Arkansas Administrative Code › Agency 088 - Arkansas Teacher Retirement System › Rule 088.00.14-001 - 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.C.A. §§ 24-7-1301 - 1316
I. The ATRS Board of Trustees has the
		  authority under A.C.A. § 24-7-1301 to promulgate rules 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 28 years of
		  service with an ATRS or reciprocal employer but less than 30 years, and
		  participates in T-DROP under the requirements of A.C.A. § 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.C.A. § 24-7-1301 et
		  seq.
E.
Plan deposits
means the deposits made to each participant's T-DROP account pursuant to A.C.A.
		  § 24-7-1306.
F.
Plan
		  interest
means the rate per annum, compounded annually on June 30, as
		  the Board shall set and adopt at the end of each fiscal year, credited annually
		  in each participant's T-DROP account. The interest rate shall be 2% less than
		  ATRS' average rate of return with a maximum of 6% and minimum of 2%. The Board
		  will determine the interest rate for the following fiscal year based upon the
		  rate of return for the immediately preceding twelve-month period ending March
		  31 prior to the start of such fiscal year. The initial calculation of this rate
		  shall begin March 31, 2005, for interest to be credited in the 2005-2006 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 and continued employment with an ATRS covered employer;
		  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 annually and credited
		  on June 30 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 4 of the section titled "
T-DROP CASH BALANCE ACCOUNT".
The annual T-DROP Cash Balance Account interest rate shall be applied to
		  T-DROP Cash Balance Accounts that have been held for at least one (1) fiscal
		  year by ATRS.
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 30 years of
		  credit in ATRS to participate in T-DROP, or, to become an early participant in
		  T-DROP, at least 28 years but less than 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 at same meeting that the plan interest
		  rate is set. The 10-year plus T-DROP interest rate is limited to a maximum of
		  six percent (6%) and a minimum of four percent (4%). The Post 10-year T-DROP
		  interest rate will be credited to the participant's T-DROP account on June
		  30th of each year.
F. The initial Post 10-year T-DROP interest
		  rate for 2010 is set at four percent (4%) and will be credited to the
		  participant's T-DROP account on June 30, 2010. The Post 10-year T-DROP interest
		  rate shall be set prospectively by the Board prior to the beginning of each
		  fiscal year and that interest rate shall be credited to the participant's
		  T-DROP account June 30th of the following
		  year.
G. 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 in these Rules and under A.C.A. § 24-7-1301 et
		  seq.
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.
A. 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.
B. 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
		  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 service 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. Participation in T-DROP
		  ceases 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 a 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 his or her 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. The 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. 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 P.L.103-353, the
		  Uniformed Services Employment and Reemployment Act (USERA) of 1994.
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. 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.
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 DROP.
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 his or her
		  T-DROP account balance, the participant may instead elect to defer all or a
		  part of his or her 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 one time per quarter on such forms as ATRS may issue. ATRS may
		  allow the participant to obtain an additional withdrawal in a quarter for a
		  manifest emergency. 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. 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.
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
		  4 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 through
		  resolution may periodically authorize 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:
August 8, 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