FRS DROP Program
The FRS DROP program is a retirement plan that is available to all Florida Retirement Systems employees. The Deferred Retirement Option Program (DROP) is a plan you can elect after you have reached your vested retirement age or years of service.
DROP is a great plan that was created to incentivize employees to stay a little longer in their most productive years.
How Does It Work?
Imagine the DROP program like double dipping. You will still get paid your salary, but the FRS will deposit your pension into a separate account for every year that you work. The maximum is 5 years in DROP for most employees, some employers offer a 8 year DROP program.
You do not have to stay all the years in DROP. If you elect to leave after after a year, you will get a years worth. All the projections of how much you will receive are in your DROP paperwork.
In general you will earn a low interest rate of 1.3% while the money is in the DROP account. In addition you will get a Cost Of Living Adjustment (COLA). This COLA will increase the amount that gets deposited into your DROP as well. Normal COLA is around 3%, but this can be changed by the FRS.
Will DROP Go Away?
We get this question all the time. However there is no evidence that the FRS DROP program is going away.
There where significant changes in 2011 that made it easier for the state of Florida to keep DROP for longer.
Who Can Get DROP?
Any FRS employee that is in the pension program and they have reached their full retirement age or years of service. This includes:
As long as you haven’t switch to the FRS investment plan you will be elegible for the DROP program.
How Do I Receive DROP?
You cannot enter DROP until you have reached retirement age or years of service. However, if you are about to enter DROP this is how it works.
Your DROP funds get placed in a retirement account. This account cannot go up or down. In the initial papers you receive you will see your exact DROP projections.
You will have access to your DROP account after you completely retire. Unlike a 403b or 401k you cannot take loans from DROP.
What Are The Risks of DROP?
If you reach your 5 years (or 8 years for some employers), you will be required to retire. So make sure you know you do not want to keep working after your DROP years.
In addition you will not receive anymore raises while you are in the DROP program. Your salary will be frozen.
However, there are no investment risks on the DROP. As you mentioned already, you will receive a statement with your DROP projections and that’s how much you will get.
FRS DROP Rollover
There are many ways to access your FRS Drop. However, one of the most common option is to do a rollover into your IRA.
A rollover is a simple qualified transfer. With this transfer you will not have to pay taxes on the the move. In addition, in your own IRA you will be able to pick from any type of investment you would like to have.
For more information on a rollover we can match you with a local financial advisor that can help you.
DROP Options (or Pension Options)
The famous DROP options are a way to name beneficiaries to your DROP and FRS Pension program.
All the money to you, nothing to your beneficiaries. This is the highest payout for your self. You will get 100% of your pension.
A 10 year period certain pay out. This means that your beneficiaries will get a benefit if you pass away within your first 10 years of retirement.
Example: Year 5 you pass away, your beneficiaries will get 5 years of your reduced pension.
The reduced cost of Option 2 will be approx. 5-10%. This number will vary depending you your age at retirement. With this option you will be able to pick a minor as a beneficiary. This is the only option that allows you to pick a minor.
Option 3 is probably the most common option to pick. This option gives you the ability to pick your spouse as a beneficiary, and if you pass away, they will receive your pension for the rest of their lives.
There is a cost for picking this option. Your pension will be reduced between 15-25% depending on the age of your spouse.
This option is a little strange as you elect to receive a sightly reduced pension (around %5) , and if either you or your beneficiary passes away then your pension gets cut to 2/3 what you where receiving.
Should I Enter DROP
That is the question… And you shouldn’t take that decision lightly, as there are many variables to consider. The best way to understand what to do is with knowledge. Contact a financial advisor with experience with the FRS and they can guide you.