Baltimore police officers are eligible to participate in a deferred retirement option plan, known as a DROP plan. Under the DROP, members with at least 20 years of service can elect to participate in the DROP for a maximum of three years. During the period of DROP participation, the member’s regular pension is “frozen,” with the member not receiving any new service credits towards his or her regular pension. However, what would have been the member’s retirement benefits plus an amount equal to mandatory contributions the member is required to make to the retirement system do continue to accumulate with interest at 8.25%. The DROP benefit can be received either as a lump sum upon the member’s eventual retirement or as part of a regular monthly annuity.
Two former police officers brought a lawsuit requesting that their DROP benefits not be considered as pension payment under their divorce decrees (known as qualified domestic relation orders, or QDROs). Under QDROs, former spouses are entitled to a share of pension payments.
The Maryland Supreme Court concluded that payments from the DROP were the equivalent of pension for purposes of the QDROs. The Court found that the plain language of the officers’ QDROs “unambiguously provides that all payments from the Retirement System pension are subject to division in accordance with the terms of the QDROs. To the extent there is any question under the QDROs as to whether payment of DROP benefits are indeed payment from the Retirement System pension, the plain language of the QDROs unambiguously makes the scope of the pension benefits covered by the language of the QDROs.”
Dennis v. Fire and Police Employees’ Retirement System, 2006 WL 118967 (Md. 2006).
This article appears in the March 2006 issue