Deferred Retirement Option Program (DROP) – Effective July 1, 1998
Joanne W. Dice, Assistant Director
To supplement DROP information previously released, we are providing this memorandum which offers additional insight to particular issues. This memorandum also answers frequently asked questions regarding both administrative and participant aspects of this new retirement benefit.
DROP is an alternative retirement option for employees in the Florida Retirement System (FRS) who first reach their normal retirement date, either at age 62 with a minimum of ten years of service, or with 30 years of service at any age. Employees electing to participate in the DROP will have their retirement pension benefits accumulate in DROP, tax deferred, earning 6.5% interest as long as they participate in DROP. During this period, participating employees will continue to work, but will not earn additional credit for retirement. Participation in this program will be up to a maximum of five years or 60 months from the date first eligible.
Employees meeting the above criteria before July 1,1998, will be eligible to participate in the DROP beginning July 1, 1998. The 1998 Florida Legislature modified DROP to allow employees with 30 years of service, but who are less than 57 years of age, to enter DROP when first eligible, or enter DROP at any time up to age 57. Optional Retirement Program (ORP) participants are not eligible to enroll in DROP.
The following are questions and answers regarding key components and implications of DROP:
Q. What does DROP mean to employees who enroll?
- Employees meeting the eligibility requirement will be eligible to file for FRS benefits and receive the pension benefit paid into DROP earning 6.5% interest (tax-deferred) while continuing to work in their current position. Employees will continue to be eligible for across-the-board pay adjustments, special pay increases, bonuses, or monetary awards while enrolled in DROP.
Q. What happens to the FRS contribution paid by the employer?
- The employer will continue to pay a retirement contribution while an employee is enrolled in DROP. Effective July 1, 1998, the contribution rate will be reduced from the regular rate of 16.45% to 12.50% (11.56% plus .94% for the Health Insurance Subsidy [HIS]) for DROP participants. The 1998 Florida Legislature also changed the HIS from $3 to $5 for each creditable year of service up to a maximum of 30 years of service effective January 1, 1999, for retirees.
Q. What happens to the retirement contribution if the employee continues to work at the termination of DROP?
- If the employee does not terminate at the end of DROP and continues to work, the employer will be responsible for the full regular retirement contributions plus 6.5% interest compounded for the period of DROP participation.
Q. What happens to the state health insurance and state life insurance matching contribution while an employee is in DROP?
- The employer will continue to pay the appropriate matching contributions for the employee while in DROP. Employees’ other payroll deductions will continue while enrolled in DROP.
Q. Does DROP replace the phased retirement program offered to Faculty?
- No! This program is an enhancement of the current pension benefits and does not replace the phased retirement program now offered to Faculty.
Q. What happens to the accumulated annual leave when entering DROP?
- The employee will have the option of receiving a lump sum payment of annual leave up to the maximum number of hours permitted under policy, or the employee may elect to defer receiving a lump sum payment until going out of the DROP. Employees also may elect to receive a partial lump sum payment of annual leave when entering DROP and the remainder of the eligible annual leave when leaving DROP. The total annual leave lump sum payment cannot exceed the maximum allowed under policy (352 hours for twelve-month Faculty/A&P employees, and 240 hours for USPS employees). The annual leave lump sum payment is used in calculating the pension benefit if paid when entering DROP. Note: Employees will continue to accrue annual leave at the rate of accrual before entering DROP.
Q. What forms must be submitted to pay annual leave for DROP participants?
- For twelve-month Faculty, a Form 250 should be submitted to Academic Personnel with an attached original supplemental time certification form which will be used to process the annual leave. A Form 250 for A&P employees or a change order for USPS employees should be submitted to University Personnel Services Processing and Records for payment of annual leave. Please insure that a notation is made on the forms to identify the employee as a DROP participant. Certifications of annual leave for A&P and USPS employees should be through the regular payroll certification process to the Payroll Office.Questions regarding the payment of annual leave for DROP participants may be directed to Academic Personnel for Faculty and to University Personnel Services Processing and Records for A&P and USPS employees. Please contact the Payroll Office for questions on the payroll certification process. The payment of annual leave for DROP participants will be issued by the Bureau of State Payrolls as supplemental payments that are not on the same cycle as regular paychecks.
Q. When do DROP participants receive payment for sick leave?
- Sick leave hours are paid at the time an employee leaves the University and DROP. Note: Employees enrolled in DROP will continue to accrue sick leave at the regular rate.
Q. Must the employee remain in the same position while enrolled in DROP?
- No, the employee can change positions as long as there is no break in service. OPS employment will be considered a break in service. The new employer must acknowledge in writing the participant’s DROP termination date and liability for contributions plus interest if the employee fails to timely terminate employment. Please contact University Retirement for details regarding this circumstance.
Q. When an employee enters DROP, what will be the future termination date of the employee?
- The employee’s future termination date will be no later than 60 months when first eligible to participate in DROP. An employee will have a twelve-month period from the date first eligible to decide to enter DROP. The employee’s length of participation in DROP will be reduced by the number of months the employee waits to enter DROP during the “window of opportunity.”
Q. How does the employee enroll in DROP?
- The employee should contact the University Personnel Services Retirement Office and complete an application for retirement benefits (DP-11) along with an election form (DP-ELE). The appropriate supervisor/administrator will be required to acknowledge the termination date on the DP-ELE before submitting the completed election and application form to the Retirement Office at the university. A copy of the DP-ELE will be maintained in the employee’s personnel file, retirement file, and the original will be submitted to the Division of Retirement (DOR) for processing for benefits. The DP-ELE will be used as a letter of resignation. Any changes to the future proposed resignation date must be done with the approval of the appropriate departmental administrator.
Q. Does the employee receive any Cost of Living Adjustment (COLA) on the pension benefit while in DROP?
- Yes! The employee will receive a 3 percent COLA to the pension benefit every July 1.
If you or your employees have questions regarding DROP or the pension plans, please contact University Retirement at (352) 392-4941 for additional assistance.