Arkansas Administrative Code › Agency 088 - Arkansas Teacher Retirement System › Rule 088.00.17-006 - Rule 10-3: Teacher Deferred Retirement Option Plan (T-DROP)

Current through Register Vol. 49, No. 6, June, 2024
RULE 10-3
TEACHER DEFERRED RETIREMENT OPTION PLAN (T-DROP)
A.CA §§24-7-1301 -1316
I. The ATRS Board of Trustees has the authority under A.CA. §
		  24-7-1301 to promulgate rules, Including the adoption of an interest rate by
		  resolution of the Board, for the administration of a deferred retirement option
		  plan for eligible members, called the T-DROP.
II.
DEFINITIONS
A.
DROP
means a deferred retirement option plan enacted by the
		  General Assembly and administered under ATRS or a reciprocal system.
B.
Early participant
means a
		  member who has at least twenty-eight (28) years of service with an ATRS or
		  reciprocal employer but less than thirty (30) years, and participates in T-DROP
		  under the requirements of A.CA. § 24-7-1314 and any Board rules
		  promulgated for early participants.
C
Fiscal Year
means the
		  operating year for the State of Arkansas that begins on July 1 of each calendar
		  year and ends on June 30 of the next calendar year.
D.
Participant
means a member
		  who elects to participate in T-DROP under A.CA. § 24-7-1301 et
		  seq.
E.
Plan deposits
means the deposits made to each participant's T-DROP account pursuant to A.CA.
		  § 24-7-1306.
F.
Plan
		  interest
means the rate per annum, as the Board shall set prior to the
		  beginning of the fiscal year and applies to subsequent years unless modified by
		  the Board, that is credited in each participant's T-DROP account. The Board
		  shall determine the plan interest rate based upon A.CA. §sect;
		  24-7-1307(c). AII T-DROP participants that have not retired shall receive plan
		  interest at the end of each fiscal year.
G.
Post 10-year T-DROP interest
means the rate per annum, compounded annually, as the Board shall set and adopt
		  at the end of each fiscal year, credited on June 30 to the balance of the
		  T-DROP participant's account that meets the following criteria:
i. The member participated in T-DROP for ten
		  (10) years by receiving deposits, interest, or both; and
ii. The member has not retired.
H.
Quarter
means
		  one-fourth (1/4) of a fiscal year. The four (4) quarters applicable in this
		  rule are:
1st Quarter: July 1 through September
			 30
2nd Quarter: October 1 through
			 December 31
3rd Quarter January 1 through March
			 31
4th Quarter: April 1 through June
			 30
I.
T-DROP Cash
		  Balance Account
means the financial account set up for a participant who
		  elects to defer distribution of his or her T-DROP account at a time that he or
		  she is eligible to receive a lump-sum distribution of the T-DROP
		  balance.
J.
T-DROP Cash
		  Balance Account Interest
means the interest rate per annum applicable to
		  a participant's T-DROP Cash Balance Account, compounded monthly into a
		  participant's T-DROP Cash Balance Account. The interest rates payable on the
		  T-DROP Cash Balance Accounts are set forth in this Rule in subsection VIII
		  titled
"T-DROP CASH BALANCE ACCOUNT".
K.
T-DROP Service Credit
shall
		  be determined using the same rules that apply for service credit for an active
		  member with the exception that "on call" availability shall not be used for
		  T-DROP service credit requirements.
III.
T-DROP PARTICIPATION and ACCOUNT
		  CREDIT
A. In lieu of terminating
		  employment and retiring under A.C.A. § 24-7-701, an active member of ATRS
		  may elect to participate in T-DROP and continue to work for a covered employer.
		  By continuing covered employment, the participant defers receipt of retirement
		  benefits until a later date.
B. A
		  member shall have at least thirty (30) years of credit in ATRS to participate
		  in T-DROP, or, to become an earty participant in T-DROP, at least twenty-eight
		  (28) years but less than thirty (30).
C. During participation in T-DROP, ATRS shall
		  credit each participant's T-DROP account with plan deposits and plan
		  interest.
D. The plan interest rate
		  determined by majority vote of the Board is final and binding upon ATRS and
		  shall not be adjusted based on any revised rate of return reported after that
		  date.
E. The Post 10-year-T-DROP
		  interest rate shall be set by the Board prior to the beginning of each fiscal
		  year at same meeting that the plan interest rate is set. The Post
		  10-year-T-DROP interest rate will be credited to the participant's T-DROP
		  account on June 30th of each year, or through the
		  date of retirement, whichever occurs first.
F. The Post 10-year-T-DROP interest rate for
		  each year determined by majority vote of the Board is final and binding upon
		  the ATRS and shall not be adjusted based on any revised rate of return reported
		  after that date.
IV.
		  RULES
A.
i.
The participant's T-DROP benefit will be the monthly straight
			 life annuity benefit to which the member would have been entitled had the
			 member retired under A.C.A. § 24-7-701.
ii. The participant's T-DROP benefit may be
		  reduced as set forth in these Rules and under A.C.A. § 24-7-1301
		  etseq.
iii. The T-DROP deposit
		  shall not include the additional benefit, also known as the "monthly benefit
		  stipend" provided in A.C.A. § 24-7-713.
B. Plan deposits shall be a percentage of the
		  T-DROP benefit, as follows:
i. One hundred
		  percent (100%) reduced by the product of one percent (1.0%) multiplied by the
		  number of years of contributory and noncontributory service credit, including
		  reciprocal service, and fractions thereof.
ii. For a participant whose effective date in
		  the T-DROP is before September 1, 2003, and who has more than thirty (30) years
		  of service, the years of service above thirty (30) years shall be reduced by
		  one-half of one percent (0.5%) for contributory years and three-tenths of one
		  percent (0.3%) for noncontributory years.
iii. Beginning July 1, 2001, when a
		  participant whose effective date in the T-DROP is before September 1, 2003,
		  reaches normal retirement age, the plan deposits shall be 100% with no
		  reduction.
iv. For a participant
		  whose effective date in the T-DROP is September 1, 2003, or after and who has
		  more than thirty (30) years of service, the plan deposits for the years of
		  service above thirty (30) years shall be reduced based upon the reduction
		  established at the time the participant entered T-DROP.
v. For a participant whose effective date in
		  the T-DROP is September 1, 2003, or after, and who reaches normal retirement
		  age but does not retire, the plan deposits shall continue as reduced based upon
		  the reduction established at the time the participant entered
		  T-DROP.
C. A participant
		  shall elect an annuity option provided in A.C.A. § 24-7-706 at the time
		  the participant separates from service and is granted a monthly retirement
		  benefit or files for retirement upon reaching normal retirement age.
D.
i. A
		  member's participation in T-DROP shall not exceed ten (10) consecutive calendar
		  years for accruing plan deposits; however, the Board is authorized under A.C.A.
		  § 24-7-1307 to provide for a separate deposit, called the Post 10-year
		  T-DROP interest.
ii. If a
		  participant continues covered employment after completing ten (10) years in
		  T-DROP, the T-DROP account will be credited with Post 10-year T-DROP interest
		  as set by the Board. Benefits payable at retirement will be based on the
		  account balance the month before the participant begins drawing retirement
		  benefits.
E. The annuity
		  upon which plan deposits are calculated shall receive the cost-of-living
		  increase provided for in A.C.A. § 24-7-713 or § 24-7-727. The annuity
		  plus the cost-of-living increase is reduced or adjusted under this
		  Rule.
F. If a participant elects to
		  cash out or annuitize their T-DROP account balance upon election to retire,
		  once the T-DROP account is distributed to the member, the participant shall not
		  be allowed to reenroll in T-DROP, unless the member cancels their election
		  under A.C.A. § 24-7-1302.
G.
		  As soon as possible after the end of each fiscal year, ATRS shall furnish the
		  participant an annual statement of the participant's T-DROP account. The
		  statement of T-DROP deposits and interest will not be final until the annual
		  accounting has been reconciled for part-time T-DROP participants.
H. If a participant earns service credit of
		  one hundred sixty (160) days or greater within a fiscal year and the
		  participant does not terminate employment, retire, or die during the fiscal
		  year, or the employer does not terminate the employer/employee relationship,
		  then ATRS will allow crediting of twelve (12) monthly T-DROP deposits per
		  fiscal year.
I. Part time
		  employment while participating in the T-DROP plan:
i. In the first or fourth quarter of the
		  fiscal year, five (5) or more days of service credit shall be required to
		  credit the participant's account with three (3) monthly deposits for that
		  particular quarter. If a participant receives less than five (5) days of
		  service credit in either the first or fourth quarter of the fiscal year, then
		  no T-DROP deposits shall be made in the three months for that particular
		  quarter.
ii. In the second or third
		  quarters of the fiscal year, fifteen (15) or more days of service credit shall
		  be required to credit the participant's account with three (3) monthly deposits
		  for that particular quarter. If a participant receives less than fifteen (15)
		  days of sen/ice credit in either the second or third quarter of the fiscal
		  year, then no T-DROP deposits shall be made in the three months for that
		  particular quarter.
V.
CEASING T-DROP AND DISTRIBUTION
		  OPTIONS
A. T-DROP monthly deposits
		  automatically cease when:
i. The participant
		  separates from service and is granted a monthly retirement benefit from ATRS or
		  a reciprocal plan; or
ii. The
		  participant reaches normal retirement age and retires without separation from
		  service, or
iii. The participant
		  separates from covered employment but does not apply for monthly retirement
		  benefits; or
iv. The participant
		  dies.
B. Any lump-sum
		  distribution of a participant's T-DROP account balance is eligible to be rolled
		  over into the member's qualifying retirement plan. The ATRS shall only roll
		  over the T-DROP lump sum balance into one qualifying plan.
C. A participant may direct that all or a
		  part of their lump-sum distribution as set forth in Ark. Code Ann. §
		  24-7-1308 continue to be held by ATRS in a T-DROP Cash Balance Account
		  described in this rule in the section titled
"T-DROP CASH BALANCE
		  ACCOUNT".
D. T-DROP is
		  intended to operate in accordance with Section 415 and other applicable
		  sections of the IRS Code. Any provision of the T-DROP that conflicts with an
		  applicable provision of the IRS Code is invalid.
E. If a participant separates from covered
		  employment but does not apply for monthly retirement benefits, the T-DROP
		  monthly deposit shall cease the month of separation from service. No deposits
		  will be credited to the participant's account for the duration of the
		  separation. Upon returning to covered employment, the monthly deposits will
		  resume. Upon application for retirement, benefits will be paid according to the
		  account balance at the time of separation from service or the month prior to
		  the effective date of benefits after reaching normal retirement age. Provided
		  however, if a member has not separated from covered employment and remains on
		  an employer payroll without obtaining sufficient service credit for monthly
		  deposits, the member shall remain eligible for annual interest.
F.
i. If a
		  participant leaves ATRS-covered employment to serve, on a voluntary or
		  involuntary basis, in the uniformed services of the United States and returns
		  to ATRS-covered employment, the member shall be treated as not having incurred
		  a break in service with the employer. The employer shall certify to the ATRS
		  that reemployment was in accordance with the requirements set forth in Section
		  4312 of RL. 103-353, the Uniformed Services Employment and Reemployment Act
		  (USERA) of 1994.
ii. Under this
		  subsection, uniformed services of the United States are limited to the armed
		  forces, the Army, and the Air National Guard when engaged in active duty for
		  training, inactive duty training, full-time National Guard duty, the
		  commissioned corps of the Public Health Service, and any other category of
		  persons designated by the President in time of war or emergency.
VI.
DEATH OF A
		  T-DROP PARTICIPANT PRIOR TO RETIREMENT
A. In the event a participant dies while
		  still in T-DROP, the benefits payable from the T-DROP account shall be
		  determined according to A.C.A. § 24-7-710.
B. Unless otherwise directed to an
		  alternative residual beneficiary or beneficiaries by the member, a T-DROP
		  participant's surviving spouse may choose to receive the T-DROP benefit in a
		  lump sum. If the spouse elects a lump-sum payment of the T-DROP balance, then
		  the survivor annuities payable under A.C.A. § 24-7-710 shall be calculated
		  on the service credit and salary earned by the member prior to participating in
		  T-DROP. If an alternative residual beneficiary or beneficiaries are chosen,
		  then the residue is paid as a lump sum, and no monthly annuity is
		  paid.
C. For the purposes of A.C.A.
		  § 24-7-709 related to disposition of residue, any amount received from the
		  T-DROP account, either in the form of a lump sum or annuity payments, shall be
		  considered to be annuity payments received by the member or his or her
		  designated beneficiary and shall act to reduce or eliminate the disposition of
		  residue payable under A.C.A. § 24-7-1310.
VII.
DROP PARTICIPATION UNDER
		  RECIPROCAL SYSTEMS
A. If a reciprocal
		  system offers a DROP for its members, then service credit in ATRS, a reciprocal
		  system, or the combination of service credit in the systems may be counted to
		  meet the minimum service credit requirements for participation under each
		  system's DROR
B. The benefit
		  payable by the reciprocal system shall be based on the DROP provisions of each
		  system. The final average salary used to determine plan deposits shall be that
		  of the reciprocal system which furnishes the highest final average salary at
		  the time of retirement. Each reciprocal system shall use the method of
		  computing final average salary stipulated by its law. Salaries earned in the
		  Arkansas Judicial Retirement System and alternate retirement plans shall not be
		  used in computing final average salary.
C. Plan deposits and plan interest credited
		  to the DROP account will be paid under the deferred retirement option program
		  in effect for that reciprocal system.
VIII.
T-DROP CASH BALANCE
		  ACCOUNT
A. At the time that a
		  participant may elect to receive a lump-sum distribution of all of their T-DROP
		  account balance, the participant may instead elect to defer all or a part of
		  their T-DROP account and direct that such amount be held in a T-DROP Cash
		  Balance Account for the participant. If a participant chooses to defer only
		  part of the T-DROP distribution into a T-DROP Cash Balance Account, the
		  remainder of the T-DROP distribution shall be annuitized with ATRS according to
		  the distribution options set out under A.C.A. § 24-7-1308.
B. After the T-DROP Cash Balance Account has
		  been established on the ATRS' accounting system, a participant with a T-DROP
		  Cash Balance Account balance may withdraw funds from the account two (2) times
		  per quarter on such forms as ATRS may issue. ATRS may allow the participant to
		  obtain additional withdrawals in a quarter with Executive Director approval.
		  Minimum distributions will be made sufficient to satisfy legal requirements
		  under Ark. Code Ann. § 24-7-730 and the Internal Revenue Code.
C. A T-DROP Cash Balance Account shall be
		  credited monthly with T-DROP Cash Balance Account interest, beginning the month
		  after the account is established, and debited for all withdrawals and
		  distributions.
D.
i.
The initial interest rates for participants electing to enter the
			 T-DROP Cash Balance Account program are set forth in this subsection. Members
			 establishing a T-DROP Cash Balance Account on or after July 1, 2012, shall
			 receive interest on their T-DROP Cash Balance Account according to the
			 following schedule:
After establishing a T-DROP Cash Balance Account and:
For the first fiscal year of participation:
2.00% interest.
For two (2) fiscal years:
2.25% interest.
For three (3) fiscal years:
2.50% interest.
For four (4) fiscal years:
2.75% interest.
For five (5) fiscal years:
3.00% interest.
For six (6) fiscal years:
3.25% interest.
For seven (7) fiscal years:
3.50% interest.
For eight (8) or more fiscal years:
4.00% interest.
ii.
		  These interest rates are minimum interest rates that apply to T-DROP Cash
		  Balance Accounts that are established while these rates are in effect. The
		  T-DROP Cash Balance Account interest may be increased by the ATRS Board of
		  Trustees on a forward-looking and Ad Hoc basis.
E. The interest rates set forth in subsection
		  D above and payable on T-DROP Cash Balance Accounts established on or after
		  July 1, 2012, shall remain at the initial rate set for July 1, 2012, T-DROP
		  Cash Balance Account entrants unless the ATRS Board of Trustees adopts a
		  different interest rate schedule to be used for future entrants to the T-DROP
		  Cash Balance Account at least one (1) year prior to the beginning of a fiscal
		  year in which the new interest rates shall apply. The ATRS Board of Trustees
		  may adopt an interest rate schedule for new entrants by Resolution, setting
		  forth the new interest rate schedule for the T-DROP Cash Balance Account.
		  T-DROP Cash Balance Accounts existing prior to the effective date of the
		  Resolution shall be unaffected by the new interest rate schedule.
F. When adjusting and setting rates for
		  interest on a T-DROP Cash Balance Account, the Board may consider the current
		  market conditions, competing financial offerings to members, the bank rate for
		  certificates of deposits, the status of ATRS' returns on investments, and the
		  current state of T-DROP Cash Balance Account participation. The Board may
		  periodically authorize by resolution a special ad hoc incentive payment for the
		  Cash Balance Accounts if the Board determines that payment is likely to retain
		  existing T-DROP Cash Balance Account holders and increase future participation
		  in T-DROP Cash Balance Accounts. The ad hoc increase may be set as a single
		  amount to be applied to all Cash Balance Accounts or may be computed as a
		  graduated amount based upon the length of time the Cash Balance Account has
		  been in existence.
G. If a
		  participant dies with a T-DROP Cash Balance Account, the account balance shall
		  be paid as provided under Ark. Code Ann. § 24-7-1310.
Approved:
June 13, 1995
Amended:
July 30, 1997
June 17, 2003
February 15, 2005
July 18, 2005
April 26, 2007
February 1, 2010 under emergency rules.
June 7, 2010 Permanent
July 1, 2011 (Emergency)
Adopted:
Augusts, 2011
Effective: November 11, 2011
Approved by Board:
February 6, 2012
Amended:
April 2, 2012 (Emergency)
Effective: May 29, 2012
Approved by Board:
July 26, 2013
Amended:
October 9, 2013
Effective: November 8, 2013
Approved by Board:
December 1, 2014
Amended:
May 18, 2015
Effective: June 16, 2015
Approved by Board:
October 5, 2015
Amended:
February 1, 2016
Effective: February 10, 2016
Approved by Board: February 5, 2018
Effective: