For many Arizona police officers and firefighters, DROP is the finish line they have watched for years. You keep working, keep earning a paycheck, and watch a pension balance build on the side. The part that gets less attention is the way out.
How you leave DROP shapes what you walk away with. Here is what to know before your exit date arrives.
A Quick Refresher on DROP
The Deferred Retirement Option Plan is open to Tier 1 members of the Public Safety Personnel Retirement System, or PSPRS. Tier 1 generally means you joined before January 1, 2012. You need 20 years of credited service to enter.
Once you enter, your monthly pension is calculated and then set aside each month in a DROP account while you keep working. That deferral runs for up to 60 months. Some members can extend it for up to 24 more.
There is a trade-off built in. While in DROP, you stop adding credited service, and later raises do not change your pension. Entry is also final. Once contributions stop on your DROP entry date, you cannot back out.
Who Can Extend Past Five Years
The extension rules depend on when you entered.
- Entered after July 6, 2022: you can extend if you were at least 51 with 24.5 years of credited service when you entered.
- Entered before July 6, 2022: you need your employer’s approval to extend.
If you extend, your DROP balance moves into a 401(a) account in the PSPRS defined contribution plan, and PSPRS stops paying interest on it. From then on, the balance rises or falls with the investments you pick. If you want help mapping out the timing, Capital Choice Arizona in Phoenix has a planning guide on exiting DROP.
What Happens If You Work Past Your Exit Date
This is the part that catches people. To exit DROP, you must end your employment and officially retire by your scheduled exit date. PSPRS lists what state law takes away if you don’t:
- All interest earned on your DROP balance is forfeited.
- Monthly deposits into your DROP account stop.
- You get no retirement payments for the extra time worked.
- Your DROP funds stay frozen until you actually leave.
- Your pension stays fixed at the original DROP entry amount.
One missed date can undo years of interest. Put your exit date on every calendar you own. There is one exception. If you entered DROP after July 6, 2022 and meet the age and service rules, PSPRS extends your DROP automatically. That happens when you have not filed to retire by the end of month 60.
Your Exit Paperwork
To leave DROP, you send PSPRS the PS-CORP Retirement Estimate Form, select the Exit DROP option, and enter a termination date. PSPRS then sends a retirement packet to complete before monthly pension payments begin.
At retirement, your DROP balance moves as a lump sum into a 401(a) account in the PSPRS defined contribution plan. By default, it lands in a fixed money market option, and you can choose other investments within that account.
Pension benefits built up in DROP grow tax deferred. Some DROP accounts also include contributions that were already taxed, so ask PSPRS how your balance splits.
Divorce can add a step. If a court order splits your DROP balance with a former spouse, PSPRS notifies the plan administrator so each person receives their share.
Questions to Answer Before Exit Day
A few questions can keep your exit on track.
- What will you do with the 401(a) balance, and how will you invest it?
- How will your monthly pension and other income cover your budget?
- Does your exit date line up with your last scheduled shift?
Plan the Year Before, Not the Month Before
PSPRS encourages members to log in to Members Only first to review their service and an estimated monthly pension.
It helps to start about a year out. Request your official estimate, confirm your exact exit date, and decide what you will do with the 401(a) balance. Review the official DROP rules from PSPRS before you sign anything. Your last day on the job should be a celebration, not a scramble.
