Teacher Deferred Retirement Option (T-DROP)

T-DROP is the Teacher Deferred Retirement Option Plan found at ACA § 24-7-1301 et. seq. If a member elects to participate in T-DROP, the retirement annuity benefits are frozen and any subsequent benefits in the ATRS plan will accrue in the T-DROP account. T-DROP benefits, a portion of the retirement annuity benefits for which the member is eligible, are deposited monthly in the member's T-DROP account. T-DROP accounts accrue interest on June 30 each year at 3% compounded annually.  The ATRS Board of Trustees retains the right to provide an increased incentive interest rate during years of outstanding investment returns. Upon retirement, T-DROP benefits may be annuitized with the regular retirement annuity, distributed as a lump sum payment (check, CBA, other qualified administrator) or a combined distribution of annuity and lump sum payment. A lump sum payment of a member's T-DROP account is taxable to the recipient but is eligible for rollover treatment from the IRS as a single distribution.

In order to participate in T-DROP, you must be an active member in ATRS or a reciprocal plan and you must have 30 (thirty) years of credited service for full participation, which can include service credit with an Arkansas reciprocal plan (credited service years can be contributory, noncontributory, or any combination of both). However, for those members with 28 years of service credit but less than 30 years of service credit, ATRS allows early participation in T-DROP with a reduction for early entry.

T-DROP participation begins on the first day of the fiscal year, July 1. The T-DROP application must be submitted no earlier than March 1 and no later than May 31 to be eligible to participate by July 1. An application for T-DROP received by ATRS after May 31 cannot become effective until July 1 of the following fiscal year.

Example:  To begin T-DROP on July 1, 2020, ATRS must have the completed T-DROP application on or before May 31, 2020. A T-DROP application received after May 31, 2020, would not become effective until July 1, 2021.

PLEASE NOTE: T-DROP is intended to operate in accordance with Section 415 and other applicable sections of the United States Internal Revenue Code. Any provisions of T-DROP found to be in conflict with any applicable provisions of the IRS Code will be declared invalid.

Benefits of T-DROP:

The intent of T-DROP is to recruit, retain, and reward quality educators in Arkansas schools. T-DROP incentivizes members with 28-30 years of service credit to continue to work in the public schools by allowing the member to build a savings account for when they are ready to leave the workforce. See below for an example of estimated T-DROP accrual based on the current rates.

The above examples are based on a fixed annual interest rate of 3% on the mean balance.  Cost-of-Living Adjustments (COLAS) are 3% and are based on the retirement benefit computed at the time of entry into T-DROP. 

How does T-DROP work:

T-DROP is an optional "retirement" plan for ATRS members. Members elect to participate in T-DROP in lieu of retiring and accepting a service retirement benefit.

Once you have elected and been approved to participate in T-DROP, the System processes your account as if you have retired. In other words, ATRS will review your years of service credit, (contributory – noncontributory), final average salary (based on five highest salaries), and use current multipliers to calculate your monthly benefit. This also means that, although you will continue to work with an ATRS employer, you will not accrue any additional service credit nor will any increase in salary be considered when you elect to terminate employment with an ATRS employer and truly retire.

If you were contributory prior to T-DROP, you will no longer be making member contributions. Your monthly deposit for T-DROP will be based on what your regular monthly benefit would be as if you had actually retired, reduced by 1% for each year of service credit (contributory or noncontributory). If you enter T-DROP early (with at least 28 years of service credit but less than 30 years of service credit), your monthly deposit is further reduced by an additional reduction of 6% for each year below 30 years of service credit (i.e. 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).

The monthly benefit that you would have received if you had retired, less the reductions explained above, will be deposited each month in your tax-deferred T-DROP account for up to 10 (ten) years. An interest rate of 3% as adopted by the ATRS Board of Trustees will be credited to the balance of your T-DROP account each June 30. In addition, the ATRS Board of Trustees may provide an increased incentive rate during years of outstanding investment returns. The monthly benefit amount upon which the T-DROP monthly deposit is calculated will continue to accrue a Cost of Living Adjustment (COLA) annually. 

As a participant in T-DROP, your T-DROP deposits/account cannot be accessed until you exit T-DROP through retirement, separation/termination of employment with an ATRS covered employer, or death. You may not "take a loan" from your T-DROP account.

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

T-DROP Participation:

A member may only accrue deposits in their T-DROP account for ten (10) consecutive years after their entry date into T-DROP. However, a T-DROP participant may retire at any time during the ten (10) year period. Likewise, a T-DROP participant may continue to work after completing the ten (10) year plan and continue to accrue interest on their account (see Post T-DROP).

T-DROP participants may change jobs as long as you continue working for an ATRS covered employer or the reciprocal employer for a retirement system in which reciprocal service was established before T-DROP was entered. However, if a break in service occurs (see below) between jobs, you will not receive deposits for the month(s) you were not employed by the ATRS covered employer or reciprocal employer as explained above.

If any of the following occurs, the monthly deposits stop:

• The T-DROP participant separates/terminates from employment with an ATRS covered employer
• The T-DROP participant dies

Additionally, in order to acquire uninterrupted monthly deposits as a participant in T-DROP, the member must receive a minimum of the following service credit during the fiscal year from their qualified employer:     

• 15 (fifteen) service days in the first fiscal quarter (July, August, September)
• 25 (twenty-five) days of service in the second fiscal quarter (October, November, December)
• 25 (twenty-five) days of service in the third quarter (January, February, March)
• 15 (fifteen) service days in the fourth quarter (April, May, June). 

As long as you work these minimum amounts for a qualified employer, then you will continue to receive monthly deposits.

Post T-DROP

If you wish to continue working for an ATRS employer and do not retire after completing ten (10) years in T-DROP, ATRS will pay annual interest on the T-DROP balance each June 30. The ATRS Board of Trustees sets the 10-year plus interest rate each fiscal year for the following year. The interest rate varies from a minimum of 4% to a maximum of 6%.

Retirement Out of T-DROP

As a T-DROP participant, you have already "technically" met the retirement eligibility requirements. However, you will need to submit a retirement application, all required documents, and determine your T-DROP distribution. You must adhere to the ATRS Termination Separation Period Policy if you retire prior to age 65.

Points to Consider

A member's retirement benefit is based on years of service credit, final average salary (5 highest salaries), 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. Upon entry in T-DROP, ATRS allows a short two (2) month grace period to withdraw your T-DROP application. After the two (2) month grace period, T-DROP is irrevocable. As stated earlier, your election to enter T-DROP freezes your retirement benefit, subject only to COLA increases. Therefore, additional time you work will not accrue added service credit nor will any salary increase be considered toward your retirement benefit when you retire, since your final average salary freezes when you enter T-DROP.

An "early" entry (you plan to work well past the maximum *10 years of T-DROP) into T-DROP may not optimize years of service credit. Members should target T-DROP entry to match your mostly likely retirement date.  Monthly deposits in the T-DROP account cease after ten (10) years of participation.  However, ATRS does pay interest on T-DROP account balances after completion of the ten (10) years participation period. Large salary increases after T-DROP entry does not increase retirement benefits, since entry into T-DROP freezes final average salary for retirement.


For more information Contact ATRS at (501) 682-1517 or info@artrs.gov for more information regarding T-DROP, or see the T-DROP FAQs