Introduced Version Senate Bill 563 History

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Senate Bill No. 563

(By Senators Foster, Edgell, Wells, McCabe and Palumbo)


[Introduced February 21, 2011; referred to the Committee on Pensions; and then to the Committee on Finance.]





A BILL to amend the Code of West Virginia, 1931, as amended, by     adding thereto a new section, designated §8-22-25a, relating     to authorizing municipalities to create deferred retirement     option plans for certain employees.

Be it enacted by the Legislature of West Virginia:

    That the Code of West Virginia, 1931, as amended, be amended

by adding thereto a new section, designated §8-22-25a, to read as follows:


§8-22-25a. Deferred Retirement Option Plans; Authorization; Requirements; Limitations.

    (a) A deferred retirement option plan is a method to encourage retention of a worker beyond normal retirement age by permitting the worker to freeze retirement benefits at a certain time prior to ceasing work, to continue to work for a specified period and to have retirement benefits which accrue while the employee continues working set aside in an account which the worker will then receive in a lump sum upon finally discontinuing work. The Legislature acknowledges that a deferred retirement option plan, or “DROP”, may be a useful and economical tool for retaining experienced and trained employees and for planning for turnovers in the workforce. Experience, however, dictates that a deferred retirement option plan may place a heavy financial burden on the employer and the affected retirement system, negating any positive benefit offered by the DROP if the DROP is not carefully planned to be economically favorable to the employer and revenue neutral for the affected retirement system while remaining attractive to the targeted employee.

    (b) (1) The governing bodies of municipalities participating in policemen’s and firemen’s pension and relief funds pursuant to sections sixteen through twenty-eight of this article, are authorized to voluntarily offer deferred retirement option plans. A participating municipality may design and establish a DROP to best meet the municipality’s needs so long as the DROP complies with federal law, the requirements set forth in this section and approved by the Municipal Pensions Oversight Board.

    (2) Prior to approval by the Municipal Pensions Oversight Board, a municipality shall submit a proposed DROP to the board for analysis by the qualified actuary retained or employed by the board. The actuary shall examine the plan and, in light of the elements of the DROP and the actuarial projections of the impact of the DROP on the affected pension and relief fund, advise the board of the anticipated impact on the Municipal Pension and Relief Fund. The board shall seek to approve only those DROP plans which, in the best judgement of the actuary, are designed to have no negative impact on the member’s pension and relief fund. The submitting municipality shall reimburse the board for actuarial costs of analyzing the plan.

    (c) To be eligible to enter a DROP plan, the member of the policemen’s or firemen’s pension and relief fund must be in active employment and an active member of his or her pension and relief fund for at least six months beyond attaining eligibility for regular retirement as provided in section twenty-five of this article and have received a satisfactory performance evaluation within the prior twelve months. The member may defer retirement for a period of not less than one nor more than five years but must complete the period by age sixty-five. The member may elect to commence participation from July 1, 2011, through June 30, 2016. Members not meeting the eligibility requirement by June 30, 2016, are not eligible to participate in the DROP.

    (d)(1) During the DROP participation period, the member shall continue with full-time employment in a covered position subject to the municipality’s requirements. A member’s retirement benefits are calculated as of the DROP participation date and a member may not accumulate additional retirement benefits during the DROP participation period. Upon beginning participation, the member is treated as retired and receiving benefits for purposes of the retirement system and for purposes of distributing premium tax proceeds through the Municipal Pensions Security Fund. During the participation period, the employer shall continue to make regular contributions to the employee’s pension and relief fund.

    (2) Benefit payments are accumulated for the member in the pension and relief fund in an accumulation account during the DROP participation period. At the end of the participation period, the amount in the accumulation account owing to the member, plus interest not to exceed three and one-half percent, shall be paid to the member in a lump sum. Monthly retirement payments shall be paid directly to the member starting in the month following the end of the DROP participation period.

    (3) A member may voluntarily terminate DROP participation early with sixty days advance notice. Deferred accumulated benefits will be paid with no interest for the DROP period and benefits payments will commence following the early termination date. Covered employment must terminate before benefit distributions may be made. Should the employer wish to terminate the employment during the participation period, the member may terminate participation with thirty days notice and the deferred accumulation balance shall be paid with interest according to the DROP design.

    (4) A member who is unable to continue working because of disability shall cease participation the first day of the month following notice of disability to the employer and the pension and relief fund. The accumulation account balance shall be paid to the member with no interest. No additional benefits are due the member on account of the disability.

    (5) In the event of death of a member during DROP participation, the accumulation account of the member through the member’s date of death is payable to the members beneficiary or beneficiaries, with interest according to DROP design.

    (6) A member entering the DROP is contractually obligated to terminate employment at the end of the DROP participation period. Failure to terminate voluntarily results in termination of employment, for cause, except that a member who continues to work with the consent of the employer past the DROP participation period shall have all benefits frozen during the extension period and no additional benefit accumulates. Regular retirement benefits will commence the month following eventual employment termination or death. The member’s accumulation account balance is frozen in value following the end of the DROP participation period.

    (e) Pursuant to section twenty-three, article one, chapter four of this code, the oversight board shall annually report to the Legislature’s Joint Committee on Pensions and Retirement on deferred retirement option plans submitted to the board for approval and the status of any DROP that has been approved, including any experienced impact on an affected pension and relief fund.




    (NOTE: The purpose of this bill is to authorize municipalities participating in municipal policemen’s and firemen’s pension and relief funds to design and implement Deferred Retirement Option Plans for fund members with approval of the Municipal Pensions Oversight Board.

    This section is new; therefore, strike-throughs and underscoring have been omitted.)

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