Source: http://www.sos.state.tx.us/texreg/archive/September222017/Proposed%20Rules/34.PUBLIC%20FINANCE.html
Timestamp: 2018-01-17 05:08:02
Document Index: 444382048

Matched Legal Cases: ['§53', '§53', 'art 3', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§2001', '§2006', '§53', '§53', '§53', '§53', '§53', '§53', '§53', '§43', '§43']

The Teacher Retirement System of Texas (TRS) proposes amendments to §§53.1, 53.3 - 53.5, and new §§53.6 - 53.17, for the certification of companies offering qualified investment products through what are commonly referred to as "403(b) plans," which educational institutions make available to their employees, and the registration of those products. The proposed amendments are part of TRS' four-year rule review of Chapter 53 in Title 34, Part 3, of the Texas Administrative Code (TAC). TRS proposes amendments to the following sections of its 403(b) rules: §53.1, relating to definitions; §53.3, relating to maximum fees, costs, and penalties; §53.4, relating to qualifications for certification by companies offering qualified investment products that are annuity contracts; and §53.5, relating to qualifications for certification by companies offering qualified investment products other than annuity contracts.
TRS proposes to adopt the following new rules:§53.6, relating to application and fee for certification; §53.7, relating to listing of certified companies; §53.8, relating to product and investment option registration requirements; §53.9, relating to application and fee for approval to register products and investment options; §53.10, relating to registration and listing of products and investment options; §53.11, relating to ongoing company responsibilities regarding certification and registered products and investment options; §53.12, relating to TRS actions regarding certification and registered products and investment options; §53.13, relating to coordination with regulatory and enforcement agencies; §53.14, relating to suspension or revocation of certification; §53.15, relating to notice to potential purchaser of annuity contracts; §53.16, relating to electronic signature; and §53.17, relating to administrative service providers. TRS proposes to adopt the new rules at the same TRS repeals existing rule §§53.6 - 53.9 and §§53.11 - 53.20.
The proposed amendments to §53.1 amend the definitions of the words "certified company," "certify," "company," "eligible qualified investment product," "platform company," "product," "qualified investment product," "register," "representative," and "specialized department" and adds a definition for the terms "approval to register products and investment options," "closed," "investment option," "product registration system," "proprietary company," "registered product," and "restricted" to clarify the meaning of other rules containing those terms.
The proposed amendments to §53.3 provide the maximum fees, costs, and penalties that apply to TRS registered products and investment options registered on or after October 1, 2018 and salary reduction agreements entered into on or after November 16, 2018. The proposed amendments also clarify terminology. For those products registered on or after October 1, 2018, the proposed new fees prohibit registration of a product with a front or back-end sales load. Additionally, the amendments provide by asset class the maximum asset-based fees that a certified company may charge for annuity products and the maximum asset-based fees that a certified company may charge for non-annuity products. The amendments set the maximum annual account maintenance fee at $60 and set the maximum loan initiation fee at $25. The amendments provide that an employee may continue to make or adjust any contributions toward the purchase of a product or investment option registered prior to October 1, 2018 and purchased via salary reduction agreement prior to November 16, 2018, provided that those products and investment options meet the fee limitations that were in adopted by the TRS Board of Trustees for products and investment options registered prior to October 1, 2018 and entered into via salary reduction agreement prior to November 16, 2018.
Proposed new §53.6, titled "Application and Fee for Certification," sets the company certification fee at $5,000 per five-year company certification period. It also clarifies the application requirements for companies providing both annuity and non-annuity products and sets out new application requirements regarding customer service disclosures for companies providing non-annuity products and investment options. The proposed new rule provides that certification of a non-annuity company is not conditioned on the provision of the customer services disclosed in the application.
Proposed new §53.9, titled, "Application and Fee for Approval to Register Products and Investment Options," clarifies the process to apply to register products and investment options, and sets the product registration fee at $10,000 per five-year product registration period. TRS may not use TRS pension trust funds or TRS health care insurance trust funds to subsidize the 403(b) product registration program. Additionally, the state does not appropriate general revenue funds for administration of the program. Therefore, absent the registration fees, TRS would not have the resources to meet the needs of updating the TRS 403(b) Product Registration System to capture more transparent product and investment option information.
Proposed new §53.15, titled, "Notice to Potential Purchaser of Annuity Contracts," is adopts the rule provisions found current rule §53.9 regarding notices to potential purchasers of annuity contracts in this new rule section.
Proposed new §53.17, titled, "Administrative Service Providers," moves the existing provisions from current rule section 53.20.
Rebecca Merrill, Director of Strategic Initiatives, estimates that, for each year of the first five years that proposed amendments to §§53.1, 53.3, 53.4, and 53.5, and proposed new §§53.6, 53.7, 53.8, 53.9, 53.10, 53.11, 53.12, 53.13, 53.14, 53.15, 53.16, and 53.17 will be in effect, there will be no foreseeable implications relating to cost or revenues of the state or local governments as a result of enforcing or administering the amended rules. Any cost to administer the new rules or update the Product Registration System will be offset by the $5,000 company certification fee and the $10,000 proposed product and investment option registration fee.
For each year of the first five years that the proposals will be in effect, Ms. Merrill and Brian Guthrie, TRS Executive Director, have determined that the public benefit will be to bring clarity to the 403(b) market for members of TRS by improving the company certification and product registration process and amending the rules to reflect current certification and registration practices. Additionally, the proposed rules benefit public education employees purchasing products in the 403(b) market by lowering fee caps that companies may charge for annuity and non-annuity products and by requiring companies seeking certification and re-certification to provide non-annuity products to submit to TRS customer service information. Ms. Merrill has also determined that the probable economic costs to entities or persons required to comply with the proposed rules are the fees charged for certification of companies and registration of products and the costs associated with developing and registering products that meet the new fee caps. There will be no effect on a local economy because of the proposals, and therefore no local employment impact statement is required under §2001.022 of the Government Code. Moreover, there will be no direct adverse economic effect on small businesses or micro-businesses as a result of enforcing the proposed amended rules, and therefore no statement about the effect of the proposals on small businesses is required under §2006.002 of the Government Code.
(4) [(3)] Certified company--A company that meets all certification requirements, that has certified to TRS and been placed on the TRS list of certified companies, and whose certification is [has not] expired, suspended, surrendered [or been withdrawn], denied, or revoked.
(7) [(5)] Company--A financial services entity that offers qualified investment products. [An entity that offers a qualified investment product, including a platform company. Except for a platform company, a company is the issuer of the qualified investment product and has primary liability to the purchaser for performance of the obligations described in the product, contract, annuity contract or annuity certificate, or policy. A company offering qualified investment products that are not annuity contracts may be an affiliate by common ownership or control of the issuer of the qualified investment products. Generally, unless a person or entity, or its affiliate, has primary liability for performance of the obligations in the product or contract, or such person or entity is a platform company, "company" does not include:]
[(A) a reinsurance company;]
[(B) a third party administrator;]
[(C) an entity performing duties under an administrative-services-only contract; or]
[(D) a representative such as a licensed or registered agent, broker, or investment advisor].
(20) [(14)] Representative--A person, including an investment advisor, who sells or offers for sale an eligible qualified investment product as an agent [on behalf] of a certified company and who is licensed or registered if [so] required by law.
(C) execute a revised or updated salary reduction agreement.
(a) Prior to October 1, 2018, a certified company offering TRS registered products and investment options may not register a product or investment option with fees, costs, or penalties in excess of the amounts established in subsections (a)(1) - (4) and (e) of this section. Prior to November 16, 2018, a [A] certified company offering TRS registered [qualified investment] products and investment options may not assess fees, costs, or penalties in excess of the amounts established in subsections (a)(1) - (4) and (e) of this section.
[(b)] [This section does not establish or govern the amount of commission a certified company may pay a broker, agent, or other representative.]
(1) [(c)] A certified company may charge a front-end sales load or back-end sales load that in the aggregate does not exceed six percent (6%) of the amount identified in the contract as subject to sales load charges, such as premiums paid or the price of the fund shares.
(2) [(d)] A certified company may charge an annual fixed dollar fee of no more than $50.00 per year per TRS registered [qualified investment] product, contract, policy, or account. A fixed dollar fee is not dependent on account values, loan amounts, or any other amount for its determination.
(3) [(e)] For a TRS registered [qualified investment] product other than an annuity contract and for the portion of an annuity contract that consists of a variable account, a certified company may assess a charge of no more than 2.75 percent annually of the total value of assets in the employee's variable annuity contract account or other investment product account.
[(f)] [A certified company may charge a surrender or withdrawal charge on an annuity contract account that may not exceed ten percent (10%) of the accumulation (account) value, the individual deposits, or the premiums paid, whichever is specified in the contract. Surrender charges must terminate within ten (10) years of the inception of the employee's contract unless a disclosure is made informing the employee of a longer period of not in excess of twelve (12) years. No surrender or withdrawal charge may be longer than twelve (12) years from the inception of the employee's contract. Surrender or withdrawal charges shall decline annually. Surrender or withdrawal charges imposed for longer than ten (10) years are limited to no more than one percent (1%) in year eleven and one percent (1%) in year twelve. Surrender or withdrawal charges may be based on the accumulation value of an annuity or a component part thereof, as specified and defined in the contract.]
(4) [(g)] A certified company may charge a loan initiation fee of no more than $50.00. This subsection does not prohibit a company from charging interest on a loan in addition to a loan initiation fee. If the investment product is an annuity contract, loan terms must comply with applicable requirements of insurance laws, including Chapter 1110, Insurance Code.
(b) On or after October 1, 2018, a certified company may not register a product or investment option with fees, costs, or penalties in excess of the amounts established in subsections (b)(1) - (4) and (e). On or after November 16, 2018, a certified company offering TRS registered products and investment options may not assess fees, costs, or penalties in excess of the amounts established in subsections (b)(1) - (4) and (e) of this section except as provided in subsection (f) of this section.
Figure: 34 TAC §53.3(b)(4)
(c) On or after October 1, 2018, a certified company shall register its investment options as follows:
(9) register in the other asset class any investment option with a portfolio that does not meet the requirements of paragraphs (1) - (8) of this subsection.
(d) On or after October 1, 2018, the maximum asset-based fee does not include transaction fees such as:
(f) If a TRS registered product or investment option that was registered prior to October 1, 2018, is the subject of a salary reduction agreement that was signed before November 16, 2018, and does not exceed the fee limitations of subsections (a)(1) - (4) and (e) of this section, then on or after November 16, 2018, an employee may:
(1) continue to make contributions under the existing salary reduction agreement;
(2) increase or decrease the amount of contributions under the existing salary reduction agreement; and
(3) execute a revised or updated salary reduction agreement.
(g) On or after October 1, 2018, all fees charged or assessed by a certified company to an employee must be reported to TRS in the Product Registration System.
(i) [(h)] This section does not authorize a certified company offering qualified investment products that are annuity contracts to charge fees, costs, or penalties in excess of any charges established or approved by the Texas Department of Insurance for the company or for the annuity contract.
(b) TRS may indicate on the list of certified companies maintained on the TRS web site whether a certified company has complied with the requirements of Article 6228a-5, Texas Revised Civil Statutes and §53.6 and §53.13 of this title regarding annual demonstration.
(a) A certified company required to register its eligible qualified investment products and investment options under Article 6228a-5, Texas Revised Civil Statutes shall submit an application for approval to register products and investment options and a product registration fee to TRS in accordance with this chapter.
§53.11.Ongoing Company Responsibilities Regarding Certification and TRS Registered Products and Investment Options.
(2) of any erroneous, out of date, or misleading information provided to TRS as part of the application for certification or the application approval to register products and investment options.
(5) if a certified company offers, as the subject of a salary reduction agreement, a product or investment option that is not a TRS registered product and is required by law to be registered with TRS; and
(b) The certified company shall provide TRS information sufficient to explain the occurrence leading to a notification under subsection (a), including the nature of non-compliance or reason a product or investment option is not registered or qualified to be registered, the date of the occurrence, and other information requested by TRS to determine whether a company should remain certified.
(c) A certified company shall correct any erroneous, out of date, or misleading information provided in the TRS 403(b) Product Registration System regarding a TRS registered product or investment option no later than ten (10) business days after the erroneous, out of date, or misleading information is identified.
(d) If a product or investment option is no longer eligible to be registered, a certified company shall restrict and no longer offer the TRS registered product or investment option as the subject of new salary reduction agreements but may continue to allow additional contributions under existing salary reduction agreements.
(e) To offer products or investment options under new salary reduction agreements or to continue to accept contributions under existing salary reduction agreements, a certified company shall
(2) demonstrate annually that each of its representatives is properly licensed and qualified, by training and continuing education, to sell and service the certified company's TRS registered products or investment options.
(1) update information for its TRS registered products or investment options between the registration periods specified in §53.8 of this chapter (relating to Product and Investment Options Registration Requirements) by submitting the information in the manner prescribed by TRS.
(2) surrender its certification or approval to register products and investment options by notifying TRS in writing thirty (30) days before a company would like the TRS registered products or investment options to be moved to the list of closed products or investment options maintained on the TRS web site.
(3) restrict and no longer offer a TRS registered product or investment option as the subject of new salary reduction agreements, but continue to allow additional contributions under existing salary reduction agreements; or
(4) close and no longer offer a TRS registered product or investment option to both additional contributions under existing salary reduction agreements and new salary reduction agreements.
(j) If a certified company restricts or closes a product or investment option, then the certified company shall move the restricted or closed product or investment option to the correct list in the TRS403 (b) Product Registration System no later than ten (10) business days after the company elects to restrict or close the product or investment option.
§53.12.TRS Actions Regarding Certification and TRS Registered Products and Investment Options.
(b) TRS may move any TRS registered product or investment option from the active product list to the restricted product and investment option list or the closed product and investment option list if:
(1) the certified company surrenders its company certification or approval to register products and investment options;
(2) the certified company allows its company certification or approval to register products and investment options to expire; or
(3) pursuant to §53.14 (relating to Suspension or Revocation of Certification), TRS suspends or revokes:
(A) a certified company's certification;
(C) registration for one or more specific TRS registered product; and
(D) registration for one or more specific TRS registered investment option.
(c) If a certified company surrenders its certification or allows the certification to expire, then TRS may remove the name of the company from the list of certified companies on the TRS web site.
(3) registration for one or more specific TRS registered product; and
(4) registration for one or more specific TRS registered investment options underlying a specific TRS registered product.
(b) A proceeding to revoke or suspend is a contested case proceeding under Chapter 2001, Government Code.
(c) The procedures of Chapter 43 of this title (relating to Contested Cases) are adopted by reference for the conduct of a proceeding subject to this section.
(d) A period of suspension of certification or approval to register products and investment options shall not extend the five (5) year period of company certification or approval to register products and investment options.
(e) In the event that a certified company is adversely affected by a decision or action of TRS to revoke or suspend a company's certification, a company's approval to register products and investment options, or a company's TRS registered products or investment options, the certified company may request review by the designee of the TRS executive director.
(f) The executive director's designee shall mail a final written administrative decision regarding the requested review to the company. The administrative decision shall include a statement that the company may appeal the decision to the executive director and the deadline for doing so.
(g) A certified company adversely affected by a final written administrative decision of the executive director's designee may appeal the decision to the executive director of TRS as provided in §43.5 of this title (relating to Request for Adjudicative Hearing). The executive director or his designee shall determine whether the appeal should be docketed and set for a contested case hearing pursuant to §43.9 of this title (relating to Docketing of Appeal for Adjudicative Hearing and Dismissal for Failure to Obtain Setting).
(h) Suspension or revocation of a company's certification also suspends or revokes registration of all the company's products and investment options.
(i) If a proprietary company's products or investment options are suspended or revoked, then the suspension and revocation extends to those same products or investment options registered by a platform company.
TRD-201703599