Deferred Retirement Option Plans have become popular in many states, where unprecedented numbers of employees are reaching retirement age. For example, Florida is anticipating a record number of retirements over the next few years. Projections like these have persuaded many states to turn to DROP programs as a way of retaining their most experienced employees by contributing to supplemental retirement accounts instead of their pension plans.
There are several features to the DROP program. As a participant you will receive both your regular salary and a retirement income. Your salary will be paid directly to you as normal and your retirement benefit will accumulate in the FRS trust fund. Besides offering those who aren’t ready to retire a way to continue working, DROP allows employees who have “maxed out” their pension benefits another option for accumulating retirement savings on a tax deferred basis. Additionally, DROP programs can give you access to a lump sum upon retirement, in addition to their continuing monthly pension payments.
The monthly retirement pension remains in a holding account earning interest compounded annually and an annual cost of living increase while the employee continues to work. An employee who has completed 30 years of service before reaching age 57 may elect to defer. The employee may then decide to begin their DROP participation at any point from the time in which they completed 30 years of service and when they reach the age of 57. Special Risk FRS members who have completed 25 years of service in a special risk category may elect to defer before age 52, and you may make your election up to six (6) months before the date you plan to begin participation. However, you must make your election within a 12-month election window that begins when you first reach your normal retirement age unless you are eligible to defer. When you terminate employment or retire, the proceeds of your DROP account will be distributed to you in one of three ways; you may take a lump sum payment, a direct rollover to another tax deferred account such as a 403b, 457 or IRA extending the benefits of tax deferral, or a combined partial lump payment and rollover.
Our advisors specialize in helping FRS members with Florida’s Deferred Retirement Option Program (DROP). If you are an eligible Florida Retirement System (FRS) Pension Plan member, you can roll over your DROP funds into one of several investment options. DROP gives you the security of a monthly retirement check along with an extra sum of money that you can help you live more comfortably in retirement.
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