Q 1: What is DROP?
A: Deferred Retirement Option Plan (DROP).
Q 2: Who is eligible?
A: Any Retirement Systems of Alabama (RSA), Teachers' Retirement System (TRS) or State and County Officers and Employees' Retirement System (ERS) participant who is age 55 or older (age 52 for state police) with 25 or more years of credited service. You must remain in the full-time employment of your employer for up to five years. You must have the DROP application to TRS/ERS at least 30 days, but no more than 90 days, before the effective date of participation. The effective date must be the first day of a month.
Q 3: How long can I participate in DROP?
A: The minimum DROP period is 36 months and the maximum is 60 months. A penalty will result for members who voluntarily terminate employment or withdraw from DROP in the first three years of participation. There is no penalty for involuntary termination, disability, involuntary transfer of his/her spouse, or death of the participant in the first three years.
Q 4: Are employer benefits available during DROP?
A: Your employer/employee relationship is not changed by DROP, and participation in DROP is not a guarantee of your continued employment. There is no penalty for termination of employment during the DROP period.
Q 5: How much will a DROP account earn?
A: Currently, monthly retirement benefits earn 4% annual interest compounded monthly.
Q 6: How can I receive distributions or roll over my DROP account?
A: No distributions will be made until the member terminates employment with any RSA participating agency. DROP participants have one of two ways in which to distribute the funds in their DROP account. You can receive a lump-sum payment of the total DROP account balance less the required 20% federal income tax withholding. No portion of the distribution is subject to state of Alabama income tax. Your other option is to roll over the account balance to a traditional IRA, or another employer retirement plan such as a 403(b) or governmental 457(b) plan (if the plan allows for rollovers).
Q 7: When do I have to make an election to participate?
A: A member is eligible to apply to enter DROP whenever he/she meets the requirements for participation [25 years of service and age 55 (age 52 for state police)].
Q 8: What happens to my sick-leave balance at DROP?
A: Sick-leave balances are paid in accordance with Alabama law and employer policy, subject to the 401(a) terminal pay calculation (if applicable) but are not included in calculating years of service. Participants in DROP will continue to accrue sick and annual leave. At the time the member leaves service, the monthly retirement allowance will be recalculated to include accrued sick leave. However, the number of days converted cannot exceed the number of days the participant had on the date he or she entered DROP.
Q 9: What happens if I change my mind about participating in DROP?
A: Upon entering DROP, you may withdraw your election. However, voluntary termination prior to three years of DROP will result in forfeiture of all employer contributions and interest. Member contributions plus interest (currently 4%) attributable to the monthly retirement benefit contributions made to the DROP account during the DROP participation period remain. (Please see the Alabama DROP Manual.)
Q 10: How will my DROP account be distributed?
A: You can elect to receive a lump-sum payment or roll over your funds directly to a tax-qualified plan.
Q 11: What happens when the DROP period ends?
A: You are not required to terminate employment. Contributions stay in the account earning 4% interest until termination of employment. Upon termination, you will have all regular distribution options available.
Q 12: How can I estimate my benefits?
A: To estimate your benefits, you can request an audit from RSA, DROP Benefits information. You may refer to this site or the RSA Web site at www.rsa.state.al.us.
Q 13: How do I enroll in DROP?
A: To enroll, you must submit the following forms to your employer's retirement office prior to the DROP effective date: (1) Notice of Election to Participate in the DROP and Resignation of Employment (DP-ELE); and (2) Application for Service Retirement and the DROP (DP-11 for RSA members, DT-11 for TRS members, DS-11 for SCOERS members).
Q 14: What forms do I need to take a lump-sum payment or roll over my DROP?
A: To either receive a lump-sum payment or make a rollover of the DROP account, you must complete the following forms: (1) Request For Distribution For Drop (RSA 10 D-D) form; and (2) Request For DROP Termination (TRS 10 D-C) for TRS members or (ERS 10 D-C) for ERS members.
Q 15: What happens if I die or become disabled during the DROP period?
A: If a member dies anytime during the DROP participation period and the beneficiary is the spouse, the spouse may elect to receive the following contributions in either a lump-sum payment or make a direct rollover to a qualified plan. Non-spouse beneficiary(s) may only receive the following contributions in a lump-sum payment:
• The monthly retirement benefit contributions plus interest (currently 4%). These contributions are based on the retirement option elected upon entering the DROP.
• Member contributions made to DROP plus interest (currently 4%). A member who did not fulfill his/her DROP obligation due to involuntary termination, disability, or involuntary transfer of spouse in the first three years of DROP participation may elect to receive the following contributions in either a lump-sum payment or make a direct rollover to a qualified plan.
• The monthly retirement benefit contributions plus interest (currently 4%). These contributions are based on the retirement option selected upon entering DROP.
Q 16: What are my tax-deferred rollover options?
A: Eligible retirement plans include:
• IRAs (Individual Retirement Accounts or Annuities);
• Qualified retirement plans [401(a), including 401(k);403(a)]*;
• 403(b) arrangements;
• 457(b) plans of governmental employers.*
*If the plan allows such rollovers.
Q 17: What are the advantages of a DROP?
A: In addition to simultaneously earning a salary and accumulating retirement income, advantages include:
• providing financial security for retirement;
• providing inheritance for a beneficiary not eligible for a continuing benefit under RSA;
• accumulating a lump sum, no set maximum employment date.
Q 18: What are the disadvantages of a DROP?
A: •you must select the program in advance of your termination.
• the program reduces your monthly pension benefit for the rest of your life if you would have continued to contribute under RSA.