BILL ANALYSIS



H.B. 1782
By: Yarbrough
April 7, 1995
Committee Report (Unamended)


BACKGROUND

Texas Revised Civil Statutes Annotated ("Revised Statutes") Art.
6243e.2 provides for the establishment of a Firemen's Relief and
Retirement fund in cities of not less than 1,200,000 population. 
Article 6243e.2 was originally adopted in 1975 by the 64th
Legislature, and was derived in part from predecessor Article
6243e.  At this time the only pension fund operated under this
Article is the Firemen's Relief and Retirement Fund for the City of
Houston, Texas.  
PURPOSE

This bill would establish within the retirement fund a Deferred
Retirement Option Plan, (DROP).  The purpose of the DROP program is
provide members who meet eligibility requirements for retirement
benefits, but who desire to continue working, with an alternative
pension benefit option.  Members who are eligible for retirement
may elect to participate in DROP for up to 5 years.  During this
period of continued active service, monthly contributions to the
Fund from the member's salary, together with an amount equal to the
member's monthly retirement benefit, are segregated into a separate
account which is paid to the member upon retirement either in a
lump sum or in 3 equal installments.  The quid pro quo for DROP
participation is that years of service occurring after the member
elects to participate in DROP are not counted in determining the
amount of the member's monthly retirement benefit.  Thus, while the
member receives an additional retirement payment at the time of
retirement, his/her monthly pension benefit thereafter may be less
than otherwise would have been received in the absence of DROP
participation.  


RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency, or institution.

SECTION BY SECTION ANALYSIS

SECTION 1: Amends Art. 6243e.2 by adding Section 4A, Subsections
(a) - (n).  

     (a) defines "DROP", "DROP account", and "DROP account
balance."

     (b) allows members who are eligible to receive a regular
retirement pension and who remain in active service to participate
in DROP.  Members who participate in DROP will have their DROP
election date treated as their date of retirement for purposes of
determining the amount of their monthly retirement pension. 
Members may apply for a monthly retirement pension, together with
the balance in their DROP account, upon leaving active service.

     (c) authorizes the Fund's Board of Trustees to establish a
procedure for members to elect to participate in DROP.  Elections
become effective the first month after the Board approves a
member's DROP participation request.  After a member's DROP
election becomes effective, amounts deducted from the member's
salary for the Fund are maintained in a separate DROP account
established for the member.  These credits to the member's DROP
account continue for 5 years or until the member leaves active
service, whichever occurs first.  

     (d) requires the Fund to make monthly contributions to the
member's DROP account which equal the retirement benefit the member
would have received had the member retired rather that remaining in
active service and participating in DROP.  Again, these
contributions continue for 5 years or until the member leaves
active service, whichever occurs first.

     (e) requires crediting a member's DROP account with earnings
and losses which occur during the period of DROP participation, and
provides a method for determining earnings and losses to be
credited to the DROP account.

     (f) allows a member to receive the amount in the member's DROP
account upon leaving active service.  The member may elect to
receive this amount in a lump sum or in 3 equal, annual
installments.

     (g) prohibits crediting a member's DROP account with earnings
or losses which occur after the member retires.  A member who
elects to receive his/her DROP balance in installments receives no
interest on the balance in his/her DROP account after payment of
the first installment.

     (h) prohibits paying a DROP account balance in installments if
such method fails to satisfy the requirements of Section 401(a)(9)
of the Internal Revenue Code.

     (i) provides that a member's DROP election date will be
treated as his/her retirement date for purposes of calculating
regular retirement benefits under Section 4 of the Act, and for
purposes of calculating survivor benefits under Sections 7 and 11
of the Act.

     (j) establishes that a member's survivors are 
entitled to receive the balance in a member's DROP account when the
member dies prior to complete distribution of the account.  

     (k) governs the timing of distribution of a member's DROP
account to survivors if the member dies prior to complete
distribution of the account.

     (l) makes members who participate in DROP ineligible for
disability benefits under Section 6 of the Act, and makes the
member's survivors ineligible for enhanced death benefits provided
in Section 7(b) of the Act.  However, in cases where disability or
death occurs after the member has begun DROP participation, a
procedure is provided for revocation of the member's DROP election. 
Such revocation must occur before the member has received any
distributions from the member's DROP account and/or retirement
benefits.

     (m) requires members who participated in the DROP program and
who return to active service after retiring to continue
participation in DROP.

     (n) makes the DROP program effective on September 1, 1995, and
requires that the program remain in effect for 5 years. 
Thereafter, the Board is allowed to establish a cut-off date for
further participation in DROP.

SECTION 2: Effective date: September 1, 1995

SECTION 3: Emergency clause


SUMMARY OF COMMITTEE ACTION

HB. 1782 was considered by the committee in a public hearing on
April 3, 1995.

Rep. Ken Yarbrough testified as the bill's author.

The following persons testified for the bill:
     Rick Mumey representing the Houston Professional Fire Fighters
Assoc.
     Jennifer C. Morales representing herself and the Board of
Trustees, Houston Firemen's   Pension Fund

The bill was reported favorably without amendment with the
recommednation that it do pass and be printed and be sent to the
Committee on Local and Consent Calendars, by a record vote of 5
ayes, 0 nays, 0 pnv & 4 absent.