Reverse DROP
Reverse DROP is a benefit available to corrections, detention, probation, and surveillance officers who meet the service and age eligibility requirements for a normal pension. When retiring, these members can elect to set their date of retirement back to the date of their retirement eligibility or a date not more than sixty (60) consecutive months prior to their reverse DROP election date. This enables them to receive a lump sum payment of the pension benefits they would have accumulated since that retroactive date, plus interest.
Under the reverse DROP, the member must voluntarily and irrevocably elect to terminate employment and receive a normal retirement (pension) upon participation in the reverse DROP. This option can provide a significant payout upon retirement but it’s important to note that choosing reverse DROP results in lower monthly pension payments after retirement. This is a result of retiring members effectively reducing their years of credited service in exchange for a lump sum payment delivered to a 401(a) defined contribution account offered by Nationwide Retirement Solutions.
Below is a table of contents to help members and employers understand reverse DROP.
TABLE OF CONTENTS
Eligibility and examples
Reverse DROP service requirements must meet the following criteria: Corrections, detention, probation, and surveillance officers must have at least 24 years of service, while dispatchers must have at least 25 years. Additionally, Reverse DROP is not available to members who are applying for or have already received accidental, ordinary, or total and permanent disability benefits.
Example (1): A corrections officer with 25 years of service can elect a reverse DROP lump sum payment for 1 to 12 months to ensure they meet the minimum 24 years of credited service for retirement. So, if the member elects a 12-month lump sum payment, the monthly retirement benefit and lump sum payment will be calculated based on the service and salary at 24 years.
Example (2): A dispatcher with 30 years of service can elect a lump sum payment for 1 to 60 months to ensure they meet the minimum 25 years of credited service for retirement. So, if the member elects a 60-month lump sum payment, the monthly retirement benefit and lump sum payment will be calculated based on the service and salary at 25 years.
Electing reverse DROP
To confirm reverse DROP eligibility and receive an official monthly pension estimate and reverse DROP payment estimate, members must complete and send PSPRS the PS-CORP Retirement Estimate Form, taking care to enter that they request an estimate only (not a request to retire or enter reverse DROP) and to include a desired reverse DROP entrance date. Employer signatures are not required for pension benefit estimates.
After a member has confirmed reverse DROP eligibility and received and reviewed their monthly pension and reverse DROP payment estimate, retiring with reverse DROP requires re-submitting the one-page PS-CORP Retirement Estimate Form noting intent to enter reverse DROP with a desired reverse DROP entrance date and an employer signature. PSPRS communicates with employers to ensure that member and employer pension contributions are discontinued on the members retirement date, at which point retirement and reverse DROP participation is irrevocable. At this time, PSPRS sends members final forms for completion, begins to distribute monthly pension benefits and transfers the lump sum reverse DROP payment to a 401(a) retirement account within the Public Safety Personnel Defined Contribution Retirement Plan (PSPDCRP).
Receiving interest and reverse DROP account management
The interest rate applied to reverse DROP lump sum payments is equal to the rate of the 5-year treasury bill rate, as set by the Federal Reserve Board. Reverse DROP balances, including interest are transferred to the retiree’s 401(a) account within the PSPDCRP. These accounts are automatically set up for reverse DROP retirees.
PSPDCRP 401(a) account balances earn tax-deferred interest, meaning that income is not taxed until withdrawn in retirement. Retirees can choose their investments within their defined contribution accounts managed by Nationwide Retirement Solutions. Please note that reverse DROP balances by default are transferred into a fixed money market account that earns risk-free interest.
The benefit available upon retirement through the PSPDCRP is determined by both the amount of reverse DROP account balances and investment performance of the funds chosen by participants. Defined contribution plans are a proven wealth and retirement security building tool, but participants bear the risk of market volatility and economic conditions.
For additional information, members can review the AZ PSPDCRP Plan overview and the CORP Summary of Plan Provisions.
Participants in the 401(a) plan can visit http://www.psprsdcplan.com/ or contact Nationwide Retirement Solutions by calling 1-855-297-8228 or emailing [email protected] for assistance.
Education services
Members are encouraged to contact PSPRS for consultation services to request benefit estimates, retirement packets and other functions.
PSPRS has contracted with Public Safety Financial/Galloway for the purpose of providing member benefit education. PSPRS does not endorse any fee-based asset management services for our members. Additionally, members may always choose their own financial and investment counseling. Public Safety Financial/Galloway can be contacted by phone at (480) 325-8668 or in-person at:
1138 N. Alma School Rd., Suite 201
Mesa, AZ 85201
or online at: https://galloway911.com.
Additional information
For members required to split DROP lump sum account balance transfers, both taxable and non-taxable, to PSPDCRP 401(a) accounts with an alternate payee pursuant to court certified qualified domestic relations order (DRO), PSPRS will notify Nationwide Retirement Solutions. This will occur at the same time and in the same manner as member monthly benefit payments and will result in each party receiving their awarded amounts from Nationwide Retirement Solutions.