Month: January 2014

To view your DROP Semi-Annual Statement for the period ending December 31, 2013, log in to…

DROP MEMBER SEMI-ANNUAL STATEMENTS ARE AVAILABLE NOW!

To view your DROP Semi-Annual Statement for the period ending December 31, 2013, log in to MyLAFPP and click on the “DROP Statements” tab on the left.
This statement provides your date of entry, mandatory date of exit and your account balance with interest credited on June 30 and December 31.
For questions regarding your DROP Semi-Annual Statement, please contact the Retirement Services Section at (213) 978-4495.

DROP UPDATE – January 13, 2014

Due to the pending actuarial study of the DROP Program, many members are concerned… Is DROP going to change? Should I enter now? Is DROP costing the City money? Are there plans to freeze DROP? Will DROP be around when I get ready to retire?

A lot of questions remain unanswered. However, here is what we do know:

• DROP is currently open to eligible members.
• At the time the DROP Ordinance was last amended on November 7, 2008, the “Sunset Clause” for termination of the Program was removed. Therefore, the DROP Program will continue indefinitely unless and until the ordinance is amended in the future.
• DROP will not be discontinued without warning.

The Administrative Code, Section 4.2100(c), specifically states the criteria by which DROP can either be amended or suspended. These criteria include maintaining cost neutrality to the City and/or meeting the City’s DROP goals of retaining and lengthening the careers of sworn personnel with LAFD, LAPD and the Harbor Department.

We will have lead time to notify you of any Program changes.

If and when DROP is amended, there will be sufficient lead time for us (and the unions) to notify members that the Program will be amended. This notification will allow eligible members to enter DROP before the changes take effect. Before DROP can be amended, a study must be conducted, followed by a meet-and-confer with the unions.

The Administrative Code Section 4.2100 requires the City to conduct an actuarial study of the DROP Program no less than once every five years. The last study was completed in 2008 and the current study, initiated in late 2013, is expected to be completed in early 2014.

To make changes to the DROP Program, the City would need to do the following:

1. Have an actuarial study performed to evaluate whether the Program continues to be cost neutral and is meeting the goal of extending the careers of sworn personnel;
2.  Meet and confer with the unions to negotiate changes to the Program if the actuarial study determined that changes were warranted. (The City would have up to 180 days to negotiate the changes with the unions, with the possibility of an additional 180 days if both sides agree to an extension);
3. Any amendments to the enabling ordinance would affect only future entrants to the DROP Program – those who enter the Program after the effective date of the ordinance that amends DROP.

At this time, we are not aware of any effort to amend or suspend the DROP Program.

For questions, please contact your union. For information on entering or exiting the DROP Program, please contact the Retirement Services Section at (213) 978-4495, or (800) 787-2489, ext. 84495.

If you made after-tax pension contributions, your DROP funds may include after-tax “basis”. “Basis recovery” is the process by which your after-tax employee pension contributions are returned to you, free of taxes, as part of your pension benefits. You may have made after-tax contributions for any of the following reasons:
From 7/1/82 -12/20/96, mandatory pension contributions were collected after-tax.
Elective purchases of service credit made by contract or lump sum payments were collected after-tax. (Trustee-to-trustee transfers from Deferred Compensation are pre-tax.)

The voluntary 2% “opt-in” pension contribution by certain members in order to vest future retiree medical subsidy increases are collected after-tax. (Note: This does not apply to Tier 6 members.)
The Internal Revenue Code includes a provision that allows DROP members to recover a portion of their eligible after-tax contributions using an accelerated method. This method allows you to take a lump sum distribution of any eligible after-tax DROP funds, rather than recovering it in payments over your lifetime through the Simplified Method. Members exiting DROP on or after January 1, 2014 will be subject to this basis recovery method and may:
Recover pre-1987 after-tax contributions entirely from the lump sum DROP distribution.
Have any post-1986 after-tax contributions allocated pro-rata between the lump sum DROP distribution and the member’s ongoing monthly pension annuity. Any after-tax funds included in the monthly pension annuity will be subject to the Simplified Method. The Simplified Method, developed by the IRS, is the formula that determines the amount of your pension that will not be taxed for a fixed number of months in retirement based on your age and the age of your qualified spouse/domestic partner, if applicable.

Distribution Options – Effective January 1, 2014

Review the options below to select a distribution election for both your taxable and non-taxable DROP funds. Please note, if you rollover any non-taxable portion, you must also rollover your entire taxable portion.

OPTION
NON-TAXABLE DROP FUNDS
TAXABLE DROP FUNDS
1
Lump sum cash payment of eligible non-taxable funds
Direct rollover of all taxable funds
2
Direct rollover of all non-taxable funds
Direct rollover of all taxable funds
3
Partial lump sum cash payment and partial direct rollover of non-taxable funds
Direct rollover of all taxable funds
4
Lump sum cash payment of eligible non-taxable funds
Partial lump sum cash payment and partial direct rollover of taxable funds (partial lump sum cash payment subject to mandatory 20% Federal tax withholding)
5
Lump sum cash payment of eligible non-taxable funds
Lump sum cash payment of all taxable funds (subject to mandatory 20% Federal tax withholding)

All rollovers must be made to one financial institution of your choice for either the non-taxable or taxable portions of your DROP account. It is important to note that not all plans can accept a rollover of non-taxable funds, so please confirm with the plan of your choice before making any elections for a direct rollover. For example, the City’s Deferred Compensation Plan does not accept rollovers of non-taxable funds. Therefore, if you select Options 2 or 3, you must roll your non-taxable funds to an institution other than Deferred Compensation.
You must complete a DROP Distribution Form within 90 days of your DROP exit date to determine how you wish to recover your after-tax contributions. After 90 days, the distribution of your DROP account will be limited to a lump sum cash payment only, subject to mandatory 20% Federal tax withholding for the entire account balance. The Board Operating Policies and Procedures (Pension Processing, Section 3.2.3) have been amended to reflect the basis recovery method.
For more information review the DROP Basis Recovery FAQs. For any questions, please contact DROP/Service Pensions at (213) 978-4575.