DROP Interest Rates for Calendar Year 2023

Date: Nov 04, 2022


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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