Office of Program Policy Analysis and Government Accountability
Office of Program Policy Analysis and Government Accountability

DROP Could Be Improved by Defining Its Purpose, Standardizing Requirements, and Ensuring That Benefits Are Equitably Funded

Report 10-28, March 2010

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Report Summary

  • 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.

Related Reports
  1. 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
    Report 10-29 March 2010
  2. Florida Retirement System Funds and Investment Returns Declined with the Economy; the SBA Reports That Its Investment Strategy Is Designed to Withstand Losses
    Report 10-19 February 2010
  3. Several Options Are Available for Modifying the Florida Retirement System's Class Structure to Reduce System Costs
    Report 10-15 January 2010
Copies of this report in print or alternate accessible format may be obtained by email OPPAGA@oppaga.fl.gov, telephone (850) 488-0021, or mail 111 W. Madison St., Room 312 Tallahassee, FL 32399-1475.
Copies of this report in print or alternate accessible format may be obtained by email OPPAGA@oppaga.fl.gov, telephone (850) 488-0021, or mail 111 W. Madison St., Room 312 Tallahassee, FL 32399-1475.
FRS, Retirement, Florida Retirement System, Division of Retirement, SBA, State Board of Administration, Deferred Retirement Option Program, DROP