TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 14. TEXAS BULLION DEPOSITORY

34 TAC §§14.1 - 14.20

The Comptroller of Public Accounts proposes new §14.1 - 14.20, concerning the implementation of the Texas Bullion Depository. These sections are proposed to be located in new Chapter 14, entitled "Texas Bullion Depository."

The proposal is to comply with Government Code, Chapter 2116. Government Code, §2116.005(a) permits the comptroller to adopt rules regarding the Texas Bullion Depository as appropriate to ensure compliance with the law and to protect the interests of the depository, depository account holders, this state and the agencies, political subdivisions, and instrumentalities of this state, and the public at large.

Section 14.1 provides definitions.

Section 14.2 establishes standards for deposit. Under this rule the depository will record deposits of precious metals in units of troy ounces. Deposits may be further classified by reference to other indicators as applicable. The depository may restrict the types, sources and forms in which precious metals may be deposited and is required to publish on its website the types, sources and forms that may be deposited with the depository.

Section 14.3 provides that a depository account holder may make a written demand for withdrawal of precious metals in accordance with the terms of the depository account agreement. This rule permits the depository to prescribe the form or format of a written demand for withdrawal. This rule further details how and when the depository must respond to a written demand for withdrawal.

Section 14.4 provides for the process by which a depository account holder may transfer all or part of a depository account to another person in accordance with the terms of the depository account agreement.

Section 14.5 outlines that a person seeking to establish a depository account must be eligible to open an account under applicable law and depository policy. This rule also provides that submission of a signed application to establish an account constitutes acceptance of the terms applicable to the account.

Section 14.6 permits the depository to prescribe the manner in which a contract for depository account may be executed electronically.

Section 14.7 provides that amendments to the depository account agreement may be made either by agreement between the parties or unilaterally by the depository upon providing written notice to depository account holders.

Section 14.8 outlines the responsibilities of depository account holders to give notice to the depository of any discrepancies in account statements.

Section 14.9 authorizes the comptroller to set fees, service charges, and penalties to be charged to a depository account holder.

Section 14.10 outlines the requirements for transferring a depository account to another person.

Section 14.11 provides that the depository has an automatic lien on depository accounts to secure the payment of any fees, charges, or other obligations that are owed by a depository account holder to the depository. Under this rule, the depository may liquidate all or part of a depository account to the extent necessary to satisfy the obligation. Alternatively, the depository may suspend withdrawal privileges for the depository account until the obligation is satisfied. This rule also outlines the requirements a third party has to meet to have a pledge of a depository account recognized by the depository.

Section 14.12 provides that applicable provisions of the Estates Code govern a depository account and provides that the depository may prescribe the forms that must be used to implement the provisions of the Estates Code.

Section 14.13 provides that powers of attorney must be executed on a form prescribed by the depository and must be notarized.

Section 14.14 provides that the depository shall refer certain matters related to the purported confiscation of precious metals as part of a generalized declaration of illegality or emergency relating to the ownership of precious metals to the attorney general for resolution. This rule requires the depository to suspend withdrawal privileges from the depository until the matter is resolved. This rule permits the depository to prescribe procedures by which voluntary transfers of precious metals may continue to take place between depository account holders.

Section 14.15 requires the comptroller to publish on the depository website the official exchange rates used in pricing precious metals transactions.

Section 14.16 requires the comptroller to provide to depository account holders the statements or other documents necessary to report taxable gains and losses arising from depository transactions in a manner that is compliant with Federal law.

Section 14.17 requires depository agents to maintain suitable systems and processes as the comptroller may prescribe to ensure that all reportable transactions may be reported to the depository on a daily basis. This rule also allows the comptroller to prescribe the transactions that are reportable under this rule.

Section 14.18 requires depository agents to submit periodic reports of all depository transactions. This rule permits the comptroller to prescribe the form and formats of the reports to be filed under this section. The comptroller may require the forms to be filed electronically.

Section 14.19 permits the depository to prescribe all forms or documents that may be required to implement this chapter and may require that such forms be submitted electronically. This rule also permits that any notice required to be provided to a depository account holder by this chapter, the rules, or under the account agreement may be provided electronically.

Section 14.20 outlines which persons or entities are required to be licensed as depository agents.

Tom Currah, Chief Revenue Estimator, has determined that for the first five-year period the rules will be in effect, there will be no significant revenue impact on the state or units of local government.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, the proposed new rules would benefit the public by implementing the statutory provision that created a depository available to public and private entities for the storage of precious metals. There is no anticipated economic cost to individuals who are required to comply with the proposed rules. The proposed new rules would have no significant impact on small businesses or rural communities.

Comments on the proposals may be submitted to Tom Smelker, Administrator, Texas Bullion Depository, Comptroller of Public Accounts, at tom.smelker@cpa.texas.gov or at P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

These new rules are proposed under Government Code, §§2116.005, 2116.006, 2116.007, 2116.008, 2116.010, 2116.012, 2116.023, 2116.024, 2116.025, 2116.052, and 2116.053.

The new sections implement Government Code, Chapter 2116.

§14.1.Definitions.

As used in this chapter and in these rules, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise:

(1) Account services--Are those services and transactions performed by a depository agent that are made in connection with creating, transferring, clearing, settling, or liquidating the rights and interests of a depository account holder in a depository account.

(A) Account services include:

(i) assisting retail customers in opening or creating a depository account;

(ii) accepting deposits from depository account holders on behalf of the depository;

(iii) processing withdrawal requests;

(iv) assisting retail customers in transferring depository account balances;

(v) assisting retail customers in closing a depository account; and

(vi) otherwise accessing the depository account of a depository account holder to help manage the account on behalf of the depository account holder.

(B) For the purposes of this chapter account services do not include:

(i) participation as a party or counterparty to a purchase or sale of bullion or specie, if the purchase or sale is an independent transaction and the bullion or specie is not being purchased or sold on behalf of the depository; or

(ii) arranging the shipment, delivery or transport of precious metals, bullion or specie to the depository, if the transaction is made or provided by a person who is not authorized to act on behalf of the depository and the transaction does not involve accessing the account of a depository account holder.

(2) Administrator--The bullion depository administrator appointed by the comptroller to administer, supervise, and direct the operations and affairs of the depository or the administrator's designee.

(3) Bullion--Precious metals that are formed into uniform shapes and quantities such as ingots, bars, or plates, with uniform content and purity, as are suitable for or customarily used in the purchase, sale, storage, transfer, and delivery of bulk or wholesale transactions in precious metals.

(4) Business day--A day other than a Saturday, Sunday, or banking holiday for a bank chartered under the laws of this state.

(5) Deposit--The establishment of an executory obligation of the depository to deliver to the order of the person establishing with the depository the obligation, on demand, a quantity of a specified precious metal, in bullion or specie, or a combination of bullion and specie, equal to the quantity of the same precious metal delivered by or on behalf of the depositor into the custody of the depository or a depository agent, subject to the terms of the depository account agreement.

(6) Depositor--A person who makes a deposit.

(7) Depository--The Texas Bullion Depository, a state agency, created by Government Code, §2116.002.

(8) Depository account--The business arrangement between the depository and a depositor through which the depository provides services to a depositor and records transactions that evidence the rights, interests, and entitlements established in favor of a depositor with respect to a deposit of bullion or specie.

(9) Depository account holder--The original depositor for a depository account, or the successor or assignee of the original depositor.

(10) Depository agent--A person who:

(A) has entered into an agreement with the depository to serve as an intermediary between the depository and a retail customer to provide depository agent services; and

(B) is licensed or exempted from being licensed under Texas Finance Code, Subchapter J, to provide depository agent services.

(11) Depository agent services--Services rendered to the general public including purchasing, selling, transferring, accepting, transporting, delivering, or otherwise dealing in precious metals, bullion or specie, that are made:

(A) for or on behalf of the depository; and

(B) in connection with providing account services to retail customers of the depository.

(12) For or on behalf of the depository--Pursuant to express authorization by the depository. A service or transaction is not made for or on behalf of the depository unless the person providing the service or transaction has entered into an agreement with the depository to act as a depository agent and the person acts only within the scope of authority conferred by the agreement or the depository is a party to the transaction. The depository is not a party to a transaction involving the shipment, transport, or delivery of precious metals, bullion or specie merely by virtue of the fact that the depository is the destination for such shipment, transport, or delivery.

(13) Precious metal--A metal, including gold, silver, platinum, palladium, and rhodium, that:

(A) bears a high value-to-weight ratio relative to common industrial metals; and

(B) customarily is formed into bullion or specie.

(14) Retail customer--An individual, partnership, or corporation who is not engaged in the business of buying, selling, investing or managing precious metals, bullion, or specie for others, or who is not otherwise an eligible contract participant as that term is defined by the Commodity Exchange Act, 7 U.S.C §1a, as amended.

(15) Retail transaction--A contract for the purchase or sale of bullion or specie to a retail customer.

(16) Specie--A precious metal stamped into coins of uniform shape, size, design, content, and purity, suitable for or customarily used as currency, as a medium of exchange, or as the medium for purchase, sale, storage, transfer, or delivery of precious metals in retail or wholesale transactions.

§14.2.Standards for Deposit.

(a) If the depository determines that doing so is necessary to ensure compliance with the law, prevent fraud, or otherwise protect the interests of the depository, this state, its agencies, or political subdivisions of this state, the depository may:

(1) refuse to open a depository account for any person, whether acting in the person's own right, as trustee, or in another fiduciary capacity;

(2) deny, refuse, or return any deposit of bullion or specie;

(3) close or otherwise terminate without notice the depository account of any person; or

(4) refuse to honor a request for the transfer of an account or account balance.

(b) To protect the security and integrity of the depository, the depository need not provide a reason for the refusal, denial, or closure or an account under subsection (a) of this section.

(c) Deposits of bullion and specie, regardless of form, will be recorded in units of troy ounces pure and will specify the type and quantity of each precious metal that is deposited.

(d) Deposits of bullion and specie that are credited to a depository account may be further classified by reference to:

(1) the particular form in which the metals were deposited;

(2) the mint at which the metals were produced;

(3) denomination;

(4) assay mark; or

(5) any other indicator as applicable.

(e) The depository may restrict the types and sources of precious metals, bullion, or specie that may be deposited with the depository.

(f) The depository may restrict the forms in which deposits of precious metals may be made to those forms that conveniently lend themselves to measurement and accounting in units of troy ounces and standardized fractions of troy ounces.

(g) The depository shall publish on its website the types, sources, forms, and weights and measures of precious metals, bullion, or specie that may be deposited with the depository.

§14.3.Written Demand for Withdrawal or Delivery.

(a) As provided by the depository account agreement, a depository account holder may request a withdrawal of a quantity of precious metal as is available in the depository account holder's depository account. A withdrawal request must be made using a form or format prescribed by the depository. The form or format prescribed by the depository may be electronic and must be submitted either on the depository website or in person to the depository or a depository agent as provided in the account agreement and in accordance with policies established by the depository. All requests for withdrawals must be made in units of troy ounces pure or other applicable weights and measures as established by the depository.

(b) Upon receipt of a withdrawal request by either the depository or depository agent, the depository shall make a delivery of the precious metals to the depository account holder within five business days.

(c) The depository may deliver precious metals to the address the depository account holder designated as their address of record, the facility of the depository agent at which presentment was made, or at a facility designated by the depository.

(d) For the purposes of this chapter, the requirement to make a delivery of precious metals upon presentment of a suitable written demand within five business days shall be considered met if the precious metals are shipped to the depository account holder's address of record or are otherwise made available for pick-up at the facility of the depository at which presentment was made or a facility designated by the depository on or before the fifth business day after the written demand is received by the depository.

§14.4.Transfer of Depository Account Balances.

(a) As provided by the depository account agreement, a depository account holder may transfer to another depository account holder or to a person who at the time of the transfer is not a depository account holder, any portion of a precious metal as is available in the depository account holder's depository account. A transfer request must be made using a form prescribed by the depository. The form prescribed by the depository may be electronic and must be submitted either on the depository website or in person to the depository or a depository agent as provided in the account agreement and in accordance with policies established by the depository. All transfer must be made in units of troy ounces pure or other applicable weights and measures as established by the depository.

(b) If a payee under this section is a depository account holder, the depository shall adjust the depository account balances to reflect the transfer by reducing the payor's depository account balance and increasing the depository account balance of the payee accordingly.

(c) If a payee is not a depository account holder, upon receipt of a valid transfer request, the depository shall at the option of the payee:

(1) deliver to the payee the amount of precious metals transferred by the transfer request, minus any applicable fees; or

(2) if the payee is otherwise eligible to open a depository account under applicable laws and regulations, allow the payee to establish a depository account and credit the balance of the payee's account accordingly.

(d) The depository may require a non-account holder to provide information as is reasonably necessary to ensure that a delivery of precious metals to a non-account holder under this section is made in accordance with applicable law and policies established by the depository. Notwithstanding any other provision in these rules, the depository is not obligated to honor a transfer request if doing so violates any applicable law or depository policy. A delivery made to a non-account holder payee under this subsection may only be made in person to the payee at a facility designated by the depository.

(e) As provided by the depository account agreement or depository policy, precious metals transferred under this section are subject to a settlement period for up to ten business days and may not be sold, withdrawn or otherwise transferred during that period unless approved by the depository.

§14.5.Establishment of Depository Accounts.

To establish a depository account, a depositor must complete an account application form and provide the documentation necessary to establish that the depositor is eligible to open a depository account under applicable law and depository written policy. Submission of a signed application constitutes acceptance of the terms applicable to the depository account, and the depository shall not be required to execute the contract in order for the contract to be effective.

§14.6.Electronic and Digital Signatures.

The execution of a contract for a depository account may be made by electronic or digital transmission in a manner prescribed by the depository.

§14.7.Amendment of Account Agreement; Notices.

The depository and the depository account holder may amend the account agreement by mutual consent, or the depository may amend the deposit contract by providing thirty days written notice of the amendment to the account holder. The depository may provide the required notice by sending the notice by e-mail or via its website.

§14.8.Account Statements.

(a) The depository may provide periodic account statements to depository account holders. As provided in the depository account agreement, upon receipt of an account statement the depository account holder is responsible for:

(1) promptly examining each account statement received from the depository; and

(2) giving notice of any discrepancy in the account statement to the depository within thirty days of the date of the account statement.

(b) Provision of a periodic account statement constitutes notice of denial of liability for any transaction that is not reflected on the account statement.

§14.9.Fees; Service Charges; Penalties.

(a) The comptroller may set fees, service charges, and penalties to be charged a depository account holder for services or activities regarding a depository account, including fees for an overdraft, an insufficient fund check or draft, or a stop payment order. The comptroller may set or change the fees established under this rule by publishing the applicable fees on the depository website and by sending a notice of any change in fees to depository account holders. The notice may be sent electronically.

(b) The depository may suspend withdrawal privileges for a depository account or liquidate all or any portion of a depository account as necessary to satisfy any unpaid fees, service charges or penalties as outlined in the depository account agreement or as provided in §14.12 of this title (relating to Applicability of Estates Code).

§14.10.Transfer of Depository Account.

(a) A depository account may be transferred to another person only on presentation to the depository of:

(1) evidence of transfer satisfactory to the depository; and

(2) an application for the transfer submitted by the person to whom the depository account is to be transferred.

(b) A person to whom a depository account is to be transferred must accept the transferred account subject to the terms of the depository account agreement and must otherwise be eligible to open an account under applicable laws and regulations. If a person to whom a depository account is to be transferred is not eligible to open an account under applicable law and these rules, the depository may close the account and take all steps that are reasonably necessary to deliver to the transferee the balance of the depository account, minus any applicable fees.

(c) The depository may require the transferee to provide information as is reasonably necessary to ensure that a delivery of precious metals under this section is made in accordance with applicable law and policies established by the depository.

§14.11.Lien on Depository Account.

(a) Without the need of any further agreement or pledge, the depository has a lien on each depository account owned by a depository account holder to secure any fees, charges, or other obligations owed or that may become owed to the depository in connection with any of the depository account holder's depository accounts.

(b) On default in the payment or in the satisfaction of a depository account holder's obligation, the depository, without notice to or consent of the depository account holder, may, to the extent necessary to pay or satisfy the obligation, plus any applicable fees:

(1) transfer on the depository's books all or part of the balance of a depository account;

(2) liquidate all or part of the balance of a depository account; or

(3) suspend withdrawal privileges for all or part of a depository account.

(c) To be recognized by the depository, a pledge to a third party by a depository account holder of the holder's rights, interest, and entitlements in and to a depository account must be made on a form prescribed by the depository. A pledge made to a third party in this manner is subject to any lien of the depository on a depository account for unpaid fees, charges, or other obligations of the depository account holder, irrespective of whether the depository's lien was created before or after the pledge to a third party was made or perfected.

(d) On the satisfaction of other requirements of law with respect to the perfection and enforcement of a pledge of that type, and subject to a lien of the depository and any applicable fees, the depository may liquidate all or part of the balance of a depository account to the extent necessary to pay or satisfy the pledge, plus any applicable fees.

(e) If the depository liquidates all or part of a depository account to pay or satisfy a lien of the depository or a pledge under this section, the depository shall only liquidate the minimum amount of precious metal as is available in the depository account to pay or satisfy the lien or pledge, as determined by reference to the exchange rates applicable at the time of the liquidation. Upon liquidation, the depository shall apply the proceeds to satisfy the lien or pledge and shall refund to the depository account holder any amount in excess of the amount required to pay or satisfy the lien or pledge. The depository shall not be obligated to a depository account holder for any difference between the official exchange rate at the time a request for liquidation was received and the proceeds actually received upon liquidation after satisfaction of any unpaid fees.

(f) The depository may require that a secured party seeking to enforce a pledge under this section provide information as is reasonably necessary to ensure that a delivery of precious metals under this section is made in accordance with applicable law and policies established by the depository.

§14.12.Applicability of Estates Code.

The applicable provisions of Estates Code, Chapters 111, 112, and 113, govern a depository account. To be effective, the designation or revocation of rights of survivorship, payment on death, or transfer on death, must be on forms prescribed by the depository unless otherwise provided by law.

§14.13.Powers of Attorney.

To be effective, a power of attorney by a depository account holder to manage or withdraw precious metals from the depository account holder's depository account must be executed using a form prescribed by the depository and be notarized. Powers of attorney shall be effective for the length of time designated on the form prescribed by the depository unless earlier revoked by the depository account holder in writing or upon written notice of the death or adjudication of incompetency of the depository account holder.

§14.14.Confiscations, Requisitions, Seizures, and Certain Other Actions.

On receipt of notice of any transaction described by Government Code, §2116.023(a), with respect to all or any portion of the balance of a depository account, the depository shall refer the matter to the appropriate agency for resolution. Until the matter is resolved, the depository shall suspend withdrawal privileges associated with the balances of the depository account. The depository may prescribe procedures to allow voluntary transfers of depository account balances among depository account holders to continue to take place unaffected by the suspension as authorized by this chapter or other applicable law.

§14.15.Official Exchange Rates.

The comptroller shall publish on the depository website the official exchange rate for pricing precious metals transactions in terms of United States dollars or other currencies.

§14.16.Accounting and Reporting of Taxable Gains.

The comptroller shall provide depository account holders with statements or other required documentation needed to report taxable gains and losses arising from depository transactions in a manner that complies with federal law or as prescribed by the Internal Revenue Service. To the extent permitted by law, any statement or other documentation required under this section may be provided electronically.

§14.17.Electronic Information Sharing Systems and Processes.

(a) Depository agents must maintain suitable systems and processes as the comptroller may prescribe for electronic information sharing and communication. All reportable transactions effected on behalf of the depository by depository agents must be reported to the depository and integrated into the depository's records not later than 11:59:59 p.m. on the date of each transaction.

(b) The comptroller may prescribe in a depository agent agreement the transactions that are reportable under this rule.

§14.18.Periodic Reports.

(a) A depository agent shall submit monthly, quarterly, and annual reports of all depository transactions not later than the 15th day of the month following the expiration of the period with respect to which such report is submitted. The comptroller may specify the forms or formats of the reports required by this section and may require the reports to be filed electronically.

(b) The periodic reports required under this section are in addition to the reports required to be submitted in accordance with Finance Code, Chapter 151.

§14.19.Forms; Notices.

(a) Unless otherwise required by law, the depository may prescribe all forms or other documents required to implement this chapter and may require that the forms be submitted electronically.

(b) To the extent applicable and permitted by law, any notices, statements, or other documents required to be provided to a depository account holder by this chapter, these rules, or under the depository account agreement, as amended, may be provided electronically by e-mail or via the depository website.

§14.20.Depository Agents; Licensing Requirements.

(a) Unless otherwise exempt or excluded from licensing under this chapter or as provided by Finance Code, Subchapter J, a person who provides or offers to provide depository agent services for or on behalf of the depository must be licensed in accordance with Finance Code, Subchapter J.

(b) A service provided to the general public in the nature of purchasing, selling, transferring, accepting, transporting, delivering, or otherwise dealing in precious metals, bullion or specie, is not considered a depository agent service unless the service is made:

(1) for or on behalf of the depository; and

(2) in connection with providing account services to retail customers of the depository.

(c) A person who ships, transports or delivers, or arranges the shipment, transport, or delivery of precious metals, bullion or specie to the depository on behalf of another person is not considered a depository agent of the depository unless the person:

(1) has a written agency agreement with the depository to act on behalf of the depository; and

(2) provides account services for or on behalf of the depository to the general public.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 16, 2017.

TRD-201704141

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Earliest possible date of adoption: November 26, 2017

For further information, please call: (512) 475-0387


PART 6. TEXAS MUNICIPAL RETIREMENT SYSTEM

CHAPTER 127. MISCELLANEOUS RULES

34 TAC §127.7, §127.10

The Board of Trustees ("Board") of the Texas Municipal Retirement System ("TMRS" or "System") proposes an amendment to 34 Texas Administrative Code ("TAC") §127.7 Rollovers of Plan Distributions and a new rule 34 TAC §127.10 Conformity with Internal Revenue Code: Additional Provisions. Section 127.7 contains provisions relating to the rollover of certain distributions by TMRS in accordance with applicable requirements of the Internal Revenue Code of 1986, as amended (the "Code").

In January 2016, TMRS filed an application with the Internal Revenue Service ("IRS") to obtain a current favorable Determination Letter on the terms of the TMRS plan documents, which include, but are not limited to, the statutes found in Title 8, Subtitle G, Chapters 851 through 855 of the Texas Government Code (the "TMRS Act") and the administrative rules found in TAC Title 34, Part 6, Chapters 121 through 129 (the "TMRS Rules"). The draft language of the proposed amendment to §127.7 and new §127.10 was submitted to the IRS with the Determination Letter application and is designed to ensure compliance with applicable qualified plan document requirements under the Code. In June 2017, the IRS issued a favorable Determination Letter to TMRS, subject to the adoption of the draft rule amendment and new rule submitted with the application.

The proposed amendment to §127.7 and proposed new §127.10 contain provisions required by the Code and the IRS in order for TMRS to maintain the tax-qualified plan status of the System and rely on the recent favorable IRS Determination Letter. Section 127.7 is proposed to be amended to modify subsection (c) to add language specifying that certain eligible rollover distributions from TMRS can be paid in a direct trustee-to-trustee transfer to a Roth IRA. The federal Pension Protection Act of 2006 ("PPA") amended certain Code provisions relating to rollovers, including amendments to permit plan participants to make direct rollovers to a Roth IRA. Section 127.7 was amended in 2011 to reflect the PPA amendments to rollover provisions, and TMRS has been operating in accordance with the PPA rollover provisions, but the IRS has indicated it wants §127.7 to be further amended to also expressly refer to direct trustee-to-trustee transfers to a Roth IRA.

Proposed new §127.10 contains provisions that clarify and provide that: (i) TMRS is a governmental plan within the definition of Code §414(d); (ii) as a governmental plan, TMRS is subject to the Code's pre-ERISA vesting rules; (iii) for purposes of the TMRS Act, employees include a participating municipality's common law employees but exclude leased employees under Code §414(n); (iv) contributions made to TMRS may be returned only in very limited circumstances allowed by the Code and applicable regulations; (v) buybacks under the TMRS Act will comply with Code §415(k)(3) and its regulations, and any "permissive service credit" (as defined in Code) purchases will comply with Code §415(n) and its regulations; (vi) TMRS will comply with Code §401(a)(31)(B), relating to the automatic rollover of certain mandatory distributions; and (vii) the Section includes specific cross-references to Code §401(a)(9) and §401(a)(9)(G) and TMRS's ability, as a governmental plan, to rely on a reasonable and good faith interpretation of Code §401(a)(9).

The amendment to §127.7 and the new §127.10 are proposed and implement the authority granted under the following provisions of the TMRS Act: (i) Texas Government Code §855.102, which allows the Board to adopt rules it finds necessary or desirable for the efficient administration of the System; (ii) Texas Government Code §852.103, which authorizes the Board to adopt rules to implement the provisions of §852.103 relating to rollover distributions permitted under the Code; (iii) Texas Government Code §854.003, which authorizes the Board to adopt rules it determines necessary to comply with the distribution requirements of IRC §401(a)(9); and (iv) Texas Government Code §855.607, which authorizes the Board to adopt rules that modify the plan to the extent the Board considers necessary for the System to be a qualified plan, and provides that rules adopted by the Board relating to plan qualification issues are considered a part of the plan.

On September 21, 2017, the Board determined that the proposed rule amendment and new rule are necessary to comply with federal law, as set forth above, and approved the publication of this rule amendment and new rule proposal for comment.

Mr. David Gavia, Executive Director of TMRS, has determined that for the first five-year period the proposed amendment and new rule are in effect there will be no fiscal implication for state or local governments as a result of administering or enforcing the amendment and new rule as proposed. Mr. Gavia also has determined that for each of the first five years that the proposed amendment and new rule would be in effect, the public benefit anticipated as a result of administering the proposed amendment and new rule would be TMRS's compliance with applicable Code and IRS requirements in order to maintain the qualified plan status of the System and rely on the recent favorable IRS Determination Letter.

To Mr. Gavia's knowledge, there would be no anticipated economic cost to persons who are required to comply with the new rule or rule amendment as proposed. Persons who might be affected by the amendment or new rule are TMRS participating municipalities, members, retirees, and their beneficiaries. To Mr. Gavia's knowledge, these proposed rule changes are not anticipated to have an adverse economic impact on small businesses, micro-businesses, local economies or rural communities, and it would be to the benefit of those municipalities participating in TMRS, including those in rural communities, to maintain the qualified plan status of the System.

Comments may be submitted in writing to Christine M. Sweeney, General Counsel, TMRS, P.O. Box 149153, Austin, Texas 78714-9153, faxed to (512) 225-3786, or submitted electronically to Ms. Sweeney at csweeney@tmrs.com. Comments must be received no later than 30 days from the date of publication of the proposed rule amendment and new rule in the Texas Register.

Statutory Authority: The amendments are proposed and implement the authority granted under the following provisions of the TMRS Act: (i) Texas Government Code §855.102, which allows the Board to adopt rules it finds necessary or desirable for the efficient administration of the System; (ii) Texas Government Code §852.103, which authorizes the Board to adopt rules to implement §852.103 as it relates rollover distributions permitted under the Code; (iii) Texas Government Code §854.003, which authorizes the Board to adopt rules it determines necessary to comply with the distribution requirements of IRC §401(a)(9); and (iv) Texas Government Code §855.607, which authorizes the Board to adopt rules that modify the plan to the extent the Board considers necessary for the System to be a qualified plan.

Cross-reference to Statutes: Texas Government Code, Chapters 852, 854, and 855.

§127.7.Rollovers of Plan Distributions.

(a) - (b) (No change.)

(c) Notwithstanding anything in this section to the contrary, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax contributions which are not includible in gross income. However, such portion may be paid only in a direct trustee-to-trustee transfer to an individual retirement account or annuity described in Internal Revenue Code §§408(a) or (b), or to a qualified defined contribution plan described in Internal Revenue Code §401(a) or an Internal Revenue Code §403(b) annuity contract that, in each case, agrees to separately account for amounts so transferred, and the earnings on these amounts, including separate accounting for the portion of such distribution which was includible in gross income (if not for the rollover exclusion) and the portion of such distribution which was not includible in income (determined without regard to the rollover exclusion). Without limiting the foregoing, for distributions made after December 31, 2006, such portion may be also be paid in a direct trustee-to-trustee transfer to any type of qualified plan described in Internal Revenue Code §401(a) (whether or not a defined contribution plan) that agrees to separately account for amounts so transferred, and the earnings on these amounts, including separate accounting for the portion of such distribution which was includible in gross income (if not for the rollover exclusion) and the portion of such distribution which was not includible in income (determined without regard to the rollover exclusion). Without limiting the foregoing, for distributions made after December 31, 2007, a portion of a distribution shall not fail to be an eligible rollover distribution merely because it is paid in a direct trustee-to-trustee transfer to a Roth IRA as described in Internal Revue Code §408A(b).

(d) - (e) (No change.)

§127.10.Conformity with Internal Revenue Code: Additional Provisions.

(a) The system is a governmental plan within the meaning of §414(d) of the Internal Revenue Code of 1986, as amended from time to time (the "Internal Revenue Code").

(b) The rights of members to benefits accrued, to the extent funded, will become vested to the extent required by, and upon the events set forth in, Treasury Regulation §1.401-6(a)(1).

(c) The term "employee," as defined in §851.001(8) of the Act, shall be limited to common law employees of a municipality, and shall exclude leased employees within the meaning of Internal Revenue Code §414(n).

(d) With respect to §851.002 of the Act, and notwithstanding any provision of the system to the contrary, reversions will be permitted only to the extent allowed under the Internal Revenue Code and any related guidance thereunder, including, but not limited to, a contribution made because of a good faith mistake of fact that is returned within one year of the date the contribution was made as permitted under Revenue Ruling 91-4, or as permitted by subsequent guidance.

(e) Repayments of previously paid out benefits, including the reestablishment of credit under §853.003 of the Act, shall comply with Internal Revenue Code §415(k)(3) and any Treasury Regulations thereunder. For purchases of permissive service credit that are described in Internal Revenue Code §415(n), including any such purchases under Chapter 853 of the Act, the provisions of Internal Revenue Code §415(n) and any Treasury Regulations thereunder shall apply, including the provisions of Internal Revenue Code §415(n)(3)(B) that, except as provided in Internal Revenue Code §415(n)(3)(D):

(1) no more than five years of nonqualified service credit within the meaning of Internal Revenue Code §415(n)(3)(C) may be taken into account under Internal Revenue Code §415(n); and

(2) no nonqualified service credit within the meaning of Internal Revenue Code §415(n)(3)(C) may be taken into account under Internal Revenue Code §415(n) before a member has at least five years of participation in the system.

(f) Notwithstanding any provision of the system to the contrary, the system shall comply with Internal Revenue Code §401(a)(31)(B) and applicable Treasury Regulations thereunder.

(g) With respect to §854.003(d) and §854.104(f) of the Act, and notwithstanding any provision of the system to the contrary, the system shall comply with Internal Revenue Code §401(a)(9), including the minimum distribution incidental benefits rule of Internal Revenue Code §401(a)(9)(G), pursuant to a reasonable and good faith interpretation of Internal Revenue Code §401(a)(9).

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on October 16, 2017.

TRD-201704138

David Gavia

Executive Director

Texas Municipal Retirement System

Earliest possible date of adoption: November 26, 2017

For further information, please call: (512) 225-3754