By: Rodriguez H.B. No. 4368     Substitute the following for H.B. No. 4368:     By:  Parker C.S.H.B. No. 4368       A BILL TO BE ENTITLED   AN ACT   relating to participation in, contributions to, and the benefits   and administration of retirement systems for police officers in   certain municipalities.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 1.02, Chapter 452 (S.B. 738), Acts of the   72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's   Texas Civil Statutes), is amended by amending Subdivisions (2) and   (4) and adding Subdivisions (1-a), (2-a), (3-a), (3-b), (6-a),   (6-b), (6-c), (6-d), (6-e), (10-a), (11-a), (13-a), (13-b), (13-c),   (15-a), (15-b), (15-c), (15-d), (15-e), (17-a), (18-a), (18-b),   (19-a), (19-b), (23-a), (29-a), and (29-b) to read as follows:                (1-a)  "Actuarial accrued liability" means the portion   of the actuarial present value of projected benefits of the police   retirement system attributed to past periods of member service   based on the cost method used in the risk sharing valuation study   prepared under Section 8.03 or 8.04 of this Act, as applicable.                (2)  "Actuarial equivalent" means any benefit of equal   present value to a standard benefit when computed as specified by   this Act, based on the actuarial assumptions adopted by the police   retirement board for that purpose.                (2-a)  "Actuarial value of assets" means the value of   the police retirement system's investments as calculated using the   asset smoothing method used in the risk sharing valuation study   prepared under Section 8.03 or 8.04 of this Act, as applicable.                (3-a)  "Amortization period" means:                      (A)  the period necessary to fully pay a liability   layer; or                      (B)  if referring to the amortization period of   the police retirement system as a whole, the number of years   incorporated in a weighted average amortization factor for the sum   of the legacy liability and all liability layers as determined in   each annual actuarial valuation of assets and liabilities of the   system.                (3-b)  "Amortization rate" means, for a given calendar   year, the percentage rate determined by:                      (A)  adding the scheduled amortization payments   required to pay off the then-existing liability layers;                      (B)  subtracting the city legacy contribution   amount for the same calendar year, as determined in the risk sharing   valuation study prepared under Section 8.03 or 8.04 of this Act, as   applicable, from the sum under Paragraph (A); and                      (C)  dividing the sum under Paragraph (B) by the   projected pensionable payroll for the same calendar year.                (4)  "Average final compensation" means the monthly   average of basic hourly earnings of a member during, as applicable:                      (A)  if the member has 120 months or more of   service during which the member made contributions to the system or   the predecessor system, the 36 months for a group A member or 60   months for a group B member which yielded the highest average during   the last 120 months of membership service during which the member   contributed to the system or the predecessor system;                      (B)  if the member has less than 120 months of   membership service during which the member contributed to the   system or the predecessor system, but has at least 36 months of   membership service for a group A member or 60 months of membership   service for a group B member during which the member made   contributions to the system or the predecessor system, the average   of the 36 months or 60 months, as applicable, which yielded the   highest average; or                      (C)  if the member does not have 36 months of   membership service for a group A member or 60 months of membership   service for a group B member during which the member contributed to   the system or the predecessor system, the average of the member's   months of membership service during which the member made   contributions to the system or the predecessor system.                (6-a)  "City contribution rate" means, for a given   calendar year, a percentage rate equal to the sum of the employer   normal cost rate and the amortization rate, as adjusted under   Section 8.05 or 8.06 of this Act, if applicable.                (6-b)  "City legacy contribution amount" means, for   each calendar year, a predetermined payment amount expressed in   dollars in accordance with a payment schedule amortizing the legacy   liability for the calendar year ending December 31, 2020 that is   included in the initial risk sharing valuation study under Section   8.03 of this Act. The schedule of legacy liability payments will be   determined in such a manner that the total annual payments for the   first three calendar years will result in a phase-in of the   anticipated increase in the City's contribution rate from calendar   year 2021 to the estimated contribution rate for calendar year 2022   (determined as if there was no contribution increase phase-in). The   aforementioned estimated contribution rate for 2022 will be based   on the projected payroll of the City from the initial risk sharing   valuation study under Section 8.03 of this Act assuming a 3% payroll   growth rate. The phase-in will reflect approximately one-third of   the increase each year over the three-year phase-in period. The   total annual payments for the first three calendar years will be   adjusted to reflect the impact of the phase-in of the   contributions. The legacy liability payments for years 4 through 30   will represent a 3% increase over the prior years' legacy   contribution.                (6-c)  "Corridor" means the range of city contribution   rates that are:                      (A)  equal to or greater than the minimum city   contribution rate; and                      (B)  equal to or less than the maximum city   contribution rate.                (6-d)  "Corridor margin" means five percentage points.                (6-e)  "Corridor midpoint" means the projected city   contribution rate specified for each calendar year for 30 years as   provided by the initial risk sharing valuation study under Section   8.03 of this Act, rounded to the nearest hundredths decimal place.                (10-a)  "Employer normal cost rate" means, for a given   calendar year, the normal cost rate minus the applicable member   contribution rate determined under Section 8.01 of this Act.                (11-a)  "Estimated city contribution rate" means, for a   given calendar year, the city contribution rate that would be   required to maintain an amortization period for the retirement   system as a whole of no more than 30 years as determined by the   system's actuary in a risk sharing valuation study under Section   8.03 or 8.04 of this Act, as applicable, and before any adjustment   to the rate under Section 8.05 or 8.06 of this Act, as applicable.                (13-a)  "Funded ratio" means the ratio of the actuarial   value of assets divided by the actuarial accrued liability.                (13-b)  "Group A member" means a member included in   group A membership under Section 4.01(e-1) of this Act.                (13-c)  "Group B member" means a member included in   group B membership under Section 4.01(e-1) of this Act.                (15-a)  "Legacy liability" means the unfunded   actuarial accrued liability determined as of December 31, 2020, and   for each subsequent calendar year, adjusted as follows:                      (A)  reduced by the city legacy contribution   amount for the calendar year allocated to the amortization of the   legacy liability; and                      (B)  adjusted by the assumed rate of return   adopted by the police retirement board for the calendar year.                (15-b)  "Level percent of payroll method" means the   amortization method that defines the amount of the liability layer   recognized each calendar year as a level percent of pensionable   payroll until the amount of the liability layer remaining is   reduced to zero.                (15-c)  "Liability gain layer" means a liability layer   that decreases the unfunded actuarial accrued liability.                (15-d)  "Liability layer" means:                      (A)  the legacy liability established in the   initial risk sharing valuation study under Section 8.03 of this   Act; or                      (B)  for calendar years after December 31, 2020,   the amount that the police retirement system's unfunded actuarial   accrued liability increases or decreases, as applicable, due to the   unanticipated change for the calendar year as determined in each   subsequent risk sharing valuation study prepared under Section 8.04   of this Act.                (15-e)  "Liability loss layer" means a liability layer   that increases the unfunded actuarial accrued liability. For   purposes of this Act, the legacy liability is a liability loss   layer.                (17-a)  "Maximum city contribution rate" means, for a   given calendar year, the rate equal to the corridor midpoint plus   the corridor margin.                (18-a)  "Minimum city contribution rate" means, for a   given calendar year, the rate equal to the corridor midpoint minus   the corridor margin.                (18-b)  "Normal cost rate" means, for a given calendar   year, the salary weighted average of the individual normal cost   rates determined for the current active member population, plus the   assumed administrative expenses determined in the most recent   actuarial experience study.                (19-a)  "Payoff year" means the year a liability layer   is fully amortized under the amortization period. A payoff year may   not be extended or accelerated for a period that is less than one   month.                (19-b)  "Pensionable payroll" means the aggregate   basic hourly earnings of all members in active service for a   calendar year or pay period, as applicable.                (23-a)  "Projected pensionable payroll" means the   estimated pensionable payroll for the calendar year beginning 12   months after the date of the risk sharing valuation study prepared   under Section 8.03 or 8.04 of this Act, at the time of calculation   by:                      (A)  projecting the prior calendar year's   pensionable payroll forward two years using the current payroll   growth rate assumption adopted by the police retirement board; and                      (B)  adjusting, if necessary, for changes in   population or other known factors, provided those factors would   have a material impact on the calculation, as determined by the   board.                (29-a)  "Unanticipated change" means, with respect to   the unfunded actuarial accrued liability in each subsequent risk   sharing valuation study prepared under Section 8.04 of this Act,   the difference between:                      (A)  the remaining balance of all then-existing   liability layers as of the date of the risk sharing valuation study;   and                      (B)  the actual unfunded actuarial accrued   liability as of the date of the risk sharing valuation study.                (29-b)  "Unfunded actuarial accrued liability" means   the difference between the actuarial accrued liability and the   actuarial value of assets.          SECTION 2.  Section 3.02, Chapter 452 (S.B. 738), Acts of the   72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's   Texas Civil Statutes), is amended to read as follows:          Sec. 3.02.  COMPOSITION OF BOARD. (a) The police retirement   board shall be composed of 11 members as follows:                (1)  one council member designated by the city council;                (2)  the city manager or the city manager's designee;                (3)  the director of finance or the director's   designee;                (4)  four [five] police officer members elected by the   police officer members of the system, each of whom serves for a term   of four years;                (5)  one legally qualified voter of the city, being a   resident for the preceding five years and not an employee of the   city or a member of the system at the time of appointment or during   any time serving as a trustee on the board, with demonstrated   experience in the field of finance or investments, to be appointed   by the police retirement board to serve for a term of four years and   until the member's successor is duly selected and qualified; [and]                (6)  one legally qualified voter of the city, being a   resident for the preceding five years and not an employee of the   city or a member of the system at the time of appointment or during   any time serving as a trustee on the board, with demonstrated   experience in the field of finance or investments, to be appointed   by the city council to serve for a term of four years and until the   member's successor is duly selected and qualified; and          (7) [(6)]  two retired members to be elected by the retired   members to serve for a term of four years, with the term of one   member expiring each odd-numbered year.          (b)  The terms of two members elected as described by   Subsection (a)(4) of this section expire in 2023 [2001] and every   fourth subsequent year, and the terms of two [three] members   elected as described by Subsection (a)(4) of this section expire in   2025 [2003] and every fourth subsequent year.          (c)  A vacancy occurring by the death, resignation, or   removal of the member appointed under Subsection (a)(5) of this   section shall be filled by appointment by the remaining members of   the police retirement board.          (d)  A vacancy occurring by the death, resignation, or   removal of the member appointed under Subsection (a)(6) of this   section shall be filled by appointment by the city council.          SECTION 3.  Section 3.10, Chapter 452 (S.B. 738), Acts of the   72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's   Texas Civil Statutes), is amended to read as follows:          Sec. 3.10.  INVESTMENT MANAGERS. The police retirement   board may hire an investment manager or investment managers who   shall have full authority to invest the assets and manage any   portion of the portfolio of the system, as specified by the   manager's [employment] contract.          SECTION 4.  Section 4.01, Chapter 452 (S.B. 738), Acts of the   72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's   Texas Civil Statutes), is amended by amending Subsections (c) and   (e) and adding Subsections (e-1) and (e-2) to read as follows:          (c)  Any person who becomes an employee of the city or the   system, if eligible for membership, shall become a member as a   condition of employment and shall make the required deposits   commencing with the first pay period following a probationary   period of six continuous months from date of employment, if   applicable, or eligibility, if later.          (e) [(1)]  Membership in the police retirement system shall   consist of the following groups:                (1) [(A)]  Active--Contributory: the member who is in a   status which allows payroll contributions to the police retirement   system (working a normal work week, holding a full-time position,   and, if applicable, having completed a continuous period of six   months of service initially, to attain membership).                (2) [(B)]  Active--Noncontributory: the member whose   current employment status does not allow contributions to the   system (working less than a normal work week or on a leave of   absence under Subsection (f)(6)(A) of this section) and on return   to working a normal work week, the member will again be given   creditable service, with contributions resumed at time of status   change.                (3) [(C)]  Inactive--Contributory: the member who is   on a uniformed service leave of absence under Subsection (f)(6)(B)   of this section, who is allowed to make deposits to the system   during the member's absence.                (4) [(D)]  Vested--Noncontributory: the terminated   member who, being vested, leaves the member's accumulated deposits   in the system.                (5) [(E)]  Retired: the member who is receiving a   service or disability retirement annuity.          (e-1)  Each member is either a group A member or a group B   member, as follows:                (1)  a member is a group A member if the member was:                      (A)  retired or employed by the city or the system   on December 31, 2021;                      (B)  a vested--noncontributory member as of   December 31, 2021, who has not withdrawn the member's accumulated   deposits; or                      (C)  formerly employed by the city or the system   before December 31, 2021, returned to employment with the city or   system on or after January 1, 2022, and:                            (i)  did not withdraw the member's   accumulated deposits from the system; or                            (ii)  withdrew the member's accumulated   deposits from the system, but reinstated all of the previously   forfeited creditable service; and                (2)  a member is a group B member if the member:                      (A)  first became employed by the city or the   system on or after January 1, 2022; or                      (B)  was formerly employed by the city or the   system before December 31, 2021, returned to employment with the   city or system on or after January 1, 2022, and:                            (i)  while the member was separated from   service, withdrew the member's accumulated deposits from the   system; and                            (ii)  has not reinstated all of the member's   previously forfeited creditable service.          (e-2) [(2)]  It shall be the duty of the police retirement   board to determine the membership group to which each police   officer or employee of the system who becomes a member of the police   retirement system properly belongs under Subsection (e) and   Subsection (e-1) of this Act.          SECTION 5.  Section 5.03(a), Chapter 452 (S.B. 738), Acts of   the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,   Vernon's Texas Civil Statutes), is amended to read as follows:          (a)  An eligible member or eligible surviving spouse may   establish creditable service for probationary service performed as   provided under this section according to the following conditions,   limitations, and restrictions:                (1)  Probationary service creditable in the system is   any probationary service following the member's commission date or   the member's first date of employment with the system for which the   member does not have creditable service.                (2)  An eligible member or eligible surviving spouse   may establish creditable service under this section by contributing   to the system a single payment equal to the contribution the member   would have made to the system for that service at the time the   service was performed and an interest charge based on the   contribution amount to be repaid times an interest factor. The   interest factor is eight percent per year for the period that begins   with the beginning of the month and year at the end of the   probationary period for which creditable service is being   established to the beginning of the month and year payment is made   to the system for the purpose of establishing said service.                (3)  After the eligible member or eligible surviving   spouse makes the deposit required by Subdivision (2) of this   subsection, the system shall grant the member one month of   creditable service for each month of probationary service   established under this section.          SECTION 6.  Section 5.04(a), Chapter 452 (S.B. 738), Acts of   the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,   Vernon's Texas Civil Statutes), is amended to read as follows:          (a)  Under irrevocable action taken by the city council on   February 12, 1998, police [This section does not take effect unless   the city council authorizes the city to begin making contributions   to the police retirement system in accordance with Section 8.01(a)   of this Act for police cadets during their employment as cadets   while members of a cadet class. Police] cadets whose cadet class   begins after April 1, 1998, [the city council makes the   authorization] shall make deposits to the police retirement system   in accordance with Section 8.01(a) of this Act, and those cadets   shall be members of the police retirement system and shall receive   creditable service for employment as cadets while members of a   cadet class, notwithstanding Sections 1.02(7), (18), and (21) of   this Act.          SECTION 7.  Section 6.01, Chapter 452 (S.B. 738), Acts of the   72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's   Texas Civil Statutes), is amended by amending Subsections (a) and   (f) to read as follows:          (a)  On retirement after having reached the member's normal   retirement date, members entitled thereto shall receive a service   retirement benefit in the form of a life annuity (modified cash   refund). Each monthly payment of the life annuity (modified cash   refund) shall be equal to one-twelfth of:                (1)  for a group A member, the product of 3.2 [2.88]   percent of a member's average final compensation multiplied by the   number of months of creditable service; or                (2)  for a group B member, the product of 2.5 percent of   a member's average final compensation multiplied by the number of   months of creditable service.          [The retirement benefit percent specified by this section to   calculate the amount of the monthly payment of the life annuity   (modified cash refund) may be changed after 1997 if:                (1)  the change is approved by the board's actuary;                (2)  the change is adopted by the board as a board rule;                (3)  the change applies to all present members, all   retired members, and all who become members after the effective   date of the change in the retirement benefit percent;                (4)  a member's vested interest as of the last day of   the month immediately preceding the effective date of the change in   the retirement benefit percent is not reduced; and                (5)  a retirement annuity being paid by the police   retirement system to members or to the surviving spouses or   beneficiaries of members who retired before the effective date of   the change in the retirement benefit percent is changed as   prescribed by Subsection (d)(6) of this section, except that a   reduction in annuities may not cause the member's, surviving   spouse's, or beneficiary's annuity payment to be reduced below the   base retirement amount calculated under this Act.]          (f)  For purposes of this section, compensation of each   noneligible member taken into account under this Act may not exceed   the maximum amount allowed under [$200,000 per calendar year,   indexed pursuant to] Section 401(a)(17) of the Internal Revenue   Code of 1986 (26 U.S.C. Section 401). The [$200,000] limit   prescribed by this subsection does not apply to an eligible member.   For purposes of this subsection, an eligible member is any   individual who first became a member before January 1, 1996. For   purposes of this subsection, a noneligible member is any other   member.          SECTION 8.  Section 6.02, Chapter 452 (S.B. 738), Acts of the   72nd Legislature, Regular Session, 1991 (Article 6243n-1, Vernon's   Texas Civil Statutes), is amended by amending Subsection (a) and   adding Subsection (a-1) to read as follows;          (a)  A group A [Any] member shall be eligible for service   retirement if the member has attained the age of 55 years and   completed at least 20 years of creditable service with the city, or   has completed 23 years of creditable service, excluding any   military service established under Section 5.02 of this Act.          (a-1)  A group B member shall be eligible for service   retirement if the member has attained the age of 50 years and   completed at least 25 years of creditable service with the city,   excluding any military service established under Section 5.02 of   this Act.          SECTION 9.  Section 6.04(b), Chapter 452 (S.B. 738), Acts of   the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,   Vernon's Texas Civil Statutes), is amended to read as follows:          (b)  If a member who has attained the applicable age for   minimum distributions required under Section 401(a)(9) of the   Internal Revenue Code of 1986 (26 U.S.C. Section 401(a)(9)),   [70-1/2] separates or has separated from service without applying   for retirement or a refund of accumulated deposits, the police   retirement system shall attempt to send to that member a written   notice as soon as practicable after the later of the date the member   attains the applicable age [70-1/2] or the date the member   separates from service. The written notice must advise the member   of the requirement under Section 401(a)(9) of the Internal Revenue   Code of 1986 (26 U.S.C. Section 401(a)(9)) to retire and begin   receiving a monthly retirement benefit. If, before the 91st day   after the date the police retirement system sends the notice, the   member has not filed an application for retirement or a refund, the   member is considered to have retired on the last day of the third   month following the later of the two dates specified by this   subsection. If applicable, the retirement option shall be   determined in accordance with the member's written selection of   optional benefit and designation of beneficiary under Section   6.06(a)(1) of this Act. Otherwise, the member shall receive the   life annuity under Section 6.01 of this Act.          SECTION 10.  Section 7.02, Chapter 452 (S.B. 738), Acts of   the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,   Vernon's Texas Civil Statutes), is amended by amending Subsection   (a) and adding Subsection (a-1) to read as follows:          (a)  On award of disability retirement benefits, the member   shall receive a disability retirement benefit computed in the same   manner that a service retirement benefit would be computed at the   member's normal retirement date, based on average final   compensation and creditable service at date of disability   retirement without reduction for early retirement. If the   disability is a direct or proximate result of the performance of the   member's employment duties with the system or the city, then the   disability retirement benefit will be subject to a minimum benefit   determined in accordance with Section 6.01(a)(1) or (2), as   applicable, based on:                (1)  average final compensation at date of disability   retirement; and                (2)  for:                      (A)  a group A member, 20 years of creditable   service; or                      (B)  a group B member, 25 years of creditable   service.          (a-1)  The options allowed under this section are life   annuity or its actuarial equivalent payable in the form described   as Option I, Option II, Option III, Option IV, or Option V in   Section 6.03 of this Act. The disability benefits paid to the   member will be paid from Fund No. 1 until the amount received equals   the member's accumulated deposits; thereafter the benefits will be   paid from Fund No. 2.          SECTION 11.  Article VIII, Chapter 452 (S.B. 738), Acts of   the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,   Vernon's Texas Civil Statutes), is amended by amending Section 8.01   and adding Sections 8.02 through 8.15 to read as follows:          Sec. 8.01.  MEMBER CONTRIBUTIONS [METHOD OF FINANCING]. (a)   [(1)] Deposits by the members to the police retirement system shall   be made at a rate of at least:                (1)  13 percent of the basic hourly earnings of the   [each] member, for each pay period beginning before January 1,   2022; and                (2)  15 percent of the basic hourly earnings of the   member, for each pay period beginning on or after January 1, 2022,   subject to adjustment as provided by Section 8.07 of this Act, but   in no event to exceed 17 percent.          (a-1)  Deposits required to be made by members under   Subsection (a) of this section shall be deducted from payroll each   pay period.          (a-2)  On recommendation of the board, the   Active--Contributory members may by a majority of those voting   increase the rate of member deposits above the minimum rate of   deposit established by Subsection (a) of this section [13 percent]   to whatever amount the board has recommended. If the deposit rate   for members has been increased to a rate above the rate established   under subsection (a)[13 percent] by a majority vote of the members   in accordance with this subsection (a-2), the rate may be decreased   to a rate not lower than the rate established in section 8.01(a)(2)   if the board recommends the decrease, the board's actuary approves   the decrease, and a majority of the Active--Contributory members   voting on the matter approve the decrease. Notwithstanding the   previous sentence, in no event will an increase to the member   contribution rate that is made solely due to an adjustment under   Section 8.07 of this Act be decreased by a majority vote of the   members.          Sec. 8.02.  CITY CONTRIBUTIONS. (a) [(2)] The city shall   contribute amounts equal to [18 percent of the basic hourly   earnings of each member employed by the city for all periods on or   before September 30, 2010, subject to additional amounts as   provided by Subdivision (3) of this subsection. The city shall   contribute amounts equal to 19 percent of the basic hourly earnings   of each member employed by the city for all periods after September   30, 2010, and before October 1, 2011, subject to additional amounts   as provided by Subdivision (3) of this subsection. The city shall   contribute amounts equal to 20 percent of the basic hourly earnings   of each member employed by the city for all periods after September   30, 2011, and before October 1, 2012, subject to additional amounts   as provided by Subdivision (3) of this subsection. The city shall   contribute amounts equal to] 21 percent of the basic hourly   earnings of each member employed by the city for all pay periods   beginning after September 30, 2012, and before January 1, 2022,   subject to additional amounts as provided by Section 8.09 of this   Act [Subdivision (3) of this subsection]. For all pay periods   beginning on or after January 1, 2022, the city shall make   contributions to the police retirement system in accordance with   Subsections (b) and (c) of this section and Sections 8.03, 8.04,   8.05, and 8.06 of this Act, as applicable, and subject to additional   amounts as provided by Section 8.09 of this Act. The city council   may also authorize the city to make additional contributions to the   police retirement system in whatever amount the city council may   determine. Contributions by the city shall be made each pay period.          (b)  For each pay period that begins on or after January 1,   2022, and before January 1, 2023, the city shall contribute an   amount equal to the sum of:                (1)  the city contribution rate, as determined in the   initial risk sharing valuation study conducted under Section 8.03   of this Act, multiplied by the pensionable payroll for the   applicable pay period; and                (2)  1/26 of the city legacy contribution amount for   the 2022 calendar year, as determined in the initial risk sharing   valuation study conducted under Section 8.03 of this Act.          (c)  For each pay period that begins on or after January 1,   2023, the city shall contribute an amount equal to the sum of:                (1)  the city contribution rate for the applicable   calendar year, as determined in a subsequent risk sharing valuation   study conducted under Section 8.04 of this Act and adjusted under   Section 8.05 or 8.06 of this Act, as applicable, multiplied by the   pensionable payroll for the applicable pay period; and                (2)  1/26 of the city legacy contribution amount for   the applicable calendar year, as determined in the initial risk   sharing valuation study conducted under Section 8.03 of this Act.          Sec. 8.03.  INITIAL RISK SHARING VALUATION STUDY. (a) The   police retirement system shall cause the system's actuary to   prepare an initial risk sharing valuation study that is dated as of   December 31, 2020, in accordance with this section.          (b)  The initial risk sharing valuation study must:                (1)  except as otherwise provided by this section, be   prepared in accordance with the guidelines set forth in Section   8.04 of this Act;                (2)  be based on the actuarial assumptions that were   used by the system's actuary in the valuation completed for the year   ended December 31, 2020;                (3)  project the corridor midpoint for the next 30   calendar years beginning with the calendar year that begins on   January 1, 2022; and                (3)  include a schedule of city legacy contribution   amounts for 30 calendar years beginning with the calendar year that   begins on January 1, 2022.          Sec. 8.04.  SUBSEQUENT RISK SHARING VALUATION STUDIES. (a)   For each calendar year beginning after December 31, 2020, the   police retirement system shall cause the system's actuary to   prepare a risk sharing valuation study in accordance with this   section and actuarial standards of practice.          (b)  Each risk sharing valuation study must:                (1)  be dated as of the last day of the calendar year   for which the study is required to be prepared;                (2)  calculate the unfunded actuarial accrued   liability of the system as of the last day of the applicable   calendar year, including the liability layer, if any, associated   with the most recently completed calendar year;                (3)  calculate the estimated city contribution rate for   the following calendar year;                (4)  determine the city contribution rate contribution   rate and member contribution rate for the following calendar year,   taking into account any adjustments required under Section 8.05,   8.06 or 8.07, as applicable; and                (5)  except as provided by Subsection (d) of this   section, be based on the assumptions and methods adapted by the   board in accordance with Section 8.08, if applicable, that are   consistent with actuarial standards of practice and the following   principles:                      (A)  closed layered amortization of liability   layers to ensure that the amortization period for each liability   layer begins 12 months after the date of the risk sharing valuation   study in which the liability layer is first recognized;                      (B)  each liability layer is assigned an   amortization period;                      (C)  each liability loss layer will be amortized   over a period of 30 years from the first day of the calendar year   beginning 12 months after the date of the risk sharing valuation   study in which the liability loss layer is first recognized, except   that the legacy liability must be amortized over a 30-year period   beginning January 1, 2022;                      (D)  each liability gain layer will be amortized   over:                            (i)  a period equal to the remaining   amortization period on the largest remaining liability loss layer,   and the two layers must be treated as one layer such that if the   payoff year of the liability loss layer is accelerated or extended,   the payoff year of the liability gain layer is also accelerated or   extended; or                            (ii)  if there is no liability loss layer, a   period of 30 years from the first day of the calendar year beginning   12 months after the date of the risk sharing valuation study in   which the liability gain layer is first recognized;                      (E)  liability layers, including the legacy   liability, will be funded according to the level percent of payroll   method;                      (F)  payroll for purposes of determining the   corridor midpoint, city contribution rate, and city legacy   contribution amount must be projected using the annual payroll   growth rate assumption adopted by the board; and                      (G)  the city contribution rate will be calculated   each calendar year without inclusion of the legacy liability.          (c)  The city and the board may agree on a written transition   plan for resetting the corridor midpoint:                (1)  if at any time the funded ratio of the system is   equal to or greater than 100 percent; or                (2)  for any calendar year after the payoff year of the   legacy liability.          (d)  Subject to Section 8.08, the board may by rule adopt   actuarial principles other than those required under Subsection   (b)(5) of this section, provided the actuarial principles:                (1)  are consistent with actuarial standards of   practice;                (2)  are approved by the system's actuary; and                (3)  do not operate to change the city legacy   contribution amount.          Sec. 8.05.  ADJUSTMENT TO CITY CONTRIBUTION RATE IF LOWER   THAN CORRIDOR MIDPOINT. (a)  This section governs the   determination of the city contribution rate applicable in a   calendar year under Section 8.04(b)(4) of this Act if the estimated   city contribution rate determined under Section 8.04(b)(3) of this   Act is lower than the corridor midpoint.          (b)  If the estimated city contribution rate is lower than   the corridor midpoint and the funded ratio is:                (1)  less than 90 percent, the city contribution rate   for the applicable year equals the corridor midpoint; or                (2)  equal to or greater than 90 percent and the city   contribution rate is:                      (A)  equal to or greater than the minimum city   contribution rate, the estimated city contribution rate is the city   contribution rate for the calendar year; or                      (B)  less than the minimum city contribution rate   for the corresponding calendar year, the city contribution rate for   the calendar year equals the minimum city contribution rate.          (c)  If the funded ratio is equal to or greater than 100   percent:                (1)  all existing liability layers, including the   legacy liability, are considered fully amortized and paid; and                (2)  the city legacy contribution amount may no longer   be included in the city contribution under Section 8.02 of this Act.          Sec. 8.06.  ADJUSTMENT TO CITY CONTRIBUTION RATE IF EQUAL TO   OR GREATER THAN CORRIDOR MIDPOINT. (a)  This section governs the   determination of the city contribution rate applicable in a   calendar year under Section 8.04(b)(4) of this Act if the estimated   city contribution rate determined under Section 8.04(b)(3) of this   Act is equal to or greater than the corridor midpoint.          (b)  If the estimated city contribution rate is equal to or   greater than the corridor midpoint and:                (1)  less than or equal to the maximum city   contribution rate for the corresponding calendar year, the   estimated city contribution rate is the city contribution rate; or                (2)  greater than the maximum city contribution rate   for the corresponding calendar year, the city contribution rate is   the maximum city contribution rate.          Sec. 8.07.  ADDITION TO MEMBER CONTRIBUTION RATE IF   ESTIMATED CITY CONTRIBUTION RATE GREATER THAN MAXIMUM CITY   CONTRIBUTION RATE. (a)  This section governs the determination of   the additional member contribution rate applicable in a calendar   year under Section 8.04(b)(4) of this Act if the estimated city   contribution rate determined under Section 8.04(b)(3) of this Act   is greater than the maximum city contribution rate. Any addition to   the member contribution rate under this Section is subject to a   maximum of 2% of payroll.          (b)  If the estimated city contribution rate is greater than   the corridor maximum, the member contribution rate will increase by   an amount equal to the difference between the following:                (1)  the estimated city contribution rate, and                (2)  the maximum city contribution rate          (c)  If the estimated city contribution rate is more than   2.0% of payroll greater than the maximum city contribution rate,   the city and the board shall enter into discussions to determine   additional funding solutions.          Sec. 8.08.  PROCESS FOR EXPERIENCE STUDIES AND CHANGES TO   ACTUARIAL ASSUMPTIONS. (a)  At least every five years, the board   will have the system's actuary conduct an experience study to   review the actuarial assumptions and methods adopted by the board   for the purposes of determining the actuarial liabilities and   actuarially determined contribution rates of the system. The system   shall notify the city at the beginning of an upcoming experience   study by the system's actuary.          (b)  In connection with the system's experience study, the   city will inform the system if it either will:                (1)  conduct its own experience study using its own   actuary;                (2)  have its actuary review the experience study of   the system's actuary; or                (3)  accept the experience study of the system's   actuary.          (c)  If the city chooses to have its own experience study   performed in accordance with subsection (b)(1), the city shall have   three months from the notification by the system of its intent to   conduct an experience study to complete its study. If the city   chooses to have its actuary review the system's experience study in   accordance with subsection(b)(2), the city shall have one month to   review the experience study beginning from the date the preliminary   results of the experience study are presented to the board.          (d)  If the city chooses to have its own experience study   performed in accordance with subsection (b)(1), or to have its   actuary review the system's experience study in accordance with   subsection(b)(2), the system's actuary and the city's actuary shall   determine what the hypothetical city contribution rate would be   using the proposed actuarial assumptions from the experience   studies and data from the most recent actuarial valuation.                (1)  If the difference between the hypothetical city   contribution rates determined by the system's actuary and the   city's actuary is less than or equal to 2 percent of payroll, then   no further action is needed, and the experience study performed by   the system's actuary shall be used by the board in determining   assumptions.                (2)  If the difference between the hypothetical city   contribution rates determined by the system's actuary and the   city's actuary is greater than 2 percent of payroll, then the   system's actuary and the city's actuary shall have 20 business days   to reconcile the difference in actuarial assumptions or methods   causing the different hypothetical city contribution rates.                      (A)  If as a result of the reconciliation efforts   under this subdivision, the difference between the city   contribution rates determined by the system's actuary and the   city's actuary is reduced to less than or equal to two percentage   points, then no further action is needed, and the experience study   performed by the system's actuary shall be used by the board in   determining actuarial assumptions.                      (B)  If, after 20 business days, the system's   actuary and the city actuary are not able to reach a reconciliation   that reduces the difference in the hypothetical city contribution   rates to an amount less than or equal to two percentage points, a   third-party actuary shall be retained to opine upon differences in   the assumptions made, and actuarial methods used, by the system's   actuary and the city actuary. The independent third-party actuary   shall be chosen by the city from a list of three actuarial firms   provided by the system.                      (C)  If a third-party actuary is utilized under   this subdivision, the third-party actuary's findings will be   presented to the board, along with the experience study conducted   by the system's actuary and, if applicable, the city's actuary.   Should the board adopt actuarial assumptions or methods contrary to   the third-party actuary's findings, a formal letter describing the   rationale for its action shall be provided by the system to the city   council and Texas Pension Review Board, and the system's actuary   and executive director shall be made available at the request of the   city council or the Texas Pension Review Board to present in person   the rationale for the board's action.                e.  If the board desires to make a change to actuarial   assumptions or methods that is not in connection with an experience   study described in subsection (a), the system and the city shall   follow the same process that is undertaken with respect to an   experience study as described in this Section in connection with   the proposed change.          Sec. 8.09.  ADDITIONAL CITY CONTRIBUTIONS FOR PROPORTIONATE   RETIREMENT PROGRAM PARTICIPATION. (a) [(3)]  The city shall   contribute amounts in addition to the amounts described by Section   8.02 of this Act [Subdivision (2) of this subsection] as required by   Section 803.101(h), Government Code, to fund the additional   liabilities incurred by the police retirement system as a result of   participating in the proportionate retirement program. The rate at   which the city shall contribute additional amounts under this   section [subdivision] is equal to 0.737 [0.25] percent of the basic   hourly earnings of each member employed by the city for all pay   periods commencing on or after October 1, 2020, subject to   adjustment under Subsection (b) of this section [from January 4,   2009, through September 30, 2009. The rate at which the city shall   contribute additional amounts under this subdivision is equal to   0.63 percent of the basic hourly earnings of each member employed by   the city for all periods after September 30, 2009, subject to   adjustment under Subdivision (4) of this subsection].          (b) [(4)]  The additional contribution rate under Subsection   (a) of this section [Subdivision (3) of this subsection] shall   increase or decrease as considered necessary by the actuary for the   police retirement system after each five-year period of   participation by the system in the proportionate retirement program   in order to update the amount necessary to fund the additional   liabilities incurred by the system as a result of participating in   the proportionate retirement program and of the consolidation of   the city's public safety and emergency management department with   the police department on January 4, 2009. The system's actuary   shall perform an experience study that shall be the basis for a   contribution rate adjustment under this subsection [subdivision].   The effective date of the initial contribution rate adjustment   under this subsection [subdivision] is October 1, 2015. Each later   contribution rate adjustment under this subsection [subdivision]   takes effect October 1 of every fifth year after the effective date   of the initial contribution rate adjustment. The system's actuary   shall present to the police retirement board the experience study   on which any contribution rate adjustment under this subsection   [subdivision] is based not later than 45 days before the effective   date of the adjustment, and the city's actuary shall have the   opportunity to review and comment on the study. An adjustment in the   additional contribution rate under this subsection [subdivision]   may not cause the additional contribution rate under Subsection (a)   of this section [Subdivision (3) of this subsection] to be less than   zero.          Sec. 8.10.  PUBLICATION OF CHANGES TO CONTRIBUTION RATES.    [(b)]  Any change of the rates of deposit and the rates of   contribution shall be published when approved by the board.          Sec. 8.11.  EXPENSES. (a) [(c)  Contributions by the city   shall be paid to the system after appropriation by the city council.          [(d)]  Expenses involved in administration and operation of   the police retirement system shall be paid from the assets of the   police retirement system subject to approval by the board. Such   expenses shall include actuarial valuations of the system no less   frequently than on a biennial basis, annual audits and/or actuarial   studies, preparation of annual reports, and staff assistance.   Additional consulting may be authorized by the board and paid for   from the assets of the police retirement system as deemed necessary   from time to time by the board.          (b) [(e)]  Expenses incurred from investment advice,   counsel, and management shall be paid from the assets of the police   retirement system.          Sec. 8.12.  PAYMENT OF CONTRIBUTIONS. (a)  Contributions by   the city shall be paid to the system after appropriation by the city   council.          (b) [(f)]  The city shall make the police officer   contributions to the system required by Section 8.02 of this Act   [Subsection (a) of this section].          (c)  The system shall make the administrative staff's   contributions to the system.          (d)  Member contributions will be made by a reduction in   their monetary compensation. Contributions made shall be treated as   employer contributions in accordance with Section 414(h)(2),   Internal Revenue Code (26 U.S.C. Section 414(h)(2)), for the   purpose of determining tax treatment of the amounts under the   federal Internal Revenue Code. These contributions are not   includible in the gross income of the member until such time as they   are distributed or made available to the member.          (e)  Member contributions made as provided by Subsection (d)   of this section [subsection] shall be deposited to the individual   account of each affected member and shall be treated as   compensation of members for all other purposes of this Act and for   the purpose of determining contributions to the federal Old-Age,   Survivors, and Disability Insurance System (Social Security). The   provisions of this subsection shall remain in effect as long as the   plan covering members is a qualified retirement plan under Section   401(a), Internal Revenue Code (26 U.S.C. Section 401(a)), and its   related trust is tax exempt under Section 501(a), Internal Revenue   Code (26 U.S.C. Section 501(a)).          Sec. 8.13.  EFFECT OF SYSTEM TERMINATION ON CONTRIBUTIONS.    [(g)]  If the police retirement system is terminated, further   contributions may not be made by the city or the system, and further   deposits may not be made by the members for service after the date   of termination. Members do not accrue any additional benefits after   the date of termination. The benefit accrued by each member on the   termination of the plan or the complete discontinuance of   contributions under the plan and the benefit of any affected member   on the partial termination of the plan, to the extent funded, become   nonforfeitable notwithstanding the length of a member's service.   The benefit accrued by a member also becomes nonforfeitable, if not   already nonforfeitable, at the normal retirement date.          Sec. 8.14.  EFFECT OF FORFEITURE. [(h)]  A forfeiture from a   member terminating employment and withdrawing the member's   accumulated deposits may not be applied to increase the benefit   that any other member would receive from the system. The actuary   shall anticipate the effect of forfeitures in determining the costs   under the system.          Sec. 8.15.  SYSTEM ASSETS. [(i)]  The assets of the police   retirement system shall be held in trust for the exclusive benefit   of the members and their beneficiaries. The corpus or income may not   be used for or diverted to a purpose other than the exclusive   benefit of members or their beneficiaries, whether by operation or   natural termination of the system, by power of revocation or   amendment, by the happening of a contingency, by collateral   arrangement, or by other means.          SECTION 12.  Section 13.02, Chapter 452 (S.B. 738), Acts of   the 72nd Legislature, Regular Session, 1991 (Article 6243n-1,   Vernon's Texas Civil Statutes), is amended to read as follows:          Sec. 13.02.  MANDATORY DISTRIBUTIONS PROHIBITED. A member   or former member who has separated from service may not be required   to receive an eligible rollover distribution, as defined in Section   13.01(b)(1) of this Act, without the member's consent unless the   member or former member has attained the applicable age for minimum   distributions required under Section 401(a)(9) of the Internal   Revenue Code of 1986 (26 U.S.C. Section 401(a)(9)) [is at least   70-1/2 years of age].          SECTION 13.  The following provisions of Chapter 452 (S.B.   738), Acts of the 72nd Legislature, Regular Session, 1991 (Article   6243n-1, Vernon's Texas Civil Statutes), are repealed:                (1)  Section 5.04(b);                (2)  Section 6.01(c);                (3)  Section 6.01(d);                (4)  Section 6.01(e);                (5)  Section 6.02(b); and                (6)  Section 7.02(b).          SECTION 14.  This Act takes effect September 1, 2021, except   for Section 3.02 regarding changes to the board composition, which   will take effect on January 1, 2022.