The "DROP" in BackDROP stands for Deferred Retirement Option Provision. If you are eligible, it is a choice you will make at retirement. With BackDROP, you can get a one-time lump-sum payment in addition to your monthly pension payments from MOSERS. Choosing BackDROP will, most likely, reduce the amount of your monthly benefit.
Making Your BackDROP Election
You will make your choice to take BackDROP or not on your Retirement Election form during the retirement process. If you elect BackDROP, you will also choose your payment option. You are not required to take BackDROP.
You have three options for your BackDROP lump-sum payment. Before you make any decisions, we strongly recommend that you read the Special Tax Notice to ensure you understand the tax implications of your choice. We also encourage you to consult a tax professional. If you’d like to learn more about the tax advantages of rolling the lump sum over to a qualified employer plan, like MO Deferred Comp, read Thinking About the BackDROP?
- Cash Option: This is one lump-sum payment at retirement. From any amounts paid in cash, we will deduct 20% for federal income tax (as required by the IRS) and any Missouri state income tax withholding you choose. You will be responsible for any IRS early withdrawal penalties that may apply.
- Rollover Option: We will send your tax-deferred distribution directly to a qualified employer plan.
- Combination Cash & Rollover Option: You can take a portion of the lump sum in cash (less 20% for federal income tax, as required by the IRS, and any Missouri state income tax you choose to have withheld) and roll the rest over to a qualified employer plan. You will be responsible for any IRS early withdrawal penalties that may apply.
Calculating the Lump Sum
The lump-sum payment is equal to 90% of the pension benefits (based on the Life Income Annuity option) that you would have received during the BackDROP period had you been retired. This includes:
- Any temporary benefit (which stops at age 62)
- Cost-of-living adjustments (COLAs)
- The impact of purchased or transferred outside service credit
- Other benefit increases (if applicable)
Along with your first monthly pension benefit payment, we will issue your BackDROP payment (either cash or rollover) on the last working day of the month in which you retire.
We will apply future retiree COLAs on the anniversary of your BackDROP date.
BackDROP & Taxes
If you are eligible for and elect the BackDROP at retirement, the BackDROP distribution is considered taxable income for the year in which you receive the payment.
- You can defer taxes by rolling your BackDROP payment over to MO Deferred Comp or another eligible employer plan or IRA.
- Required minimum distributions from a rollover are taxable and must begin by April 1 of the year after the year in which you turn age 73 or retire (whichever is later).
- If you don’t roll over your payment to a tax-deferred arrangement, MOSERS is required to withhold 20% of the taxable portion of any cash distribution for federal income tax. We can also withhold, upon your request, any Missouri state tax withholdings you choose.
- If you receive a cash payment before you reach age 59½ and don’t roll it over, the IRS may impose an additional 10% early distribution income tax penalty. However, if you terminated employment during or after the year you turned age 55, you may avoid the 10% penalty. See our Special Tax Notice (BackDROP and Refunds) for details.
The BackDROP period is the period of time between your BackDROP date (the day your BackDROP period begins) and your actual retirement date. The maximum BackDROP period is five years.
If you elect BackDROP, we will calculate your monthly benefit using your final average pay (FAP) and credited service as of your BackDROP date. We will not include any service credit or pay (including pay increases, overtime, etc.) that you earn during your BackDROP period to calculate your monthly pension payments.
It is likely that your monthly payments will be lower if you take BackDROP than they would be without BackDROP. You may be able to increase your monthly payment by not electing BackDROP or by electing a BackDROP period of fewer years. Each is a tradeoff.
- Attend a Ready to Retire seminar. We will explain BackDROP in more detail and provide more examples. Register by logging in to myMOSERS.
- See examples and calculations in the BackDROP for General State Employees brochure (MSEP & MSEP 2000).
- Read Understanding Your Backdrop Benefit Estimate.
- Read the Special Tax Notice (BackDROP and Refunds).
- You can generate your own benefit estimates to compare options with and without BackDROP by logging in to myMOSERS or you may contact a benefit counselor to request an estimate.
- Use the interactive Comparison Calculator to compare your retirement benefit over time with and without BackDROP or with different BackDROP periods (2-5 years). Watch the Using the Comparison Calculator video.
- Follow the Rumor Central Blog to find answers to many questions about BackDROP and other retirement topics.