DEFERRED RETIREMENT OPTION PLAN (DROP)

What is it?

A retirement plan that allows employees to continue working while amassing their monthly pensions in a DROP account.

    

How does it work?

Upon reaching full retirement, the employee chooses to enter DROP (usually for a specified time period of 3-5 years) and continues working for the organization.

• Employee continues to receive pay and benefits
• Employee does not pay pension contributions
• Monthly pension is credited to DROP account, which accrues interest (depending on provisions)

When the employee leaves the organization, he or she receives:

• Monthly pension calculated from employment before entering the DROP and
• The proceeds of the DROP account in monthly payments, rolled-over into an IRA, or provided in a lump sum (depending on provisions)

Related Resources

DROP Presentation from IGFOA Pension Institute - 2003

DROP - Pension Institute

Deferred Retirement Option Plans:  Is it time to DROP?

http://www.grsnet.com/pubs/grsinsight9802f.pdf

Phased Retirement Arrangements and Deferred Retirement Option Plans

http://www.gabrielroeder.com/pubs/RM_Phased-Retirement.pdf

Design and Actuarial Aspects of Deferred Retirement Option Programs

http://library.soa.org/library/monographs/retirement_systems/m-rs03-2/m-rs03-2_tableofcontents.pdf

Changing Patterns of Retirement--The Deferred Retirement Options Plan (DROP)

http://library.soa.org/library/record/2000-09/RSA01V27N142PD.PDF