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.