ARIZONA PSPRS - 7 YEAR DROP

LAWMAKERS EXTEND DROP TO SEVEN YEARS

State lawmakers and Governor Ducey approved legislation that makes conditional service extensions to DROP participation. The conditions for extending DROP service to seven from five years are different for members who are currently in DROP and for those who will enter in the future. The PSPRS Board of Trustees did not take a position on the law, Senate Bill 1268, which underwent a series of amendments before passing. The legislation was primarily supported by law enforcement organizations as a means to help encourage member retention in response to attrition and slowing recruitment. The new law allows members currently in DROP to seek their employers’ approval to extend their service beyond the traditional 60-month (five-year) limitation and contains an emergency clause to make the law effective immediately upon the governor’s July 6 approval. The law does not alter the basic eligibility requirements of the regular five-year DROP for Tier 1 public safety members, but adds several conditions to enable future DROP members to continue service beyond the five-year limit. In order to be eligible for extending DROP service up to seven years, future DROP members must be at least 51 years old and have 24.5 years of credited service at the time they enter DROP. Eligible members who elect to extend their service will also have their pension balance and accrued interest transferred into a 401(a) account after five years in DROP. Subsequent monthly pension payments will be deposited by PSPRS into participating members’ 401(a) accounts maintained by Nationwide Retirement Solutions over the course of participating members’ remaining service, not to exceed 24 months. The PSPRS assumed rate of return will not be applied to DROP accounts after five years of service in DROP. Members currently in DROP on the date the legislation was signed by the Governor are eligible for extended DROP, however the transfer to Nationwide has an effective date of January 1, 2023. Those members in extended DROP will have their pension balance and accrued interest remain with PSPRS and will not accrue additional interest from the expiration of the 60-month DROP through December 31, 2022.

Source: Article from PSPRS Third Quarter Newsletter 2022 PSPRS FY2022 Third Quarter Newsletter_FINAL.pdf