Deferred Retirement Option Plan (DROP)

DROP is an optional program in which eligible TRSL members may choose to freeze their regular retirement benefit and to have that benefit deposited in a special account at TRSL, while still working and drawing a salary from a TRSL-reporting agency or school.

DROP does allow a TRSL member to build up savings, but it may not be a good idea for every member. Why? Because the amount of the retirement benefit is frozen when entering DROP, any raises received during DROP participation were obviously not part of the calculation performed when DROP began.

Because of the irrevocable nature of the program, it is extremely important that you thoroughly understand it before participating.

The DROP window begins when you are first eligible to retire, even if that is with 10 years of service credit at age 60.

You may continue to work after completing DROP. However, only after termination of employment, when regular retirement begins, do the accumulated benefits in the DROP account become available for withdrawal.

A member must be employed at the time of enrollment in DROP and must remain employed during DROP participation. A member who has retired or terminated employment is not eligible for DROP.

The decision to participate in DROP may be made only once and is irrevocable; that is, once DROP participation begins, a member cannot change his or her mind.

The member must specify the consecutive period of time of planned participation. This period can be as short as one month, cannot exceed two or three years, depending on the duration of the participation period for which the member is eligible, and may only be shortened by the participant's termination of employment or death. Once chosen, the participation period cannot be extended.

During DROP, a member's take-home pay may increase because neither members nor employers make retirement contributions to TRSL.

The 1993 Legislature created a 3-year DROP, effective January 1, 1994, which supplements the 2-year DROP option put into effect in July 1992. The new plan allows members to participate in DROP for a maximum of three years beginning on the date they first become eligible to retire and ending no later than three years and 60 days later. For this reason, no 20-year retirement eligibility is used.

The 60 days allows time for members to have their service credit certified by their employers.

Under the 3-year plan, Regular Plan members, to qualify for a benefit based on 2.5 percent of salary per year of service credit, must be:

• Any age with 30 years of service;
• At least age 55 with 25 years of service; or
• At least age 65 with 20 years of service (not normally the first retirement eligibility).

Regular Plan members, to qualify for a benefit based on 2 percent of salary per year of service credit, must be:

• At least age 60 with 10 years of service.

Plan A members may enter DROP:

• At any age with 30 years of service;
• At least age 55 with 25 years of service; or
• At least age 60 with 10 years of service.

Plan B members may enter DROP:

• At least age 55 with 30 years of service; or
• At least age 60 with 10 years of service.

Note: There are some restrictions in all plans on whether credit for military service can be used to meet eligibility.

The 3-year DROP "window" begins as soon as a member is eligible to retire with 10 years of service credit at age 60, if that is the first retirement eligibility the member reaches.

Members who enrolled in the 2-year DROP are not eligible for the 3-year option and cannot choose to extend their DROP participation.

Members who were eligible for the 3-year DROP on or before January 1, 1994, (i.e., those who were eligible to retire on or before that date) can go into DROP at any time for a 2-year participation. They don't have a window like those who became eligible after January 1, 1994.

Members who become eligible for the 3-year plan on or after January 2, 1994 (i.e., become eligible to retire on or after that date), do not have a choice of the 2-year DROP participation period. It is critical that members know the exact date on which they first become eligible to retire . If they do not, they may lose months or even years of DROP participation because, under the 3-year plan, the window of participation begins on the first day the member is eligible to retire.

If these members wish to participate in DROP, they must decide to do so within three years and 60 days following the date on which they are first eligible to retire. If they do not participate in DROP within that time period, they cannot participate in DROP at all.

A member may participate in DROP while on annual, sick, or sabbatical leave, or official leave without pay.

Members should apply for DROP or regular retirement up to six months in advance.

Members who wish to retire under the 20-year retirement-at-any-age provision (at 2 percent of average compensation per year of service credit) and Optional Retirement Plan members are not eligible to participate in DROP.

The retirement benefit deposited to the DROP account will be calculated using years of service credit and average compensation at the time the member enters DROP. Unused sick and annual leave will not be included.

Salary adjustments received during DROP participation are not used in the computation of a member's retirement benefit.

Continuing to work after DROP participation will increase the final retirement benefit but will never change the retirement benefit due to service before DROP.

Since DROP began, interest has been applied as follows: 11.98% for 1992-93 8.70% for 1993-94 5.22% for 1994-95 16.59% for 1995-96 12.32% for 1996-97 20.28% for 1997-98 13.49% for 1998-99 17.13% for 1999-00 0.00% for 2000-01* 0.00% for 2001-02* 0.00% for 2002-03* 9.35% for 2003-04 9.37% for 2004-05 15.15% for 2005-06 14.7% for 2006-07 4.65% for 2007-08 0.00% for 2008-09* * Actual interest earned by TRSL was negative. According to an attorney general opinion, no funds could be taken from DROP accounts, so 0% interest was posted.

Participants are not eligible for cost-of-living adjustments granted to retirees during the DROP participation period or during the period of continued employment after DROP. Participants will become eligible to receive future cost-of-living adjustments to their retirement benefit no earlier than one year after termination of employment.

Once the member terminates employment, unused applicable sick and annual leave will be converted and added to the retirement benefit.

The law provides that participation in DROP shall not change the seniority status or any other related benefits that an employee is entitled to as a condition of employment.

When the member completes DROP, the DROP account begins earning interest.

If you were eligible to enter DROP before January 1, 2004 , the account earns interest at an annual rate of 0.5% less than TRSL's actuarially realized rate of return. A table of past interest rates is shown at right. Members who are eligible to enter DROP before January 1, 2004, will continue to earn interest computed annually based on the system's actuarially realized rate of return, less the 0.5% administrative fee.

Act 962 of the 2003 Regular Session of the Louisiana Legislature changed the investment of DROP funds for members who become eligible to enter DROP on or after January 1, 2004. These accounts earn interest at the liquid asset money market rate less a 0.25% administrative fee for TRSL. Liquid asset money market returns for fiscal year 2009 averaged approximately 1.57%. This means members eligible to enter DROP on or after January 1, 2004, earned approximately 1.32%. The projected returns over a member's life expectancy (less the administrative fee) will be approximately 3.5% annually. Liquid asset money market rates are approximately the same as passbook savings account interest rates.

After terminating employment, members may withdraw funds from the DROP account in a single sum or in periodic payments, according to TRSL board policy and IRS regulations. The DROP account does not earn interest during the member's DROP participation.

Please see our DROP Handbook for more information. You can view and print a copies from this website or request copies from TRSL.