H.B. No. 3988 amends provisions related to the Deferred Retirement Option Plan (DROP) benefits for police and firefighters in certain municipalities in Texas. Key changes include allowing DROP participants to elect to receive their account balance, including interest, as a full lump-sum distribution at any time, including upon retirement. The bill also clarifies that the annuitization of DROP accounts must reflect interest accrual and allows for the assignment of annuity distributions to third parties, contingent upon receiving a favorable ruling from the IRS. Additionally, it establishes that a member or pensioner can designate a beneficiary for their DROP account, with specific rules regarding spousal designations and the impact of divorce on beneficiary status.

The bill also modifies the rules for pensioners under 59-1/2 years of age, allowing them to continue participating in DROP and deferring annuitization until they reach that age. Once they do, their DROP account balance must be annuitized and distributed in accordance with the amended provisions. The act is set to take effect on September 1, 2025, and repeals certain existing sections that are no longer applicable.