FRS Deferred Retirement Option Program (DROP): Eligibility, Payout, and Taxes

The Florida Retirement System’s Deferred Retirement Option Program, known as the FRS DROP program, lets Pension Plan members officially retire while continuing to work for the same employer for up to 96 months. During that time, your monthly pension is deposited into the FRS Trust Fund instead of paid to you, earning an effective annual rate of 4% compounded monthly.¹ When you leave the job, you collect the accumulated balance and your regular monthly pension starts for the rest of your life.

Who Can Enter DROP

Only FRS Pension Plan members who have reached normal retirement qualify. Investment Plan members are not eligible unless they previously switched to the Pension Plan and met its vesting and service requirements.

If you first enrolled in FRS before July 1, 2011, you reach normal retirement at age 62 with at least 6 years of creditable service, or at any age with 30 years of service. Special Risk members (law enforcement, firefighters, corrections) qualify at age 55 or with 25 years of Special Risk service.²

If you enrolled on or after July 1, 2011, normal retirement is age 65 with at least 8 years of service, or 33 years of service at any age. Special Risk members qualify at age 55 with 8 years of Special Risk service, or with 25 years of such service at any age.³

When You Must Elect DROP

Timing matters more here than most people realize. You have 12 months from the date you first reach normal retirement to elect DROP participation. Members who qualify on years of service before reaching the age threshold can defer that window: pre-2011 members to the 12 months after turning 57 (age 52 for Special Risk), post-2011 members to the 12 months after turning 60 (age 55 for Special Risk).⁴

Miss the window and you pay a price. Once your maximum deferral date passes, you lose one month of potential DROP participation for every month you wait to elect. Miss the entire 12-month window following that date and you forfeit DROP eligibility altogether.⁴

K-12 instructional and administrative personnel are exempt from the election window and can enter DROP any time after reaching normal retirement.¹

What Happens the Day DROP Starts

Entering DROP ends your retirement calculation. Your monthly benefit is calculated and locked based on your salary and service credit as of that date. You stop earning additional service credit, and you cannot change your benefit option or retirement type afterward.¹ Your salary and ordinary employment benefits continue, but future raises and additional years on the job no longer increase your pension.

Each month, that locked benefit is deposited into the FRS Trust Fund in your name. The account earns an effective annual rate of 4%, compounded monthly on the prior month’s ending balance.¹ The rate is set by statute and could change for future participants.

Cost-of-Living Adjustment

Members with any creditable service earned before July 1, 2011, receive a July COLA that increases the monthly amount deposited into their account. The percentage is prorated:

(Years of service before July 1, 2011 ÷ Total years of service at retirement) × 3% = your COLA⁵

A member with 29 pre-July 2011 years and 1 year after would receive roughly a 2.9% annual COLA. A member whose entire career falls after that date receives no COLA.⁶ Over a full 96-month DROP period, even a modest COLA compounds meaningfully because it raises every future deposit.

Choosing a Benefit Option

Before DROP begins you select one of four payment options. The choice is permanent and governs both your monthly amount and what your survivors receive.⁷

Option 1 pays the maximum monthly benefit for your lifetime. Payments stop at your death; a beneficiary receives only a refund of any personal contributions exceeding benefits paid.
Option 2 pays a reduced monthly benefit with a 10-year guarantee. If you die within 10 years of your retirement date (which includes the DROP period), your beneficiary receives the same amount for the balance of that window.
Option 3 pays a reduced lifetime benefit, and after your death your joint annuitant receives the same monthly amount for life.
Option 4 pays an adjusted benefit while both you and your joint annuitant live; when either of you dies, the survivor’s payment drops to two-thirds.

Options 3 and 4 require a named joint annuitant, and there is a trap worth knowing. If the joint annuitant is under 25 and not your spouse, the benefit paid defaults to the Option 1 amount and stops when the annuitant turns 25, unless they are disabled.⁷ Anyone considering a much younger beneficiary should run those numbers first.

The K-12 Extension

Instructional and administrative personnel employed by district school boards, charter schools, the Florida School for the Deaf and the Blind, and developmental research schools may extend DROP up to 24 months beyond the standard 96. You must be working in an eligible position when the initial 96 months end and remain in that position throughout the extension, your employer must authorize it, and the extension must end on the last day of a school year. The extension provision is currently set to expire on June 30, 2029.¹ No other job classes qualify for an extension.

Ending DROP and Collecting the Balance

When DROP ends you must terminate all employment with every FRS-covered employer to receive the accumulated balance. You then have 60 days to choose a distribution method. Fail to choose within that window and the Division of Retirement automatically issues a lump sum with 20% withheld for federal tax.¹

Your three choices:

A lump-sum cash payment, with 20% withheld for federal taxes and potentially more owed at filing.⁸
A direct rollover of the full balance into an IRA, 401(k), or other eligible retirement plan, with no tax withheld; the money stays tax-deferred until withdrawn from the receiving account.
A partial cash payout (with 20% withholding on that portion) combined with a rollover of the rest.

Whichever route you take, your regular monthly pension begins at termination at the same amount calculated when DROP started, plus any COLA increases that accrued along the way.

Taxes on the Payout

The 20% withholding on cash distributions is only a prepayment. Your actual bill depends on your marginal rate for the year, and a large DROP payout stacked on top of partial-year salary can push you into a higher bracket, so the calendar timing of your termination date is worth some thought.

Cash distributions taken before age 59½ also carry an additional 10% federal early withdrawal penalty on the taxable amount. Public safety employees who separate from service during or after the year they turn 50 are exempt under IRC Section 72(t)(10), which covers law enforcement officers, firefighters, and corrections officers employed by state or local government.⁹ For Special Risk members retiring in their early 50s, that exception is often what makes a cash payout workable instead of being pushed into a rollover to avoid the penalty.

A direct rollover into a traditional IRA or other eligible plan avoids both the 20% withholding and the 10% penalty entirely; tax comes due as you draw from the receiving account. A Roth conversion is possible but makes the full rolled amount taxable in the conversion year, so it generally works best spread across multiple years or executed in a low-income year.

If You Die During DROP

Your designated beneficiary receives the full DROP account balance. What happens to the monthly pension depends on the option you chose:¹

Under Option 1, the monthly pension stops; the beneficiary gets the DROP accumulation plus any refund of excess personal contributions.
Under Option 2, the 10-year guarantee runs from the DROP start date, not from your termination. Die five years in and your beneficiary gets monthly payments for the remaining five years only.
Under Option 3, your joint annuitant receives the full monthly benefit for life.
Under Option 4, your joint annuitant receives two-thirds of the monthly benefit for life.

If an Option 3 or 4 joint annuitant dies before you during DROP, you can name a new beneficiary for the DROP accumulation, but that person does not become a joint annuitant for the monthly pension.¹ Survivors of DROP participants are not eligible for in-line-of-duty death benefits. A surviving spouse named as beneficiary can roll the distribution into their own retirement account under the usual inherited-plan rules.

The Six-Month Re-employment Rule

This is where DROP participants get into the most expensive trouble. After your termination date, you cannot work for any FRS-covered employer in any capacity for the first six calendar months.⁴ Not as a consultant, not part-time, not through a temp agency. Any employment relationship with an FRS employer in that window can void your retirement.

The consequences are severe. Your retirement and DROP status are canceled retroactively, and both you and the hiring employer become jointly and severally liable to repay every retirement benefit received, including the entire DROP accumulation and any distributions already made.¹⁰ If you have already rolled the balance into an IRA, you may also face federal tax penalties and surrender charges on top of the repayment.

Starting in the seventh calendar month after your DROP termination date, you can return to work for any FRS employer with no restriction on your retirement benefits or compensation.¹⁰

1
Florida Retirement System. DROP Guide
2
Florida Senate. Florida Code 121.091 – Benefits Payable Under the System
3
Florida Retirement System. Comparing the Plans Eligibility to Receive a Benefit
4
The Florida Legislature. Florida Statutes 121.091 – Benefits Payable Under the System
5
Florida Retirement System. Understanding Your Benefits Under the FRS Pension Plan
6
Florida Retirement System. Florida Retirement System 2011 Legislative Changes
7
Florida Retirement System. What Retirement Option Should You Choose
8
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
9
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
10
Florida Retirement System. Pension Plan Informational Guide