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At today’s meeting, SDCERS’ Board of Administration voted to approve staff’s recommended DROP account and DROP annuity interest rates for the next calendar year – meaning these rates will be effective January 1, 2024. The DROP accountrate is the interest rate used by SDCERS while a Member is in DROP and the DROP annuityrate 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. These rates are calculated annually using publicly available indexes as of September 30th of each year. (See Board Rule 6.10(c) and 6.40(b), and the SDCERS CEO’s memorandum presented at the January 2022 Board meeting for more information about how these rates are calculated.)
Therefore, effective January 1, 2024, the annual DROP account interest rate (compounded quarterly) will increase significantly to 4.2%, compared to the current rate of 2.5%. 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 each quarter. 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.
The DROP annuity interest rate will increase to 4.6%, compared to the current rate of 2.9%. This 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 retiree’s DROP exit date must be during calendar year 2024 in order for the 4.6% annuity factor to apply.
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 will not affect you. Click here to review your options regarding how you can receive the funds in your DROP account when you exit DROP.
Please attend a DROP Entry webinar if you are planning to enter DROP soon! As of the date of this article, the November 27th DROP entry webinar from noon – 2:00 p.m. has 20 open spots – please use the following link to register: https://attendee.gotowebinar.com/register/9081807050801528666. There will be another webinar in December 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 November or December webinars, please contact SDCERS and let us know.
Please attend a DROP Exit webinar if you are nearing your target DROP exit date! The next DROP exit webinar will be November 28th from 11:00 a.m. – 12:30 p.m., and you can register using the following link: https://attendee.gotowebinar.com/register/7587965465274533643. There will be another DROP exit webinar in December, but it has not yet been scheduled. If you are within 3 months of your DROP exit and are unable to register for either the November or December webinars, please contact SDCERS and let us know.
If you are considering entering or exiting DROP soon, you must begin the process by first 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 this information, make your selections, and submit the initial application online. Once received, 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.
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At today’s meeting, SDCERS’ Board of Administration voted to approve staff’s recommended DROP account and DROP annuity interest rates for the next calendar year – meaning these rates will be effective January 1, 2023. 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 retired. These rates are calculated annually using publicly available indexes as of September 30th of each year. (See Board Rule 6.10(c) and 6.40(b), and the SDCERS CEO’s memorandum presented at the January 2022 Board meeting for more information about how these rates are calculated.)
Therefore, effective January 1, 2023, the annual DROP account interest rate (compounded quarterly) will increase significantly to 2.5%, compared to the current rate of 0.8%. This interest rate will be compounded quarterly and applied to all active DROP participants’ accounts as long as the participant is actively employed by the City of San Diego, San Diego Unified Port District, or the San Diego Regional Airport Authority on the last day of each quarter. 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.
The DROP annuity interest rate will increase to 2.9%, compared to the current rate of 2.1%. This 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. Please note that the retiree’s DROP exit date must be during calendar year 2023 in order for the 2.9% annuity factor to apply.
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, 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 will not affect you. Click here to review your options regarding how you can receive the funds in your DROP account when you exit DROP.
Please attend a DROP Entry webinar if you are planning to enter DROP soon! The November DROP entry webinar is currently full; however, there will be another in December 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 November or December webinars, please contact SDCERS and let us know.
Please attend a DROP Exit webinar if you are nearing your target DROP exit date! The next DROP exit webinar will be November 17th from noon – 1:30 p.m., and you can register using the following link: https://attendee.gotowebinar.com/register/7587965465274533643. (Note: These webinars tend to fill up fast – there will be another DROP exit webinar in December, but it has not yet been scheduled. If you are within 3 months of your DROP exit and are unable to register for either the November or December webinars, please contact SDCERS and let us know.)
If you are considering entering or exiting DROP soon, you must begin the process by first 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 this information, make your selections, and submit the initial application online. Once received, 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 you’d like 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.
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City Members hired before July 1, 2005; Port Members hired before October 1, 2005; and Airport Members hired before October 2, 2006 have the option to participate in the Deferred Retirement Option Plan (“DROP”) when they become age and service eligible to retire. You can review our DROP Fact Sheet for more detailed information about this program, but one important aspect of DROP is that when a member enters, they generally must exit and fully retire within five years of their DROP entry date (exception for City firefighters). Many DROP participants elect to stay in DROP and continue working for their plan sponsor for the full five-year period, while many others only stay in for a fraction of that time – it is entirely up to each member if they want to exit DROP early based on their personal circumstances.
That being said, here are a few things to consider before you decide when to enter (and possibly when to exit) DROP, not in any particular order:COLA – The annual cost of living adjustment (“COLA”) applies every July to the monthly pension benefit of every DROP participant who entered DROP by the previous June 30th. The COLA can increase your pension benefit up to 2% in any given year. Therefore, some members intentionally choose to enter DROP on or before June 30th so that their benefit receives the COLA immediately.Note: The Board approves the COLA at its May meeting each year, so you will know what the COLA will be more than a month in advance. However, keep in mind you must enter DROP at the beginning of a pay period, which may not be exactly on June 30th – plan ahead to schedule your DROP entry date accordingly; if you decide you want to enter DROP before July 1st of a given year in order to receive the COLA in July, we recommend submitting your online DROP entry application by early May, so we can schedule your counseling appointment in May or the beginning of June. Don’t procrastinate until the end of June, or you may risk being unable to enter DROP before July! Annual Member Contribution Account Interest – On the flip side, if you enter DROP after June 30th of a given year, your member contribution account receives the annual compounded interest (currently 6.5%), which only applies to members who are not retired or in DROP as of July 1st. While the interested added to your contribution account does not increase your base pension benefit, it will slightly increase your Cost of Living Annuity (“COL Annuity”) and Surviving Spouse Annuity (only applicable if you choose the Maximum Benefit (Single) option). However, this increase is rarely greater than the increase due to the COLA would be, but still something to keep in mind!DROP Account Interest – While you are participating in DROP, your DROP account will receive quarterly compounded interest at whatever the current rate is in effect on the last day of each quarter (DROP interest rates are subject to change each year – new rates are generally announced at the November Board meeting and go into effect the following January 1st).
However, you must be working and participating in DROP on the last day of the quarter in order to receive interest for that quarter, so this is something to consider before deciding when to exit DROP. This also matters when deciding on your DROP entry date because if you enter DROP towards the end of a quarter and stay in for the full five years, you will not receive interest for the last quarter of your DROP participation period (unless you are a firefighter and able to extend your DROP period through the end of the quarter), thereby likely missing out on the last quarter interest payment to your DROP account. For example, if you enter DROP on June 15th and stay in for the full five years, your last day of work must be on June 14th five years later; therefore, your DROP account would not receive interest for the 2nd quarter of that year, since you wouldn’t be working on June 30th.Final Compensation – For those eligible to enter DROP, the “Final Compensation” used to calculate your pension benefit is your highest pensionable salary averaged over 12 consecutive months. If you recently received a salary increase, especially a significant one, you may want to continue working and receiving that higher pay for a while before you enter DROP, in order for the higher salary to be factored into your pension benefit calculation – if you enter DROP shortly after receiving a raise, it won’t significantly increase your pension benefit.
Also, keep in mind that if you have reciprocity with another California public retirement system, the Final Compensation that SDCERS reports to the reciprocal system will be your Final Compensation as of your DROP entry date, not your DROP exit date. This means that even if you receive a salary increase while you are participating in DROP, it will not affect your pension benefit either from SDCERS or the reciprocal system.Birthday – Your retirement factor, another element of your pension benefit formula, is determined based on your plan tier and age at DROP entry, prorated in quarterly increments. When deciding on your DROP entry date, consider your exact age – for example, if your plan tier’s retirement factor increases between 60 and 61, and you enter DROP when you are 60 years and 7 months old, the factor used in your benefit calculation will be slightly higher than what would be used if you retired at 60 years and 5 months old. Therefore, if your tentative DROP entry date is close to your next quarter age, you may want to push your entry date a few weeks so your pension benefit calculation will use that slightly higher retirement factor.DROP Annuity Interest Rate – Finally, the last consideration is only relevant if you are interested in taking the DROP annuity after you exit. (See this article discussing your options regarding how you'd like to receive your DROP account when you exit.) Like the DROP account rate, the DROP annuity rate is subject to change each year, with new rates typically announced at the November Board meeting, which go into effect the following January 1st. Unlike the DROP account rate, your DROP annuity calculation is locked in at whatever the current DROP annuity rate is in effect on the day that you exit DROP. Therefore, in your last year of DROP, if the Board announces in November that the DROP annuity rate is going to decrease in January, you may want to exit by the end of December so your annuity is calculated before the rate goes down. (In this case, don’t forget that your DROP account would not receive 4th quarter interest.) If the annuity rate is going to increase in January, then you may want to wait until after December 31st to exit, so your DROP annuity is calculated at the higher rate.
However, in order to take advantage of the latter situation, you must have the flexibility to do so based on your DROP entry date – for instance, if you entered DROP towards the end of a calendar year and you stay in for the full five-year period, then you will not be able to wait until the following January to exit, even if the annuity rate is going to increase.All of these considerations are important, but must be balanced by your personal circumstances and desires. As you can see, it’s impossible to take advantage of every single factor listed above, because many of them work against each other – for example, if you enter DROP in June, you set yourself up to receive the COLA immediately, but you are sacrificing the 2nd quarter DROP account interest payment in your last year of DROP. If you wait until July to enter, your COL Annuity and Surviving Spouse Annuity (if applicable) will increase, but you won’t receive the COLA until the following July. So on and so forth. If you have any questions about the considerations described above, please contact SDCERS via our Contact Us page or by calling (619) 525-3600 on regular business days between 9:00 a.m. and noon, or 1:00 to 4:00 p.m. (PST).
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At today’s meeting, SDCERS’ Board of Administration voted to approve staff’s recommended DROP account and DROP annuity interest rates for the next calendar year – meaning these rates will be effective January 1, 2022. 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 retired. These rates are calculated annually using publicly available indexes as of September 30th of each year. (See Board Rule 6.10(c) and 6.40(b) for more information about how these rates are calculated.)
Therefore, effective January 1, 2022, the annual DROP account interest rate (compounded quarterly) will be decreased slightly to 0.8%, compared to the current rate of 1.0%. This interest rate will be compounded quarterly and applied to all active DROP participants’ accounts as long as the participant is actively employed by the City of San Diego, San Diego Unified Port District, or the San Diego Regional Airport Authority on the last day of each quarter. 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.
The DROP annuity interest rate will stay the same at 2.1%. This 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.
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, 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 will not affect you. Click here to review your options regarding how you can receive the funds in your DROP account when you exit DROP.
Please attend a DROP Exit webinar if you are nearing your target DROP exit date:
November 16th at 1:30 p.m.: https://attendee.gotowebinar.com/register/1042833321240571663
November 19th at 1:30 p.m.: https://attendee.gotowebinar.com/register/1325148324834998287
December 15th at 11:00 a.m.: https://attendee.gotowebinar.com/register/5940220839076014095
If you are currently in DROP and considering retiring soon, you must begin the process by first going to your Member Portal account and clicking on “DROP Retirement Application” from the left menu, under Tools. Review this information, make your selections, and submit the initial application online. Once received, you will be contacted by an SDCERS staff member to schedule your personal phone counseling appointment. At your appointment, you can ask questions and make any changes you’d like to your application. Your electronic application is not final and you have not retired until you’ve submitted your signed application signature page, which will be emailed to you by your retirement counselor during or after your appointment.
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At today’s meeting, SDCERS’ Board of Administration voted to approve new DROP account and DROP annuity interest rates, which will be effective January 1, 2021. 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 retired. These rates are calculated annually using publicly available indexes as of September 30 of each year.
Effective January 1, 2021, the DROP account interest rate will be 1%, compared to the current rate of 2.5%. This interest rate will be compounded quarterly and applied to all active DROP participants’ accounts as long as the participant is actively employed by the City of San Diego, San Diego Unified Port District, or the San Diego Regional Airport Authority on the last day of each quarter. 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, depending on the Board’s actions.
Also beginning January 1, 2021, the DROP annuity interest rate will be 2.1%, compared to the current rate of 3.1%. This interest rate will be factored into the calculation of a DROP retiree’s monthly DROP annuity, if they DROP retire between January 1 and December 31, 2021 and choose to annuitize their DROP account. 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 DROP retires is the rate that will be applied to their annuity, regardless of whether or not the DROP annuity rate changes in future years. If you are nearing the end of your five-year DROP participation period, your decision to DROP retire before or after the New Year may be affected by the Board’s decision regarding 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 will not affect you. Click here to review your options regarding how you may choose to receive your DROP account.
Read the full article for an example of how the changing DROP annuity interest rate could affect the calculation of a hypothetical DROP annuity.
If you are currently in DROP and considering retiring before Dec. 31, you must begin the process immediately as counseling appointments will fill up fast. To begin the process, you must first go to your Member Portal account and click on “DROP Retirement Application” from the left menu, under Tools. Review this information, make your selections, and SUBMIT THE APPLICATION ONLINE. Once received, you will be contacted by an SDCERS staff member to schedule your personal phone counseling appointment. At your appointment, you can ask questions and make any changes you’d like to your application. Your electronic application is not final and you have not retired until you’ve submitted your signed application signature page, which will be emailed to you by your retirement counselor during your appointment.
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If you are eligible to participate in the Deferred Retirement Option Plan (“DROP”), you have the chance to build up a sizeable nest egg during your participation period. (See the DROP Fact Sheet for more information.) When you’re ready to exit DROP and fully retire, you’ll have to decide what you want to do with that nest egg. Here are your options:Receive the funds as a lump sum paymentRollover the funds to a qualified planAnnuitize the funds (over 20 years or life expectancy)CombinationPlease read the full article for an explanation of each option. However you decide to receive your DROP account, just make sure it’s the right choice for your financial circumstances. It doesn’t matter what anyone else does – just do what makes sense for you and your future!
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On November 8, SDCERS’ Board of Administration voted to approve new DROP account and DROP annuity interest rates, which will be effective January 1, 2020. The rates are calculated annually using publicly available indexes as of September 30 of each year.
Therefore, effective January 1, 2020, the DROP account interest rate (compounded quarterly) will be reduced to 2.5%, compared to the current rate of 2.7%. This interest rate will be applied to active DROP participants’ accounts. 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, depending on the Board’s actions.
Also beginning January 1, 2020, the DROP annuity interest rate will be increased to 3.1%, compared to the current rate of 3.0%. This interest rate will be applied to the funds remaining in a DROP retiree’s account if the retiree chooses to annuitize their DROP account, and it will be factored into the calculation of their monthly annuity. 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, regardless of whether or not the DROP annuity rate changes in future years. Therefore, if you are close to the end of your five-year DROP participation period, 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.
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At its November 9, 2018 meeting, the SDCERS' Board of Administration approved staff's recommendation to change the DROP (Deferred Retirement Option Plan) interest rates for the DROP Participation Accounts and DROP Annuities, effective January 1, 2019.
The interest rate for DROP Participation Accounts was increased to 2.7 percent. DROP Participation Accounts are the accounts that Active DROP members (those still working) contribute to during their five-year-maximum participation period. The current rate is 2.0 percent, through December 2018.
The interest rate for a new DROP Annuity was increased to 3.0 percent. A DROP Annuity is a payment option available to DROP participants when they retire from DROP. Under this payment option, retirees receive a monthly DROP payment (annuity) in addition to their monthly retirement benefit (pension). The current rate is 2.8 percent for anyone who enters into a DROP Annuity through December 2018. Important: This has no effect on retirees who have already entered into a DROP Annuity. The DROP Annuity rate is permanent once the annuity disbursement begins.
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At its November 3, 2017 meeting, the SDCERS' Board of Administration approved staff's recommendation to change the DROP (Deferred Retirement Option Plan) interest rates for the DROP Participation Accounts and DROP Annuities, effective January 1, 2018. Learn More...
At its November 4, 2016 meeting, the SDCERS' Board of Administration approved staff's recommendation to change the DROP (Deferred Retirement Option Plan) interest rates for the DROP Participation Accounts and DROP Annuities, effective January 1, 2017.
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At its November 13, 2015 meeting, the SDCERS' Board of Administration approved staff's recommendation to change the DROP (Deferred Retirement Option Plan) interest rates for the DROP Participation Accounts and DROP Annuities, effective January 1, 2016. Learn More...
Date:
Nov 14, 2014
Categories: DROP
At its November 14, 2014 meeting, the SDCERS' Board of Administration approved staff's recommendation to change the DROP (Deferred Retirement Option Plan) interest rates for the DROP Participation Accounts and DROP Annuities, effective January 1, 2015. Learn More...
Date:
May 14, 2014
Categories: DROP
At the May 2014 meeting, the Board of Administration approved Board Rule 6.50, which impacts DROP participants who are eligible to extend their DROP participation period beyond five years. The San Diego Municipal Code allows DROP participants who are represented by San Diego City Fire Fighters Local 145 the option of extending their DROP participation beyond five years using their unused annual leave. Learn More...
Date:
Nov 21, 2012
Categories: DROP
DROP Interest Crediting Rates for Active Participation Accounts and DROP Annuities are set by the Board based on a weighted composite of rates selected by the Board. See Board Rules 6.10 and 6.40 under Forms & Publications. No later than December of each year, staff presents updated DROP Interest Crediting and DROP Annuity rates to the Board of Administration for its consideration. Learn More...
At its December 16, 2011 meeting, SDCERS' Board of Administration approved staff's recommendation to change the DROP (Deferred Retirement Option Plan) interest rates for the DROP Participation Accounts and DROP Annuities, effective January 1, 2012. Learn More...
The City Attorney’s office initially assured SDCERS it would not object to SDCERS’ request of the court for a clarification order exempting from correction affected PSC contracts of those Members in DROP before November 20, 2007.On Monday, April 11, however, the City Attorney’s office instead filed with the court an opposition to SDCERS’ request (see PDF of Opposition, at the bottom of this page). Learn More...
Date:
Mar 18, 2011
Categories: DROP
Active City of San Diego employees have received benefit election materials in the mail to vote on proposed benefit changes to the City's Deferred Retirement Option Plan (DROP). Learn More...
Date:
Dec 17, 2010
Categories: DROP
At its December 17, 2010 meeting, SDCERS' Board of Administration approved staff's recommendation to change the DROP (Deferred Retirement Option Plan) interest rates for the DROP Participation Accounts and DROP Annuities, effective January 1, 2011. Learn More...
A recent decision by the San Diego Superior Court has ruled that benefit changes made by the City in 2005 – but which were not codified by ordinance into the Municipal Code until 2007 – have a retroactive effective date back to July 1, 2005. (A PDF of the ruling is available at the end of this article) Learn More...
Date:
Dec 11, 2009
Categories: DROP
On Thursday, December 17, SDCERS' Board of Administration approved staff's recommendation to lower the interest rate on DROP Participation Accounts from 3.54% to 2.9%, effective January 1, 2010. The DROP Annuity Rate will remain unchanged at 5%. Learn More...