Legislative Proposal: Voluntary DROP opt-out 

(Posted: Jan 16, 2009)

In a continuing effort to meet member needs, AZCOPS Director of Government Relations Luis Ebratt is seeking legislative sponsorship for voluntary participation in an opt-out program. Eligibility is designed for PSPRS members enrolled in the currently irrevocable DROP program.

"Given the nature of the current economy, some members have reconsidered their previous commitment to DROP," Ebratt said. "But, please understand that this is only a proposal to the Arizona Legislature and is voluntary for DROP members."

Elements for a DROP Opt-Out proposal

The proposal would apply only to PSPRS participants who are participating in the DROP as of a specified date (for example, on the date of enactment).

If anyone currently in DROP wishes to elect to opt-out, the bill would specify a specific time frame in which to do so and the election would be irrevocable (for example, six months from the date of enactment or the bill's effective date).

The bill should specify that the availability of the opt-out option would be contingent on employer approval. Such approval would be given not on an individual-by-individual basis, but on the basis of DROP participant categories. For example, the employer could approve the availability for all of its current DROP participants or only for certain categories of current DROP participants.

If a DROP participant exercises the option to opt-out of DROP, that person would begin paying contributions at the statutory rate (i.e., 7.65%) and his or her employer would begin paying contributions also.

The opting-out DROP participant's DROP account would be closed and the amounts credited to the account would be used to finance the purchase of the DROP years of service with the amount of the purchase based on that participant's current rate of pay and with the purchase cost reflecting full actuarial present value; and short fall in the amount required to cover the actuarial present value of the service purchase would have to be made up by the participant by lump sum payment. Any DROP account balance in excess of the amount it would cost to purchase the DROP years of service would remain with the system.

An opting-out participant would be barred from electing to participate in DROP in the future.

For more information, contact AZCOPS Goverment Relations.