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.