FRS Deferred Retirement Option Program (DROP): Eligibility and Payouts

The FRS DROP program, formally the Florida Retirement System’s Deferred Retirement Option Program, lets an eligible FRS Pension Plan member officially retire while continuing to work for up to 96 months. During that stretch, your monthly pension is calculated, locked in, and deposited into an account in the FRS Trust Fund instead of paid to you. The account earns interest at an effective annual rate of 4%, compounded monthly, and members with service before July 2011 also get an annual cost-of-living adjustment layered on top.¹ When you actually leave the job, you collect the whole accumulated balance and start receiving your monthly pension for life.

Who Can Enter DROP

DROP is only for FRS Pension Plan members who have reached normal retirement. Investment Plan members are not eligible unless they previously switched into the Pension Plan and met its vesting and service requirements.

If you first enrolled in FRS before July 1, 2011 (Tier 1), 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, such as law enforcement officers and firefighters, qualify at age 55 or with 25 years of Special Risk service.²

If you enrolled on or after July 1, 2011 (Tier 2), normal retirement is age 65 with at least 8 years of service, or 33 years of service at any age. Special Risk Tier 2 members qualify at age 55 with 8 years of Special Risk service, or with 25 years of Special Risk service at any age.³

The 12-Month Election Window

Once you first reach your normal retirement date, you have 12 months to elect DROP. If you qualified based on years of service before reaching the age threshold, you can defer that window: Tier 1 members can push it to the 12 months following age 57 (age 52 for Special Risk), and Tier 2 members to the 12 months following age 60 (age 55 for Special Risk).⁴

Miss the window and the price is steep. Every month you wait past your maximum deferral date subtracts one month from your available DROP participation. Wait a full 12 months past that maximum deferral date and you lose the right to enter DROP at all.⁶

What Changes the Day You Enter

The moment DROP begins, your retirement is legally final. Your monthly benefit amount is calculated from your salary and service credit at that point and locked. You stop accruing service credit even though you keep working, and you cannot change your benefit option or retirement type later.¹ Your paycheck continues, and you keep your ordinary employment benefits like leave accrual, but future raises and additional years on the job no longer improve your pension.

How the DROP Account Grows

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

The Pre-2011 COLA

If any of your creditable service was earned before July 1, 2011, you receive an annual cost-of-living adjustment each July that increases the monthly amount deposited into your DROP account. The percentage is prorated:⁷

(Years of service before July 1, 2011 ÷ Total years of service at retirement) × 3% = your COLA⁸

A member with 29 years before July 2011 and 1 year after would land at roughly 2.9%. A member whose entire career falls after July 1, 2011, gets no COLA. Across a full 96-month DROP period, even a modest COLA compounds meaningfully because every future monthly deposit steps up.

The Four Benefit Options

Before you enter DROP, you pick one of four payment options. The choice is permanent from the day DROP starts, and it shapes both your monthly amount and what your survivors receive.⁹

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 total 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 monthly amount for the rest of that 10-year window.
Option 3 pays a reduced monthly benefit for your life; after your death, your joint annuitant receives the same amount for their lifetime.
Option 4 pays an adjusted amount while both you and your joint annuitant are alive. When either of you dies, the survivor’s payment drops to two-thirds.

One trap with Options 3 and 4: if the joint annuitant is under 25 and is not your spouse, the benefit defaults to the Option 1 amount and stops when the annuitant turns 25 (unless disabled).⁹ Anyone naming a much younger beneficiary should run the numbers first.

Extensions for K-12 Instructional Personnel

Certain K-12 employees can extend DROP up to 24 months beyond the standard 96 months. This applies to instructional and administrative personnel at district school boards, charter schools, the Florida School for the Deaf and the Blind, and developmental research schools. You must be in an eligible position when your initial 96 months end and stay in that position throughout the extension, the extension must end on the last day of a school year, and your employer must authorize it. This extension provision is currently set to expire on June 30, 2029.¹

Payout Choices When DROP Ends

When your DROP period closes, you must terminate all employment with FRS-covered employers to receive the balance. You have 60 days to choose a distribution method. Miss that window and the Division of Retirement issues a lump-sum payment automatically and withholds 20% for federal income taxes.¹

Three distribution methods are available:

Lump sum. The whole balance is paid at once, with 20% federal withholding. Depending on your other income for the year, you may owe more at tax time.¹⁰
Direct rollover. The full balance transfers to an IRA, 401(k), or other eligible plan with no tax withheld, staying tax-deferred until you draw on it.¹⁰
Partial lump sum with rollover. You take part in cash (with 20% withholding on that portion) and roll the rest.

Whichever method you choose for the accumulated balance, your regular monthly pension begins at termination. The amount is the one calculated when you entered DROP, plus any COLA that accrued during the program.

Watch the Tax Bill

The 20% withholding on a lump sum is a prepayment, not the final tax. A six-figure DROP payout stacked on top of the salary you earned earlier in the same year can push you into a higher bracket, so the calendar timing of your termination matters.

Take a lump-sum or partial cash distribution before age 59½ and the IRS adds a 10% early withdrawal penalty on the taxable portion. Public safety employees who separate from service during or after the year they turn 50 are exempt under IRC Section 72(t)(10); the exception covers law enforcement officers, firefighters, and corrections officers employed by state or local government.¹¹ For Special Risk members retiring in their early 50s, that exception is often what makes taking cash instead of rolling over practical.

A direct rollover to a traditional IRA or other eligible plan sidesteps both the 20% withholding and the 10% penalty; tax comes later, when you draw from the receiving account. Roth conversions are possible, but the converted amount is taxable income in the year of conversion, so spreading across tax years usually works better than converting the whole balance at once.

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 at enrollment.¹

Under Option 1, monthly payments stop. The beneficiary gets the DROP accumulation and any refund of excess personal contributions.
Under Option 2, the 10-year guarantee runs from the DROP start date, not from job termination. Die five years in and your beneficiary receives payments for the remaining five years only.⁹
Under Option 3, your joint annuitant receives the same monthly benefit for their lifetime.
Under Option 4, your joint annuitant receives two-thirds of the benefit for their lifetime.

If your Option 3 or Option 4 joint annuitant dies before you during DROP, you can name a new beneficiary for the account balance, though that person does not become a joint annuitant on 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 rules that apply to inherited employer plan distributions.

The Six-Month Re-employment Rule

This is where the costliest mistakes happen. After DROP ends and you terminate, you cannot work for any FRS-covered employer in any capacity for six full calendar months.⁴ Not as a consultant, not part-time, not through a temp agency. Any employment relationship with an FRS employer during that window can void the entire retirement.

If it is voided, your retirement and DROP status are canceled retroactively. You and the employer that hired you become jointly and severally liable to repay all retirement benefits received, including the full DROP accumulation and any distributions already made.¹² If you already rolled the balance into an IRA, you may face additional 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 restrictions on your retirement benefits or compensation.¹²

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
6
The Florida Legislature. Florida Statutes 121.091 – Benefits Payable Under the System
K-12 instructional and administrative personnel are exempt from the window and can enter at any point after normal retirement.5Florida Retirement System. DROP Guide
7
Florida Retirement System. Florida Retirement System 2011 Legislative Changes
8
Florida Retirement System. Understanding Your Benefits Under the FRS Pension Plan
9
Florida Retirement System. What Retirement Option Should You Choose
10
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
11
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
12
Florida Retirement System. Pension Plan Informational Guide