SB381 Alabama 2017 Session

Summary

Primary Sponsor

Shay ShelnuttSenator

Republican

Session

Regular Session 2017

Title

Retirement, Deferred Retirement Option Plan (DROP), options for Tier I and Tier II members to participate, reopened, Secs. 16-25-150, 16-25-151, 36-27-170, 36-27-171 am'd.

Summary

SB381 reopens the Deferred Retirement Option Plan (DROP) and adds new participation options for Tier I and Tier II members of Alabama's retirement systems.

What This Bill Does

The bill would reopen DROP for members of the Employees' Retirement System (ERS) and Teachers' Retirement System (TRS) and create eligibility rules for Tier I (25+ years of service, at least 55) and Tier II (25+ years, at least 62) to participate. Participants can elect to join for 3 to 5 years, and may participate only once; 80% of the monthly retirement allowance is redirected into a DROP account that earns interest. While in DROP, members continue contributing but do not receive retiree cost-of-living increases, and time in DROP does not count as regular service credit; upon withdrawal, they receive a lump-sum and begin receiving the retirement allowance, with possible rollover options and adjustments for sick leave.

Who It Affects

• Tier I members who meet the age (55) and service (25+ years) requirements and are eligible for service retirement; they would be able to participate in DROP under the new rules.
• Tier II members who meet the age (62) and service (25+ years) requirements and are eligible for service retirement; they would be able to participate in DROP under the new rules.
• Employers and the retirement systems (ERS/TRS) who manage contributions and benefit payments, since DROP participation and funding arrangements are expanded.
• Beneficiaries and estates of DROP participants, who rely on lump-sum and monthly benefit arrangements if the participant dies or retires.

Key Provisions

• Reopens DROP for ERS and TRS members and adds new participation options for Tier I and Tier II with specified eligibility requirements.
• Eligibility: Tier I must have 25+ years of service, be at least 55, and be eligible for service retirement; Tier II must have 25+ years of service, be at least 62, and be eligible for service retirement.
• Election to participate can be made in 1-year increments within a 3- to 5-year window, and participation is limited to one time; the election is irrevocable once the participation period begins.
• DROP funds: 80% of the monthly retirement allowance is deposited into a DROP account that earns the same interest rate as active member accounts; employer and employee contributions continue; DROP funds are not subject to fees.
• No cost-of-living increases during DROP; COLA resumes only after DROP ends and the retiree has received a retirement allowance for at least one full year.
• Sick leave: sick leave cannot be converted to establish retirement eligibility or used in calculating the original retirement allowance, except as permitted by DROP rules; sick leave credits may affect DROP calculations when withdrawing.
• Termination rules: voluntary termination within the first three years can forfeit the retirement allowance portion in DROP, but member contributions and associated interest are returned; involuntary termination, disability, involuntary spouse transfer, or death carry no penalty forfeiture.
• Death or disability: if a participant dies or becomes disabled, a lump-sum payment goes to a designated beneficiary or estate; potential rollover options and possible adjustments for sick leave apply; certain death benefit provisions may not apply.
• End of DROP: payments into DROP cease; withdrawal timing determines when the monthly retirement allowance resumes; time spent in DROP does not count as public retirement system service credit; if the member does not withdraw, they may resume active contributing membership without earning DROP service credit.
• Post-DROP: upon withdrawal, the member may receive an additional retirement benefit for service after DROP; this is calculated separately and cannot be combined with pre-DROP service; the option used for retirement purposes follows the original benefit.

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

Subjects

Deferred Retirement Option Plan (DROP)