At today’s meeting, SDCERS’ Board of Administration approved a minor adjustment to the measurement period used to calculate DROP interest rates.  

Typically, the DROP account and annuity interest rates are calculated based on the weighted composite of a 12-month average, ending September 30th of the current year, of certain U.S. bond and annuity rates (see Board Rules 6.10 and 6.40 for more information). However, due to the ongoing federal government shutdown, some of the bond and annuity rates have only been updated through the end of August 2025.

As a result, staff recommended a slight modification to the measurement period to ensure that the 2026 DROP rates could be calculated in a timely and consistent manner. The Board approved staff’s recommendation such that the weighted composite measurement period is now from September 1st through August 30th each year. Using this adjusted timeframe, the Board subsequently approved the calendar year 2026 DROP account and DROP annuity interest rates.  

The new DROP rates will be effective January 1, 2026. The DROP account rate is the interest rate used by SDCERS while a Member is in DROP and the DROP annuity rate is the interest rate used by SDCERS to annuitize the DROP monies of a Member who has exited DROP and selected the DROP annuity option.

2026 DROP Account Interest Rate

Effective January 1, 2026, the annual DROP account interest rate (compounded quarterly) will decrease slightly to 4.2%, compared to the current rate of 4.4%. This interest rate will be compounded quarterly and applied to all active DROP participants’ accounts as long as the participant is actively employed by their plan sponsor on the last day of the quarter in 2026. This rate is subject to change annually, which means a DROP participant’s account may receive a different interest rate every year during their participation period.

2026 DROP Annuity Interest Rate

Port Members will have a different DROP annuity interest rate than City and Airport Members – this is due to the fact that the City and Airport plan documents include a self-imposed limit on the DROP annuity factor, preventing it from exceeding 5.0% if the DROP account rate is less than 5.0%.

Therefore, the DROP annuity interest rate will remain 5.0% for City and Airport Members, and increase slightly to 5.3% for Port Members, compared to the current rate of 5.1%. The applicable interest rate will be applied to the funds remaining in a DROP retiree’s account when they exit DROP, if the retiree chooses to annuitize all or part of their DROP account, and it will be factored into the calculation of their monthly DROP annuity payment. Please note that the 2026 rates apply only to retirees whose DROP retirement date is during calendar year 2026.

Unlike the DROP account interest rate, the DROP annuity rate will not change for an individual member – the rate that is in effect when a member exits DROP is the rate that will be applied to their annuity calculation, regardless of whether or not the DROP annuity rate changes in future years.

Therefore, when you are getting close to your DROP retirement date, your decision to exit DROP before or after the New Year may be affected by the Board’s decision to increase or decrease the DROP annuity interest rate.

However, if you do not plan to annuitize your DROP account upon exiting DROP, then the DROP annuity rate changes are irrelevant to you. Click here to review your options regarding how you can receive the funds in your DROP account when you exit DROP. This article may also be helpful if you are trying to decide when to enter or exit DROP.

Please attend a DROP Exit webinar if you are nearing your target DROP exit date!

The last DROP exit webinar of 2025 will be on November 18th from 11:00 a.m. – 12:30 p.m. As of the date of this article, this webinar has 18 open spots. Please use the following link to register: https://attendee.gotowebinar.com/register/1215922871961020246

• If you are unable to attend this webinar and you plan on exiting DROP within the next two months, please contact SDCERS as soon as possible.

Please attend a DROP Entry webinar if you are planning to enter DROP soon!

The last DROP entry webinar of 2025 will be on December 2nd from 10:00 a.m. – noon. Please use the following link to register: https://attendee.gotowebinar.com/register/3569036085761171541.

• There will be another DROP entry webinar in January that has not yet been scheduled. If you are within 3 months of your DROP entry date and are unable to register for either the December or January webinar, please contact SDCERS and let us know.

If you are considering entering or exiting DROP soon, you must begin the process by:

• Going to your Member Portal account and clicking on either “Online Applications” or “DROP Retirement Application” (whichever is applicable to you) from the left menu, under Tools.
• Review the information, make your selections, and submit the initial application online.
• Once submitted, you will be contacted by an SDCERS staff member to schedule your personal counseling appointment.

At your appointment, you can ask questions and make any changes to your application. Your electronic application is not final and you have not officially scheduled your DROP entry or exit date until you’ve submitted your signed application signature page, which will be given to you by your retirement counselor during or after your appointment.