BackDROP

Advantages of BackDROP

• Provides an additional option for receiving your retirement benefit.
• Offers a lump-sum payment that may help with large expenses such as paying off loans or medical bills.
• Allows you to roll the lump sum into an eligible retirement plan such as a traditional Individual Retirement Account (IRA), Roth IRA or your Mo Deferred Comp account to potentially grow your retirement savings.

Disadvantages of BackDROP

• May reduce your monthly benefit amount. Consider how this will affect the amount you need to live on each month.
• Choosing the cash option to receive the lump sum payment could result in additional federal and state income tax liability, in addition to the 20% federal withholding MPERS is required to withhold at the time of payment.
• Service time and salary earned during the BackDROP period are not used in calculating your monthly benefit amount or lump sum.

Eligibility

To be eligible, you must continue working in an MPERS-covered position for at least two years after first becoming eligible for normal (unreduced) retirement.

BackDROP Date

If you elect BackDROP at retirement, you will choose a BackDROP date to be used in calculating your monthly benefit. Your creditable service and final average pay (high 36) as of your BackDROP date will be used when calculating your benefit.

Your BackDROP date must:

• Be on or after the date you are first eligible for normal retirement.
• Fall within the five-year period immediately prior to your actual date of retirement.

BackDROP Period

The BackDROP period is the length of time between your BackDROP date and your actual retirement date. You may select a BackDROP period (in one-year increments) ranging from one year to the total years and months you worked after normal retirement eligibility, up to a maximum of five years.

Applying for BackDROP

You don’t need to take action until you apply for retirement. If eligible, you will make your BackDROP election on your Retirement Election Form, which is step 2 of the two-step retirement process.

MPERS will use your Notice of Retirement form (step 1) to generate an individualized Retirement Election Form and benefit estimate(s) for your retirement elections. If you elect BackDROP, you will select:

• Your BackDROP period
• How you want to receive the lump sum (cash, rollover, or a combination)

BackDROP Amount

The lump sum amount equals 90% of the life income annuity amount you would have received between your BackDROP date and your actual retirement date (as if you had retired on the BackDROP date). This includes any temporary benefits, cost-of-living adjustments (COLAs), and other applicable benefit increases you might have received during that period (if any).

Payment Methods

To receive your BackDROP payment, you must submit a BackDROP Distribution Form. On this form, you will choose from the following options:

• Cash Option – The lump sum payment will be paid directly to you. MPERS is required by law to withhold 20% of the payment for federal taxes. If you elect the cash option to receive your BackDROP distribution and you have not reached age 59 1/2, you may have to pay a 10% penalty on the taxable portion of the payment in addition to the regular income tax. For more information, consult our Special Tax Notice brochure and/or a tax professional.
• Rollover Option – The payment can be made directly to your MO Deferred Comp plan account, traditional IRA, Roth IRA, or any other eligible retirement account. MPERS will not withhold any federal or state taxes relating to your rollover payment. The payment will be taxed when you withdraw it from the account, except Roth IRAs, which may be taxed the year you roll it into a Roth IRA account.
• Combination Cash and Rollover Option – If you elect this option, you may specify the amount of the (cash) distribution to be paid directly to you, minus the required 20% federal income tax withholding. The remaining balance will be paid (rolled over) to your eligible retirement account.

For more details on payment methods and tax implications, consult the Special Tax Notice or speak with a tax professional or financial advisor.