Deferred Retirement Option Plan Calculator

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Inside PSPRS Deferred Retirement Option Plan
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Here Are A Few Examples Of Drop Vs Deferred Retirement

So, what might DROP and Deferred Retirement benefits actually look like in practice?

To illustrate the differences, lets look at how these programs might benefit a fictional member named Joe. Joe has 25 years of service and recently became eligible for a normal retirement with FPPA. He is interested in either using DROP for five years to build up a lump sum cash account, or using Deferred Retirement for five years to increase his lifetime monthly benefit.

Joe is 55, has 25 years of service in the Statewide Defined Benefit Plan, and makes $85,000 per year. For the purposes of this calculation, well also say $85,000 is his highest average base salary.

Deferred Retirement Option Program

The Deferred Retirement Option Program provides you with an alternative method for payment of your retirement benefits for a specified and limited period if you are an eligible Florida Retirement System Pension Plan member. Under this program, you stop earning service credit toward a future benefit and your retirement benefit is calculated at the time your DROP participation begins. While you are in the DROP, your monthly retirement benefits accumulate in the FRS Trust Fund earning interest while you continue to work for an FRS employer. Upon termination, your DROP account is paid to you as a lump sum payment, a rollover to another qualified plan or a combination partial lump sum payment and partial rollover. Monthly benefits are paid to you in the amount calculated at DROP entry, plus any applicable cost-of-living adjustments during DROP participation. For more information, see the latest version of the DROP guide .

The DROP Forms page provides access to forms available to DROP participants.

The following documents provide additional information about DROP:

  • Preparing to Terminate DROP – Document that explains what to expect when you terminate DROP .

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Op& f Uses A Variable Interest Rate For Drop And Re

The interest rate for the period of Jan. 1, 2022 through Mar. 31, 2022 is 2.50%.

As of April 2, 2012, the rate will be equal to the 10-year U.S. Treasury Note Business Day Series, as published by the United States Federal Reserve, with a cap of 5.0 percent. In February 2012, the OP& F Board of Trustees unanimously voted to change the interest rate associated with DROP and re-employed retiree accounts. This change was made in an effort to help OP& F reach a mandated 30-year funding level required by the State of Ohio for public pension funds and also to help keep DROP cost-neutral. In October 2019, a minimum rate of 2.5 percent was approved by the OP& F Board of Trustees.

The Deferred Retirement Option Plan is an optional benefit that allows eligible police officers and firefighters to accumulate a lumpsum of money for retirement. The Ohio Police & Fire Pension Fund is proud to offer this benefit to its membership, which has been the most requested addition to OP& F’s benefit offerings in many years.

Based on tremendous member request, OP& F put in place a beneficial program without additional cost to members, their employers or OP& F. Senate Bill 134 was signed into law in 2002, which enabled OP& F to begin offering DROP in 2003.

Recent DROP Interest Rates

Federal Employees Make Mistakes But You Don’t Have To

What is a Fixed Indexed Annuity?
  • Forgetting to Check Your Beneficiary Designations
  • Expecting Pension Check to Arrive in 30 Days After Retiring
  • Not Knowing the Difference Between SCD vs. RSCD
  • Completing Retirement Paperwork Incorrectly
  • Failing to Prepare Financially for Retirement
  • Failing to Understand Tax Consequences
  • Getting Bad Advice

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Step : View Your Estimate By Scrolling Down Estimates Can Also Be Printed Or Downloaded Click On The Printer Icon To Print Or Download By Clicking The Arrow Pointing Down With Horizontal Line Icons Can Be Found On The Upper Right Of The Page

Important note: This is an estimate only. Any estimated benefits shown are based on assumptions made by you and as a result are not guaranteed by the Plan. You are solely responsible for the reasonableness of the future assumptions you choose. Your actual benefit will be calculated by the Plan Administrator based upon the retirement plan in existence at your retirement date, your actual service, pay and age at retirement as well as any changes in the law and benefits offered by the Plan.

Melanies Thoughts On Fers Deferred Retirement

Because Ive been with the government for so long already, I have three options when it comes to retirement. I can stick with the government for another 30 years , I can cash out , or I can take a deferred retirement.

Im choosing the deferred retirement option because my main goal is to not be in poverty when Im a senior. My retirement planning is a three-legged stool which includes a thrift savings plan, my pension, and social security. All three have different levels of risk and rewards, which is why I want to keep them separate. Diversification for the win!

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About 457 Savings Plans

A 457 savings plan is a special kind of deferred compensation plan that may be offered to governmental and certain non-governmental employees of non-profit organizations. It’s similar to the more common 401 plan but with some key differences.

Like a 401, a 457 savings plan allows you to make tax-deferred contributions to a retirement investment account. Your contributions come out of your pre-tax earnings and reduce your tax bill today, and your investments grow tax free. You eventually do pay taxes on the money you withdraw from the account.

A 457 plan is often used as a supplement to a 401 or 401 savings plan. That’s because while all three currently allow a maximum $18,000 in annual contributions , your 457 contribution maximum may be made in addition to your maximum 401 or 401 contributions. So you could potentially contribute up to $48,000 a year pre-tax for a 401 and 457 plan combined. Limits include employer contributions.

Unlike a 401 plan, there is no penalty for early withdrawals from a 457 savings plan. Withdrawals are still counted as income for tax purposes, however.

Like 401 plans, there are Roth options for 457 savings plans in which you make post-tax contributions in order to enjoy tax-free withdrawals later on.

Funds in a non-governmental 457 also cannot be rolled over into any other type of retirement account other than another 457.

How Deferred Retirement Option Plans Work

What is DROP Pension or Deferred Retirement Option Program?

Deferred retirement option plans are of benefit to both employees and employers. In exchange for continuing to work past your eligible retirement age, an employer will set aside annual lump sum payments into an interest-bearing account. Upon retirement, the money that has grown in this account will be paid to you, on top of the rest of your accrued earnings. If you have more questions or want some help getting your retirement plans together, consider talking with a financial advisor.

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What Is A Drop Plan

In its simplest terms, a DROP plan is an arrangement under which an employee who would otherwise be entitled to retire and receive benefits under an employers defined benefit retirement plan instead continues working. However, instead of having the continued compensation and additional years of service taken into account for purposes of the defined benefit plan formula, the employee has a sum of money credited during each year of the continued employment to a separate account under the employers retirement plan. The account earns interest . The account is paid to the employee, in addition to whatever benefit the employee has acquired under the defined benefit plan based on earlier years of service, when the employee eventually retires.

A DROP plan would provide employee X with a third alternative. Instead of retiring immediately on a $12,000 a year benefit, or deferring retirement and getting a $14,000 annual benefit at retirement, she could elect to continue working for five years, but to have her compensation and years of service frozen at the level they were when she was 55. In exchange for her giving up the right to the continued accrual, her employer would agree to put $12,000 for each of the five years of her continued employment into a separate account under the retirement plan for her. When she ultimately retired, she would receive $12,000 a year, plus the value produced by taking the $12,000 a year credited to the account and increasing it by an earnings factor.

One More Year Syndrome

When I was writing this post and thinking about financial independence, its easy to get sucked into a one more year analysis.

The soonest I calculate we will hit our FI milestone is my 40th birthday.

But then I thought, I should at least work until I reached pay period 26. All my banked annual leave would pay out in the following January. I could get a tax efficient boost in my first year of financial independence. And my deferred retirement would be even bigger. So I probably wouldnt leave in Summer of 2022, but more like January of 2023.

But then I thought about it even more. In November of 2020 I was promoted to a higher grade. Would I really quit before I reached 3 years at my highest grade in November 2023? If Im staying until November 2023, I should definitely wait until January 2024 for the annual leave payout.

And if I were going to stick around until I reached 3 years at my new grade, maybe I should stick around until I reached 20 years of FERS coverage in June of 2025?

If I stuck with this thought pattern I might as well stick around until my MRA.

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Why Do Employees Like Drop

In some instances, an employer adopts DROP as a result of pressure from employees or unions, or as a tool in labor negotiations. A DROP plan is often quite popular with employees. It enables those employees who may have “maxed out” on the benefit payable under a defined benefit plan to continue to accrue benefits. Even for those who have not maxed out, the rate of accrual is often more favorable than continued accrual under the defined benefit arrangement. In many instances, the DROP benefit is payable as a lump sum , while the defined benefit is available only as a lifetime annuity.

Types & Categories Of Deferred Compensation Plans

Saving For Retirement : Pension Plans,NPS,EPF,PPF

There are two types of deferred compensation plans. The qualified plan must conform to the Employee Retirement and Income Security Act rules. Qualified plans include 401, 403 and 457 plans. These plans must be offered to all employees. There is also a limit to how much you can contribute each year under qualified plans. Executive deferred compensation plans are non-qualified plans or NQDCs. The rules are not as strict for these plans as they are for qualified plans.

There are four categories of executive deferred compensation plans. Salary reduction and bonus deferral plans are very much like defined contribution plans. SERPs and excess benefit plans are funded by the employer and act like defined benefit plans.

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How To Create A Drop Exit Estimate

Current DROP members, this is the easiest and fastest way to calculate what your DROP balance will be.

Important: In order to access your information, you must first register to the MyLAFPP member portal. Please refer to the MyLAFPP Helpdesk on how to register and other helpful self-service How-tos.

Whats Joes Monthly Benefit

To calculate Joes monthly benefit, well reference the chart on page one of the Statewide Defined Benefit Plan brochure:

Shown above, Joe is eligible for a benefit of 57.5% of his highest average base salary, or $48,875 per year. Broken down monthly, that earns Joe a monthly lifetime pension check of $4,072.92, before applicable taxes.

In other words, if Joe elected to receive a normal retirement benefitwithout additional funds from DROP or Deferred Retirementhe would receive $4,072.92 in lifetime pension benefits each month once he retired.

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Bills Option #1 Fers Deferred Retirement Under Mra+10 Rules

Because Bill has 10 years of creditable service, he has the option to start his Deferred pension sooner than Bob did.

Bill has the option of starting his pension when he reaches his MRA. However, if he does this his pension will be reduced.

Bills gross pension before the reduction would be calculated as

$55,000 x 10 years x 1% = $5,500/year.or $458/month

However, Bill will not receive this amount if he begins drawing his pension at his MRA. It will be reduced by 5% for each year Bill is younger than 62.

In this example, lets say Bills MRA is 56 years of age. Because hes using the MRA+10 FERS Early Retirement rules here Bills pension will be reduced by 5% for each year he is younger than 62. 62 56 = 6 Years

Bills reduction for starting his pension at MRA would be figured as

6 Years x 5% = 30% Reduction30% of $458 is $137

$458 $137 = $321/month

Bills Pension After 30% Reduction: $321/month

And this reduction is *PERMANENT*. It will never come back. So Bill would receive $321/month until he is 62. At 62 his pension will *NOT* go up to $458 it stays at $321 except that at age 62 he would get his first COLA . Lets say the COLA that year was 2% when Bill is 62, his pension will now be $327/month.

But what if Bill didnt want to have his pension reduced?

He could wait If he waited until he was 58, he would only be 4 years from 62 and his reduction would be only 20%. Etc. etc.

Example Of Fers Deferred Retirement With 5 Years Of Service

Florida Retirement System (FRS) D.R.O.P. Payout Option #1 | Don Anders

Lets look an an example. Lets say Bob has 5 years of creditable civilian service. Lets say his High-3 salary for his service is $55,000.

Bob is 45 years old, and he knows hes not eligible for regular FERS Retirement but hes ready to leave federal service anyways.

When Bob separates from service, he leaves his FERS retirement contributions in the system.

When Bob is 62, he can contact OPM to start his FERS Deferred Retirement pension.

How much will Bob receive?

Bobs pension will be calculated as:

$55,000 x 5 years x 1% = $2,750/yearor $229/month

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Overview Of The 457 Savings Calculator

Enter your information in the spaces provided, as follows:

  • Percent to contribute: Portion of your pre-tax salary you are contributing
  • Annual salary: Pretax earnings
  • Annual salary increase: The annual rate at which you expect your salary to increase over time
  • Current age: How old you are now
  • Age of retirement: Your target age for retiring note that you can adjust this using the sliding scale to see how working a few more or few less years will affect your nest egg
  • Current 457 balance: How much your account is worth now
  • Annual rate of return: Rate of return you expect your investments to average again, use the sliding scale to see how fluctuations in this figure will affect your long-range earnings
  • Employer match: Percentage of your contribution that your employer will match.
  • Employer match ends: The maximum percentage of your salary that your employer will contribute as matching funds.

When you are finished, click “view report” for a detailed breakdown of the expected growth of your investments.

How Defined Benefit Plans And Drops Differ

A defined benefit plan is what most people think of as a pension plan. It is a guarantee from an employer to make payments to the employee for the duration of their retirement. This is as opposed to a defined contribution retirement plan. In this case, an employer guarantees that they will make payments to the employees retirement plan during their period of employment.

A typical defined benefit plan calculates benefits based in part on how many years youve worked for the employer. Each year you work there, your benefits go up. At retirement age you begin collecting those benefits.

Without modification, then, you can continue to grow your benefits by working past your retirement age. So if you retire at 70 instead of 65, youll collect more in benefits. This is similar to how Social Security works.

A DROP cuts this off. Under a DROP, if you continue to work past retirement age, your employer wont continue adding to your benefits calculation. Instead, they will take a sum of money and place it into an interest-bearing account. The size of your lump sum and your accounts structure will differ based on the specific plan.

This will continue for as long as you continue to work and qualify for the DROP. Once you fully retire, your benefits plan will begin as normal. You will also receive the full value of the DROP account, including all the interest it accrued while you were working.

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