Los Angeles Municipal Code Ch. 21 Deferred Retirement Option Plan

Section 4.2100 Purpose and Duration. 4.2101 Eligibility, Duration of DROP Participation, and Waiver. 4.2102 DROP Benefits and Accounts. 4.2103 Additional DROP Provisions. 4.2104 Designation of Beneficiary. 4.2105 Termination of DROP Participation. 4.2106 Payment of Benefits. 4.2107 Compliance with Applicable Provisions of the Internal Revenue Code. 4.2108 Employment Status During DROP Participation. 4.2109 Authority of the Board. 4.2110 Suspension of Participation.

(a) Pursuant to Charter Section 1218, a deferred retirement option plan (DROP) is created and offered to members of the Fire and Police Pension Plan on a voluntary basis. DROP is an alternative method of benefit accrual in the Retirement System as set forth in this chapter.

(b) DROP is created to add flexibility to the Fire and Police Pension Plan. It provides members who elect to participate in the program access to a lump sum benefit in addition to their normal monthly retirement allowance at their actual retirement, which occurs when employment as a sworn member with the City is terminated. DROP is intended to be cost neutral regarding plan funding.

(c) The City reserves the right to suspend the right of Members to enter the DROP program and to modify the program for future entrants as necessary to maintain cost neutrality and/or to meet the City’s DROP goals of retaining and lengthening the careers of sworn personnel with the Police Department, Fire Department, Harbor Department, Department of Airports, and Department of Recreation and Parks. Any amendments to DROP enacted in accordance with this subsection will affect only those persons who enter DROP after the date the changes become effective.

The City has the right to complete an actuarial study of DROP in order to evaluate whether DROP continues to be cost neutral and to review DROP to determine whether DROP is meeting the City’s DROP goals. An actuarial study and review of the City’s DROP goals shall be completed by the City at least every five (5) years or more often. If the City determines changes to DROP are needed based on this review, the appropriate labor organizations shall meet and confer with the City immediately upon demand. Once the City and the labor organizations reach agreement, DROP shall forthwith be amended in accord with that agreement unless no changes to DROP are required.

If the City and the labor organizations do not agree upon changes to DROP within one hundred eighty (180) days of the date of the City’s demand, then the City Administrative Officer shall so notify the Fire and Police Pension Plan in writing. However, if the City and the involved labor organizations mutually agree to extend negotiations for an additional period of time, not to exceed one hundred eighty (180) days, then the City Administrative Officer shall not provide this notice to the Fire and Police Pension Plan until the additional time has expired without the parties reaching agreement. Upon receipt of this written notice from the City Administrative Officer, the Fire and Police Pension Plan shall no longer allow members to enter DROP until the effective date of an ordinance enacted by the City Council amending DROP to allow new members to enter DROP while maintaining cost neutrality and otherwise meeting the City’s DROP goals or until the City Administrative Officer notifies the Fire and Police Pension Plan in writing that the City has determined that no modifications to DROP are necessary at that time.

SECTION HISTORY

Chapter and Section Added by Ord. No. 174,540, Eff. 5-8-02. Amended by: Subsec. (d) added, Ord. No. 177,900, Eff. 9-28-06; Subsec. (d), Ord. No. 179,750, Eff. 3-25-08; Subsec. (c) amended and Subsec. (d) deleted, Ord. No. 180,322, Eff. 11-7-08; Subsec. (c), Ord. No. 184,853, Eff. 4-6-17; Subsec. (c), Ord. No. 185,935, Eff. 1-23-19; Subsec. (c), Ord. No. 188,756, Eff. 11-16-25.

(a) All members of the Fire and Police Pension Plan, including the Chief of Police, Chief Engineer of the Fire Department and Port Warden if they are members of the Plan, are eligible to enter DROP no later than April 30, 2007, if they meet all other requirements. As of May 1, 2007, all members of the Fire and Police Pension Plan, except for the Chief of Police and the Chief Engineer of the Fire Department, are eligible to enter DROP if they meet all other requirements.

(b) In order to enter DROP, members must be eligible for an unreduced retirement in one of the pension tiers and meet the following minimum criteria:

Tier 2: 25 years of service Tier 3: 25 years of service and age 50 Tier 4: 25 years of service Tier 5: 25 years of service and age 50 Tier 6: 25 years of service and age 50

(c) Effective November 1, 2008, a member must also be on active duty status on the DROP entry date. For purposes of this provision active duty status shall include members working on light-duty status, but exclude members on sick, vacation, injured-on-duty, administrative leave, and all other types of non-working status. The City Administrative Officer shall have the authority to determine which payroll codes constitute active duty status for purposes of this provision and shall notify the Board accordingly.

(d) Any member who enters DROP on or after February 1, 2019, is subject to the suspension of participation provisions of Section 4.2110 of this Chapter.

(e) Any member who elects to participate in DROP shall voluntarily and irrevocably:

(1) Determine a beginning date upon which to enter DROP, consistent with the rules set forth by the Board of Fire and Police
Pension Commissioners (“Board”) and agree to terminate employment as a sworn member with the City of Los Angeles on the last
day of their participation in DROP. The beginning date for DROP participation may not be backdated. Members may participate in
DROP for a maximum of five (5) years, or sixty (60) months, regardless of when they enter DROP. In no event shall a member be
permitted to participate in DROP more than sixty (60) consecutive months after the DROP entry date, unless the member is eligible to
extend the participation period as provided in Section 4.2110(d).

(2) Cease, from and after the date the member begins participating in DROP, to accrue additional retirement benefits, either
through service accruals, future pay increases, active cost of living adjustments or promotions.

(3) Agree the member’s service retirement formula, including years of service and pension base, and all other eligibility conditions,
including eligibility for survivor benefits, will be frozen at the time the member enters DROP.

(a) Tier 2 Members shall purchase Lost Service Time prior to entering DROP in order for that time to be counted toward the
service pension.

(b) Tier 3, 4, 5 and 6 Members shall purchase eligible State Rate Workers’ Compensation Time, Prior Service Time, and Academy Time prior to entering DROP in order for that time to be counted toward the service pension.

(4) Have an amount equal to one hundred percent (100%) of the service retirement benefit the member would have received if the

member had retired at the time of entering DROP placed in a nominal account (“DROP account”). This amount shall not include credit for any calendar month for which participation has been suspended.

(5) Receive benefits from the Fire and Police Pension Plan upon termination of City employment as a sworn member of the Fire

Department, Police Department, Harbor Department, Department of Airports, or Department of Recreation and Parks at the time and in the manner provided in this Chapter.

(6) Execute such waivers with respect to age and other discrimination in employment laws as are required by the City and the Fire and Police Pension Plan.

(f) Notwithstanding any other provision of this chapter, a member who has elected to participate in DROP and subsequently, while still participating in DROP, is appointed to the position of Chief Engineer of the Fire Department or Chief of Police shall be allowed to rescind that election in writing subject to the following:

(1) The member shall forfeit the member’s entire DROP account.

(2) The member shall not be eligible to participate in DROP in the future.

(3) The member’s service and benefits under the Plan shall be determined the same as if the member had never elected to

participate in DROP.

(4) The member shall not have the right to elect to become a member of the Los Angeles City Employees’ Retirement System pursuant to Section 4.2000 (j), or otherwise, but shall remain a member of the Plan for so long as the member is employed as Chief Engineer of the Fire Department or Chief of Police.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02. Amended by: Subsec. (a), Ord. No. 177,900, Eff. 9-28-06; Subsec. (a), Ord. No. 178,656, Eff. 5-4-07; Subsec. (d) added, Ord. No. 179,987, Eff. 7-3-08; Last Para. of Subsec. (b) added, Ord. No. 180,322, Eff. 11-7-08; Subsecs. (b) and (c), Ord. No. 183,163, Eff. 8-8-14; Subsecs. (b) - (f), Ord. No. 185,935, Eff. 1-23-19; Subsec. (e)(5), Ord. No. 188,756, Eff. 11-16-25.

(a) A DROP account is a “nominal” account established within the Fire and Police Pension Plan on behalf of each DROP participant. All benefits accrued pursuant to this Chapter shall be accounted for in the DROP account. A DROP participant shall not have a claim on the assets of the Fire and Police Pension Plan with respect to such participant’s DROP account, nor shall there be any assets set aside for any DROP participant, which are separate from all other Pension Plan assets.

(b) All amounts credited to the member’s DROP account shall be fully vested.

(c) A member’s DROP account shall be credited with:

(1) an amount, credited monthly, which is equal to the monthly service pension to which the member would be entitled using the

formula in the Tier in which the member is enrolled on the effective date of the member’s entry into DROP. Credit shall not be awarded for any calendar month when participation in DROP has been suspended pursuant to Section 4.2110.

(2) a cost of living adjustment (COLA) each year equal to the amount prescribed in the Charter for the Tier to which the member

belongs, but not to exceed three percent (3%). Tier 5 and 6 members are eligible to use their COLA banks while in DROP.

(3) interest in the amount of five percent (5%) annually. Interest will be credited to member DROP accounts semi-annually on the

dates specified by the Board. No interest shall accrue after a member terminates DROP participation. Notwithstanding whether or not participation has ever been suspended or a member is eligible to extend the original participation period, no interest shall accrue nor be credited after completion of the sixtieth (60th) month following the member’s DROP entry date. This 60-month limit on interest shall apply to all DROP participants.

(d) Until a Member actually terminates employment as a sworn member of the City of Los Angeles Fire Department, Police Department, Harbor Department, Department of Airports, or Department of Recreation and Parks, no money shall be paid to any persons from the DROP account. After the Member terminates employment, the DROP account shall be subject to court orders in the same manner as the monthly service pension entitlement and according to the terms of the court order.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02. Amended by: Subsec. (d), Ord. No. 177,214, Eff. 1-4-06; Subsec. (c)(2), Ord. No. 183,163, Eff. 8-8-14; Subsec. (d), Ord. No. 184,853, Eff. 4-6-17; Subsecs. (c)(1) and (c)(3), Ord. No. 185,935, Eff. 1-23-19; Subsec. (d), Ord. No. 188,756, Eff. 11-16-25.

(a) Member contributions shall continue as usual while the member participates in DROP at the rates specified as follows: Tier 2 = 6% or 7%, as specified in Charter Section 1420(b); Tier 3 = 8%; Tier 4 = 8%; Tier 5 = 8% or 9%, as specified in Charter Section 1222(b)(3) and Administrative Code Section 4.2014; Tier 6 = 9% or 11%, as specified in Charter Section 1714(a). Member contributions, however, shall

cease when the member would have become eligible for the maximum service retirement formula established by the member’s Tier, except that members who have agreed to make Additional Contributions as provided in Administrative Code Section 4.1167 shall continue to make Additional Contributions as provided therein.

(b) Member contributions will be deposited into and become part of the general assets of the Fire and Police Pension Plan. Member contributions will not be deposited into nor become part of the member’s DROP account.

(c) The City will continue to make the annual contributions to the Plan under the Charter. These contributions will be deposited into and become part of the general assets of the Pension Plan. No City contributions will be credited to the member’s DROP account.

(d) After a member retires and simultaneously leaves DROP, the member will thereafter receive a monthly service pension benefit based upon the years of service and pension base at the time of entry into DROP and COLAs granted while in DROP, plus future COLAs according to the member’s Tier.

(e) A member who participates in DROP and who elects to apply for and is granted a disability pension after entering DROP shall forfeit the member’s entire DROP account and receive the member’s disability pension benefits as if the member had never entered DROP. Members waive any right to apply for or be granted a disability pension once they have taken distribution of their DROP account.

(f) Members on IOD status at the conclusion of their final month of participation must leave DROP but are permitted to continue on IOD status with their Department. Those members are not eligible to receive distribution of their DROP account until their retirement status is determined. If the member takes a disability retirement, the member shall forfeit the member’s DROP account. If the member elects to take a service retirement and distribution of the member’s DROP account, the member shall be required to repay any IOD pay earned after the last day of the member's participation in DROP.

(g) In the event of a member’s service connected death during the period of the member’s DROP participation, the member’s surviving spouse or domestic partner shall have the right to elect to forfeit the member’s DROP account and collect survivorship benefits as if the member had never entered DROP, provided that the election must be made no later than one hundred eighty (180) days following the member’s death. For all other deaths occurring while a member is participating in DROP, the normal post-retirement continuance benefits of the member’s Tier will be available plus the proceeds of the member’s DROP account.

(h) A member must be married or have a domestic partnership affidavit on file with the Fire and Police Pension Plan for at least one year prior to the member’s entrance into DROP for the member’s surviving spouse or domestic partner to be eligible for qualified surviving spouse/qualified surviving domestic partner pension benefits.

(i) Members, by entering DROP, are not eligible to be returned to active duty (as reactivated members) as provided in Charter Section 1410(a), Los Angeles Administrative Code Sections 4.2026(f) and 4.2200, or any other provision authorizing retired members to return to active duty as reactivated members.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02. Amended by: Subsec. (i), Ord. No. 177,900, Eff. 9-28-06; Subsecs. (a) and (i), Ord. No. 183,163, Eff. 8-8-14; Subsecs. (f) - (h), Ord. No. 185,935, Eff. 1- 23-19.

(a) Subject to Subsection (c) and Section 4.2103(h), a member who elects to participate in DROP shall designate in writing, at the time of entry into DROP, a beneficiary for the DROP account. The member may change the designation at any time prior to taking the distribution of the DROP account. The member’s beneficiary designation shall be applicable only to the distribution pursuant to provisions of this chapter.

(b) If the designated beneficiary predeceases a DROP participant who then dies before designating a new beneficiary, all distributions pursuant to this chapter shall be made to the estate of the DROP participant.

(c) Notwithstanding the above provisions, a member’s community property obligations under applicable California law will not be affected by the beneficiary designation.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02.

(a) DROP participation shall be terminated by the first occurrence of any one of the following events:

(1) upon the member’s completion of the DROP participation period. The member may choose to leave DROP at any time during the participation period.

(2) involuntary termination of employment. At the member’s request, distribution of the DROP account will be withheld while the appeal of the member’s discharge is pending. Should the member be reinstated, the member may continue to participate in DROP if the account has been withheld. The period of DROP participation will continue under the terms of the original application.

(3) death of the member.

(4) approval of disability retirement benefits under the terms of this chapter.

(5) voluntary termination of employment prior to the completion of the DROP participation period.

(b) No interest shall accrue after any one of the events set forth in Subsection (a) terminating DROP.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02. Amended by: Subsec (a)(5) added, Ord. No. 183,163, Eff. 8-8-14; Subsec. (a)(1), Ord. No. 185,935, Eff. 1-23-19.

(a) Upon the simultaneous termination of DROP participation and employment as a sworn member of the City’s Fire Department, Police Department, Harbor Department, Department of Airports, or Department of Recreation and Parks, a Member shall be entitled to receive:

(1) a monthly retirement allowance in the amount determined under the Charter that was credited monthly to the member’s DROP
account at the date of termination of DROP participation, including any applicable COLA; and

(2) all amounts credited to the member’s DROP account on the effective date of termination of DROP participation, subject to
applicable taxes and any domestic relations court orders regarding community property distributions.

(b) The form of payment from the DROP account shall be a lump sum distribution. Members may also elect a direct rollover of the proceeds in their DROP account to an eligible retirement plan pursuant to Section 4.2107(b)(4). The Board shall set forth the rules regulating the distribution of the DROP account, including the time period within which the distribution must be taken.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02. Amended by: Subsec. (a), Ord. No. 177,214, Eff. 1-4-06; Subsec. (a), Ord. No. 184,853, Eff. 4-6-17; Subsec. (a), Ord. No. 188,756, Eff. 11-16-25.

(a) It is intended that DROP shall not jeopardize in any way the tax qualified status of the Fire and Police Pension Plan under the rules and regulations of the Internal Revenue Service. The Board shall have the authority pursuant to Section 4.2109 to adopt rules and regulations to the extent necessary or appropriate for DROP to maintain compliance with applicable Federal laws and regulations. These rules shall be adopted upon the advice and with the concurrence of the City Attorney.

(b) Notwithstanding any other provision in this chapter, benefits provided pursuant to this chapter shall be subject to the requirements of the Internal Revenue Code (Code) and regulations issued thereunder as necessary for the Retirement System to remain a tax qualified retirement plan, including, but not limited to, the following:

(1) The limitations of Section 415 of the Code relating to the amount of benefits that can be paid.

(2) The limitations of Section 401(a)(17) of the Code relating to the amount of compensation that can be taken into account for benefit accrual.

(3) The limitations of Section 401(a)(9) relating to the time that benefit payments must begin.

(4) The limitations of Section 401(a)(31) relating to the rollover of benefits.

(5) The limitations of Section 401(a)(25) relating to “definitely determinable” benefits.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02.

For all other purposes, a member who elects to participate in DROP shall have all of the rights, privileges, and benefits, including health benefits, and be subject to all other terms and conditions of active employment in their respective Department.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02.

In addition to the authority granted elsewhere in this chapter, the Board shall have the authority to adopt rules and regulations to the extent necessary or appropriate to administer DROP in accordance with the provisions of this chapter.

SECTION HISTORY

Added by Ord. No. 174,540, Eff. 5-8-02.

(a) Any member who enters DROP on or after February 1, 2019, shall have the member’s participation in DROP suspended for any calendar month in which the member does not spend at least one hundred twelve (112) hours on active duty status, unless the member qualifies for the exception provided by Subsection (b). This shall include the first and last months of participation. The City Administrative Officer, in consultation with the affected labor organizations, shall determine which payroll codes reflect active duty status for purposes of this provision and shall so notify the Board and all applicable employing departments.

(b) A participant who sustains a serious injury while on and in the course and scope of duty shall not be suspended from participation during the first twelve (12) calendar months following the date of the injury, provided the participant is admitted to and remains in the hospital for three (3) consecutive days as a direct result of that injury and the hospital admission occurs during the work shift in which the participant’s injury occurred. This stay of suspension shall apply for any month that the participant does not spend at least one hundred twelve (112) hours on active duty status due to the qualifying injury. For any member who meets the requirements of this Subsection (b), upon the conclusion of the twelfth month following the date of injury, the stay of suspension shall be lifted and Subsection (a) shall apply to the continued DROP participation.

(c) A member’s employing department shall determine whether the member’s injury meets the requirements of Subsection (b) and shall code the member’s payroll and timekeeping records accordingly.

(d) Any member whose participation is suspended shall be eligible to participate in DROP for a maximum of thirty (30) additional months beyond the original participation period. The participation period shall only be extended for as many months as the member’s participation was suspended and shall be subject to the limitation on interest accrual according to Section 4.2102(c)(3).

SECTION HISTORY

Added by Ord. No. 185,935, Eff. 1-23-19. Amended by: Subsec. (b), Ord. No. 188,202, Eff. 4-19-24.