Solving Thorny Benefit Problems

Shannon Lucero, Regional Manager

Michelle Mellon-Werch, Assistant General Counsel

•  Death Benefits and Beneficiaries •  Divorce •  Definition of Employee •  Correction of Errors •  Bona Fide Separation from Service (IRS) •  Workers’ Compensation •  Trusts •  Same-sex Marriage (SCOTUS) •  Confidentiality

Issues for TMRS Members

TMRSDirect Short Feature: Enrolling New Members with the TMRS City Portal 2

Death Benefits

What happens when a member dies? Death benefit (retirement account) is determined based on status in system:

•  Not Vested Member •  Vested Member •  Retiree

Supplemental Death Benefits

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If Member Dies Before Vesting…

•  Designated beneficiary receives a lump sum refund of member’s account balance

•  City match is forfeited •  If no valid beneficiary designation is

on file, proceeds are paid to member’s estate

•  Beneficiary will be determined by the New Member Form or the Not Vested –Beneficiary Designation form.

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If Member Dies After Vesting (before Retiring)

*Spouse must make this election within 180 days of member’s death

Refund •  No City match

Lifetime or 15-year payout (with city match) •  Immediate

payments

Refund •  No City match

Lifetime or 15-year payout (with city match)

•  Immediate payments or • Payments delayed* until

member would have reached 60

NON-SPOUSE BENEFICIARY SPOUSE BENEFICIARY

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Multiple Beneficiaries – Vested Member

Beneficiaries must agree on payment option

For both spouse and non-spouse beneficiaries: •  Refund (no city match) •  15-year payout (with city match)

•  Immediate payments ⎯ divided equally •  Five years for trusts and estates

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Benefit Options Review – Vested Member

Spouse

•  Leave funds until member would have turned 60

•  Elect immediate lifetime benefit •  Elect immediate 15 year benefit •  Elect Refund

Non-Spouse •  Elect immediate lifetime benefit •  Elect immediate 15 year benefit •  Elect Refund

Multiple Beneficiaries

•  Elect immediate 15 year benefit •  Elect Refund •  Must agree on option

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If Member Dies After Retirement

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•  Option chosen at retirement determines benefits payable at death, if any: •  Retiree life only •  Joint and survivor •  Guaranteed term

Supplemental Death Benefit (SDB)

* Extended SDB coverage past automatic 6 month period requires written request from the city to TMRS

How does the SDB work? •  Optional provision — must be adopted by

the city (employees only, or employees and retirees)

•  Both vested and not-vested employees are covered •  Extended coverage available*

•  For active employees, payment equal to yearly salary

•  For retired employees, payment equal to $7,500

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Divorce and the TMRS Benefit

•  QDROs •  How Benefit Is Affected •  Contact Information

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Why Does Divorce Matter?

Big Picture: Deposits and interest credited during marriage are community property. Divorce decree generally

will state if benefit is to be divided or not.

If ex-spouse was awarded portion of TMRS benefit

•  Submit certified QDRO to TMRS

•  Update Beneficiary designation if necessary

What happens:

•  Account is “flagged”

•  Benefit is not divided or paid until member refunds or retires account

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Details about QDROs

•  A QDRO, or Qualified Domestic Relations Order, is a court order that orders TMRS to divide retirement benefit

•  Contributions may only represent small portion of what could be lifetime benefit

•  Required before TMRS can make payment to non-member

•  TMRS will determine if order is acceptable •  Publication with sample QDROs is available •  Call if there are questions; we can review

beforehand (better option than after-the-fact) 12

More on QDROs…

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•  Active Employee •  Benefit not divided until member retires/refunds/

dies •  Benefit paid in same manner to “alternate

payee” as to member/beneficiary •  A “hold” is placed on account if TMRS is notified

of a pending QDRO. •  Retired Member

•  Payments continue to retiree until acceptable certified QDRO received

Who Can I Contact?

•  Call Support Services: 1.800.924.8677

•  Email questions to: divorce@tmrs.com

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TMRS Fine Print

•  Basic Legal Premise for TMRS Plans •  Definition of Employee – including the

“1000 Hour Rule” •  Correction of Errors •  Bona-Fide Separation from Service •  Worker’s Compensation •  Trusts •  Same-sex Marriage •  Confidentiality

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TMRS Plan Legal Authority

•  Texas Constitution — Article 16, Section 67(c)

•  TMRS Act — Chapters 851-855 of Texas Government Code

•  TMRS Board Rules — 34 Texas Admin. Code Chapters 121-129

•  TMRS Policies — In publications on our website: www.tmrs.com

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Definition of Employee

•  Section 851.001(8) of the TMRS Act

R  “Employee” means a person, including a person serving a period of probationary employment,

R  Who receives compensation from and R  Is certified by a municipality as being R  Regularly engaged R  In the performance of duties of a position that

normally requires services from the person for not less than 1,000 hours a year

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1000 Hour Rule and Departments

•  1000-Hour Rule •  Whether the employee is in a position that

normally requires services for not less than 1000 hours a year

•  City determines the classification of a position

•  Employees must work for a “Department” of the City

•  Section 851.001(7): “Department” means a recognized division performing a governmental or proprietary function of a municipality

•  Three Qualifiers: Purpose, Governance, and Dissolution

•  Yellow Flags: Economic Development Corporations, Utilities, Housing Authorities

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Correcting an Error

•  Section 852.110 of the TMRS Act The retirement system shall correct an error in current service performed, or current service credit that should have been received, not more than four years before the date an application for the correction, on a form approved by the board of trustees, is received by the retirement system.

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Correcting an Error (cont.)

•  Four-year window •  IMPORTANT first step — file the Application for

Correction with TMRS

•  Compensation-based — Corrections for Settlement Agreements or Arbitration awards must be based on compensation •  Submit “draft” settlement agreements/arbitrations

to TMRS before finalizing agreement

•  All contributions must be received from City

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Workers’ Compensation (WC)

•  Workers’ Compensation is income replacement insurance; therefore, TMRS contributions should be deducted from income received from WC

•  Employees can receive WC in various ways: Insurer, City (self-insured) or combination of both

•  If contributions are not made, employee will not receive service credit towards retirement eligibility

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Workers’ Compensation (cont.)

•  If City pays WC, the City should send in contributions, as it would for any other employee.

•  If Insurer pays WC, the City can ask the Employee to send the City the employee contributions before it sends in contributions.

•  If both the city and Insurer are paying WC, the City should deduct the full employee contributions from it’s portion and send it in.

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Bona Fide Separation

•  Bona Fide Separation from Service •  To maintain status as a Qualified Plan (tax-

deferred) under IRS regulations, TMRS may not give an “In Service Distribution”

•  TMRS Act does not allow In Service Distributions •  To not have an In Service Distribution, there must

be a “bona fide” separation from service •  A Bona Fide Separation from Service means that

the work relationship has been completely severed ─ there cannot be any prearrangement to return to work (written or oral)

•  Applies to both refunds and retirement 23

Trust as Beneficiary

•  Trust as Beneficiary: TMRS Act Section 854.503 allows a member or retiree to designate a trust as a beneficiary. •  Beneficiary of the trust is considered the

designated beneficiary •  Trustee has right to exercise any rights to

elect benefit options and elect subsequent beneficiaries

•  If more than one beneficiary in the trust, can only receive those benefits which are available to multiple beneficiaries

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Living Trusts

•  New TMRS Policy – Many retirees and other payees are forming trusts to manage affairs either for Medicaid eligibility purposes or for assistance or estate planning.

•  An annuitant (retiree, alternate payee, or beneficiary) can elect to direct deposit to a trust, if certain conditions are met.

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Living Trusts (cont.)

•  There are multiple forms: •  The TMRS-80E is the same Direct Deposit

Authorization Form •  New form ―TMRS-Trust ― has two parts:

•  First two pages are Certification of Trust •  Last page is Authorization for Direct Deposit

of TMRS Annuity

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Living Trusts (cont.)

•  TMRS-80E must be signed by the annuitant or their legal representative (not the Trustee)

•  Certification of Trust •  Requires information from the Trust document •  Tricky issues – multiple Trustees, powers of

Trustee •  TMRS does NOT need (or want) a copy of the

Trust •  Authorization for Direct Deposit of TMRS

Annuity •  Requires the annuitant and the Trustee(s) to

acknowledge that the direct deposit arrangement is not an assignment, is revocable, and is still taxable to annuitant

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Same-Sex Marriage

•  Following the recent Supreme Court decision (Obergefell), TMRS now recognizes the spousal relationship of TMRS members in same-sex marriages.

•  TMRS members could always designate any beneficiary

•  Beneficiary designations must be updated if member marries and wishes to designate new spouse.

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Confidential Information

Texas Public Information Act – “[I]t is the policy of this state that each person is entitled, unless otherwise expressly provided by law, at all times to complete information about the affairs of government and the official acts of public officials and employees.” Records of TMRS of individual members, annuitants, retirees, beneficiaries, alternate payees, program participants, or persons eligible for benefits, are confidential and not subject to disclosure. (TPIA, Section 552.0038 and TMRS Act, Section 855.115)

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Confidential Information, cont.

TMRS can share information with •  Those individuals and their legal representatives

(Attorney In Fact and Guardian) •  The City when there is a “legitimate need for the

information to perform purposes of the retirement system” or when reasonably necessary to perform duties.

•  Spouse or former spouse if relevant to their interest in member account or other benefits

•  Subpoena (not necessary for those listed above) Information remains confidential, even when shared with those individuals. TPIA Section 552.0038

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Important Points to Remember

•  Beneficiary Designations are important whether you are not vested, vested, or retired.

•  QDROs – Separate from Divorce Decree and important to divide TMRS benefit

•  Bona Fide Separation – no prearrangement •  Correction of Errors go back 4 years from date

of application •  Workers Compensation is compensation for

TMRS purposes •  New Trust policy and forms •  Records remain confidential at your city – this

includes the City Portal! 31

TMRSDirect Tutorial

Enrolling New Members Using the TMRS City Portal

Debbie Muñoz, Director of Member Services

AuthorizedCity Portal Users may navigate to the Enrollment tab, where they may enter the member’s information

Main Page after Login

City Portal Users can see messages regarding updates to the City Portal

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Authorized City Portal Users may navigate to the Enrollment tab, where they enter the member’s information

Be sure to type in the member’s “persistent” email address for future electronic communications from TMRS.

Enrollment Screen

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As you add information, the program checks off correctly input items, verifying address, zip code, etc.

When you are finished, click and the data uploads to TMRS instantly. The Enrollment History Tab shows members you have added.

Enrollment Screen xxxx xxxx

xxxx 35

What Happens Next?

•  New members receive a mailed confirmation letter

•  Designating a beneficiary – a separate process (for now….)

•  Enroll online – It’s faster, data is accurate and timely!

QUESTIONS?