What is DROP?
The Deferred Retirement Option Program (DROP) lets you retire on paper while still working. Your pension is locked in the day you enter DROP — you stop accruing additional service credit, and your AFC is fixed. Each month, your pension benefit is deposited into a DROP account that earns interest. When you terminate employment (up to 96 months later), you receive the accumulated lump sum and begin collecting your monthly pension.
Who can enter DROP?
Any FRS member can enter DROP once they meet normal retirement criteria. For Special Risk Class, that means age 55 with at least 6 years of service (pre-2011) or 8 years (post-2011), or 25 years of service regardless of age. For Regular Class, that means age 62 with 6 years (pre-2011) or age 65 with 8 years (post-2011), or 30 years of service (pre-2011) / 33 years (post-2011). As of 2023 legislation, the prior 12-month entry window has been eliminated, giving members more flexibility on when to enter.
How does the lump sum grow?
Your monthly pension is deposited into the DROP account each month and earns interest at an effective annual rate. The rate is set by the date you begin DROP participation, not your enrollment date: members who began DROP before July 1, 2011 earn 6.5%; for members beginning DROP on or after that date, the rate was raised from 1.3% to 4.0% effective 7/1/2023. Interest is compounded monthly, so a 60-month DROP at $5,000/month with a 4% annual rate accumulates to roughly $331,000.
Does COLA apply during DROP?
Yes — but only on the portion of service earned before July 1, 2011. The COLA formula prorates: (pre-2011 years / total years) × 3%. A member with all pre-2011 service receives a full 3% COLA each July 1 during DROP. A member with no pre-2011 service receives no COLA during DROP.
What are the trade-offs?
Entering DROP locks in your pension at the entry date — you stop earning the per-year multiplier on additional service (3% for Special Risk, 1.6% for Regular Class) and your AFC stops growing with future raises. The "value" of DROP comes from the lump sum and from continuing to receive a salary while your pension accumulates. Whether DROP makes sense for any individual depends on factors only that person and their financial advisor can weigh: career plans, retirement timing, lump-sum tax treatment, expected investment returns, and family circumstances.
What happens to the lump sum at termination?
At DROP termination, you can take the lump sum as cash (subject to federal income tax) or roll it into a qualified retirement account such as a 457(b), traditional IRA, or other eligible plan. Rolling over defers the tax until withdrawal. Receiving it as cash adds the entire amount to your taxable income for that year, potentially pushing you into higher federal tax brackets.
How is the lump sum taxed if taken as cash?
When a DROP lump sum is paid directly to the participant rather than rolled over via trustee-to-trustee transfer, the plan administrator is required by federal law (IRC §3405(c)) to withhold 20% of the taxable amount for federal income taxes. This is mandatory withholding — not a penalty and not your final tax bill. The actual tax owed depends on your marginal tax bracket after the lump sum is added to your other taxable income for that year, which could be higher or lower than 20%. A direct rollover to a qualified plan (such as a governmental 457(b) or Traditional IRA) avoids the 20% withholding entirely because the funds never pass through your hands. If you receive a check and then attempt to roll over the full amount within 60 days (an "indirect rollover"), you must replace the 20% that was withheld from your own funds — otherwise the withheld portion is treated as a taxable distribution. Separately, distributions taken before age 59½ may be subject to a 10% additional tax under IRC §72(t). This is a different mechanism from the 20% withholding. Qualified public safety officers who separate from service after age 50 or after 25 years of service are exempt from this additional tax on distributions taken directly from the governmental plan under §72(t)(10) — but rolling the funds to an IRA first generally forfeits that exception for later IRA withdrawals.
What is the six-month termination requirement?
After your DROP termination date, you must have a bona fide termination of employment — meaning you cannot be in an employment relationship with or provide services to any FRS-participating employer for six full calendar months. This applies to all FRS employers, not just your most recent one, and "employment" includes the provision of services in any capacity. Violating the six-month requirement can void your entire retirement, including your DROP accumulation and payout. Both you and the FRS employer are held jointly and severally liable for repayment of all retirement benefits received. There are no exceptions to this requirement. If you are reemployed by an FRS employer during months 7 through 12 after termination, your monthly retirement benefit is suspended and forfeited for those months. After 12 months, there are no restrictions on receiving both a salary and a retirement benefit while working for an FRS employer. As of July 1, 2023, volunteer services that meet the criteria under s. 121.091(15), F.S. do not constitute employment — so participating in an employer's qualified volunteer program during the six-month period does not trigger a violation.