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DROP Could Be Improved by Defining Its Purpose, Standardizing Requirements, and Ensuring That Benefits Are Equitably Funded, Report No. 10-28, March 2010
 
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  • The Deferred Retirement Option Program (DROP) allows Florida Retirement System (FRS) Pension Plan members to officially retire but continue working for up to five years; the program is optional and available to all FRS Pension Plan participants. During this period, these employees continue to receive their regular salary while their pension payments accumulate in the FRS Trust Fund. State law provides for a 6.5% annual interest rate and a 3% cost of living adjustment; the cost of living adjustment is applied annually to all FRS pensions. Although the FRS incurs additional costs to fund DROP, there is substantial cost shifting between employer groups because the system uses a single contribution rate for all participants. As a result, entities such as school districts that primarily employ workers in FRS’s Regular Class subsidize contributions for other entities that have DROP participants in other retirement classes, such as Special Risk.
  • At least 12 other states offer programs similar to DROP, although these states have varying eligibility and participation requirements. Recent legislation changed FRS reemployment provisions that affect all retirees, including DROP participants. The Legislature could consider additional changes to DROP, such as defining the program’s purpose, establishing contribution rates for the varying retirement classes that include DROP, standardizing participation requirements, changing the interest rate guarantee on DROP accounts to a level that matches current economic conditions, or eliminating the program.

Which Government Program Summaries contain related information?

State Board of Administration of Florida
Retirement Benefits Administration

What other OPPAGA-related materials are available?

  • Report No. 10-29 FRS Defined Contribution Plan Costs Are Typically More Predictable; the Fiscal Impact of Requiring New Employees to Enroll in the Plan Is Influenced by Many Factors,published in March 2010.
  • Report No. 10-19 Florida Retirement System Funds and Investment Returns Declined with the Economy; the SBA Reports That Its Investment Strategy Is Designed to Withstand Losses,published in February 2010.
  • Report No. 10-15 Several Options Are Available for Modifying the Florida Retirement System’s Class Structure to Reduce System Costs,published in January 2010.

Copies of this report in print or alternate accessible format may be obtained by telephone (850/488-0021), by FAX (850/487-9213), in person, or by mail (OPPAGA Report Production, Claude Pepper Building, Room 312, 111 W. Madison St., Tallahassee, FL 32399-1475).
e-mail address: oppaga@oppaga.fl.gov


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