EXPLANATION: CAPITALS INDICATE MATTER ADDE D TO EXISTING LAW .
[Brackets] indicate matter deleted from existing law.
*hb1388*
HOUSE BILL 1388
P6 5lr2149
By: Delegate Barnes
Introduced and read first time: February 7, 2025
Assigned to: Appropriations
A BILL ENTITLED
AN ACT concerning 1
Employees’ Pension System and Teachers’ Pension System – Deferred 2
Retirement Option Program – Establishment 3
FOR the purpose of establishing a Deferred Retirement Option Program for certain 4
members of the Employees’ Pension System and the Teachers’ Pension System; 5
requiring the State Retirement Agency to seek a certain determination letter; and 6
generally relating to establishing a Deferred Retirement Option Program for certain 7
members of the Employees’ Pension System and the Teachers’ Pension System. 8
BY repealing and reenacting, without amendments, 9
Article – State Personnel and Pensions 10
Section 23–401 11
Annotated Code of Maryland 12
(2024 Replacement Volume and 2024 Supplement) 13
BY adding to 14
Article – State Personnel and Pensions 15
Section 23–401.1 16
Annotated Code of Maryland 17
(2024 Replacement Volume and 2024 Supplement) 18
SECTION 1. BE IT ENACTED BY THE GENERAL ASSEMBLY OF MARYLAND, 19
That the Laws of Maryland read as follows: 20
Article – State Personnel and Pensions 21
23–401. 22
(a) Except as provided in subsection (f) of this section, a member may retire with 23
a normal service retirement allowance if: 24
2 HOUSE BILL 1388
(1) the member completes and submits a written application to the Board 1
of Trustees stating the date when the member desires to retire; and 2
(2) on or before the date of retirement, the member: 3
(i) has at least 30 years of eligibility service; 4
(ii) has a combined total of at least 30 years of eligibility service from 5
the Employees’ Pension System, the Teachers’ Pension System, the Employees’ Retirement 6
System, or the Teachers’ Retirement System; or 7
(iii) has attained the age and the years of eligibility service as follows: 8
Age Years of Eligibility 9
Service 10
62 with 5 11
63 with 4 12
64 with 3 13
65 or more with 2 14
(b) Except as provided in subsections (c), (d), (e), (f), and (g) of this section, on 15
retirement under this section, a member is entitled to receive a normal service retirement 16
allowance that equals the number of years of the member’s creditable service multiplied 17
by: 18
(1) 0.8% of the member’s average final compensation that is not in excess 19
of the Social Security integration level; and 20
(2) 1.5% of the member’s average final compensation that exceeds the 21
Social Security integration level. 22
(c) Except as provided in subsections (e) and (g) of this section, on retirement 23
under this section, a member who is subject to the contributory pension benefit under 24
Subtitle 2, Part II of this title is entitled to receive a normal service retirement allowance 25
that equals the sum of: 26
(1) the number of years of the member’s creditable service on or after July 27
1, 1998 multiplied by 1.4% of the member’s average final compensation; and 28
(2) the greater of: 29
(i) the number of years of the member’s creditable service on or 30
before June 30, 1998 multiplied by 1.2% of the member’s average final compensation; or 31
(ii) the number of years of the member’s creditable service on or 32
before June 30, 1998 multiplied by: 33
HOUSE BILL 1388 3
1. 0.8% of the member’s average final compensation that is 1
not in excess of the Social Security integration level; and 2
2. 1.5% of the member’s average final compensation that 3
exceeds the Social Security integration level. 4
(d) Except as provided in subsections (e) and (g) of this section, a member who is 5
subject to the Alternate Contributory Pension Selection under Subtitle 2, Part III of this 6
title is entitled to receive a normal service retirement allowance that equals the sum of: 7
(1) the greater of: 8
(i) the number of years of the member’s creditable service on or 9
before June 30, 1998 multiplied by 1.2% of the member’s average final compensation; or 10
(ii) the number of years of the member’s creditable service on or 11
before June 30, 1998 multiplied by: 12
1. 0.8% of the member’s average final compensation that is 13
not in excess of the Social Security integration level; and 14
2. 1.5% of the member’s average final compensation that 15
exceeds the Social Security integration level; and 16
(2) the number of years of the member’s creditable service on or after July 17
1, 1998 multiplied by 1.8% of the member’s average final compensation. 18
(e) (1) This subsection applies only to a member who has a combined total of 19
30 years of eligibility service as provided in subsection (a)(2)(ii) of this section. 20
(2) A member is entitled to receive a normal service retirement allowance 21
that equals: 22
(i) an allowance based on the creditable service the member earned 23
in the Employees’ Pension System; 24
(ii) an allowance based on the creditable service the member earned 25
in the Employees’ Retirement System; 26
(iii) an allowance based on the creditable service the member earned 27
in the Teachers’ Pension System; plus 28
(iv) an allowance based on the creditable service the member earned 29
in the Teachers’ Retirement System. 30
(f) (1) A member who begins membership on or after July 1, 2011, may retire 31
with a normal service retirement allowance if: 32 4 HOUSE BILL 1388
(i) the member completes and submits a written application to the 1
Board of Trustees stating the date when the member desires to retire; and 2
(ii) on or before the date of retirement, the member: 3
1. has at least 90 years of combined age and years of 4
eligibility service; or 5
2. is at least 65 years old and has at least 10 years of 6
eligibility service. 7
(2) Except as provided in subsection (g) of this section, a member who is 8
subject to the reformed contributory pension benefit under Subtitle 2, Part IV of this title 9
is entitled to receive a normal service retirement that equals the number of years of the 10
member’s creditable service multiplied by 1.5% of the member’s average final 11
compensation. 12
(g) On retirement under this section, if a member’s annuity is greater than the 13
member’s normal service retirement allowance calculated under this section, the member’s 14
normal service retirement allowance shall equal the member’s annuity. 15
23–401.1. 16
(A) (1) IN THIS SECTION THE F OLLOWING WORDS HAVE THE MEANINGS 17
INDICATED. 18
(2) “DROP” MEANS THE DEFERRED RETIREMENT OPTION 19
PROGRAM ESTABLISHED U NDER THIS SECTION. 20
(3) “DROP MEMBER” MEANS A MEMBER OF TH E EMPLOYEES’ 21
PENSION SYSTEM OR THE TEACHERS’ PENSION SYSTEM WHO: 22
(I) IS ELIGIBLE TO PARTI CIPATE IN THE DROP AS PROVIDED 23
IN SUBSECTION (C) OF THIS SECTION; AND 24
(II) ELECTS TO PARTICIPAT E IN THE DROP AS PROVIDED IN 25
SUBSECTION (E) OF THIS SECTION. 26
(B) THERE IS A DROP FOR ELIGIBLE MEMBERS OF THE EMPLOYEES’ 27
PENSION SYSTEM AND THE TEACHERS’ PENSION SYSTEM. 28
(C) A MEMBER OF THE EMPLOYEES’ PENSION SYSTEM OR THE TEACHERS’ 29
PENSION SYSTEM IS ELIGIBLE TO PARTI CIPATE IN THE DROP IF THE MEMBER IS 30 HOUSE BILL 1388 5
ELIGIBLE TO RECEIVE A NORMAL SERVICE RET IREMENT UNDER § 23–401 OF THIS 1
SUBTITLE. 2
(D) AN ELIGIBLE MEMBER MA Y ELECT TO PARTICIPA TE IN THE DROP FOR 3
A PERIOD NOT TO EXCE ED THE LESSER OF : 4
(1) 7 YEARS; 5
(2) THE DIFFERENCE BETWE EN 32 YEARS AND THE MEMBER ’S 6
ELIGIBILITY SERVICE AS OF THE DATE OF TH E MEMBER ’S ELECTION TO 7
PARTICIPATE IN THE DROP AND RETIRE FROM THE EMPLOYEES’ PENSION SYSTEM 8
OR THE TEACHERS’ PENSION SYSTEM; OR 9
(3) A TERM SELECTED BY T HE MEMBER. 10
(E) (1) AN ELIGIBLE MEMBER WH O ELECTS TO PARTICIP ATE IN THE 11
DROP SHALL: 12
(I) COMPLETE AND SUBMIT A WRITTEN ELECTION F ORM TO 13
THE BOARD OF TRUSTEES, ON THE FORM THAT THE BOARD OF TRUSTEES 14
PROVIDES, STATING: 15
1. THE MEMBER ’S INTENTION TO PART ICIPATE IN THE 16
DROP; 17
2. THE DATE WHEN THE ME MBER DESIRES TO RETI RE; 18
3. THE PERIOD THAT THE MEMBER DESIRES TO 19
PARTICIPATE IN THE DROP, AS PROVIDED IN SUBSE CTION (D) OF THIS SECTION; 20
4. THE DATE WHEN THE ME MBER INTENDS TO 21
TERMINATE EMPLOYMENT IN THE FORM OF A BIN DING LETTER OF RESIG NATION 22
SUBMITTED WITH THE M EMBER’S ELECTION FORM ; AND 23
5. ANY OTHER INFORMATIO N REQUIRED BY THE BOARD 24
OF TRUSTEES TO IMPLEMENT THE DROP; AND 25
(II) COMPLETE AND SUBMIT A WRITTEN RETIREMENT 26
APPLICATION FORM TO THE BOARD OF TRUSTEES, ON THE FORM THAT THE BOARD 27
OF TRUSTEES PROVIDES . 28
(2) AN ELIGIBLE MEMBER ’S ELECTION TO PARTIC IPATE IN THE 29
DROP IS IRREVOCABLE . 30 6 HOUSE BILL 1388
(F) (1) A DROP MEMBER’S PARTICIPATION IN T HE DROP SHALL 1
COMMENCE ON THE FIRS T DAY OF THE MONTH FOLLOWING ACCEPTANCE BY THE 2
BOARD OF TRUSTEES OF THE DROP MEMBER’S COMPLETED ELECTION FORM, 3
RETIREMENT APPLICATI ON FORM, AND ANY OTHER INFORM ATION REQUIRED BY 4
THE BOARD OF TRUSTEES. 5
(2) A DROP MEMBER IS A RETIREE OF THE EMPLOYEES’ PENSION 6
SYSTEM OR THE TEACHERS’ PENSION SYSTEM. 7
(G) PARTICIPATION IN THE DROP ENDS IF THE DROP PARTICIPANT: 8
(1) SEPARATES FROM EMPLO YMENT IN ACCORDANCE WITH THE 9
BINDING LETTER OF RE SIGNATION SUBMITTED WITH THE MEMBER ’S ELECTION 10
FORM; 11
(2) DIES; 12
(3) IS TERMINATED FROM EMPLOYMENT AT ANY TI ME BEFORE THE 13
DATE SPECIFIED ON TH E MEMBER’S ELECTION FORM ; OR 14
(4) SHORTENS THE TIME PE RIOD FOR PARTICIPATI ON IN THE DROP 15
BY DELIVERING TO THE BOARD OF TRUSTEES WRITTEN NOTI CE OF THE INTENT OF 16
THE DROP MEMBER TO TERMINATE EMPLOYMENT . 17
(H) (1) AS OF THE EFFECTIVE D ATE OF PARTICIPATION IN THE DROP, 18
THE BOARD OF TRUSTEES SHALL DETERM INE THE DROP MEMBER’S SERVICE 19
RETIREMENT ALLOWANCE UNDER § 23–401 OF THIS SUBTITLE , INCLUDING ANY 20
OPTIONAL ALLOWANCE E LECTED UNDER TITLE 21, SUBTITLE 4 OF THIS ARTICLE. 21
(2) DURING THE PERIOD THA T A DROP MEMBER PARTICIPATES IN 22
THE DROP, THE BOARD OF TRUSTEES SHALL : 23
(I) DEPOSIT THE DROP MEMBER’S SERVICE RETIREMENT 24
ALLOWANCE IN THE DROP FOR THE DROP MEMBER’S BENEFIT; 25
(II) ADJUST THE DROP MEMBER’S SERVICE RETIREMENT 26
ALLOWANCE EACH FISCA L YEAR AS PROVIDED I N §§ 29–401, 29–402, 29–406, AND 27
29–408 OF THIS ARTICLE; AND 28
(III) ACCRUE INTEREST ON T HE AMOUNTS CALCULATE D UNDER 29
ITEMS (I) AND (II) OF THIS PARAGRAPH FO R THE DROP MEMBER INTO THE DROP 30
AT THE RATE OF 4% A YEAR, COMPOUNDED ANNUALLY . 31 HOUSE BILL 1388 7
(3) A DROP MEMBER MAY NOT RECEI VE CREDITABLE SERVIC E OR 1
ELIGIBILITY SERVICE DURING THE PERIOD TH AT THE DROP MEMBER 2
PARTICIPATES IN THE DROP. 3
(4) A DROP MEMBER’S COMPENSATION DURIN G THE PERIOD THAT 4
THE DROP MEMBER P ARTICIPATES IN THE DROP MAY NOT BE: 5
(I) SUBJECT TO THE EMPLO YER PICKUP PROVISION S OF § 6
21–313 OF THIS ARTICLE OR A NY REDUCTION OR DEDU CTION AS A MEMBER 7
CONTRIBUTION FOR PEN SION OR RETIREMENT P URPOSES; OR 8
(II) USED TO INCREASE THE DROP MEMBER’S AVERAGE FINAL 9
COMPENSATION . 10
(5) DURING THE PERIOD THA T A DROP MEMBER PARTICIPATES IN 11
THE DROP, THE DROP MEMBER SHALL : 12
(I) CONTINUE TO RECEIVE COMPENSATION , HEALTH 13
INSURANCE AND OTHER BENEFIT OPTIONS ESTA BLISHED UNDER THE STATE 14
EMPLOYEE AND RETIREE HEALTH AND WELFARE BENEFIT PROGRAM 15
ADMINISTERED BY THE SECRETARY OF BUDGET AND MANAGEMENT , AND ANY 16
OTHER BENEFITS AS AN EMPLOYEE; 17
(II) BE SUBJECT TO THE PE RSONNEL LAW , REGULATIONS , AND 18
POLICIES APPLICABLE TO AN EMPLOYEE ; AND 19
(III) RECEIVE RETIREMENT B ENEFITS ONLY TO THE E XTENT 20
PROVIDED IN THIS SEC TION. 21
(6) THE BOARD OF TRUSTEES IS NOT REQUI RED TO ESTABLISH AN 22
INDIVIDUAL DROP ACCOUNT FOR EACH DROP MEMBER. 23
(7) EACH YEAR, THE BOARD OF TRUSTEES SHALL PROVID E A DROP 24
MEMBER WITH A WRITTE N ACCOUNTING OF THE DROP MEMBER’S ACCOUNT 25
BALANCE IN THE DROP. 26
(I) (1) SUBJECT TO PARAGRAPHS (2) AND (3) OF THIS SUBSECTION , ON 27
TERMINATION OF A DROP MEMBER’S PARTICIPATION IN T HE DROP, THE BOARD 28
OF TRUSTEES SHALL PAY TO THE DROP MEMBER OR , IF THE DROP MEMBER HAS 29
DIED, THE DESIGNATED BENEF ICIARY OF THE DROP MEMBER, THE AMOUNT 30
ACCRUED IN THE DROP FOR THE DROP MEMBER UNDER SUBSECT ION (H)(2) OF 31 8 HOUSE BILL 1388
THIS SECTION, REDUCED BY ANY WITHH OLDING TAXES REMITTE D TO THE INTERNAL 1
REVENUE SERVICE OR OTHER TAXI NG AUTHORITY , IN A LUMP SUM. 2
(2) A DROP MEMBER OR DESIGNATED BENEFICIARY OF A DROP 3
MEMBER MAY DIRECT TH E BOARD OF TRUSTEES TO PAY ALL O R A PORTION OF THE 4
AMOUNT ACCRUED FOR T HE DROP MEMBER’S BENEFIT UNDER SUBS ECTION (H)(2) 5
OF THIS SECTION DIRE CTLY TO THE CUSTODIA N OF AN ELIGIBLE RET IREMENT PLAN 6
AS PROVIDED IN TITLE 21, SUBTITLE 6 OF THIS ARTICLE. 7
(3) A DROP MEMBER OR DESIGNATED BENEFICIARY OF A DROP 8
MEMBER IS ELIGIBLE T O RECEIVE THE AMOUNT DUE UNDER THIS SUBSE CTION 9
WITHIN 90 DAYS AFTER THE : 10
(I) DATE OF TERMINATION OF THE DROP MEMBER’S 11
PARTICIPATION IN THE DROP; 12
(II) RECEIPT BY THE BOARD OF TRUSTEES OF A COMPLET ED 13
APPLICATION TO RECEI VE THE DROP AMOUNT, ON THE FORM THAT THE BOARD OF 14
TRUSTEES PROVIDES ; AND 15
(III) RECEIPT BY THE BOARD OF TRUSTEES OF ANY OTHER 16
INFORMATION TH AT THE BOARD OF TRUSTEES REQUIRES TO PROCESS PAYMENT OF 17
THE DROP MEMBER’S ACCOUNT BALANCE TO THE DROP PARTICIPANT, THE 18
DESIGNATED BENEFICIA RY OF THE DROP PARTICIPANT, OR THE CUSTODIAN OF AN 19
ELIGIBLE RETIREMENT PLAN. 20
(J) (1) AS OF THE FIRST DAY O F THE MONTH FOLLOWIN G TERMINATION 21
OF A DROP MEMBER’S PARTICIPATION IN T HE DROP, THE BOARD OF TRUSTEES 22
SHALL COMMENCE AND C ONTINUE PAYMENT OF T HE SERVICE RETIREMEN T 23
ALLOWANCE , INCLUDING THE COST –OF–LIVING ADJUSTMENTS A S PROVIDED IN 24
TITLE 29, SUBTITLE 4 OF THIS ARTICLE, TO THE MEMBER AS PRO VIDED IN § 23–401 25
OF THIS SUBTITLE. 26
(2) IF A DROP MEMBER DIES BEFORE T ERMINATION OF THE DROP 27
MEMBER’S PARTICIPATION IN T HE DROP, THE BOARD OF TRUSTEES SHALL PAY 28
ANY OPTIONAL ALLOWANCE E LECTED UNDER TITLE 21, SUBTITLE 4 OF THIS 29
ARTICLE TO THE DESIGNATED BENEFICIA RY OF THE DROP MEMBER. 30
(K) (1) A DROP MEMBER IS ELIGIBLE T O APPLY FOR A N ACCIDENTAL 31
DISABILITY RETIREMEN T ALLOWANCE UNDER § 29–109 OF THIS ARTICLE IF A FTER 32
THE DROP MEMBER COMMENCES PAR TICIPATION IN THE DROP: 33
HOUSE BILL 1388 9
(I) THE MEMBER IS TOTALL Y AND PERMANENTLY 1
INCAPACITATED FOR DU TY AS THE NATURAL AND P ROXIMATE RESULT OF A N 2
ACCIDENT THAT OCCURR ED IN THE ACTUAL PER FORMANCE OF DUTY , WHILE 3
PARTICIPATING IN DROP, AT A DEFINITE TIME A ND PLACE, AND WITHOUT WILLFUL 4
NEGLIGENCE OF THE ME MBER; AND 5
(II) THE MEDICAL BOARD CE RTIFIES THAT: 6
1. THE MEMBER IS TOTALL Y INCAPACITATED , EITHER 7
MENTALLY OR PHYSICAL LY, FOR THE FURTHER PERF ORMANCE OF THE NORMAL 8
DUTIES OF THE DROP MEMBER’S POSITION BY THE OCCURRENCE D ESCRIBED 9
UNDER ITEM (I) OF THIS PARAGRAPH ; 10
2. THE INCAPACITY IS LI KELY TO BE PERMANENT ; AND 11
3. THE MEMBER SHOULD BE RETIRED. 12
(2) (I) IF A DROP MEMBER IS GRANTED A N ACCIDENTAL 13
DISABILITY RETIREMEN T ALLOWANCE , THE DROP MEMBER SHALL : 14
1. SUBMIT AN APPLICATION TO THE BOARD OF 15
TRUSTEES, ON THE FORM THE BOARD OF TRUSTEES PROVIDES , TO RECEIVE 16
PAYMENT OF THE AMOUN T ACCRUED IN THE DROP IN ACCORDANCE WITH 17
SUBSECTION (I) OF THIS SECTION; 18
2. EXECUTE A WRITTEN WA IVER OF ANY BENEFITS TO 19
WHICH THE DROP MEMBER MAY BE ENTITL ED UNDER THE DROP; AND 20
3. SUBMIT AN APPLICATIO N TO RETIRE WITH A N 21
ACCIDENTAL DISABILITY RETIREMEN T ALLOWANCE , ON THE FORM THE BOARD OF 22
TRUSTEES PROVIDES , STATING THE EFFECTIV E DATE OF THE DROP MEMBER’S 23
RETIREMENT AS A N ACCIDENTAL DISABILITY RETIREE . 24
(II) ON ACCEPTANCE OF THE APPLICATION FOR PAYM ENT AND 25
APPLICATION TO RETIR E, THE BOARD OF TRUSTEES SHALL COMMEN CE PAYMENT 26
OF AN ACCIDENTAL DISABILITY ALLOWANCE TO THE DROP MEMBER AS PROVIDED 27
IN § 29–110 OF THIS ARTICLE, EXCEPT THAT THE DROP MEMBER’S AVERAGE FINAL 28
COMPENSATION SHALL B E COMPUTED AS OF THE EFFECTIVE DATE OF TH E DROP 29
MEMBER’S APPLICATION FOR A SPECIAL DISABILITY R ETIREMENT ALLOWANCE . 30
(III) IF AN ACCIDENTAL DISA BILITY IS PAID UNDER 31
SUBPARAGRAPH (II) OF THIS PARAGR APH, THE BOARD OF TRUSTEES MAY NOT PAY 32 10 HOUSE BILL 1388
ANY OTHER BENEFITS T O THE DROP MEMBER OR BENEFICIAR Y OF THE DROP 1
MEMBER. 2
SECTION 2. AND BE IT FURTHER ENACTED, That : 3
(a) On or before July 1, 2025, the State Retirement Agency shall request a 4
determination letter from the Internal Revenue Service that confirms the continued 5
qualification under § 401 of the Internal Revenue Code of the Employees’ Pension System 6
and the Teachers’ Pension System, as amended under Section 1 of this Act. 7
(b) Within 5 days after receiving the determination letter requested under 8
subsection (a) of this section from the Internal Revenue Service, the State Retirement 9
Agency shall forward a copy of the letter to the Department of Legislative Services, 90 State 10
Circle, Annapolis, Maryland 21401. 11
SECTION 3. AND BE IT FURTHER ENACTED, That: 12
(a) Section 1 of this Act shall take effect contingent on the receipt by the State 13
Retirement Agency of a favorable determination letter requested under Section 2 of this 14
Act from the Internal Revenue Service confirming that the Employees’ Pension System and 15
the Teachers’ Pension System, as amended under Section 1 of this Act, are qualified plans 16
under § 401 of the Internal Revenue Code. 17
(b) If a favorable determination letter requested under Section 2 of this Act is 18
received on or before July 1, 2027, Section 1 of this Act shall take effect on the later of: 19
(1) the first day of the month after the State Retirement Agency receives 20
the determination letter; or 21
(2) July 1, 2026. 22
(c) If the State Retirement Agency does not receive a favorable determination 23
letter requested under Section 2 of this Act on or before July 1, 2027, Section 1 of this Act, 24
with no further action required by the General Assembly, shall be null and void and of no 25
further force and effect. 26
SECTION 4. AND BE IT FURTHER ENACTED, That , subject to Section 3 of this 27
Act, this Act shall take effect June 1, 2025. 28