Popular DROP program could be dropped for new public employees

In Summary:

Florida TaxWatch is calling on the Legislature to close the Deferred Retirement Option Program to future participants or restrict eligibility to certain public employees and hard-to-fill positions. The organization argues that benefit expansions approved in 2023 increased taxpayer costs while providing limited evidence that DROP is addressing critical workforce shortages. Any effort to reduce the program is likely to face resistance after lawmakers recently expanded retirement benefits for public workers.

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Put this on the radar for the 2027 legislative session: A business-backed advocacy group is recommending sweeping changes to a popular retirement option for Florida state workers that has been used to keep experienced employees on the job longer.

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Florida TaxWatch issued a report last week looking at what is called the Deferred Retirement Option Program — a popular option for public employees who have maxed out their traditional retirement benefits but don’t want to quit their jobs.

Those who enroll in DROP can get a lump sum payment when they finally retire. The program — with nearly 31,000 people participating — does require those who join to retire within a few years, although legislators in 2023 extended the period to eight years for most employees and up to 10 years for some.

But TaxWatch, best known for its annual review of what it considers wasteful budget projects called “turkeys,’ is questioning the cost of these most recent changes. The organization is recommending DROP either be closed off to public employees at some future date or limited to certain workers when there is a documented shortage such as teachers, law enforcement officers, or firefighters.

“Employer contributions to the Florida Retirement System are funded by state appropriations, school district budgets, county and municipal tax revenues, and university operating funds,” said Florida TaxWatch President and CEO Jeff Kottkamp. “When contribution rates rise, those increases translate into higher public expenditures, which can require higher taxes and fees or cuts to services.”

Any push to restrain retirement benefits for public workers is likely to prove contentious even in a Republican-controlled Legislature.

Since Republicans assumed control of state government, there have been multiple efforts to privatize or limit participation in Florida’s retirement programs for public employees. Over the years, the Florida Retirement System has been broadened to allow workers to choose a traditional pension plan or an “investment plan” that functions like private sector 401(k) retirement accounts.

But attempts to close off the traditional pension plan have witnessed fierce resistance. In 2011, it was then-Gov. Rick Scott who pushed to require public employees, including teachers, to start contributing to their pension plans. That sweeping legislation also made a whole slate of changes to retirement programs, including greatly reducing the amount of money guaranteed under DROP.

Legislators, however, have considered or even passed bills in recent years to expand retirement benefits.

The 2023 bill (SB 7024) increased the guaranteed interest rate payments in the DROP program. This past year, the Legislature — at the prodding of outgoing Sen. Ed Hooper, the Senate budget chair — restored cost-of-living adjustments to retired special-risk employees, including firefighters and law enforcement officers.

Key Points:

• Florida TaxWatch recommends closing DROP to new participants after a future date, potentially June 30, 2027, or limiting access to special-risk employees and positions with documented workforce shortages.
• DROP allows eligible public employees to formally retire while continuing to work and collect their salaries, with pension payments accumulating in an interest-bearing account for distribution when they leave employment.
• Approximately 30,800 Florida public employees participate in the program.
• Changes approved in 2023 extended DROP participation from five years to eight years for most employees and as long as 10 years for certain instructional and special-risk workers.
• The 2023 legislation also increased the guaranteed annual return credited to DROP accounts from 1.3% to 4%, changes Florida TaxWatch estimates added approximately $350 million annually to employer contributions.