House Bill hb0259

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    Florida House of Representatives - 2002                 HB 259

        By Representative Brummer






  1                      A bill to be entitled

  2         An act relating to the Florida Retirement

  3         System; amending s. 121.091, F.S.; increasing

  4         the period of time which members of the system

  5         who are employed as instructional personnel in

  6         grades K-12 may participate in the DROP;

  7         providing a statement of proper and legitimate

  8         state purpose; providing a contingent effective

  9         date.

10

11  Be It Enacted by the Legislature of the State of Florida:

12

13         Section 1.  Subsection (13) of section 121.091, Florida

14  Statutes, is amended to read:

15         121.091  Benefits payable under the system.--Benefits

16  may not be paid under this section unless the member has

17  terminated employment as provided in s. 121.021(39)(a) or

18  begun participation in the Deferred Retirement Option Program

19  as provided in subsection (13), and a proper application has

20  been filed in the manner prescribed by the department. The

21  department may cancel an application for retirement benefits

22  when the member or beneficiary fails to timely provide the

23  information and documents required by this chapter and the

24  department's rules. The department shall adopt rules

25  establishing procedures for application for retirement

26  benefits and for the cancellation of such application when the

27  required information or documents are not received.

28         (13)  DEFERRED RETIREMENT OPTION PROGRAM.--In general,

29  and subject to the provisions of this section, the Deferred

30  Retirement Option Program, hereinafter referred to as the

31  DROP, is a program under which an eligible member of the

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  1  Florida  Retirement System may elect to participate, deferring

  2  receipt of retirement benefits while continuing employment

  3  with his or her Florida Retirement System employer. The

  4  deferred monthly benefits shall accrue in the System Trust

  5  Fund on behalf of the participant, plus interest compounded

  6  monthly, for the specified period of the DROP participation,

  7  as provided in paragraph (c). Upon termination of employment,

  8  the participant shall receive the total DROP benefits and

  9  begin to receive the previously determined normal retirement

10  benefits. Participation in the DROP does not guarantee

11  employment for the specified period of DROP.

12         (a)  Eligibility of member to participate in the

13  DROP.--All active Florida Retirement System members in a

14  regularly established position, and all active members of

15  either the Teachers' Retirement System established in chapter

16  238 or the State and County Officers' and Employees'

17  Retirement System established in chapter 122 which systems are

18  consolidated within the Florida Retirement System under s.

19  121.011, are eligible to elect participation in the DROP

20  provided that:

21         1.  The member is not a renewed member of the Florida

22  Retirement System under s. 121.122, or a member of the State

23  Community College System Optional Retirement Program under s.

24  121.051, the Senior Management Service Optional Annuity

25  Program under s. 121.055, or the optional retirement program

26  for the State University System under s. 121.35.

27         2.  Except as provided in subparagraph 6., election to

28  participate is made within 12 months immediately following the

29  date on which the member first reaches normal retirement date,

30  or, for a member who reaches normal retirement date based on

31  service before he or she reaches age 62, or age 55 for Special

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  1  Risk Class members, election to participate may be deferred to

  2  the 12 months immediately following the date the member

  3  attains 57, or age 52 for Special Risk Class members. For a

  4  member who first reached normal retirement date or the

  5  deferred eligibility date described above prior to the

  6  effective date of this section, election to participate shall

  7  be made within 12 months after the effective date of this

  8  section. A member who fails to make an election within such

  9  12-month limitation period shall forfeit all rights to

10  participate in the DROP. The member shall advise his or her

11  employer and the division in writing of the date on which the

12  DROP shall begin. Such beginning date may be subsequent to the

13  12-month election period, but must be within the 60-month or,

14  with respect to members who are instructional personnel in

15  grades K-12, the 96-month limitation period as provided in

16  subparagraph (b)1. When establishing eligibility of the member

17  to participate in the DROP for the 60-month or, with respect

18  to members who are instructional personnel in grades K-12, the

19  96-month maximum participation period, the member may elect to

20  include or exclude any optional service credit purchased by

21  the member from the total service used to establish the normal

22  retirement date. A member with dual normal retirement dates

23  shall be eligible to elect to participate in DROP within 12

24  months after attaining normal retirement date in either class.

25         3.  The employer of a member electing to participate in

26  the DROP, or employers if dually employed, shall acknowledge

27  in writing to the division the date the member's participation

28  in the DROP begins and the date the member's employment and

29  DROP participation will terminate.

30         4.  Simultaneous employment of a participant by

31  additional Florida Retirement System employers subsequent to

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  1  the commencement of participation in the DROP shall be

  2  permissible provided such employers acknowledge in writing a

  3  DROP termination date no later than the participant's existing

  4  termination date or the 60-month limitation period as provided

  5  in subparagraph (b)1.

  6         5.  A DROP participant may change employers while

  7  participating in the DROP, subject to the following:

  8         a.  A change of employment must take place without a

  9  break in service so that the member receives salary for each

10  month of continuous DROP participation.  If a member receives

11  no salary during a month, DROP participation shall cease

12  unless the employer verifies a continuation of the employment

13  relationship for such participant pursuant to s.

14  121.021(39)(b).

15         b.  Such participant and new employer shall notify the

16  division on forms required by the division as to the identity

17  of the new employer.

18         c.  The new employer shall acknowledge, in writing, the

19  participant's DROP termination date, which may be extended but

20  not beyond the original 60-month or, with respect to members

21  who are instructional personnel in grades K-12, the 96-month

22  period provided in subparagraph (b)1., shall acknowledge

23  liability for any additional retirement contributions and

24  interest required if the participant fails to timely terminate

25  employment, and shall be subject to the adjustment required in

26  sub-subparagraph (c)5.d.

27         6.  Effective July 1, 2001, for instructional personnel

28  as defined in s. 228.041(9)(a)-(d), election to participate in

29  the DROP shall be made at any time following the date on which

30  the member first reaches normal retirement date. The member

31  shall advise his or her employer and the division in writing

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  1  of the date on which the Deferred Retirement Option Program

  2  shall begin. When establishing eligibility of the member to

  3  participate in the DROP for the 60-month or, with respect to

  4  members who are instructional personnel in grades K-12, the

  5  96-month maximum participation period, as provided in

  6  subparagraph (b)1., the member may elect to include or exclude

  7  any optional service credit purchased by the member from the

  8  total service used to establish the normal retirement date. A

  9  member with dual normal retirement dates shall be eligible to

10  elect to participate in either class.

11         (b)  Participation in the DROP.--

12         1.  An eligible member may elect to participate in the

13  DROP for a period not to exceed a maximum of 60 calendar

14  months or, with respect to members who are instructional

15  personnel in grades K-12, a maximum of 96 calendar months

16  immediately following the date on which the member first

17  reaches his or her normal retirement date or the date to which

18  he or she is eligible to defer his or her election to

19  participate as provided in subparagraph (a)2. However, a

20  member who has reached normal retirement date prior to the

21  effective date of the DROP shall be eligible to participate in

22  the DROP for a period of time not to exceed 60 calendar months

23  or, with respect to members who are instructional personnel in

24  grades K-12, 96 calendar months immediately following the

25  effective date of the DROP, except a member of the Special

26  Risk Class who has reached normal retirement date prior to the

27  effective date of the DROP and whose total accrued value

28  exceeds 75 percent of average final compensation as of his or

29  her effective date of retirement shall be eligible to

30  participate in the DROP for no more than 36 calendar months

31  immediately following the effective date of the DROP.

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  1         2.  Upon deciding to participate in the DROP, the

  2  member shall submit, on forms required by the division:

  3         a.  A written election to participate in the DROP;

  4         b.  Selection of the DROP participation and termination

  5  dates, which satisfy the limitations stated in paragraph (a)

  6  and subparagraph 1. Such termination date shall be in a

  7  binding letter of resignation with the employer, establishing

  8  a deferred termination date. The member may change the

  9  termination date within the limitations of subparagraph 1.,

10  but only with the written approval of his or her employer;

11         c.  A properly completed DROP application for service

12  retirement as provided in this section; and

13         d.  Any other information required by the division.

14         3.  The DROP participant shall be a retiree under the

15  Florida Retirement System for all purposes, except for

16  paragraph (5)(f) and subsection (9) and ss. 112.3173, 112.363,

17  121.053, and 121.122. However, participation in the DROP does

18  not alter the participant's employment status and such

19  employee shall not be deemed retired from employment until his

20  or her deferred resignation is effective and termination

21  occurs as provided in s. 121.021(39).

22         4.  Elected officers shall be eligible to participate

23  in the DROP subject to the following:

24         a.  An elected officer who reaches normal retirement

25  date during a term of office may defer the election to

26  participate in the DROP until the next succeeding term in that

27  office. Such elected officer who exercises this option may

28  participate in the DROP for up to 60 calendar months or a

29  period of no longer than such succeeding term of office,

30  whichever is less.

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  1         b.  An elected or a nonelected participant may run for

  2  a term of office while participating in DROP and, if elected,

  3  extend the DROP termination date accordingly, except, however,

  4  if such additional term of office exceeds the 60-month or,

  5  with respect to members who are instructional personnel in

  6  grades K-12, the 96-month limitation established in

  7  subparagraph 1., and the officer does not resign from office

  8  within such 60-month limitation, the retirement and the

  9  participant's DROP shall be null and void as provided in

10  sub-subparagraph (c)5.d.

11         c.  An elected officer who is dually employed and

12  elects to participate in DROP shall be required to satisfy the

13  definition of termination within the 60-month limitation

14  period as provided in subparagraph 1. for the nonelected

15  position and may continue employment as an elected officer as

16  provided in s. 121.053. The elected officer will be enrolled

17  as a renewed member in the Elected Officers' Class or the

18  Regular Class, as provided in ss. 121.053 and 121.22, on the

19  first day of the month after termination of employment in the

20  nonelected position and termination of DROP. Distribution of

21  the DROP benefits shall be made as provided in paragraph (c).

22         d.  An elected officer who is elected or appointed to

23  an elective office is not subject to termination limitations

24  as provided in chapter 121.

25         (c)  Benefits payable under the DROP.--

26         1.  Effective with the date of DROP participation, the

27  member's initial normal monthly benefit, including creditable

28  service, optional form of payment, and average final

29  compensation, and the effective date of retirement shall be

30  fixed. The beneficiary established under the Florida

31  Retirement System shall be the beneficiary eligible to receive

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  1  any DROP benefits payable if the DROP participant dies prior

  2  to the completion of the period of DROP participation. In the

  3  event a joint annuitant predeceases the member, the member may

  4  name a beneficiary to receive accumulated DROP benefits

  5  payable. Such retirement benefit, the annual cost of living

  6  adjustments provided in s. 121.101, and interest shall accrue

  7  monthly in the System Trust Fund.  Such interest shall accrue

  8  at an effective annual rate of 6.5 percent compounded monthly,

  9  on the prior month's accumulated ending balance, up to the

10  month of termination or death.

11         2.  Each employee who elects to participate in the DROP

12  shall be allowed to elect to receive a lump-sum payment for

13  accrued annual leave earned in accordance with agency policy

14  upon beginning participation in the DROP. Such accumulated

15  leave payment certified to the division upon commencement of

16  DROP shall be included in the calculation of the member's

17  average final compensation.  The employee electing such

18  lump-sum payment upon beginning participation in DROP will not

19  be eligible to receive a second lump-sum payment upon

20  termination, except to the extent the employee has earned

21  additional annual leave which combined with the original

22  payment does not exceed the maximum lump-sum payment allowed

23  by the employing agency's policy or rules.  Such early

24  lump-sum payment shall be based on the hourly wage of the

25  employee at the time he or she begins participation in the

26  DROP.  If the member elects to wait and receive such lump-sum

27  payment upon termination of DROP and termination of employment

28  with the employer, any accumulated leave payment made at that

29  time cannot be included in the member's retirement benefit,

30  which was determined and fixed by law when the employee

31  elected to participate in the DROP.

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  1         3.  The effective date of DROP participation and the

  2  effective date of retirement of a DROP participant shall be

  3  the first day of the month selected by the member to begin

  4  participation in the DROP, provided such date is properly

  5  established, with the written confirmation of the employer,

  6  and the approval of the division, on forms required by the

  7  division.

  8         4.  Normal retirement benefits and interest thereon

  9  shall continue to accrue in the DROP until the established

10  termination date of the DROP, or until the participant

11  terminates employment or dies prior to such date. Although

12  individual DROP accounts shall not be established, a separate

13  accounting of each participant's accrued benefits under the

14  DROP shall be calculated and provided to participants.

15         5.  At the conclusion of the participant's DROP, the

16  division shall distribute the participant's total accumulated

17  DROP benefits, subject to the following provisions:

18         a.  The division shall receive verification by the

19  participant's employer or employers that such participant has

20  terminated employment as provided in s. 121.021(39)(b).

21         b.  The terminated DROP participant or, if deceased,

22  such participant's named beneficiary, shall elect on forms

23  provided by the division to receive payment of the DROP

24  benefits in accordance with one of the options listed below.

25  For a participant or beneficiary who fails to elect a method

26  of payment within 60 days of termination of the DROP, the

27  division will pay a lump sum as provided in

28  sub-sub-subparagraph (I).

29         (I)  Lump sum.--All accrued DROP benefits, plus

30  interest, less withholding taxes remitted to the Internal

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  1  Revenue Service, shall be paid to the DROP participant or

  2  surviving beneficiary.

  3         (II)  Direct rollover.--All accrued DROP benefits, plus

  4  interest, shall be paid from the DROP directly to the

  5  custodian of an eligible retirement plan as defined in s.

  6  402(c)(8)(B) of the Internal Revenue Code. However, in the

  7  case of an eligible rollover distribution to the surviving

  8  spouse of a deceased participant, an eligible retirement plan

  9  is an individual retirement account or an individual

10  retirement annuity as described in s. 402(c)(9) of the

11  Internal Revenue Code.

12         (III)  Partial lump sum.--A portion of the accrued DROP

13  benefits shall be paid to the DROP participant or surviving

14  spouse, less withholding taxes remitted to the Internal

15  Revenue Service, and the remaining DROP benefits shall be

16  transferred directly to the custodian of an eligible

17  retirement plan as defined in s. 402(c)(8)(B) of the Internal

18  Revenue Code. However, in the case of an eligible rollover

19  distribution to the surviving spouse of a deceased

20  participant, an eligible retirement plan is an individual

21  retirement account or an individual retirement annuity as

22  described in s. 402(c)(9) of the Internal Revenue Code. The

23  proportions shall be specified by the DROP participant or

24  surviving beneficiary.

25         c.  The form of payment selected by the DROP

26  participant or surviving beneficiary complies with the minimum

27  distribution requirements of the Internal Revenue Code.

28         d.  A DROP participant who fails to terminate

29  employment as defined in s. 121.021(39)(b) shall be deemed not

30  to be retired, and the DROP election shall be null and void.

31  Florida Retirement System membership shall be reestablished

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  1  retroactively to the date of the commencement of the DROP, and

  2  each employer with whom the participant continues employment

  3  shall be required to pay to the System Trust Fund the

  4  difference between the DROP contributions paid in paragraph

  5  (i) and the contributions required for the applicable Florida

  6  Retirement System class of membership during the period the

  7  member participated in the DROP, plus 6.5 percent interest

  8  compounded annually.

  9         6.  The accrued benefits of any DROP participant, and

10  any contributions accumulated under such program, shall not be

11  subject to assignment, execution, attachment, or to any legal

12  process whatsoever, except for qualified domestic relations

13  orders by a court of competent jurisdiction, income deduction

14  orders as provided in s. 61.1301, and federal income tax

15  levies.

16         7.  DROP participants shall not be eligible for

17  disability retirement benefits as provided in subsection (4).

18         (d)  Death benefits under the DROP.--

19         1.  Upon the death of a DROP participant, the named

20  beneficiary shall be entitled to apply for and receive the

21  accrued benefits in the DROP as provided in sub-subparagraph

22  (c)5.b.

23         2.  The normal retirement benefit accrued to the DROP

24  during the month of a participant's death shall be the final

25  monthly benefit credited for such DROP participant.

26         3.  Eligibility to participate in the DROP terminates

27  upon death of the participant.  If the participant dies on or

28  after the effective date of enrollment in the DROP, but prior

29  to the first monthly benefit being credited to the DROP,

30  Florida Retirement System benefits shall be paid in accordance

31  with subparagraph (7)(c)1. or subparagraph 2.

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  1         4.  A DROP participants' survivors shall not be

  2  eligible to receive Florida Retirement System death benefits

  3  as provided in paragraph (7)(d).

  4         (e)  Cost-of-living adjustment.--On each July 1, the

  5  participants' normal retirement benefit shall be increased as

  6  provided in s. 121.101.

  7         (f)  Retiree health insurance subsidy.--DROP

  8  participants are not eligible to apply for the retiree health

  9  insurance subsidy payments as provided in s. 112.363 until

10  such participants have terminated employment and participation

11  in the DROP.

12         (g)  Renewed membership.--DROP participants shall not

13  be eligible for renewed membership in the Florida Retirement

14  System under ss. 121.053 and 121.122 until termination of

15  employment is effectuated as provided in s. 121.021(39)(b).

16         (h)  Employment limitation after DROP

17  participation.--Upon satisfying the definition of termination

18  of employment as provided in s. 121.021(39)(b), DROP

19  participants shall be subject to such reemployment limitations

20  as other retirees. Reemployment restrictions applicable to

21  retirees as provided in subsection (9) shall not apply to DROP

22  participants until their employment and participation in the

23  DROP are terminated.

24         (i)  Contributions.--

25         1.  All employers paying the salary of a DROP

26  participant filling a regularly established position shall

27  contribute 11.56 percent of such participant's gross

28  compensation, which shall constitute the entire employer DROP

29  contribution with respect to such participant.  Such

30  contributions, payable to the System Trust Fund in the same

31  manner as required in s. 121.071, shall be made as appropriate

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  1  for each pay period and are in addition to contributions

  2  required for social security and the Retiree Health Insurance

  3  Subsidy Trust Fund.  Such employer, social security, and

  4  health insurance subsidy contributions are not included in the

  5  DROP.

  6         2.  The employer shall, in addition to subparagraph 1.,

  7  also withhold one-half of the entire social security

  8  contribution required for the participant.  Contributions for

  9  social security by each participant and each employer, in the

10  amount required for social security coverage as now or

11  hereafter provided by the federal Social Security Act, shall

12  be in addition to contributions specified in subparagraph 1.

13         3.  All employers paying the salary of a DROP

14  participant filling a regularly established position shall

15  contribute the percent of such participant's gross

16  compensation required in s. 121.071(4), which shall constitute

17  the employer's health insurance subsidy contribution with

18  respect to such participant. Such contributions shall be

19  deposited by the administrator in the Retiree Health Insurance

20  Subsidy Trust Fund.

21         (j)  Forfeiture of retirement benefits.--Nothing in

22  this section shall be construed to remove DROP participants

23  from the scope of s. 8(d), Art. II of the State Constitution,

24  s. 112.3173, and paragraph (5)(f). DROP participants who

25  commit a specified felony offense while employed will be

26  subject to forfeiture of all retirement benefits, including

27  DROP benefits, pursuant to those provisions of law.

28         (k)  Administration of program.--The division shall

29  make such rules as are necessary for the effective and

30  efficient administration of this subsection. The division

31  shall not be required to advise members of the federal tax

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  1  consequences of an election related to the DROP but may advise

  2  members to seek independent advice.

  3         Section 2.  The Legislature finds that a proper and

  4  legitimate state purpose is served when employees and retirees

  5  of the state and of its political subdivisions, and the

  6  dependents, survivors, and beneficiaries of such employees and

  7  retirees, are extended the basic protections afforded by

  8  governmental retirement systems that provide fair and adequate

  9  benefits and that are managed, administered, and funded in an

10  actuarially sound manner, as required by s. 14, Art. X of the

11  State Constitution and part VII of chapter 112, Florida

12  Statutes. Therefore, the Legislature hereby determines and

13  declares that the provisions of this act fulfill an important

14  state interest.

15         Section 3.  This act shall take effect July 1, 2002,

16  contingent upon the Division of Retirement's receiving a

17  favorable determination letter and a favorable private letter

18  ruling, hereinafter referred to as favorable letters, from the

19  Internal Revenue Service, as provided below prior to the end

20  of the 2002 legislative session. The division shall request

21  from the Internal Revenue Service, within 90 days after the

22  passage of this act, a written determination letter stating:

23         (1)  That the Florida Retirement System, as amended by

24  this act, continues to be a facially qualified plan.

25         (2)  That the Florida Retirement System, as amended by

26  this act, is not a "defined contribution plan" as defined in

27  ss. 414(i) and 415(k)(1) of the Internal Revenue Code, is not

28  subject to the separate limitations contained within s. 415(c)

29  and (e) of the Internal Revenue Code, and is not a "hybrid

30  plan" as defined in s. 414(k) of the Internal Revenue Code.

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  1         (3)  That the Florida Retirement System, as amended by

  2  this act, is not a "cash or deferred arrangement" within the

  3  meaning of s. 401(k) of the Internal Revenue Code.

  4         (4)  That the monthly retirement benefits paid into the

  5  DROP are not deemed to be constructive receipt of income under

  6  s. 402(a) of the Internal Revenue Code and shall not be

  7  taxable until actual distribution to the retiree.

  8

  9  The division shall notify the Speaker of the House of

10  Representatives and the President of the Senate within 30 days

11  after receipt of the favorable or unfavorable letters. If no

12  favorable letters are received by July 1, 2002, this act shall

13  take effect January 1, 2003, provided the division receives

14  the favorable letters prior to such date. In the event

15  favorable letters are not received, this act shall not take

16  effect.

17

18            *****************************************

19                          HOUSE SUMMARY

20
      Revises the provision of the DROP under the Florida
21    Retirement System to provide that members of the system
      who are instructional personnel in grades K-12 may
22    participate in DROP for 96 months rather than 60 months.
      Provides a contingent effective date. See bill for
23    details.

24

25

26

27

28

29

30

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