bill lets DROP participants take the whole balance anytime

The text as introduced · 1,096 words

By: Y. Davis of Dallas
H.B. No. 3988

A BILL TO BE ENTITLED

AN ACT

relating to certain deferred retirement option plan benefits under

public retirement systems for police and firefighters in certain

municipalities.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Sections 6.14(e), (e-2), (e-3), (e-4), and (g),

Article 6243a-1, Revised Statutes, are amended to read as follows:

(e) Except as provided by Subsection [ Subsections ] (e-1) ,

(e-4), or [ and ] (l) of this section, the balance in the DROP account

of a member who terminated from active service on or before

September 1, 2017, or who terminates from active service shall be

distributed to the member in the form of an annuity, payable either

monthly or annually at the election of the member, by annuitizing

the amount credited to the DROP account over the life expectancy of

the member as of the date of the annuitization using mortality

tables recommended by the pension system's qualified actuary. The

annuity shall be distributed beginning as promptly as

administratively feasible after the later of, as applicable:

(1) the date the member retires and is granted a

retirement pension; or

(2) September 1, 2017.

(e-2) The annuitization of a DROP account under Subsection

(e) of this section must reflect the accrual of interest on the

amount in the DROP account [ as of September 1, 2017, over the

annuitization period applied to the account under this section ].

The interest rate applied under this subsection must be a rate as

reasonably equivalent as practicable to the interest rate on a note

issued by the United States Department of the Treasury or other

federal treasury note with a duration that is reasonably comparable

to the annuitization period applied to the account, as determined

by the board. [ The portion of an annuity attributable to amounts

credited to a member's DROP account on or after September 1, 2017,

may not reflect the accrual of this interest on annuitization. ]

(e-3) The board may by rule allow any person receiving an

annuity from the annuitization of a DROP account under this section

to[ :

[ (1) ] assign the distribution from the person's

[ annuitized ] DROP account to a third party provided the pension

system receives a favorable private letter ruling from the Internal

Revenue Service ruling that such an assignment will not negatively

impact the pension system's qualified plan status[ ; and

[ (2) subject to Subsection (e-4) of this section, in

the event of a financial hardship that was not reasonably

foreseeable obtain a lump-sum distribution from the person's DROP

account resulting in a corresponding reduction in the total number

or in the amount of annuity payments ].

(e-4) A DROP participant may at any time, including on the

date the participant retires and is granted a retirement pension,

make an election in the form and manner prescribed by the [ The ]

board to receive the balance of the person's DROP account,

including interest earned on the balance, in a full lump-sum

distribution made at a time selected by the participant. The board

shall adopt rules necessary to implement this subsection

[ Subsection (e-3)(2) of this section, including rules regarding

what constitutes a financial hardship for purposes of that

subdivision ]. In adopting the rules, the board shall provide

flexibility to persons receiving an annuity from the annuitization

of a DROP account.

(g) The provisions of Sections 6.06, 6.061, 6.062, 6.063,

6.07, and 6.08 of this article pertaining to death benefits of a

qualified survivor do not apply to amounts held in a member's or

pensioner's DROP account. Instead, a member or pensioner who

participates in DROP may designate a beneficiary to receive the

annuity payments under this section over the remaining

annuitization period in the event of the member's or pensioner's

death , subject to [ any rights provided under ] Subsection (e-3) or

(e-4) of this section , and in the manner allowed by Section

401(a)(9) of the code and any policy adopted by the board. A member

or pensioner who is or becomes married is considered to have

designated the member's or pensioner's spouse as the member's or

pensioner's beneficiary, notwithstanding any prior beneficiary

designation, unless the member or pensioner has made a different

designation in accordance with a policy adopted by the board. If a

member or pensioner does not have a spouse or the spouse predeceases

the member or pensioner, the member's or pensioner's, as

applicable, DROP account will be distributed to the member's or

pensioner's, as applicable, designee. Notwithstanding anything in

this section to the contrary, if a member or pensioner has

previously designated the member's or pensioner's spouse as the

beneficiary or co-beneficiary of the DROP account and the member or

pensioner and spouse are subsequently divorced, the divorce

automatically results in the invalidation of the designation of the

spouse as a beneficiary and, if there is no additional beneficiary

designated, the member's or pensioner's DROP account shall be

distributed as provided by Subsection (e) of this section or, if

applicable, Subsection (e-3) or (e-4) of this section. If there are

beneficiaries who survive the deceased member or pensioner, the

surviving beneficiaries share equally in that portion that would

have otherwise been payable to the former spouse.

SECTION 2. Section 6.141(b), Article 6243a-1, Revised

Statutes, is amended to read as follows:

(b) Notwithstanding Section 6.14 of this article and solely

to avoid the possibility of an early distribution tax penalty under

Section 72(t)(4) of the code:

(1) a pensioner subject to this section may until the

pensioner attains 59-1/2 years of age:

(A) [ subject to Subsection (c) of this section, ]

continue to participate in DROP;

(B) have the same amount of the pensioner's

service retirement pension credited to the pensioner's DROP account

as has been credited since the pensioner's service retirement

pension was initially granted; and

(C) defer annuitization or other distribution of

the pensioner's DROP account under Section 6.14 [ 6.14(e) ] of this

article; and

(2) once a pensioner subject to this section attains

59-1/2 years of age:

(A) the pensioner may not have any portion of the

pensioner's service retirement pension credited to the pensioner's

DROP account; and

(B) as soon as administratively feasible, the

balance in the pensioner's DROP account shall be annuitized and

distributed to the pensioner in accordance with Section 6.14(e) of

this article , subject to Section 6.14(e-4) of this article .

SECTION 3. Sections 6.14(f-1) and 6.141(c), Article

6243a-1, Revised Statutes, are repealed.

SECTION 4. This Act takes effect September 1, 2025.