I'm thinking about DROP
- Employee must commit to a retirement date within 5 years
- Pension is calculated and locked in, see formula, COLA will also be added during drop
- Employee continues to work same position with same pay and benefits.
- Monthly pension added to FRS Trust fund for each month employee continues DROP
- At the end of the 5 year maximum, employee fully retires, separates from service and the accumulated funds are available to be distributed or rolled into a retirement account
How much will your DROP be worth?
First calculate monthly pension benefit
- Highest 5 years annual compensation (example $50,000)
- Years of service before entering DROP (example 30)
- Risk Class (example regular 1.6%)
$50,000 X 30 X .016 = $24,000 annual pension benefit, $2,000 monthly benefit
- In this example $2,000 will accumulate in FRS Trust Fund for each month spent in DROP.
- 5 full years (60 months) in drop, 60 X $2,000 = $120,000 (COLA and 1.3% DROP interest rate not included)
- At the end of 5 years the option to distribute and have 20% in taxes withheld or Rollover full amount will be available
Something To Consider
Members should take note that going into DROP may not be suitable for all employees. Entering DROP creates some permanent effects. When a member enters DROP they must recognize that they must terminate employment within the FRS at the end of their DROP period, and so the member must be ready to retire in that time frame. Entering DROP also will permanently close a member's option to make a 2nd election and switch to the FRS Investment Plan. It is recommended that FRS member's evaluate all of their retirement options before making any final decisions and entering DROP. If you have not considered the investment plan before, then you may want to evaluate or compare benefits between plans before making a permanent choice.
*This hypothetical example is for illustrative purposes only, and its results are not representative of any specific investment or mix of investments. Actual results will vary