Experts tell East Cocalico supervisors DROP can stagger police retirements, but warned of legal pitfalls

A pair of financial advisers told the East Cocalico Township Board of Supervisors on Oct. 2 that a police Deferred Retirement Option Program (DROP) can be a useful human-resources tool to stagger retirements and help municipalities plan hiring and budgets.

Chris Angelberg and Andrew Gaines of Engleberg Financial Advisors gave a roughly one-hour presentation explaining how DROP works under Pennsylvania law: eligible officers who meet age-and-service thresholds can defer formal retirement for a fixed period (commonly three or four years) while their pension benefit is recorded as a ledger balance inside the pension plan. The firms said the ledger model keeps DROP benefits inside the plan rather than paying them out monthly into a separate account, and that municipalities assign a DROP interest rate—typically 2%–3%—when the DROP is established.

The presenters outlined potential benefits: predictable ‘shot clocks’ on senior officers that let managers plan hires and training, reduced long-term payroll costs after replacements are staffed, and a recruiting advantage for municipalities that advertise DROP. They also showed example actuarial scenarios indicating that, depending on timing and turnover, a DROP can generate multi-year savings once replacements are hired and fully trained.

Board members pressed the presenters on recent statutory changes. The advisers said Act 49 (passed the prior summer) allows prior law-enforcement service to be bought back for pension credit but warned that buybacks should not be structured to let officers artificially meet DROP eligibility earlier; they cited municipal examples where improper buyback handling led to officers entering DROP and leaving shortly after, producing unanticipated costs and litigation.

The advisers emphasized implementation details that can change outcomes, including the interest rate assigned to DROP ledger balances, the actuarial valuation and MMO (minimum municipal obligation) calculations, and the pension manager’s fee structure. They recommended setting DROP terms clearly at adoption and coordinating closely with the township’s pension actuary and administrator (the presentation named the plan custodian as "Gerard").

Several trustees asked practical questions about taxation and post-DROP access to funds: DROP balances are typically rolled into an IRA when a participant exits DROP; officers under 59½ who take distributions may face a 10% early-withdrawal penalty unless other plan options (such as a 457 plan) are available. Presenters said municipalities should also plan for prevailing-wage contracting, easement needs (for unrelated development items discussed later in the meeting), and the potential for contested or litigated DROP designs if language is ambiguous.

The board did not vote on DROP at the meeting; presenters encouraged staff to return with draft ordinance language, actuarial estimates tied to the township’s pension valuation, and coordinated input from the pension administrator before any formal adoption.