(a) Subject to approval by the state board, the governing body of a department that elects to participate in the pension system shall merge into the pension system any existing defined-benefit pension plan it operates for emergency services personnel.     
      (b) The pension system actuary shall determine the prior service costs for active members as of the merger date according to generally accepted actuarial standards. In the event that the assets of the merging plan do not cover the prior service costs for active members, the governing body of the department or the governing body of the political subdivision associated with the department shall pay the determined prior service costs for active members not later than the 10th anniversary of the effective date of merger. Interest on the prior service costs accrues at the assumed rate of investment return at the time determination of the prior service costs is made, except that interest is waived if such governing body completes payment not later than the first anniversary of the effective date of merger.     
      (c) The state board shall determine the discount rate for determining the liability for the monthly benefits which retirees are being paid on the effective date of the merger and for deferred monthly benefits for inactive members who, on that date, have a vested right to a future monthly benefit upon attaining the required age. Using this discount rate, the pension system actuary shall then determine the liability for these retirees and inactive members according to generally accepted actuarial standards. In the event that the assets of the merging plan do not cover the costs associated with the liability of monthly benefits of these retirees and inactive members, the governing body of the department or the governing body of the political subdivision associated with the department shall pay the determined costs for such monthly benefits not later than the 10th anniversary of the effective date of merger. Interest on the costs for monthly benefits for retirees and inactive members accrues at the assumed rate of investment return at the time determination of such costs is made, except that interest is waived if such governing body completes payment not later than the first anniversary of the effective date of merger.     
      (d) On the effective date of merger, the participating department shall transfer, or cause to be transferred, all assets and liabilities of the former pension plan to the pension system. The pension system shall commingle the transferred assets with other assets of the pension system for investment purposes, but the assumption of such assets, the prior service costs for active members according to subsection (b) of this section, and the liability for the monthly benefits of retirees and inactive members according to subsection (c) of this section, must be determined to be actuarially sound for the cost-sharing pension system.     
      (e) The pension system shall begin paying benefits being paid to retirees by the merging plan on the effective date of merger in accordance with the merged plan as in effect on the date of the merger. Prior service costs for active members described in subsection (b) of this section and monthly benefits of retirees and inactive members described in subsection (c) of this section granted as a result of a merger are based on service before the effective date of merger as if it were performed as a member of the pension system, subject to the requirements of Section 66, Article XVI, Texas Constitution.     
      (f) Prior service credit may not be purchased under §306.1 of this title (relating to Prior Service Credit for Members of Participating Departments) for any service that is credited under the terms of a merger agreement.     
      (g) The payment terms associated with the prior service costs for active members and the liabilities for monthly benefits of retirees and inactive members as described in subsections (b) and (c) of this section respectively, and the details of how the assets of the merging plan will be allocated among such costs and liabilities and any future monthly contributions, if applicable, must be described in the merger agreement between the participating department and the pension system.     
     Source Note:        The provisions of this §306.2 adopted to be effective January 12, 2012, 37 TexReg 67; amended to be effective August 31, 2014, 39 TexReg 6868; amended to be effective October 18, 2015, 40 TexReg 7102; amended to be effective December 31, 2019, 44 TexReg 8333