LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
FISCAL IMPACT STATEMENT
LS 6031 NOTE PREPARED: Sep 12, 2024
BILL NUMBER: HB 1314 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 (‘77 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
withdraws 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, 2025.
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 60 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 payments.
Any impact duo 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 FY 2023 there were fewer than five active
members remaining in these funds who would be eligible to enter the DROP. These police and firefighter
funds are administered at the local level and are funded through state 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
HB 1314 1 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, an individual may
enter the DROP only once, and if an individual withdraws from the DROP, they would receive their regular
‘77 Fund retirement benefit when they retire as if they had never entered the DROP.
Additional Information - 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. The employer
contribution rate for the ‘77 Fund is 19.1% of employee salary for calendar year 2024 and 20.3% for calendar
year 2025.
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. As of FY 2023 there
were fewer than five active members remaining in these funds who would be eligible to enter the DROP.
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. (2023, June 30). Indiana Public Retirement
System. 1977 Police Officers' and Firefighters' Retirement Fund. Actuarial Valuation as of June 30, 2023.
Retrieved from https://www.in.gov/inprs/files/2023ActuarialValuation_77Fund.pdf; INPRS. (2016,
December). Cost Analysis of the Deferred Retirement Option Plan (“DROP”); INPRS. 2023-2025 Employer
Contribution Rate Information. Retrieved from https://www.in.gov/inprs/employers/er-contribution-rate-info/
Fiscal Analyst: Camille Tesch, 317-232-5293.
HB 1314 2