Fiscal Summary

NOT SIGNIFICANT

Bill Summary

DEFERRED COMPENSATION PLAN

Present law requires the commissioner of finance and administration, the chair of the finance, ways and means committee of the senate, the chair of the finance, ways and means committee of the house of representatives, and the chair of the board of trustees for the Tennessee consolidated retirement system to serve as trustees of any deferred or tax-sheltered compensation plans established pursuant to existing law on behalf of state employees, excluding K-12 teachers and other local education agency employees. Such plans include plans established pursuant to the taxation of employee annuities under the Internal Revenue Code. The chair of the board of trustees for the Tennessee consolidated retirement system must develop a plan document for the implementation and administration of deferred or tax-sheltered compensation plans established by the trustees. The terms of any deferred or tax-sheltered compensation plan established on behalf of state employees may be modified by the chair of the board of trustees for the Tennessee consolidated retirement system with the concurrence of the commissioner of finance and administration.

This bill adds to the present law by providing that such plans must also include plans established pursuant to cash or deferred arrangements, the treatment of qualified governmental excess benefit arrangements, eligible deferred compensation plans, and the tax treatment of participants where the plan of the employer is not eligible under Internal Revenue Code relevant to deferred compensation plans of state and local governments and tax-exempt organization.

Present law requires any company providing administrative plan services to be approved by the trustees prior to the company's participation in any deferred compensation plan for plans provided to state employees. In the case of all other plans, any company providing investment or administrative plan services must be approved by the chief governing body of the governmental unit. This bill deletes these provisions.

EARNABLE COMPENSATION

Present law requires, for service rendered from and after July 1, 1981, the state to assume employee contributions of up to 5 percent of the employee's earnable compensation on behalf of: (i) state employees, except those specified in existing law; (ii) teachers employed by the state department of education; (iii) teachers employed in state-supported institutions of higher education; and (iv) teachers employed in state-supported institutions of higher education who are members of an optional retirement program established pursuant to existing law.

Present law also requires the state to assume employee contributions of up to 5 percent of the employee's earnable compensation for those prior class members of the attorneys general retirement system who are presently employed in the executive branch of the state and who are compensated under the compensation plan administered by the department of human resources. Beginning on January 1, 1982, the state must also assume employee contributions of up to 5 percent of the employees' earnable compensation of those employees of the general assembly who are classified under the law regarding public officers and employees. The increase in employer cost must be provided from the appropriation for the office of legal services for the general assembly.

Beginning on July 1, 1986, present law requires the state to assume employee contributions of up to 5 percent of the employees' earnable compensation of district attorneys general, the executive director of the district attorneys general conference and those full-time assistant district attorneys general who, on or before July 1, 1985, reached the maximum salary for assistant district attorneys general authorized by existing law. On July 1, 1987, and on each succeeding July 1, the state must assume employee contributions of up to 5 percent of the employees' earnable compensation of those full-time assistant district attorneys general who in the preceding fiscal year reached the maximum salary for assistant district attorneys general authorized by existing law.

Beginning on the first day on which the salary levels for general state employees are increased, present law requires the state to assume employee contributions of up to 5 percent of the employees' earnable compensation of attorneys general employed in the office of the attorney general and reporter. The contribution assumption provided in this provision is in lieu of the salary increase to which such attorneys general would have otherwise been entitled.

Beginning July 1, 1994, present law requires the state to assume employee contributions up to 5 percent of the employees' earnable compensation of criminal investigators for the district attorneys general. Beginning on September 1, 1990, the state must assume employee contributions of up to 5 percent of the employee's earnable compensation for all state judges who are members of the Tennessee consolidated retirement system. The state must assume employee contributions of up to 5 percent of the employee's earnable compensation for any person entering the service of a district attorney general on or after July 1, 1994, as an assistant district attorney general.

However, as used in the present law, “earnable compensation” does not include compensation paid to a teacher employed in a state-supported institution of higher education for performing extra services for the institution that exceeds 25 percent of the teacher's base compensation. Additionally, “earnable compensation” does not include compensation that exceeds the maximum dollar limitation imposed by the law regarding qualified pension, profit-sharing, and stock bonus plans under the Internal Revenue Code. For any person becoming a member of the retirement system before July 1, 1996, the dollar limitation under the law regarding qualified pension, profit-sharing, and stock bonus plans under the Internal Revenue Code must not apply to the extent the amount of compensation which is allowed to be taken into account under the system would be reduced below the amount which was allowed to be taken into account under the system as in effect on July 1, 1993.

This bill adds to the present law by providing that “earnable compensation” also does not include compensation paid to a member from a plan for the deferral of compensation regarding the tax treatment of participants where the plan of the employer is not eligible under Internal Revenue Code relevant to deferred compensation plans of state and local governments and tax-exempt organizations.

Present law requires any compensation deferred under the Government Employees Deferred Compensation Plan Act to be considered part of an employee's compensation for purposes of any other employee retirement, pension, or benefit program. No deferral of income under the deferred compensation program effects a reduction of any retirement, pension, or other benefit program provided by law. This bill provides that the above provisions clarifying what "earnable compensation" does not include are an exception to this provision.

MULTIPLE MEMBERSHIP IN A PUBLIC RETIREMENT SYSTEM

Present law prohibits a person from being eligible for membership in the consolidated retirement system if such person holds membership in any other public employee retirement system into which such person is making a contribution or accumulating creditable service based upon the same service that would entitle such person to membership in the consolidated retirement system. However, if such person receives compensation from two or more governmental entities because of the statutory provisions of such person's office, such person is eligible for membership in this system, with benefits based upon the proportion of such person's compensation upon which contributions are not made to the other retirement system.

Present law requires any member of more than one superseded system to be eligible for benefits in each such system, so long as such member's benefits in each system are based upon the proportionate part of such member's compensation received from the sources which qualified such member for such membership because of the statutory provisions of such member's office, even though the services may have been simultaneous. Such person is entitled to any unimpaired vested rights and benefits existing under such other system, but no period of time of such vested rights under another public employee retirement system must be considered creditable service in the consolidated retirement system or any superseded system, except as provided in existing law. The total retirement allowances received by any person from multiple public employee retirement systems must not exceed 100 percent of the person's average final compensation.

As used in present law, “public employee retirement system” includes any political subdivision retirement system, but does not include the following:

(1) The Social Security Act or any other federal retirement program;

(2) A local retirement system as provided in the law regarding retirement membership for teachers in local systems;

(3) (i) Any tax deferred retirement plan wherein total combined employer contributions to such plans, other than those made pursuant to a salary reduction agreement, do not exceed 3 percent of the employee's salary. An employer maintaining a tax deferred retirement plan must not permit contributions to that plan which would exceed the limitations of the Internal Revenue Code and (ii) all tax deferred retirement plans established by public employers participating in the state retirement system, wherein employer contributions are made, must be approved by the director of the state retirement system; or

(4) A defined benefit pension plan established and maintained by a local government employer that is supplemental to the employer's participation in the Tennessee consolidated retirement system, and was established prior to May 17, 2023, where the total combined employer and employee contributions do not exceed 7 percent of the employee's salary, and the supplemental benefits are subject to the limitations set forth in existing law. At the request of the Tennessee consolidated retirement system, the local government must conduct a periodic audit using an auditing or accounting firm to demonstrate compliance with the limitations set forth in existing law and any applicable limitation pursuant to federal law, regulation, or ruling, with the cost of the audit to be paid by the local government.

This bill adds that a “public employee retirement system” also does not include a tax deferred retirement plan regarding the tax treatment of participants where the plan of the employer is not eligible under Internal Revenue Code relevant to deferred compensation plans of state and local governments and tax-exempt organization.

HYBRID PLAN

Present law establishes a hybrid plan which consists of a defined benefit plan with a defined contribution plan. The defined benefit plan must offer a service retirement allowance of 1 percent of the member's average final compensation, multiplied by the number of years of creditable service. The defined contribution plan must be a plan that conforms to all applicable laws, rules and regulations of the internal revenue service governing such plans, may be any plan selected by the political subdivision, and may be acquired from any source. A political subdivision electing to participate in the hybrid plan must provide a cost of living increase allowance pursuant to the law regarding retirement benefits of public officers and employees.

Present law authorizes a political subdivision that adopts the hybrid plan to make employer contributions to the defined contribution plan component of the hybrid plan and to any one or more additional tax deferred compensation or retirement plans. However, present law prohibits the total combined employer contributions to such defined contribution plans on behalf of an employee from exceeding 7 percent of the employee's salary. This bill changes the present law by prohibiting, instead, the total combined employer contributions to such defined contribution plans on behalf of an employee, with the exception of contributions made to a tax deferred retirement plan regarding the tax treatment of participants where the plan of the employer is not eligible under Internal Revenue Code relevant to deferred compensation plans of state and local governments and tax-exempt organization from exceeding 7 percent of the employee's salary.

Present law requires each employer to make a mandatory contribution to the defined contribution component of the plan on behalf of each of its employees participating in the hybrid plan. Employer contributions for kindergarten through twelfth grade teachers must be paid by the respective local education agency for which the teachers are employed. The amount of the contribution must be 5 percent of the respective employee's salary. The mandatory contributions required in this provision must be in addition to any match provided for in the law regarding public officers and employees to participants who otherwise participate in the profit sharing and/or salary reduction plan under existing law. However, present law prohibits the total combined employer contributions to all defined contribution plans on behalf of a single employee from exceed 7 percent of the employee's salary, and must conform to all applicable laws, rules and regulations of the internal revenue service governing profit sharing and/or salary reduction plans for governmental employees. If the employer contributions to all such plans combined exceed such amount, the employer must reduce its contributions to any other defined contribution plans such that the contributions to the defined contribution component of the plan and to the other plans do not exceed the limit.

This bill changes the present law by prohibiting, instead, the total combined employer contributions to such defined contribution plans on behalf of an employee, with the exception of contributions made to a tax deferred retirement plan regarding the tax treatment of participants where the plan of the employer is not eligible under Internal Revenue Code relevant to deferred compensation plans of state and local governments and tax-exempt organizations from exceeding 7 percent of the employee's salary.