OPTIONAL SERVICE RETIREMENT ANNUITY.

(a) Instead of the standard service retirement annuity payable under Section 854.103, a retiring member may elect to receive an optional service retirement annuity under this section.

(b) An optional service retirement annuity is payable throughout the life of the retiree and is actuarially adjusted from the standard service retirement annuity to its actuarial equivalent under the option selected under Subsection (c).

(c) An eligible person may select an optional annuity that provides that:

(1) after the retiree's death, the reduced annuity is payable throughout the life of a person designated by the retiree;

(2) after the retiree's death, one-half of the reduced annuity is payable throughout the life of a person designated by the retiree;

(3) if the retiree dies before 120 monthly annuity payments have been made, the remainder of the 120 payments are payable to the retiree's beneficiary or, if one does not exist, to the retiree's estate;

(4) if the retiree dies before 180 monthly annuity payments have been made, the remainder of the 180 payments are payable to the retiree's beneficiary or, if one does not exist, to the retiree's estate;

(5) after the retiree's death, three-fourths of the reduced annuity is payable throughout the life of a person designated by the retiree; or

(6) if the retiree dies before 60 monthly payments have been made, the remainder of the 60 payments are payable to the retiree's beneficiary or, if one does not exist, to the retiree's estate.

(d) An option under Subsection (c) applies to both prior and current service annuities, except that prior service annuities are subject to reduction under Section 855.308(f).

(e) To select an optional service retirement annuity, a member or retiree must make the selection and designate a beneficiary on a form prescribed by and filed with the board of trustees before the 31st day after the effective date of retirement.

(f) Notwithstanding any other provision of this subtitle, each distribution to any person or estate under this subtitle must be made in accordance with Section 401(a)(9) of the Internal Revenue Code of 1986 (26 U.S.C. Section 401(a)(9)).

(g) If a person who retires after August 31, 1997, elects a reduced retirement annuity that is payable until the death of the last to die of the retiree and a person designated under Subsection (e), and if the retiree survives the other person, the monthly payments to the retiree will be increased to the amounts that would have been payable if the retiree at the time of retirement had elected to receive an annuity payable only during the retiree's life, and adjustments had been made for any applicable postretirement increases in that benefit. The increased benefit becomes payable the month after the month in which the person designated under Subsection (e) dies and continues until the retiree dies.

(h) Subsection (i) applies only to a person who retired before September 1, 1997, and who elected, at retirement, to receive a reduced annuity that is payable until the death of the last to die of the retiree and a person designated as a beneficiary under Subsection (e).

(i) If both the retiree and the beneficiary described in Subsection (h) are alive, they may jointly elect in the manner provided by Subsection (j) to modify the annuity being received. An annuity modified under this subsection:

(1) begins with the first payment after one calendar month has passed since the date the form under Subsection (j) is filed, with the amount of the monthly payments, while the beneficiary is alive, being the actuarial equivalent of the previous annuity; and

(2) increases to the amount of the standard service retirement annuity that the retiree would otherwise be entitled to receive if the retiree had not selected the optional annuity with adjustments made for any postretirement increase in that benefit and becomes payable the month following the month in which the beneficiary dies and continues until the retiree dies.

(j) To make the election under Subsection (i), the retiree and beneficiary must execute and acknowledge, as provided by this subsection, a form stating that they are requesting a modification under Subsection (i) and that they understand that the modified annuity will be smaller than the standard service annuity while they are both living and if the beneficiary survives the member. The acknowledgment must be on a form prescribed by the board of trustees and be made before a notary public or other officer authorized to take acknowledgments. The retiree and beneficiary must file the executed form with the retirement system before January 1, 2003.