Here is how the new Deferred Retirement Option Plan (DROP) Program works:
You are eligible to irrevocably choose the DROP after you become eligible for a 25 year service retirement allowance (or other such DROP eligible service retirement requirement as provide for in the applicable collective bargaining agreement) under the System. At this point, you have essentially three choices:
(a) Actually retire and begin receiving an immediate full monthly pension which includes defined contribution plan amounts, or take the defined contribution plan amounts in a lump sum and begin receiving a monthly pension from the defined benefit plan.
(b) Continue working and accruing benefits under the System (based on continued service and compensation).
(c) Continue working, but irrevocably elect the DROP Program.
2. Choosing the DROP:
You can choose to participate in the DROP anytime after you become eligible. It is a voluntary election. Remember, if you choose the DROP, the decision to participate in the DROP is IRREVOCABLE. You make your election to DROP by completing and signing the appropriate DROP election form (which you can obtain from the System) and delivering your DROP election to the System (you should also make a copy for yourself).
Your DROP election date on your DROP election form must be the date you deliver the form to the System, or a future date. Your DROP election date will be the last day you will accrue any service or compensation for computing a System pension benefit. You cannot retroactively elect to DROP. For example, you cannot deliver a DROP election form to the System on August 1, 2009 electing to DROP on July 1, 2009.
3. Operation of the DROP:
If you choose to elect to participate in the DROP, the following will happen:
(a) Your System benefits will become "frozen" (i.e., no further service credit or compensation will accrue).
(b) Your contributions to the System will end.
(c) You must choose, in writing, a form of distribution for your system pension benefit (e.g., straight life monthly benefit or joint & survivor monthly benefit) in accordance with System processes.
(d) Effective with your DROP election, 75% of the amount of your monthly pension (including applicable escalator increases) that you would have received from the System had you actually retired on your DROP election date is instead paid into your individual DROP account where it will accrue earnings on a tax-deferred basis for as long as you participate in the DROP. NOTE: There will likely be an administrative delay before your first DROP amounts are allocated to your DROP account while the System sets up your DROP account.
(e) At this time your DROP account will be invested in a stable value, group annuity contract product with ING that provides a credited rate of interest set once each year by ING. You should carefully review ING material detailing how your DROP account is invested. You will be provided notice of any subsequent change in the DROP investment product or provider.
(f) Your DROP allocations will continue for as long as you continue to be actively employed as a police officer or fire fighter with the City.
(g) While you are actively employed and participating in the DROP, to the System's knowledge you are subject to the same employment rules and regulations as before you elected to participate in the DROP. You will continue to be paid your wages as an employee. To the System's knowledge, your seniority status and eligibility for benefits will not be affected during your DROP participation. However, you will not accrue any additional credit towards retirement as a DROP participant. Participation in the DROP does not guarantee continued employment.
(h) When you end your active employment with the City you may take a distribution from your DROP account or you may directly roll over your DROP to an IRA.
(i) At the end of your DROP Participation, when you retire, you will begin to receive 100% of your "frozen" System pension (including annual escalator amounts) that you would have received had you initially retired at the date you elected to participate in the DROP, plus you will be entitled to the value of your individual DROP account (which, together, are subject to applicable IRS limits on "annualized" benefits. The IRS limit on annual benefits is $195,000 in 2009. Your DROP benefit is annualized to apply the limit).
Posted in: Active Employees, Retired Members