If you work in the public sector or for the government, you’ve probably heard of a type of retirement plan called a Deferred Retirement Option Plan (DROP). A DROP plan allows for an employee to work past their retirement-eligibility date while the employer adds annual, lump-sum payments into an interest-bearing account during that period. Once the employee actually retires, they gain access to the account and all the money in it. It benefits the employer as the employer avoids dealing with an increased pension amount that normally would come with added years of service. It should be noted that DROP accounts are only really associated with employers and offer pensions, which these days is pretty much only in the public sector (i.e. firefighters, police officers, teachers, etc.). As with any retirement account, there are rules and guidelines that employers will follow. Usually the extended period of service is only for a few years, the employer must specify how much they will pay into the account and interest accrual rates, and the employer can set how it will distribute the DROP account in retirement (i.e. a lump sum vs. annual payouts). How the account is distributed can have a huge impact on your taxes, so you may want to pay particular attention to that. A DROP account can be appetizing, however, to those who don’t necessarily feel like retiring when they become eligible. Keep in mind that a DROP account is a defined contribution retirement plan as compared to a defined benefit plan, which is usually what a pension is. This is important because it will impact how much money you may expect to get in retirement and you should know that a DROP account and your pension are two different things. If you are a public sector employee and are nearing retirement eligibility and feel that a DROP account opportunity may be available, you should look into it as well as speak with a certified financial planner about how it may impact your retirement plans and whether it’s right for you.