Upon termination of service with the City, payment must be made from the DROP account to the member. A member has the ability to select any of the following payment options:
DROP balances shall continue to be credited or debited with earnings until fully paid to the member. The Board of Trustees may accelerate or alter any payment schedule as may be required to comply with the provisions of the Internal Revenue Code Section 401(a)(9) and 415. No DROP payment may be made in a manner inconsistent with state or federal law. All benefits payable under the DROP program shall be paid solely from DROP assets. Neither the City nor the Board of Trustees shall have any liability or duty to pay the member or to furnish the DROP with any funds, securities or assets except to the extent required by applicable law.
No. The selection of a distribution option cannot be changed by either the DROP participant or the surviving spouse once the distribution period has commenced. However, the DROP participant or the surviving spouse may convert the existing distribution option to a Lump Sum form of payment after the distribution period has commenced.
In the event of your death during the DROP period, all DROP and accumulated leave balances shall be payable to your designated beneficiary. If you have not designated your beneficiaries, the DROP and accumulated leave balances will be paid to your estate.
No. The prohibition against DROP participants from being eligible for line-of-duty death benefits only impacts the manner of calculating pension benefits. This prohibition does not extend to any other forms of death benefits that may be available to other active firemen. (i.e., workers' compensation, federal programs authorized under the Public Safety Officers' Benefits Act, and death benefits available under Florida Statute Sections 112.19 and 121.191, respectively).
In order to be a participant in the DROP plan, and to have retirement benefits paid to you DROP account, the employee can no longer be an active member of the Plan. Since the employee is not an active member of the Plan, the employee is not eligible for a disability pension from the Deerfield Beach Municipal Firefighters’ Pension Trust Fund. If an employee becomes disabled during the DROP period, the employee will receive his or her normal retirement (at the lower rate) and will also receive the amount of money that has accrued in his or her DROP account.
DROP assets, like other forms of pension benefits, are considered marital property subject to division in a divorce proceeding. While DROP assets are not subject to distribution until a member terminates employment with the City or is otherwise eligible for a DROP distribution, a court can determine upon distribution, that a certain percentage of the DROP assets be awarded to a former spouse in the same manner as other retirement payments.
Qualified Domestic Relations Orders (QDRO's) and Income Deduction Orders (IDO's) are two forms of court orders issued pursuant to divorce proceedings. A QDRO is a judgment, decree, or order by a court usually in the case of a divorce that relates to the provision of child support, alimony payments, or marital property rights to a spouse, child, or other dependent of a participant. Governmental plans, like the Deerfield Beach Municipal Firefighters’ Pension Trust Fund, are not subject to QDRO's. Unlike governmental plans, QDRO's are specifically applicable to private pension plans under Internal Revenue Code Section 414(P)(2). Accordingly, the Deerfield Beach Municipal Firefighters’ Pension Trust Fund does not recognize QDRO's for the assignment of any pension rights by a participant for distribution of a divorced spouse's property interest. The State (under Section 61.1301, F.S.) has provided that IDO's for alimony and child support are mandatory court orders that the Deerfield Beach Municipal Firefighters’ Pension Trust Fund must follow. IDO's are taken from benefit checks or lump sum distributions to the spouse. A separate form of distribution providing for payment of the DROP benefit into a joint trust account for the member and former spouse may be ordered. The divorce laws can be quite complex. Therefore, you are advised to speak to legal counsel to discuss your personal circumstances.
Section 401(a)(9) states that you must begin taking money out of a tax deferred retirement account (like an IRA or a DROP account) by April 1 of the year following the calendar year in which you turn 70 1/2 unless you are still working. If you are a participant in a qualified plan (like the City of Deerfield Firemens' Retirement Plan and Trust Fund), and you are still working for the City, you may postpone withdrawals until such time as you terminate City employment. In addition to the beginning date requirement (age 70 1/2), Section 401(a)(9) requires that the distribution, if not taken as a lump sum, must be made over a specified period based upon life expectancy tables. Since the DROP participant must begin to liquidate the DROP account upon termination of employment, the beginning date requirements should not be an issue under the DROP program. However, all parties must be mindful to select a periodic distribution period that conforms to the requirement of 401(a)(9).
Yes. Under Section 402(a) of the Internal Revenue Code amounts are taxable only if distributed. Thus, even though amounts are credited to the DROP account because they could have been paid as retirement benefits, the participant will not be subject to tax until DROP account balances are distributed to the DROP participant. No withholding taxes will be imposed during the period of DROP participation pursuant to Internal Revenue Code Section 3401 (a)(12)(A).
The tax law states that rollovers must be paid directly to the custodian of an eligible retirement plan as defined in Section 402(c)(8)(B) of the Internal Revenue Code (IRC). Eligible retirement plans include an individual retirement account (IRA) as described in Section 408( a), IRC; an individual retirement annuity [Section 408(b), IRC, except an endowment contract]; a qualified trust; and an annuity plan as described in Section 403(a), IRC. If you die, your spouse will only be eligible to roll over your DROP benefits into an individual retirement account or an individual retirement annuity as described in Section 402( c )(9), IRC.
If you authorize the Deerfield Beach Municipal Firefighters’ Pension Trust Fund to transfer the lump sum value of your DROP account directly to an IRA or qualified retirement plan, there will be no immediate recognition of income for purposes of federal income taxation. You would pay taxes on these funds only as funds are received from your IRA or qualified retirement plan.
However, in the event that you do not choose a direct rollover of any portion of your DROP account that is an "eligible rollover distribution," the payment is taxed in the year you receive it. If you forego the rollover option and elect to receive the DROP account proceeds, the following rules would generally apply:
This is our understanding of the current tax issues that you may wish to consider. We may not be correct. We are not allowed to give tax advice in any way. Keep in mind the tax laws can change, and they are complex. We recommend and encourage you to seek the advice of a tax professional to determine what is best for you and how you will be impacted.
This is a very personal decision. No one knows better than you when to begin taking retirement benefits. Once you enter the DROP, you cannot accumulate any more service credit in the Plan.
In other words, before entering the DROP, some careful financial planning is in order. If the Plan benefits change after you DROP, those benefits may not be available to you. If you get a raise or a promotion after you enter the DROP, that salary increase will not count toward your pension. Once you DROP, you are retired under the Plan and your benefits are fixed.
A DROP program can be very advantageous to an employee who is interested in assembling a "nest egg" for themselves and their family and providing a "jump-start" into retirement. This "nest egg" can offer the employee the ability to start a business, purchase a home, travel, etc., upon retirement. The DROP participant will see the required pension contribution reduced from a rate of 9.0% of pay to 0% of pay. By reducing such contributions, the employee's take home pay will be increased.
The DROP program allows the employee to select an option that would effectively accelerate a portion of the retirement benefits that would otherwise have been received over an extended period of time. If the employee has reason to believe that his life expectancy will be less than average, the DROP could be viewed as a practical response to this outlook.
One disadvantage of participating in a DROP plan is that the amount of monthly pension that an employee receives will be substantially lower than the amount that the employee would receive had the employee retired under a normal retirement calculation performed at the time of actual retirement. Another disadvantage is that the decision to enter the DROP is irrevocable. Sometimes employees change their minds about continuing to work, but once they have entered the DROP, they are not allowed to reverse the decision to retire. A firemen experiencing the birth of a child, a new marriage, divorce, or other significant life event, will have no choice but to retire at the end of the DROP period.
Another potential disadvantage of DROP programs is that the member may elect to receive a lump sum payment, which if not used judiciously, may place financial pressure upon the retiree at a point in their lives that they can ill afford to effectively respond to such pressures.
Lump sum payouts are subject to the mandatory 20% withholding requirements which would materially impact the funds available under the DROP. DROP participants may address this issue by electing a direct rollover to an eligible retirement plan or an IRA.
If a DROP participant becomes injured after entering the DROP, he or she will not be eligible to receive a disability pension from the Deerfield Beach Municipal Firefighters’ Pension Trust Fund, since DROP participants are already "retired".
One of the most important decisions you will have to make is whether you should join DROP or remain as an active contributor to the Deerfield Beach Municipal Firefighters’ Pension Trust Fund. To assist in this decision, the Deerfield Beach Municipal Firefighters’ Pension Trust Fund Office will provide upon request an estimate of the benefits you will receive if you elect to join DROP. Upon receipt of these estimates, you should meet with your accountant, CPA, financial planner, etc., to review your total financial situation, including pension and/or DROP benefits, personal investments, and Social Security benefits, to determine which choice will be the best decision for your future.
Entering the DROP is a big decision. Once made, it is FINAL. Before entering the DROP you are encouraged to contact the Deerfield Beach Municipal Firefighters’ Pension Trust Fund Administrator with your questions. The DROP is a valuable benefit, but like anything, it does not meet everyone's needs in the same way. Before you DROP, be sure of your rights and make careful plans for your future. It would be wise to consult your own financial adviser concerning the choices that are most advantageous for your specific circumstances. For more information, you may contact the Plan Administrator, FHA-TPA toll-free at 1-800-707-0501 extension 318 or 309 or local at 954-366-0111 extension 318 or 309.