Exiting DROP - Next Steps

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As Fiduciary Financial Planners we cannot stress enough that most people retiring with DROP do not need an annuity. Our approach to retirement planning is comprehensive, taking into account your individual goals and preferences. We aim to create a retirement plan that instills confidence in you. Additionally, we provide convenience by offering on-site notary services to assist with completing any necessary forms.

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What about my lump-sum annual leave payment?

You can opt for a lump-sum payment of your accrued annual leave when you enter DROP or after your DROP participation. If taken at entry, up to 500 hours can count toward your benefit calculation. If your employer reports the amount on your monthly payroll report when you start DROP, it's included in your retirement benefits. If received at the end of DROP, it won't affect your retirement benefits.

What happens when my DROP participation ends?

To receive your DROP and monthly pension benefits, you must end all employment with FRS employers. After DROP termination, retirees can join FRS employer volunteer programs for civic or charitable work within the first year. Submit the DROP Termination Notification Form (DP-Term) for verification, and once confirmed, you'll receive monthly benefits on the last working day. Your DROP payout, distributed after termination, can be a lump sum with taxes withheld, a direct rollover, or a combination. Certain employee contributions may yield tax-free lump sums based on the Simplified Method. If no distribution method is chosen within 60 days post-DROP, a lump sum is issued with 20% withheld for taxes, sent to your registered address.

How will my DROP benefits be taxed?

If you transfer your DROP accumulation to another eligible retirement plan, you won't owe taxes until withdrawal. Lump-sum payments are taxed as income, with 20% withheld for taxes by the IRS. Additional taxes may apply if you withdraw early, depending on your age. Consult IRS or a tax advisor for details.

What forms must I complete?

To terminate my DROP participation: You need to submit the DROP Termination Notification Form (DP-TERM) to confirm employment termination and the DROP Selected Payout Method Form (DP-PAYT) to choose how your accumulated benefits are paid out. For Option 4 benefits, provide DROP Joint Annuitant Verification (Form DP-JOINT). Three months before your scheduled termination, you'll receive a packet with these forms. If you terminate earlier, inform the Division of Retirement to receive the packet. Your new termination date must be within your authorized DROP participation period.

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MyFRS Financial Guidance Program. "FRS Programs." MyFRS, https://myfrs.com/FRSProgram.htm. Accessed 11 Sept. 2024.