House Bill hb0259c2

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    Florida House of Representatives - 2002           CS/CS/HB 259

        By the Fiscal Responsibility Council and Committee on
    State Administration and Representatives Brummer, Cantens,
    Kilmer, Diaz de la Portilla, Barreiro, Andrews, Bilirakis,
    Arza, Flanagan, Brown, Littlefield, Crow, Fiorentino,
    Richardson, Atwater, Mayfield, Pickens, Rubio, Garcia and Lynn


  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; requiring the Division of

  9         Retirement to request a determination letter

10         and a private letter ruling from the Internal

11         Revenue Service; providing a contingent

12         effective date.

13

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

15

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

17  Statutes, is amended to read:

18         121.091  Benefits payable under the system.--Benefits

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

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

21  begun participation in the Deferred Retirement Option Program

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

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

24  department may cancel an application for retirement benefits

25  when the member or beneficiary fails to timely provide the

26  information and documents required by this chapter and the

27  department's rules. The department shall adopt rules

28  establishing procedures for application for retirement

29  benefits and for the cancellation of such application when the

30  required information or documents are not received.

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

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

  3  Retirement Option Program, hereinafter referred to as the

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

  5  Florida Retirement System may elect to participate, deferring

  6  receipt of retirement benefits while continuing employment

  7  with his or her Florida Retirement System employer. The

  8  deferred monthly benefits shall accrue in the System Trust

  9  Fund on behalf of the participant, plus interest compounded

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

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

12  the participant shall receive the total DROP benefits and

13  begin to receive the previously determined normal retirement

14  benefits. Participation in the DROP does not guarantee

15  employment for the specified period of DROP.

16         (a)  Eligibility of member to participate in the

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

18  regularly established position, and all active members of

19  either the Teachers' Retirement System established in chapter

20  238 or the State and County Officers' and Employees'

21  Retirement System established in chapter 122 which systems are

22  consolidated within the Florida Retirement System under s.

23  121.011, are eligible to elect participation in the DROP

24  provided that:

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

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

27  Community College System Optional Retirement Program under s.

28  121.051, the Senior Management Service Optional Annuity

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

30  for the State University System under s. 121.35.

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

  2  participate is made within 12 months immediately following the

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

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

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

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

  7  the 12 months immediately following the date the member

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

  9  member who first reached normal retirement date or the

10  deferred eligibility date described above prior to the

11  effective date of this section, election to participate shall

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

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

14  12-month limitation period shall forfeit all rights to

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

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

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

18  12-month election period, but must be within the 60-month or,

19  with respect to members who are instructional personnel, as

20  defined in s. 228.041(9)(a)-(d), in grades K-12, the 96-month

21  limitation period as provided in subparagraph (b)1. When

22  establishing eligibility of the member to participate in the

23  DROP for the 60-month or, with respect to members who are

24  instructional personnel, as defined in s. 228.041(9)(a)-(d),

25  in grades K-12, the 96-month maximum participation period, the

26  member may elect to include or exclude any optional service

27  credit purchased by the member from the total service used to

28  establish the normal retirement date. A member with dual

29  normal retirement dates shall be eligible to elect to

30  participate in DROP within 12 months after attaining normal

31  retirement date in either class.

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

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

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

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

  5  DROP participation will terminate.

  6         4.  Simultaneous employment of a participant by

  7  additional Florida Retirement System employers subsequent to

  8  the commencement of participation in the DROP shall be

  9  permissible provided such employers acknowledge in writing a

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

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

12  in subparagraph (b)1.

13         5.  A DROP participant may change employers while

14  participating in the DROP, subject to the following:

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

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

17  month of continuous DROP participation.  If a member receives

18  no salary during a month, DROP participation shall cease

19  unless the employer verifies a continuation of the employment

20  relationship for such participant pursuant to s.

21  121.021(39)(b).

22         b.  Such participant and new employer shall notify the

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

24  of the new employer.

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

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

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

28  who are instructional personnel, as defined in s.

29  228.041(9)(a)-(d), in grades K-12, the 96-month period

30  provided in subparagraph (b)1., shall acknowledge liability

31  for any additional retirement contributions and interest

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  1  required if the participant fails to timely terminate

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

  3  sub-subparagraph (c)5.d.

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

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

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

  7  the member first reaches normal retirement date. The member

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

  9  of the date on which the Deferred Retirement Option Program

10  shall begin. When establishing eligibility of the member to

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

12  members who are instructional personnel, as defined in s.

13  228.041(9)(a)-(d), in grades K-12, the 96-month maximum

14  participation period, as provided in subparagraph (b)1., the

15  member may elect to include or exclude any optional service

16  credit purchased by the member from the total service used to

17  establish the normal retirement date. A member with dual

18  normal retirement dates shall be eligible to elect to

19  participate in either class.

20         (b)  Participation in the DROP.--

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

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

23  months or, with respect to members who are instructional

24  personnel, as defined in s. 228.041(9)(a)-(d), in grades K-12,

25  a maximum of 96 calendar months immediately following the date

26  on which the member first reaches his or her normal retirement

27  date or the date to which he or she is eligible to defer his

28  or her election to participate as provided in subparagraph

29  (a)2. However, a member who has reached normal retirement date

30  prior to the effective date of the DROP shall be eligible to

31  participate in the DROP for a period of time not to exceed 60

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  1  calendar months or, with respect to members who are

  2  instructional personnel, as defined in s. 228.041(9)(a)-(d),

  3  in grades K-12, 96 calendar months immediately following the

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

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

  6  effective date of the DROP and whose total accrued value

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

  8  her effective date of retirement shall be eligible to

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

10  immediately following the effective date of the DROP.

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

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

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

14         b.  Selection of the DROP participation and termination

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

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

17  binding letter of resignation with the employer, establishing

18  a deferred termination date. The member may change the

19  termination date within the limitations of subparagraph 1.,

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

21         c.  A properly completed DROP application for service

22  retirement as provided in this section; and

23         d.  Any other information required by the division.

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

25  Florida Retirement System for all purposes, except for

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

27  121.053, and 121.122. However, participation in the DROP does

28  not alter the participant's employment status and such

29  employee shall not be deemed retired from employment until his

30  or her deferred resignation is effective and termination

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

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  1         4.  Elected officers shall be eligible to participate

  2  in the DROP subject to the following:

  3         a.  An elected officer who reaches normal retirement

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

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

  6  office. Such elected officer who exercises this option may

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

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

  9  whichever is less.

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

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

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

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

14  with respect to members who are instructional personnel, as

15  defined in s. 228.041(9)(a)-(d), in grades K-12, the 96-month

16  limitation established in subparagraph 1., and the officer

17  does not resign from office within such 60-month limitation,

18  the retirement and the participant's DROP shall be null and

19  void as provided in sub-subparagraph (c)5.d.

20         c.  An elected officer who is dually employed and

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

22  definition of termination within the 60-month limitation

23  period as provided in subparagraph 1. for the nonelected

24  position and may continue employment as an elected officer as

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

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

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

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

29  nonelected position and termination of DROP. Distribution of

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

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

  2  an elective office is not subject to termination limitations

  3  as provided in chapter 121.

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

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

  6  member's initial normal monthly benefit, including creditable

  7  service, optional form of payment, and average final

  8  compensation, and the effective date of retirement shall be

  9  fixed. The beneficiary established under the Florida

10  Retirement System shall be the beneficiary eligible to receive

11  any DROP benefits payable if the DROP participant dies prior

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

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

14  name a beneficiary to receive accumulated DROP benefits

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

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

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

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

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

20  month of termination or death.

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

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

23  accrued annual leave earned in accordance with agency policy

24  upon beginning participation in the DROP. Such accumulated

25  leave payment certified to the division upon commencement of

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

27  average final compensation.  The employee electing such

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

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

30  termination, except to the extent the employee has earned

31  additional annual leave which combined with the original

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

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

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

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

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

  6  payment upon termination of DROP and termination of employment

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

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

  9  which was determined and fixed by law when the employee

10  elected to participate in the DROP.

11         3.  The effective date of DROP participation and the

12  effective date of retirement of a DROP participant shall be

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

14  participation in the DROP, provided such date is properly

15  established, with the written confirmation of the employer,

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

17  division.

18         4.  Normal retirement benefits and interest thereon

19  shall continue to accrue in the DROP until the established

20  termination date of the DROP, or until the participant

21  terminates employment or dies prior to such date. Although

22  individual DROP accounts shall not be established, a separate

23  accounting of each participant's accrued benefits under the

24  DROP shall be calculated and provided to participants.

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

26  division shall distribute the participant's total accumulated

27  DROP benefits, subject to the following provisions:

28         a.  The division shall receive verification by the

29  participant's employer or employers that such participant has

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

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

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

  3  provided by the division to receive payment of the DROP

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

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

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

  7  division will pay a lump sum as provided in

  8  sub-sub-subparagraph (I).

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

10  interest, less withholding taxes remitted to the Internal

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

12  surviving beneficiary.

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

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

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

16  402(c)(8)(B) of the Internal Revenue Code. However, in the

17  case of an eligible rollover distribution to the surviving

18  spouse of a deceased participant, an eligible retirement plan

19  is an individual retirement account or an individual

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

21  Internal Revenue Code.

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

23  benefits shall be paid to the DROP participant or surviving

24  spouse, less withholding taxes remitted to the Internal

25  Revenue Service, and the remaining DROP benefits shall be

26  transferred directly to the custodian of an eligible

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

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

29  distribution to the surviving spouse of a deceased

30  participant, an eligible retirement plan is an individual

31  retirement account or an individual retirement annuity as

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

  2  proportions shall be specified by the DROP participant or

  3  surviving beneficiary.

  4         c.  The form of payment selected by the DROP

  5  participant or surviving beneficiary complies with the minimum

  6  distribution requirements of the Internal Revenue Code.

  7         d.  A DROP participant who fails to terminate

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

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

10  Florida Retirement System membership shall be reestablished

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

12  each employer with whom the participant continues employment

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

14  difference between the DROP contributions paid in paragraph

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

16  Retirement System class of membership during the period the

17  member participated in the DROP, plus 6.5 percent interest

18  compounded annually.

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

20  any contributions accumulated under such program, shall not be

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

22  process whatsoever, except for qualified domestic relations

23  orders by a court of competent jurisdiction, income deduction

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

25  levies.

26         7.  DROP participants shall not be eligible for

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

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

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

30  beneficiary shall be entitled to apply for and receive the

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

  2  (c)5.b.

  3         2.  The normal retirement benefit accrued to the DROP

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

  5  monthly benefit credited for such DROP participant.

  6         3.  Eligibility to participate in the DROP terminates

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

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

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

10  Florida Retirement System benefits shall be paid in accordance

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

12         4.  A DROP participants' survivors shall not be

13  eligible to receive Florida Retirement System death benefits

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

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

16  participants' normal retirement benefit shall be increased as

17  provided in s. 121.101.

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

19  participants are not eligible to apply for the retiree health

20  insurance subsidy payments as provided in s. 112.363 until

21  such participants have terminated employment and participation

22  in the DROP.

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

24  be eligible for renewed membership in the Florida Retirement

25  System under ss. 121.053 and 121.122 until termination of

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

27         (h)  Employment limitation after DROP

28  participation.--Upon satisfying the definition of termination

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

30  participants shall be subject to such reemployment limitations

31  as other retirees. Reemployment restrictions applicable to

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

  2  participants until their employment and participation in the

  3  DROP are terminated.

  4         (i)  Contributions.--

  5         1.  All employers paying the salary of a DROP

  6  participant filling a regularly established position shall

  7  contribute 11.56 percent of such participant's gross

  8  compensation, which shall constitute the entire employer DROP

  9  contribution with respect to such participant.  Such

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

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

12  for each pay period and are in addition to contributions

13  required for social security and the Retiree Health Insurance

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

15  health insurance subsidy contributions are not included in the

16  DROP.

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

18  also withhold one-half of the entire social security

19  contribution required for the participant.  Contributions for

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

21  amount required for social security coverage as now or

22  hereafter provided by the federal Social Security Act, shall

23  be in addition to contributions specified in subparagraph 1.

24         3.  All employers paying the salary of a DROP

25  participant filling a regularly established position shall

26  contribute the percent of such participant's gross

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

28  the employer's health insurance subsidy contribution with

29  respect to such participant. Such contributions shall be

30  deposited by the administrator in the Retiree Health Insurance

31  Subsidy Trust Fund.

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

  2  this section shall be construed to remove DROP participants

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

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

  5  commit a specified felony offense while employed will be

  6  subject to forfeiture of all retirement benefits, including

  7  DROP benefits, pursuant to those provisions of law.

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

  9  make such rules as are necessary for the effective and

10  efficient administration of this subsection. The division

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

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

13  members to seek independent advice.

14         Section 2.  The Legislature finds that a proper and

15  legitimate state purpose is served when employees and retirees

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

17  dependents, survivors, and beneficiaries of such employees and

18  retirees, are extended the basic protections afforded by

19  governmental retirement systems that provide fair and adequate

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

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

22  State Constitution and part VII of chapter 112, Florida

23  Statutes. Therefore, the Legislature hereby determines and

24  declares that the provisions of this act fulfill an important

25  state interest.

26         Section 3.  Within 45 days after this act becomes a

27  law, the Division of Retirement of the Department of

28  Management Services shall request from the Internal Revenue

29  Service a written determination letter that the Florida

30  Retirement System, as amended by this act, remains a facially

31  qualified plan, and a private letter ruling regarding

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  1  continued tax exempt status of retirement contributions for

  2  DROP participants and the payment of monthly retirement

  3  benefits paid into DROP.  If the Internal Revenue Service

  4  refuses to act upon a request for a private letter ruling,

  5  then a favorable legal opinion from a qualified tax attorney

  6  or firm may be substituted for such private letter ruling.

  7  The division shall notify the Speaker of the House of

  8  Representatives and the President of the Senate within 15 days

  9  after receipt of the favorable or unfavorable letters or

10  opinions.

11         Section 4.  Except as otherwise provided herein, this

12  act shall take effect July 1, 2002, contingent upon the

13  Division of Retirement's receipt of favorable letters or

14  opinions as specified in section 3 of this act.  If no

15  favorable letters or opinions are received by July 1, 2002,

16  this act shall take effect January 1, 2003, provided the

17  division receives the favorable letters or opinions prior to

18  such date.  In the event favorable letters or opinions are not

19  received, this act shall not take effect.

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