LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
200 W. Washington St., Suite 301
Indianapolis, IN 46204
(317) 233-0696
iga.in.gov
FISCAL IMPACT STATEMENT
LS 6103 NOTE PREPARED: Oct 27, 2023
BILL NUMBER: HB 1261 BILL AMENDED:
SUBJECT: Deferred Retirement Option Plan.
FIRST AUTHOR: Rep. Smith V BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED: GENERAL IMPACT: State & Local
XDEDICATED
FEDERAL
Summary of Legislation: The bill allows a member of the 1925 Police Pension Fund, 1937 Firefighters'
Pension Fund, 1953 Police Pension Fund (Indianapolis), or 1977 Police Officers' and Firefighters' Pension
and Disability Fund to withdraw from the deferred retirement option plan (DROP) and make an election to
enter the DROP for a second time not earlier than three years after the date the member withdrew from the
DROP. It provides that a member may make an election to enter the DROP only twice in the member's
lifetime.
Effective Date: July 1, 2024.
Explanation of State Expenditures: Indiana Public Retirement System (INPRS): INPRS administers the
‘77 Fund and may have increased administrative workload related to the change in the DROP made under
the bill. The administrative costs of the ‘77 Fund are paid from the fund.
Additional Information - DROP is an optional pension benefit that allows fund members who are eligible
for an unreduced retirement benefit to continue to work and earn a salary for up to 36 months and then retire
with a pension benefit calculated as of the date the individual entered the DROP, plus receive an additional
amount equal to the total of the pension benefits that the member would have been paid during the same
period had the member retired at the time they entered the DROP. The DROP benefit is payable either in a
lump sum or three equal annual payments.
Any impact due to DROP changes by members of the 1925 Police Pension Fund, 1937 Firefighters’ Pension
Fund, and 1953 Police Pension Fund would be minor. As of January 2023 there were fewer than five active
members remaining in these funds who would be eligible to enter the DROP. These police and firefighter
HB 1261 1 funds are administered at the local level and are funded through General Fund appropriations to the Pension
Relief Fund.
Explanation of State Revenues:
Explanation of Local Expenditures: ‘77 Fund: Allowing an individual to enter the DROP twice may
increase the unfunded liabilities in the ‘77 Fund, though the impact would likely be minor. Under most
circumstances the present value of expected retirement benefits is greater for an individual who enters the
DROP than it is for members who receive regular retirement benefits. Under current law, if an individual
enters the DROP, but does not retire when they reach the agreed on retirement date, the individual would not
receive any payment from the DROP, but would instead receive their regular ‘77 Fund retirement benefit
when they retire as if they had never entered the DROP. Under this bill, an individual who was not ready to
retire when they reached their agreed-upon retirement date set when they entered the DROP could withdraw
from the DROP and enter it a second time.
As of June 30, 2022 there were 824 active members of the ‘77 Fund who were in the DROP program. The
‘77 Fund is funded through employer and employee contributions. For calendar year 2024, the employer
contribution rate is 19.1% of salary.
1925 Police Pension Fund, 1937 Firefighters’ Pension Fund, and 1953 Police Pension Fund: Any
administrative impact to local employers due to DROP changes by members of the 1925 Police Pension
Fund, 1937 Firefighters’ Pension Fund, and 1953 Police Pension Fund would be minor.
Explanation of Local Revenues:
State Agencies Affected: Indiana Public Retirement System.
Local Agencies Affected: Local units with active members in the 1925 Police Pension Fund, 1937
Firefighters' Pension Fund, or 1953 Police Pension Fund (Indianapolis).
Information Sources: Cavanaugh Macdonald Consulting, LLC. Indiana Public Retirement System Local
Public Safety Pension Relief Fund. Actuarial Valuation as of January 1, 2023.
https://www.in.gov/inprs/files/2023Valuation_IndianaPensionReliefFund.pdf; INPRS. (2016, December).
Cost Analysis of the Deferred Retirement Option Plan (“DROP”); INPRS. 2023 valuation pension database;
INPRS. 2022-2023 Employer Contribution Rate Information.
https://www.in.gov/inprs/employers/employer-communication/er-contribution-rate-info/
Fiscal Analyst: Camille Tesch, 317-232-5293.
HB 1261 2