Updated October 7, 2026. Quick answer: Houston Municipal Employees Pension System rules differ by group, and its only handbook is the July 2017 edition, so figures may have changed. In that handbook the joint-and-survivor options (50% or 100% survivor, or a ten year guarantee) are open to former Group D members and some Group A and B members, and can be revoked until the 60th day before the benefit begins. A refund before five years of service carries no interest. A benefit under $20,000 may be paid as a lump sum. The cost-of-living adjustment is capped at 2%.
Read this first: the handbook is the July 2017 edition
This page works from six Houston Municipal Employees Pension System (HMEPS) documents: its Benefits Handbook, benefits page, frequently asked questions, a DROP brochure, a notice of the cost-of-living adjustment (COLA) beginning February 1, 2025, and an overview of the 2017 benefit changes. The handbook is the main source and it is dated. Its cover reads “Benefits Handbook (as of July 2017)”, and it is based on “the HMEPS laws and rules in existence on July 1, 2017”. The benefits page says only that the handbook “has been revised for the 2017 legislative changes”. No later edition is among the pages read, so every handbook figure below is a July 2017 figure, flagged where a later document could have changed it. The February 2025 COLA notice is the later statement on the COLA formula.
Groups matter. The 2017 overview says “If you were newly hired on or after January 1, 2008, then you are a Group D member”, and for earlier hires “please contact HMEPS for group participation information”. For the state tax side, see Texas retirement taxes and does Texas tax pensions.
Which rules apply to which group
| Topic | Group A and Group B | Group D |
|---|---|---|
| Annuity options | Limited: unmarried when leaving on or after June 30, 2011, or Group B who left before September 1, 1997 | Open to a former member eligible for a normal or early retirement pension |
| Survivor benefit with no election | A spousal survivor benefit of 80% or 50% of the retirement pension, by length of marriage | None for a retiree who picks a normal benefit; only a joint annuitant under an option |
| DROP | Eligible | Not eligible |
| Refund before five years | Refund without interest; service forfeited (Group A) or canceled (Group B) | Refund without interest; a separate cash balance rule |
The options row follows the handbook’s heading, “Applicable only to former Group D members, and in limited situations to former Group A and Group B members”. Option-eligible Participants include any “former group A or group B member who terminates employment with the City or the pension system on or after June 30, 2011” who was not married at termination, and “a former group B member who terminated employment with the city or the predecessor system before September 1, 1997”. The survivor row rests on the handbook’s note that a Group D retiree “must have selected either a normal retirement benefit, for which there is no survivor benefit, or an optional annuity”.
The three annuity options and what each does for a survivor
The handbook tells an Option-eligible Participant: “you must elect no earlier than 60 days before your retirement and no later than 30 days before your benefit commencement date”.
| Option | What the retiree receives | What the survivor receives |
|---|---|---|
| 50% joint and survivor | A reduced lifetime pension | The joint annuitant receives a lifetime benefit of 50% of what the retiree was receiving at death |
| 100% joint and survivor | A reduced lifetime pension | The joint annuitant receives a lifetime benefit equal to what the retiree was receiving at death |
| Ten year guarantee | A reduced lifetime pension | If the retiree dies before 120 payments, the joint annuitant receives the balance of the 120 payments; after ten years of payments, nothing |
For the 50% and 100% options the pension “will be reduced from the normal retirement pension amount by some amount depending upon your age and your beneficiary’s age at your date of retirement”. For the guarantee, “the amount of reduction of your monthly benefit depends on your age at retirement”. For the general trade, see single-life versus joint-and-survivor pension.
A computed example from an assumed $2,400 reduced monthly pension, not an HMEPS figure: the survivor receives 50% of $2,400, a computed $1,200 a month, under the 50% option and 100% of $2,400, a computed $2,400 a month, under the 100% option. For the guarantee, from an assumed $2,000 monthly pension and an assumed 36 payments before death, 120 minus 36 leaves a computed 84 payments, and 84 payments of $2,000 is a computed $168,000 to the joint annuitant.
Deadlines, revocation and what happens if the joint annuitant dies first
“The election may be revoked, in a manner and at a time established by the Board, not later than the 60th day before your benefit commencement date.” For a deferred participant the handbook says “on or after the 60th day prior to the commencement of your pension benefit, your option election is irrevocable”. A married retiree who names someone other than a spouse faces this: “if you are married at the time of retirement, and you wish to name anyone other than your spouse as joint annuitant, HMEPS may require that your spouse sign a consent or waiver of benefits in order for the option election to be valid”.
The order of deaths matters. “if your joint annuitant predeceases you, no payments are due after your death”. In the other order, “if you predecease your joint annuitant, no payments are due after the death of your beneficiary”. No pop-up feature is described, so the documents read do not say whether the retiree’s pension rises back if the joint annuitant dies first; ask HMEPS before electing.
Where a participant with a surviving spouse had left service, made no election and died before retirement began, the handbook says “you shall be deemed to have elected a 50% J&S Annuity and designated your Surviving Spouse as the joint annuitant”.
Married Group A and Group B members: the survivor benefit that needs no election
For a retired Group A or Group B member who left on or after July 1, 2017, “your surviving spouse will receive a spousal survivor benefit equal to the applicable percentage of the retirement pension you were receiving at the time of your death”. The tiers are “80% if both your separation from service and your death occur on or after July 1, 2017” with at least one continuous year of marriage as of separation, and “50% if both your separation from service and death occur on or after July 1, 2017” with less than a year. The 2017 overview describes the change: “the spousal survivor benefit percentage will change from the current 100% to 80%, if the surviving spouse was married to the participant at the time of death and for at least one continuous year as of the date of separation from service (for separations from service on or after July 1, 2017)”.
A computed example from an assumed $2,000 monthly retirement pension at death, not an HMEPS figure: 80% is a computed $1,600 a month and 50% is a computed $1,000 a month.
Group A and Group B only: the Deferred Retirement Option Plan (DROP)
The brochure describes DROP as “an optional retirement method for HMEPS members who have reached their normal retirement eligibility (age and years of credited service) but do not want to retire”. The handbook labels it “(Group A & Group B Only)”. Entry requires “Age 62 with at least five years of credited service”, or “Age 50 with at least five years of credited service, provided the sum of your age and years of credited service, including parts of years, equals 75 or more”.
Timing is tight. For a member leaving employment, “you must execute a DROP Election no later than thirty (30) calendar days after your separation from service and before any other application for pension benefits has been approved by the Board, or you will not be eligible to participate in the DROP”. “Upon approval by the Board, a DROP Election is irrevocable except as specifically provided by the Statute.”
While in DROP a member stops accruing service and builds a notional balance. The brochure says the balance is credited with “Monthly DROP Credit (MDC)”, the COLA at 62 and interest. “The DROP interest rate is half of HMEPS’ average five-year investment return. The maximum DROP interest rate is 7.5 percent and the minimum rate is 2.5 percent.”
A computed example from assumed five-year returns, not HMEPS figures: half of an assumed 6% is a computed 3.0%, inside the band, so it applies. Half of an assumed 4% is a computed 2.0%, below the minimum, so the 2.5% minimum applies.
The pension is set from entry-date facts: “The number of years of credited service will be the credited service you accrued up to the time of your DROP entry date”, and “Your average monthly salary will be the average monthly salary as of your DROP entry date.”
For an Option-eligible Participant, “If you elect a J&S Annuity, your notional DROP account, including all DROP credits, will be recalculated from your DROP Entry Date to your termination of employment as if the J&S Annuity was selected to be effective as of the DROP Entry Date.” After a DROP election a member “cannot enter into an obligation with HMEPS to” buy previous service credit or change group.
Lump sums: the DROP balance and small benefits
“After retirement, you may make an irrevocable election to receive payment of a DROP benefit in a:” The brochure lists a lump sum, periodic payments, partial payments and “Rollover to a qualified plan or IRA”.
Separately, for deferred participants, eligible survivors, alternate payees and beneficiaries the handbook says the Board “may pay to a deferred participant, eligible survivor, alternate payee, or beneficiary in a lump sum the present value of any benefit payable to such person that is less than $20,000 instead of paying any other benefit”. “If the lump sum present value of the benefit is at least $1,000 but less than $20,000, the Board may make a lump-sum payment only on written request by the deferred participant, eligible survivor, alternate payee or other beneficiary.”
Leaving before retirement: refund or leave the contributions
For a member whose employment ends before five years of credited service, other than for a service disability, the handbook says “you are not eligible to receive a pension, and HMEPS will refund you, upon your written request, the amount paid by you to HMEPS through salary reduction, payroll deduction, or other authorized method of payment, without interest”. For the general trade, see pension refund versus leaving it.
Group A: “the credited service you earned is forfeited at the time of separation, and you will receive a refund, upon your written request, of your employee contributions, without interest”. Groups B and D: “your service credit is canceled at the time of separation and you are eligible to receive a refund, upon your written request, of your employee contributions, without interest”.
With five years or more, the handbook says: “If you have at least five years of credited service when you separate from service, you could choose to retire.” For a member who contributed, “you may choose to either” means taking a refund or leaving the contributions. On the refund: “If you elect to take a refund of your contributions, all service covered by the refund is canceled.” The alternative is to “leave your contributions with HMEPS and retain all the credited service represented by the contributions”.
Group D members also have a cash balance account. “There is a different refund process for contributions to the cash balance hybrid component.” With under a year of contributions the handbook says “you are eligible to receive only a distribution of the contributions credited to your cash balance account, without interest”.
A computed example from an assumed $15,000 taxable refund paid directly, not an HMEPS figure: 20% withholding is a computed $3,000, leaving a computed $12,000 in cash. To avoid it the handbook says “you can elect to have your distribution transferred directly to an IRA or qualified pension plan that accepts rollovers”.
Buying service credit
A member may buy credited service “in order to increase your pension benefit and/or accelerate your eligibility for retirement”. “The interest rate on any service purchase shall be the then current assumed rate of return, not compounded.” See also pension buyback calculator.
Payment routes are “by payment of a single lump sum contribution”; “payroll deductions over a term of five years or less”; or “a transfer or rollover of eligible funds, with the remaining amount owed, if any, paid by either the lump sum method or the payroll deduction method”. The last is the rollover route. On a lump sum, “you must pay your entire contribution amount, including any required interest, to HMEPS on or before the 60th calendar day following the day you execute your election form”. If a purchase is not completed in time, “the service covered by the service purchase obligation will be canceled”.
The timing rule matters most: “because you are not eligible to elect to purchase credited service after you have separated from service, you should contact HMEPS prior to your separation from service if you believe you have time or service that is available for purchase”.
Cost-of-living adjustments: the handbook’s formula and the 2025 notice
The handbook (July 2017) says the COLA “is the HMEPS five-year investment return, based on a rolling five-year basis and net of investment expenses, minus 5%, and then multiplied by 50%, but the COLA will not be less than 0% or greater than 2%”. The February 2025 notice states “The COLA is equal to HMEPS’ five-year investment return, based on a rolling five-year basis and net of investment expenses, minus the assumed rate of return less two percentage points, and multiplied by 50%, but not less than 0% nor more than 2%”. Its worked numbers: “The five-year net investment return on HMEPS’ investments as of the end of fiscal year 2024 is 10.88%”, “the 7% assumed rate of return less two percentage points is 5%”, and “half of the difference between the five-year investment return minus 5% is 2.94%, which is more than the maximum of 2%”.
In that year the wordings give the same hurdle: the handbook subtracts a flat 5%, the notice subtracts the assumed rate less two percentage points, stated as 5% on a 7% assumption. If the assumed rate changed they would diverge, and the documents read do not say which governs.
Recomputing the notice’s arithmetic, 10.88% minus 5%, times 50%, is a computed 2.94%, above the 2% maximum. A computed example from an assumed 8% five-year return, not an HMEPS figure: 8% minus 5%, times 50%, is a computed 1.5%, or a computed $30 a month on an assumed $2,000 pension.
On compounding, the handbook says “Pension and survivor benefits for all eligible participants are increased annually by the COLA (unless the COLA is 0%), not compounded”.
What the IRS adds on tax
A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of HMEPS’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. The HMEPS handbook describes the same direct rollover route and the same 20% rule. The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.
On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan” if the employee separated from service during or after the year they attained age 50 or 25 years of service under the plan, whichever is earlier. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.
What this page could not settle
- The handbook is the July 2017 edition and no later edition is among the pages read. Retirement ages, option rules, survivor percentages, refund rules, the $20,000 small-benefit limit and service purchase terms are 2017 figures and may have changed.
- The pages read do not give the reduction factors for the 50% option, the 100% option or the ten year guarantee.
- The pages read do not say whether a retiree’s pension rises if the joint annuitant dies first.
- The pages read do not describe a way for a married Group A or Group B member, who is outside the Option-eligible Participant definition, to elect an annuity option.
- The pages read do not say which COLA wording governs if the assumed rate changes: the handbook’s flat 5% or the notice’s assumed rate less two percentage points.
- The pages read do not give the current IRS age for required minimum distributions from a DROP balance; the handbook says 70 and a half, the brochure refers only to the age the IRS specifies.
- The pages read do not say whether a spouse must consent to a refund or a DROP election, or give dollar costs for any type of service purchase.
Common mistakes
- Assuming a married Group A or Group B member can choose the 50%, 100% or ten year options.
- Treating a July 2017 handbook figure as current without checking HMEPS.
- Missing the 60th day before the benefit commencement date to revoke an annuity election.
- Missing the 30 calendar day window after separation from service to execute a DROP election.
- Taking a refund after five or more years of service without noticing that all service covered by it is canceled.
Related on this site: Texas retirement taxes, does Texas tax pensions, single-life versus joint-and-survivor pension, pension refund versus leaving it, pension buyback calculator and public pension retirement decisions by system.
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Answer againSources
- Houston Municipal Employees Pension System, Benefits Handbook (July 2017): https://hmeps.org/wp-content/uploads/2025/03/2017-benefits-handbook-1.pdf
- Houston Municipal Employees Pension System, Benefits: https://hmeps.org/benefits/
- Houston Municipal Employees Pension System, Frequently asked questions: https://hmeps.org/faq/
- Houston Municipal Employees Pension System, DROP brochure: https://hmeps.org/wp-content/uploads/2025/03/brochure_drop-web_version-02-15-24.pdf
- Houston Municipal Employees Pension System, COLA beginning February 1, 2025: https://hmeps.org/cola-beginning-february-1-2025/
- Houston Municipal Employees Pension System, Overview of benefit changes (2017): https://hmeps.org/wp-content/uploads/2025/03/overview-of-hmeps-benefit-changes-5-31-17.pdf
- IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
- IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558
Sources: the primary documents linked above, read on October 7, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.