to an employee who is a member of the retirement system for
service previously performed:
(1) as a full -time, paid employee of the United
States, of any public authority or agency created by the United
states, of any state or territory o f the United States, of any
political subdivision of any state of the United States, [~] of
any public agency or authority crea ted by a state or territory of
the United States, or of an institution of higher education at
which the person is commissioned as a cam pus security personnel
employee under Section 51.212, Education Code, and for which
service the person has not otherwise received credited service in
this system, including combined ser vice credit under Chapter 803;
or
(2) as an employee of the state or any branch, agency,
or subdivision of the state for wh ich the person received credited
service under the Employees Retire ment System of Texas, the Teacher
Retirement System of Texas, the Judicial Retirement System of Texas
Plan One, the Judicial Retirement System of Texas Plan Two, the
Texas County and District Retirement System, or this retirement
system, and the credit for which w as canceled because of withdrawal
of contributions and has not been reinstated.
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SECTION 8. Section 853.402, Government Code, is amended by
amending subsection (f) and by add ing Subsection (g) to read as
(f) i Interest on an updated service credit is earned for each
whole calendar year beginning on t he date the updated service
credit takes effect and ending on the effective date of retirement.
If a person retires under this subtitle o n a date other than
December 31, interest on an updated servi ce credit is earned for
the partial year in which the retirement occurs, prorated from
J~m~ry 1 of the year in which the retire ment occurs to the
effective date of retirement.
(g) If, before January 1, 1999, a person terminated
employment with a participating municipal ity without aDDlying for
retirement or a refund of accumulated con tributions and the person
did not perform credited service in each of the 36 months described
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by Subsection (b)(1), the individual's up
shall be computed as the averaqe monthly
number of months of credited service perf
dated service compensation
compensation for the
ormed durinq the 36-month
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period. If the person did not perform an y service during the 36
months, the person's updated service comp ensation is computed as
the average monthly compensation for the number of months of
credited service performed during the 36 -month period endin~ with
the last month of the calendar year of th e member's most recent
service.
SECTION 9. Subsection (d), Section 854.002, Government Code,
is amended to read as follows:
(d) Notwithstanding any oth er provision of this subtitle,
instead of an annuity, a person wi 11 receive from the retirement
system a single payment equal to t he sum of the following if on the
date of that person's retirement t hat sum is $10,000 [~_._ ] or
less:
(1) any updated servi ce credit or any prior service,
special prior service, or antecede nt service credit for that person
on the date of retirement, plus ac cumulated interest;
(2) the amount credit ed to the person's individual
account in the employees saving fun d; and
(3) the amount from th e municipality accumulation fund
equal to the amount in the member's individual account or a greater
amount authorized by a participating municipality under Section
855.501.
SECTION 10. Section 854.003, Government Code, is amended by
amending Subsection (b) and by adding Subsection (h) to read as
follows:
(b) If a member dies before retirement and an annuity
becomes payable under Section 854.105 [h2~ .... ....... l~ ~ ......
the member is considered to have retired on the last day of the
month immediately preceding the mo nth in which death occurred ~
except as provided by subsection (h)
(h) If the person who is eligible to receive an annuity
under Subsection (b) is the member's surv lying spouse, the person
may elect, by notifying the retirement sy stem not later than the
180th day after the date of the member's death, to leave the
member's accumulated contributions on deposit with the retirement
system until the date the member would ha ve been eligible for
service retirement. If a surviving spouse makes an election under
this subsection, the deceased member is considered to have retired
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on the last day of the month in which the
attained an age for service retirement el
under this subsection is revocable before
member would have
igibility. An election
the payment of the first
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annuity payment by filing a written appli cation approved by the
board of trustees to receive the member's accumulated
contributions.
SECTION 11. Section 854.007, Government Code, is amended to
read as follows:
Sec. 854.007. LIMITATION ON PAYMENT OF BENEFITS. If the
amount of a benefit payment under this subtitle would exceed the
limitations provided by Section 415, Internal Revenue Code of 1986,
and its subsequent amendments, and the re ~ulations adopted under
that section, the retirement system shall
benefit to comply with that section
[ (1) ........ ~ _~e~it''
reduce the amount of the
[ (d) "*~'~n? P~'.'e .... Cede"
uti--c cl!e~d~r veerT cf
]
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[ (i} T~ _~ect~-~ m_'.y net be _~pF!ied te ~ ed,;co the
[ (1) Tho annr:l ~ ..... ~ ~l' ~ ~ ~q ..... ~ .......
SECTION 12. Section 854.008, Government Code, is amended by
amendin~ Subsection (a) and adding S~sections (f) and (~) to read
(a) A me~er who is eligible for se~ice retirement and who
te~inates emplo~ent with all part icipatin9 municipalities may
apply for a partial lump -sum distribution under this section. The
board of trustees may adopt rules to allow the beneficiary of a
deceased me~er who at the time of death was eligible for se~ice
11-20 retirement but had not retired to make th e same election that the
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member could have made under this section at the time of
retirement.
(f) If a benefit payable under this sect ion is subject to a
domestic relations order that the retirement system determines is
qualified under Section 804.003, the alternate payee under that
order may elect to receive a partial lump -sum distribution under
Subsection (9).
(9) The partial lump-sum distribution under Subsection (f)
shall be paid as a single payment, payable at the same time as the
first monthly annuity payment paid to the alternate payee, and
shall be deducted from the sum used in co mputin~ the alternate
Rayee,s annuity. The amount of the lump -sum distribution shall be
equal to the monthly payments, excluding any distributive benefit
payments that the alternate payee would otherwise have received,
during the:
(1) 12 months after the effective date o f the member's
retirement;
(2) 24 months after the effective date o f the member's
retirement; or
(3) 36 months after the effective date o f the member's
retirement.
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SECTION 13. Section 854.102, Government Code, is amended by
adding Subsection (h) to read as fo llows:
(h) A member is eligible to retire and receive a service
retirement annuity if the member is at le asr 60 years old and has
at least five years of credited~service i n the retirement system
that is performed for one or more municipalities to which the
five-year vestinq Drovision under Section 854. 205 applies.
SECTION 14. Subsection (b), Section 854.103, Government
Code, is amended to read as follows :
(b) A standard service retirement annuity is payable
throughout the life of a retiree. [~f 2 rct4~o d4~ ~rc ~9
2nnuit~
th!l ....... _ ....
SECTION 15. Section 854.104, Government Code, is amended by
amending Subsection (c) and by adding subsections (h), (i), and (j)
to read as follows:
(c) An eligible person may se lect an optional annuity that
provides that:
(1) after the retiree's death, the reduced annuity is
payable throughout the life of ape rson designated by the retiree;
(2) after the retiree' s death, one-half of the reduced
annuity is payable throughout the 1 ife of a person designated by
the retiree;
(3) if the retiree die s before 120 monthly annuity
payments have been made, the remain der of the 120 payments are
payable to the retiree's beneficiary or, if one does not exist, to
the retiree's estate;
(4) if the retiree die s before 180 monthly annuity
payments have been made, the remain der of the 180 payments are
payable to the retiree's beneficiary or, if one does not exist, to
the retiree's estate;
(5) after the retiree' s death, three-fourths
[~w~-~/~i~] of the reduced annuity is payable throughout the life
of a person designated by the retiree; or
(6) if the retiree dies before 60 monthly pay ments
have been made, the remainder of the 60 payments are payable to the
retiree's beneficiary or, if one does not exist, to the retiree's
estate [the 2nn,/ity 4 ...... =--,-~ ~.._, ~,,~4~ .~^ ....... ~ +~='" lifetime].
--(h) Subsection (i) applies only to a per son who retired
before September 1, 1997, and who elected , at retirement, to
receive a reduced annuity that is payable until the death of the
last to die of the retiree and a person designated as a beneficiary
under subsection (e).
(i) If both the retiree and the beneficiary described in
Subsection (h) are alive, they may jointly elect in the manner
provided by subsection (j) to modify the annuity being received.
An annuity modified under this subsection :
(1) begins with the first payment after one calendar
month has passed since the date the form under Subsection (j) is
filed, with the amount of the monthly pay ments, while the
beneficiary is alive, being the actuarial equivalent of the
previous annuity; and
(2) increases to the amount of the stand ard service
retirement annuity that the retiree would otherwise be entitled to
receive if the retiree had not selected t he optional annuity with
9djustments made for any postretirement increase in that benefit
and becomes payable the month followinq t he month in which the
beneficiary dies and continues until the retiree dies.
(j) To make the election under Subsection (i), the retiree
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and beneficiary must execute and acknowle
subsection, a form statinq that they are
under subsection (i) and that they unders
annuity will be smaller than the standard
they are both living and if the beneficia
The acknowledgment must be on a form pres
trustees and be made before a notary publ
authorized to take acknowledgments. The
dge, as provided by this
requestinq.a modification
tand that the modified
service annuity while
ry survives the member.
cribed by the board of
ic or other officer
retiree and beneficiary
must file the executed form with the retirement system before
January 1, 2003.
SECTION 16. Section 854.105, Government Code, is amended to
read as follows:
Sec. 854.105. SELECTION OF OPTIONAL SERVICE RETIREMENT
ANNUITY. (a) A vested member [whc i~ c!i~5~!e ~ 2c~
ret~ ..... t ] may, while continuing to perform service for a
participating municipality or after terminatinq all service , file
with the board of trustees, on a fo rm prescribed by the board, a
selection of an optional service re tirement annuity available under
Section 854.104 and a designation o f beneficiary or a designation
of beneficiary without selectinq a retire ment option. An annuity
selected as provided by this section is payable [on thc
rotir?m?mt CT ] on the member's death before retirement.
(b) A member may change a se lection of an optional annuity
or a designation of beneficiary at any time before the member's
retirement or death in the same man ner that the original selection
o__r [~a%~] designation was [~-:crc] made.
(c) If a member eligible und er this section to select an
optional service retirement annuity dies before retirement without
having made a selection, the beneficiary designated under
Subsection (a) may select an optional ann uity in the same manner as
if the member had made the selection, sub ject only to the
requirements of the Internal Revenue Code of 1986, and its
subsequent amendments, as to the length o f time over which the
payments can be made.
(d) If a beneficiary has not been design ated under
subsection (a), the member's surviving spouse may elect to receive
a refund of the member's accumulated contributions or [~] an
optional annuity in the same manner as if the member had made the
selection.
(e) If a beneficiary has not been design ated under
Subsection (a) and no survivinq spouse ex ists, the member's
survivinq children jointly may elect to receive:
(1) a refund of the member's accumulated
contributions; or
(2) an optional annuity in the same mann er as if the
member had made the selection, subject on ly to the requirements of
the Internal Revenue Code of 1986, and it s subsequent amendments~
as to the length of time over which the payments can be made.
(f) If there is no surviving spouse or surviving chil~ and
no beneficiary designated under subsection (a) exists, the last
person desiqnated by the member as a beneficiary on a form filed
with the retirement system may elect to receive:
(1) a refund of the member's accumulated
contributions; or
(2) an optional annuity in the same mann er as if the
member had made the selection, subject on ly to the requirements of
the Internal Revenue Code of 1986, and it s subsequent amendments,
as to the length of time over which the payments can be made.
(g) If there is not a person who is eliq ible to ~ake a
selection under Subsections (c) -(f), the executor or administrator
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of the member's estate may elect:
(1) for an estate beneficiary to receive the optional
annuity under Section 854.104(c) (4), in which case the member will
be considered to have retired on the last day of the month
immediately preceding the month in which death occurred; or
(2) for the estate to receive a refund of the member's
accumulated contributions under Sec tion 854.501, in which case the
member will be considered to have been a contributing member at the
time of death.
SECTION 17. Subsection (a), Section 854.106, Government
Code, is amended to read as follows :
(a) If a surviving spouse, o r the executor or administrator
of a member's estate, would be enti tled to make an election under
Section 854.105 [9~ ~nS(c} ] because of the death of the member,
the heirs of the deceased member ma y make that election if:
(1) no surviving spous
(2) no petition for th
representative of the member is pen
(3) 30 days have elaps
member;
(4) the value of the e
estate, excluding homestead and exem
$50,000;
(5) there are not more
(6) on file with the re
copy of a small estates affidavit th
in accordance with Section 137, Texa
affidavit as described by Subsection
e exists;
e appointment of a personal
ding or has been granted;
ed since the death of the
ntire assets of the member's
pt property, does not exceed
than three heirs; and
tirement system is a certified
at has been approved and filed
s Probate Code, or an original
(b).
SECTION 18. Subchapter B, Chapter 854, Government Code, is
amended by adding Sections 854.107 a nd 854.108 to read as follows:
Sec. 854.107. DESIGNATION OF BENEFICIARY AFTER RETIREMENT
UNDER STRAIGHT LIFE OR GUARANTEED TERM AN NUITY. (a) This section
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applies only to a retiree who marries aft er the date of the
person's retirement and who at the time o f retirement selected
either:
(1) a service or disability retirement annuity that
would be payable throughout the retiree's life and would not be
paid after the retiree's death, except as provided by Section
854.502~ or
(2) a sez-vice or disability retirement annuity that
would be payable throughout the retiree's life and, if the retiree
dies before 60, 120, or 180 monthly annuity payments, as
appropriate, have been made, would be pay able for the remainder of
those months.
(b) A retiree described under Subsection (a) may replace the
annuity by selecting an optional retirement annuity under Section
854.104(c) (1), (2), or (5) and by designa ting the person's spouse
as beneficiary in the same manner as an annuity selection and
designation of beneficiary may be made be fore retirement.
(c) The selection under subsection (b) must be filed with
the retirement system before the first an niversary of the date of
the marriaqe unless the postretirement ma rriage occurred before
January 1, 2002, in which case the select ion must be filed with the
retirement system before January 1~ 2003.
(d) A person may make a postretirement d esiqnation of a
beneficiary under this section only once.
(e) The retirement system shall adjust t he monthly payments
of the annuity under the option selected to an actuarial equivalent
amount of the annuity being paid immediat ely before the change in
benefit option and beneficiary selection.
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(f) The selection of an optional annuity and designation of
a beneficiary under this section is not effective if the retiree or
beneficiary dies before the date the chan ge is to take effect.
Sec. 854.108. DESIGNATION OF BENEFICIARY AFTER RETIREMENT
UNDER JOINT AND SURVIVOR ANNUITY. (a) T his section applies only
to a retiree who:
(1) at the time of retirement selected a n optional
annuity providing that, after the retiree's death, payments would
be made to a beneficiary throughout the r emaininq life of the
beneficiary and the beneficiary predeceas es the retiree;
(2) marries after the date of the person's retirement;
and
(3) has not previously replaced an annuity under this
section.
(b) A retiree described by subsection (a) may replace an
annuity by selectin~ an optional annuity under Section
854.104(c) (1), (2), or (5) and designating the person's spouse as
beneficiary in the same manner as an annuity selection and
designation of beneficiary may be made be fore retirement.
(c) The selection under Subsection (b) must be filed with
the retirement system before the first an niversary of the date of
the marriage unless the postretirement ma rriaqe occurred before
January 1, 2002, in which case the select ion must be filed with the
retirement system before January 1, 2003.
(d) The retirement system shall adjust t he monthly payments
of the annuity under the option selected to an actuarial equivalent
amount of the annuity being paid immediat ely before the change in
benefit option and beneficiary selection.
(e) The selection of an optional annuity and designation of
a beneficiary under this section is not effective if the retiree or
beneficiary dies before the date the chan ge is to take effect.
SECTION 19. Section 854.202, Government Code, is amended by
adding Subsection (j) to read as fo llows:
(j) A member is eligible to retire and receive a service
retirement annuity if the member:
(1) is at least 60 years of age; and
(2) has at least five years of credited service
performed for one or more municipalities to which the five-year
vesting provision under Section 854.205 applies.
SECTION 20. Subchapter C, Chapter 854, Government Code, is
amended by adding Section 854.205 to read as follows:
Sec. 854.205. FIVE-YEAR VESTING. (a) This section applies
to each municipality unless the municipal ity's governing board
files with the board of trustees before December 31, 2001, an
election to not provide for five -year vesting. A ~overninq board
that elects to not provide five -year vesting may revoke that
election by sending notice to the board o f trustees to provide for
five-year vesting.
(b) After December 31, 2001, a member ma y terminate covered
employment and remain eligible to retire and receive a service
retirement annuity at any time after the member attains an
applicable age as provided by law if the member has at least five
years of credited service performed for o ne or more municipalities
to which the five -year vesting provision under this section
~pplies.
SECTION 21. Subsection (c), Section 854.304, Government
Code, is amended to read as follows :
(c) A standard disability re tirement annuity is payable
throughout the life of a retiree. [~f I re?ret di~ ~cfcrc ~9
...... ' 11/1/2001
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7'/(R) SB 522 Enrolled version - Bill Text Page 10 of 12
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eke rctirce'c ~e~i~nzte~ beneficizr¥. ] When a retiree who receives
an annuity under this section dies, an additional benefit may be
lpayable under Section 854.502.
SECTION 22. Subsection (c), Section 854.305, Government
Code, is amended to read as follows:
(c) An eligible person may se lect an optional annuity under
Section 854.104(c)
[ (]) if thc ~e~4~ee ~4~ bC~ 120 --~v~ !l- 2nnuitI.
~2¥/b!e tc
eke retiree'~ e~tzte;
de~i~n2ted bi' t~e retiree; er ]
lifetime].
SECTION 23. Section 854.605, Government Code, is amended by
adding Subsection (c) to read as fo llows:
(c) If a member or retiree who has designated a beneficiary
to receive supplemental death benefits un der Section 854.603 or
854.604 subsequently designates a different beneficiary to receive
other benefits under this subtitle in the event of the death of the
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member or retiree, the supplemental death benefits shall be paid to
the subsequently designated beneficiary unless the member or
retiree contemporaneously or subsequently designates another
beneficiary to receive the supplemental death benefit.
SECTION 24. Section 855.201, Government Code, is amended to
read as follows:
Sec. 855.201. EXECUTIVE DIRECTOR. (a) The board of
trustees shall appoint an executive [~] director.
(b) The executive director shall:
(1) manage and administer the retirement system under
the supervision and direction of th e board; and
(2) invest the assets of the system.
(c) The board of trustees ma y delegate to the executive
director powers and duties in addit ion to those stated by
subsection (b).
(d) The executive director annually shall:
(1) prepare an itemize d budget showing the amount
required to pay the retirement system's expenses for the following
fiscal year; and
(2) submit the report to the board for review,
amendment, and adoption.
SECTION 25. Section 855.301, Government Code, is amended by
adding Subsection (c) to read as fo llows:
(c) The board of trustees, in the exerci se of its discretion
to manage the assets of the retirement sy stem, may select one or
more commercial banks or other entities experienced in short -term
cash management to invest the system's ca sh balances through its
short-term investment fund or funds and in such short-term
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77~(R) SB 522 Enrolled version - Bill Text Page 11 of 12
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this section.
SECTION 26. Subchapter D, Chapter 855, Government Code, is
amended by adding Section 855.3011 t o read as follows:
Sec. 855.3011. SECURITIES LENDING. (a) The board of
trustees, in the exercise of its discreti on to manage the assets of
the retirement system, may select a perso n, including a commercial
bank or depository trust company, to lend retirement system
securities as provided by this section an d rules adopted by the
board of trustees.
(b) To be eligible to lend securities un der this section, a
person must:
(1) be experienced in the operations of a fully
secured securities lending program;
(2) maintain capital adequate in the pru dent judgment
of the retirement system to assure the sa fety of the securities;
(3) execute an indemnification agreement , satisfactory
in form and content to the retirement sys rem, fully indemnifying
the retirement system against any loss re sulting from borrower
default or the failure of the securities lending agent to properly
execute the agent's responsibilities under the applicable
securities lending agreement~
(4) require any securities broker or dealer to whom
the agent ]~nd~ securities belonging to t he retirement system to
deliver and maintain with the custodian collateral in the form of
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cash or United States government securiti es eligible for book
entry, the market value of which must equ al not less than 100
percent of the market value, from time to time, of the loaned
securities; and
(5) comply with the guidelines adopted b y the board of
trustees relating to the investment of ca sh collateral, borrower
limits, and other items.
SECTION 27. subchapter G, Ch apter 855, Government Code, is
amended by adding Section 855.608 t o read as follows:
Sec. 855.608. FULL BENEFIT ARRANGEMENT. (a) A separate
fund for the payment of benefits under Se ction 415(m), Internal
Revenue Code of 1986, and its subsequent amendments, is createG
solely for the purpose of providing benef its to participants equal
to the amount by which the participant's annual benefit otherwise
payable under this subtitle exceeds the 1 imitation on benefits
imposed by Section 415, Internal Revenue Code of 1986, and its
subsequent amendments.
(b) The board of trustees shall administ er this section.
Except as otherwise provided by this sect ion, the board of trustees
has the same rights, duties, and responsibilities concerning the
full benefits arrangement as it has for t he trust fund.
(c) Money for the payment of benefits to a participant under
this section shall be transferred to the separate fund created by
this section from the municipality accumulation fund account of the
municipality that employed the member. I f the benefit is payable
as a result of service with more than one participating.
municipality, there shall be transferred from the municipality
accumulation fund account of each such mu nicipality the amount
chargeable to that municipality for the m ember. The monthly amount
to pay benefits under this section shall be transferred at least 15
days before the date of a monthly payment to a person receiving
annuity benefits under this section.
(d) The full benefits arrangement shall be administered as a
governmental excess benefit arrangement. The board of trustees may
adopt rules for the efficient administrat ion of this section and to
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26-12 maintain compliance with Section 415(m), Internal Revenue Code of
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1986, and its subsequent amendments.
SECTION 28. Section 854.204, Government Code, is repealed.
SECTION 29. (a) Except as provided by Subsection (b) o~
this section, this Act takes effect January 1, 2002.
(b) Section 854.205, Government Code, as added by this Act,
takes effect September 1, 2001.
President of the Senate Speaker of the House
I hereby certify that S.B. No. 522 passed the Senate on
March 15, 2001, by a viva -voce vote; and that the Senate concurred
in House amendment on May 2, 200 1, by a viva-voce vote.
I hereby certify that S.B.
amendment, on April 26, 2001, by
Secretary of the Senate
No. 522 passed the House, with
a non-record vote.
Approved:
Chief Clerk of the House
Date
Governor
http://www.capit~.state.tx.us/¢gi.bin/t~/viewtext.cmd?LEG=77&SESS=R&CHAMBER=~... 11/1/2001
A0~41NISTRAT[ON: (512) 476-7577 ORTOU.-FREE (877) 634-8595 · FAX: (512) 476-2903
HEt4BER SERVICES: TOLL-FRE~ (800) g24-8677 · FAX: (512) 476-5576
/ -/ May 25, 2001
Mr. W. E. Anderson
Director of Finance
City of Paris
P.O. Box 9037
Paris, Texas 75461-9037
RE: 2002 MUNICIPAL CONTRIBUTION RATE
AND UPDATED SERVICE CREDIT STUDY
Dear Gene:
Based on the plan of benefits in effect January 1, 2001, the City's Municipal Contribution Rate that will become
effective January 1,2002,'will be:
Normal Cost: 6.79%
Prior Service: 2.80%
Retirement Cost: 9.59%
Supplemental Death: 0.27%
Total Rate: 9.86%
The 2002 municipal contribution rate includes recent changes adopted by the Texas Legislature, including 5-Year
Vesting, the cost of which is shown in the tables below. Your City will automatically be covered by 5-Year Vesting
unless an ordinance is adopted prior to December 31,2001, declining this benefit. Five-Year Vesting brings TMRS
in line with the other public retirement systems in Texas, as well as public plans in other states.
The following data provides a detailed statement of changes in the retirement portion of the City's contribution rate.
This analysis breaks down the change in the retirement portion of the City contribution rate from 2001 to 2002.
This data does not reflect any change in the cost of the Supplemental Death Benefit, if adopted by the City. Any
changes in the cost of the Supplemental Death Benefit are a function of the average age of the City's employee
group, and the number of covered retirees.
Chan in the Normal CoSt contribution rate:
Change due to termination of status as a contributing member: 0.18
Change in service and salary characteristics of contributing members: -0.33
Change due to increased age of contributing members: 0.43
Change due to phasing in cost from actuarial assumption changes: 0.00
'~ha~ge due to other factors: 0.01
Total Change in Normal Cost included in above rate: 0.36
the Prior Service contribution rate:
Change due to adoption of annually repeating Updated Service Credits and Annuity Increases: 0.14
Change due to payroll experience: -0.05
Change due to actuarial gains, inconsistent contributions, or other actuarial factors: 0.06
Change due to phasing in cost from actuarial assumption changes: 0.00
Change due to affect of Statutory Maximum and/or conservative funding: 0.00
~'t~i-change in Prior Service included in above rate: 0.16
Page 2
The Enclosed "Explanation of Items Included in the Reconciliation of the Municipal Contribution Rate for 2002 with
that of 2001" provides a description of each of the factors included in the reconciliation and its impact on the
contribution rate.
Also enclosed are the City's Updated Service Credit and Annuity Increases Study, effective January 1, 2002, and
an explanation sheet. This study indicates the plan cost should the City elect to improve its plan of benefits. Model
ordinances are available from TMRS to use to adopt any changes to your City's plan of benefits.
If you have any questions regarding the City's 2002 Municipal Contribution Rate, the reconciliation of the rate, or
the Updated Service credit and Annuity Increases Study please feel free to contact our office.
Sincerely,
Eric W. Davis
Deputy Executive Director
Enclosures
EXPLANATION OF ITEMS INCLUDED IN THE RECONCILIATION OF THE MUNICIPAL
CONTRIBUTION RATE FOR 2002 WITH THAT OF 2001
NORMAL COST CONTRIBUTION RATE RECONCILIATION
'1. CHANGE DUE TO TERMINATION OF STATUS AS A CONTRIBUTING MEMBER:
This item reflects changes due to termination of status as a contributing member that may result from death,
termination of employment, disability, or retirement. When a member stops contributing to TMRS, the city's cost for
matching deposits ends, and the employee's salary is removed from the total payroll used to fund all benefits. Unless
another employee flits the vacated position, this will normally cause an increase in the contribution rate.
2. CHANGES IN SERVICE AND SALARY CHARACTERISTICS OF CONTRIBUTING MEMBERS:
The first portion of this category shows changes in the number of contributing members. An increase in the number of
contributing members (new positions) from one year to the next increases the overall payroll used to fund retirement
benefits. Although a city's matching funds will increase due to the new employees, the aggregate effect of increasing
the number of contributing members usually is a decrease in a city's contribution rate.
The second part of this category is change of compensation. When a member's compensation changes from one
actuarial valuation to another, the city's matching requirements likewise change. The combined effect of these
changes can either be an increase or a decrease in the city's contribution rate.
3. CHANGE DUE TO INCREASED AGE OF CONTRIBUTING MEMBERS:
As the age of contributing members increases, the probability of the member remaining employed until retirement also
increases. Increasing age of the members therefore increases the likelihood that a member will reach retirement
eligibility and retire, resulting in an increase in the city's contribution rate.
4. INCREASE DUE TO PHASE-IN OF ACTUARIAL ASSUMPTION CHANGES:
For eligible cities that chose to phase-in the effect of changes in actuarial assumptions resulting from the 5-year
experience study completed in 1998, this amount is an increase in the calculated rate. The 2001 rate took into
account 40% of the effect of the assumption changes. The 2002 rate takes into account 60% of the effect; thus the
2002 rate acknowledges an additional 20% of the rate increase caused by changes in the actuarial assumptions.
5. CHANGE DUE TO 5-YEAR VESTING:
The Texas Legislature adopted a provision whereby all cities participating in TMRS will be covered by a 5-Year
Vesting provision unless a city elects to remain at 10-Year Vesting. For most cities, the effect of this change is an
increase in the normal cost rate.
CONSERVATIVE FUNDING AND OTHER FACTORS:
For cities with fewer than three contributing members, conservative funding formulas are used to calculate the normal
cost contribution rate. These conservative funding formulas ensure that the city matching portion is fully funded at the
time of retirement.
Also included in this category are adjustments for other actuarial factors. This is usually just the effect of rounding in
the actuarial valuation process.
PRIOR SERVICE CONTRIBUTION RATE RECONCILIATION
1, CHANGE DUE TO ANNUALLY REPEATING UPDATED SERVICE CREDITS AND ANNUITY INCREASES:
For a city that has adopted annually repeating Updated Service Credits, this is the effect of additional actuarial liability
derived from the new credits to be granted effective January 1 of the year in which the rate is effective. Likewise, if the
city has adopted annually repeating Annuity Increases, this is the effect of the additional actuarial liability derived from
the annuity increases to be granted.
PAGE 2 - EXPLANATION OF RECONCILIATION
2. CHANGE DUE TO PAYROLL EXPERIENCE:
The prior service contribution rate is closely linked to the city's payroll. When the payroll changes, there is
corresponding change in the contribution rate. An increase in payroll, above the actuarial assumption, reduces
contribution rate. An increase in payroll of less than the actuarial assumption, or a decrease in the payroll, will cau_~e
an increase in the contribution rate. The actuarial assumptions are based on the historical trends in the city itself, arc.
allow the actuary to project future contributions to the retirement system. The annual valuation process allows ~-~
actuary to adjust the rate to reflect any difference between the actuarial assumption and reaNife experience.
3. CHANGE DUE TO ACTUARIAL GAINS, INCONSISTENT CONTRIBUTIONS, OR OTHER ACTUARIAL FACTORS:
This is a broad category and includes changes in three areas. The first area is actuarial gain. The actuad.¢
assumptions used in the actuarial valuation process enable the actuary to project the value of the Unfunded ActuarY.-~
Liability (UAL) from the previous actuarial valuation to the current actuarial valuation. The difference between ~e
projected UAL and the actual UAL is called an actuarial gain (a negative difference is an actuarial loss). This gain, c.'-
loss, takes into account the differences between events (investment return, deaths, retirements, disabilities, a:-c
withdrawal of member contributions) assumed on the basis of the actuarial assumptions and the corresponding re,-
life events that occurred between the preceding actuarial valuation and the current one. An actuarial gain reduces
prior service contribution rate, and a loss increases it.
The second area in this category is inconsistent contributions. This refers to timing of the valuation and wh~-
contribution rates actually take effect. A city's 2002 contribution rate is based on the valuation for the year ende.-:
December 31, 2000. Thero is, therefore, a one-year period from the time the actuarial experience is recognized,
the time the contribution rate is changed to reflect the actuarial experience. During this one-year lag time, 2001 in
case, the city may be contributing too little or too much as a result of the actuarial experience for the year
December 31, 2000. Therefore, the contribution rate must be adjusted to account for this one-year lag time.
actuarial experience is better than assumed, the contribution rate can be reduced. Likewise, if actuarial experience
worse than assumed, the contribution rate will be increased.
The third area includes adjustments for other actuarial factors. This is usually just the effect of rounding in ~e
actuarial valuation process.
4. INCREASE DUE TO PHASE-IN OF ACTUARIAL ASSUMPTION CHANGES:
5o
For eligible cities that chose to phase-in the effect of changes in actuarial assumptions resulting from the 5-ye?
experience study completed in 1998, this amount is an increase in the calculated rate. The 2001 rate took i~
account 40% of the effect of the assumption changes. The 2002 rate takes into account 60% of the effect; thus ~-e
2002 rate acknowledges an additional 20% of the rate increase caused by changes in the actuarial assumptions.
CHANGE DUE TO EFFECT OF STATUTORY MAXIMUM AND/OR CONSERVATIVE FUNDING:
This category includes two areas. The first area is the effect of the statutory maximum contribution rate. For cit~
whose combined normal cost and prior service contribution rat~s exceeded the statutory maximum, for either the 2CC-
or 2002 contribution rate, or both, the actuary must reduce the prior service portion of the rate so the retirement
portion of the rate equals the statutory maximum. If a city does not elect by ordinance to pay the calculatc-c
contribution rate, the city will not be fully funding the cost of the plan benefits adopted. This shortfall in funding, unl~-~
offset by actuarial gains in the city's plan, must be made up in future years.
The second area is the effect of conservative funding formulas used to calculate the prior service contribution rate
cities with less than three contributing members. These conservative funding formulas provide for funding the prfc:T
service benefits over the remaining expected working life of the contributing members.
6. CHANGE DUE TO 5-YEARVESTING:
The Texas Legislature adopted a provision whereby all cities participating in TMRS will be covered by a 5-Ye'-~---
Vesting provision unless a city elects to remain at 10-Year Vesting. For most cities, the effect of this change is a-
increase in the prior service rate.
UPDATED SERVICE CREDIT AND ANNUITY INCREASE STUDY
EXPLANATION OF PLANS
TMRS member cities have the opportunity to annually adopt Updated Service Credit and Annuity Increases,
improving retirement benefits for beth active employees and retirees who are currently receiving a monthly
retirement benefit from the System.
Section
If the City adopts 100% Updated Service Credit effective January 1, 2002, a member's updated service credit
will be calculated based on the member's average monthly salary for the three-year period of 1998, 1999 and
2000, assuming the member had always earned that average salary and made contributions to the System,
matched by the City on the basis of the three-year average salary, and had earned 3% annual interest. In
other words, a member's retirement benefits are "updated" based on the wages earned in recent years
(granted a credit if the updated service credit calculation is greater than the actual amount from all sources in
the member's account). In addition, if the City has increased the employee deposit rate and/or the City's
matching ratio, the new Updated Service Credit will reflect those changes. If the City adopts Updated Service
Credit of less than 100%, the percentage adopted will be used in calculating the member's credit.
The "Proposed Plans" on the Updated Service Credit artd Annuity Increase Study (Section I) are prepared as
follows:
1. The first plan includes Updated Service Credit, along with the Senate Bill 505 provisions if
the City has not previously adopted these provisions. If your City has adopted the Annualty
Repeating Updated Service Credit and Annuity Increases, this plan indicates the separate
cost of the update.
2. If your City has a matching ratio other than 2 to 1, or an employee deposit rate other than
7%, additional proposed plans will be shown with a higher matching ratio or a higher
employee deposit rate, as well as Updated Service Credit. These plans will also include the
optional provisions of Senate Bill 505 if the City has not previously adopted these provisions.
3. If your City requested any specific plans, these plans will also be shown.
Section II
The City also has the option to adopt increases in the monthly annuities being paid to retirees. Most cities
adopt annuity increases each year along with the Updated Service Credit. The increase that can be granted to
retirees is calculated based on a maximum of 70% of the change in the Consumer Price Index (CPI-U), less
any previously granted increases. The change in the CPI is measured from the December preceding the
individual's actual retirement date through December 2000. Proposed Plans "A" through "C" (Section II)
indicate the cost of the various levels of annui~ increases. The rate shown under one of these proposed plans
must be added to the rate of a Proposed Plan in Section ! to yield the City's total contribution rate.
The City can adopt Updated Service Credit and Annuity Increases by adoption of an ordinance each year, or
by adopting the annually repeating provision whereby the City is not required to adopt an ordinance each year.
By adopting Updated Service Credit and Annuity Increases regularly, the City will be providing a retirement
program that keeps benefits in line with increases in employees' salaries, in addition to protecting retirees'
monthly retirement annuities for the effects of inflation.