DROP is an optional retirement program where you may retire and instead of having your monthly retirement benefit paid directly to you or deposited in your bank, it will be paid into the DROP.  Your retirement benefits earn interest, tax deferred, for as long as you participate in the DROP.  The length of participation is determined by the amount of time you have in the system.  After entering DROP you continue to work for the same employer up to the date you pre-selected to stop participation in DROP.  When the DROP period ends, you must terminate employment.  At that time, you will receive payment of the accumulated DROP benefits, and direct receipt, thereafter, of the FRS monthly retirement benefit (in the same amount as determined at retirement, plus annual cost of living increases).

When can I enter the DROP?

You cannot enter the DROP until you first reach your normal retirement date.  For Special Risk members you must be either age 55 and vested or have 25 years of Special Risk Service.  Non-special risk employees must be age 62 and vested, or have 30 years of service.  You must decide to elect DROP participation within 12 months of first reaching normal retirement date.  It is important to note that when you are first eligible to participate, your time starts running even though you have up to 12 months to sign up.  If you have already reached normal retirement date before the effective date of the law, you have 12 months from the effective date of the law to elect to participate in DROP, subject to the maximum length of participation allowed.

When did the DROP law take effect?

July 1, 1998

Is Participation in DROP mandatory?

No.  This is an optional program.  Anyone wishing not to participate can do so, electing instead to retire and collect their retirement benefit.

Who is Eligible for DROP?

All vested FRS members who have reached normal retirement date or qualify under the one of the "grandfather clauses" contained in the 1998 DROP revision bill.

How long can I participate in DROP?

You may participate for a maximum of 60 months following the date on which you first reach normal retirement date.  If you fail to terminate on time, you will lose your accumulated DROP account and your retirement will be cancelled.  Your membership in the FRS will be retroactively reestablished back to the date you started DROP and your employer must pay any additional contributions required for your FRS service credit.    On July 1, 1998, anyone with a multiplier of 75% or less may participated in DROP for up to 60 months.  Anyone with more that a 75% multiplier on July 1, 1998, will be eligible for 36 months participation in DROP.  Optional purchased credit (i.e.: military time, in-state service credit) need not count when calculating this provision.

Another provision contained in the revision bill allow a member of the FRS Special Risk to defer participation in DROP until they reach age 50.  They can then participate for 5 years, terminating employment at age 55.  Non-Special Risk members can defer until age 57, participate for five years and leave at age 62.

How much interest will my DROP account earn?

DROP accounts earn interest compounded monthly at an effective annual rate of 6.5%.    No interest is earned on benefits on deposit for less than one month.

Who is entitled to my DROP benefits if I should die before DROP ceases?

Your FRS designated beneficiary is eligible to receive all accumulated DROP benefits and, depending on the benefit option you selected, monthly FRS benefits.  Survivors are not eligible for FRS in-line-of-duty death benefits.

What if I become disabled while participating in DROP?

You will not be eligible for FRS disability benefits; however, you will still be entitled to your normal retirement benefit.

Does my DROP benefit receive a cost-of-living increase while I am still working?

Yes.  FRS retirement benefits that accumulate in the DROP will be increased by a 3% cost-of-living adjustment (or a prorated amount if you have been retired less that 1 year) each July 1.

What happens if I go back to work after DROP ceases?

Provided you properly "terminate" employment (that is you are off all payrolls for at least one calendar month), you may return to work with the same limitations you have when you terminate and retire without participating in DROP.    You must suspend your retirement benefits for the next 11 months, and your employer must re-enroll you in the FRS with renewed membership.  After your first 12 months following DROP, you may resume receiving your monthly retirement benefits without penalty.

Will I receive health insurance subsidy while I am participating in DROP?

No; however, you will start receiving the health insurance subsidy at the conclusion of DROP provided you apply for it and meet the eligibility requirements.

Should I join DROP or stay employed earning additional retirement credit?

One of the most important decisions you will have to make is whether you should join DROP or remain in the FRS.  To assist in this decision, the Division of Retirement will provide upon request an estimate of the benefits you will receive if you elect to join DROP or if you decide to remain in the FRS.  Upon receipt of these estimates, you should meet with your accountant, CPA, financial planner, etc., to review your total financial situation, including FRS and/or DROP benefits, personal investments, and Social Security benefits, to determine which choice will be the best decision for our future.

Does enrolling in DROP for a certain period of time require my employer to keep me employed for at least that period?

No.  Your employer/employee relationship is not changed by DROP.  You may quit and your employer may terminate you in the same manner as before DROP participation.

How will my DROP benefits be taxed?

If you elect to have you DROP assets rolled over to an eligible retirement plan there will be no taxes due until you begin to withdraw funds from the eligible retirement plan. If you elect to receive a total or partial lump sum of your DROP assets, the lump sum amount will be taxed as ordinary income the year you receive it.  The Division of Retirement is required to retain 20% tax withholding on these assets prior to distribution to you. 

When you file your income taxes that year, you may also owe additional taxes, depending on your tax bracket.  For example, a lumps sum distribution of $100,000 would require the Division of Retirement to automatically withhold 20% or $20,000.  Income taxes filed for that year would reflect the lump sum amount paid plus the credit for the 20% tax already withheld.  A member in the 28% tax bracket would owe an additional 8% tax or $8,000, in effect reducing the lump sum benefit from $100,000 to $72,000. 

In addition other taxes may be due (the Division is reviewing the IRS law and will let you know if additional taxes may be applicable).