Sec. 6.01. SERVICE RETIREMENT BENEFITS AND INCREASES IN BENEFITS. (a) On retirement after having reached the member's normal retirement date, members entitled thereto shall receive a service retirement benefit in the form of a life annuity (modified cash refund). Each monthly payment of the life annuity (modified cash refund) shall be equal to one-twelfth of the product of 2.88 percent of a member's average final compensation multiplied by the number of months of creditable service. The retirement benefit percent specified by this section to calculate the amount of the monthly payment of the life annuity (modified cash refund) may be changed after 1997 if:

(1) the change is approved by the board's actuary;

(2) the change is adopted by the board as a board rule;

(3) the change applies to all present members, all retired members, and all who become members after the effective date of the change in the retirement benefit percent;

(4) a member's vested interest as of the last day of the month immediately preceding the effective date of the change in the retirement benefit percent is not reduced; and

(5) a retirement annuity being paid by the police retirement system to members or to the surviving spouses or beneficiaries of members who retired before the effective date of the change in the retirement benefit percent is changed as prescribed by Subsection (d)(6) of this section, except that a reduction in annuities may not cause the member's, surviving spouse's, or beneficiary's annuity payment to be reduced below the base retirement amount calculated under this Act.

(b) An annuity shall be considered as a life annuity (modified cash refund) with the first monthly payment due at the end of the month immediately following the member's retirement date, but the amounts of these and all other benefits payable under this Act shall be subject at all times to such adjustments as may be required to ensure actuarial soundness as may be approved by the actuary and adopted by the board, except that annuities already granted may not be reduced below the base retirement amount granted at time of retirement.

(c) Subject to the conditions, limitations, and restrictions set forth in this subsection, as well as all other pertinent conditions, limitations, and restrictions set forth elsewhere in this Act, the board shall have the power to authorize an annual cost of living adjustment (hereinafter referred to as "adjustment") payment which, once authorized, shall be paid out monthly and which shall be added to the current monthly payment of all retirement annuities of each and every member of the police retirement system who has retired or those of the members' surviving spouses or beneficiaries who have become entitled to benefits on or before December 31 of any preceding year. Before January 1 of each year, the board shall make a separate determination of whether to authorize the payment of an annual adjustment and the amount of the adjustment, if any. These adjustments shall be paid monthly beginning January 31 of the succeeding calendar year.

(d) In determining whether to authorize the payment and the amount of any annual adjustment, the board shall be governed by the following conditions, considerations, limitations, and restrictions:

(1) Any and all determinations to authorize the payment of any amount must be based on the ability of the system to pay such an amount and shall not be based upon the individual needs of any particular retired members, surviving spouses, or beneficiaries.

(2) Prior to the board's authorizing the payment of an annual adjustment, the actuary must approve and recommend such an adjustment to the board and certify in writing to the board that based on the sound application of actuarial assumptions and methods consistent with sound actuarial principles and standards, it is demonstrable that the system has and will continue to have the ability to pay such an amount out of its realized income after all other obligations of the system have been paid.

(3) The amount of the adjustment payment to the retirement benefit for each retired member, surviving spouse, or beneficiary shall be increased or decreased by an amount, not to exceed six percent, determined by the board and the actuary based on the consumer price index, actuarial experience of the system, investment experience of the system, and cost-of-living increases granted in the past. Such increases shall be prorated for a member who retired during the year in the ratio that the number of the member's completed months after the member's retirement in that year bears to 12. The cost-of-living increase presented for approval by the board must be approved by the system's actuary.

(4) The board shall have the authority and the duty, at any and all times and without notice to anyone, to decrease the amount of the adjustment payment as much as is necessary to protect the continuity of the police retirement system and to protect the corpus of the system should the ability of the system to continue to pay the adjustment be threatened by a change in the economic situation of the United States, the State of Texas, the city, or the system itself such as would dictate that a prudent trustee should authorize such a decrease; provided that if the threatened change should prove not to have had the predicted harmful effect on the system, then the board shall have the authority to reinstate the payment of all or any portion of the amount of the previously decreased adjustment payments. If at any time the actuary in the actuary's discretion shall deem the continuity of the system to be threatened by whatever cause, the actuary shall have the power and authority to order the board to make no further adjustment payments and the board shall have the power and authority to see to it that no further adjustment payments are made unless and until the actuary shall order either that the same adjustment payments which were discontinued by the actuary's order be reinstated retroactively, or that the adjustment payments (of the same amount as those which were discontinued) be reinstated prospectively from the date of the actuary's order to reinstate or the actuary may recommend to the board that the adjustment payments be decreased by whatever amount the actuary may deem to be sufficient to protect the continuity of the system. The board shall not have the power or authority to authorize or permit the payment of any adjustment payments in excess of that recommended by the actuary.

(5) Provided that the adjustment payments, if any, shall be in addition to the benefits to which a retired member, surviving spouse, or beneficiary is otherwise entitled under this Act, and in no event shall a reduction in the adjustment payments cause the retired member's, surviving spouse's, or beneficiary's benefits to be reduced below the actual base retirement amount calculated under the provisions of this Act.

(6) Service and disability retirement annuities and survivor benefits being paid by the police retirement system to members or to the surviving spouses or beneficiaries of members who retire before the effective date of any change in the retirement benefit percent under this section that occurs after 1995 shall be changed beginning with the first payment due after the effective date of the change in the retirement benefit percent. The amount of the change for a member or the surviving spouse or beneficiary of the member is equal to a percentage multiplied by the annuity payment otherwise due. The percentage is equal to the new retirement benefit percentage divided by the retirement benefit percent in effect immediately before the effective date of the new retirement benefit percent, minus one, and multiplied by 100.

(e) The following terms and definitions shall be used in construing the meaning of this section:

(1) "Base retirement amount" means that monthly retirement amount calculated under this Act at the time of actual retirement, reduced for the optional form selected under Section 6.03(a) of this Act, and further reduced, if appropriate for the optional form selected, if the member or the member's beneficiary has died.

(2) "Consumer price index" means the Consumer Price Index for All Urban Consumers published monthly by the Bureau of Labor Statistics, United States Department of Labor, or its successor in function.

(3) "Continuity of the system" means the ability of the police retirement system to continue to meet all of its purposes, to continue to thrive and grow along with the economy of the United States, the State of Texas, and the city, or to be able to sustain itself and its beneficiaries during and throughout periods of deflation or recession in that economy.

(f) For purposes of this section, compensation of each noneligible member taken into account under this Act may not exceed $200,000 per calendar year, indexed pursuant to Section 401(a)(17) of the Internal Revenue Code of 1986 (26 U.S.C. Section 401). The $200,000 limit does not apply to an eligible member. For purposes of this subsection, an eligible member is any individual who first became a member before January 1, 1996. For purposes of this subsection, a noneligible member is any other member.