An ordinance amending Title 3 of the Metropolitan Code of laws relative to employee benefits in order to add a deferred retirement option program ("DROP") to the retirement plan.

WHEREAS, the Metropolitan Government desires to offer to employees an option within the retirement program that will permit an employee to better plan for his or her transition to retirement; and

WHEREAS, the Metropolitan Government having considered several alternatives for accomplishing the purpose of providing employees a retirement planning option has decided to amend the retirement plan in order to add a deferred option retirement program ("DROP"); and

WHEREAS, the Metropolitan Government has received an actuarial determination that the DROP as set forth in this ordinance will not have a detrimental effect on the soundness of the design of the employee benefit system and will not increase the cost of the system of employee benefits; and

WHEREAS, the Employee Benefit Board has approved the DROP as set forth in this ordinance.


Section 1. Chapter 3.40 is hereby amended by adding the following Section 3.40.035.

3.40.035 Deferred Retirement Option Plan for Members of Division A and B (“DROP”).

A.Eligible members shall be entitled to elect a deferred retirement option plan ("DROP") as an additional optional benefit. Members electing a DROP benefit shall be entitled to receive a lump sum payment equal to the monthly benefit amount the member would be eligible to receive at retirement (calculated prior to any actuarial reductions for other retirement options elected) multiplied by the number of months in the DROP period elected. Members may elect a one, two or three year DROP period. A member electing a DROP benefit shall then have his monthly periodic pension benefit determined by reducing the pension benefit that would otherwise be payable by an annuity that is the actuarial equivalent of the DROP lump sum elected. The monthly periodic pension payments (after actuarial equivalent reduction) shall be payable as pension benefits are otherwise payable under the system, including optional benefit elections pursuant to Sections 3.40.020 and 3.40.030 of this Chapter.

B. Only a member of Division A or B that is eligible for normal retirement under Sections 3.32.020, 3.33.020, 3.36.020 and 3.37.020 and has accumulated twenty-five (25) or more years of combined credited employee service and/or credited fire and police service shall be eligible to participate in the DROP. Early retirees and employees who terminate with a vested benefit prior to eligibility to immediately receive a normal retirement benefit shall not be eligible to make a DROP election. DROP elections shall be made for whole year periods only and may not be made for a period that exceeds three years. The election shall be made at the time of retirement and prior to commencement of benefits.

C. A DROP election shall not be available to a member whose termination of service occurs because of disability.

D. A DROP election shall not be available to the beneficiary of a member who has separated from service as a result of death.

E. A DROP election shall not be available to any former employee who has commenced receiving benefits from the plan prior to the effective date of this ordinance.

F. The DROP payment elected shall be paid as soon as practicable after the retirement of the member. Election of a DROP payment shall be subject to the approval of the board and shall be made by the member in writing and in such manner and form as the board may prescribe.

G. Actuarial equivalence for the purpose of determining a member's annuity reduction resulting from a DROP election shall be based upon the age of the member, the DROP lump sum payment amount elected, and the actuarial assumptions that are in use for this purpose by the Plan at the time of the DROP election. The actuarial assumptions to be used on the effective date of this Section shall be based on recommendations of the first plan experience study conducted after June 30, 1997 without regard to actual adoption by the board.

Actuarial assumptions used in the preceding section for the purpose of determining actuarial equivalence between lump sum payments and related annuity reductions may be changed periodically to ensure currency. Assumptions include mortality tables; interest rates and future cost of living increase rates. The actuarial assumptions will be based on recommendations from the most recent actuarial experience study conducted for the plan without regard to actual adoption by the board. Revised assumptions used in periods subsequent to the implementation of the initial assumptions used on the effective date will be effective as of the first July 1 date following the later of (1) the ending date of the period examined in the most recent experience study, or (2) the date the most recent experience study is formally presented to the board.

Actuarial assumptions may differ for Divisions A and B due to differences in future expectations.

Provided however that the interest rate used for the purpose of determining actuarial equivalence between lump sum payments and related annuity reductions will be no less than interest rate specified by Internal Revenue Code section 417(e)(3)(A)(ii)(II) for the measurement date that is four months prior to the first day of the plan year in which the benefit commencement date occurs.

H. Payments made to a member as a result of a DROP election shall be treated as a refund of member contributions for purposes of determining benefits payable to a beneficiary as a result of the death of the member.

I. Any other provisions of this Title notwithstanding, no member shall acquire a vested right to a DROP benefit until such member’s application for a DROP benefit is approved by the board. DROP benefits may be discontinued or modified as to any member until such member’s application is approved by the board..

J. A member may not elect a DROP payment period that results in a lump sum payment that exceeds the actuarially equivalent value of the member’s retirement benefit.

Section 2. No member shall be permitted to apply for or receive a DROP benefit until and unless the Employee Benefit Board adopts a resolution certifying that the necessary infrastructure and resources are in place to adequately administer the DROP benefit.

Section 3. This Ordinance shall take effect from and after its passage, the welfare of the Metropolitan Government of Nashville and Davidson County requiring it.

Sponsored by: Ludye Wallace, Craig Jenkins, Tony Derryberry


Introduced: November 7, 2002
Passed First Reading: November 7, 2002
Referred to: Budget & Finance Committee
Personnel Committee
Passed Second Reading: November 19, 2002
Passed Third Reading: December 3, 2002
Approved: December 9, 2002
By: Bill Purcell