Present law requires a person who becomes a teacher, a general employee, a state police officer, a wildlife officer, a firefighter or a police officer on or after July 1, 1972, to become a member of the Tennessee consolidated retirement system (TCRS) as a condition of employment. This bill provides a framework for requiring certain government employees to become a member of TCRS as a condition of employment and pathways for current employees and elected officials. Any person employed or assuming office on or after July 1, 2025, in the following positions, will become a member of the TCRS system as a condition of employment:
Teacher, general employee, part-time employee, state police officer, wildlife officer, firefighter or police officer.
Employee of a board, commission or agency.
Elected governmental personnel for a city, special school district, or county
City judge or city lawyer.
State judge, county judge, county official, commissioner, county chair or attorney general or assistant thereof.
Elected purchasing agents and administrator of elections.
This bill generally provides the following concerning membership:
Existing employees' continued participation: A person participating in the TCRS prior to July 1, 2025, as a teacher, general employee, part-time employee, state police officer, wildlife officer, firefighter or police officer, an employee of a board, commission or agency, an elected city, special school district, or county governmental personnel, a city judge or city lawyer, or as a state judge, county judge, county official, commissioner, county chair or attorney general, and who elected to become a member of the retirement system, continues to participate in the retirement system under the member's irrevocable election. Such members are subject to the same terms and conditions applicable to members whose participation is mandatory under this bill, as may be amended through an enactment of the general assembly.
New employees' mandatory membership: A person employed or assuming office in the above listed positions on or after July 1, 2025, whose membership was otherwise optional in the retirement system, will become a member of the retirement system as a condition of employment.
Previously elected persons' continued non-participation: A person whose membership was otherwise optional and who was employed or holding office prior to July 1, 2025, as a state judge, county judge, county official, commissioner, county chair, attorney general, or general assembly member, and made an irrevocable election to not participate in the retirement system must maintain that election if, with or without interruption in service, the member is reappointed or reelected to the same or a new aforementioned position after June 30, 2025.
This bill further provides that the retirement system is not liable for the payment of retirement allowances or other payments on account of the employees or beneficiaries of any employer participating under a local governmental unit for which reserves have not been previously created from funds contributed by the employer or its employees. It is the legislative intent that the state realizes no increased cost as a result of this bill. All costs associated with retirement coverage, including administrative costs, are the responsibility of the respective employer.
PROGRAMS EXCLUDED
Present law prohibits a public official or employee from having multiple memberships in any retirement program or programs financed from public funds, whereby such person obtains or accrues pensions or retirement benefits based upon the same period of service to the state, or any branch, department, agency or institution thereof, or to any of its political subdivisions. Present law provides that the public employee retirement system does not include certain programs, including 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% 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. This bill removes these provisions and, instead, provides that the retirement system does not include a deferred compensation plan, including, but not limited to, plans established pursuant to §§ 401(k), 403(b), 457(b), and 457(f) of the Internal Revenue Code.
EXCEPTIONS TO THE GENERAL SCHEME
County Officials and County Judges
Present law authorizes all county officials or county judges taking office after July 1, 1977, to become a member of the TCRS only in accordance with law regulating retirement for local governmental units, and must be allowed to participate in the TCRS if the county in which they are employed is participating in such authorized plans. Such official or judge who takes office on or after July 1, 2018, must become a member of the TCRS as a condition of taking office if such person is a current or former member of the retirement system. However, this provision does not apply if the county official or county judge was in office in such position with the county on the date the county elected to participate in the retirement system, unless the county official or county judge was a member or former member of a closed preexisting defined benefit plan maintained by that county.
This bill revises the above provisions so that a full-time employee assuming office as a county official or county judge on or after July 1, 2025, must become a member of the TCRS as a condition of taking office, and must participate in the same manner, making and receiving the same contributions, and is eligible for the same benefits, as other employees of the county, if the county in which the county official or county judge is employed is participating in the retirement system in accordance with law regulating retirement for local governmental units.
Present law authorizes county judges and county officials to participate in Group 1. The employer cost of such participation must be paid from funds appropriated by the county legislative body for the office of the participating judge or official or from the excess fees of the participating official's office, where such excess fees are available. This bill removes these provisions.
Present law provides that all employer and employee contributions, together with investment earnings made on behalf of persons covered under this law must be equal to or exceed benefits that will be paid out. Employees participating must contribute to the retirement system at a rate of 5% of earnable compensation or, in lieu of employee contributions, the employer may pay or cause to be paid all or part of such contributions on behalf of the employees. Employer contributions must be determined by the state retirement division based on an actuarial valuation for the applicable county. This bill removes these provisions.
Present law authorizes the governing body of a county to pass a resolution to permit its county judges and county officials who participate in the TCRS to claim prior service credit for service rendered as full-time county general employees, county judges, or county officials, if the county authorizes the credit and assumes the liability for such prior service. This bill removes this provision.
This bill provides that the retirement system is not liable for the payment of retirement allowances or other payments for a local government's employees or beneficiaries, for which reserves have not been previously created from funds contributed by the local government or its employees. It is the legislative intent that the state realizes no increased cost as a result of this bill or the local government's participation in the retirement system in accordance laws regulating retirement for local governmental units. All costs associated with retirement coverage, including administrative costs, are the responsibility of the local government.
School Boards
This bill provides that elected or appointed school board members of special school districts, and of city or county boards, commissions, committees, councils, and the like, who are elected by popular vote, and whose duties are performed intermittently or periodically for the purposes of fixing rates, issuing permits or licenses, regulating trades or professions, or who serve in an advisory, study or planning capacity and the like are eligible for membership in the retirement system if the board member assumes office prior to July 1, 2025, and must become a member in the retirement system if the board member assumes office on or after July 1, 2025, assuming the employer allows participation upon satisfying the following:
The chief legislative body of the city, special school district, or county passes a resolution approved by a 2/3 majority authorizing membership for such employees and accepting the liability.
Upon such authorization and assumption of the employer liability, any such employee who meets certain requirements regarding number of days of employment is eligible to establish retirement credit for such periods of previous service as authorized for other employees of the city, special school district, or county.
An employee establishing such prior service must make a lump sum payment equal to the employee contributions the employee would have made had the employee been a member of the system during the period claimed, plus interest at the rate provided by the TCRS board of trustees.
Membership in the retirement system is permitted only if the chief legislative body that has authorized retirement participation for its departments or instrumentalities extends such coverage to all nonparticipating departments and instrumentalities. If such option is elected, then the remaining departments and instrumentalities must participate under certain present law conditions.
Elected Purchasing Agents and Administrators of Elections
This bill requires a full-time employee assuming office as an elected purchasing agent or appointed administrator of elections for an employer on or after July 1, 2025, to participate in the TCRS in the same manner, making the same contributions and is eligible for the same benefits as the employer's other employees, if the employer in which the purchasing agent or administrator of elections is employed is participating in the retirement system in local governmental unit laws on retirement.
Present law authorizes a hybrid plan which consists of a defined benefit plan with a defined contribution plan. A political subdivision that adopts the hybrid plan may 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 as long as 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 under § 457(f) of the Internal Revenue Code, must not exceed 7% of the employee's salary.
This bill removes the above provisions and, instead, 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 plans established pursuant to §§ 401(k), 403(b), 457(b), and 457(f) of the Internal Revenue Code, subject to the limitations in the Internal Revenue Code.
EARNABLE COMPENSATION
Present law provides that "earnable compensation" is the compensation payable to a member for services rendered to an employer, including a bonus or incentive payment. This bill provides that earnable compensation does not include compensation paid as an offset of a tax liability or as a reimbursement of any withholdings required by state or federal law.
OVERPAYMENT RECOVERY
Present law outlines the process through which an overpayment in retirement benefits may be waived by the board of trustees or recouped. This bill provides that overpayments may be recovered through one or more methods. Consistent with the board of trustees's duty as a fiduciary to the fund and guidance issued by the United States treasury, the retirement system may establish and implement policies and procedures to waive recovery of the overpayment, with the exception of an overpayment caused by a failure to observe a limitation imposed by federal law.
OPTIONAL RETIREMENT ALLOWANCES
Present law requires the distribution of a member's monthly benefit by April 1 of the calendar year following the calendar year in which the member turns 70.5, or 72 if the member was born on or after July 1, 1949, as such age is extended or otherwise modified by the Internal Revenue Code, or April 1 of the calendar year following the calendar year in which the member terminates, whichever is later. Such is the process to begin distribution of benefits, assuming the member did not select a retirement allowance of equivalent actuarial value in favor of a beneficiary under one of several options outlined in present law.
This bill adds the following two additional options:
A reduced retirement allowance payable during the retired member's life, with the provision that it must continue after the member's death at 7/10 the rate paid to the member and be paid for the life of, and to, the beneficiary nominated by the member by written designation duly acknowledged and filed with the board of trustees at the time of retirement.
A reduced retirement allowance payable during the retired member's life, with the provision that it must continue after the member's death at 7/10 the rate paid to the member and be paid for the life of, and to, the beneficiary nominated by the member by written designation duly acknowledged and filed with the board of trustees at the time of retirement. If the designated beneficiary predeceases the retired member, then the retirement allowance payable to the member after death of the designated beneficiary must be equal to the retirement allowance that would have been payable had the member not elected an option.
Change or Cancellation
Present law prohibits a member from cancelling the election of a designated beneficiary under an optional retirement after the member's retirement date, unless an exception applies. This bill authorizes a retired member who has not selected an optional retirement allowance to change the retiree's designated beneficiary at any time in writing, duly executed and filed with the retirement system. However, such election must not be cancelled or changed by the retiree after the retiree's effective date of retirement unless one of the following exceptions apply:
After a retired member's effective date of retirement or such later time as may be provided in rules adopted by the board of trustees, the retiree may cancel the retiree's designated beneficiary because of the death of the beneficiary or the retiree's divorce from the designated beneficiary, upon the written request of the retiree. If the retiree designated multiple beneficiaries, then the portion of the benefit payment that was payable to the cancelled beneficiary must not be distributed or redistributed to the remaining beneficiaries. The retiree must provide the retirement system with the completed and signed written cancellation request accompanied by either of the following, whichever is applicable: (i) a copy of the marital dissolution agreement and final decree of divorce or annulment to confirm that the cancellation is not in conflict with the marital dissolution agreement or decree. If the requested cancellation conflicts with the marital dissolution or decree, then the cancellation request must not be honored; or (ii) a copy of the designated beneficiary's death certificate.
If a retired member cancels the retiree's designated beneficiary as outlined above, then the retiree may either (i) designate a new beneficiary, although, upon the retiree's death, the newly designated beneficiary is only entitled to the remaining accumulated contributions in the retiree's account, if any, and to the last retirement allowance payable in the month of the retiree's death. The retirement allowance payable to the retired member after the cancellation of the designated beneficiary is not affected by the cancellation of the beneficiary designation; or (ii) if the retiree selected only one individual as the retiree's beneficiary, designate the retiree's spouse as the member's sole, new designated beneficiary, resulting in a reannuitization of the member's benefit.
If the retiree elects to reannuitize as authorized above, then the retiree must apply to reannuitize to the retirement system after the retired member's marriage to the proposed new beneficiary, and provide the retirement system with the marriage certificate demonstrating the marriage between the retiree and the proposed new beneficiary.
Upon receiving a completed application, the retirement system must process the reannuitization of the retiree's retirement benefit pursuant to the option selected by the retiree on the retiree's effective date of retirement. The value of the new joint and survivor annuity must be the actuarial equivalent of the retiree's benefit prospectively, in effect at the time the new annuity is elected. The benefit must be reduced based on the ages of the retiree and the new beneficiary at the time of the change. The change in beneficiary must become effective in the month following the month that the retirement system approves the change in beneficiary.
Hybrid Plan
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. Such mandatory contributions are in addition to any match provided to participants who otherwise participate in a profit sharing or salary reduction plan. However, the total combined employer contributions to all defined contribution plans, with the exception of contributions made to a tax-deferred retirement plan under § 457(f) of the Internal Revenue Code, on behalf of a single employee must not exceed 7%. This bill removes this stipulation that total combined employer contributions to all defined contribution plans, with the exception of contributions made to a tax-deferred retirement plan under § 457(f) of the Internal Revenue Code, must not exceed 7%.
Present law requires the distribution of a member's benefit to begin by the required beginning date, which is April 1 of the calendar year following the calendar year in which the member turns 70.5, or 72 if the member was born on or after July 1, 1949, as such age is extended or otherwise modified by the Internal Revenue, or April 1 of the calendar year following the calendar year in which the member terminates, whichever is later. If a member fails to apply for retirement benefits by the later of either of those dates, the board must begin distribution of the monthly benefit. This bill removes this last provision and, instead, provides that if a member fails to apply for retirement benefits by the later of either of those dates, has been absent from service for more than seven years after last becoming a member, and has not completed the specified eligibility requirements for retirement, then such person's accumulated contributions must be paid to such person within 90 days after the board of trustees is notified to that effect.
ROLLOVER ELIGIBILITY
Present law authorizes a distributee to elect, at the time and in the manner prescribed by the board of trustees, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. For purposes of a rollover, present law defines eligible retirement plans. This bill adds a SIMPLE IRA account described in § 408(p) of the Internal Revenue Code to such list. However, to be eligible, the rollover must be made two years after the first contribution is made to the member's SIMPLE IRA account.
ON APRIL 7, 2025, THE SENATE ADOPTED AMENDMENTS #1 AND #2 AND PASSED SENATE BILL 510, AS AMENDED.
AMENDMENT #1 makes the following revisions:
Revises the provision providing that any person who becomes a part-time state employee or a part-time teacher on or after July 1, 2025, becomes a member of the retirement system as a condition of employment to, instead, provide such unless the person elects not to participate in the retirement system by submitting a written, irrevocable election to the Tennessee consolidated retirement system no later than 30 calendar days after the person's first day of employment.
Revises the provision providing that any person who becomes a part-time employee on or after July 1, 2025, for a participating employer, including a political subdivision, that allows part-time employee participation in the retirement system, becomes a member of the retirement system to, instead, provide such unless the person elects not to participate in the retirement system by submitting a written, irrevocable election to the Tennessee consolidated retirement system no later than 30 calendar days after the person's first day of employment.
AMENDMENT #2 makes a technical correction.
