Updated October 7, 2026. Quick answer: Under the Philadelphia Board of Pensions and Retirement’s July 2026 reference guide, a member elects one of five payment options in writing before retirement, and the last election becomes irrevocable at retirement. Option 5 adds a partial lump sum of between 6 and 36 monthly payments, and it is closed to anyone who enrolled in DROP. DROP enrollment is irrevocable once the Board receives the application, runs no longer than four years and pays the account as a lump sum at separation. A refund of contributions carries no interest and ends all rights in the system, including survivor rights.
Pennsylvania municipal employees in many townships and boroughs belong to a separate system with its own rules: Pennsylvania PMRS retirement decisions.
What this page covers and what it does not
This page works from the Philadelphia Board of Pensions and Retirement’s own documents, read on October 7, 2026: its Reference Guide and Summary Description of Plans A, B, D, J, L, X, Y, 10 and 16 (July 2026), the Comparison Table and Plan 16 FAQs published with it, and Regulation No. 6 (Deferred Retirement Option Plan, DROP) and Regulation No. 3 (refund of contributions). It follows the municipal plans, mainly Plan Y, Plan 10 and Plan 16, and notes where another plan differs. State income tax is on Pennsylvania retirement taxes and does Pennsylvania tax pensions, and other systems are on public pension retirement decisions by system.
Plan 16 and Plan Y: age, formula and the salary cap
The Plan 16 FAQs say that as of January 1, 2019, “all new municipal employees will be members of Plan 16”, and the Comparison Table calls Plan 10 and Plan 16 hybrid plans with both defined benefit and defined contribution components. Plan Y covers earlier municipal hires. For both, the guide counts service in two tiers. First tier: “up to, and including, 10 years, multiply that amount of Credited Service by 2.2% of Average Final Compensation”. Second tier: “multiply that amount of Credited Service above 10 years by 2% of Average Final Compensation”. Plan 16 limits the pay counted: the FAQs describe Average Final Compensation as the “average of the members three highest annual compensations, up to and including $65,000”.
| Plan 16 term | What the Board’s documents state | Where |
|---|---|---|
| Normal retirement | Age 60 with 10 years of Credited Service (7 years for exempt employees who vest in 7) | Guide and Plan 16 FAQs |
| Benefit per year of service | 2.2% of Average Final Compensation for the first 10 years, 2% after that | Guide and Plan 16 FAQs |
| Pay counted | Average of the three highest annual compensations, up to and including $65,000 | Plan 16 FAQs |
| Maximum benefit | 100% of Average Final Compensation; service counts up to 49 years | Guide |
| Early retirement | Age 52 with 10 years of Credited Service, reduced one-half of 1% for each month before age 60 | Guide |
A computed example from an assumed 30 years of Credited Service and an assumed $50,000 Average Final Compensation, not Philadelphia figures: 10 years at 2.2% plus 20 years at 2% is a computed 62% of pay, which is $31,000 a year, or $2,583 a month before any option reduction.
Starting early, or leaving before the pension age
Municipal members of several plans, including Plan Y, Plan 10 and Plan 16, “are eligible for early retirement benefits at age 52 if they have 10 years of Credited Service”. The guide has the Board calculate the pension as usual and “apply a reduction of one-half of 1% for each month the Member is younger than the minimum retirement age for their Plan”. It exempts “Members of Plan Y, Municipal Employee-Member of Plan 10 or Member of Plan 16 who have at least 33 years of Credited Service” from that reduction.
A computed example from an assumed start at 55 for a Plan 16 member with at least 10 years of service, not a Board figure: 55 is 60 months before 60, so the reduction is 60 times one-half of 1%, a computed 30%. On an assumed $2,000 monthly benefit, the early benefit would be a computed $1,400 a month.
A member who vests and then leaves before the minimum age is “eligible for separation retirement benefits if the Member has not withdrawn their Member Contributions made to the Retirement System”, and those benefits “begin when the separated Member reaches the minimum retirement age for their Plan”.
The five payment options at retirement
Before retirement a member may “elect in writing one of the following five options concerning payment of retirement and survivor benefits”. The table follows the guide’s wording.
| Option | What the retired member receives | What a survivor receives |
|---|---|---|
| Option 1 | A lifetime annuity | A lump sum of any total contributions in excess of the benefit payments received (a guaranteed return of contributions) |
| Option 2 | A reduced, actuarially determined lifetime annuity | The survivor receives the same benefit amount the member received, for the survivor’s life |
| Option 3 | A reduced, actuarially determined lifetime annuity | The survivor receives one-half of the benefit amount the member received, for the survivor’s life |
| Option 4 | A lifetime annuity, for members of Plans A, B, D, J and X and police and fire members of Plan 10 only | A surviving spouse or Life Partner receives one-half of the benefit without reduction, if married or verified Life Partners at least two years before retirement |
| Option 5 | Options 1 to 3 (or 4 if eligible) with a partial lump sum of 6 to 36 monthly payments and a smaller monthly benefit after | Follows the underlying option chosen |
Options 2 and 3 cost a smaller check now, by an amount the guide does not print as a percentage, and the guide says “Options 2 and 3 do not provide for a guaranteed return of contributions”. A computed example from an assumed $1,800 reduced monthly benefit, not a Board figure: the survivor receives $1,800 under Option 2, or one-half of $1,800, a computed $900, under Option 3. See single-life versus joint-and-survivor pension and survivor benefit with a government pension.
What is irrevocable, and what if no option is chosen
The election can change until retirement. The guide says “Until retirement, a Member may revoke the election of any option under this section, and may elect any other option, except that only Members of Plan A, Plan B, Plan D, Plan J, Plan X or Police or Fire Employees-Members of Plan 10 may elect Option 4”, and that “the Member’s last election of any of the foregoing options shall be irrevocable”. Of the survivor designation it says “Each Member upon retirement must make an irrevocable designation of their Survivors”. The planning steps add that a member “may file or change a Beneficiary or Survivor designation at any time BEFORE the day that the Member begins retirement”.
Options 2 and 3 have a one time repair: “if all Designated Survivors die before the retired Member, the retired Member may, within one year of the death of the last of the designated survivors, designate a new Survivor”. If the window is missed, “the retired Member’s retirement benefit amount will be adjusted to reflect the absence of a Survivor”.
A municipal member of Plan Y, Plan 10 or Plan 16 who “retires without electing a Retirement Benefit Option among Options 1 through 3” “shall receive Retirement Benefits without actuarial reduction except for any such reduction resulting from the receipt of Early Retirement Benefits”.
The partial lump sum (Option 5)
The guide lets a retiree “elect to receive a partial lump sum amount of between 6 and 36 monthly payments of Retirement Benefits payable under the chosen Option”. In exchange, the “remaining monthly benefit amount is reduced so that the partial lump sum amount plus the reduced benefit amount is actuarially equivalent to the original benefit amount”. A computed example from an assumed $2,000 monthly benefit and an assumed 12 lump sum months, not Board figures: 12 times $2,000 is a computed $24,000 paid up front. The reduced monthly benefit is not computed because the guide prints no reduction factors.
Two limits: “Option 5 is not available to a Member who at any time has elected to participate in the DROP”, and “Nor may a rehired Member who previously elected Option 5 elect Option 5 after rehiring”. See pension lump sum versus monthly annuity break-even.
DROP: working on while the pension is set aside
For municipal members of Plans J, Y, 10 and 16, any municipal employee other than a non-represented or exempt one “who is an active Employee of the City, has at least 10 years of Credited Service, and has attained the minimum retirement age for their Plan, may apply to enroll in the DROP”. Non-represented and exempt employees may apply only “on or after two years beyond their minimum retirement age”.
The guide prints the rule in capitals: “YOUR ELECTION TO PARTICIPATE IN DROP IS NOT REVOCABLE”. Regulation No. 6 says that once the Board has the application and supporting documents, “the employee has been enrolled in the DROP and may not rescind enrollment or change the selected entry date”.
The effective date must be one that “is not earlier than 90 or more than 180 days after the date of filing an application with the Board”. Once in, “the Member will cease to make Member Contributions to the Retirement System and their Credited Service is frozen”. The guide builds the account from “the Member’s accrued monthly service retirement benefit (as of the effective date of participation in the DROP)” plus “interest on the DROP account balance compounded monthly”. The member “must separate from service no later than four years after the DROP entry date”, and at separation “the Member is entitled to receive the accumulated DROP account balance in a lump sum payment”, and is also “eligible to receive thereafter the monthly service retirement benefit amount”.
A computed example from an assumed $3,000 monthly credit over an assumed 48 months, the four year maximum, with no interest counted and not a Board figure: 48 times $3,000 is a computed $144,000 before interest.
On death, the guide says “the Member’s total DROP account balance at the time of death shall be added to any benefit payable to the Beneficiary”. Regulation No. 6 says a participant who dies while still an employee has the account “treated as an ordinary death benefit”, “paid to the designated Ordinary Death beneficiary on record”.
Refund of contributions, or leaving them in
Regulation No. 3 sorts leavers into three groups. A member who is not vested and below retirement age “may withdraw their contributions if they have not been awarded an Ordinary Disability retirement benefit”. A vested member below the minimum age may too, but is advised that “they would thereby lose their right to a separation service pension upon later reaching retirement age”. A member at or past the minimum age “may not withdraw their contributions”.
A refund needs a request: “the Board will refund the member’s contributions only if requested in writing by the member”. Staff “may, upon the separation of any nonvested employee with $100 or less in accrued contributions, automatically refund the contributions”.
The cost: the guide says a member who withdraws before becoming eligible “is entitled to receive only their Member Contributions without interest”, and that “Upon withdrawal of Member Contributions, membership in the Retirement System terminates”. The regulation adds that “The former member will not be permitted to reverse his or her decision in any way, including by paying back the contributions, nor will he or she be entitled to apply for any other pension benefit”, and that “the rights of any beneficiary or survivor based on that former member’s service cease”.
The one route back the regulation mentions is re-employment, when the former member “may be permitted to purchase service credit for the prior service under certain conditions”. See pension refund versus leaving it.
The defined contribution account in Plans 10 and 16
The guide says “All Members of Plan 10 and Plan 16 are members in the DC Plan”, and that “The amount contributed by the City becomes 100% vested upon the Member’s completion of 5 years of Credited Service”. A member who separates before completing 5 years of Credited Service loses the match: “the City contributions in the Member’s account are forfeited”. The Plan 16 FAQs add that “the Defined Contribution portion is optional. Anyone can participate, but the City match only applies to employees with annual salaries above $65,000”.
Buying service credit
Purchased periods are “added to the total Credited Service for the purpose of calculating the annual Retirement Benefit as well as the number of years of Credited Service earned for vesting”. Payment may be made “in a lump sum, through a payroll installment account, or through direct transfers” from named accounts such as 457(b), 403(b) and IRA accounts. An installment account carries “interest at an annual rate of 6% on the unpaid balance”, and the member “must pay the entire sum due within no more than five years (130 payroll deductions)”. A computed example from an assumed $13,000 purchase principal, not a Board figure: spread across 130 payroll deductions, principal alone is a computed $100 per deduction, before interest.
The guide allows a member to “purchase Credited Service up to a maximum of 10 years” of qualifying service. Members of Plans A, B, L, Y, 10 and 16 get an interest free purchase only if they file “within one year of their date of employment as a new Employee with the City”. Credits bought by exempt employees hired on or after July 1, 2010 “do not count toward the vesting requirements”.
Plan Y, Plan 10 and Plan 16 members who withdrew contributions and return may purchase prior City service, and “if such Members file beyond one year following their date of reemployment, they must pay additional interest”. A member who separates with an unpaid purchase “must pay the entire outstanding balance (including interest) or shortfall within 90 days from the date of their separation”. See the pension buyback calculator.
What the IRS adds on tax
A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of the Board of Pensions and Retirement’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. The Board’s guide lets a member pay for a service purchase by direct transfer from 457(b), 403(b), 401(a) or IRA accounts, which moves money into the system. The pages read do not say how a DROP lump sum or partial lump sum is paid out for rollover purposes. A computed example from an assumed $20,000 taxable lump sum paid directly, not a Board figure: 20% withholding is a computed $4,000, leaving a computed $16,000, and rolling over the full $20,000 would take the withheld $4,000 from other money. See 20 percent withholding on a pension lump sum. The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.
On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan” if the employee separated from service during or after the year they attained age 50 or 25 years of service under the plan, whichever is earlier. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.
What this page could not settle
- The pages read do not give the actuarial reduction factors for Options 2, 3 and 5.
- The pages read do not say whether a DROP lump sum, a partial lump sum or a refund can be sent directly to an IRA, or how the Board withholds tax on each.
- The pages read do not describe spousal consent for a refund, for skipping a survivor option or for DROP.
- The pages read do not state a cost of living adjustment for retirees. The guide mentions cost of living increases only for domestic relations orders.
- The guide says all Plan 16 members are in the defined contribution plan, while the Plan 16 FAQs call that portion optional, and neither describes how a Plan 16 account is paid out.
- The pages read do not state any year’s DROP interest rate, only the formula, nor the actuary’s rate for late service purchases or the cost of any purchase.
- The guide summarizes the Retirement Code, which was not read here, and the regulations carry amendment dates earlier than the July 2026 guide.
Common mistakes
- Treating a DROP application as a trial: enrollment is irrevocable once the Board has the application, and the selected entry date cannot be changed.
- Joining DROP and still planning on an Option 5 partial lump sum: the guide closes Option 5 to anyone who ever enrolled in DROP.
- Taking a refund of contributions and expecting to restore the service on the same terms: a refund ends all membership rights and survivor rights, and any later purchase follows the law in force at re-employment.
- Filing a prior service purchase late: the interest-free window is one year from the date of employment, and the exempt employee vesting limit applies to purchased credit for hires after July 1, 2010.
Related on this site: pension refund versus leaving it, single-life versus joint-and-survivor pension, pension buyback calculator, 20 percent withholding on a pension lump sum, pension lump sum versus monthly annuity break-even, survivor benefit with a government pension, Pennsylvania retirement taxes, does Pennsylvania tax pensions and public pension retirement decisions by system.
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Answer againSources
- City of Philadelphia Board of Pensions and Retirement, Reference Guide & Summary Description of Plans A, B, D, J, L, X, Y, 10 and 16 (July 2026): https://www.phila.gov/media/20260708115949/pensions-reference-guide-summary-description-pension-plans-2026-07.pdf
- City of Philadelphia Board of Pensions and Retirement, Comparison Table for Pension Plans, Appendix A (July 2026): https://www.phila.gov/media/20260708115947/pensions-comparison-table-2026-07.pdf
- City of Philadelphia Board of Pensions and Retirement, Regulation No. 6, Procedure for Implementing the Deferred Retirement Option Plan (last amendment listed effective July 14, 2014): https://www.phila.gov/media/20240909155605/Board-of-Pensions-regulation-6.pdf
- City of Philadelphia Board of Pensions and Retirement, Regulation No. 3, Refund of Contributions (last amendment listed effective April 21, 2014): https://www.phila.gov/media/20210608064615/Board-of-Pensions-regulation-3-2014.pdf
- City of Philadelphia Board of Pensions and Retirement, Plan 16 FAQs, Appendix B (July 2026): https://www.phila.gov/media/20260708115948/pensions-plan-16-faqs-2026-07.pdf
- IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
- IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558
Sources: the primary documents linked above, read on October 7, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.