If you entered DROP based on a retirement eligibility date prior to January 1, 2004, you may still have your DROP account held at LASERS. Those accounts earn interest based on the investment returns earned by LASERS, but those returns are “smoothed” over a five year period. This smoothed earnings rate is then subtracted by 0.50% (for administrative expenses) to determine the interest credited to the members’ DROP accounts.
“Smoothing” mitigates volatility in the short-term market fluctuations. Gains and losses are recognized in twenty percent increments over a five year period, subject to corridor limits which avoid outlying returns. Typically, the amount of a gain or loss is recognized 20% in the first year, 40% in the second year, 60% in the third year, and 80% in the fourth year.