H.F. 2123 Section 1. NEW SECTION . 97B.50B Deferred retirement option 1 plan for special service members. 2 1. For purposes of this section, unless the context 3 otherwise requires: 4 a. “Applicable percentage” means that percentage, not 5 greater than one hundred percentage points, equal to fifty-two 6 percentage points plus two percentage points for each month for 7 the period between the eligible member’s plan eligibility month 8 and the month the eligible member commences membership in the 9 plan. 10 b. “Drop benefit” means, for a participant, an amount 11 credited to the participant’s account each applicable month 12 equal to the member’s applicable percentage multiplied by the 13 member’s participant retirement amount. 14 c. “Eligible member” means a member, as defined in section 15 97B.50A, who has attained fifty-five years of age with at least 16 twenty-two years of membership service. 17 d. “Participant account” means an administrative record 18 maintained by the system reflecting the participant’s 19 accumulated drop benefit. 20 e. “Participant retirement amount” means the amount equal to 21 the monthly retirement allowance the eligible member would have 22 received under section 97B.49B or 97B.49C, as applicable, if 23 the member retired on the date the eligible member commenced 24 participation in the plan, based on earnings through the 25 previous full quarter of covered wages earned by the member. 26 f. “Plan” means the deferred retirement option plan 27 established by this section. 28 g. “Plan eligibility month” means the first full calendar 29 month in which the participant is an eligible member. 30 2. a. An eligible member may elect to participate in the 31 deferred retirement option plan as provided in this section. 32 A decision by an eligible member to participate in the plan 33 is irrevocable. Upon commencing membership in the plan, the 34 member shall remain an active member of the system and shall 35 -1- LSB 5453YH (4) 90 jm/ns 1/ 5

H.F. 2123 have credited to a participant account on behalf of the member 1 from the retirement fund for each month the member participates 2 in the plan the member’s drop benefit. The amounts credited 3 shall be invested by the system in risk-free assets of a 4 short-term nature and interest and earnings shall not be 5 credited to the member’s participant account but shall remain 6 with the retirement fund established in section 97B.7. 7 b. Upon termination of an eligible member’s participation 8 in the plan, the eligible member shall be deemed to be retired 9 under the system as of that date for purposes of the system 10 and shall begin receiving a retirement allowance equal to 11 the member’s participant retirement amount or such optional 12 retirement benefits, based upon that amount, pursuant to 13 section 97B.51. In addition, the eligible member shall receive 14 the moneys credited to the member’s participant account while 15 participating in the plan. The eligible member shall select, 16 upon written application to the system, whether to receive 17 the amount in the member’s participant account in the form 18 of a lump sum distribution or as a rollover to an eligible 19 retirement plan as defined in section 97B.53B. 20 c. If an eligible member terminates participation in the 21 plan prior to the date selected by the member upon commencing 22 membership in the plan and the termination is not due to the 23 death or disability of the member under this chapter, then 24 the system shall assess a twenty-five percent penalty on the 25 amount credited to the member’s participant account prior to 26 distributing the amount to the member. The penalty amount 27 shall be transferred to and remain with the retirement fund. 28 3. To participate in the plan, an eligible member shall 29 make written application to the system. The application shall 30 include the following: 31 a. The month the eligible member intends to commence 32 participation in the plan. 33 b. The eligible member’s selection of a plan termination 34 date. The plan termination date shall be either three, 35 -2- LSB 5453YH (4) 90 jm/ns 2/ 5

H.F. 2123 four, or five years after the date the eligible member 1 commences membership in the plan. However, for the two-year 2 period beginning with the first of the month following the 3 implementation date of this section, an eligible member between 4 sixty-two and sixty-four years of age may also select a plan 5 termination date that is one or two years after the date the 6 eligible member commences membership in the plan. 7 4. Upon participation in the plan by an eligible member, if 8 the eligible member is a manager or supervisor, the eligible 9 member shall return to the highest rank or position the manager 10 or supervisor held prior to becoming a manager or supervisor. 11 5. Participation in the plan by an eligible member does not 12 guarantee continued employment. Contributions required from 13 members and participating cities shall continue based on the 14 earnable compensation of an eligible member participating in 15 the plan. However, contributions made while an eligible member 16 participates in the plan shall remain with the retirement fund 17 and shall not be subject to a refund of contributions under 18 section 97B.53. 19 6. The system’s actuary, while making the annual valuation 20 of the assets and liabilities of the retirement system, shall 21 determine whether establishment and operation of the plan 22 created in this section has resulted in an increased actuarial 23 cost to the system. If the actuary determines that the plan 24 has resulted in an increased actuarial cost to the system, 25 then, notwithstanding any provision of section 97B.11 to the 26 contrary, the system shall increase the members’ contribution 27 rate as necessary to cover the increased cost of the plan 28 created in this section. 29 EXPLANATION 30 The inclusion of this explanation does not constitute agreement with 31 the explanation’s substance by the members of the general assembly. 32 This bill concerns special service members of the Iowa 33 public employees’ retirement system (IPERS) created in Code 34 chapter 97B. 35 -3- LSB 5453YH (4) 90 jm/ns 3/ 5

H.F. 2123 New Code section 97B.50B establishes a deferred retirement 1 option plan (DROP) for special service members of IPERS. 2 The new Code section provides that special service members 3 of IPERS who are at least 55 years of age and have at least 4 22 years of service are eligible to participate in the DROP 5 plan. The DROP plan provides that an eligible member can delay 6 retirement, continue working for a set number of additional 7 years, and have a portion of the retirement allowance they 8 otherwise would have received if they had retired instead of 9 participating in the DROP plan deposited in an account that is 10 then distributed to them when they eventually retire. However, 11 the member’s retirement allowance is set at the time the member 12 enters the DROP plan. 13 Prior to participating in the DROP plan, a member shall 14 submit an application to the system indicating when they intend 15 to start participation in the DROP plan and when they intend 16 to terminate their participation in the plan and retire. The 17 bill permits an eligible member to elect to participate in the 18 DROP plan for three, four, or five years. However, for the 19 two-year period beginning on the implementation date of this 20 Code section, an eligible member between the ages of 62 and 64 21 can elect to participate in the DROP plan and terminate their 22 participation in one or two years. 23 If an eligible person who participates in the DROP plan 24 is a manager or supervisor, the bill requires the manager 25 or supervisor to return to the highest rank or position the 26 manager or supervisor held prior to becoming a manager or 27 supervisor. 28 Upon electing to participate in the DROP plan, the eligible 29 member continues to work but has a portion of the retirement 30 allowance they would have received if they had decided to 31 retire credited to an account. The amount credited is equal 32 to a percentage of the retirement allowance they would have 33 received. The percentage rate is determined by starting with 34 52 percent and adding 2 percent per month, up to a maximum of 35 -4- LSB 5453YH (4) 90 jm/ns 4/ 5

H.F. 2123 100 percent, based upon the number of months between the month 1 the member first became eligible to participate in the DROP 2 plan and the month the member actually participates. The bill 3 provides that the amount deposited in the member’s account does 4 not accrue interest or dividends. Upon termination from the 5 DROP plan, the eligible member begins to receive a retirement 6 allowance based upon the amount the member would have received 7 when the member commenced participation in the DROP plan plus 8 the amount in the member’s account. If the member terminates 9 participation in the plan prior to the date set by the member 10 and the termination is not due to the member’s death or 11 disability, IPERS shall withhold 25 percent of the amount in 12 the account as a penalty. The bill provides that participation 13 in the DROP plan does not guarantee continued employment. 14 The new Code section also provides that if the IPERS actuary 15 determines that the DROP plan has increased the actuarial cost 16 of the system, the contribution rate paid by special service 17 members shall be increased to cover this increased cost. 18 -5- LSB 5453YH (4) 90 jm/ns 5/ 5