HB396 Alabama 2011 Session

Summary

Primary Sponsor

Craig Ford

Independent

Session

Regular Session 2011

Title

Retirement, new participation in DROP authorized, interest paid on accounts limited, Secs. 16-25-150, 36-27-170 am'd.; Act 2011-27, 2011 Reg. Sess. am'd.

Summary

HB396 would open new participation in Alabama's Deferred Retirement Option Plan (DROP) and limit the interest paid on DROP accounts.

What This Bill Does

It allows eligible retirement-system members to join DROP (with specific age, service, and earnings limits) and sets a participation window of 3 to 5 years. While in DROP, the member's retirement allowance is deposited into the DROP account, employer and employee contributions continue, and the member cannot earn service credits or take a lump-sum for sick/annual leave; at the end of the period, the member withdraws from service and begins receiving benefits from DROP. It also caps DROP account interest (tied to active-account rates but not above the two-year U.S. Treasury yield for new participants after 6/30/2011), prohibits COLA increases during DROP, and outlines procedures, forfeiture rules for early termination, and health-insurance premium implications.

Who It Affects

• Active retirement-system members who meet the eligibility criteria and choose to participate in DROP (including variations for state police and income limits).
• State employers and benefit programs (such as PEEHIP and SEIB) that administer contributions, premiums, and post-DROP insurance implications, including conditions that affect premium costs and eligibility for continuing benefits.

Key Provisions

• Allows new participation in DROP for eligible members, with age and years-of-credit requirements; state police have a different age threshold (52).
• Eligibility requires at least 25–30 years of creditable service, age around 55–57 (or 52 for state police), and earnings under $75,000 excluding cost-of-living increases.
• Election to participate can be made for 3 to 5 years, is one-time per member, and is irrevocable once participation begins (with limited exceptions).
• During DROP, the member’s retirement allowance is placed into a DROP account; service purchases are prohibited; employer and employee contributions continue; the funds stay in the overall retirement fund until disbursed.
• DROP accounts earn interest at the same rate as active member accounts, but not exceeding the two-year U.S. Treasury yield for new participants after 6/30/2011; no COLA is paid while in DROP, and COLA eligibility resumes after withdrawal and at least one year of retirement allowance.
• If a voluntary termination occurs within the first three years, a portion of the DROP retirement allowance may be forfeited (but employee contributions and any interest tied to those contributions are not forfeited); there is no forfeiture for involuntary dismissal, disability, spouse transfer, or participant death.
• Sick leave cannot be used to establish retirement eligibility or to calculate the original retirement allowance, except as provided in related sections; sick leave cannot be paid out as a lump sum until withdrawal from service.
• DROP elections must follow a uniform, nondiscriminatory process with applications due 30 to 90 days before the effective DROP date, and eligibility must be verified at the time of application.
• DROP shall not impose fees or charges on participants, and participation does not affect other rights (education, tenure, or fringe benefits).
• If the participation period ends within five years, active-member SEIB premiums may not apply; otherwise, the participant may be responsible for active-member SEIB premiums; eligibility changes at age 65 restrict continued DROP participation and SEIB rules apply as for retired participants.
• The act becomes effective on the first day of the third month after passage and gubernatorial approval.

AI-generated summary using openai/gpt-5-nano on Feb 24, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Retirement