In a pension plan, which is designed to pay out a monthly pension stipend for life, the DROP option allows an individual to retire in the eyes of the retirement plan but continuing working for upwards of five (5) to eight (8) years, depending upon the plan. However, during this period of continued employment, their pension checks are being deposited into an account (DROP account). The catch is the pension plan participant is not allowed to take physical receipt of the money until they actually terminate employment.
The advantage is having a lump-sum at the true retirement date. The disadvantage is that the monthly pension benefit that could have accrued does not accrue if the individual enters the DROP program. Benefits cease accruing upon the entry into the DROP program. In other words the individual is considered retired on the date they entered DROP and the monthly pension benefit is fixed.
The problem in marital dissolution cases is that the non-employee spouse or their attorney may be unaware that this payout option exists, while failing to address the potential of this option ever coming into play in either the settlement agreement or Final Judgment. Such is the case in Russell v. Russell, 922 So.2d 1097 (FLA. 4th DCA 2006), where the parties were divorced in July 1995 and the husband entered the DROP program in 1998. The husband argued the DROP accumulation is a post-marital benefit, and the trial court agreed. On appeal, the 4th DCA recognized that the DROP accumulation did not “accrue” after the dissolution, as the trial judge alluded to, but rather the pension payments for which the spouse was entitled to accumulated in the DROP account, as did the husband’s share of the pension payments.
When preparing settlement agreements, mediation agreements, or final judgments, it is advisable to address the issue of “DROP or similar payout option” verbiage to ensure that a spouse has the ability to receive a share of these accounts if such an election is made.1
1 This blog was taken from Voit, Timothy. “Are Drop, BacDrop, and PRB Accounts Marital Assets in Florida? The Florida Bar, Family Law Section Commentator, Spring 2017. Retrieved from: http://familylawfla.org/wp-content/uploads/2017/10/Fam-2017-SummerEdition-Final2-print.pdf