DROP is an acronym that stands for deferred retirement option plan (or program) and is a type of “phased” retirement, as opposed to immediate retirement. It is a nuance of defined benefit plans or pensions, uniquely suited for government employees. Once an employee is eligible and chooses to “enter the DROP,” he then typically must separate from employment within the next 5 years. The participant “retires” once he enters the DROP, but actually separates from service at a later date. When he exits DROP, the retiree receives a portion of his pension as a lump sum, in exchange for a lower pension payment over his lifetime.


The first DROP design was implemented in Baton Rouge, LA in the mid 1980s to incentivize senior city employees to remain on the job. The defined benefit pension in place at the time required only 20 years vesting for sworn employees, before they were eligible for full retirement. Overwhelmingly, once an employee posted a 20- year term of service, he retired and collected a pension. Consequently, the city found itself continually recruiting and training new officers to replace those who retired. In an effort to alleviate this issue, a DROP was created. It covered all groups of employees (police, fire, & general) and accomplished its stated purpose of increased retention, while also being cost neutral. For this reason, DROP plans began to spread across the country and were viewed as an effective retention and succession-planning tool. As a testament to this, over one-half of the fifty states have some iteration of DROP today.