How does a DROP plan work?

[Hawkman]

I am nowhere near retiring yet, however I am curious how does a DROP plan work? My retirement system has a lump sum option that makes your monthly pension a little bit smaller depending on the number of year lump sum you take. The max lump sum is the equivalent of 36 months salary.

The retirement system also has a DROP plan that you can choose to participate in. It has very little explanation on how it works. Te lump sum and the drop plan are two different things in the retirement plan.

Anybody out there ever participate in a DROP plan? How does it work?

[Frank Booth]

I'm sure there are variations, but here's the way one works: You get your 25 years in, or 20, or 30 or whatever your normal pension requires. You sign papers at that point that say you are effectively retired, which means you get no more raises and you can't work past 3 more years, or however many years are the maximum for the DROP (Deferred Retirement Option Plan). So...You work up to 3 more years, (for instance) and keep getting paid your regular amount. During this period, the money you would have received in pension payments goes into your DROP account, to be invested per your directions like a 457 plan (401K). Many places hate to see their experienced cops retire at a young age. Not because they like them so much, but I guess because they benefit from having them around longer. They don't have to hire a new guy, train him, pay of his lawsuits etc.....A lot of young to middle time on the job guys don't like it because it keeps supervisors around longer who would ordinarily have retired and opened up a spot.

After you do your 3 years, your DROP account can be pretty high depending on how the stock market did, if you're invested in mutual funds for example......I don't think $300,000.00 is an exaggeration. Then you retire and live happily ever after and hope that you don't die soon and have to think about your best friend with his feet up on your coffee table spending your money with your wife.....

[bluegoose]

My Department has instituted the DROP program for retirement eligible people. Participants join the program and have up to six more years to work - after that, they're forced to leave - no going back to pre-DROP status. The longer you stay in the program, the greater the percentage of your retirement pay that goes into the DROP account - up to 100% during the sixth year. In my Dept, your allowed to promote during that six years (and you can also leave at any point), but your hourly rate calulated for DROP payment purposes does not increase. The caps on your sick and annual time are much lower.

The negative side of this program, which isn't often mentioned, is that the younger seniority people are shafted. Their normal path to transfer and promotion is seriously impeded - and beyond that, there's no guarantee that the DROP program will be around when they're eligible for it. Another negative is the fact that many DROP participants - although experienced personnel - aren't always the same "go-getters" they were 10-15 years prior. And is some cases, their current work product simply s*cks - but they're allowed to participate in the program because there's no screening process. Make you wonder if the Departments are REALLY getting their biggest bang for their buck here.

[Hawkman]

Thanks so much guys that really clears up my questions on the DROP plan. It sounds like something definitely worth doing.