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.