BILL ANALYSIS
H.B. 1899
By: Turner, S. (Whitmire)
Intergovernmental Relations
05-10-95
Senate Committee Report (Unamended)
BACKGROUND
At present, retired Houston police officers receive their benefits
according to two different plans, depending on whether they were
hired before or after 1981. Many officers retire after 20 years
service and take other jobs. Some cities, including Dallas, have
initiated a Deferred Retirement Option Plan (DROP) to encourage
officers to stay on the force longer.
A DROP plan calculates the annual retirement benefit for which the
officer is eligible, and the officer may draw it in a lump sum
after 20 years of service. For pension calculation purposes, the
officer is regarded as retired, a notational account is set up in
the person's name, and the lump sum pension account is credited to
it. By law, 8.75 percent of the working officer's salary is placed
in a pension fund. In the DROP program, this amount is placed in
the notational account each month, as is the interest earned by the
principal in the account.
PURPOSE
As proposed, H.B. 1899 sets forth provisions relating to a deferred
retirement option plan for members of retirement systems for police
officers in certain municipalities.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not grant any
additional rulemaking authority to a state officer, institution, or
agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 76, Article 6243g-1, V.T.C.S., by adding
Section 11B, as follows:
Sec. 11B. (a) Defines "DROP," and "DROP benefit."
(b) Requires the Police Officers' Pension Board (board) to
design and approve a deferred retirement option plan (DROP)
for members of the Police Officers' Pension System (pension
system).
(c) Authorizes a member who is eligible to receive a
retirement pension under this Act and has at least 20 years
of service with the police department to file with the
pension system an irrevocable election to participate in the
DROP and receive a DROP benefit instead of the standard form
of pension provided by this Act. Authorizes the election to
be made, under procedures established by the board, only by
an employee at any time after the member accumulates the
required amount of service.
(d) Provides that the monthly retirement pension component
of a DROP benefit is determined as if the member had
terminated service and begun receiving a pension on the
effective date of the DROP election. Provides that the
member does not accrue additional service credit beginning
on the effective date of the election, and increases in pay
that occur on or after that date may not be used in
computing the member's retirement pension, but cost-of-living adjustments that occur on or after that date and that
otherwise would be applicable to the pension will be made.
(e) Provides that the lump-sum component of a DROP benefit
is determined as provided by this subsection. Provides that
each month an amount equal to the monthly retirement pension
the member would have received if the member had terminated
employment on the effective date of the DROP election and an
amount equal to the monthly contributions the member makes
to the pension fund on or after the effective date of the
DROP election is credited to a notational DROP account for
the member. Provides that as of the end of each month an
amount is credited to each member's notational DROP account
at the rate of one-twelfth of a hypothetical earnings rate
on amounts in the account. Sets forth the hypothetical
earnings rate. Authorizes the board to adjust the rate
before benefits are paid from a DROP account, for the
purpose of ensuring that the implementation of the DROP does
not adversely affect the actuarial condition of the pension
fund.
(f) Provides that a member participating in the DROP who
terminates employment is entitled to receive a DROP benefit.
Authorizes a member or the member's beneficiary to revoke
the member's DROP election and to elect to receive benefits
as provided by this Act without regard to this section, if
termination of employment is because of disability or death.
Requires a revocation and election under this subsection to
be made at the time and in the manner provided by the board.
(g) Requires the board of trustees to have the authority to
take such action necessary to mitigate the unanticipated
cost, including, but not limited to, not accepting
additional elections to participate in the DROP, but the
pension system shall continue to administer the plan for the
members heretofore participating.
SECTION 2. Amends Article 6243g-3, V.T.C.S., by adding Section 15A,
as follows:
Sec. 15A. DEFERRED RETIREMENT OPTION PLAN. (a) Defines
"DROP" and "DROP benefit."
(b) Requires the board to design and approve a deferred
retirement option plan for members of the pension system.
(c) Authorizes a member who is eligible to receive a
retirement pension under this article and has at least 20
years of credited service to file with the pension system an
irrevocable election to participate in the DROP and receive
a DROP benefit instead of the standard form of pension
provided by this article. Authorizes the election to be
made only by an employee at any time after the member
accumulates the required amount of service.
(d) Provides that the monthly retirement pension component
of a DROP benefit is determined as if the member had
terminated service and begun receiving a pension on the
effective date of the DROP election. Makes a conforming
change.
(e) and (f) Make conforming changes.
(g) Prohibits the pension system from accepting additional
elections to participate in the DROP but shall continue to
administer the plan for members whose effective date of
election occurred before the date of that certification, if
the pension system's actuary certifies in writing to the
board that continuing enrollment in the DROP will likely
result in a significant actuarial loss to the fund.
SECTION 3. Emergency clause.
Effective date: upon passage.