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.
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