Deferred Retirement Option Plan
The Deferred Retirement Option Plan, commonly known as DROP, is a retirement benefit that allows Tier 1 public safety members who are already eligible for retirement to continue working while collecting a salary and accumulating monthly pension benefits that will become available upon retirement.
A monthly retirement benefit is calculated based on the salary and credited service earned at the time a member elects to participate in DROP. That amount is deferred each month and generates interest while the member continues to work for their employer for up to 60 months. Under certain conditions, members can extend their participation in DROP for up to 24 additional months.
While DROP provides a source of retirement income, it is important to recognize a potential drawback. Once in DROP, members will not continue to contribute towards their pension or add credited service to their PSPRS employment record. This means that any future salary increases or additional years of service won’t apply when calculating pension benefits when exiting DROP.
Below is a table of contents to help members and employers understand DROP:
TABLE OF CONTENTS
Eligibility
Deferred retirement is a benefit reserved for Tier 1 public safety members and is not available to Tier 2 and 3 members. There are two eligibility requirements: The first being to enter DROP for up to five years and the second is for extending DROP beyond five years.
- DROP entry requirement: 20 years of credited service
- DROP extension requirement:
- Members who entered DROP prior to July 6, 2022, may elect to extend deferred retirement with the approval of their employer
- Members who entered DROP after July 6, 2022, may elect to extend deferred retirement if they were at least 51 years old and had 24.5 years of credited service at the time they entered DROP
Download a pdf of extended DROP frequently asked questions.
Entering DROP
Members considering entering DROP are encouraged to first login to Members Only and review their years of service and receive an estimated monthly pension benefit.
To confirm eligibility and receive an official monthly pension estimate, members must complete and send PSPRS the PS-CORP Retirement Estimate Form application, taking care to enter that they request an estimate only (not a request to retire or enter DROP) and to include a desired DROP entrance date. Employer signatures are not required for pension benefit estimates.
After a member has confirmed deferred retirement eligibility and received and reviewed their monthly pension estimate, entering DROP requires re-submitting the one-page PS-CORP Retirement Estimate Form noting intent to enter DROP with a desired DROP entrance date and an employer signature. PSPRS communicates with employers to ensure that member and employer pension contributions are discontinued on the DROP entry date, at which point DROP entrance is irrevocable. At this time, PSPRS sends members final forms for completion and their monthly pension benefits will be deposited into DROP accounts and begin accruing interest.
Members already in DROP may extend their deferred retirement service if eligibility requirements are met. Members who entered DROP prior to July 6, 2022, must check with their employers to extend their deferred retirement service past 60 months. Employers are required to provide permission through the Members Only portal. Members who enter DROP after July 6, 2022, and meet age and service requirements, will have their DROP automatically extended if they have not filed a notice to retire by the end of their 60th month in DROP.
Earning interest
Member DROP account balances held by PSPRS generate a guaranteed annual interest equal to the assumed earning rate set by the PSPRS Board of Trustees. Pension benefits accrued through DROP and interest are tax deferred, although DROP accounts may include an amount of taxed contributions (see additional information section below for more on this topic).
Exiting DROP and receiving benefits
To exit DROP, members must terminate employment with their employer and officially retire. Members exiting DROP must complete and send PSPRS the PS-CORP Retirement Estimate Form and select the “Exit DROP” option and enter a termination date up to 60 months, or five years, from the DROP entry date. Upon receipt, PSPRS will provide members with a retirement packet to complete before distributing monthly pension benefits.
Upon retirement, accrued DROP balances are transferred in a lump sum to individual 401(a) accounts within the Public Safety Personnel Defined Contribution Retirement Plan (PSPDCRP). These accounts also receive DROP balances and ongoing monthly pension benefits when members extend DROP participation beyond five years; at which time interest accrued from PSPRS ceases.
PSPDCRP 401(a) account balances earn tax-deferred interest, meaning that income is not taxed until withdrawn in retirement. Both active extended-DROP members and public safety retirees can choose their investments within their defined contribution accounts managed by Nationwide Retirement Solutions. Please note that 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 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 PSPRS 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.