Sec. 7.07. INCREASE IN SURVIVORS' BENEFITS.  On the affirmative vote of a majority of the members of the board of trustees either or both of the following actions may be taken:
(1) benefits to dependent children may be increased to an amount not to exceed the amount recommended by the board's actuary;  or
(2) benefits to surviving spouses may be increased to an amount not to exceed the maximum approved by the actuary.
Sec. 7.08. PERSON CAUSING DEATH OF MEMBER OR BENEFICIARY.    (a)  A benefit payable on the death of a member or beneficiary may not be paid to a person convicted of causing that death, but instead a benefit is payable as provided by Subsection (c) of this section to a person who would be entitled to the benefit had the convicted person predeceased the decedent.  If no person would be entitled to the benefit, the benefit is payable to the decedent's estate.
(b) The fund is not required to pay a benefit under Subsection (a) of this section unless it receives actual notice of the conviction of the person who would have been entitled to the benefits.  However, the fund may delay payment of a benefit payable on the death of a member pending the results of a criminal investigation and of legal proceedings relating to the cause of death.
(c) The benefit payable under Subsection (a) of this section is a refund of the member's accumulated contributions and interest, reduced by any annuity payments that may have been made as a result of the member's retirement.
(d) For the purposes of this section, a person has been convicted of causing the death of a member or beneficiary if the person:
(1) has pleaded guilty or nolo contendere to or has been found guilty by a court of an offense at the trial of which it is established that the person's intentional, knowing, or reckless act or omission resulted in the death of the person who was the member or beneficiary, regardless of whether sentence is imposed or probated;  and
(2) has no appeal of the conviction pending and the time provided for appeal has expired.
Sec. 7.09. SURVIVING BENEFICIARY OF CERTAIN UNMARRIED MEMBERS.    (a)  On the death of a retiree or of a member who is eligible for retirement but has not retired, a benefit is payable under this section if:
(1) the retiree or member designated a beneficiary to receive the benefit payable under this section on a form filed with the fund;  and
(2) this Act does not otherwise provide a benefit payable to a surviving spouse or child of the member or retiree.
(b) The benefit payable under this section is an immediate monthly benefit from the fund of 75 percent of the amount of the:
(1) retirement benefit that was being paid to the retiree;  or
(2) normal service retirement benefit that the member would have received if the member had retired on the date of death.
(c) If the designated beneficiary of a retiree or member is 10 or more years younger than the retiree or member at the time of the retiree's or member's death, the amount of the benefit payable under Subsection (b) of this section shall be reduced to the actuarial equivalent of the benefit that would have been payable if the beneficiary and the retiree or member were the same age.
(d)  The board of trustees may adopt rules to establish procedures for and requirements governing a member's designation of a beneficiary under this section.
ARTICLE 8. DEFERRED RETIREMENT OPTION PLAN

Sec. 8.01. MEMBER REMAINING IN ACTIVE SERVICE.  In lieu of either leaving active service and beginning to receive a service retirement annuity under Section 5.01 of this Act or remaining in active service and continuing to accrue additional service credit under Section 5.02 of this Act, a member who is eligible to receive a normal service retirement benefit under Section 5.01 of this Act may remain in active service, become a participant in the deferred retirement option plan ("DROP") in accordance with Sections 8.02 and 8.03 of this Act, and defer the beginning of the person's retirement annuity.  Once an election to participate in the DROP has been made, the election continues in effect as long as the member remains in active service as a firefighter.  When the member leaves active service, the member may apply for a service retirement annuity under Section 5.01 of this Act.
Sec. 8.02. ELECTION TO PARTICIPATE IN DROP.  The election to participate in the DROP shall be made in accordance with procedures adopted by the board of trustees.  The election may be made at any time on or after the date the member becomes eligible for normal service retirement under Section 5.01 of this Act or early retirement under Section 5.05 of this Act and becomes effective on the first day of the first month after the date of the election.  At the same time that a member makes an election to participate in the DROP, the member must agree in writing to terminate service with the fire department on a date not later than the seventh anniversary of the effective date of the election under this section.  An agreement to terminate service is binding on the member and the fire department, except that the member may terminate active service at any time before the date selected.  An election to participate in the DROP has no effect on either the municipality's or the member's contributions under Section 10.01 of this Act.
Sec. 8.03. CREDITS TO MEMBER'S DROP ACCOUNT.  Each month after a member makes an election to participate in the DROP and until the member's retirement, the board of trustees shall cause an amount equal to the retirement annuity that the member would have received under Section 5.04 of this Act for that month if the member had left active service and been granted a retirement annuity on the effective date of the election under Section 8.02 of this Act to be credited to a separate DROP account maintained within the fund for the benefit of the member.  The member's contributions under Section 10.01(d) of this Act made after the effective date of the election to participate in the DROP shall also be credited to the member's DROP account.  Amounts held in a member's DROP account shall be credited at the end of each calendar month with interest at a rate equal to one-twelfth of five percent until the member's retirement.
Sec. 8.04. AMOUNT OF CREDITS TO MEMBER'S DROP ACCOUNT.  The amount credited monthly to the member's DROP account:
(1) shall be increased as a result of any increase in the formula used in computing service retirement benefits under Section 5.04 of this Act that occurs after the effective date of the member's election to participate in the DROP but before the effective date of the member's retirement;
(2) shall be increased by any annual cost-of-living adjustments under Section 9.04 of this Act that occur between the effective date of the member's election to participate in the DROP and the effective date of the member's retirement but only as to amounts credited to the member's DROP account after a cost-of-living adjustment;  and
(3) is subject to the limitations prescribed by Section 9.03 of this Act.
Sec. 8.05. DISTRIBUTIONS FROM MEMBER'S DROP ACCOUNT.    (a)  On leaving active service as a firefighter and beginning to receive a retirement annuity, a member who participates in the DROP shall begin to receive the amount credited to the person's DROP account under either of the following methods of distribution selected by the member:
(1) a single-payment distribution made at a time selected by the member but not later than April 1 of the year after the member attains 70-1/2 years of age;  or
(2) in not more than four payments, which may be equal or unequal as the member may determine, all of which must occur not later than April 1 of the year after the member attains 70-1/2 years of age.
(b) The DROP account balance of a member shall be credited at the end of each calendar month with interest at a rate equal to one-twelfth of five percent.
(c) A member may not receive a distribution from the member's DROP account before termination of active service as a firefighter.  A member shall notify the fund in writing, on a form that the board of trustees may prescribe, at least 30 days before each distribution made under this section.
(d)  The board of trustees may adopt rules that modify the availability of distributions under Subsection (a) of this section, provided that the modifications do not:
(1)  impair the distribution rights under that subsection; or
(2)  cause distributions to occur later than required under Section 401(a)(9), Internal Revenue Code of 1986.
Sec. 8.06. ESTABLISHMENT OF DROP ACCOUNT AT RETIREMENT.    (a)  In lieu of electing to participate in the DROP before actual retirement, a member who is eligible for normal service retirement or early retirement and who terminates or has terminated active service as a firefighter may establish a DROP account under this section.
(b) A member who is eligible to receive a service retirement benefit under Section 5.06 of this Act may establish a DROP account under this section on retiring under Section 5.06 of this Act.
(c) If a member elects to participate in the DROP under this section:
(1) the board of trustees shall cause to be credited to a DROP account maintained within the fund for the benefit of that person an amount equal to the credits that the member's DROP account would have received, including interest, if the member had established the DROP account after becoming eligible for service retirement, but not more than seven years before the effective date of the person's retirement;
(2) the date used in computations under Subdivision (1) of this section as if the member had established the DROP account on that date is the effective date of the member's election to participate in the DROP;
(3) the member will receive payments from the member's DROP account as the member may select under Section 8.05 of this Act;  and
(4) the member's DROP account shall be credited with interest as provided by Section 8.05 of this Act.
(d) If a member who did not establish a DROP account under this section but was eligible to do so dies before retirement, the surviving spouse, if any, of that member may elect to participate in the DROP if the surviving spouse has not received any benefit payments under Section 7.01 of this Act.  If a surviving spouse makes an election under this subsection:
(1) the board of trustees shall cause to be paid to the surviving spouse in a lump sum, as soon as administratively possible after the fund receives notice of the election, an amount equal to the credits that the member's DROP account would have received, including interest, if the member had established the DROP account after becoming eligible for service retirement, but not more than seven years before the date of the member's death;  and
(2) the amount of the benefit payable to the surviving spouse under Section 7.03 of this Act is 75 percent of the benefit the member would have been eligible to receive if the member had established the DROP account on becoming eligible for service retirement, but not more than seven years before the date of the member's death.
(e) If a member who did not establish a DROP account under this section but was eligible to do so dies before retirement without leaving a surviving spouse, the surviving dependent children, if any, may elect to participate in the DROP if the dependent children have not received any benefit payments under Section 7.05 of this Act.  An election under this subsection must be made by all of the surviving dependent children of the member, except that the guardian of any child who is younger than 18 years of age at the time of the election makes a binding election for the child.  If the surviving dependent children make an election under this subsection:
(1) the board of trustees shall cause to be paid jointly to the dependent children in a lump sum, as soon as administratively possible after the fund receives notice of the election, an amount equal to the credits the member's DROP account would have received, including interest, if the member had established the DROP account after becoming eligible for service retirement, but not less than the credits the DROP account would have received, including interest, based on 20 years of service credit;  and
(2) the amount of the benefit payable to the dependent children under Section 7.05(a) is 75 percent of the benefit the member would have been entitled to receive if the member had established the DROP account on becoming eligible for service retirement, but based on not less than 20 years of service credit.
Sec. 8.07. PAYMENTS FROM DROP ACCOUNT AT MEMBER'S DEATH.    (a)  The provisions of Article 7 relating to death benefits of qualified survivors do not apply to amounts credited to a member's DROP account.  Instead, a member who participates in the DROP may designate a beneficiary to receive any balance in the member's DROP account at the member's death.  The beneficiary designation must be made on a form prescribed by the board of trustees and filed with the fund before the member's death.  If the member is married at the time of the designation, designation of a beneficiary other than the member's spouse is valid only if the spouse consents to the designation in writing on the same form that is used to designate the beneficiary.  Distributions from a member's DROP account after the death of the member shall be made as provided by this section.
(b)  If a member who participates in the DROP dies before distribution of the member's entire DROP account, distributions to the designated beneficiary will begin not more than one year after the date of the member's death and shall be made either as a single-payment distribution of the member's DROP account balance or in not more than four equal annual installments over a period of not more than 37 months.
(c)  If the member has not designated a beneficiary to receive distributions from the member's DROP account or if the person so designated does not survive the member by at least 72 hours, the member's DROP account shall be distributed in a single-sum payment as soon as administratively possible after the member's death to any surviving spouse who survives the member by at least 72 hours, if any, or to the member's estate if there is no surviving spouse.
Sec. 8.08. SUBSEQUENT DISABILITY OF DROP PARTICIPANT.  A member who participates in the DROP becomes ineligible for any disability benefits described by Article 6 of this Act.  Instead, if the board of trustees determines that the member would have been eligible for disability retirement, the board of trustees shall grant a normal service retirement annuity as described by Section 5.04 of this Act and shall pay the member both the service retirement annuity and a distribution of the DROP account as described by Section 8.05 of this Act.
Sec. 8.09. RETIREMENT BENEFIT PAYABLE TO DROP PARTICIPANT.  The retirement benefit payable under Article 5 or 6 of this Act to a person who participates in the DROP:
(1) may not be increased as a result of any increase in the formula used in computing service retirement benefits under Section 5.04 of this Act that occurs after the effective date of the member's election to participate in the DROP;
(2) may not be increased as a result of any increase in the member's compensation that occurs after the effective date of the member's election to participate in the DROP;
(3) shall be increased by any annual cost-of-living adjustments under Section 9.04 of this Act that occur between the effective date of the member's election to participate in the DROP and the effective date of the member's retirement;
(4) may not be increased for additional service credit after the effective date of the member's election to participate in the DROP;  and
(5) is subject to the limitations prescribed by Section 9.03 of this Act.
Sec. 8.10. TERMINATION OR MODIFICATION OF DROP BY FUND.  If the board's actuary, not sooner than January 1, 2000, certifies to the board that DROP participation is resulting in a significant actuarial loss to the fund, the board of trustees may:
(1) reduce the interest paid on DROP accounts or take other action that would reduce the future credits to DROP accounts, but only for all DROP accounts that are established after the effective date of the action by the board of trustees;  or
(2) terminate the deferred retirement option plan for all members who have not at that time established a DROP account.
ARTICLE 9. MISCELLANEOUS PROVISIONS REGARDING BENEFITS

Sec. 9.01. TIME FOR PAYMENT TO RETIRED MEMBERS.  Benefits to a person who retires under this Act are payable on the first day of each month beginning with the month following the month in which the person retires.
Sec. 9.02. TIME FOR PAYMENT TO SURVIVORS;  PAYMENT TO ESTATE.  Benefits to a surviving spouse, dependent child, or dependent parent under this Act are payable on the first day of each month beginning with the month following the month in which the death of the member or former firefighter occurs.  After all payments cease, any amount by which the member's or former firefighter's total accumulated contributions at the date of that person's death exceed the amount of all retirement and death benefits paid by the fund as a result of the person's participation in the fund is payable to the estate of the member or former firefighter.
Sec. 9.03. LIMITATION ON PAYMENT OF BENEFITS.    (a)  If the amount of any benefit payment under this Act would exceed the limitations provided by Section 415 of the Internal Revenue Code of 1986, and the regulations adopted under that section, the board of trustees shall reduce the amount of the benefit as needed to comply with that section.
(b) A person's vested accrued benefit in effect on September 1, 1995, may not be reduced under this section.
Sec. 9.04. COST-OF-LIVING ADJUSTMENT;  OTHER ADJUSTMENTS.    (a)  Subject to this section and except as provided by Section 5.05 of this Act, a person receiving a retirement or survivor's benefit under this Act is entitled each calendar year to a cost-of-living adjustment of that person's benefit calculated in accordance with this section.
(a-1)  The annual cost-of-living adjustment under this section:
(1)  is based on the collective adjustment amount calculated in accordance with Subsection (a-2) of this section and allocated among persons eligible for an adjustment under this section in a manner and in an amount determined by the board of trustees;
(2)  may take effect at any time during a given calendar year, as determined by the board of trustees; and
(3)  may not reduce a person's benefit to an amount less than the person received when the benefit first was paid to that person.
(a-2)  The collective adjustment amount described by Subsection (a-1) of this section:
(1)  is an amount equal to the actuarial value, as determined by the board's actuary based on the interest and mortality assumptions adopted by the board of trustees for the most recent actuarial valuation of the fund, of the percentage increase in the Consumer Price Index for All Urban Consumers as determined by the United States Department of Labor for the applicable determination period ending in a calendar month that precedes by not more than four months the month in which the cost-of-living adjustment is to take effect, multiplied by the total amount of benefits payable in the month immediately preceding the date an adjustment is to take effect to persons who are eligible to receive an adjustment under this section; and
(2)  if applicable:
(A)  is reduced by an amount that the board's actuary determines is necessary to maintain the financial stability of the fund; or
(B)  is increased in accordance with Subsection (b) of this section.
(a-3)  For purposes of Subsection (a-2) of this section, the applicable determination period is the shorter of:
(1)  12 months; or
(2)  the period since the last adjustment under this section.
(a-4)  In determining whether to reduce the collective adjustment amount under Subsection (a-2) of this section, the board's actuary may not take into consideration the cost of future adjustments under this section.
(b)  The board of trustees may increase the collective adjustment amount under Subsection (a-2) of this section if:
(1)  the board's actuary has advised the board of trustees that the increase would not impair the financial stability of the fund; and
(2)  the increase has been approved by the affirmative vote of a majority of the board of trustees. 
(b-1)  In determining whether an adjustment would impair the financial stability of the fund under Subsection (b) of this section, the board's actuary shall take into consideration the cost of future adjustments under this section.
(c)  Repealed by Acts 2009, 81st Leg., R.S., Ch. 707, Sec. 10, eff. September 1, 2009.
(d)  Repealed by Acts 2009, 81st Leg., R.S., Ch. 707, Sec. 10, eff. September 1, 2009.
Sec. 9.05. NO INTEGRATION WITH SOCIAL SECURITY.  A benefit payable under this Act may not be integrated with benefits payable under the federal Social Security Act, as amended (42 U.S.C. Section 301 et seq.), and benefits payable under the Social Security Act may not be taken into account when determining the amount of benefits to which a person is entitled under this Act.
Sec. 9.06. WITHDRAWAL OF CONTRIBUTIONS.    (a)  A living person who has terminated all employment with the fire department and who has not retired may withdraw, on application, all of the accumulated contributions credited to that person's individual account with the fund in excess of the amount of benefits that the person previously has received from the fund.  On withdrawal, the person's account will be closed and all service credit the person has accumulated will be canceled.
(b) If a member dies before retirement and no person is entitled to a survivor's benefit under this Act, the person's estate may, after application, withdraw all of the accumulated contributions credited to that person's individual account with the fund in excess of the amount of benefits that the person previously has received from the fund.
Sec. 9.07. ESCHEAT OF CONTRIBUTIONS.  If an application for withdrawal of contributions under Section 9.06 of this Act from or on behalf of a person who has ceased to be an employee of the fire department or the person's estate has not been received by the fund before the seventh anniversary of the termination of the person's employment with the fire department for a reason other than retirement, the person's accumulated contributions shall escheat to the fund.  If the person or the person's estate later applies for the contributions, the fund shall refund the contributions regardless of the earlier escheatment.
Sec. 9.08. INSUFFICIENT FUNDS;  PRORATED REDUCTION IN BENEFITS.  If for any reason the funds available for any purpose covered by this Act become insufficient to pay in full any benefit payable under this Act, all benefits being paid by the fund shall be reduced pro rata for the time the deficiency exists.
Sec. 9.09. REDUCTION IN BENEFIT PAYMENTS ON REQUEST.  If a person receiving a benefit from the fund requests in writing that the amount of the benefit be reduced to a specified monthly amount, the fund will pay the lesser amount specified in the request.  If the person subsequently requests in writing that the benefit be increased to any specified amount that does not exceed the amount originally payable, the fund will pay the increased amount specified.  If a person receiving a benefit from the fund requests in writing that payment of the benefit be discontinued, the fund shall discontinue payment of the benefit.  If the person subsequently requests that payment of the benefit be resumed, the fund shall resume payment of the benefit.  Any amounts not paid by the fund pursuant to a request under this section are forfeited to the fund and are not recoverable by any person.
Sec. 9.10. OPTIONAL RETIREMENT ANNUITY.    (a)  An optional retirement annuity is an annuity that is certified by the board's actuary to be the actuarial equivalent of the annuity provided under Section 5.04 of this Act and the survivor's benefits provided under Article 7 of this Act.  An optional retirement annuity is payable throughout the life of the retiree.
(b) Instead of the annuity payable under Section 5.04 of this Act, a member who retires may elect to receive an optional retirement annuity approved by the board of trustees under this section.
(c) The survivor's benefits provided under Article 7 of this Act are not payable on the death of a retiree who elects an optional retirement annuity under this section.
(d) The board of trustees by rule may provide that:
(1) an optional retirement annuity is payable after a member's death throughout the life of a person designated by the member;  or
(2) if a retiree dies before a fixed number of monthly annuity payments are made, the remaining number of payments are payable to the retiree's designated beneficiary or, if a designated beneficiary does not exist, to the retiree's estate.
(e) To elect an optional retirement annuity, a member must make the election and designate a beneficiary on a form prescribed by the board of trustees.  The member must file the form with the board on or before the effective date of the member's retirement.
(f) Except as provided by Subsections (g), (h), and (i) of this section, if a member elects an optional retirement annuity that, on the member's death, pays to the member's spouse an amount that is less than 75 percent of the annuity that is payable during the joint lives of the member and the member's spouse, the spouse must consent to the election.  The spouse's consent must be in writing and witnessed by an officer or employee of the fund or acknowledged by a notary public.
(g) If a member's spouse has been adjudicated incompetent, the consent required under Subsection (f) of this section may be given by the spouse's guardian.
(h) If a physician determines that a member's spouse is not mentally capable of managing the spouse's affairs, the consent required under Subsection (f) of this section may be given by the member if the member would be qualified to serve as a guardian of the spouse and the board of trustees determines that a guardianship of the estate is not necessary.
(i) Spousal consent under Subsection (f) of this section is not required if the board of trustees determines that:
(1) a spouse does not exist;
(2) the spouse cannot be located;
(3) the first anniversary of the marriage will not occur before the date the annuity first becomes payable;  or
(4) a former spouse is entitled to receive a portion of the member's optional retirement benefit under a qualified domestic relations order.
ARTICLE 10. COLLECTION OF CONTRIBUTIONS;  INTEREST

Sec. 10.01. MUNICIPAL AND MEMBER CONTRIBUTIONS.    (a)  Each municipality in which a fire department to which this Act applies is located shall appropriate and contribute to the fund an amount equal to a percentage of the compensation of all members during that month as follows:
(1)  19.05 percent, beginning on the first pay date following September 30, 2010, through the pay date immediately preceding September 30, 2011;
(2)  20.05 percent, beginning on the first pay date following September 30, 2011, through the pay date immediately preceding September 30, 2012;
(3)  21.05 percent, for 24 pay dates of the municipality beginning on the first pay date following September 30, 2012; and
(4)  22.05 percent, for all pay dates of the municipality that follow the 24 pay dates referenced in Subdivision (3) of this subsection.
(b)  Each firefighter shall pay into the fund each month a percentage of the firefighter's compensation for that month as follows:
(1)  15.70 percent, for the pay dates of the municipality following September 30, 2010, through the pay date immediately preceding September 30, 2011;
(2)  16.20 percent, beginning on the first pay date of the municipality following September 30, 2011, through the pay date immediately preceding September 30, 2012;
(3)  16.70 percent, beginning on the first pay date of the municipality following September 30, 2012, through the pay date immediately preceding September 30, 2013;
(4)  17.20 percent, beginning on the first pay date of the municipality following September 30, 2013, through the pay date immediately preceding September 30, 2014;
(5)  17.70 percent, beginning on the first pay date of the municipality following September 30, 2014, through the pay date immediately preceding September 30, 2015;
(6)  18.20 percent, beginning on the first pay date of the municipality following September 30, 2015, through the pay date immediately preceding September 30, 2016; and
(7)  18.70 percent, for the first pay date of the municipality following September 30, 2016, and all subsequent pay dates of the municipality.
(c) The governing body of each municipality may authorize the municipality to contribute a portion of the contribution required of each firefighter under this section.  In that event:
(1) the municipality shall appropriate and contribute to the fund each month at the higher percentage of compensation necessary to make all contributions required and authorized to be made by the municipality under this section;  and
(2) each firefighter's individual account with the fund shall be credited each month as if the firefighter had made the entire contribution required of that firefighter under Section 10.01(b).
(d) The governing body of each municipality may authorize the municipality to make an additional contribution to the fund in whatever amount the governing body may determine.  The members of the fund, by a majority vote in favor of an increase in contributions above 13.70 percent, may increase each firefighter's contribution above 13.70 percent to any percentage recommended by a majority vote of the board of trustees.
Sec. 10.02. PICKUP OF FIREFIGHTER CONTRIBUTIONS.  A municipality to which this Act applies shall pick up the firefighter contributions to the fund that are required or authorized pursuant to Section 10.01 of this Act, whichever is higher.  Firefighter contributions will be picked up by a reduction in the monetary compensation of the firefighters.  Contributions picked up shall be treated as employer contributions in accordance with Section 414(h)(2) of the Internal Revenue Code  for the purpose of determining tax treatment of the amounts under that code.  These contributions will be deposited to the credit of the individual accounts of the firefighters in the fund and shall be treated as the monthly contributions of the firefighters for all purposes of this Act.  These contributions are not includable in the gross income of a firefighter until the time that they are distributed or made available to the firefighter or survivors of the firefighter.  The board of trustees may at any time, by majority vote, discontinue the pickup of firefighter contributions by the municipality.
Sec. 10.03. CONTRIBUTIONS AND INCOME AS ASSETS OF FUND.  All contributions paid to the fund under Sections 10.01 and 10.02 of this Act become a part of the assets of the fund.  All interest and dividends on investments of the assets of the fund shall be deposited into the fund and are part of it.
Sec. 10.04. INTEREST ON INDIVIDUAL ACCOUNTS.  The fund shall credit interest on December 31 of each year to the account of each firefighter, and of each former firefighter, who has not retired in an amount equal to five percent of the accumulated contributions, including previously credited interest, on deposit on January 1 of that year.  The fund may not pay interest on a firefighter's or former firefighter's contributions for part of a year or for any period that is more than five calendar years after the date of termination of employment.
ARTICLE 11. INVESTMENT OF ASSETS

Sec. 11.01.  INVESTMENTS. The board of trustees in its sole discretion may invest, reinvest, or change the assets of the fund. The board of trustees shall invest the funds in whatever instruments or investments the board considers prudent. In making investments for the fund, the board of trustees shall discharge its duties with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a similar capacity and familiar with such matters would use in the conduct of an enterprise of a similar character and with similar aims.
Sec. 11.02. Repealed by Acts 1997, 75th Leg., ch. 30, Sec. 9, eff. Sept. 1, 1997.
Sec. 11.03.  INVESTMENT POLICY.  (a)  The board of trustees shall adopt and maintain a written investment policy regarding the investment of fund assets.
(b)  The board of trustees may not adopt an amendment to the investment policy adopted under this section unless the proposed amendment is approved by the affirmative vote of a majority of the members of the board at not fewer than three regular meetings of the board.
Sec. 11.04. FIDUCIARIES.    (a)  A person or financial institution is a fiduciary of the fund to the extent that the person or the financial institution:
(1) exercises any discretionary authority or discretionary control over management of the fund or exercises any authority or control over management or disposition of the assets of the fund;
(2) renders or has authority or responsibility to render investment advice for a fee or other compensation, direct or indirect, concerning any money or other property of the fund;  or
(3) has any discretionary authority or discretionary responsibility over the administration of the fund.
(b) A fiduciary of the fund may not cause the fund to engage in a transaction if the fiduciary knows or should know that the transaction constitutes a direct or indirect:
(1) sale, exchange, or lease of any property from the fund to a party for less than adequate consideration or from a party to the fund for more than adequate consideration;
(2) loan of money or other extension of credit from the fund to a party without the receipt of adequate security and a reasonable rate of interest or from a party to the fund with provision of excessive security or an unreasonably high rate of interest;
(3) furnishing of goods, services, or facilities from the fund to a party for less than adequate consideration or from a party to the fund for more than adequate consideration;  or
(4) transfer to or use by or for the benefit of a party of any assets of the fund for less than adequate consideration.
(c) A fiduciary of the fund may not:
(1) deal with the assets of the fund in the fiduciary's own interest or for the fiduciary's own account;
(2) in the fiduciary's individual or any other capacity act in any transaction involving the fund on behalf of a party whose interests are adverse to the interests of the fund or the interests of its participants or beneficiaries;  or
(3) receive any consideration for the fiduciary's own personal account from any party dealing with the fund in connection with a transaction involving the assets of the fund.
(d) The board of trustees may purchase insurance indemnifying the members of the board of trustees against personal loss or accountability from liability resulting from a member's act or omission as a member of the board of trustees.
ARTICLE 12. OFFICERS, EMPLOYEES, AND PROFESSIONALS

Sec. 12.01. ADMINISTRATOR AND EMPLOYEES.  The board of trustees shall appoint an administrator who shall administer the fund under the supervision and direction of the board of trustees.  The board of trustees shall employ such other employees as are required for the efficient administration of the fund.
Sec. 12.02. LEGAL COUNSEL.  The board of trustees shall retain legal counsel for matters affecting the operation of the fund.
Sec. 12.03. ACTUARY.    (a)  The board of trustees shall employ an actuary who may be the consultant and technical advisor to the board of trustees regarding the operation of the fund and may perform such duties as may be required by the board.
(b) The actuary shall make a valuation at least once every two years of the assets and liabilities of the fund on the basis of assumptions and methods that are reasonable in the aggregate, considering the experience of the fund and reasonable expectations and that, in combination, offer the actuary's best estimate of anticipated experience under the fund.
(c) On the basis of the valuation, the actuary shall make recommendations to the board of trustees to ensure the actuarial soundness of the fund.  In making recommendations, the actuary shall define each actuarial term and enumerate and explain each actuarial assumption used in making the valuation.  This information must be included either in the actuarial study or in a separate report made available as a public record.
(d) The board of trustees shall file with the State Pension Review Board a copy of each actuarial study and each separate report made as required by law.
(e) An actuary employed under this section must be a fellow of the Society of Actuaries, a member of the American Academy of Actuaries, or an enrolled actuary under the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.).
(f) The municipality may pay all or part of the cost of the actuarial services.  Any cost not paid directly by the municipality is payable from assets of the fund.
Sec. 12.04. INVESTMENT COUNSELORS AND MANAGERS;  CUSTODIAN OF ASSETS.    (a)  The board of trustees may employ professional investment counselors to advise and assist the board in the investment of the assets of the fund.  The investment counseling service must be provided by a nationally known organization whose business functions include rendering continuous investment advisory service to public pension and retirement funds.  The municipality may pay the entire cost of this counseling service.  If not paid by the municipality, the cost may be paid from the assets of the fund.
(b) The board of trustees shall appoint investment managers for the fund by contracting for professional investment services with one or more organizations, which may include a bank if it has a trust department, that are in the business of managing investments.
(c) To be eligible for appointment under Subsection (b) of this section, an investment manager must be:
(1) registered under the federal Investment Advisors Act of 1940 (15 U.S.C. 801b-1 et seq.);
(2) a bank as defined by that Act;  or
(3) an insurance company qualified to perform investment services under the laws of more than one state.
(d) In a contract made under Subsection (b) of this section, the board shall specify any policies, requirements, or restrictions, including criteria for determining the quality of investments and for the use of standard rating services, that the board adopts for investments of the fund.
(e) The municipality may pay all or part of the cost of professional investment management services under a contract under Subsection (b) of this section.  Any cost not paid directly by the municipality is payable from assets of the fund.
(f) The board of trustees may at any time and shall at frequent intervals monitor the investments made by any investment manager for the fund.  The board may contract for professional evaluation services to fulfill this requirement.
(g) The municipality may pay all or part of the cost of professional evaluation services under Subsection (f) of this section.  Any cost not paid directly by the municipality is payable from assets of the fund.
(h) The board may enter into an investment custody account agreement designating a state or national bank or a trust company as custodian for all assets allocated to or generated under the investment management contract.
(i) Under the custody account agreement, the board of trustees shall require the designated custodian to perform the duties and assume the responsibilities for assets under the contract for which the agreement is established.
(j) The municipality may pay all or part of the cost of services under a custody account agreement under Subsection (h) of this section.  Any cost not paid directly by the municipality is payable from assets of the fund.
(k) An investment manager other than a bank having a contract with the fund under Subsection (b) of this section may not be a custodian of any assets of the fund.
(l) When demands of the fund require, the board shall withdraw from a custodian of fund assets money for use in paying benefits to members and other beneficiaries of the fund and for reasonable expenses of administering the fund, as approved by the board.
Sec. 12.05. MEDICAL BOARD.  The board of trustees may designate a medical board composed of three persons.  To be eligible to serve as a member of the medical board, a physician must be licensed to practice medicine in this state and be of good standing in the medical profession.  The board of trustees also may designate persons who are not physicians to serve on the medical board.  The medical board shall:
(1) review all medical examinations and reports required by this Act;
(2) investigate essential statements and certificates made by or on behalf of a member of the fund in connection with an application for disability retirement;  and
(3) report in writing to the board of trustees its conclusions and recommendations on all matters referred to it.
Sec. 12.06. RETIREMENT COUNSELING.  The board of trustees may pay for the cost of counseling for members of the fund regarding retirement matters.
Sec. 12.07. AUDITS;  EMPLOYMENT OF CERTIFIED PUBLIC ACCOUNTANTS.  The board of trustees shall employ a certified public accountant or firm of certified public accountants to perform an audit of the fund at least annually.  The municipality may pay the entire cost of an audit.  If not paid by the municipality, the cost may be paid from the assets of the fund.
Sec. 12.08. CIVIL ACTIONS FOR MONEY WRONGFULLY PAID OUT OR OBTAINED.  The board of trustees may recover by civil action from any offending party or from the party's sureties, if any, any money paid out or obtained from the fund through fraud, misrepresentation, defalcation, theft, embezzlement, or misapplication and may institute, conduct, and maintain the action in the name of the board of trustees for the use and benefit of the fund.