State of Alabama

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Alabama Deferred Retirement Option Program (DROP)

DROP Overview

Deferred Retirement Option Program (DROP) is an optional program in which members of a defined benefit plan choose to freeze their regular monthly retirement benefit and have it deposited each month into a separate account with their employer while continuing to work for and draw a salary from their employer.

If you’re age 55 or older (age 52 for state police) with 25 or more years of credited service under the Retirement Systems of Alabama (RSA), you may enter a DROP program with your employer. Under the DROP program, you must voluntarily and irrevocably elect to enter into the program with your employer for a minimum period of 36 months to a maximum period of 60 months. During the DROP period, you remain in the employment of your employer as a full-time employee. Member and employer contributions continue to be made to the system. Employee and employer contributions earn 4% interest while in DROP and are paid to the member’s DROP account at the end of the selected DROP duration. The member's monthly pension is calculated based upon the years of credited service and average monthly compensation at the beginning of the DROP period. This monthly pension amount is also credited to the DROP account and earns interest (currently 4%).

At the end of the DROP duration, currently, the state permits each DROP participant to either take a lump-sum payment, or roll over the full amount into a tax-qualified plan [such as an IRA, 403(b), or 457(b) of a governmental employer].

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