The DROP’s premise is simple:  Encourage workers eligible for retirement from a defined benefit plan to continue working for some additional period of time. 

During this period of continued employment, up to a maximum of five years, employees continue to draw a salary.  Officially, they are considered retired. They do not draw two paychecks; the monthly pension benefit accumulates in a deferred account and the officer does not have access to the money. The maximum years of employment (credited service plus DROP) cannot exceed 27 years. 

Police officers and firefighters are eligible to enter into a DROP program after 20 years of service.  DROP stands for Deferred Retirement Option Plan, which allows you to retire and begin accumulating your retirement benefits, without terminating employment. The normal monthly pension benefit payments are placed in a separate, tax-deferred account, until the DROP period ends. 

During the DROP period, instead of having compensation and additional years of service taken into account for purposes of the defined benefit plan formula, the pension benefits are frozen. Despite working an additional period of time and perhaps earning a higher final salary – which could entitle

you to a larger pension payment – you instead receive a smaller monthly pension check throughout retirement.

The deferred account earns interest (based on the retirement plan’s assumed rate of return). When the DROP period ends, the employee must terminate employment.  The DROP account can then be taken as a lump sum, or rolled over into a qualified plan.  At that time, retirees begin receiving their monthly retirement benefit paid directly to them.

Advantages of DROP Participation:

Both the public safety officer and the employer benefit from the DROP program. 

• DROP can provide additional financial security for your retirement if your DROP accumulation is rolled over into an eligible retirement plan. The interest you earn on your DROP may be more than enough to replace the value of your lower retirement benefit (which will be less because you stopped earning retirement service credit when you retired and entered DROP).
• DROP provides employees with an optional method of retiring – not an additional retirement benefit. 
• DROP is an enhancement to your police and firefighter pension plan that can provide you with another way to save for your retirement years.

• DROP provides an immediate contribution savings because the employer does not make pension contributions on the salaries of those employees who work during the DROP period. The actuarial gains serve to lower the ongoing employer cost of the plan.
• DROP produces budget savings through reduced recruitment and training costs. 
• DROP enables employers to retain valued employees who are eligible to retire and to plan dates certain when employees will terminate employment. 
• DROP reduces pension costs because the last five years of service cost more in pension contributions than earlier years.  
  
  

Potential Disadvantages of DROP Participation: 

Your total future monthly income will be lower than you would have earned by participating in the normal retirement plan for up to five more years.

DROP participants are not eligible for either disability or pre-retirement death benefits under the pension plan.