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Thread: DROP Liabilities

  1. #1
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    DROP Liabilities

    Our pension fund allows for entry into what is referred to as DROP (Deferred Retirement Option Plan). My question is regarding the drop balances that accumulate while the members are in drop. Does anyone in the group record drop balances as a liability on the face of the pension fund financial statements? I am curious as to how many systems have DROP and don’t record the balances and how many systems have drop and do record the balances. Thanks for your help.


    KAREN S. EPP, CPA

    FORT WORTH EMPLOYEES RETIREMENT FUND
    3801 HULEN STREET, SUITE 101
    FORT WORTH, TX 76107
    817-632-8912
    KAREN.EPP@FWRETIREMENT.ORG

  2. #2
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    Hi Karen,

    We do not record our DROP balance as a liability. Under GASB 67, amounts held pursuant to DROP are recorded as a liability when they are "due and payable" to the member. The only time we could see this being applicable is if the member left DROP but had not received their money at year end.

    Mike Press
    Finance Director Direct: 614.430.3558
    Ohio Highway Patrol Retirement System Fax: 614.431.9204
    1900 Polaris Parkway, Ste. 201 mpress@ohprs.org

    Columbus, OH 43240-4037 www.ohprs.org

  3. #3
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    Good Morning Karen,

    Under GASB 25, the Ohio Police & Fire Pension Fund (OP&F) use to record the DROP liability on the face of the financial statements.

    In 2014, with the implementation of GASB 67, OP&F un-wound the DROP liability balance from the face of the financial statements.
    This decision was based on:
    * GASB 67’s wording (paragraph 98) “…only when ultimately due to the plan member.”
    * OP&F also had a conference call with the GASB confirming this interpretation.
    * Per the GASB, this improves transparency.

    In Summary:
    • Since 2014, OP&F has only recognized actual DROP withdraws on the face of the financial statements.
    • The DROP liability balance is disclosed in the notes to the basic financial statements and in the statistical section.

    I hope this information helps.
    Have a wonderful day,
    Chellie

    AKA
    Michelle Keller, CPA, CM, CGMA
    Financial Reporting Accountant
    Ohio Police & Fire Pension Fund
    140 East Town Street
    Columbus, OH 43215
    Fax 614-564-1571
    Phone 614-628-8341
    www.op-f.org

  4. #4
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    We have both a Back DROP and a Forward DROP here at the El Paso Firemen & Policemen’s Pension Fund. We record the expense and liability monthly and annually for financial reporting purposes for the Forward DROP obligation.

    I trust this helps.

    Lena H. Ellis CPA, MBA, CGMA
    Chief Financial Officer
    El Paso Firemen and Policemen’s Pension Fund
    909 E. San Antonio Avenue
    El Paso, Texas 79901-2523
    Phone: 915-771-8111
    FAX: 915-779-6693
    lellis@elpasofireandpolice.org

  5. #5
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    Karen,

    My short answer is that we don’t report a liability for the DROP accounts, we have them segregated as separate assets.

    We do have a couple ways we operate our DROP. We have some closed plans that were “grandfathered in” to be able to leave their DROP accounts with us and earn the overall fund rate of return for their accounts. And that is most like what you have described. We have these set up as separate plans in our system. So we have essentially carved the assets out separately from all other plan assets. They are allocated a share of expenses and earnings just like the bigger fund. We have 2 cost sharing plans, 1 single employer plan and over 200 multiple agent plans. So, setting up another plan works well in our existing structure for allocation, tracking and reporting.

    For our current DROP members, we pushed that all out to Fidelity. When a member now enters DROP, we set up a self-directed account Fidelity and pay their monthly pension benefit and member contributions to that plan. While the member is active in DROP they cannot take any distributions, but once they terminate employment officially, we send a terminated status to Fidelity and they have access to their funds. This shifts the distribution management more to Fidelity – most of our members like to take occasional lump sums instead of a recurring monthly amount. So, that reduces our complexity here. These account balances are part of our self-directed funds and reported using DC guidance as well.

    Let me know if you need any additional explanation,


    Ahni Smith
    Accounting Director
    asmith@FPPAco.org

  6. #6
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    Our F/S do not have a specific line item for DROP. DROP liability is included with ‘Benefits and refunds payable’.


    Blake Jeffrey
    MFPRSI
    Phone: 515.254.9979
    Fax: 515.254.9300

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