By: Y. Davis of Dallas H.B. No. 3987
A BILL TO BE ENTITLED
AN ACT
relating to certain distributions from deferred retirement option
plans established under public retirement systems for police and
firefighters in certain municipalities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 6.14, Article 6243a-1, Revised Statutes,
is amended by amending Subsections (e-3), (e-4), and (g) and adding
Subsection (e-5) to read as follows:
(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:
(A) partial 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; or
(B) full lump-sum distribution from the person's
DROP account resulting in an elimination of the DROP account
balance and closure of the account.
(e-4) The board shall adopt rules necessary to implement
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 requesting a lump-sum distribution or partial lump-sum
distribution under that subsection [receiving an annuity from the
annuitization of a DROP account].
(e-5) The board may not deny a request for a lump-sum
distribution or partial lump-sum distribution under Subsection
(e-3)(2) of this section.
(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) 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) 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. This Act takes effect September 1, 2025.