This plan proposes a retirement option allowing an employee to obligate to a future date to end employment and allow what would have been paid by the retirement system to go into an account which will be paid at the predetermined end of employment. Employees must be eligible for retirement at the time the option is chosen.
KP&F members could opt to participate in the DROP any time after reaching normal retirement age. The option is a one-time election that is irrevocable. By one-time it means you can only select to enter it once, it does not mean you have to decide at the time of reaching retirement age you choose to opt in or opt out. The option is an irrevocable election and does not guarantee employment for the duration of the period. The option requires the member to select a DROP time period of three to five years. Electing to enter the DROP locks your retirement benefits at the level you have earned based on final average salary and years of service at the time you enter the DROP agreement. The final average salary and years of service do not change due to time worked in the DROP agreement period. However, after entering the agreement you continue to work for the duration of the DROP agreement receiving the salary and benefits of your employer and still paying the KP&F contribution based on that salary. During the DROP agreement period, the retirement benefit is placed into the member's DROP account where it is held and invested by KPERS. Interest accrues at a rate of 0-3% based on the KPERS rate of return on investments. There is no interest in a year when the KPERS return does not meet the assumed rate of return (currently 8%), but in years when that is met the interest is paid at a rate of 50% of the actual return or 3%, whichever is smaller.
If the member fails to continue working for the entire agreed to DROP period, whether the termination is voluntary or involuntary, the accrued interest is forfeited but the accrued benefits paid into the account remain the property of the member. The only exception is if the member becomes disabled in which case the member will retain the accrued interest. If the member dies prior to completing the DROP period the balance in the account is paid to the beneficiary. I believe that includes the interest.
At the end of the agreed to DROP period and the members DROP account is distributed either as a lump sum payment or rolled into an eligible retirement plan.