Additional information can be found on our Frequently Asked Questions page. If you would like assistance, please contact RSCD Member Services at (313) 224-3362.
DROP section of PFRS FAQ’s page
Guidelines for Making the DROP Decision For Eligible Members of the Police and Fire Retirement System of the City of Detroit;
Detroit Police Officers Association (DPOA)
Detroit Police Lieutenants and Sergeants Association (DPLSA)
Detroit Police Command Officers Association (DPCOA)
Detroit Fire Fighters Association (DFFA)
Non-Union Executives of the Police and Fire Departments
The Police and Fire Retirement System of the City of Detroit (“System”) received a favorable determination letter from the Internal Revenue Service in November of 2009 and an amended favorable determination letter in November of 2016 for the System’s optional Deferred Retirement Option Plan (DROP) for eligible members.
System members covered by a Collective Bargaining Agreement authorizing DROP participation are eligible to elect to participate in the DROP program if they are immediately eligible for a 25 year service retirement under the System (or such other DROP eligibility service retirement requirement as provided for in the applicable Collective Bargaining Agreement or Plan of Adjustment).
NOTE: Once you elect to participate in the DROP Program, your election is irrevocable, and you stop accruing Service Credits for all plans. You are not allowed to change or revoke your DROP election.
This booklet has been prepared to help you make your choice. Here, we will cover the following topics:
Understanding Your Current System Benefits
Comparing the DROP Program - How to Choose the Option that is Better for You
The choice you make is completely voluntary. It is also a very personal decision. Whether remaining active in the current System or selecting the new DROP Option will be better for you will depend on your circumstances. Your choice will depend upon some or all of the following factors:
- The relative income stream at retirement that the regular System benefit or the DROP option can be expected to produce.
- The importance to you of characteristics such as portability, transferability, lump sum and other distribution options.
- How long you have worked for the City and how long you intend to continue to be employed.
- Your overall personal financial situation.
Also, this is simply a summary of DROP provisions. If there is a conflict between this document and the System’s DROP terms, the Plan of Adjustment (POA) or Collective Bargaining Agreement (CBA), or if this document is ambiguous, DROP terms govern.
PART I. UNDERSTANDING YOUR CURRENT SYSTEM PENSION
To completely evaluate your DROP option, it is important that you thoroughly understand your current System benefit. Here, we will review the basic DROP features of the System.
Normal Age and Service Retirement Benefit
Upon meeting retirement eligibility criteria, as outlined in your applicable Collective Bargaining Agreement, you may apply to retire and DROP. Your annual pension, payable monthly, is generally calculated as follows:
Years of Credited Service X Average Final Compensation X Multiplier
NOTE: This is a simple example so that you have an idea of how your calculation actually works.
Determining AFC involves a detailed calculation, please see your Collective Bargaining Agreement for more details.
Average Final Compensation
The average of the compensation received by a member during the five consecutive years of credited service which immediately precede the date of the member’s last termination of City employment as an employee of the Police Department or the Fire Department.
The average of the current compensation for the ranks held during your last five years of service (effective July 1,2000, last three years for DPCOA and Executive members and their Fire equivalents), plus the value of your last full longevity payment and 25% of unused sick leave as of June 30 2014 (If Elected prior to June 30, 2014). AFC includes prior longevity distributions during the averaging period in accordance with the following schedule: 1% of compensation after 5 years of service, 2% after 11 years, 3% after 16 years and 4% after 21 years.
There are essentially three retirement options:
- A defined benefit plan monthly benefit payable for the life of the participant equal to the regular age and service retirement benefit, which includes receiving defined contribution plan amounts in the form of a monthly annuity.
- Actuarially equivalent Joint and Survivor Monthly Benefit Option.
- Return of your employee contributions in a lump sum (known as the “Defined Contribution Plan”) which could affect your monthly benefit referenced in paragraph above.
Cost of Living Adjustment (COLA)
COLA’s are based on Collective Bargaining and the Plan of Adjustment.
- Retirees hired before 1969 receive an increase proportionate to the annual increase received by active employees.
- Retirees hired after 1969 receive an annual cost of living adjustment of 1.0125%, based upon the original retirement amount or compounded, depending on the bargaining unit.
- Retiree’s with a Hybrid Retirement Plan, post June 30, 2014, may get a 1% COLA, depending on the funding status of the plan.
PART II. COMPARING THE DROP PROGRAM
Here is how the Deferred Retirement Option Plan (DROP) Program works:
You are eligible to irrevocably choose the DROP after you become eligible for a 20 or 25 year service retirement allowance (or other such DROP eligible service retirement requirement as provide for in the applicable collective bargaining agreement) under the System. At this point, you have essentially three choices:
- Actually retire and begin receiving an immediate full monthly pension which includes defined contribution plan amounts, or take the defined contribution plan amounts in a lump sum and begin receiving a monthly pension from the defined benefit plan.
- Continue working and accruing benefits under the System (based on continued service and compensation).
- Continue working, but irrevocably elect the DROP Program.
Choosing the DROP:
You can choose to participate in the DROP any time after you become eligible. It is a voluntary election. Remember, if you choose the DROP, the decision to participate in the DROP is IRREVOCABLE. You make your election to DROP by completing and signing the appropriate DROP election form (which you can obtain from the System) and delivering your DROP election to the System (you should also make a copy for yourself). Your DROP election date on your DROP election form must be the date you deliver the form to the System, or a future date. Your DROP election date will be the last day you will accrue any service or compensation for computing pension benefit. You cannot retroactively elect to DROP. For example, you cannot deliver a DROP election form to the System on August 1, 2018 electing to DROP on July 1, 2018.
Operation of the DROP:
If you choose to elect to participate in the DROP, the following will happen:
- Your System benefits will become “frozen” (i.e., no further service credit or compensation will accrue).
- Your contributions to the System will end.
You must choose, in writing, a form of distribution for your system pension benefit (e.g., straight life monthly benefit or joint & survivor monthly benefit) in accordance with System processes.
Effective with your DROP election, 75% of the amount of your monthly pension (including applicable escalator increases) that you would have received from the System had you actually retired on your DROP election date is instead paid into your individual DROP account where it will accrue earnings on a tax-deferred basis for as long as you participate in the DROP. NOTE: There will likely be an administrative delay before your first DROP amounts are allocated to your DROP account while the System sets up your DROP account.
At this time your DROP account will be invested in a stable value, group annuity contract product with VOYA that provides a credited rate of interest set once each year by VOYA. You should carefully review VOYA material detailing how your DROP account is invested. You will be provided notice of any subsequent change in the DROP investment product or provider.
Your DROP allocations, currently limited to five (5) years, will continue for as long as you continue to be actively employed as a police officer or fire fighter with the City. The five (5) year limitation applies until otherwise collectively bargained and agreed to by the Bankruptcy Court as required by the Plan of Adjustment (POA)
While you are actively employed as a police officer or fire fighter participating in the DROP, to the System’s knowledge you are subject to the same employment rules and regulations as before you elected to participate in the DROP. You will continue to be paid your wages as an employee. To the System’s knowledge, your seniority status will not be affected during your DROP participation. However, you will not accrue any additional credit towards retirement as a DROP participant.
Participation in the DROP does not guarantee continued employment.
When you end your active employment as a police officer or fire fighter with the City you may take a distribution from your DROP account, leave it in the account or you may directly roll over your DROP to an IRA.
At the end of your DROP Participation, when you retire, you will begin to receive 100% of your “frozen” System pension (including annual escalator amounts) that you would have received had you initially retired at the date you elected to participate in the DROP, plus you will be entitled to the value of your individual DROP account (which, together, are subject to applicable IRS limits on “annualized” benefits. The IRS limit on annual benefits is $220,000 in 2018. Your DROP benefit is annualized to apply the limit).
PART III. HOW TO CHOOSE THE OPTION THAT IS BETTER FOR YOU
This is an important choice. In order to make an informed and comfortable decision, you should take the following steps:
STEP ONE: Acquire as Much Knowledge as Possible.
Learn all you can about the operation and characteristics of the System and the DROP option. In addition to this booklet, some other tools that will help you are:
- Your Collective Bargaining Agreement and the Plan of Adjustment
- Attending a Scheduled Group Informational Meeting with representatives from VOYA
- Review VOYA investment materials
- Consulting with your DROP Plan Retirement Specialist and/or Personal Financial Adviser
STEP TWO: Obtain Benefit Projections from Each Option.
The income that each option can be expected to produce is, for most people, one of the most important factors in making their decision.
Note: Any results from such analysis are simply projections and are highly dependent upon the salary increase and earnings rate assumptions that are used. They do not constitute any promise or guarantee of benefits that will eventually be obtained from either the System pension and/or DROP.
STEP THREE: Do Some Comprehensive Retirement Planning.
No doubt the income stream from the retirement option that you select will be a major source of support for you and your family after you cease active employment with the City. However, it will not be the sole and exclusive means to provide you with retirement income. To develop a comprehensive forecast of your retirement income situation you need to consider some or all of these other sources:
- Social Security Benefits
- Any 457 Deferred Compensation Plan you may have
- IRAs and Personal Savings (including amounts rolled over from the defined contribution part (ASF) of the pension plan)
- Spouse’s Retirement Plans
- Wages from Part Time Employment
- Other Sources of Income
You should also do a personal inventory as well, considering additional factors, which may affect the type of retirement option you should choose:
- How long you intend to be employed with the City
- Your health, that of your spouse and family health and longevity history
- The ages and support needs of your children or other dependents
- Whether you would want to leave any remaining retirement assets to heirs after you die
- The particular lifestyle you wish to live after full-time employment
Your System provides you (and your spouse, if elected) with a pension income stream for life after you retire.
In the DROP, you may have a lower pension as compared to if you continued in the System, but you will accumulate an account (the DROP account) that can also provide an income stream or a lump sum. A DROP account will offer you portability and investment reward/risk.
The option which is better for you is a matter of individual choice based upon your particular personal and family situation. If you follow the steps mentioned above, we believe you can make the choice that is right for you.