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What is a DROP?
DROP stands for “Deferred Retirement Option Program”. Members who have COA ERS Creditable Service (see Creditable Service/Membership) that exceeds COA ERS’ retirement eligibility requirements (see Retirement) may elect to “DROP-back” a portion of their Creditable Service time. The DROP allows a Member to receive a lump-sum payment in addition to receiving a monthly annuity based on the Final Average Earnings (see Retirement) and years of Creditable Service at the beginning of the DROP period. A DROP period can be no earlier than: Day of first retirement eligibility; Date of last purchase of Creditable Service of any type other than Sick Leave Conversion; or, 60 months (in one-month increments) prior to the retirement date. Since the Creditable Service and Final Average Earnings for the DROP period are included in the DROP lump-sum, any Creditable Service and Final Average Earnings for that period will be excluded when determining the Member’s monthly retirement benefit. The Member would receive a lump-sum payment equal to 90% of the sum of the monthly annuities the Member would have received if the Member had retired at the DROP entry date. DROP accounts may be rolled over to other qualified plans, paid in one lump-sum to the Member, or a combination of both. DROP payments made directly to the Member are subject to a mandatory 20% federal tax withholding. Members who receive a DROP payment before the year in which they reach age 55 are subject to IRS penalty for early withdrawal of the funds. This penalty only applies to funds paid directly to a Member. Funds rolled over to an IRA or other qualified plan are not taxed until distributed. The DROP payment is issued at the same time as the first monthly retirement benefit check. Cost-of-living adjustments, interest, and Member or City of Austin employer contributions do not increase the monthly amount credited to the DROP.
Creditable Service/Membership | Contributions | Proportionate Service | Service Purchases
Retirement | Lump-Sum Payments | Retirees Working for the City of Austin | Retiree Health Insurance
Leaving City Employment | Other Information
The Frequently Asked Questions document is intended to provide general information to Members. Member specific questions should be directed in writing to the COA ERS Staff. If there is any difference between the information provided in this document and the law or policies that govern COA ERS, the law and policies will govern.
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