What is DROP?
The Deferred Retirement Option Plan (DROP) is an optional benefit enhancement to many Defined Benefit Pension Plans throughout the state of Florida that can provide plan members with another way to transition into their retirement years. In the eyes of the pension plan, you are “retired” when you enter the DROP. From the employer’s standpoint, you continue to be an active employee and work under the same conditions with the same pay and benefits that you had prior to entering DROP.
While you’re in DROP, your paycheck continues to be sent to you personally but the Pension Plan begins to issue your retirement checks into a separate “DROP” account that will be available to you once you separate employment. At that point, once separated you will have access to your DROP proceeds in the form a lump sum, partial lump sum payout, periodic payments, or you may roll it over into another qualified account. Some or all of these options maybe available to you but all plans are not created equal, so always consult your plan administrator and your financial advisor.
One of the benefits of participating in DROP, is that your monthly retirement benefits accumulate in the DROP Trust Fund, earning tax-deferred interest while you continue to work for the employer. This is essentially creates for you a super-charged tax deferred savings vehicle to help fill in the gaps during retirement. The taxation of these assets will occur when you begin taking distributions.