BackDROP

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.


Eligibility

BackDROP is available only to general state employees in MSEP or MSEP 2000. To be eligible for BackDROP, you must continue working in a MOSERS benefit-eligible position for at least two years beyond your normal retirement eligibility.


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.


Payment Options

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 either one lump-sum payment at retirement or three annual installments. 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)

BackDROP Payments

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.

Rollovers
  • 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 72 or retire (whichever is later).
Cash Payments
  • 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.

BackDROP Period

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.

Watch this brief BackDROP video.

BackDROP

More Information