T-DROP FAQ

What is the deadline to enter Teacher Deferred Retirement Option Plan (T-DROP) for the coming school year?

May 31 is the deadline for entering each year. T-DROP entry is only allowed once per year. No exceptions. If you miss the May 31 deadline, the next opportunity is May 31 of the following year.

What is the Teacher Deferred Retirement Option Plan (T-DROP)?

T-DROP is an optional deferred "retirement" plan for ATRS members. Active members who meet eligibility requirements may elect to participate in T-DROP in lieu of retiring and accepting a service retirement benefit.

How does T-DROP work?

Once T-DROP participation begins, ATRS processes member accounts as if members are retiring. ATRS will determine years of service credit (both contributory and noncontributory), a final average salary, and use current multipliers to calculate a monthly benefit amount. The monthly benefit stipend that may be payable will not be added to the member's benefit until the member leaves T-DROP participation and begins drawing a monthly retirement benefit.

Members will continue to work for an ATRS employer, but will not accrue any additional service credit. Importantly, contributory members receive the advantage of no longer paying the member contributions. That leaves more money in the member's paycheck. Any increase in salary after entering T-DROP will not increase the final average salary determined at the time T-DROP participation begins.

The monthly deposit for T-DROP is calculated by multiplying the regular monthly benefit determined at the time T-DROP participation begins by 1% for each year of ATRS and reciprocal service credit, then subtracting the product from the regular monthly benefit. Entry into T-DROP with at least 28 but less than 30 years of service credit further reduces the T-DROP deposit by 6% for each year less than 30 years of service credit, up to a 12% additional reduction.

Early Reduction Example:

12%, if entering T-DROP with 28 years of service credit, 6% if entering T-DROP with 29 years, or 3% if entering T-DROP with 29.5 years of service credit.

In lieu of receiving a monthly benefit, the T-DROP deposit will accrue each month in a tax-deferred T-DROP account for up to ten (10) consecutive calendar years. An annual interest rate of 3% as adopted by the ATRS Board of Trustees will be credited to the T-DROP balance each June 30, and applied to the mean balance of the annual T-DROP deposits.

So, in layman terms, how does T-DROP benefit me?

The intent of T-DROP is to recruit, retain, and reward quality career educators in Arkansas schools. Prior to T-DROP, members had a tendency to retire with 28-30 years of service credit. T-DROP allows members to continue to work in the public schools and also build a savings account for later when they are ready to leave the workforce.

Members who were contributory members prior to T-DROP will no longer make member contributions to ATRS. The regular benefit amount upon which the monthly T-DROP deposit is calculated accrues an annual Cost of Living Adjustment (COLA). The T-DROP account balances increase by the simple COLA at the beginning of each fiscal year.

You mentioned interest accrual on my T-DROP balance above; how does that work?

The T-DROP account earns interest, compounded annually on each June 30. In addition, interest is applied to the mean balance (the average balance over the 12 months of deposits since every month the balance increases) of the annual T-DROP deposits. Currently, the T-DROP interest rate has been set at 3%.  However, the ATRS Board of Trustees can provide an increased incentive interest rate during years of outstanding investment returns. 

Are there any other financial incentives with T-DROP?

Upon entering T-DROP, contributory members receive the advantage of no longer paying the member contributions. That leaves more money in the member's paycheck. The T-DROP account benefits by a cost-of-living adjustment (COLA) applied to the regular retirement benefit. The regular retirement benefit that will be paid after retirement from T-DROP keeps pace with inflation by continuing to accrue COLAs. 

Is there a "down side" to T-DROP?

A member's retirement benefit is based on years of service credit, final average salary, and the benefit multipliers in effect at the time of entry into T-DROP. Like all decisions concerning retirement, the decision to participate in T-DROP should be made very carefully – T-DROP is irrevocable. The election to enter T-DROP freezes retirement benefits, subject only to COLA increases. Any additional years worked will not add service credit and will not enhance the final average salary.

Points to Consider:

• Entering into T-DROP early will affect retirement benefits if a member needs to continue working past the ten (10) years of T-DROP participation. Members should target T-DROP participation to most likely match the anticipated retirement date. ATRS does pay interest on T-DROP account balances after ten (10) years of participation in T-DROP between 4% and 6%, but does not add more monthly deposits.

• Large increases in salary after T-DROP entry does not increase retirement benefits, since entry into T-DROP freezes final average salary for retirement.

What are the eligibility requirements for T-DROP?

In order to participate in T-DROP, active members of ATRS or a qualified state reciprocal plan must have at least thirty (30) years of combined ATRS and reciprocal service credit for full participation. Active members may elect to participate early with a reduction if the members have at least twenty eight (28) and less than thirty (30) years of ATRS and reciprocal service credit. 

What must I do to participate in T-DROP?

T-DROP participation begins only on the first day of a fiscal year, July 1. A T-DROP application must be received by ATRS no later than May 31 to be able to participate on the following July 1. An application for T-DROP received by ATRS after May 31 cannot become effective until July 1 of the following fiscal year.

What if I change my mind after I apply and begin T-DROP?

The T-DROP application may be withdrawn with a written notice to ATRS no later than two (2) calendar months after the T-DROP effective date, which is always July 1. After the initial two month period (August 31), T-DROP is irrevocable.

I understand that I can participate in T-DROP for ten (10) years – am I required to stay for the full ten (10) years or can I get out at any time?

The consecutive ten (10) year period is the maximum amount of time a member can receive monthly deposits in T-DROP. A T-DROP participant may retire at any time before reaching ten (10) years of T-DROP participation.  Participants may stay in T-DROP beyond 10 years with interest payments only, ranging from 4% to 6% each fiscal year.

If I am in T-DROP and do not retire do I automatically collect ten (10) years of monthly deposits?

Employment with an ATRS employer or an *employer of a qualified state reciprocal system is required to accrue uninterrupted monthly T-DROP deposits.   The following minimum days of credited service are required to accrue twelve (12) months of T-DROP deposits in a fiscal year;

• Fifteen (15) days of service in the first fiscal quarter (July, August, September),

• Twenty-five (25) days of service in the second fiscal quarter (October, November, December),

• Twenty-five (25) days of service in the third quarter (January, February, March), and,

• Fifteen (15) days of service in the fourth quarter (April, May, June).

If any of the following occurs, then the monthly T-DROP deposits stop:

• The T-DROP participant separates from employment with an ATRS employer and is granted monthly retirement benefits from ATRS or a reciprocal plan.

• The T-DROP participant separates from employment (voluntary or terminated) with an ATRS employer but does not apply for monthly retirement benefits.

• The T-DROP participant dies and deposits become payable to designated beneficiaries.

* The reciprocal system of employment must have been established as reciprocal service with ATRS prior to entry in T-DROP.

 
PLEASE NOTE: T-DROP members may only participate within the ten (10) consecutive calendar years that follow the beginning entry date into T-DROP.

May I withdraw or "take a loan" from the money in my T-DROP account?

The funds in T-DROP may not be accessed for any reason until the participant's retirement or death.

May I change jobs while in T-DROP?

T-DROP deposits and participation continue as long as members continue to work for an ATRS covered employer or an employer of a qualified state reciprocal retirement plan as long as the reciprocal service had been established with ATRS prior to entry into T-DROP. T-DROP deposits are not accrued during a break in service for the months not employed by an ATRS employer or an employer of a qualified state reciprocal retirement plan. However, even with a break in service, additional T-DROP deposits may accrue until ten (10) years from the participant's entry date in T-DROP has elapsed, so long as the participant has not actually retired from ATRS.

If you are in T-DROP and intend to change employment to an employer of a reciprocal retirement plan, please call ATRS prior to accepting the position.

What happens after I have participated for ten (10) years in T-DROP and I decide not to retire?

After completion of ten (10) consecutive fiscal years in T-DROP, ATRS pays annual interest on the T-DROP balance each June 30th. The ATRS Board of Trustees sets the post 10-year T-DROP interest rate each fiscal year for the following year. The interest rate varies from a minimum of 4% to a maximum of 6%.

Once I decide to retire, how do I get my T-DROP balance?

To retire from T-DROP, members must submit a retirement application and a T-DROP Account Distribution Request form. ATRS will provide members retiring from T-DROP several options on how to distribute the T-DROP balance.

How do I know I am eligible for retirement if I have not completed 10 years in T-DROP?

All T-DROP participants have already met the retirement eligibility requirements in order to participate in the T-DROP plan. A retirement application and a T-DROP Account Distribution Request form must be completed in order to file for retirement with ATRS.  ATRS' termination separation period must be adhered to if the retiree is under age 65 on the effective date of retirement. Once retired, a stipend is applied to the regular retirement benefit. The stipend is currently set at $50 per month.

Preretirement counselors travel the state and are available to assist individual members and answer questions in group settings or one-on-one. ATRS also has a Benefits and Counseling Department for those members who prefer to meet one-on-one with a counselor who can spend more time with individual members. Plus, if members schedule early enough, the ATRS executive director and deputy director will meet with members during the retirement season to assist members.  Retirement laws and rules change from time-to-time and may affect benefits. Individual or special circumstances may also affect retirement decisions. Members may also want to consult with financial planners before making a final decision to retire. ATRS is happy to work with members' financial consultants once a member has signed an Authorization to Release ATRS Records form.  Any member who faces special circumstances should always feel free to call the executive director at (501) 588-4367.

To find out more or to schedule an appointment, please contact us at (501) 682-1517 or info@artrs.gov to meet with a Preretirement counselor on the road at your place of employment or schedule an appointment with a counselor in the Little Rock office. Although appointments are not required to visit with counselors at the Little Rock office, calling ahead allows ATRS counselors time to thoroughly review your individual retirement records prior to the meeting.

You can also keep up-to-date on ATRS law, policy, and other important member information through our Executive Director Updates posted regularly on the ATRS website: artrs.gov. You can sign up on the ATRS homepage to receive the Executive Director Updates directly into your work or home email account.

What can I do with my T-DROP when I retire?

A T-DROP Account Distribution Request form is required to notify ATRS how the T-DROP account balance will be distributed at the time of retirement.

You may choose lump sum distribution, an annuitization (using the balance to increase the monthly retirement benefit check), or a combination of lump sum distribution and annuitization of the T-DROP account balance.

LUMP SUM DISTRIBUTION:

A.  All or a portion of the T-DROP account balance may be paid directly to the member in a check as a lump sum payment at retirement. This type of distribution is immediately taxable. Mandatory tax withholdings are deducted from the payment by ATRS, and an additional tax penalty may be applied by the IRS if the distribution is made before the IRS age requirement for this type of distribution, currently age 55 if retiring from active employment.

B.  All or a portion of the T-DROP account balance may be rolled over to ATRS in a T-DROP Cash Balance Account (CBA) that pays a competitive interest rate that increases over time. The funds are not taxed until withdrawals are made.

C. All or a portion of the T-DROP account balance is also eligible for rollover into another qualified plan such as an IRA. Rollovers are generally taxed upon withdrawal from the rollover institution and not at the time of rollover from ATRS to the institution receiving the funds.

ANNUITIZED: 

All or a portion of the T-DROP account balance may be annuitized and added to the regular monthly retirement benefit. This increase to the regular retirement benefit is calculated using actuarial tables and becomes a lifetime benefit. The T-DROP benefit will receive an annual 3% simple cost-of-living adjustment (COLA) after retirement just like the regular retirement benefit.

COMBINATION OF LUMP SUM & ANNUITY DISTRIBUTION:

The T-DROP balance may be divided by annuitizing 25%, 50%, or 75% as an addition to the ATRS monthly benefit and receiving the balance as a taxable lump sum payment, or rolling the remaining balance to ATRS' CBA or another eligible retirement plan.

EXAMPLE:

A T-DROP participant who retires at age 62 and annuitizes all or a portion of the T-DROP account balance increases the regular retirement benefit according to the chart below and receives a simple 3% COLA annually on the annuitized balance:

What happens to my T-DROP balance if I die prior to retirement?

Monthly T-DROP deposits cease immediately upon a participant's death. The T-DROP participant's surviving spouse, if designated as the residue beneficiary and married to the participant for at least two (2) years immediately preceding the participant's death, may receive survivor benefits as if the participant had retired under annuity Option A to provide 100% lifetime benefits to the surviving spouse.  The surviving spouse may choose to receive the T-DROP account balance in combination of a lump sum and/or as an annuitized monthly benefit added to the surviving spouse's regular monthly retirement benefit. The monthly benefits are payable for the surviving spouse's lifetime.

If no monthly survivor benefits are payable (no minor children, no incapacitated children of any age, or no eligible spouse), ATRS will pay the higher of the deceased member's T-DROP account balance or the deceased member's remaining accumulated member contributions plus interest to the T-DROP participant's designated residue beneficiary.

What happens if I annuitize all or part of my T-DROP balance and die after retirement?

If a retiree has selected Straight Life Annuity, and dies within the first year of retirement, the surviving spouse, if designated as the residue beneficiary and married to the participant for at least one year immediately preceding the retiree's death, may elect to cancel the Straight Life Annuity choice and elect Option A, 100% Survivor Annuity, for the remainder of his or her lifetime.

If a retiree dies after the first year of retirement, and has selected Straight Life Annuity, the eligible beneficiary shall receive the greater of the T-DROP Lump Sum amount that was annuitized, less the T-DROP benefit payments paid to the retiree (typically a residual balance from an annuitized T-DROP account will continue to be payable for approximately 10 years); or the accumulated member contributions plus interest less all benefits paid to the deceased retiree.

Retirees who select Option A or Option B and have annuitized part or all of their T-DROP account balance have provided payments upon their death to an option beneficiary for the remainder of the option beneficiary's lifetime. The T-DROP annuity will continue to be paid as designated by the retiree.

See Review of Annuity Options for more information.

Can I enter T-DROP even though I am a noncontributory member?

YES. Any active ATRS member with at least 28 years of service credit (actual and reciprocal) can participate in T-DROP. It does not matter if the years of service credit are contributory, noncontributory, or a combination of contributory and noncontributory.

How can I get more information?

Preretirement counselors travel the state and are available to assist individual members and answer questions in group settings or one-on-one. ATRS also has a Benefits and Counseling Department for those members who prefer to meet one-on-one with a counselor who can spend more time with individual members. Plus, if members schedule early enough, the ATRS executive director and deputy director will meet with members during the retirement season to assist members. Retirement laws and rules change from time-to-time and may affect benefits. Individual or special circumstances may also affect retirement decisions. Members may also want to consult with financial planners before making a final decision to retire. ATRS is happy to work with members' financial consultants once a member has signed an Authorization to Release ATRS Records form.  Any member who faces special circumstances should always feel free to call the executive director at (501) 588-4367.

To find out more or to schedule an appointment, please call ATRS at (501) 682-1517 to meet with a Preretirement counselor on the road at your place of employment or schedule an appointment with a counselor in the Little Rock office. Although appointments are not required to visit with counselors at the Little Rock office, calling ahead allows ATRS counselors time to thoroughly review your individual retirement records prior to the meeting.  Counselors also take telephone calls to assist members with retirement questions.
You can also keep up-to-date on ATRS law, policy, and other important member information through our Executive Director Updates posted regularly on the ATRS website: artrs.gov. You can sign up on the ATRS homepage to receive the Executive Director Updates directly into your work or home email account.