TITLE 34. PUBLIC FINANCE

PART 4. EMPLOYEES RETIREMENT SYSTEM OF TEXAS

CHAPTER 61. TERMS AND PHRASES

34 TAC §61.1

The Employees Retirement System of Texas (ERS) proposes amendments to 34 Texas Administrative Code (TAC) Chapter 61, concerning Terms and Phrases, by amending §61.1 (Definitions).

ERS is a constitutional trust fund established as set forth in Article XVI, §67, Texas Constitution, and further organized pursuant to Title 8, Tex. Gov't Code, as well as 34 Texas Administrative Code, §§61.1 et seq.

Section 61.1, concerning Terms and Phrases (Definitions), is proposed to be amended in order to clarify the rule and its interaction with other rules and statutes and to enhance public understanding of the rule.

GOVERNMENT GROWTH IMPACT STATEMENT

ERS has determined that during the first five-year period the amended rule will be in effect:

(1) the proposed amendments will not create or eliminate a government program;

(2) implementation of the proposed amendments will not require the creation of new employee positions or eliminate existing employee positions;

(3) implementation of the proposed amendments will not require an increase or decrease in future legislative appropriations to the agency;

(4) the proposed amendments will not require an increase or decrease in fees paid to the agency;

(5) the proposed amendments will not create a new rule or regulation;

the proposed amendments will not expand, limit, or repeal an existing rule or regulation;

(6) the proposed amendments will not increase or decrease the number of individuals subject to the rule's applicability; and

(7) the proposed amendments will not positively or adversely affect the state's economy.

Mr. Keith Yawn, Director of Strategic Initiatives, has determined that for the first five-year period the rule is in effect, there will be no fiscal implication for state or local government or local economies as a result of enforcing or administering the rule; and small businesses, micro-businesses, and rural communities will not be affected.

The proposed amendments to the rule reflect clarifications of the intent of the rule and its interaction with other rules and statutes, as well as an enhanced public understanding of the rule. The proposed amendments do not constitute a taking. Mr. Yawn has also determined that, to his knowledge, there are no known anticipated economic effects to persons who are required to comply with the rule as proposed, and the proposed amendments do not impose a cost on regulated persons.

Mr. Yawn also determined that for each year of the first five years the rule is in effect, the public benefit anticipated as a result of adopting and complying with the rule is to clarify public understanding of the agency's administration of the rule.

Comments on the proposed amendments may be submitted to Cynthia C. Hamilton, Acting General Counsel, Employees Retirement System of Texas, P.O. Box 13207, Austin, Texas 78711-3207, or you may email Ms. Hamilton at Cynthia.hamilton@ers.texas.gov. The deadline for receiving comments is Monday, November 22, 2021, at 10:00 a.m.

The amendments are proposed under Tex. Gov't Code §815.102, which provides authorization for the ERS Board of Trustees to adopt rules necessary for the administration of the funds of the retirement system and regarding the transaction of any other business of the Board.

No other statutes are affected by the proposed amendments.

§61.1.Definitions.

The following words and terms, when used in this part, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Contributory service--Service for which all necessary deposits were made with and are being held by the system [System].

(2) System--The Employees Retirement System of Texas.

(3) Trustees, board, or board [Board] of trustees [Trustees]--The board [Board] of trustees [Trustees] of the Employees Retirement System of Texas.

(4) Year--The state fiscal year.

(5) Interested person [Person]--Any member of the system; any beneficiary or survivor of a system member; any retiree of the system; any guardian, administrator, or executor of a system member, retiree, or beneficiary; and [or] any state agency employing system members.

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 11, 2021.

TRD-202104006

Cynthia C. Hamilton

Acting General Counsel

Employees Retirement System of Texas

Earliest possible date of adoption: November 21, 2021

For further information, please call: (877) 275-4377


CHAPTER 63. BOARD OF TRUSTEES

34 TAC §§63.1, 63.3 - 63.5, 63.7, 63.9, 63.13, 63.15, 63.17, 63.19

The Employees Retirement System of Texas (ERS) proposes amendments to 34 Texas Administrative Code (TAC) Chapter 63, concerning Board of Trustees, by amending §63.1 (Duties of the Board of Trustees), §63.3 (Election of Trustees (Nomination Process)), §63.4 (Election of Trustees (Ballot)), §63.5 (Rulemaking Procedure), §63.7 (Public Comment to the Board of Trustees), §63.9 (Officers), §63.13 (Committees), §63.15 (Roberts Rules of Order), §63.17 (Advisory Committees), and §63.19 (Standard of Conduct for Financial Advisors and Service Providers).

ERS is a constitutional trust fund established as set forth in Article XVI, §67, Texas Constitution, and further organized pursuant to Title 8, Tex. Gov't Code, as well as 34 Texas Administrative Code, §§61.1 et seq.

Amendments are proposed for §§63.1, 63.3, 63.4, 63.5, 63.7, 63.9, 63.13, 63.15, 63.17, and 63.19 in order to implement statutory requirements pursuant to HB 917 of the 87th Regular Legislative Session, clarify the intent of the rules and their interaction with other rules and statutes, and enhance public understanding.

GOVERNMENT GROWTH IMPACT STATEMENT

ERS has determined that during the first five-year period the amended rules will be in effect:

(1) the proposed amendments will not create or eliminate a government program;

(2) implementation of the proposed amendments will not require the creation of new employee positions or eliminate existing employee positions;

(3) implementation of the proposed amendments will not require an increase or decrease in future legislative appropriations to the agency;

(4) the proposed amendments will not require an increase or decrease in fees paid to the agency;

(5) the proposed amendments will not create a new rule or regulation;

(6) the proposed amendments will not expand, limit, or repeal an existing rule or regulation;

(7) the proposed amendments will not increase or decrease the number of individuals subject to the rules' applicability; and

(8) the proposed amendments will not positively or adversely affect the state's economy.

Mr. Keith Yawn, Director of Strategic Initiatives, has determined that for the first five-year period the rules are in effect, there will be no fiscal implication for state or local government or local economies as a result of enforcing or administering the rules; and small businesses, micro-businesses, and rural communities will not be affected.

The proposed amendments to the rules reflect clarifications of the intent of the rules and their interaction with other rules and statutes and implement statutory requirements pursuant to HB 917 of the 87th Regular Legislative Session. The proposed amendments do not constitute a taking. Mr. Yawn has also determined that, to his knowledge, there are no known anticipated economic effects to persons who are required to comply with the rules as proposed, and the proposed amendments do not impose a cost on regulated persons.

Mr. Yawn also determined that for each year of the first five years the rules are in effect, the public benefit anticipated as a result of adopting and complying with the rules would be to clarify public understanding of the agency's administration of the rules.

Comments on the proposed amendments may be submitted to Cynthia C. Hamilton, Acting General Counsel, Employees Retirement System of Texas, P.O. Box 13207, Austin, Texas 78711-3207, or you may email Ms. Hamilton at Cynthia.Hamilton@ers.texas.gov. The deadline for receiving comments is Monday, November 22, 2021, at 10:00 a.m.

The amendments are proposed under Tex. Gov't Code §815.102, which provides authorization for the ERS Board of Trustees to adopt rules necessary for the administration of the funds of the retirement system and regarding the transaction of any other business of the Board.

No other statutes are affected by the proposed amendments.

§63.1.Duties of the Board of Trustees.

The Board of Trustees shall formulate [the basic and general] policies[,] and rules[, and regulations] consistent with the [purposes, policies, principles, and standards stated in] statutes that govern ERS [administered by the board]. [The board has appellate jurisdiction of appeals from adverse determinations made by the executive director as provided in Chapter 67, Hearings on Disputed Claims.]

§63.3.Election of Trustees (Nomination Process).

A member or retiree of the system who meets statutory eligibility criteria may be nominated to serve as a trustee of the system [Names may be placed in nomination for the office of trustee of the Employees Retirement System of Texas (system)] in the following manner: [.]

(1) A member or retiree [candidate, or his or her agency,] must file a petition on a form approved by the system [requesting the candidate's name to be placed in nomination]. The petition must be signed by 300 or more persons qualified to vote in the trustee election. Only members of the system and retirees are qualified to vote in the election. The system will accept up to 600 signatures from each candidate.

(2) Each [The] signature [of each person] on a petition must be accompanied by that person's printed or typed name, ZIP Code, and any other information requested by the system to confirm the signer's identity. No person may sign a petition for more than one candidate. To do so will cause the signatures of the person to be disqualified on all petitions.

[(3) Blank petition forms may be reproduced and utilized provided the reproduction is an exact replica of the original document.]

(3) [(4)] The system must receive signed petitions before the deadline established by the board. A copy of a signed paper petition will not be accepted in lieu of the original signed petition. Electronic petitions must be completed and submitted in accordance with the instructions provided with electronic petition forms.

[(5) Only those names of candidates whose petitions comply with this section will be presented on the ballot.]

(4) [(6)] The board shall establish deadlines and other dates related to trustee elections. Blank petitions shall be made available by the system at least 25 calendar days in advance of the deadline established by the board for filing signed petitions.

(5) A member may not be nominated to serve as a trustee if:

(A) the member is employed by the same employer as another trustee whose term will continue following the election; or

(B) the member is currently employed by the system or has been employed by the system within six years prior to the date of nomination.

(6) A retiree may not be nominated to serve as a trustee if:

(A) the board includes another retiree whose term will continue following the election; or

(B) the retiree was an employee of the system within six years prior to the date of nomination.

§63.4.Election of Trustees (Ballot).

(a) The order of the names on the ballot shall [will] be established [set] by drawing at a time and setting determined by the system. Each candidate or the candidate's representative may attend the drawing. [All nominated candidates or their representatives are entitled to be present at the drawing. The time and location of the drawing will be set by the system.]

(b) Each candidate [All candidates] must submit [within] the [time frame established by the system any] information requested by the system for presentation on the ballot. Such information may include[, but is not limited to]:

(1) name as it is to appear on the ballot;

(2) current [classification/exempt] title and position as a state employee;

(3) name and address of [current] employing state agency; and

(4) any other information the system determines may be helpful to the electorate [persons qualified to vote in the election].

(c) In addition to the information described [required] in subsection (b) of this section, each [the] candidate must [shall] provide[, within the time frame provided by the system, his or her state agency mailing address,] a statement of qualifications, a description of the candidate's [and] position on system-related issues [consisting of] (250 words or less), and any [such] additional information requested by [as] the system [may request]. This information shall [, in addition to that which will appear on an election ballot, will] be made available to the electorate through a special election [system ] newsletter devoted to the [trustee] election process. This special edition of the newsletter [will be made available to the electorate at the beginning of each election and] will describe restrictions on the use of state funds to influence the outcome of any election.

(d) The system may contract with an election administrator to implement and monitor the election process. Balloting may be conducted electronically or in combination with a printed ballot.

(e) The system or the [/] election administrator shall [will, at least 25 days in advance of the close of each election established by the election calendar,] make ballots available to eligible voters. Upon the request of a [the] candidate, the system or the [/] election administrator shall [will] provide the candidate with 500 ballots without preprinted names [to each candidate].

(f) The system[/] or the election administrator shall [will] provide a 24-hour toll-free telephone number that [line which] eligible voters may use to request a printed ballot.

(g) Electronic ballots must be completed and submitted to the system or the [/] election administrator in accordance with the instructions provided with each ballot [contained in the electronic voting format].

[(h) Each candidate may designate one (1) person to observe the ballot counting process. No observer will be permitted to see complete ballots which indicate the identity of a voter and voter's candidate selection. No observer will be permitted to challenge the validity of ballots or disrupt the counting process in any way.]

(h) [(i)] The system or the [/] election administrator shall [will ] disqualify any ballot that does [ballots which do] not meet the requirements [and instructions] specified in the instructions provided with [the electronic format or printed on] the ballot.

(i) [(j)] The board or the board's designee shall certify election results. If only one candidate is eligible to be presented on the ballot, the board or the board's designee may certify the candidate without an election.

§63.5.Rulemaking Procedure.

(a) Initiation method. The [proceedings for the] promulgation, adoption, repeal, or revision of any rule [rules] may be initiated by the executive director or any member of the board [Board of Trustees].

(b) Petitions. Any interested person may petition [to ] the executive director or the board to request [Board of Trustees requesting] the adoption of a rule. Within 60 days after [of] the receipt of a [the] petition, the executive director shall [will] either initiate rulemaking proceedings or place the matter on the agenda of the next regularly scheduled board meeting for discussion.

§63.7.Public Comment to the Board of Trustees.

A member [Members] of the public who wishes [wish] to make a presentation to the board [Board of Trustees] regarding an item [items] on the board's agenda may do so in accordance with the following [rules and] procedures: [.]

(1) A form approved by the system must be completed and submitted to the system prior to the board meeting in the time and manner specified. [Immediately preceding the board meeting, a form furnished by the board shall be completed, indicating the agenda item or items to be addressed.]

(2) Only the parties involved in an appeal may comment on administrative appeals that are presented to the board. [Comments regarding agenda items relating to administrative appeals to the board are limited only to parties involved in those appeals or their legal representatives.]

(3) The [Comments from the public regarding agenda items will be heard by the] board shall hear comments regarding an agenda item at the time the agenda item is under consideration [and before a final decision is made].

(4) Comments by an individual on a particular agenda item shall be limited to five minutes[,] unless the chair modifies the amount of time allotted [modified at the discretion of the chairman of the Board of Trustees].

(5) The combined maximum amount of time for all public comments regarding [for] an agenda item is 30 minutes[,] unless the chair modifies the amount of time allotted [modified at the discretion of the chairman of the Board of Trustees].

(6) Members of the public are encouraged to submit written comments to the board in lieu [place] of [,] or in addition to [,] oral comments [presentations].

§63.9.Officers.

At the last regularly scheduled board meeting each year, the board shall elect a chair and vice chair who shall take office the following September 1. The chair or vice chair, in the chair's absence, shall preside at meetings of the board. [The members of the Board of Trustees shall elect a chairman and vice chairman for each fiscal year. The officers shall be elected at the last scheduled regular board meeting of a fiscal year and shall take office the following September 1. The chairman of the board or the vice chairman, in the chairman's absence, will preside at the meetings of the board. While presiding, the chairman will direct the order of the meeting, recognize persons to be heard, limit time, take other action to clarify issues, and preserve order.]

§63.13.Committees.

The internal audit committee shall be considered a standing committee, and members shall be appointed by the chair [chairman] at the beginning of each [fiscal] year. The chair [chairman] shall designate additional ad hoc committees as [are] necessary [to consider various aspects of the board's work]. The term of an ad hoc committee shall be for the [fiscal] year in which the ad hoc committee is appointed or until the work of the ad hoc committee is completed if within the [fiscal] year.

§63.15.Robert's [Roberts] Rules of Order.

Unless otherwise required [otherwise] by law or these rules, Robert's [Roberts] Rules of Order may [shall] be used in the conduct of business by the board to the extent practicable.

§63.17.Advisory Committees.

(a) The composition and functions of the Medical Board [(Government Code, §815.204) is created pursuant to law. This committee will be composed of the number of people directed by law and will have the purposes, tasks, and reporting requirements] are established by statute [law]. Remuneration, if any, for Medical Board [committee] members shall [will] be determined by the board. The Medical Board shall [committee will] perform its tasks until abolished by the legislature.

(b) The Investment Advisory Committee (IAC) shall [is created to consult with and] advise the board on issues related to investments [and investment related issues]. Subject to applicable statutory requirements, the board shall determine the [The] number of IAC members [on the IAC], the prerequisites for membership, the reporting requirements for the IAC, whether to abolish the IAC, and the remuneration, if any, for IAC members [and its reporting requirements will be determined by the board. The IAC will perform its tasks until abolished by the board].

(c) The Group Benefits Advisory Committee (GBAC) shall [is created to] advise the board on employee benefits administered by the board as part of [within] the Texas Employees Group Benefits Program. The board shall determine the number of GBAC members [on the GBAC], the prerequisites for membership, the reporting requirements for the GBAC, whether to abolish the GBAC, and the remuneration, if any, for GBAC members [and its reporting requirements will be determined by the board. The GBAC will perform its tasks until abolished by the board].

§63.19.Standards [Standard] of Conduct for Financial Advisors and Service Providers.

In accordance with Tex. Gov't Code §2263.004, any financial advisor or [advisors and] service provider [providers ("Financial Advisors")] who receives [receive ], directly or indirectly, more than $10,000.00 in compensation from the system [System] during a [fiscal] year[,] and provides [who provide] financial services to the system, the board, or a member of the board [System, the System's Board of Trustees, or the individual members of the Board of Trustees] regarding the management or investment of the system's [System's] funds[,] shall comply with all applicable standards of conduct established by [with which they are required to comply in accordance with] federal and [or] state laws and regulations, relevant trade and professional associations, and the system's [System's] Investment Policy. The system may terminate any business relationship, including the termination of a contract, for failure to comply with an applicable standard of conduct as required by this section. [Financial Advisors must agree to comply with these standards of conduct as a prerequisite to establishing and continuing any business relationship with the System. Failure to comply with applicable standards of conduct authorizes the System to terminate any business or contractual relationship at the System's discretion.]

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 11, 2021.

TRD-202104017

Cynthia C. Hamilton

Acting General Counsel

Employees Retirement System of Texas

Earliest possible date of adoption: November 21, 2021

For further information, please call: (877) 275-4377


CHAPTER 65. EXECUTIVE DIRECTOR

34 TAC §§65.1, 65.5, 65.7, 65.9, 65.11, 65.13

The Employees Retirement System of Texas (ERS) proposes amendments to 34 Texas Administrative Code (TAC) Chapter 65, concerning the Executive Director, by amending §65.1 (Duties of the Executive Director), §65.5 (Correction of Administrative Error), §65.7 (Appointment of Examiner), §65.9 (Delegation of Authority), §65.11 (Reimbursement for Training or Education), and §65.13 (Enhanced Contract Monitoring).

ERS is a constitutional trust fund established as set forth in Article XVI, §67, Texas Constitution, and further organized pursuant to Title 8, Tex. Gov't Code, as well as 34 Tex. Admin. Code, §§61.1 et seq.

Amendments are proposed for §§65.1, 65.5, 65.7, 65.9, 65.11, and 65.13 in order to clarify the intent of the rules and their interaction with other rules and statutes and enhance public understanding.

GOVERNMENT GROWTH IMPACT STATEMENT

ERS has determined that during the first five-year period the amended rules will be in effect:

(1) the proposed amendments will not create or eliminate a government program;

(2) implementation of the proposed amendments will not require the creation of new employee positions or eliminate existing employee positions;

(3) implementation of the proposed amendments will not require an increase or decrease in future legislative appropriations to the agency;

(4) the proposed amendments will not require an increase or decrease in fees paid to the agency;

(5) the proposed amendments will not create a new rule or regulation;

(6) the proposed amendments will not expand, limit, or repeal an existing rule or regulation;

(7) the proposed amendments will not increase or decrease the number of individuals subject to the rules' applicability; and

(8) the proposed amendments will not positively or adversely affect the state's economy.

Mr. Keith Yawn, Director of Strategic Initiatives, has determined that for the first five-year period the rules are in effect, there will be no fiscal implication for state or local government or local economies as a result of enforcing or administering the rules; and small businesses, micro-businesses, and rural communities will not be affected.

The proposed amendments to the rules reflect clarifications of the intent of the rules and their interaction with other rules and statutes as well as an enhanced public understanding of the rules. The proposed amendments do not constitute a taking. Mr. Yawn has also determined that, to his knowledge, there are no known anticipated economic effects to persons who are required to comply with the rules as proposed, and the proposed amendments do not impose a cost on regulated persons.

Mr. Yawn also determined that for each year of the first five years the rules are in effect, the public benefit anticipated as a result of adopting and complying with the rules would be to clarify public understanding of the agency's administration of the rules.

Comments on the proposed amendments may be submitted to Cynthia C. Hamilton, Acting General Counsel, Employees Retirement System of Texas, P.O. Box 13207, Austin, Texas 78711-3207, or you may email Ms. Hamilton at Cynthia.Hamilton@ers.texas.gov. The deadline for receiving comments is Monday, November 22, 2021 at 10:00 a.m.

The amendments are proposed under Tex. Gov't Code §815.102, which provides authorization for the ERS Board of Trustees to adopt rules necessary for the administration of the funds of the retirement system and regarding the transaction of any other business of the Board.

No other statutes are affected by the proposed amendments.

§65.1.Duties of the Executive Director.

All the administrative and decisional powers granted by the statutes that govern ERS [administered by the board] are vested in the executive director, subject to [the basic and general] policies[,] and rules formulated by the board [and regulations, and appellate jurisdiction of the board].

§65.5.Correction of Administrative Error.

The executive director may take [such] action [that is] necessary to correct an administrative error [and the effects thereof]. The reason for any [An] action by the executive director to correct an administrative error [made pursuant to this section and the reasons for such action] shall be made [a] part of the appropriate record.

§65.7.Appointment of Examiner.

The executive director shall have authority to appoint an examiner to conduct proceedings related to contested cases under [provided by] the Administrative Procedure Act [(Tex. Gov't Code Ann. §§2001.001 et seq.)].

§65.9.Delegation of Authority.

Any right, power, or duty [imposed or] conferred on the executive director by statute, [law or by] rule, or board action may be exercised or performed by the deputy executive director as provided by Tex. Gov't Code §815.202(f) or if the executive director is incapacitated or otherwise unable to act.

§65.11.Reimbursement for Training or Education.

Before an employee of the system may be reimbursed under Tex. Gov't Code §656.047(b)[, Texas Government Code,] the executive director must authorize the tuition reimbursement payment based on compliance with the requirements of §656.047(b)[,] and [as consistent with] applicable laws governing the trusts administered by the system [ERS].

§65.13.Enhanced Contract Monitoring.

(a) Contracts described by Tex. Gov't Code §2261.251(b)[, Texas Government Code,] are subject to the system's enhanced contract and performance monitoring procedures.

(b) The executive director shall designate [a] staff [member(s)] who will be responsible for submitting the information on contracts described by Tex. Gov't Code §2261.251(b)[, Texas Government Code,] to the board [of trustees].

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 11, 2021.

TRD-202104008

Cynthia C. Hamilton

Acting General Counsel

Employees Retirement System of Texas

Earliest possible date of adoption: November 21, 2021

For further information, please call: (877) 275-4377


CHAPTER 85. FLEXIBLE BENEFITS

34 TAC §§85.1, 85.4, 85.6, 85.7

The Employees Retirement System of Texas (ERS) proposes amendments to 34 Texas Administrative Code (TAC) Chapter 85, concerning Flexible Benefits, by amending §85.1. (Introduction and Definitions), §85.4 (Separate Plans), and §85.7. (Enrollment) and adding §85.6. (Relief Options due to the Coronavirus (COVID-19)).

ERS is a constitutional trust fund established as set forth in Article XVI, §67, Texas Constitution, and further organized pursuant to Title 8, Tex. Gov't Code, as well as 34 Texas Administrative Code, §§61.1 et seq.

Amendments are proposed for §§85.1, 85.4, and 85.7 in order to clarify their interaction with §85.6.

Section 85.6, concerning Relief Options Due to the Coronavirus (COVID-19), is proposed to be added in order to implement the requirements of §214 of the Federal Taxpayer Certainty and Disaster Tax Relief Act of 2020 and other relevant federal law.

GOVERNMENT GROWTH IMPACT STATEMENT

ERS has determined that during the first five-year period the amended rules will be in effect:

(1) the proposed amendments and rules will eliminate a government program;

(2) implementation of the proposed amendments and rules will not require the creation of new employee positions or eliminate existing employee positions;

(3) implementation of the proposed amendments and rules will not require an increase or decrease in future legislative appropriations to the agency;

(4) the proposed amendments and rules will not require an increase or decrease in fees paid to the agency;

(5) the proposed amendments and rules will not create a new rule or regulation;

(6) the proposed amendments and rules will expand an existing rule or regulation, and will also repeal an existing rule or regulation;

(7) the proposed amendments and rules will not increase or decrease the number of individuals subject to the rules' applicability; and

(8) the proposed amendments and rules will not positively or adversely affect the state's economy.

Ms. Diana Kongevick, Director of Group Benefits, has determined that for the first five-year period the rules are in effect, there will be no fiscal implication for state or local government or local economies as a result of enforcing or administering the rules; and small businesses, micro-businesses, and rural communities will not be affected.

The proposed amendments and rules reflect the implementation of the requirements of §214 of the Federal Taxpayer Certainty and Disaster Tax Relief Act of 2020 and other relevant federal law. The proposed amendments do not constitute a taking. Ms. Kongevick has also determined that, to her knowledge, there are no known anticipated economic effects to persons who are required to comply with the rules as proposed, and the proposed amendments do not impose a cost on regulated persons.

Ms. Kongevick also determined that for each year of the first five years the rules are in effect, the public benefit anticipated as a result of adopting and complying with the rules would be to create COVID-19 relief options for dependent care accounts and health care reimbursement accounts, which include limited purpose health care reimbursement accounts, for plan years 2020 and 2021. The changes and allowances are provided for in the Federal Consolidated Appropriations Act of 2021, which was signed into law on December 27, 2020. Additionally, the proposed changes would eliminate the qualified transportation benefit.

Comments on the proposed amendments and rules may be submitted to Cynthia C. Hamilton, Acting General Counsel, Employees Retirement System of Texas, P.O. Box 13207, Austin, Texas 78711-3207, or you may email Ms. Hamilton at Cynthia.Hamilton@ers.texas.gov. The deadline for receiving comments is Monday, November 22, 2021, at 10:00 a.m.

The amendments and rules are proposed under Tex. Gov't Code §815.102, which provides authorization for the ERS Board of Trustees to adopt rules necessary for the administration of the funds of the retirement system and regarding the transaction of any other business of the Board.

No other statutes are affected by the proposed amendments and rules.

§85.1.Introduction and Definitions.

(a) Summary. The purpose of these rules is to govern the flexible benefits program. These rules constitute the Plan document for the State of Texas Employees Flexible Benefit Program (TexFlex). The flexible benefits plan (the plan) includes reimbursement account arrangements with optional benefits available for selection by participants as described in the plan and these rules. The plan is intended to be qualified under the Internal Revenue Code (the Code), §125, as amended from time to time, and is intended to continue as long as it qualifies under §125 and is advantageous to the state and institutions of higher education employees. Optional benefits offered under the plan for individual selection consist only of a choice between cash and certain statutory nontaxable fringe benefits as defined in the Code, §125, and regulations promulgated under the Code, §125. The plan may also include separate benefits as defined in the Code, §132, and regulations promulgated under the Code, §132, separate from the cafeteria plan, and governed by individual plan documents.

(b) Applicability of rules.

(1) These rules are applicable only to employees as defined in these rules, and terminated employees, as described in §85.3(b)(1)(B) and (C) of this title (relating to Eligibility and Participation).

(2) An employee who retired or separated from employment prior to September 1, 1988, shall not be entitled to benefits under the provisions of the plan and these rules, unless the employee is rehired and then becomes eligible for benefits.

(c) Definitions. The following words and terms when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise, and wherever appropriate, the singular includes the plural, the plural includes the singular, and the use of any gender includes the other gender.

(1) Act--The state law that authorized the establishment of a flexible benefits plan and is designated in the Texas Insurance Code, Chapter 1551, as amended.

(2) Account--A record keeping account established by the Employees Retirement System of Texas or its designee in the name of each participant for the purpose of accounting for contributions made to the account and benefits paid to a participant.

(3) Active duty--The expenditure of time and energy in the service of an employer as defined in these rules. An employee will be considered to be on active duty on each day of a regular paid vacation or on a non-work day, on which the employee is not disabled, if the employee was on active duty on the last preceding work day.

(4) Board of trustees--The board of trustees of the Employees Retirement System of Texas (ERS).

(5) Code--The Internal Revenue Code, as amended from time to time.

(6) Compensation--A participant's base salary, including amounts that would otherwise qualify as compensation but are not received directly by the participant pursuant to a good faith, voluntary, written or electronic salary reduction agreement in order to finance payments to a deferred compensation or tax sheltered annuity program specifically authorized by state law or to finance benefit options under this plan, plus longevity and hazardous duty pay and including non-monetary compensation, the value of which is determined by the Employees Retirement System of Texas, but excluding overtime pay.

(7) Debit Card--A bank issued convenience card or similar technology approved by the plan administrator and permitted to be used by participants as an optional method to pay for eligible transactions. Use of the card is governed by the plan administrator and issuing financial institution. The card is referred to as the Flex Debit Card.

(8) Dependent--An individual who qualifies as a dependent under the Code, §152, and when applicable taking into account the Code, §105, or any individual who is:

(A) except as provided by §85.6(b)(3) of this title, a dependent of the participant who is under the age of 13 and with respect to whom the participant is entitled to an exemption under the Code, §151, or, is otherwise, a qualifying individual as provided in the Code, §21; or

(B) a dependent or spouse of the participant who is physically or mentally incapable of caring for himself or herself.

(9) Dependent care reimbursement account--The bookkeeping account maintained by the plan administrator or its designee used for crediting contributions to the account and accounting for benefit payments from the account.

(10) Dependent care reimbursement plan--A separate plan under the Code, §129, adopted by the board of trustees, and designed to provide payment or reimbursement for dependent care expenses as described in §85.5(c) of this title (relating to Benefits).

(11) Dependent care expenses--Expenses incurred by a participant which:

(A) are incurred for the care of a dependent of the participant;

(B) are paid or payable to a dependent care service provider or to the participant as reimbursement for such expenses; and

(C) are incurred to enable the participant to be gainfully employed for any period for which there are one or more dependents with respect to the participant. Dependent care expenses shall not include expenses incurred for the services outside the participant's household for the care of a dependent, unless such dependent is a dependent under the age of 13 (or through age 14 as provided by §85.6(b)(3) of this title) with respect to when the participant is entitled to a tax deduction under the Code, §151, or a dependent who is physically or mentally incapable of self support. In the event that the expenses are incurred outside the dependent's household, the dependent must spend at least eight hours each day in the participant's household. Dependent care expenses shall be deemed to be incurred at the time the services to which the expenses relate are rendered.

(12) Dependent care service provider--A person or a dependent care center (as defined in the Code, §21) who provides care or other services described in the definition of "dependent care expenses" in this section, but shall not include:

(A) a related individual described in the Code, §129; or

(B) a dependent care center which does not meet the requirements of the Code, §21.

(13) Effective date of the plan--September 1, 1988.

(14) Election form--A paper or electronic form provided by the Employees Retirement System of Texas that is an agreement by and between the employer and the participant, entered into prior to an applicable period of coverage, in which the participant agrees to a reduction in compensation for purposes of purchasing benefits under the plan.

(15) Eligible employee--An employee who has satisfied the conditions for eligibility to participate in the plan in accordance with the plan and §85.3(a)(1), and (b)(1) of this title (relating to Eligibility and Participation), and, to the extent necessary, a retired or terminated employee who is entitled to benefit payments under the plan.

(16) Employee--A person who is eligible to participate in the Texas Employees Group Benefits Program as an employee.

(17) Employer--The State of Texas, its agencies, commissions, institutions of higher education, and departments, or other governmental entity whose employees are authorized to participate in the Texas Employees Group Benefits Program.

(18) Expenses incurred--Expenses for services received or performed and for which the participant is legally responsible.

(19) Executive director--The executive director of the Employees Retirement System of Texas.

(20) Flexible benefit dollars--The dollars available to a participant which may be used for purposes of purchasing benefits under the plan.

(21) General purpose health care reimbursement account--The account described in §85.5(b)(1).

(22) Grace period--A two (2) month and 15 day period, adopted by the TexFlex plan pursuant to IRS Notice 2005-42, immediately following the end of the plan year during which participants may continue to incur expenses for reimbursement from the prior year account balance. The grace period does not apply to a health care reimbursement plan year that begins on or after September 1, 2014, but does apply to the dependent care reimbursement plan, except as limited by §85.6(b)(2) of this title.

(23) Health care expenses--Any expenses incurred by a participant, or by a spouse or dependent of such participant, for health care as described in or authorized in accordance with the Code, §105 and §213, but only to the extent that the participant or other person incurring the expense is not reimbursed for the expense by insurance or other means. The types of expenses include, but are not limited to, amounts paid for hospital bills, doctor bills, prescription drugs, hearing exams, vision exams, and eye exams.

(24) Health care reimbursement account--The bookkeeping account maintained by the plan administrator or its designee used for crediting contributions to the account and accounting for benefit payments from the account.

(25) Health care reimbursement plan--A separate plan, under the Code, §105, adopted by the board of trustees, and designed to provide health care expense reimbursement as described in §85.5(b) of this title (relating to Benefits).

(26) Institution of higher education--All public community/junior colleges, senior colleges or universities, or any other agency of higher education within the meaning and jurisdiction of the Education Code, Chapter 61, except the University of Texas System and the Texas A&M University System.

(27) Leave of absence without pay--The status of an employee who is certified monthly by an agency or institution of higher education administrator to be absent from duty for an entire calendar month, and who does not receive any compensation for that month.

(28) Limited purpose health care reimbursement account--The account described in §85.5(b)(3).

(29) Option--Any specific benefit offering under the plan.

(30) Participant--An eligible employee who has elected to participate in the plan for a period of coverage.

(31) Period of coverage--The plan year during which coverage of benefits under the plan is available to and elected by a participant; however, an employee who becomes eligible to participate during the plan year may elect to participate for a period lasting until the end of the current plan year. In such case, the interval commencing on such employee's entry date and ending as of the last day of the current period of coverage shall be deemed to be such participant's period of coverage.

(32) Plan--The flexible benefits plan established and adopted by the board of trustees pursuant to the laws of the state of Texas and any amendments which may be made to the plan from time to time. The plan is referred to herein as TexFlex, and is comprised of a dependent care reimbursement plan, a health care reimbursement plan, an insurance premium conversion plan, and a qualified transportation benefit plan.

(33) Plan administrator--The board of trustees of the Employees Retirement System of Texas or its designee.

(34) Plan year--A 12-month period beginning September 1 and ending August 31.

(35) Run-out period--The period following the end of the plan year between September 1 and December 31, during which participants may file claims for reimbursement of expenses incurred during the plan year.

(36) Statutory nontaxable benefit--A benefit provided to a participant under the plan, which is not includable in the participant's taxable income by reason of a specific provision in the Code and is permissible under the plan in accordance with the Code, §125.

(37) Spouse--The person to whom the participant is married. Spouse does not include a person separated from the participant under a decree of divorce, or annulment.

(38) TexFlex--The flexible benefits plan adopted by the board of trustees.

(39) Texas Employees Group Benefits Program (GBP)--The employee insurance benefits program administered by the Employees Retirement System of Texas, pursuant to Texas Insurance Code, Chapter 1551. The program consists of health, voluntary accidental death and dismemberment, optional term life, dependent term life, short and long term disability, vision, and dental insurance coverages.

(40) Third Party Administrator or TPA--The vendor, administrator or firm selected by the plan administrator to perform the day-to-day administrative responsibilities of the TexFlex program for participants of the Texas Employees Group Benefits Program who enroll in either the health care reimbursement plan, dependent care reimbursement plan or both.

§85.4.Separate Plans.

(a) Dependent care reimbursement plan--A separate plan under the Code, §129, adopted by the board of trustees, and designed to provide payment or reimbursement for dependent care expenses as described in §85.5(c) of this title (relating to Benefits). The following sections of this chapter constitute the plan: §§85.1, 85.3(a), 85.5(a), 85.5(c), 85.7, 85.9, 85.11, 85.12, 85.13, 85.15, 85.17, and 85.19.

(b) Health care reimbursement plan--A separate plan, under the Code, §105, adopted by the board of trustees, and designed to provide health care expense reimbursement as described in §85.5(b) of this title (relating to Benefits). The following sections of this chapter constitute the plan: §§85.1, 85.3(b), 85.5(a), 85.5(b), 85.7, 85.8, 85.9, 85.11, 85.12, 85.13, 85.15, 85.17, and 85.19.

(c) Insurance Premium Conversion Plan--A separate plan under §105(b) of the Code designed to provide insurance premium conversion as described in §81.7. The Insurance Premium Conversion Plan is intended to comply with the Internal Revenue Code, §79 and §106.

[(d) Qualified transportation benefit plan--A separate plan under the Code, §132, approved by the board of trustees, and designed to provide payment or reimbursement for certain transportation expenses. The qualified transportation benefit plan is governed by a plan document as executed and approved by the Executive Director, and as amended hereafter. A copy of the plan document may be obtained from the Employees Retirement System of Texas on request.]

§85.6.Relief Options due to the Coronavirus (COVID-19)

The following provisions, which apply only to plan years 2021 and 2022, are enacted pursuant to §214 of the Federal Taxpayer Certainty and Disaster Tax Relief Act of 2020 and other relevant federal law.

(1) Dependent care reimbursement plan.

(A) Unlimited carryover. A participant may carry over to plan year 2021 any unused amount in a dependent care reimbursement account that would have expired at the end of plan year 2020 and may carry over to plan year 2022 any unused amount in a dependent care reimbursement account that would have expired at the end of plan year 2021.

(B) Grace periods. Because of unlimited carryover relief, grace periods for dependent care reimbursement accounts do not apply for plan years 2020 and 2021.

(C) Dependent age extension. For plan years 2020 and 2021, the maximum age of a dependent is 14.

(D) Prospective mid-year election changes. During calendar year 2020 and through plan year 2021, a participant may increase or decrease contribution amounts or end enrollment for a dependent care reimbursement account without a qualifying life event. A participant may not reduce contributions to an amount less than the total of:

(i) the amount of payroll distributions in the account, if any; and

(ii) the amount of reimbursement the participant has received, if any.

(2) Health care reimbursement plan.

(A) Unlimited carryover. A participant may carry over to plan year 2021 any unused amount in a health care reimbursement or limited purpose health care reimbursement account that would have expired at the end of plan year 2020 and may carry over to plan year 2022 any unused amount in a health care reimbursement or limited purpose health care reimbursement account that would have expired at the end of plan year 2021.

(B) Post-termination reimbursement. A participant who ceases contributing to a health care reimbursement or limited purpose health care reimbursement account during plan year 2020 or 2021 may continue to receive reimbursement from any unused amount through the end of the plan year in which participation ended, including any grace period or extended grace period.

(C) Prospective mid-year election changes. During calendar year 2020 and through plan year 2021, a participant may increase or decrease contributions or end enrollment for a health care reimbursement account or a limited purpose health care reimbursement account without a qualifying life event. A participant may not reduce contributions to an amount less than the total of:

(i) the amount of payroll distributions in the account, if any; and

(ii) the amount of reimbursement the participant has received, if any.

§85.7.Enrollment.

(a) Election of benefits.

(1) An eligible employee may elect to participate in the health care and/or dependent care reimbursement accounts within the flexible benefits plan by making an election and executing an election form or enrolling electronically.

(2) An employee who becomes eligible after the beginning of a plan year has 30 days from the date of eligibility to elect or decline benefits by executing an election form.

(3) By enrolling in the plan, the employee agrees to a reduction in compensation or agrees to after-tax payments equal to the participant's share of the cost and any fees for each reimbursement account selected.

(4) An election to participate in a reimbursement plan must be for a specified dollar amount plus any administrative fee.

(5) An annual enrollment period will be designated by the Employees Retirement System of Texas and shall be prior to the beginning of a new plan year. The annual enrollment period shall provide an opportunity to change and to elect or decline benefit options.

(6) An active employee who is enrolled in reimbursement accounts immediately prior to the annual enrollment period will be automatically re-enrolled with the same elections and contribution amounts for the new plan year unless the active employee takes action during the annual enrollment period to change contribution amounts or to decline participation.

(b) Effects of failure to elect.

(1) If the Employees Retirement System of Texas does not receive an election form from an eligible employee to participate in the reimbursement accounts by the due date, it shall be deemed an express election and informed consent by the eligible employee to:

(A) receive cash compensation as a benefit by reason of failure to purchase optional benefits in lieu of cash compensation; or

(B) in the case of automatic re-enrollment during the annual enrollment period, to continue participation in the reimbursement accounts with the same contributions for the new plan year.

(2) To the extent an eligible employee does not elect the maximum permissible participation amounts hereunder, he shall be deemed to have elected cash compensation.

(c) Benefit election irrevocable except for qualifying life event.

(1) An election to participate shall be irrevocable for the plan year unless a qualifying life event occurs, and the change in election is consistent with the qualifying life event. The plan administrator may require documentation in support of the qualifying life event.

(2) A qualifying life event occurs when an employee experiences one of the following changes:

(A) change in marital status;

(B) change in dependent status;

(C) change in employment status;

(D) change of address that results in loss of benefits eligibility;

(E) change in Medicare or Medicaid status, or Children's Health Insurance Program (CHIP) status;

(F) significant cost of benefit or coverage change imposed by a third party provider other than a provider through the Texas Employees Group Benefits Program; or

(G) change in coverage ordered by a court.

(3) An election form requesting a change in election must be submitted on, or within 30 days after, the date of the qualifying life event, provided, however, a change in election due to CHIP status under paragraph (2) of this subsection must be submitted on, or within 60 days after, the change in CHIP status.

(4) A change in election as provided in this subsection becomes effective on the first day of the month following the date of the qualifying life event.

(d) Payment of flexible benefit dollars.

(1) Flexible benefit dollars from an active duty employee shall be recovered through payroll withholding at least monthly during the plan year and remitted to the Employees Retirement System of Texas for the purpose of purchasing benefits. For the health care reimbursement account only, and except as otherwise provided in §85.3(b)(3)(D) of this title (relating to Eligibility and Participation), flexible benefit dollars from employees on leave without pay status or who have insufficient funds for any month shall be recovered through direct after-tax payment from the employee or upon the return of the employee to active duty status from payroll withholding, for the total amount due.

(2) An employee's flexible benefit dollars with respect to any month during the plan year shall be equal to the authorization on the employee's election form plus any administrative fees.

(3) Flexible benefit dollars received by the Employees Retirement System of Texas shall be credited to the participant's dependent care reimbursement account and/or health care reimbursement account, as appropriate.

(e) Forfeiture of account balances.

(1) The amount credited to a participant's reimbursement account for each benefit election for any plan year will be used to reimburse or pay qualified expenses incurred during the eligible employee's period of coverage in such plan year, if the claim is electronically adjudicated or if the participant files a correctly completed claim for reimbursement on or before December 31 following the close of the plan year.

(2) Except as provided by §85.6 of this title and by subsection (g) of this section, any balances remaining after payment of all timely and correctly filed claims postmarked no later than December 31 following the close of the plan year, shall be forfeited by the participant and be available to pay administrative expenses of the flexible benefits program.

(3) Except as provided by §85.6 of this title, an [An] unexpended balance in an amount of $25 or less is not eligible for carryover under subsection (g) of this section if the participant does not reenroll in the plan for the subsequent plan year. The unexpended balance shall be forfeited by the participant and be available to pay administrative expenses of the flexible benefits program.

(f) Reimbursement report to participant. The plan administrator or its designee may provide to the participant periodic reports on each reimbursement account, showing the account transactions (disbursements and balances) during the plan year. These reports may be provided periodically through electronic means.

(g) Carryover of unexpended balances. Under IRS regulations, a participant may be permitted to carry over a specific amount of unspent flexible benefit plan dollars to the immediately following plan year. The flexible benefit dollars carried over may be used to pay or reimburse incurred expenses under the health care reimbursement plan during the entire plan year to which the dollars are carried over. A participant is entitled to carry over a designated amount set by the Employees Retirement System of Texas and publicly posted. Except as provided by §85.6 of this title, the carryover [; such designated] amount shall not exceed the maximum of the indexed amount of the carryover limit set by the Internal Revenue Service, and any balance in excess of this designated amount is forfeited as provided by subsection (e) of this section. Any amount of carryover that rolls over into the new plan year does not affect the maximum amount of participant.

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 11, 2021.

TRD-202104010

Cynthia C. Hamilton

Acting General Counsel

Employees Retirement System of Texas

Earliest possible date of adoption: November 21, 2021

For further information, please call: (877) 275-4377