DEFERRED RETIREMENT OPTION PLAN
POLICY AND PROCEDURE
(Revised August 2001)
A. PURPOSE
The purpose of this policy and procedure is to provide a coordinated and fully documented process for applicants to enter and exit the Deferred Retirement Option Plan (“DROP”) of The Police Retirement System of St. Louis (“System”). In addition, this policy and procedure is intended to provide those associated with the process with a detailed outline of the steps, time frames, and rules regarding DROP and the processing of applications for participation in DROP. IN THE EVENT OF ANY INCONSISTENCY BETWEEN THE INTERNAL REVENUE CODE AND THE DROP OR THIS POLICY AND PROCEDURE, THE CODE WILL SUPERSEDE.
B. GENERAL DESCRIPTION OF DROP
1. In order to be eligible to participate in DROP, a Member must be age 55 or have 20 years of creditable service in The Police Retirement System of St. Louis.
2. While a Member is participating in DROP:
a. Employment during participation in the DROP shall not be included in creditable service and shall not be counted in determining any service retirement allowance.
b. Earnings payable to the Member during DROP participation shall not be included in the Member’s average final compensation and shall not be counted in determining any service retirement allowance.
c. The amount that a Member would have received as a service retirement allowance if he or she had retired instead of entering DROP shall be deposited monthly in the Member’s DROP account, which shall be established in his or her name by the Board.
d. The Member’s mandatory contributions to the Retirement System will be reduced from seven percent (7%) to zero percent (0%) during DROP participation. Mandatory contributions made prior to DROP participation will continue to be credited with interest.
e. The Member will not be entitled to any cost of living increases with respect to periods before the Member terminates employment. Any increases attributable to periods after the Member’s retirement will apply only to the monthly service retirement allowance payable after termination of employment and not to any amounts credited to or distributed from the Member’s DROP account.
f. On the first day of each fiscal year of DROP participation, beginning with the second year of participation, a Member’s DROP account will be credited with the actual earnings (or loss) of the System from the previous year (net of investment expense) at the end of each System fiscal year of participation based upon the account balance at the beginning of the fiscal year. The System’s fiscal year is October 1 to September 30. If a total withdrawal occurs during a System fiscal year, interest will be determined pro rata for the final partial fiscal year of the DROP account’s existence based on the beginning balance for the fiscal year.
g. No Member shall make any withdrawal from his or her DROP account until after termination of employment.
h. The Member shall continue in active employment and shall not receive any service retirement allowance payments until he or she terminates employment.
3. DROP participation ends on the date the first of the following occurs: (a) the last day of the 5–year period beginning on the DROP entry date (and sixty monthly payments have been added to the DROP account); (b) the Member’s termination of employment as a police officer due to death, accidental disability, or retirement; or (c) the effective date of the Member’s election to end his or her DROP participation early. An Early Exit Election can become effective as of the first day of any month ending on or after October 1, 2001.
4. Once a Member’s DROP participation ends for any reason, he or she cannot re-enter DROP.
5. If a Member who is participating in DROP applies for and receives benefits for an accidental disability retirement allowance under the provisions of section 86.263 RSMo, the Member shall forfeit all rights, claims or interest in his or her DROP account and the Member’s benefits shall be calculated as if the Member had continued in employment and had not elected to participate in the DROP. Any amount in a DROP account which has been forfeited shall become funds of the System.
6. A Member whose DROP participation terminates for reasons other than his or her termination of employment, death or disability and who continues employment with the System after DROP participation ends shall automatically re-enter active participation in the System immediately after DROP participation ends. On and after the date the Member re-enters the System:
a. Mandatory contributions at the rate of seven percent (7%) shall be deducted from the Member’s salary earned on and after such date.
b. Employment on and after such date will count as creditable service and earnings paid on or after such date will be included in the Member’s average final compensation for purposes of determining the service retirement allowance payable to the Member upon his or her retirement.
c. No further payments will be credited to his or her DROP account but the DROP account will continue to be credited with the System’s investment results until full payment is made following the Member’s death or termination of employment.
7. SPECIAL RULES:
a. A Member who participated in DROP before October 1, 2001 and whose DROP participation ended prior to October 1, 2001 will re-enter the System as an active participant on the day after the end of the 5-year DROP period or, if later, October 1, 2001, provided the Member is still actively employed on such date.
b. The service retirement allowance of a Member who was participating in DROP before October 1, 2001 and who re-enters active participation in the System on or after October 1, 2001 is subject to special transition rules. Member’s should contact the System’s administrative office for details.
C. PROCEDURE FOR ELECTING TO ENTER DROP
1. A Member who desires information concerning DROP but is not yet prepared to participate may:
a. Request a non-binding verbal estimate of his or her monthly service retirement allowance based on estimated creditable service and average final compensation as of the proposed DROP participation date (This is the estimated amount that would be transferred to the DROP account each month during the DROP period.); and/or
b. Schedule an appointment with the System’s administrative office to discuss DROP, during which a non-binding estimate of his or her monthly service retirement allowance as of the proposed DROP participation date can be made.
2. A Member of the System who desires to participate in DROP must schedule an Appointment to meet with the System’s administrative office to file an Election Form.
3. IN ORDER TO TIMELY PROCESS THE ELECTION FORM, THE APPOINTMENT MUST BE SCHEDULED PRIOR TO THE MEMBER’S INTENDED EFFECTIVE DATE OF PARTICIPATION IN DROP.
4. Attendance at the Appointment is a condition of participation in DROP.
5. The Appointment must be scheduled during the hour of 9:00 a.m. to 3:00 p.m. Monday through Friday.
6. If time permits, the System’s administrative office will mail information pertaining to DROP participation to the Member prior to the Appointment.
7. During the Appointment, the System’s administrative staff will:
a. Inform the Member of the contents of this Policy and Procedure and the Election Form for participation in DROP, and
b. Respond to any questions the Member may have concerning the contents of this Policy and Procedure.
8. A Member who elects to participate in DROP must sign the Election Form and verify that he or she understands the terms and conditions of DROP, as expressed in this Policy and Procedure.
9. When filing the Election Form to participate in DROP, the Member will have the opportunity to designate a beneficiary to receive his or her DROP account in the event the Member dies before receiving the account. The Member may designate a contingent beneficiary on the Beneficiary Form, who will receive the DROP account in the event the first selected beneficiary dies before the Member. The Member can change his beneficiary for the DROP account at any time by filing a new Beneficiary Form with the System’s administrative office.
10. A designated beneficiary will receive the DROP account only if the Member dies before receiving his entire DROP account balance and only if no spouse, dependent child or dependent parent survives the Member. In the event the Member fails to designate a beneficiary, or if no beneficiary survives him, the Member’s estate will receive the DROP account balance remaining unpaid at the Member’s death.
11. Upon full completion, the Election Form will be placed on the agenda for a Board meeting for approval. The Member starts participation in the DROP on the first day of the month following approval.
12. Within a reasonable period of time after Board approval of the Election Form, the System’s administrative office will:
a. Notify the Member of the Board’s approval of the Election Form including an estimated calculation of the monthly amount to be credited to the Member’s DROP account during the DROP period;
b. Arrange for the change of the Member’s mandatory contributions from 7% to 0% with the paymaster of the Police Department;
c. Arrange for the Member’s DROP account to be established.
13. The System’s administrative office will annually provide each DROP participant with a balance statement of his or her DROP account balance. The System’s administrative office will also respond to other balance inquiries, but only is such inquiries are in writing.
D. PROCEDURE FOR ELECTING EARLY EXIT FROM DROP
1. A Member who is participating in DROP may elect to terminate his DROP participation on the first day of any month beginning on or after October 1, 2001, provided the Member’s Early Exit Election Form if filed on a timely basis.
2. A Member who desires information concerning Early Exit from DROP but is not yet prepared to exit may schedule an appointment with the System’s administrative office to discuss the impact of an Early Exit from DROP.
3. A Member of the System who desires to elect an Early Exit from DROP must schedule an Appointment to meet with the System’s administrative office to file an Early Exit Election Form.
4. IN ORDER TO TIMELY PROCESS THE EARLY EXIT ELECTION FORM, THE APPOINTMENT MUST BE SCHEDULED PRIOR TO THE MEMBER’S INTENDED EARLY EXIT DATE.
5. Attendance at the Appointment is a condition of early exit from DROP.
6. The Appointment must be scheduled during the hour of 9:00 a.m. to 3:00 p.m. Monday through Friday.
7. During the Appointment, the System’s administrative staff will:
a. Inform the Member of the contents of this Policy and Procedure and the Early Exit Election Form, and
b. Respond to any questions the Member may have concerning the contents of this Policy and Procedure and the impact of an Early Exit Election on the Member.
8. A Member who elects Early Exit from DROP must sign the Early Exit Election Form and verify that he or she understands the terms and conditions of Early Exit from DROP, as expressed in this Policy and Procedure.
9. Upon full completion, the Early Exit Election Form will be placed on the agenda for a Board meeting for approval. The Member’s participation in DROP ends on the first day of the month following approval.
10. Within a reasonable period of time after Board approval of the Early Exit Election Form, the System’s administrative office will:
a. Notify the Member of the Board’s approval of the Early Exit Election Form;
b. Arrange with the paymaster of the Police Department for the resumption of the Member’s mandatory contributions at the rate of 7%.
11. The System’s administrative office will annually provide each former DROP participant with a balance statement of his or her DROP account balance. The System’s administrative office will also respond to other balance inquiries, but only is such inquiries are in writing.
E. PAYMENT OF DROP ACCOUNT AT RETIREMENT OR DEATH
1. When a current or former DROP participant terminates his or her employment with the Police Department as a Police Officer, he must, at least thirty (30) but no more than ninety (90) days before the Member’s retirement, schedule another appointment to meet with the System’s administrative office to complete a Retirement Application in order to receive any retirement benefits (i.e., service retirement allowance, return of lump sum contributions, and DROP account).
2. The System’s administrative office will place the DROP participant’s Application for retirement benefits on the Board agenda for the next meeting for approval.
3. After approval of the Application by the Board of Trustees, the System’s administrative office will contact the Member and ask the Member to sign a form wherein he or she elects to receive the DROP account balance in a lump sum or in monthly installments over a ten (10) year period.
4. In most cases, payment of retirement benefits, including the DROP account, will begin within thirty (30) days after all necessary forms are completed by the Member and filed with the System’s administrative office.
5. Distributions from DROP accounts will be included in the recipient’s taxable income for the year received (to the extent they are not rolled over) and will be subject to all applicable tax withholding rules. To the extent permissible under federal tax laws, payment of a DROP account can be made in the following forms:
a. Substantially equal monthly installments for ten (10) years. Interest earned during the ten (10) year payment period will be paid in a lump sum distribution at the end of the period.
b. A lump sum distribution of the entire balance of the DROP account.
6. Under current law, all or part of a lump sum distribution payable to a Member may be directly rolled over to a traditional Individual Retirement Account (IRA) or another employer’s tax-qualified retirement plan that accepts rollovers. Amounts not directly rolled over will be subject to mandatory income tax withholding. Lump sum distributions made on or after January 1, 2002 can also be directly rolled over to an Internal Revenue Code Section 457(b) deferred compensation plan or an Internal Revenue Code Section 403(b) tax-sheltered annuity that accepts rollovers. Lump sum distributions paid to a Member’s surviving spouse are also eligible for rollover. More information on direct rollovers will be provided when a lump sum distribution becomes payable.
7. If a Member dies prior to termination of employment or prior to receiving payment of all amounts in the DROP account, the funds in his or her DROP account shall be payable to the Member’s spouse. If the Member is unmarried, payment will be made to the Member’s dependent children. If there are no dependent children, payment is made to a dependent father or mother, or, if none, to a designated beneficiary, or, if none, to the Member’s estate. Payment will be made in a lump sum. Notwithstanding the foregoing, the surviving spouse or dependent children of a Member who dies in the line of duty may elect to receive payment of the Member’s DROP account in the form of a monthly lifetime annuity.
8. Nothing will be distributed from a Member’s DROP account following the Member’s death until the effective date of Board approval of such payment. The Board will not approve payment until such time as it receives sufficient documentation of the DROP Member’s death. (For example, a death certificate would be deemed “sufficient documentation” of a Member’s death.)
9. All distributions from DROP accounts will be made on the first business day of the month.