TITLE 34. PUBLIC FINANCE

PART 3. TEACHER RETIREMENT SYSTEM OF TEXAS

CHAPTER 23. ADMINISTRATIVE PROCEDURES

34 TAC §23.7, §23.8

The Teacher Retirement System of Texas ("TRS" or "system") adopts amendments to 34 TAC §23.7 and §23.8, concerning TRS' Code of Ethics for Contractors (the "Code") and related materials. The amendments are adopted without changes to the proposed rule text published in the October 28, 2016, issue of the Texas Register (41 TexReg 8515).

Section 825.212 of the Government Code requires the TRS Board of Trustees to adopt a code of ethics, including standards of ethical conduct and disclosure requirements, applicable to certain TRS contractors. Section 825.212(c) also requires TRS by rule or policy to adopt procedures for disclosing and curing violations of the common law of conflict of interests and any such rule or policy may specify time periods in which disclosures and cures must be completed. In compliance with §825.212, the board has adopted the Code.

Section 23.7 of TRS' rules of the TRS Board of Trustees adopts the Code of Ethics by reference. In June 2016, the board adopted a revised Code. The adopted rule amendments update §23.7 to reflect the current version of the Code.

Section 23.8 of TRS' rules adopts by reference the Expenditure Reporting Memorandum (reporting memorandum) and Expenditure Reporting Form for Contractors (reporting form) and requires Contractors to report expenditures made on behalf of any one TRS trustee or employee of the system. Section 2263.004 of the Government Code requires the board by rule to require certain contractors, financial advisors and service providers to the retirement system to meet specified standards of conduct. Pursuant to this section, the Code requires that certain contractors, financial advisors and service providers file with the system a report detailing any expenditure of more than $50 made on behalf of a trustee or employee of the system. The board adopts the form used by contractors to report such expenditures. The executive director provides an explanatory memorandum addressed to contractors to accompany the reporting form. In February 2016, the executive director approved a revised reporting memorandum. In June 2016, the board adopted a revised reporting form. The adopted amendments to §23.8 adopt by reference the latest versions of the executive director's reporting memorandum and the reporting form under the Code.

No comments were received on the rule proposals.

The amendments are adopted under authority of §825.102 of the 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.

The adopted rules affect §825.212 of the Government Code, concerning the adoption of a code of ethics for contractors and related reporting requirements, and §2263.004 of the Government Code, concerning ethics requirements for outside financial advisors or service providers.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 9, 2016.

TRD-201606441

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Effective date: December 29, 2016

Proposal publication date: October 28, 2016

For further information, please call: (512) 542-6513


CHAPTER 25. MEMBERSHIP CREDIT

The Teacher Retirement System of Texas ("TRS" or "system") adopts amendments to 34 TAC §25.24, relating to Performance Pay, §25.31, relating to Percentage Limits on Compensation Increases, and §25.303 relating to Calculation of Actuarial Cost for Purchase of Compensation Credit. The amended rules are adopted without changes to the proposed rule text published in the October 28, 2016, issue of the Texas Register (41 TexReg 8516).

The adopted amendments to §25.24 regard the crediting of performance pay that was earned prior to the 2011-2012 school year but paid in the 2011-2012 school year. The amendments clarify that performance pay earned prior to the 2011-2012 school year but paid in the 2011-2012 school year will be credited in the school year in which the standards establishing the right to the performance pay are met or in which the service occurred, whichever is earlier. Prior to amendment, the language indicated that, beginning with the 2011-2012 school year, performance pay would be credited in the school year in which it was paid, but the former version of the rule did not clearly address how amounts earned prior to that school year would be credited. The adopted amendments are consistent with staff's interpretation and application of the rule since it was amended in April 2011.

The adopted amendments to §25.31 regard the application of the percentage limit on compensation increases in the last school years prior to retirement. Prior to amendment, the rule limited increases in compensation in the final three or five school years prior to retirement, depending on the member's grandfathered status. The increases are limited to the greater of $10,000 or 10 percent of the allowed compensation for the previous year.

Before adoption of the current amendments, for members who were grandfathered to use a three-year salary average when calculating retirement benefits, the base line amount used to determine the amount of allowable compensation in the third school year prior to retirement was the greater of either the amount of the compensation for the fourth or the fifth school year prior to retirement. If there was no compensation in the fourth or fifth school year prior to retirement, the base amount was the earliest salary credited in the three school years prior to retirement. If the member did not have compensation credited in at least three of the last five school years prior to retirement, the limit on increases did not apply. For members who were not grandfathered to use a three year salary average but had to use a five year salary average when calculating retirement benefits, the base line amount used to determine the amount of allowable compensation in the fifth school year prior to retirement was the greater of either the amount of the compensation for the sixth or the seventh school year prior to retirement. If there was no compensation in the sixth or seventh school year prior to retirement, the base amount was the earliest salary credited in the five school years prior to retirement. If the member did not have compensation credited in at least five of the last seven school years prior to retirement, the limit on increases did not apply to these members.

The adopted amendments to §25.31 address the harsh cut-back suffered by some members whose pay in the base year does not reflect a full school year of pay or even a school year in which service credit was given. The amendments require that the base year must be a school year in which service credit was given. This change will minimize the cut-back in compensation experienced by a member who received only a month or two of compensation in the base year and did not receive service credit for that year. Also, the amendments require that a grandfathered member must have service credit rather than simply compensation credit in at least three of the last five school years in order for the compensation limit to apply. This change eliminates the compensation limit for members who did not receive service credit in at least three of the last five school years. Similarly, a member who is not grandfathered must have received service credit in at least five of the last seven school years prior to retirement in order for the compensation limit to apply.

The adopted amendments to §25.303 regard how the actuarial cost of compensation credit is calculated. The content of §25.303 was moved from §25.302, which relates to the calculation of the actuarial cost for service credit, during the most recent rule review of Chapter 25 to separate the requirements for calculating the cost of service credit from those for calculating the cost of compensation credit. However, after working with the rule relating to the purchase of compensation credit, an ambiguity was identified in the wording of subsection (b). Although TRS has consistently applied the correct formula, the amendments make it clear that the cost of the increased compensation credit is determined by dividing the increased compensation by three or five (depending on the member's grandfathered status) and then dividing that quotient by 1,000. The resulting quotient is then multiplied by the appropriate cost factor from the table to determine the cost of the compensation credit.

The adopted amendments to subsection (a) of §25.303 provide that a member's age and years of service credit used to determine the appropriate cost factor will based on the member's age and years of service credit on September 1 of the year the cost is established. The amendment regarding the member's age and years of service credit on September 1 of the year the cost is established is consistent with language in §25.302 regarding the calculation of the cost to purchase service credit and results in consistency in the cost of compensation credit and in administrative efficiencies.

No comments were received on the rule proposals.

SUBCHAPTER B. COMPENSATION

34 TAC §25.24, §25.31

The amendments are adopted under authority of the following sections of the Government Code: §825.102, which authorizes the TRS Board of Trustees (board) to adopt rules for eligibility for membership, the administration of the funds of the system, and the transaction of business of the board, and §825.110, which requires the board to adopt rules that include a percentage limit on increases in annual compensation.

The adopted amendments affect the following sections of the Government Code: §821.001(4), which defines "annual compensation"; §824.203, which provides the method of computing standard service retirement benefits; §825.403, which provides for collection of member contributions and requiring the payment of actuarial cost to establish unreported service or compensation credit; and §825.105, which authorizes the board to adopt actuarial tables.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 9, 2016.

TRD-201606442

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Effective date: December 29, 2016

Proposal publication date: October 28, 2016

For further information, please call: (512) 542-6513


SUBCHAPTER P. CALCULATION OF FEES AND COSTS

34 TAC §25.303

The amendments are adopted under authority of the following sections of the Government Code: §825.102, which authorizes the TRS Board of Trustees (board) to adopt rules for eligibility for membership, the administration of the funds of the system, and the transaction of business of the board, and §825.110, which requires the board to adopt rules that include a percentage limit on increases in annual compensation.

The adopted amendments affect the following sections of the Government Code: §821.001(4), which defines "annual compensation"; §824.203, which provides the method of computing standard service retirement benefits; §825.403, which provides for collection of member contributions and requiring the payment of actuarial cost to establish unreported service or compensation credit; and §825.105, which authorizes the board to adopt actuarial tables.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 9, 2016.

TRD-201606443

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Effective date: December 29, 2016

Proposal publication date: October 28, 2016

For further information, please call: (512) 542-6513


CHAPTER 29. BENEFITS

SUBCHAPTER G. PROPORTIONATE RETIREMENT

34 TAC §29.83

The Teacher Retirement System of Texas (TRS or "system") adopts new 34 TAC §29.83, relating to Calculation of Amount of Retirement Benefit. The new rule is adopted without changes to the proposed rule text as published in the October 28, 2016, issue of the Texas Register (41 TexReg 8519).

The adopted new rule concerns how service credit maintained in another retirement system participating in the Proportionate Retirement Program will be used in determining the early age reduction applied to a member's service retirement benefit. Although the statutes establishing the Proportionate Retirement Program provide that combined service credit must be considered in determining eligibility for service retirement, the statutes do not distinguish between normal age and early age retirement. The law, however, provides that, with regard to "length-of-service" requirements for service retirement, the combined service credit is to be considered as if it were all credited in one system.

There are currently six tiers of TRS membership with different eligibility requirements for normal age retirement and different reduction factors and percentage reductions for early age retirement. However, length of service (amount of service credit) is used in determining eligibility for normal age and the reductions for early age service retirement in each tier. The calculation of a normal age service retirement annuity using combined service credit is addressed in 34 TAC §29.80, which authorizes the calculation of an unreduced benefit once eligibility for normal age retirement is established using the combined service credit. Using the combined service credit as adopted in the new rule to determine the applicable reduction for an early age service retirement annuity is consistent with §29.80, statutory requirements, and the intent of the law. By using the combined service credit to determine the applicable early age reduction, the amount of the reduction for early age retirement will be less.

No comments were received on the rule proposals.

The new rule is adopted under §803.401(a) of the Government Code, which authorizes the TRS Board of Trustees ("board") to adopt rules it finds necessary to implement the Proportionate Retirement Program provided by Chapter 803 of the Government Code, and §825.102 of the 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.

The adoption affect §§803.201, 803.401 and 825.102 of the Government Code.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 9, 2016.

TRD-201606444

Brian Guthrie

Executive Director

Teacher Retirement System of Texas

Effective date: December 29, 2016

Proposal publication date: October 28, 2016

For further information, please call: (512) 542-6513