Deferred Retirement Option Plan
(DROP)
Glenda Chambers
Executive Director
Louisiana State Employees’ Retirement System

OVERVIEW

• Types of DROP Plans
• Implementation
• Advantages
• Disadvantages
• LASERS Experience
• Tips and suggestions

TYPES OF DROP PLANS

• Forward DROP
• Actuarial Equivalent DROP

Forward DROP

• Member elects to participate while still working
• Benefit is calculated as if the member retired
• Monthly benefit is paid into an individual DROP account

Actuarial Equivalent DROP

• At retirement, member elects to receive a portion of the benefit as a lump sum
• The future monthly benefit is actuarially reduced

IMPLEMENTATION

• Develop policies and procedures
• Computer system design changes
• Education of internal staff, legislature, reporting agencies, and members
• Accounting and tax considerations
• Legal considerations
• Actuarial considerations

ADVANTAGES

• Nest egg for retirement
• Members love it
• Retain skilled, experienced workers
• Reduced retirement contributions

DISADVANTAGES

• Delayed promotional opportunities for younger workers
• Existing retirees may view DROP as unfair
• Potential cash flow impact of withdrawals
• Reduced retirement contributions
• Increase in accounting responsibilities
• Increase in counseling and administration

LASERS EXPERIENCE

• Average of 1,625 retirees per year
• 58.7% enter DROP
• 9.6% take actuarial equivalent DROP
• 31.6% “regular” retirees
• 8,192 DROP participants in 10 years
• Total DROP deposits = $402 million
• Total interest paid = $72.5 million
• Education was a challenge
• Legal challenges to law
• Legislative changes threatened “neutral” cost design
• Doubled work load after 4 years

TIPS

• Review other plans
• Consult professionals - especially the actuary
• Be conservative
• Educate key legislators
• Use very specific language in bill
• Expect the unexpected