The Deferred Retirement Option Program (DROP) is a unique option for eligible Florida Retirement System (FRS) Pension Plan members. It is a voluntary retirement program that allows you to effectively retire while delaying your termination.
As a DROP participant, you begin accumulating your retirement benefits while delaying your employment termination for up to 96 months from the date your DROP participation begins. While in DROP, you earn a salary while your monthly retirement benefits are held in the FRS Trust Fund on your behalf.
Before you participate in DROP, you earn one month of retirement service credit for each month you have compensation reported to the division for work performed.
When you enter DROP, you are retired and you stop earning retirement service credit toward a future benefit. Then, you will have your retirement benefit calculated at the time your DROP period begins and your monthly retirement benefits accumulate in the FRS Trust Fund earning interest while you continue to work for an FRS employer and earn tax-deferred interest. Tax-deferred interest means that you pay any taxes owed when you receive the interest, instead of when the interest was earned.
When you terminate your employment at the end of your authorized DROP participation period, you receive your DROP
payout and begin receiving your monthly retirement benefit in the same amount determined at retirement, plus any applicable cost-of-living adjustment. The longer you participate in DROP, the greater your financial gain. However, even short periods of DROP
participation can offer enough financial advantages to make participation the right choice for you. For many, DROP offers the
best of both worlds by providing the financial security of a guaranteed lifetime monthly benefit and an opportunity to
accumulate additional savings while you are working.
Upon termination, your DROP account is paid to you in one of three options:
- Lump sum payment – upon which you will pay ordinary income tax on the full amount
- Rollover – including into your State of Florida Deferred Compensation Plan account
- Combination partial lump sum payment and rollover – allowing you to take advantage of both of the previous options
By rolling over some or all of your DROP assets into an IRA account with a guaranteed lifetime income rider, you can continue the benefits of tax-deferred investing until withdraw these assets. You control when you withdraw the assets until age 70½ when the IRS requires minimum withdrawal of tax-deferred assets, including DROP funds. You will pay ordinary income taxes upon withdrawal.
Qualified retirement plans, deferred compensation plans and individual retirement accounts are all different, including fees and when you can access funds. Assets rolled over from your account(s) may be subject to surrender charges, other fees and/or a 10% tax penalty if withdrawn before age 59½. Neither DROP Advisory Council members nor any of its representatives give legal or tax advice. Please contact your legal or tax advisor for such advice.
Get the help you need
If you’ll soon qualify for the DROP program, contact your DROP Advisory Council member. For more information, please or e-mail the DROP Advisory Council Chairman at DROP Advisory Council.