With a history spanning back over 20 years, the DROP (Deferred Retirement Option Program) helps employees retire without leaving the world of employment. While this generally lasts for five years, it’s extended to eight for some teachers. During this period, retirement benefits still build and earn much-needed interest at a rate of 6.5%. If you entered the DROP after the beginning of July 2011, your interest rate would be set to 1.3%.
This program is available to members of three main groups:
• TRS – Teachers’ Retirement System
• SCOERS – State and County Officers and Employees’ Retirement System
• FRS – Florida Retirement System (Pension Plan)
The first two groups did not have access to defined benefit plans in 1970 when the FRS was first created. Also, we should note that members of other retirement programs under the FRS are not eligible for the DROP; this is also true of FRS renewed members.
If you’re a DROP participant, employment conditions don’t change; employment is terminated as soon as the period is up (elected officers often have special provisions). When termination comes, you’ll start to receive your monthly retirement benefit alongside any accumulated DROP benefits. The benefits are calculated at the point of entering DROP and then retiring, while also considering rises in the cost of living.
Eligibility and Election
If you’re enrolled in one of the three plans listed above, you may be entitled to become a DROP participant once the normal retirement date is reached – this date is when you’re eligible for full benefits thanks to service or age.
If you joined before July 2011, FRS members need six years of service to retire at 62. Otherwise, retirement is also possible regardless of age after 30 years of service. Alternatively, Social Risk Class members need six years of Special Risk service to retire at age 55 (or 25 years of service in total). For those with military service, retirement may be possible at age 52 after 25 years of experience.
For those who joined after July 2011, you need eight years of service for retirement at age 65 (or 33 years of total service). Special Risk Class members can retire at age 60 after eight years of service or 30 years in total. With military service, retirement is earlier at age 57.
To become a DROP participant, you should apply for an election around six months before planned participation. You cannot get an election from the Division of Retirement on the month DROP begins. Unless eligible for deferred election, there’s a 12-month election window which begins at normal retirement date. With no application, eligibility is lost.
Deferred Election
There are some circumstances where a deferred election is possible, and the first is for elected officers in the FRS ECO (Elected Officers’ Class). After reaching retirement age, it’s possible to defer until the next succeeding term of office. You can participate for the entire term or five years, whichever is shorter.
Elsewhere, you can defer after completing 30 of 33 years of service (depending on when you enrolled in the FRS – pre- or post-July 2011) before reaching age 57. You can delay and start participation when you reach age 57 or between 30 and 33 years of service. This rule also applies to Special Risk members with 25 of 30 years of service before the age of 52.
Deferring might also be an option for those in the Special Risk Class with covered employment (or coverage by a different plan or class). Finally, the fourth group is for ‘instructional personnel’ in K-12 grades. The employer must consider you in this group, and participation begins after reaching the retirement date. Most will have eligibility for 60 months, but a few will have it for 96 months.
Optional Service Credit – When considering a normal retirement date for participation or eligibility, don’t forget optional service credit. For instance, many people purchase credit for a leave of absence. If you exclude this from the calculation, the optional service is still included in the calculation for benefits.
DROP Benefits
As mentioned previously, interest rates vary depending on DROP participation:
• Before July 1, 2011 – 6.5%
• After July 1, 2011 – 1.3%
At these rates, your DROP account will grow monthly. Every July, the account will also enjoy a 3% increase as a COLA (cost of living adjustment). If you did manage to join before July 2011, the COLA is only applicable for service before this date. For your very first year, COLAs are calculated on a pro-rata basis; i.e., you’ll get the number of months you were in DROP before the adjustment rather than a full year (or nothing at all!).
When employment is terminated, the way you receive DROP proceeds is up to you. You can get a direct rollover, a lump sum, or a combination of the two.
Participation Limit
We mentioned earlier that you could stay in DROP for five years, but some teachers will get an extension to eight years. If you joined DROP to leave early, you could easily extend to enjoy the full 60 months (to do this, your employer must approve). Don’t worry, this approval is not necessary if you want to end your DROP participation earlier than planned.
You may apply for DROP after the beginning of the eligibility period; if so, the 60-month limit will reduce depending on how long you waited. At the end of the DROP period, it’s essential to terminate employment; otherwise, you will void both the DROP participation and retirement. Furthermore, additional contributions are required from your employer to cover FRS service credit for the DROP period.
You will not void your retirement or DROP by failing to terminate employment if currently in an Elected Officers’ Class elective office. Instead, you can carry on serving for the term of office (or even multiple terms of office). Even though you’re still effectively a DROP participant, all retirement benefits halt at 60 months. This being said, you will still get a slight boost thanks to the interest payments.
For those who began DROP before July 2002 and still work in an EOC elective office at the end of participation, the same termination requirements are not present. At the end of the DROP period, you will enroll as an FRS renewed member instead.
Disability and Death Benefits
What if you pass away during the DROP period? In this case, the benefits will go to your designated beneficiary. If you chose the option while setting up DROP, the beneficiary would get a continuing monthly benefit.
In some cases, the beneficiary won’t qualify for a continuing benefit, and this is where a full refund is given; this is true when employee contributions add up to more than your DROP account. This calculation includes payments for service credit or upgraded service. Since you retired when entering DROP, disability benefits are not an option.
When DROP comes to an end, all participants receive the Health Insurance Subsidy. Not only this, but they’re also subject to renewed membership provisions and reemployment limitations just like all other FRS retirees.
Contact Information:
Email: [email protected]
Phone: 8139269909
Bio:
For over 30-years Flavio “Joe” Carreno of The Retirement Advantage has been a Federal Employee Retirement System specialist (FERS) as well as a Florida Retirement System specialist (FRS) independent advocate. An affiliate of PSRE (Public Sector Retirement Educators), a Federal Contractor & Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants. We will help you understand your FERS & FRS Benefits, TSP & Florida D.R.O.P. withdrawal options in detail while recognizing & maximizing all concurrent alternatives available.Our primary goal is to guide you into retirement with no regrets; safe, predictable, stable, for life. We look forward to visiting with you.
Disclosure:
Not affiliated with the U.S. Federal Government, the State of Florida, or any government agency. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Although we make great efforts to ensure the accuracy of the information contained herein we cannot guarantee all information is correct. Any comments regarding guarantees, safe and secure investments & guaranteed income streams or similar refer only to fixed insurance and annuity products. Fixed insurance and annuity product guarantees are subject to the claimsâ€paying ability of the issuing company. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC insured.
