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Procedures Manual

11.2: Deferred Retirement Option Plan (DROP)

Last Revised: Jan 1, 2010


Purpose

This section should be used when an employee elects to participate in the Deferred Retirement Option Plan (DROP). Both the member and employer should be certain that eligibility requirements have been met prior to submitting an application for retirement or terminating employment.

While a member participates in DROP, his employment continues. During DROP participation, neither employee nor employer contributions are remitted to TRSL. Deductions for regular Social Security taxes are not made during DROP participation, unless the employee works in a school food service position in a Plan B parish. Refer to Index 11.1 for a member who elects to take an Initial Lump-Sum Benefit.

Refer to Index 11.2 for a member who is eligible and elects to participate in the Deferred Retirement Option Plan (DROP).

Note: A member must live at least 30 days after the effective date of retirement to be considered retired. If a member dies before that time, he or she will be considered to have died in active service, and only survivor benefits, not retirement benefits, will be paid. Refer to Index 13.0 for information about survivor benefits.
Sections

Action to be Taken

Additional Notes

Employer Checklist - Beginning DROP

Employer Checklist - Ending DROP
Related Forms

Checklist for Retiring after DROP

Application for Service Retirement, ILSB, or DROP
(Form 11)

DROP or ILSB Account Spousal Consent 
(Form 11G)

DROP or ILSB Retiree Spousal Consent
to Withdrawal Method
 (Form 11G-1)

Termination of Employment at End of DROP
Participation/Employment
 (Form 11H)

DROP or ILSB Retiree Withdrawal Method
Selection
 (Form 11J)

DROP or ILSB Retiree Nonspousal Beneficiary
Request for Withdrawal Selection
 (Form 11K)

DROP or ILSB Retiree Alternate Payee Receiving
Split Benefit as a Result of Divorce
 (Form 11K-P)

DROP or ILSB Retiree Spousal Beneficiary Request
for Withdrawal Selection 
(Form 11K-S)

DROP or ILSB Retiree Spousal Beneficiary Request
for Withdrawal
 (Form 11M-S)

DROP or ILSB Retiree Withdrawal Method Selection
for Ages 70 1/2 and Over
 (Form 11N)

DROP or ILSB Retiree Partial Single-Sum Withdrawal
(Form 11PS)

DROP or ILSB Retiree Partial Single-Sum
Withdrawals
(Form 11R) - Use 15D for regular benefits

DROP or ILSB Qualified Katrina Emergency
Tax Relief Act of 2005 (KETRA) or Gulf Opportunity
Zone Act of 2005 (GO Zone)
Withdrawals Repayment
 (Form 11RD)
 

Action to be Taken

  1. Procedures to follow when a member elects participation in DROP
    • The employer should make available to a member a retirement packet that consists of the following:
    • The member must complete an Application for Service Retirement, ILSB, or DROP (Form 11). The application must be signed by the member, and may be faxed to TRSL at 225-925-6366. Applications are accepted as early as six months prior to the effective date of retirement and must be received by TRSL on or before the member’s effective DROP Begin Date. Do not hold the application awaiting copies of Social Security cards, birth certificates, etc. TRSL will request any missing documents.
       
    • The member must furnish copies of the following (with Social Security number on each copy):
      • Social Security cards (as issued by the Social Security Administration) for the member, spouse, and all option beneficiaries.
         
      • Documents verifying the dates of birth for the member and spouse. (Refer to Date-of-Birth Verification Requirements found on the reverse side of the Retirement Application Check List in Index 11.0).
         
      • Documents verifying the date of birth for the beneficiary, unless Option 1 will be chosen.
         
      • Judgments of separation and/or judgments of divorce, including any community property settlements, if applicable.
         
      • Copy of spouse’s death certificate, if applicable.
         
    • All previous employers must certify any questionable years and sick leave used via the online update processes. A member’s most recent employer(s) should certify any questionable years and sick leave used via the online update processes at the time the member’s application is submitted. The remaining forms should be submitted by the most recent employer(s) after the member’s last day of employment before DROP.

      Submit after termination:
      • Agency Certification (Form 11B), refer to instructions on back of form;
      • Annual Leave Certification (Form 11C), if applicable; and
         
    • A completed DROP or ILSB Account Spousal Consent (Form 11G) must be submitted when the member names a beneficiary(ies) in Section 7 of Form 11 other than the spouse, or if the spouse has not been designated to receive at least 50 percent of the balance of the account, or if the member chooses to withdraw from the account over a period other than their life expectancy.
       
    • The employer must discontinue remitting employee and employer retirement contributions to TRSL while employees are participating in DROP. Employees participating in DROP are not reported on the monthly contributions report.
       
    • Contributions must be made through the date preceding the first day of DROP participation. DROP participation may not begin before the DROP application is received in the office of TRSL.
       
    • The member must complete and return the Affidavit of Retirement Option Election (Form 11E-D) within 90 days of receipt, or 90 days after DROP participation has begun, whichever is later. Members who fail to comply will be deemed not to have participated in the DROP program and will be liable for all applicable contributions due TRSL. The member must choose a retirement option on the affidavit. (See flowchart below.) If the member chooses a beneficiary other than a spouse, or leaves the spouse less than 50 percent of the monthly survivor benefit, the spouse must complete the spousal consent portion of Form 11E-D in the presence of a notary.
       
  2. Procedures for members ending DROP participation and terminating employment
    • TRSL will notify both the member and employer at least 90 days before completion of DROP participation.
       
    • The member must complete a Termination of Employment at End of DROP Participation/Employment (Form 11H). The form may be submitted 90 days before completion of DROP participation and must be received by TRSL at least 30 days before termination to ensure timely payment of benefits.
       
    • The employer must submit an Agency Certification (Form 11B) covering the period of DROP participation.
       
    • If applicable, the employer must submit an Annual Leave Certification (Form 11C).
       
  3. Procedures for members completing DROP participation and continuing employment
    • Members will be automatically re-enrolled in TRSL on the day following the last day of participation in DROP.
       
    • The employer must resume remitting employee and employer contributions for any period of continued employment following DROP participation, even one day.
       
    • The employer must include on the monthly contributions report DROP participants who continue employment. Refer to Index 4.1 for reporting procedures.
       
  4. Procedures for members terminating continued employment after DROP participation
    • The member must complete a Termination of Employment at End of DROP Participation/Employment (Form 11H). The form may be submitted 90 days prior to completion of DROP participation and must be received by TRSL at least 30 days prior to termination to ensure timely payment of benefits.
       
    • The employer must submit the following:
      • Agency Certification (Form 11B) covering current-year period of continued employment, sick days paid, and sick leave days used during DROP participation.
         
      • Certify any questionable years and sick leave used via the online update processes for after-DROP participation.
         
      • If applicable, Annual Leave Certification (Form 11C).
         
  5. Procedures to follow if DROP retiree is re-employed after DROP participation and termination of employment occurs
For eligibility requirements, see the DROP Handbook . To calculate a see Index 10.0 - Benefit Estimates/Benefit Calculator or the Ending DROP handbook.

Additional Notes
  1. The election to participate in DROP may be made only once and must specify the period over which the member plans to participate. This period may not exceed three consecutive years and may not be extended if the participant originally chose a period less than three years. In order to participate for the maximum three years, the member must enter the DROP program within 60 calendar days of his first eligibility. After 60 calendar days, waiting to enter DROP reduces the maximum participation period by the number of days the member delays in entering DROP.
     
  2. Participation in DROP will not affect seniority status or any other benefit provided as a condition of employment.
     
  3. Once DROP participation has begun, a member cannot receive a refund of contributions.
     
  4. Individuals may participate in DROP during periods of approved leave, including leave without pay.
     
  5. Service credit for unused annual and sick leave cannot be used to meet eligibility requirements for DROP participation.
     
  6. All purchases of service credit must be completed prior to participation in DROP. No purchases will be permitted during DROP participation or periods of additional employment.
     
  7. The DROP participation period may not be changed except by termination of employment under the following circumstances:
    • Voluntary termination — Member opts out of DROP prior to fulfilling selected participation period and also terminates employment.
       
    • Involuntary termination — Member is terminated by employer prior to completing selected participation period and is not immediately reemployed by a TRSL employer.
       
    • Death of the participating member
       
  8. Deposits to the participant’s DROP account will be made on the first day of each month.
     
  9. Participants cannot withdraw funds from the DROP account before termination of employment.
     
  10. Act 962 of the 2003 Regular Session of the Louisiana Legislature established a new method of calculating interest earnings for DROP accounts of members who become eligible for DROP on or after January 1, 2004.
    • DROP Accounts Earning System’s Actuarial Rate (members eligible before January 1, 2004)
      After DROP participation is completed, the account earns 0.5% less than TRSL’s actuarially realized rate of return. Interest is posted to a regular DROP account once a year (based on daily compounding), usually in the first quarter of the calendar year following the end of the fiscal year for which the interest was earned. For example, interest earned on account balances for the 2002-03 fiscal year (July 1, 2002, through June 30, 2003) was posted in the first quarter (January-March) of 2004. No interest is lost because of the delayed posting.

      The delayed posting is necessary because it is several months after the end of the fiscal year (July 1­–June 30) before TRSL knows what the interest rate will be for that fiscal year. Time is needed to evaluate the performance of TRSL’s investments and to prepare financial and actuarial reports before a rate of return can be determined. Then the Public Retirement Systems’ Actuarial Committee, which usually meets in January each year, must approve the rate. Once posted, statements are mailed showing the new account balance, including interest.
       
    • DROP Accounts Earning Liquid Asset Money Market Rates (members eligible on or after January 1, 2004)
      After DROP participation is completed, these DROP accounts earn interest at the liquid asset money market rate less a 0.25% administrative fee. Interest will be posted to the account monthly. Interest will be based on the balance in the account for that month. If a member chooses a total account balance withdrawal, interest factors will be projected for the last two to four days before the payroll date to allow time for processing.
       
  11. Participants will never be eligible for cost-of-living adjustments granted to retirees during the participation period or during the period of continued employment after DROP. Participants will become eligible to receive future cost-of-living increases no earlier than one year following termination of employment.
     
  12. Deposits to the DROP account, including interest, are tax-deferred and will be subject to federal income tax at the time of withdrawal, unless rolled over.
     
  13. If a participant dies while still employed, the participant will be considered retired the day death occurs, and benefits will be payable to both the retirement and DROP beneficiary(ies) on the first day of the month following the death of the participant.
    • If a DROP participant dies within 30 days after the effective date of participation in DROP, he will be considered an active member at the time of death and survivor’s benefits would be payable in accordance with LSA-R.S. 11:762(C).
       
    • If a DROP participant dies more than 30 days after the effective date of participation in DROP, but before TRSL received the Affidavit of Option Election and leaves a surviving spouse, he shall be retired under Option 2 as of the effective date of DROP participation, and the spouse will be paid the Option 2 beneficiary benefits. [Refer to LSA-R.S. 11:783(H).]
      • If there is no surviving spouse and there is an eligible minor child(ren), only the benefits under LSA-R.S. 11:762(C) will be payable.
         
      • If there is no surviving spouse or eligible minor child(ren), he or she will be considered retired under Option 1 as of the effective date of DROP participation, and the latest named beneficiary will be paid the Option 1 beneficiary benefits.
         
    • Any benefit owed to a retiree because of participation in DROP shall be paid to the DROP account.
       
  14. The employer should provide the spouse and/or nonspousal beneficiary(ies) of a deceased DROP participant with the appropriate forms for DROP account withdrawals.
Employer Checklist - Beginning DROP

While participating in DROP, the member continues employment but employee and employer contributions stop. TRSL must receive a completed Application for Service Retirement, ILSB, or DROP (Form 11) in order for the member’s participation to begin. Participation in DROP is irrevocable. Any member may cancel an application for DROP before the effective date.

Application for Service Retirement, ILSB, or DROP (Form 11)
  • Have member complete Sections 1, 2, 5, 6, and 7 (Sections 4 and 6A, if applicable).
     
  • Attach copies of Social Security cards and birth certificates for applicant and all named beneficiaries. Put member’s Social Security number on all copies.
     
  • Attach certified copies of divorce papers and community property settlement papers, if applicable. Put member’s Social Security number on all copies.
     
  • Certify all questionable years and sick leave used via the online update processes.
     
  • Keep a copy of all completed forms for the member’s personnel file.
     
  • Give a copy of all completed forms to the member.
     
  • Forward a copy of the application to your agency’s payroll department to stop employee and employer contributions.
     
  • Send TRSL all forms and required documents.

    NOTE: Agency Certification (Form11B) should not be submitted until after member’s termination date. Refer to instructions on back of form.
     
  • Additional forms to be completed and attached to Application for Service Retirement, ILSB, or DROP (Form 11), if applicable.
     
  • DROP or ILSB Account Spousal Consent (Form 11G) – if spouse is not a named beneficiary to receive 50% of the DROP account.

(click to enlarge)

Employer Checklist - Ending DROP


Members can continue working after DROP participation ends. When the member is ready to retire, TRSL must receive a completed Termination of Employment at End of DROP Participation/Employment (Form 11H). Any member may cancel an application for retirement after DROP before the effective retirement date or before cashing or depositing any retirement checks.

Termination of Employment at End of DROP Participation/Employment (Form 11H

  • Have member complete Sections 1, 2, 3, 4, and 5.
     
  • Attach a completed Direct Deposit of Benefits (Form 15D).
     
  • Certify questionable years and sick leave used via the online update processes, if applicable, for all years employed after DROP participation through previous fiscal year. (If the member worked for three or more years after DROP, certify actual earnings and full-time rate for the base year including any 10% cap exemptions.)
     
  • Counsel member about insurance deduction.
     
  • Keep a copy of all completed forms for the member’s personnel file.
     
  • Give a copy of all completed forms to the member.
     
  • Send TRSL all forms and required documents.

    NOTE: If member was employed after DROP participation, Agency Certification (Form 11B), Annual Leave Certification (Form 11C), if applicable, and PIP Retirement Certification Form, if applicable, are not submitted until after member’s termination date.
     
  • Additional forms to be completed and attached to Termination of Employment at End of DROP Participation/Employment (Form 11H), if applicable.
     
  • DROP or ILSB Account Spousal Consent (Form 11G) – if spouse is not a named beneficiary to receive 50% of the DROP account.
     
  • Insurance premium deduction authorization.

NOTE: DROP or ILSB Retiree Withdrawal Method Selection (Form 11J), Direct Deposit of DROP or ILSB Account Withdrawals (Form 11R), and DROP or ILSB Retiree Spousal Consent to Withdrawal Method (Form 11G-1) will be mailed to the member after Form 11H is received by TRSL.


(click to enlarge)


Related Forms

Checklist for Retiring after DROP

Application for Service Retirement, ILSB, or DROP (Form 11)

DROP or ILSB Account Spousal Consent (Form 11G)

DROP or ILSB Retiree Spousal Consent to Withdrawal Method (Form 11G-1)

Termination of Employment at End of DROP Participation/Employment (Form 11H)

DROP or ILSB Retiree Withdrawal Method Selection (Form 11J)

DROP or ILSB Retiree Nonspousal Beneficiary Request for Withdrawal Selection (Form 11K)

DROP or ILSB Retiree Alternate Payee Receiving Split Benefit as a Result of Divorce (Form 11K-P)

DROP or ILSB Retiree Spousal Beneficiary Request for Withdrawal Selection (Form 11K-S)

DROP or ILSB Retiree Spousal Beneficiary Request for Withdrawal (Form 11M-S)

DROP or ILSB Retiree Withdrawal Method Selection for Ages 70 1/2 and Over (Form 11N)

DROP or ILSB Retiree Partial Single-Sum Withdrawal (Form 11PS)

DROP or ILSB Retiree Partial Single-Sum Withdrawals (Form 11R) - Use 15D for regular benefits

DROP or ILSB Qualified Katrina Emergency Tax Relief Act of 2005 (KETRA) or Gulf Opportunity Zone Act of 2005 (GO Zone) Withdrawals Repayment (Form 11RD)

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