Part 3. TEACHER RETIREMENT SYSTEM OF TEXAS
Subchapter B. COMPENSATION
The Board of Trustees (Board) of the Teacher Retirement System of Texas (TRS) adopts amended §25.21, concerning compensation subject to deposit and credit, with changes to the proposed text as published in the March 7, 2008, issue of the Texas Register (33 TexReg 2000). Implementing the primary statutory provision regarding creditable compensation, §822.201 of the Government Code, the section establishes detailed provisions describing the types of active member compensation that are creditable in the TRS pension plan for purposes of determining member contributions and computing retiree benefits. The amended rule is adopted to delete references to obsolete legislation related to compensation designated as health care supplementation.
In 2006, House Bill 1, 79th Legislature, Third Called Session, amended §822.201 regarding salary designated as compensation supplementation as excludable from creditable compensation by the election of the employee. Subsequently, in 2007, Senate Bill 1877, 80th Legislature, further amended §822.201 to change the provision regarding treatment of such salary as TRS-creditable. The present amendments conform the TRS rule to the most recent amendments made in Senate Bill 1877 and remove the obsolete reference to House Bill 1.
The amendments provide that salary amounts designated as health care supplementation by an employee under Subchapter D, Chapter 22, Education Code, would be considered part of "salary and wages" and thus would be eligible to be considered creditable compensation. The amendments also make minor wording changes with respect to certain educator incentive programs established by statute to conform the language of the rule to the language of the statute as amended by Senate Bill 1877. Other changes are technical and non-substantive.
TRS adopts amended §25.21 with the following technical changes to the text as published in the Texas Register: In subsection (d)(7) of the amended section, the cross-reference to subsection (c)(8) of the same section is incorrect in the clause "The following are excluded from annual compensation: . . . payments, except as provided in subsection (c)(1), (2), (5), and (8) of this section, made to third parties for the benefit of a member; . . ." Instead of referring to subsection (c)(8), relating to a merit salary increase made under Education Code §51.962, the reference should be to subsection (c)(9), relating to amounts deducted from regular pay for a qualified transportation benefit under Government Code §659.202. The error arose when subsection (c)(8) was renumbered to become subsection (c)(9) as part of a previous set of amendments: the cross-reference in subsection (d)(7) was not amended to reflect to the renumbered provision. The changes do not require republication of the proposed rule.
No comments were received regarding the adoption of the amendments.
Statutory Authority: The amended section is adopted under the following statute: §825.102, Government Code, which authorizes the Board to adopt rules for the administration of the funds of the retirement system.
§25.21.Compensation Subject to Deposit and Credit.
(a) The contributions required from a member to the Teacher Retirement System of Texas are generally based upon the member's annual compensation. Benefits paid by the retirement system are also generally based in whole or in part upon the annual compensation credited to a member for certain school years. A member's annual compensation for any particular school year has the meaning given by the law and rules applicable for that year. Beginning with the 1981-1982 school year, and for school years thereafter, annual compensation consists of the salary and wages that are paid or payable to a member for employment which is eligible for membership in the retirement system during that school year.
(b) Some payments made by an employer to a member are not salary or wages, even though the payments may be otherwise considered as compensation under the employment contract or federal tax laws. In general salary and wages creditable and subject to deposit are those types of monetary compensation that are recurring base pay for periods of employment and that:
(1) are earned or accrue proportionally as the work is performed, so that a member terminating employment between pay periods is entitled to a proportional amount of the compensation based on either length of employment or amount of work performed;
(2) are paid or payable at fixed intervals, generally at the end of each pay period; and
(3) are not specifically excluded under subsection (d) of this section.
(c) The following types of monetary compensation are to be included in annual compensation:
(1) amounts deducted from regular pay for the state-deferred compensation program, for a tax-sheltered annuity, or for a deferred compensation arrangement qualifying under the United States Internal Revenue Code, §401(k);
(2) normal payroll deductions which are not tax-exempt or tax-deferred;
(3) additional compensation paid for additional duties, for longevity, for overtime worked as required by law, or for service in a particular location or specialty the employer determines requires additional compensation compared to other employees of that employer, provided that these payments clearly meet the requirements of subsection (b) of this section;
(4) delayed payments of lump-sum amounts which by law or contract should have been paid at fixed intervals and which otherwise meet the requirements of subsection (b) of this section provided the amounts are credited to the payroll period in which they were earned;
(5) amounts withheld from regular pay under a cafeteria plan as provided by §25.22 of this title (relating to Contributions to Cafeteria Plans and Deferred Compensation);
(6) performance pay provided it meets the requirements of the Texas Government Code §822.201(b)(4) and §25.24 of this chapter (relating to Performance Pay);
(7) compensation received under the relevant parts of the awards for student achievement program under Subchapter N of Chapter 21, Education Code, the educator excellence awards program under Subchapter O of Chapter 21, Education Code, or a mentoring program under §21.458, Education Code, that authorize compensation for service;
(8) a merit salary increase made under Education Code, §51.962;
(9) amounts deducted from regular pay for a qualified transportation benefit under Texas Government Code §659.202; and
(10) compensation designated as health care supplementation by an employee under Subchapter D, Chapter 22, Education Code.
(d) The following are excluded from annual compensation:
(1) allowances, including housing, car, and expense allowances;
(2) reimbursements for expenses;
(3) payments for accrued compensatory time for overtime worked or for accrued sick leave or vacation, except that continued payments of normal compensation when vacation or sick leave or compensatory time is actually taken by an employee will be included in annual compensation to the extent otherwise permitted by this section;
(4) benefits, except as provided in subsection (c)(1) of this section, which either are not subject to federal income tax or which will be subject to federal income tax in a future year;
(5) bonus and incentive payments , unless state law expressly provides that a type of bonus or incentive payment is to be considered TRS-creditable compensation or the payments otherwise qualify as performance pay under subsection (c)(6) of this section;
(6) employer payments for fringe benefits, including direct cash payments in lieu of fringe benefits, except as provided in §25.22 of this title (relating to Contributions to Cafeteria Plans and Deferred Compensation);
(7) payments, except as provided in subsection (c)(1), (2), (5), and (9) of this section, made to third parties for the benefit of a member;
(8) payments for work as an independent contractor or consultant;
(9) all nonmonetary compensation;
(10) active employee health coverage or compensation supplementation or any other amount received by an employee under former Article 3.50-8, Insurance Code; former Chapter 1580, Insurance Code; Subchapter D, Chapter 22, Education Code, as that subchapter existed on January 1, 2006; or Rider 9, page III-39, Chapter 1330, Acts of the 78th Legislature, Regular Session, 2003 (the General Appropriations Act), regardless of whether the employee receives the amount in cash, uses it for payment of health care coverage, or uses it for any other option available by law;
(11) any other fringe benefit;
(12) payments that an employer intentionally does not include in salary and wages because they are not expected to be permanently recurring in each pay period of employment or because they are not considered base pay and that, for the protection of the actuarial soundness of the retirement system, the type of payment should not be included in the calculation of a lifetime retirement benefit intended to replace a percentage of the member's base pay at retirement; and
(13) payments for terminating employment or paid as an incentive to terminate employment. Examples of such payments include payments for contract buy-outs, amounts paid pursuant to an agreement in which the employee agrees to terminate employment or to waive or release rights to future employment, and amounts paid pursuant to early retirement incentive programs or other programs intended to increase the compensation paid to the employee upon receipt of the resignation of the employee or the waiver or release of rights to future employment. Increased compensation paid in the final year of employment prior to retirement that exceeds increases approved by the employer for all employees or classes of employees is presumed to be payment for terminating employment.
(e) The maximum amount of compensation of any member that may be taken into account under the retirement system shall not exceed $150,000 for plan years commencing on or after September 1, 1996. For plan years commencing on or after January 1, 2002, the maximum amount of compensation shall not exceed the limit contained in the Internal Revenue Code §401(a)(17)(A), 26 United States Code §401(a)(17)(A). For plan years beginning before January 1, 1997, in determining the compensation of any member for any year, the family aggregation rules of the Internal Revenue Code, §414(q)(6), 26 United States Code §414(q)(6) shall apply except the term "family" shall include only the spouse of the member and any lineal descendants of the member who have not attained age 19 before the end of the year. The limits set forth in the first two sentences of this subsection shall be increased from time to time, to reflect cost of living increases, in accordance with the Internal Revenue Code, §401(a)(17), 26 United States Code §401(a)(17). The dollar limitation prescribed in the first two sentences of this subsection shall not apply to limit the compensation of any person who first becomes a member before September 1, 1996. Furthermore, that limitation shall not apply for any period during which such limitation is repealed or is not enforced by the Internal Revenue Service with regard to governmental plans. In applying the limits described in this section, a plan year is September 1 through August 31.
(f) TRS may rely upon employer certifications in determining creditable compensation or may conduct an investigation to determine whether any ineligible compensation has been reported. At the request of TRS, employers will provide copies of any records or information the retirement system requests. Such records may include, but are not limited to, copies of contracts, work agreements, salary schedules or addenda, board minutes, payroll records, or other materials that will assist the retirement system in making a determination.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on May 2, 2008.
TRD-200802338
Pattie Featherston
Chief Operating Officer
Teacher Retirement System of Texas
Effective date: May 22, 2008
Proposal publication date: March 7, 2008
For further information, please call: (512) 542-6438
The Board of Trustees (Board) of the Teacher Retirement System of Texas (TRS) adopts amended §25.71, concerning service credit for eligible active military duty under the Uniformed Services Employment and Re-Employment Rights Act (USERRA), with changes to the proposed text as published in the March 7, 2008, issue of the Texas Register (33 TexReg 2003). TRS adopts the amendments to make time periods in the rule for TRS-covered employees consistent with similar provisions in general state law for state and local government employees.
Section 25.71 establishes the opportunity to establish TRS service credit for a TRS member who leaves a TRS-covered employer in order to perform military duty. A federal law known as the Uniformed Services Employment and Re-Employment Rights Act ("USERRA") requires employers and retirement plans to protect access to jobs and benefits for eligible returning employees. This TRS rule implements the primary state statutory provision regarding TRS service credit established pursuant to USERRA, §823.304 of the Government Code.
A feature of USERRA, federal regulations implementing USERRA, and §25.71 is a requirement that a returning member return to, or apply for, re-employment with the employer within a certain number of days of discharge in order to trigger USERRA protections. Currently, the TRS rule requires that the member return to or apply for re-employment with the TRS-covered employer within 31 days of discharge, if the member served for less than 90 days, or within 90 days of discharge if the member served for 90 days or more. Chapter 613 of the Government Code, however, also addresses this issue with respect to a public employee who leaves a state or local governmental entity position. Section 613.004(a) specifies a 90-day period for application for re-employment in order to trigger the state law protections specified in Chapter 613. The 90-day period is applicable without regard to the length of active duty. Because of the possibility of confusion between this general state law and the specific TRS rule regarding the time periods for re-employment that determine eligibility to purchase USERRA service credit, TRS adopts amendments to §25.71 to match the 90-day period specified in general state law, regardless of the length of time of active duty.
The effect of the adopted amendments would be to permit a returning member up to 90 days to apply for, or return to, re-employment, regardless of the length of active duty, and still be eligible to purchase USERRA service credit under TRS, assuming all other conditions are met. Additionally, the adopted amendments recognize that federal USERRA regulations would extend the 90-day period for re-employment if, for example, the employee returned with an injury or illness incurred in, or aggravated during, military service and needed up to two years for hospitalization or convalescence.
TRS adopts amended §25.71 with the following change to the text as published in the Texas Register: In subsection (b), TRS substitutes language concerning the USERRA requirements for separation from uniformed service under "honorable conditions" for that requiring the returning member to have received an "honorable discharge" to be eligible for service or compensation credit, a change that does not require republication of the proposed rule.
No comments were received regarding the adoption of the amendments.
Statutory Authority: The amended section is adopted under the following statutes: §825.102, Government Code, which authorizes the Board to adopt rules for the administration of the funds of the retirement system and for the transaction of the business of the Board; and §823.304, which authorizes the Board to adopt rules in order to comply with the federal law relating to USERRA service credit.
§25.71.Service Credit for Eligible Active Military Duty under the Uniformed Services Employment and Re-Employment Rights Act.
(a) A member may obtain service credit for active military duty in lieu of or in addition to military service credit under §25.61 of this title (relating to Service Credit for Eligible Military Duty) if the member is eligible to obtain such service credit under the Uniformed Services Employment and Re-Employment Rights Act (USERRA), 38 United States Code §4301 et seq.
(b) A member who leaves a position in the employ of a Teacher Retirement System of Texas (TRS) covered employer to perform duty, on a voluntary or involuntary basis, in the uniformed services, as defined in the USERRA, is eligible to obtain service or compensation credit under this section if the member separates from uniformed service under honorable conditions or as otherwise provided by USERRA and returns to or applies for re-employment with a TRS covered employer within ninety (90) days of discharge or release from active military service. TRS shall consider the provisions of USERRA or regulations adopted pursuant to USERRA in determining eligibility of members who apply for or return to re-employment later than this period of time, due to illness or injury incurred in, or aggravated during, uniformed service.
(c) Notwithstanding any provisions of these rules to the contrary, contributions, benefits, and service credit with respect to qualified military service shall be provided in accordance with the Internal Revenue Code §414(u) and as required by USERRA.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on May 2, 2008.
TRD-200802339
Pattie Featherston
Chief Operating Officer
Teacher Retirement System of Texas
Effective date: May 22, 2008
Proposal publication date: March 7, 2008
For further information, please call: (512) 542-6438
Subchapter A. RETIREMENT
The Board of Trustees (Board) of the Teacher Retirement System of Texas (TRS) adopts new §29.1, concerning eligibility for service retirement, without changes to the proposed text as published in the March 7, 2008, issue of the Texas Register (33 TexReg 2004), and the rule text will not be republished.
The primary statutory provision relating to service retirement eligibility is §824.202 of the Texas Government Code. In 2005, §824.202 was amended to change the retirement eligibility requirements for new members joining TRS after a specific date. The bill enacting the provision--Senate Bill 1691, 79th Legislature, Regular Session (2005)--contained the date "September 1, 2006," as well as the date September 1, 2007." Consequently, a new rule is needed to clearly reflect as part of the written retirement plan terms the date (September 1, 2007) that triggers the new service retirement eligibility requirements. Additionally, other statutory changes enacted in 2005 have made the administration of service retirement eligibility more complex, particularly with respect to members who were grandfathered with respect to certain provisions of state law repealed in 2005. The interplay of the grandfather provisions and the new retirement eligibility provisions require the adoption of a new rule to ensure that the written plan terms reflect how such members' eligibility for service retirement and benefits will be determined.
The adopted new rule addresses four topics, described as follows. First, the rule would clarify that the new service retirement eligibility requirements established in Senate Bill 1691 apply to persons joining TRS on or after September 1, 2007. Second, the rule would clarify that a member who is grandfathered under Senate Bill 1691 (i.e., a person for whom certain repealed provisions are continued in effect) but later terminates membership and then resumes membership on or after September 1, 2007, would retain grandfathered status. Third, the rule would clarify that a person who was a member before September 1, 2007, terminated membership by withdrawal of contributions, and then resumed membership on or after September 1, 2007, is subject to the new service retirement eligibility requirements, even if the person reinstates TRS credit cancelled by the withdrawal of contributions. Fourth, the rule would clarify that a person who was a member before September 1, 2007, whose membership terminated by absence from service but who did not withdraw contributions, and then resumed membership on or after September 1, 2007, and reactivated the account is eligible for service retirement based on the earliest date of service associated with the account.
No comments were received regarding the adoption of the new rule.
Statutory Authority: The new section is adopted under the following statute: §825.102, Texas Government Code, which authorizes the Board to adopt rules for eligibility for membership, for the administration of the funds of the retirement system, and for the transaction of the business of the Board.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on May 2, 2008.
TRD-200802340
Pattie Featherston
Chief Operating Officer
Teacher Retirement System of Texas
Effective date: May 22, 2008
Proposal publication date: March 7, 2008
For further information, please call: (512) 542-6438
Subchapter B. EMPLOYMENT AFTER SERVICE RETIREMENT
The Board of Trustees (Board) of the Teacher Retirement System of Texas (TRS) adopts amended §31.15, concerning the six-month exception to forfeiture of retirement annuity because of employment after retirement, without changes to the proposed text as published in the March 7, 2008, issue of the Texas Register (33 TexReg 2005), and the rule text will not be republished.
Retirees who return to work after retirement with a TRS-covered employer are limited in the amount of work they may perform without forfeiting annuity payments. Generally, beginning in the school year after they retire, retirees may work up to six months in full-time employment without forfeiting an annuity. The monthly annuity is forfeited, however, for any month in which the retiree works after the sixth month. The recent move to a delayed start of school until late August resulted in more retirees having to work into June to complete the school year. Consequently, those retirees lost the June annuity because they worked only a few days at the beginning of that month.
Amending §824.602 of the Texas Government Code (relating to exceptions to the general rule of forfeiture of retirement annuity for employment after retirement), Senate Bill 1039 (80th Legislature, Regular Session, 2007) provided relief for retirees working under the six-month exception by authorizing the payment of the June annuity if those retirees could not complete all work under the contract by May 31 and the work did not extend beyond June 15 of that year. Further, many retirees lost annuity payments during the summer months because of attendance or participation in professional development activities. Senate Bill 1039 also addressed this concern by clarifying that attendance or participation in these types of activities would not be considered work for purposes of the six-month exception.
Amended §31.15 reflects those legislative changes and clarifies when the changes take effect. The amended section provides that a retiree working under the six-month exception may work into June but no later than June 15 without forfeiting the annuity for June, provided the work required under a work agreement or employment contract cannot be completed by May 31. The amended section also clarifies that attendance or participation in professional development activities that are not included in the total number of required days of work under the contract or work agreement are not considered work for purposes of this exception. Days of attendance or participation in professional development activities, in-service training, continuing education, or similar activities that are included in the number of days required under the employment contract or work agreement are not protected by these amendments and will result in the forfeiture of annuity if the attendance or participation occurs in any month in excess of six months (unless the attendance or participation occurs in June but no later than June 15).
No comments were received regarding the adoption of the amendments.
Statutory Authority: The amended section is adopted under the following statutes: §824.601, Government Code, which authorizes the retirement system to adopt rules necessary for administering Subchapter G (relating to Loss of Benefits on Resumption of Service) of Chapter 824; and §825.102, Government Code, which authorizes the Board to adopt rules for eligibility for membership, the administration of the funds of the retirement system, and for the transaction of the business of the Board.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on May 1, 2008.
TRD-200802331
Ronnie G. Jung
Executive Director
Teacher Retirement System of Texas
Effective date: May 21, 2008
Proposal publication date: March 7, 2008
For further information, please call: (512) 542-6438
The Board of Trustees (Board) of the Teacher Retirement System of Texas (TRS) adopts amended §35.2, concerning direct rollovers from TRS, with changes to the proposed text as published in the March 7, 2008, issue of the Texas Register (33 TexReg 2008).
Section 35.2 recognizes the opportunity available under federal tax law for a person receiving an eligible distribution from TRS to make a rollover of that distribution to another eligible retirement plan, including an individual retirement account (IRA). Until the enactment of the federal Pension Protection Act of 2006, a rollover could be made only by the following persons: a TRS member or retiree; an alternate payee of a TRS member or retiree (i.e., a spouse or former spouse receiving payment of part of the participant's benefit under a qualified domestic relations order (QDRO)); or a surviving spouse of a TRS member or retiree. The Pension Protection Act now authorizes retirement plans to allow an eligible nonspouse beneficiary to rollover a payment that is otherwise eligible for rollover, such as a lump sum death benefit. The adopted amendments to §35.2 would formally include this opportunity as a feature of the TRS retirement plan.
To be eligible, the nonspouse beneficiary must be an individual or a trust that qualifies under federal tax law. Under federal tax law, an organization, such as a charity, or an estate named as beneficiary is not eligible to use this rollover provision.
TRS adopts amended §35.2 with the following changes to the text as published in the Texas Register: In subsections (a) - (c), language concerning rollover procedures is inserted to more closely reflect model plan provisions promulgated by the Internal Revenue Service. In subsections (a) and (b), language is inserted to reflect that, to the extent permitted under federal tax law, a rollover may be made to a Roth IRA, including by an eligible nonspouse beneficiary. The changes do not require republication of the proposed rule.
No comments were received regarding the adoption of the amendments.
Statutory Authority: The amended section is adopted under the following statutes: §825.102, Government Code, which authorizes the Board to adopt rules for the administration of the funds of the retirement system and for the transaction of the business of the Board; and §825.506, Government Code, which authorizes the Board to adopt rules to modify the retirement benefit plan to the extent necessary for it to be a qualified plan under federal law.
§35.2.Direct Rollovers from TRS.
(a) Notwithstanding any provision of the retirement plan to the contrary that would otherwise limit a distributee's election under this section, an eligible distributee of an eligible rollover distribution from the Teacher Retirement System of Texas (TRS) may elect, at the time and in the manner prescribed by TRS, to have any portion of the distribution paid directly to an eligible retirement plan or a Roth IRA specified by the distributee in a direct rollover, to the extent permitted by Internal Revenue Code of 1986 (IRC) , as amended, and guidance issued thereunder.
(b) To the extent permitted under the IRC, as amended, an individual beneficiary of a TRS participant, other than a surviving spouse or alternate payee, who is an eligible distributee of an eligible rollover distribution from TRS may elect, at the time and in the manner prescribed by TRS, to have any portion of the distribution paid directly to a traditional or Roth individual retirement account (IRA) or individual retirement annuity established for the purpose of receiving the distribution, specified by the distributee in a direct rollover, that shall be treated as an inherited IRA or annuity. A trust that is a beneficiary may be treated as a beneficiary eligible to make such an election only to the extent permitted under the IRC, as amended.
(c) TRS shall develop procedures to implement this section in accordance with the Internal Revenue Code of 1986, §401(a)(31), as amended, and related regulations. Terms used in this section, including eligible rollover distribution, eligible retirement plan, distributee, and direct rollover, shall have the meaning assigned in the IRC, as amended, and guidance issued thereunder.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on May 2, 2008.
TRD-200802341
Pattie Featherston
Chief Operating Officer
Teacher Retirement System of Texas
Effective date: May 22, 2008
Proposal publication date: March 7, 2008
For further information, please call: (512) 542-6438