Drop Program
The Deferred Retirement Option Plan (DROP) is a distribution option available to the active members of the system. The program contains the following provisions.*
Eligibility
Active member of System, at least 55 years of age, with 22 or more years of service.
Participation Period
A 3, 4, or 5 year participation period.
Special Provision
During the first 24 months of the DROP program, members age 62 to 64, and with at least 22 years of service may enroll for a one-year or two-year participation period.
Effective Date of Enrollment
Effective the first day of the month following the month in which they apply for participation.
Benefit Determination
The monthly retirement benefit will be determined based on the period of service and final average pay through the quarter of membership service immediately preceding the participation date elected. Called the "Chapter 411 Benefit", the Benefit will not change from the DROP participation date forward except for escalation after retirement.
DROP Account
An account established for each member enrolled, which will have a portion of the Chapter 411 Benefit credited to it for the duration of the selected participation period. The portion shall be comprised of the following:
- A "minimum percentage" of 52% multiplied against the Chapter 411 Benefit, plus
- An "adjustment percentage," which will be determined based on the number of months between the date the member elects to participate in the DROP and the date the member was initially eligible to participate, multiplied against the Chapter 411 Benefit.
For each month the individual delays participation, an additional 2% will be added as an adjustment percentage. For example, if an individual waits 24 months to enroll in the DROP, the individual's overall DROP formula will be: [52% plus (2% x 24 months)] = 100%.
Member Contributions
Members' contributions will be credited to the System assets during the member's DROP participation period.
City Contributions
City's Contributions will be contributed to the System assets during the member's DROP participation period.
Investment Return
Earnings and capital gains/losses on the investments will be credited to the System assets and not to the individual members' accounts.
Benefit Escalation
The escalation provisions will apply from the actual date of retirement at the end of the DROP participation period. No escalation will occur during the DROP participation period.
Benefit Distributions
At the actual date of retirement, the member's DROP Account will be payable, upon member application, in the form of a lump sum distribution or a rollover to an eligible plan. The regular Chapter 411 monthly benefits will also begin for the member.
Premature Withdrawal from DROP Account, Death, or Disability: If a member leaves the DROP prematurely there will be a 25% reduction in their DROP account which will be transferred to the System's general assets. If the member dies or suffers a disability under the Chapter 411 provisions, they or their beneficiary shall receive the entire amount from the member's DROP Account, with no reduction.
Cost Determinations
The retirement System's actuary estimates that the plan design described in this report will not add additional contribution costs to the plan. However, if contribution costs do occur due to DROP program experience that are not consistent with the actuarial assumptions or for any other reason associated with the DROP, the contribution costs will be assigned to the active membership of the plan for payment.
* Accrual of Drop Benefit shall occur in accordance with the following administrative rule adopted by the System.
14.4 Accrual of DROP Benefit. An amount equal to seventy-five percent of the member's DROP benefit shall accrue to the benefit of the member for each month of participation in the plan. An amount equal to twenty-five percent of the member's accumulated DROP benefit shall accrue to the benefit of the member upon the occurrence of any of the following events: (1) termination of participation in the plan on the selected plan termination date; (2) termination of participation prior to the selected plan termination date as the result of entitlement to a disability benefit under either section 411.6(3) or section 411.6(5); or (3) death prior to the selected plan termination date.
This rule is intended to implement Iowa Code section 411.6C(2)(c).