DROP FAQs

Overview

DROP Members FAQs

General Questions

  1. What is the effective date of my DROP participation?

    The same date you elect to make your service pension effective is the date of your DROP participation. You must be on active duty status on your DROP entry date.

    For example, if you elect a DROP entry/service pension effective date of 05/01/20XX and you are on active duty on that date, your department will provide a Letter of Intent (LOI) indicating you will enter DROP effective the close of 04/30/20XX. 

  2. What constitutes “active duty status” for purposes of entering DROP ?

    For purposes of entering DROP, active duty status includes light-duty status, leave with pay and overtime, but excludes sick, vacation, injured on duty, administrative leave and all other types of non-working status. (See charts on page 4 of the DROP Handbook for more information.) If you are on a non-working status, your intended effective date of DROP participation will be adjusted to reflect the date which you return to active duty/working status. The City Administrative Officer has determined which payroll codes constitute active duty status for purposes of this provision.

  3. Why do I have to sign the various releases, waivers, and covenants that are contained in the DROP election application? What happens if I refuse to sign them?

    The various releases, waivers and covenants are designed to protect you, LAFPP and the City. We have done our best to disclose to you all of the advantages, as well as disadvantages, of DROP. You must sign all required forms in order to participate in DROP.

  4. What if I want to revoke my DROP election?

    To revoke your entry into DROP you must submit a DROP Revocation Notice no later than the day prior to the DROP entry effective date. The Notice may be submitted in person at 701 E. 3rd Street, Suite 200, Los Angeles, CA 90013, by fax directed to (213) 628-7716, or by email send to Pensions@lafpp.com. It must be received before the close of business at 5:00 p.m., or if faxed or emailed, by 11:59 p.m. The effective date of revocation is established only upon receipt of the Notice and its signature by LAFPP administrative staff. You are responsible for confirming its timely receipt by LAFPP. If you do not revoke your election prior to the DROP entry effective date, your decision to enter DROP and to terminate sworn employment at the end of the DROP period will become final, binding and irrevocable. Consult with outside advisors (e.g. your own attorney, accountant, tax advisor, or other professional) prior to making your decision to enter DROP.

  5. Will I receive any service credit for retirement benefit calculation purposes for the time I am in DROP?

    No. Service credit is determined as of the time you enter DROP and no additional credit will be given once you are in DROP. However, to maximize your service credit you may purchase time such as prior service as an LAFPP Pension Plan member, Lost Service Time (Tier 2), Worker’s Compensation State Rate Time, recruit training time (Tiers 3, 4, 5 and 6), or time under the Public Service Purchase (PSP) Program. In order for the time mentioned previously to be counted toward your years of service credit, all purchases must be completed through the Active Member Services Section before entering DROP. Also, you may want to consider working to the end of the payroll period immediately prior to your date of retirement if you wish to receive credit toward your years of service for that pay period

  6. How much interest will my DROP account earn?

    Interest is earned at an annual percentage rate of 5% and your account will be credited with interest earned semi-annually, on June 30 and December 31. No interest shall accrue after you terminate DROP participation.

  7. Will I still receive cost-of-living adjustments to my pension payments?

    Yes. Cost of living adjustments (COLAs) for your tier will be applied to your monthly service pension while you are in DROP; however, the amount of the COLA is capped at +/-3% for all tiers, as shown below. Note that in the event of a negative COLA, your pension may be reduced by the negative COLA percentage but will never be adjusted less than your original pension amount.

    If You Are in This Tier… Your Maximum COLA Percentage While You Are in DROP Is…
    Tier 2*, Tier 3 or Tier 4 +/-3%
    Tier 5 and Tier 6 +/-3% with a COLA Bank**

    *COLA is uncapped for retired Tier 2 members once they exit DROP and start receiving a monthly pension.

    **Any increase in the local Consumer Price Index (CPI) above 3% is put in the “COLA bank”. The COLA bank is drawn from in future years whenever the CPI does not reach at least 3%. In such years, some or all of the COLA bank balance is added to increase the COLA up to the maximum of 3%.

  8. Will I pay contributions into the retirement system while I’m in DROP?

    Yes. In order for DROP to be cost neutral, the Los Angeles Administrative Code requires that both your contributions and the City’s contributions continue at the rate and for the length of time specified for your tier (chart shown below). Additionally, members of tiers 2 – 5 who elected to pay the 2% “opt-in” contributions will continue to make these contributions until they have done so for 25 years. All member contributions go into the LAFPP Service Pension Fund and are not applied to your DROP account.

    If You Are in This Tier… Your Pension Contribution Percentage Is… Your Contributions Stop After You Complete…
    Tier 2 7% 30 Years of Service
    Tier 3 or 4

    8%

    2% for members that opted-in

    30 Years of Service

    25 years, or Retire/Exit DROP

    Tier 5

    8% or 9%*

    2% for members that opted-in

    33 Years of Service

    25 years, or Retire/Exit DROP

    Tier 6 

    9%

    2% – Retiree Health Benefit

    33 Years of Service

    25 Years of Service

    *Members will continue to contribute 8% and the City will contribute 1% if the Pension Plan is at least 100% fully funded for pension benefits. If the plan’s funding for pension benefits is below 100%, Tier 5 members will contribute 9%.

    The service purchased under the Public Service Purchase Program does not count as service applicable to the contribution provisions of any of the tiers nor terminate a member’s obligation to make the contributions required by the member’s tier.

  9. While I’m in DROP, will my pension contributions cease when I reach the maximum years of service (YOS) for my tier?

    Yes. Although you no longer earn YOS credit as a DROP participant, YOS does count toward the maximum number of years in which you must make pension contributions. For example, a Tier 3 member entering DROP upon completing 28 YOS would cease making contributions after two years of participation in DROP, or a Tier 5 member entering DROP with 30 YOS would cease making contributions after three years of DROP participation.

  10. Can I receive a refund of my pension contributions?

    No. Once you have enrolled in DROP, you are no longer eligible for a refund of pension contributions.

  11. What happens to my sick, vacation, and overtime accruals when I enter DROP?

    While you are in DROP, you are still considered an active employee for purposes of sick, vacation and overtime accrual. Your operating Department will make payouts of unused sick, vacation and overtime when you terminate employment with the City. Sick, vacation and overtime cannot be used beyond the end of your DROP participation.

  12. Can I get an estimate of how much money my DROP account will accumulate?

    While you are in DROP, you are still considered an active employee for purposes of sick, vacation and overtime accrual. Your operating Department will make payouts of unused sick, vacation and overtime when you terminate employment with the City. Sick, vacation and overtime cannot be used beyond the end of your DROP participation.

  13. When can I see information on the balance of my DROP account?

    DROP Statements are not mailed but can be accessed online. The semi-annual DROP statements are available for viewing the first week of January and July of every year. You may view your DROP statements online by logging in to MyLAFPP. If you do not have internet access, you may request a paper copy of your DROP statement by calling the DROP/Service Pensions Section at (213) 279-3100.

  14. When do I choose a beneficiary for my DROP account?

    We encourage you to designate your beneficiaries for your DROP account when you enter DROP. You may change your beneficiary designation at any time prior to exiting DROP. As your marital status or family circumstances change, it is advisable that you review your designations to ensure that the person(s) named as your DROP beneficiary(ies) is/are the person(s) you want designated. Overlooking this matter may have very serious and undesirable consequences. Note: Your choice of a beneficiary cannot defeat any community property interest awarded to an ex-spouse in a dissolution.

  15. What happens if I’m promoted while in DROP?

    The amount of your retirement benefit, both the amount credited to your DROP account and the amount you will eventually receive as a monthly pension when you terminate employment and retire, are frozen at the time of entry. Therefore, your DROP account and pension will not reflect the additional pay from your promotion. If you think a promotion may be forthcoming, you may want to consider delaying your entry into DROP. You may also wish to consider that your monthly pension entitlement, if in Tiers 3, 4, 5, is based upon the calculation of a 12-month Final Average Salary, and if in Tier 6, upon a 24-month Final Average Salary.

  16. What happens if I’m demoted while in DROP?

    The amount of your retirement benefit, both the amount credited to your DROP account and the amount you eventually receive as a monthly retirement allowance, will not be affected by any reduction in your salary that accompanies the demotion. The amount of your retirement benefit, both the amount credited to your DROP account and the amount you eventually receive as a monthly retirement allowance, will not be affected by any reduction in your salary that accompanies the demotion.

  17. What happens if I resign while in DROP?

    Resigning from sworn employment with the City will automatically terminate your participation in DROP and you will be deemed to have retired. You will begin receiving your monthly retirement benefit and will have to decide how you wish to have your DROP account distributed. (See question 29 – options when you leave DROP.)

  18. What happens if I’m terminated while in DROP?

    Being fired automatically terminates your participation in DROP. At your written request, distribution of your DROP account will be withheld while the appeal of your discharge is pending. Should you be reinstated, you may continue to participate in DROP if the account has been withheld, and the original period of DROP participation will continue but cannot exceed the original 5-year/60-month limit. If your termination is upheld and 90 days have passed since your effective date of termination, distribution of your DROP account will default to payment as a lump sum with Federal taxes of 20% withheld. If the DROP funds have been distributed, you cannot return to sworn employment or continue in DROP even if your termination is overturned.

  19. What happens if I join DROP and then become disabled?

    If you apply for and receive a disability pension, your length of service and pay adjustments, etc., are restored as if you never entered DROP. However, you must forfeit your entire DROP account should you receive the disability pension. Once you have received your DROP account funds, you are no longer eligible to apply for or receive a disability pension.

  20. What happens if I die while in the DROP program?

    Nonservice-Connected Death: Should you die of nonservice-connected causes, the normal post-retirement survivor pension benefits provided by your tier will be paid to your qualified survivor(s), in addition to the proceeds of your DROP account.

    Service-Connected Death: If your death is service-connected, in lieu of the survivor benefits described for a nonservice-connected death, your qualified surviving spouse/domestic partner may choose to forfeit your DROP account and collect a “Service-Connected” survivor pension based on your salary and years of service as if you never entered DROP.

    NOTE: If you were not married or did not file a Declaration of Domestic Partnership one year prior to entering DROP, your surviving spouse/domestic partner would not be considered a “qualified survivor”. However, if your death is service-connected, your surviving spouse/domestic partner could become “qualified” by electing to forfeit your DROP account and collect a “Service-Connected” survivor pension based on your salary and years of service. (In order to qualify for a survivor pension in the event you die in the line-of-duty, your spouse must be married to you or your domestic partner must be declared as of the date of your service-connected death.)

  21. Can I participate in both DROP and the City’s Deferred Compensation program?

    Yes.  As long as you are an active employee receiving a salary you can contribute to Deferred Compensation. Deferred Compensation is a deduction taken from your active salary while your DROP account is a retirement benefit.

  22. Will I be able to take a loan from my DROP account?

    No. The provisions of DROP do not allow you to take a loan from your DROP account.

  23. What happens if I marry while I’m in DROP?

    Your marriage will be deemed to be a marriage occurring post-retirement, and your spouse will not be eligible for survivor benefits. To qualify your surviving spouse for pension benefits, you must be married to him/her for one year prior to entering DROP.

    If you have a domestic partner and would like for him/her to qualify for pension benefits, you must file a confidential affidavit with LAFPP or register your partnership with the State of California one year prior to entering DROP. Please note that there are special requirements to register a domestic partnership with the State of California. Further information may be obtained from any county clerk office or at the Office of the Secretary of State.

    Upon Exit and retirement, you may elect to provide a survivor benefit to a spouse or domestic partner who is not otherwise qualified by reducing your monthly pension benefit, under the Survivor Benefit Purchase Program.

  24. What happens if my marriage gets dissolved prior to or while I’m in DROP ?

    Some or all of your DROP account may be community property depending on your dissolution judgment or order. Your former spouse may have a claim to a portion of the DROP account and may be entitled to a share when you exit DROP and the DROP account is distributed. Whether this applies in your case depends on the Court’s orders and judgment. You may wish to check with your own lawyer regarding this issue.
     

    Note: Until you actually terminate sworn employment with the City of Los Angeles and become eligible to receive a monthly pension benefit, no monies shall be paid from your DROP account. There are no provisions within Fire and Police Pension Plan to permit payment of any retirement benefit until you terminate sworn City employment.

  25. When I terminate participation in DROP, do I have to retire at that time?

    Yes. DROP requires that when you terminate participation in the program, you also terminate sworn City employment. You must schedule an appointment with your department’s retirement/human resources liaison to complete the service pension process: Fire: Personnel – (213) 978-3750;

    Police: Personnel – (213) 486-6610; Port Police: Human Resources – (310) 732-3486; and Airport Police: Human Resources – (424) 646-5900.

    You must also schedule an “Exit Consultation” with our DROP/Service Pensions Section. Once your appointment is scheduled, you will be mailed a DROP Exit package. It is suggested that you schedule your exit consultation at least 45 days prior to your intended exit date to ensure adequate time for processing your account.

  26. What are my distribution options when I exit DROP?

    At the time you leave DROP, you must choose between (1) a lump sum cash payment of your DROP account balance, (2) a rollover of the taxable balance in your DROP account to an IRA or other tax-qualified retirement plan or (3) a combination of a partial rollover to an IRA or tax-qualified retirement plan and a lump sum cash distribution of the balance. When you are approaching the end of your DROP participation period, you will need to contact LAFPP administrative staff for further information and to select your distribution option. There may be significant income tax ramifications to your election, so you may wish to contact your personal financial or tax advisor.

    Lump-Sum Payment

    If you elect to receive a lump-sum payment of your DROP account balance from LAFPP, you will be taxed. However, a portion of any after-tax pension contributions you made to the Plan, such as those made from July 1, 1982 to December 20, 1996, may be distributed to you tax free.  Note for Tier 4 members: In addition to any applicable tax, if you are not age 50 or older in the year in which you exit DROP, you will be assessed an early withdrawal penalty by the IRS and the State of California when you receive your lump-sum payment.

    Rollover

    You may defer payment of taxes on the taxable portion of your DROP account balance by rolling it over to one qualified account, such as the City’s Deferred Compensation plan or an Individual Retirement Account (IRA). You will then be subject to the rules of such plan when you take distribution of your funds.  Note: If your DROP account balance includes any non-taxable amount, you may elect to receive a partial lump-sum payment of that portion, tax free. Otherwise, if you elect to roll over your entire balance to a single plan/financial institution, the qualified account you designate must accept non-taxable funds – the City’s Deferred Compensation plan does not. If you roll over any non-taxable portion, you must also roll over your entire taxable portion.

    Combination Lump-Sum Payment & Rollover

    You have the option to take a portion of your DROP account balance in a lump-sum payment from LAFPP and roll over the remaining balance to a qualified account.

    Should you take a full or partial lump-sum distribution of the taxable portion of your DROP account balance, LAFPP must withhold 20% for federal income taxes, but a 2% California state withholding is optional.  Keep in mind that your tax liability for the year could be more.  To avoid the mandatory 20% federal withholding, you must elect to rollover the full taxable amount of your DROP account to a tax-qualified plan. 

    We urge you to consult with your tax and/or financial advisor so that you are aware of any financial consequences that could affect your distribution decision. We cannot advise you regarding your tax liability.

  27. Can the provisions of DROP be changed?

    Yes, but if you are already in DROP, any changes to current DROP members must be specified the DROP ordinance.

Tax Information

  1. Are there any income tax consequences to my entering DROP?

    Yes. All funds in the DROP account are likely to be taxable, in full, upon distribution.  However, you may have some “basis recovery” due to the fact that employee contributions may have been made on an after-tax basis for the following reasons:  per IRS rules and regulations, pension contributions were taxed from July 1, 1982 to December 20, 1996; purchases of service credit made by lump sum payment or payroll deduction; and, the 2% “opt-in” pension contribution to vest future retiree health subsidy increases.  Basis recovery is a process used to determine the tax-free portion of your pension payment.  Based on an IRS provision, you may have the opportunity to accelerate recovery of a portion of your eligible after-tax pension contributions through payment as a tax-free lump sum distribution.

  2. How do After-Tax Contributions affect my DROP funds?

    If you made after-tax pension contributions, your DROP funds may include after-tax “basis”. “Basis recovery” is the process by which your after-tax employee pension contributions are returned to you, free of taxes, as part of your pension benefits.

  3. I’ve heard that if I exit DROP after January 1, 2014, that I will get a refund or rebate. Is this true?

    The amount due to you from DROP does not changed. However, the taxability of your DROP account will depend upon whether or not you’ve made after-tax employee pension contributions. You may be able to receive part of your DROP distribution tax-free as a lump sum payment.

  4. How do I know if I’ve made after-tax employee pension contributions?

    You may have made after-tax contributions for any of the following reasons:

    From 7/1/82 – 12/20/96, mandatory pension contributions were collected after-tax

    Elective purchases of service credit made by contract or lump sum payments are collected after-tax. (Trustee-to-trustee transfers from Deferred Compensation are pre-tax.)

    The voluntary 2% “opt-in” pension contributions certain members elected in order to vest future retiree medical subsidy increases are collected after-tax. (Note: This does not apply to Tier 6 members.

  5. How is the-non taxable portion of my DROP account determined?

    If you made after-tax pension contributions, your DROP funds may include after-tax “basis”. “Basis recovery” is the process by which your after-tax employee pension contributions are returned to you, free of taxes, as part of your pension benefits.

    If you are exiting DROP, the Internal Revenue Code includes a provision that allows you to recover a portion of your eligible after-tax contributions using an accelerated basis recovery method. This method allows you to take a lump sum distribution of any eligible after-tax DROP funds, rather than recovering it in payments over your lifetime through the Simplified Method. If you exit DROP on or after January 1, 2014, you will be subject to the following basis recovery method:

    Recover pre-1987 after-tax contributions entirely from the lump sum DROP distribution.

    Have any post-1986 after-tax contributions allocated pro-rata between the lump sum DROP distribution and your ongoing monthly pension annuity. Any after-tax funds not recovered from the DROP lump sum, will be recovered through the Simplified Method from the monthly pension annuity.

  6. What is the Simplified Method?

    It is the formula that the Internal Revenue Code requires us to use to determine the amount of your ongoing monthly pension benefit that is taxable vs. the amount that is tax-free. You can read about this formula in IRS Publication 575. The tax-free portion is based on the amount of your unrecovered after-tax contributions at retirement and your age (plus your spouse’s/domestic partner’s age, if applicable), when you exit DROP and begin to receive pension benefits.

    The formula determines the amount of your pension that will not be taxed and the length of the time for that exclusion. By subtracting the tax-free amount from your gross pension for a fixed number of months, your already taxed contributions will be recovered. Cost-of-living pension increases will not change or have any effect on the tax-free amount since the calculation is based upon your remaining after-tax contributions at retirement.

  7. How will I know how much of my DROP distribution will be non-taxable?

    When you receive your DROP distribution election forms, you will be provided with your distribution options, the breakdown of your after-tax contributions, the amount that may be recovered tax-free from your DROP distribution and how much you will recover on an ongoing basis from your monthly pension benefit tax-free.

Additional FAQs for Members who entered on or after February 1, 2019

  1. Is the 112-hour active working duty status counted in calendar or work hours?

    Yes, but if you are already in DROP, any changes to current DROP members must be specified the DROP ordinance.

  2. What time count as a working hour?

    You can use Hours worked (HW), vacation (VC), preventative medicine (PM) and time off (TO) as part of the 112 hours.

  3. What time does not count as a working hour?

    Sick time (SK), family illness (FI) and Injury on Duty/Workers’ Comp time will not count towards your 112 working hours.  There is an exception, however, if you are hospitalized for 3 or more days as a direct result of an on-duty injury

  4. Does overtime count toward my working hours?

    You cannot use overtime toward your working hours, but if you bank your hours and take them as TO, those hours will count.

  5. If I don’t meet the 112-hour work requirement, will I be immediately terminated from the DROP Program?

    No.  A participant can work up to the full 5 years of DROP.  Within the 5 years, any month with less than 112 active duty hours is not eligible for DROP pension accrual (i.e., your participation is suspended for that month).  The months ineligible for pension accrual can be made up at the end of the 5-year standard DROP period, for up to a maximum of 30 additional months beyond the original participation period

  6. Where does my money go if I fail to meet the 112-hour active duty retirement?

    While it is common to refer to DROP credit being earned in the form of a payment or check, it is not, in fact, a payment or a check. While in DROP, you get credit in your individual DROP account once you have earned the credit; but the actual money stays in the LAFPP trust fund. If you fail to meet the 112-hour requirement during a calendar month, your DROP account will not receive pension credit for that month. However, the funds remain in the LAFPP trust fund

  7. Will the months I make up be subject to the 5% interest??

    No.  The 5% interest is only for the first five years in DROP. Any extension beyond the five-year DROP period would not earn the 5% interest.  Extensions beyond the five-year DROP period would receive cost of living adjustments to your pension.

  8. Will my DROP account from the initial 5-year period continue to accrue interest while I’m making up any months?

    No. Your DROP balance from the initial 5-year period will be frozen and not collect interest during your extended make-up time.

  9. What if I enter DROP in the middle of the month or exit DROP in the middle of a month?

    You must be on “active duty status” for a minimum of 112 hours in a calendar month to be credited with a DROP deposit for that month, regardless if it is at the beginning or end of your DROP period

  10. Will the timing of DROP payouts be impacted by these new provisions?

    Yes, under the new provisions LAFPP must confirm with the City’s payroll system (PAYSR) that you met the 112-hour active duty threshold in your final pay period.  Depending upon your DROP exit date, this may delay the payout of your DROP lump sum for a minimum of 1 month.

  11. Will I earn interest on my DROP balance while the final pay period is being verified?

    No. The terms for crediting interest remain unchanged.  No interest accrues after a member’s DROP exit effective date.

  12. How will my accumulated time payouts be affected by the February 1, 2019 effective date?

    Accumulated time is paid out after you exit the DROP Program.  Your vacation time is earned retrospectively, and you will earn and be paid hours on the previous year of employment. Sick leave is paid out prospectively and the City will not pay the extra 96 hours of sick time for 2019.  For example, if you have 896 hours on the books, you will be paid out for 800 hours.