594 S.W.3d 309
Tex.2020Background
- DROP (Deferred Retirement Option Plan) let eligible police/fire members freeze retirement benefits while continuing to work; monthly annuity payments were credited to a DROP account accumulating interest and payable later as lump sum, life annuity, or scheduled payments.
- DROP became popular and threatened pension system liquidity; the Legislature enacted H.B. 3158 (2017) to eliminate lump-sum withdrawals and require annuitization of DROP balances.
- Seven Dallas System retirees sued, claiming the elimination of the lump-sum option impaired accrued service retirement benefits in violation of Tex. Const. art. XVI, § 66(d).
- The Fifth Circuit certified two questions to the Texas Supreme Court: (1) whether the withdrawal method is a protected service retirement benefit under § 66, and (2) if so, whether annuitizing DROP funds violates § 66 by altering prior withdrawal elections.
- The Texas Supreme Court held DROP account funds (the accumulated annuity payments and interest) may be service retirement benefits protected by § 66, but the withdrawal method itself is not a protected benefit; it concluded H.B. 3158 does not violate § 66 because it does not reduce or impair the accrued dollar amounts or monthly annuity payments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether method of withdrawing DROP funds is a "service retirement benefit" protected by art. XVI § 66 | Retirees initially contended DROP-related rights are protected; but conceded at argument that the withdrawal method is not itself a protected benefit | Board argued a negative answer ends the certified inquiry | No — the withdrawal method is not itself a § 66 service-retirement benefit |
| Whether H.B. 3158’s elimination of lump-sum option and annuitization of DROP funds reduces or impairs accrued benefits under § 66(d) | Retirees argued the change retrospectively voided prior lump-sum elections and effectively reduced the value/accessibility of their accrued DROP funds | Board argued the statute does not reduce the amount credited or monthly annuity payments; it only changes distribution method for future withdrawals to preserve system solvency | No — statute does not violate § 66: accrued amounts and annuity payments are not reduced or taken back; only distribution method is changed, prospectively protecting annuities and system actuarial integrity |
Key Cases Cited
- Cox v. Robison, 150 S.W. 1149 (Tex. 1912) (courts must give effect to voters’ intent when construing the Texas Constitution)
- Leander Indep. Sch. Dist. v. Cedar Park Water Supply Corp., 479 S.W.2d 908 (Tex. 1972) (presumption that constitutional framers chose words carefully)
- Harris Cty. Hosp. Dist. v. Tomball Reg’l Hosp., 283 S.W.3d 838 (Tex. 2009) (use of historical and contextual factors in constitutional interpretation)
- City of Dallas v. Trammell, 101 S.W.2d 1009 (Tex. 1937) (held pensioners had no vested right to future installments; historical impetus for § 66)
- Van Houten v. City of Fort Worth, 827 F.3d 530 (5th Cir. 2016) (construed “benefits” in § 66 as referring to payments, protecting annuity payments but not necessarily plan formulas)
- Degan v. Bd. of Trs. of Dall. Police & Fire Pension Sys., [citation="766 F. App'x 16"] (5th Cir. 2019) (certified questions to Texas Supreme Court regarding DROP and § 66)