The Deferred Retirement Option Plan (DROP) is an optional benefit that allows eligible police officers and firefighters to accumulate a lump sum of money for retirement.

How DROP Works

OP&F members who are eligible for a normal service retirement (48 years of age or older with 25 years or more of service credit) can enter the DROP program by delaying retirement and continuing to work as police officers or firefighters. Upon the DROP effective date, a member’s pension is calculated as if that were the date of retirement. While they continue to work and draw their normal salaries, the amount they would have received in retirement benefits, plus annual 3% cost-of-living adjustments (COLAs), accumulate tax-deferred at OP&F on their behalf. As the DROP participant continues to work, a portion of their OP&F employee contribution, plus 5% interest, also accumulates into DROP.

When members end their active employment and retire, which terminates their DROP participation, they begin to receive their monthly pension that was determined on their DROP effective date (plus COLAs) and will be eligible for health care benefits based on the eligibility guidelines in place at the time of their retirement. Members can begin to withdraw funds from their DROP accrual in a lump-sum payment or installments, as long as three full years have elapsed from their DROP effective date.

DIRECT ROLLOVER OF YOUR DROP FUNDS

You have the option to rollover all or some of the taxable “pre-tax” contributions and non-taxable “after-tax” contributions to another qualified pension plan, a qualified 401(a) plan (certain restrictions and limitations may apply), 403(a) plan, 457(b) deferred compensation plan, 403(b) tax-sheltered annuity, or to an IRA. There are restrictions on which plans can accept a rollover of the non-taxable “after-tax employee” contributions, so you should consult with the plan of your choice before making any elections for a direct rollover. Plans are also required to provide separate accounting for both the taxable and non-taxable portions of any rollovers that they accept. If you elect to rollover all or some of your eligible DROP funds, OP&F will make the check for the rollover amount payable to the trustee or pension plan you select.

The above paragraph "Direct Rollover of Your DROP Funds" was obtained from section E of the DROP Distirbution Request Form.
TAXATION OF DROP BENEFITS

Tax Treatment of DROP Payment and Rollover Options

A DROP lump sum distribution can generally be rolled over into an Individual Retirement Account (IRA), Deferred Compensation or any qualified plan that will accept these funds. If a member elects to have DROP assets rolled over to an eligible retirement plan, no taxes are due on the DROP assets until the member withdraws these funds from the eligible retirement plan. Members who then withdraw money from their rollover account prior to age 59 ½. (As of January 1, 2007, can now withdraw DROP money at 50.) may be subject to additional tax withholdings.