TX HB3988

Allows participants in the Deferred Retirement Option Plan (DROP) for municipal police and firefighters to elect a full lump-sum distribution of their DROP account balance, including accrued interest, at any time—including at retirement—rather than only receiving annuitized payments

Removes the previous requirement that lump-sum withdrawals from DROP accounts be limited to cases of unforeseeable financial hardship

Modifies interest accrual rules so that interest on the full DROP account balance is reflected in annuitization calculations, eliminating the prior restriction that excluded interest on amounts credited after September 1, 2017

Permits pensioners under age 59½ to defer annuitization or other distribution of their DROP account to avoid early distribution tax penalties under federal tax code

Takes effect September 1, 2025, and repeals certain existing provisions related to DROP participation limitations