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D.R.O.P. AT A GLANCE

 

What is DROP?

 

DROP is an acronym for the Deferred Retirement Option Program, which was implemented on July 1, 1998 by the Florida legislature to provide an alternative method for payment of retirement benefits. It is administered by the Florida Retirement System Pension Plan (FRS).

 

How does DROP work?

 

DROP participants can choose to retire from the FRS but must continue to work with the state for a period of no more than 5 years after entering the program. During the 5 years, retirement earnings are directed into a state interest-bearing DROP account until the employee terminates his or her service.

 

When is a Regular-Class FRS employee eligible to enter DROP?

 

When the employee is:

Ø      Is at least 62 years of age and has been in the system for six years; or

Ø      Has worked in the system for 30 years.

 

What makes the DROP decision so important?

 

For many participants, it is the single largest sum of money they will ever have. Average sum of money accumulated is between $50,000- $200,000 dollars.

 

What is the deadline, and what are my options?

 

In June 2003, the first group of Florida public employee participants who have signed up for DROP will be retiring. A decision must be made and specified to the FRS of how DROP funds will be distributed within 60 days of termination date.

 

Options include:

1.      Take a lump-sum payment,

2.      Roll the full amount into a tax-qualified plan such as a 401(a), 403(b), 401(k), 457(b) or an IRA, or

3.      Roll part of the DROP account into a tax-qualified plan and take the remainder in cash.

 

For more information, call toll-free 1-866-FLA-DROP (1-866-352-3767), or log on to www.fldrop.com.

 

 

DROP question, we have answers.

 

 

In life, we all have decisions to make. Some are easy: Chocolate or vanilla. Black shoes or brown shoes. Broiled or fried. Other decisions, well they are not so easy, especially when money is involved.

 

Retiring participants in Florida’s Deferred Retirement Option Program (“DROP”) will very soon be faced with what for many is the single most important financial decision they will ever make. For them, it’s an exciting – but also challenging time. Charting a new personal course in life presents many opportunities; deciding what to do with DROP money raises many questions:

 

Ø      What are my filing deadlines?

Ø      What options do I have?

Ø      What choices are right for me?

Ø      Will I be taxed on this money?

Ø      Should current market conditions affect my decision?

Ø      How do I stay ahead of inflation?

Ø      Who can I trust?

 

“It’s important to realize that your decision cannot be made in a vacuum,” said Ed Baum, Regional Vice President, for AIG VALIC, a financial services and retirement planning company. “You have to factor your overall financial and retirement goals and realities into your decision.”

 

Think about the sources of your retirement income, such as distributions from any retirement savings accounts, Social Security, pensions, etc., Baum said. And think about how much money you will need in your retirement – or if you’re even ready to retire.

 

Ask yourself what kind of lifestyle you want to maintain in retirement – do you want to maintain your existing lifestyle or travel the world? Have you thought about future income needs?

 

If you are a retiring DROP participant, you must tell the Florida Retirement System how you want your DROP funds distributed within 60 days of your termination date. Participants can take a lump-sum payment, roll the full amount into a tax-qualified plan such as an IRA, or roll part of the DROP account into a tax-qualified plan and take the remainder in cash.

 

“It’s critical that people fully understand the tax ramifications of each choice,” cautioned Baum. “If they don’t, they could be in for a surprise come tax time.”

 

If you choose to roll over your account, deciding which provider to roll it to is important. You must have confidence in that company to provide the kind of service you prefer and you should consider a company with a variety of investment options to meet your retirement goals and objectives. Your provider also must have the knowledge and experience to help you manage your retirement assets.

 

Be wary of any person or company that does not listen to you or tries to push one investment product over another without regard to your personal situation, Baum said. “You are an individual and you deserve to be treated like one,” he said. “A good financial adviser will help you see how your decision fits into your overall financial picture.”

 

For answers to specific DROP questions, call toll-free 1-866-FLA-DROP (1-866-352-3767), or log on to www.fldrop.com.

 

Retirement Savings

When it comes to putting money aside for retirement, a 403(b) retirement savings plan is what you need. With a payroll deducted 403(b) retirement savings plan, all contributions are pre-tax, and your savings grow tax-differed. That means you will save more and have your savings grow faster. Consider this: $50/pay going into regular savings account will grow to be worth $69,000 in 30years. $50/pay going into a 403(b) will likely be worth over $312,000 in 30 years. With a 403(b) you will have more money at retirement. More money does not guarantee happiness, but it sure helps. Unless your idea of retirement is checking out books at the library, you need a 403(b).

More resources available in the MCEA office.

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