Deferred Retirement Option Plan

San Diego Municipal Code ch. 2, art. 4, div. 14

in effect

San Diego Municipal Code § 24.1401 Purpose and Duration

§24.1401 Purpose and Duration (a) Effective April 1, 1997, a deferred retirement option plan (DROP) is created and offered to Members as an alternative method of benefit accrual in the System as set forth in this Division. (b) DROP is created to add flexibility to the System and its Members. It provides Members who elect to participate in DROP access to a lump sum benefit at the time of their actual retirement, in addition to their normal monthly retirement allowance. DROP is intended to be cost neutral. (c) DROP was initially offered on a trial basis for a period of three years beginning on April 1, 1997. DROP became a permanent benefit effective April 1, 2000. (Amended 6–18–2002 by O–19071 N.S.) (Amended 6-10-2014 by O-20376 N.S.; effective 7-10-2014.)

San Diego Municipal Code § 24.1402 Eligibility, Duration of DROP Participation, and Waiver

§24.1402 Eligibility, Duration of DROP Participation, and Waiver (a) A Member is eligible to participate in DROP if the Member: (1) was hired by or assumed office with the City before July 1, 2005, (2) is eligible for a service retirement, and (3) is not a Safety Member who elected to accrue benefits under section 24.0403(d). (b) Before a Member may participate in DROP, he or she must voluntarily and irrevocably: (1) designate a participation period of 60 consecutive months or less; (2) elect to receive either the Maximum Benefit or one of the retirement settlement options described in Division 6 of this Article; (3) designate his or her Beneficiary for the continuance payable upon his or her death, if any; (4) stop accruing benefits under any other Division of this Article starting on the date the Member enters DROP; (5) have DROP benefits credited to a DROP Account as provided in this Division; (6) accrue benefits under the terms of this Division starting on the date the Member enters DROP; (7) receive benefits from the System when the Member leaves City employment, as provided in the relevant sections of this Article; (8) agree to leave City employment on or before the end of the Member’s designated DROP period, unless the Member is represented by the San Diego City Fire Fighter’s Local 145 bargaining unit, in which case the Member may extend his or her five-year DROP period by the amount of unused annual leave the Member has remaining at the end of his or her DROP period that was earned after July 1, 2002. (Amended 12-3–2002 by O–19126 N.S.) (Repealed Subsection (b)(9) of Section 24.1402 on 4-28-2008 by O-19740 N.S.; effective 5-28-2008.) (Amended 6-10-2014 by O-20376 N.S.; effective 7-10-2014.)

San Diego Municipal Code § 24.1403 Termination of DROP Participation

§24.1403 Termination of DROP Participation (a) A Member who is participating in DROP may leave DROP at any time before the end of his or her designated DROP period by voluntarily leaving City employment. (b) The System will terminate the Member’s DROP participation when any of the following events occurs: (1) the Member’s designated DROP period ends, or in the case of a Member who is represented by the Firefighter’s Local 145 bargaining unit, at the end of the Member’s five-year DROP period extended by the amount of unused annual leave earned after July 1, 2002 that the Member has at the end of his or her DROP period, if the Member elects to extend his DROP period pursuant to 24.1402(b)(8); (2) the Member’s City employment is terminated for cause; but, if the termination for cause is reversed, the Member’s participation will be reinstated for the remainder of the Member’s designated DROP period, less any benefits previously distributed from the Member’s DROP Account; (3) the Member dies; or (4) the Board grants the Member a disability retirement. (Amended 12–3–2002 by O–19126 N.S.) (Amended 6-10-2014 by O-20376 N.S.; effective 7-10-2014.)

San Diego Municipal Code § 24.1404 DROP Benefits and Accounts

§24.1404 DROP Benefits and Accounts (a) A DROP Account is a “nominal” account established within the System on behalf of each DROP participant. All benefits accrued by a Member under this Division are accounted for in the Member’s DROP Account. A DROP participant does not have a claim on the assets of the System with respect to his or her DROP Account, nor will the System set aside any assets for any DROP participant that are separate from other System assets. (b) All amounts credited to a Member’s DROP Account are fully vested. (c) A Member’s DROP Account will be credited with: (1) The Member’s Base Retirement Benefit, credited monthly, using the Member’s age, Service Credit, and Final Compensation in effect when the Member enters DROP, and consistent with the retirement benefit levels in place on that date. This amount will increase each year by a cost of living adjustment (COLA), as described in Division 15 of this Article. (2) An amount, credited annually, representing the annual supplemental benefit described in Division 15 of this Article, based upon the Member’s Service Credit on the day before the Member entered DROP. (3) An amount equal to 3.05% of the Member’s Base Compensation, credited bi–weekly at the end of each pay period, which is paid by the City. (4) An amount equal to 3.05% of the Member’s Base Compensation, credited bi-weekly at the end of each pay period. This amount will be deducted from the Member’s salary on a pre-tax basis pursuant to Internal Revenue Code section 414(h)(2). (5) Interest on the above amounts, as determined by the Board through Rules adopted under Division 9 of this Article. These Rules have the same force and effect as a duly adopted ordinance. (Amended 12–3–2002 by O–19126 N.S.) (Retitled to “Drop Benefits and Accounts,” and amended 6-10-2014 by O-20376 N.S.; effective 7-10-2014.)

San Diego Municipal Code § 24.1405 Additional DROP Provisions

§24.1405 Additional DROP Provisions (a) The Member and the City will stop making employer and employee contributions for the Member on the day the Member enters DROP (except as provided under section 24.1404(c), subsections (3) and (4)). (b) A Member who becomes disabled while participating in DROP is eligible to apply for disability retirement benefits. If the Member’s application for disability retirement benefits is approved by the Board: (1) the Member’s disability retirement benefit will be calculated using the Member’s age, Service Credit, and Final Compensation in effect the day the Member entered DROP; and (2) the Member will be eligible to receive all amounts in his or her DROP Account, as provided in section 24.1407. (c) If a Member dies while participating in DROP, his or her Beneficiary or Beneficiaries will receive: (1) All amounts in the Member’s DROP Account. (2) The retiree death benefit. (3) If eligible, the Member’s Beneficiary may elect to receive an industrial death benefit in place of any survivor continuance otherwise payable under this Division. The industrial death benefit is calculated using the Member’s age, Service Credit, and Final Compensation in effect on the day the Member entered DROP. (4) If the Member’s Beneficiary is not eligible for an industrial death benefit, and the Member designated a Beneficiary to receive a continuance before entering DROP, the Member’s Beneficiary will receive the survivor continuance elected by the Member. (d) When a DROP participant leaves DROP and retires, the participant will begin receiving any retiree health benefits under Division 12, or post-employment health benefits under Article 9, Division 1, that the participant is eligible to receive. (Amended 6–19–2002 by O–19071 N.S.) (Amended 6-10-2014 by O-20376 N.S.; effective 7-10-2014.)

San Diego Municipal Code § 24.1406 Designation of Beneficiary

§24.1406 Designation of Beneficiary (a) Before entering DROP, the Member must designate a Beneficiary for his or her DROP Account. This designation will apply to all distributions made from the Member’s DROP Account. The Member may change this Beneficiary designation at any time before the amounts in his or her DROP Participation Account are fully distributed. (b) If the Member’s DROP Account Beneficiary dies before the Member does, and the Member then dies before designating a new Beneficiary, all amounts in the Member’s DROP Account will be distributed pursuant to section 24.0706. (c) No Beneficiary designation made under this section may abrogate the Member’s community property obligations under applicable California law. (Amended 6–18–2002 by O–19071 N.S.) (Amended 6-10-2014 by O-20376 N.S.; effective 7-10-2014.)

San Diego Municipal Code § 24.1407 Payment of Benefits

§24.1407 Payment of Benefits (a) When a Member simultaneously leaves DROP and leaves City employment: (1) the Member will begin receiving his or her monthly retirement allowance, as determined under this Division; (2) the Member will begin receiving the annual supplemental benefit in accordance with Division 15, to the extent the Member is eligible, based upon the Member’s Service Credit on the day he or she entered DROP; and (3) the Member will be entitled to receive the amounts credited to his or her DROP Account as of the day the Member left DROP. (b) A Member may receive the amounts in his or her DROP Account in any of the following benefit forms: (1) a single lump sum distribution of all amounts credited to the Member’s DROP Account; (2) equal monthly payments over 240 months starting with the date the Member leaves DROP and retires; or (3) any other benefit form approved by the Board, subject to applicable provisions of the Internal Revenue Code. (c) The following rules govern the payment of benefits under this Division: (1) No COLA, Annual Supplemental Benefit or later similar adjustment will be made with respect to any benefit payable under subsection (b). (2) Each form of benefit paid must be the Actuarial Equivalent of the amount credited to the Member’s DROP Account at the end of his or her DROP period. Where appropriate, the Annuity will be calculated using the Member’s age and, if the Member elected a joint and survivor option, the age of the Beneficiary at the end of the DROP period. (3) Each form of benefit paid must equal the amount credited to the Member’s DROP Account, including interest credited to that account after the Member retires. If amounts remain credited to the Member’s DROP Account after the Member’s death, the System will pay the remaining amounts to the Member’s Beneficiary in the form selected by the Member before his or her death. If the Member did not select a form, the Beneficiary may elect to be paid under any of the benefit forms provided in subsection (b). (d) The System will credit the DROP Accounts of retired Members as follows: (1) If a Member or Beneficiary receives a benefit in a form other than a single, lump-sum distribution of the entire DROP Account, the value of his or her DROP Account will be credited with interest quarterly and reduced by the amount of distributions. (2) The interest rate credited to the DROP Account under subsection (d)(1) may not exceed the higher of the following: (A) 5%, or (B) the interest rate the Board is using to credit DROP Accounts on the date the Member is first eligible to receive distributions from his or her DROP Account. (Amended 6-18-2002 by O–19071 N.S.) (Amended 6-10-2014 by O-20376 N.S.; effective 7-10-2014.)

San Diego Municipal Code § 24.1408 Compliance with Applicable Provisions of the Internal Revenue Code

§24.1408 Compliance with Applicable Provisions of the Internal Revenue Code (a) DROP is not intended to jeopardize the tax-qualified status of the Retirement System under the rules and regulations of the Internal Revenue Service. The Board has the authority under Division 9 of this Article to adopt rules and regulations to assure that DROP complies with applicable Federal laws and regulations. The Board’s rules and regulations will have the same force and effect as a duly enacted ordinance. (b) Despite any other provision in this Article, benefits provided under this Division are subject to the requirements of the Internal Revenue Code and regulations issued thereunder for the Retirement System to remain a tax qualified retirement plan, including the following: (1) The limitations of Section 415 of the Code relating to the amount of benefits that can be paid. In this regard, the interest rate that will be used for testing benefits under the limits of Section 415 and DROP benefits will be the greater of the following: (A) 5%, or (B) the interest rate the Board is using to credit DROP Participation Accounts on the date the Member is first eligible to receive distributions from his or her DROP Participation Account. (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 rules of Section 401(a)(31) relating to the rollover of benefits. (5) The limitations of Section 401(a)(25) relating to “definitely determinable” benefits. (Amended 6–18–2002 by O–19071 N.S.)

San Diego Municipal Code § 24.1409 Employment Status during DROP Participation

§24.1409 Employment Status during DROP Participation Except as provided in this Division, a Member who elects to participate in DROP has all of the rights, privileges and benefits, and is subject to all other terms and conditions of active employment, including the City Flexible Benefits Plan. (Amended 6–18–2002 by O–19071 N.S.)

Source: City of San Diego Office of the City Clerk, San Diego Municipal Code and City Charter (docs.sandiego.gov PDFs)URL: https://docs.sandiego.gov/municode/MuniCodeChapter02/Ch02Art04Division14.pdf#page=1Fetched: 10/28/2026