Indiana 1977 Fund Retirement Decisions: DROP, Survivors, Refunds

Updated October 16, 2026. Quick answer: An Indiana 1977 Fund police officer or firefighter vested at 20 years can retire at 52 with 52% of first-class salary plus 1% for each six months over 20 years, up to 76%. The handbook describes no payment option election; survivor benefits are set by statute, 70% of the member’s monthly benefit for a spouse when death is not in the line of duty. The one irrevocable choice is the DROP election, which requires retirement on the chosen date. A member who leaves before 20 years may take a refund or leave contributions in the Fund.

More on public pension systems, topic by topic: Indiana 1977 Fund DROP, Indiana 1977 Fund disability retirement and Indiana 1977 Fund COLA.

What this page covers and what it does not

This page works from three Indiana Public Retirement System (INPRS) documents: the 1977 Police Officers’ and Firefighters’ Retirement Fund Member Handbook, effective July 1, 2025; the INPRS Annual Comprehensive Financial Report for the fiscal year ended June 30, 2025; and the 1977 Fund at a Glance sheet dated February 1, 2025. It covers members hired or rehired after April 30, 1977 who retire under the formula for retirements on or after July 1, 2019. Disability retirement and the separate Indiana PERF are outside this page.

Membership is narrower than a hire date. Subject to IC 36-8-4.7 and exceptions in its subsections (d), (e), (f), (g), (h), (k), (l) and (m), IC 36-8-8-7(a) makes a police officer or firefighter a member who “(1) is less than forty (40) years of age; and (2) passes the baseline statewide physical and mental examinations required under section 19 of this chapter;” Later subsections add other ways in. Under subsection (n), a member who separates and within 180 days is employed full time by a 1977 Fund employer “is a member of the 1977 fund without meeting for a second time the age limitation under subsection (a)”. Subsection (q) covers a return after more than 180 days, “without meeting the age limitation under subsection (a) provided the member can accrue twenty (20) years of service credit in the 1977 fund by the time the firefighter becomes sixty (60) years of age.” Subsection (p) makes a veteran described in IC 36-8-4.7 who is employed as a firefighter or police officer a member. On credit, subsection (c) says “Except as provided in section 18 of this chapter, a police officer or firefighter is entitled to credit for all years of service after April 30, 1977, with the police or fire department of an employer covered by this chapter.” Section 18 was not read for this page, and neither were the survivor sections 13.8, 13.9 and 14.1 or the refund and service-purchase sections of the Indiana Code.

On size, the annual report says “DB member data shown below is based on census data as of June 30, 2024, and used in the actuarial valuations for June 30, 2025”. Its row for the 1977 Fund reads “1977 Fund 198 14,771 8,213 341 2,003 25,328”, under the headings for employers, active members and annuitants. So 14,771 is the active count on that census date and 8,213 is the annuitant count. State tax treatment is on Indiana retirement taxes and does Indiana tax pensions.

When a pension can start and how it is figured

The handbook says “You are vested in the 1977 Fund with 20 years of active service”. For retirement benefits it lists three tests: “Have at least 20 years of service credit in the 1977 Fund”, “Are at least age 52 (for unreduced benefits) or 50 (for reduced benefits)”, and “Have separated from covered service”.

The handbook’s formula: “For retirements on or after July 1, 2019, a monthly payment will equal at least 52% of the base salary (first-class salary) the year you leave active service”. Longer careers add to that: “If you earn more than 20 years of service, you will receive another 1% of the base salary for each six months of active service over 20 years”. The base is the first-class salary, not the member’s own pay: “Upon retirement, benefits are based on the first-class salary effective for your employer in the year employment ends”.

A computed example from an assumed $80,000 first-class salary, not a 1977 Fund figure: a member who retires at 52 with 25 years has 5 years beyond 20, which is 10 six-month periods. The percentage is 52 plus 10 times 1, a computed 62%, so the annual pension is 62% of $80,000, a computed $49,600, or about a computed $4,133 a month. Each employer certifies the real first-class salary, so the member’s INPRS estimate decides.

Early retirement at 50 is permanent in effect. The handbook says “If you choose early retirement, your pension benefit will be reduced for each month of benefit payments prior to age 52”, and “If you choose to take early retirement, your retirement benefits will remain reduced even after you reach age 52”. The handbook does not print the reduction factors in the pages read.

Is there a survivor election? What the documents describe

Many public pensions let the retiree trade a smaller check for a continuing survivor benefit. The 1977 Fund documents read describe no such election. They describe survivor benefits that follow from statute. The handbook says “Beneficiaries for members of the 1977 Fund are set by statute in IC 36-8-8-13.8, IC 36-8-8-13.9 and IC 36-8-8-14.1”, and its list of important terms says “Beneficiaries are set by statute under the 1977 Fund Plan”.

The online retirement application does have a survivor step: the handbook lists “enter your survivor information as requested”. The handbook does not say that the step offers a choice of percentages or payment forms, so a member should ask INPRS what it asks before assuming it sets a percentage.

Survivor benefits by statute

Because the benefit follows statute, the numbers to know are who is entitled and at what percentage. For the non-line-of-duty case the handbook says “If you die on or after July 1, 2019, your surviving spouse is entitled to a lifetime monthly benefit that will equal 70% of your monthly benefit”. “Your spouse can remarry and not risk losing the benefit”. The base is calculated rather than the actual check: “Your benefit will be calculated as if you were receiving benefits at age 52 with 20 years of service credit”, and “If you have more than 20 years of service credit, your benefit will increase by 1% for each six (6) months of additional service”.

A computed example from an assumed $4,000 monthly benefit, not a 1977 Fund figure: a spouse at 70% would receive a computed $2,800 a month, each eligible child at 20% a computed $800, and a qualifying parent at 50% a computed $2,000. See survivor benefit with a government pension for the household side.

The DROP election: the irrevocable decision

The Deferred Retirement Option Plan is where the handbook uses the word irrevocable. It says “DROP is an optional benefit that allows 1977 Fund members who are eligible for an unreduced retirement benefit to continue to work and earn a salary while accumulating a DROP benefit payable in a lump sum or three (3) annual installments”. “If you elect to enter the DROP your election is irrevocable and requires you to retire on your DROP retirement date”. Two more limits: “Be aware, you cannot exit and then re-enter the DROP”, and “Only one (1) DROP election is allowed during your lifetime”.

For a DROP entry date after June 30, 2024, the retirement date must be not less than 12 months and not more than 60 months after the DROP entry date, and the DROP cannot extend past the mandatory retirement age of 70. A member who entered the DROP before July 1, 2024 and has not exited must exit at 36 months after entry unless the member extends the retirement date up to 60 months after entry, which requires notifying the employer within 30 days.

The dates in that rule turn on when the election is executed, not on the entry date. Section 10 says: “(i) thirty-six (36) months after the member’s DROP entry date, for a member who executes an election described in clause (A) before July 1, 2024; or” And: “(ii) sixty (60) months after the member’s DROP entry date, for a member who executes an election described in clause (A) after June 30, 2024.” The election to retire on the DROP date is also not the only way out of the DROP. Section 14(a) says a member “shall exit the DROP at the earliest of:” and the list includes “(3) the mandatory retirement age applicable to the member, if any; or” and “(4) the date the member retires because of a disability as provided under section 16.5(d) of this chapter.” For a disability retirement after June 30, 2017 at least twelve months after entry, section 16.5(e) says the benefits are “(1) A retirement benefit paid by and calculated under the provisions of the applicable fund as if the member had never entered the DROP.” plus “(2) An additional, separate amount that is not calculated as a part of a disability benefit from the applicable fund”

The risk of missing the date is spelled out: “If you do not retire on your DROP date, your benefits will be determined under the provisions of the 1977 Fund as if you never entered the DROP, and you will not be able to make a future DROP election”. At retirement there is also a way out of the DROP money: “upon retirement you may elect to forego DROP benefits and instead receive monthly retirement benefits calculated as if you never elected to participate in the DROP”. During the DROP, “You will not continue to accrue service credit for the years in the DROP”.

Taking the DROP money: lump sum or three installments

The handbook says “Upon your DROP retirement, you are eligible to receive a lump sum equal to the amount of your DROP frozen benefit multiplied by the number of months you were in the DROP”. The frozen benefit is set at entry: “This is equal to your monthly retirement benefit based on accrued service and first-class salary as of the date you entered the DROP”. On the form of payment, “You may elect to receive this amount in three (3) annual installments instead of a single lump sum”, and “If electing three (3) annual installments, no interest will be paid”. In addition, “There is no COLA added to the DROP Frozen Benefit if the first-class officer salary increases during the member’s DROP period”. The annual report says “At retirement, members must choose among the available options for distribution of the accumulated benefit under the DROP”.

A computed example from an assumed $4,000 frozen benefit and an assumed 36 months in the DROP, not 1977 Fund figures: the DROP amount is $4,000 times 36, a computed $144,000, with a monthly benefit of $4,000 afterward. The handbook says “INPRS is required by law to withhold 20% for federal income taxes for any non-recurring, taxable lump sum distribution that is paid directly to you”. If the whole amount were taxable and paid directly, 20% would be a computed $28,800, leaving a computed $115,200 before any further tax. The handbook describes a rollover of a DROP amount only for a surviving spouse, so a member should ask INPRS whether a DROP lump sum can be rolled over. See 20% withholding on a pension lump sum.

A death during the DROP is handled separately. The handbook says “If you die while in the DROP on July 1, 2020, or later and within less than 12 months after entering the DROP, the death benefits are calculated as if you never entered the DROP”. If death comes at least 12 months after entry, the benefits include the ordinary survivor benefit calculated as if the member had never entered the DROP (“The surviving spouse is eligible for 70% if not in the line of duty”) and an additional amount equal to the frozen benefit times the months in the DROP. If installments are still due, a surviving spouse may “Take the remaining funds as one lump sum and roll it over”, or continue the installments.

The statute puts the two parts this way. Section 15(a)(2) says the survivors’ benefits “consist of both of the following: (A) A benefit for the member’s survivors paid by and calculated under the provisions of the applicable fund as if the member had never entered the DROP.” The second part is “(B) An additional, separate amount that is not calculated as a part of a benefit for the member’s survivors from the applicable fund”. Section 15(b) sets it at “(1) the amount of the DROP frozen benefit; multiplied by (2) the number of months that the member was in the DROP.” It goes to the member’s survivors, not only a spouse, who “must elect to receive the additional, separate amount by either of the following methods: (1) A lump sum paid as soon as practicable after the member’s death. (2) Three (3) equal annual payments”. This applies to a death in or out of the line of duty alike.

Leaving before 20 years: take a refund or leave the money

A member who will not reach 20 years has a real choice. The handbook says “If you separate from employment in a 1977 Fund-covered position for a reason other than death or disability prior to completing 20 years of active service, you may apply for a distribution of your contributions plus interest at a rate specified by rule by the INPRS Board”. The alternative: “You also have the option to leave your contributions invested with the 1977 Fund”. It is flexible only until vesting: “They can be withdrawn at any time as long as you are not vested in a pension benefit”. The handbook ties a refund to separating before completing 20 years of active service and says contributions can be withdrawn only “as long as you are not vested in a pension benefit”, so a vested member who is leaving early should confirm with INPRS what applies. See pension refund versus leaving it.

On payment, the handbook says “If you receive a distribution of your 6% contribution before age 55 and you do not roll it over, you will have to pay an early distribution tax penalty”. “The penalty equals 10% of the taxable portion”. “Prior to receiving a distribution, INPRS is required to withhold 20% for federal taxes”. A rollover is the alternative: “You can choose a direct rollover for all or a portion of your eligible distribution”, and “There is no income tax withholding on the amount you roll over”. A computed example from an assumed $10,000 taxable refund paid directly to a member under 55 who does not roll it over, not a 1977 Fund figure: 20% withholding is a computed $2,000 and a 10% penalty on the taxable portion would be a computed $1,000, both before ordinary income tax. The handbook itself says “Your decision how you receive distributions from member contribution account can have significant tax implications, and you are encouraged to consult with a tax advisor”.

Buying service credit and cost-of-living adjustments

Additional service credit can enhance the pension only after 20 years of completed service: “You must have 20 years of completed service in the 1977 Fund before any additional service can be used in your retirement benefit”. Some types, such as new unit prior service, count toward vesting. A member who took a refund and returns can restore it: “you may buy back the previously withdrawn service by paying the Fund the amount of the distribution which was previously received plus interest at a rate determined by INPRS”. The pension buyback calculator sets up the break-even. On COLA, the handbook says monthly retirement benefits to members and survivors are adjusted on each July 1 by the average of the CPI for January, February, and March as compared to the same months in the preceding year. By statute a member or survivor’s monthly benefit may not be increased until July of the year following the calendar year of the first monthly benefit. The increase is rounded to the nearest 0.1% and cannot be greater than 3%, and a retired member or survivor’s monthly benefit may not be reduced because the CPI falls.

Two statutory conditions are not in that summary. Section 15 of IC 36-8-8 says “In computing a fund member’s benefit, the increase is based only on those years for which the fund member was eligible for benefit payments under this chapter.” For a member who was in the DROP, IC 36-8-8.5-13(b) says the COLA “is determined under the provisions of IC 36-8-8, as applied after: (1) the member’s DROP retirement date; or (2) the date the member retires because of a disability as provided under section 16.5(d) of this chapter.” The frozen benefit itself is fixed at entry, so a later rise in first-class salary does not raise it.

Where the sources disagree

First, the spouse’s survivor percentage. The handbook says “If you die on or after July 1, 2019, your surviving spouse is entitled to a lifetime monthly benefit that will equal 70% of your monthly benefit”, the glance sheet says “Spouse will receive a lifetime monthly benefit that equals 70% of your monthly benefit”, and the annual report’s plan description says “Otherwise, eligible survivors of members who die other than in the line of duty receive 70% of the member’s benefit”. But the annual report’s statistical schedule says “Upon the death of the retiree, a surviving spouse receives 60% of the monthly benefit for life”. This page uses 70%, the handbook’s figure for deaths on or after July 1, 2019; INPRS should confirm which applies.

Second, early retirement. The handbook says benefits are reduced “If you choose early retirement, your pension benefit will be reduced for each month of benefit payments prior to age 52”, while the annual report summarizes “Age 50 and 20 years of creditable service (reduce full benefit by 6% for each year less than age 52)”. The documents read do not tie the two together, so the INPRS estimate for the actual date decides.

Third, COLA. The annual report’s financial notes say “For the year ended June 30, 2025, an adjustment of 3% occurred and was administered by the Board”. Its actuarial discussion says “In the 1977 Fund there was a 2.70% COLA, rather than the assumed COLA of 1.95%”. The passages give no effective dates and this page does not reconcile them.

Fourth, form of payment. The valuation assumption is that “Members are assumed to elect either a single life annuity or a 70% joint and survivor benefit based on the marriage assumption”, while the handbook describes no payment option election. This page follows the handbook and flags the valuation line as unreconciled.

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 1977 Fund’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 handbook describes the same 20% withholding on a lump sum paid directly and a direct rollover as the alternative. 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, provided the employee has separated from service during or after the year in which 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 describe no payment option election for a retiring member, and do not say what the survivor step of the online retirement application asks for.
• The handbook does not print the early retirement reduction factors, and the annual report’s 6% per year summary is not tied to the handbook’s monthly rule.
• The handbook says contributions can be withdrawn only while a member is not vested, and the pages read do not state whether a DROP lump sum paid to the member can be rolled over.
• The pages read do not state the interest rate credited to member accounts or the effective dates of the two COLA figures.
• Disability retirement, divorce orders, re-employment of retirees and the Indiana Code chapters were not examined beyond what these documents say.

Indiana 1977 Fund topic pages

Each row links to the page that reads one topic in the Indiana 1977 Fund member documents: the topic, then the summary that page carries.

Common mistakes

• Assuming a survivor percentage can be chosen at retirement; the documents read describe survivor benefits as set by statute.
• Treating the DROP election as reversible; the handbook says it is irrevocable and requires retirement on the DROP retirement date.
• Counting the 25,328 total in the annual report’s member table as active members; the active count in that row is 14,771.
• Taking a refund without weighing that 20% is withheld on a payment made to the member and a 10% penalty can apply before age 55 unless the money is rolled over.

Related on this site: Indiana retirement taxes, does Indiana tax pensions, Indiana PERF retirement decisions, pension refund versus leaving it, 20% withholding on a pension lump sum, survivor benefit with a government pension and public pension retirement decisions by system.

Sources

• Indiana Public Retirement System, 1977 Police Officers’ and Firefighters’ Retirement Fund Member Handbook (Effective 07/01/2025): https://www.in.gov/inprs/files/1977FundMemberHandbook.pdf
• Indiana Public Retirement System, INPRS Annual Comprehensive Financial Report, Fiscal Year June 30, 2025: https://www.in.gov/inprs/files/annual-reports/INPRS-Annual-Report-FY25.pdf
• Indiana Public Retirement System, 1977 Fund at a Glance (2/1/2025): https://www.in.gov/inprs/files/77_fund_glance_membership.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 16, 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.