Vaidik, J.
Case Summary
This case involves a Deferred Retirement Option Plan (DROP). Under these plans, which are common for state and local employees, an employee nearing retirement agrees to keep working, and the employer agrees to pay the employee both salary and retirement benefits. The retirement benefits, which consist of the monthly pension the employee would have received had they retired, are designated each month for the employee’s benefit. At the end of the DROP period, which is typically 12-60 months, the employee retires, receives the amount that accrued, and also begins receiving their regular monthly pension.
Although the Indiana General Assembly authorized DROPs for police officers and firefighters in 2003, this is the first case to address DROPs and whether the pension payments that accrue during the DROP period are marital property subject to division in a divorce case. We hold, consistent with nearly every jurisdiction that has addressed these plans, that the pension payments that accrue during the DROP period constitute divisible marital property to the extent they were earned during the marriage.
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Although our legislature authorized DROPs for police officers and firefighters in 2003, this is the first Indiana case to address the plans. Because DROPs “result in the accumulation of a significant amount of capital,” they have “proved a fertile field for domestic disputes.” Sanchez & Klausner, § 13:13; see also id. at 13:17, 13:21 (noting that the popularity of DROPs “has inevitably led to marital property questions concerning DROP assets”). As a result, “a significant body of case law has been developed regarding its status as marital property.” Id. at 13:13. As Wife points out, a “strong general rule” from these cases has emerged:
Because a DROP program defers only receipt of prior benefits, the strong general rule is that a DROP election does not change the classification of the employee’s existing retirement benefits. Stated differently, the lump sum received at the end of the deferral period is not in any way compensation for the additional service provided. It is compensation for the employee’s total service with the company, and it is marital property to the extent that the total service was performed during the marriage.
2 Turner, supra (emphases added); see also 21 Turner, supra (“Because DROP programs fundamentally permit the employee to delay receipt of retirement benefits already earned, the strong general rule is that retirement benefits paid into a DROP account are given exactly the same classification that they would have received if the DROP program had not been elected.”).
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…Wife argues that Husband began “drawing” his pension benefits on October 1, 2020, when his DROP period started. She notes that at that point, his monthly pension of $7,998.14 was designated each month for his benefit. Husband, however, argues that he didn’t begin “drawing” his pension benefits until his DROP period ended on September 22, 2023. He notes that until that time, he was neither entitled to nor had access to the DROP funds. While this is true, it doesn’t change the fact that Husband’s monthly pension of $7,998.14 (of which Wife was entitled to $3,104.39 per month) accrued for 36 months. Although certain events, such as disability or death, could have disqualified him from receiving the DROP funds, that didn’t happen. As a result, at the end of the DROP period, Husband received a lump sum of $301,456.32. We agree with Wife that Husband began “drawing” his pension benefits on October 1, 2020.
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…The fact that Husband did not elect to participate in the DROP until after the divorce doesn’t mean that the pension benefits lost their character as marital property. See Cummings, 565 P.3d at 344 (“The pension benefits do not lose their character as vested marital benefits simply because they are moved to a [DROP] account.”). As such, the pension payments that accrued during Husband’s DROP period constitute marital property to the extent they were earned during the marriage. And as already explained above, Wife’s portion of Husband’s pension is $3,104.39 per month (before taxes). Wife is thus entitled to $115,110.78, which represents $3,104.39 per month for the 36-month DROP period plus 3% interest.
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Affirmed in part, reversed in part, and remanded.
Bailey, J., and DeBoer, J., concur.