PSPRS Retirement Options: 80% Spouse Pension, DROP Is Tier 1 Only

Updated October 2, 2026. Quick answer: The Arizona Public Safety Personnel Retirement System (PSPRS) pays a retired member’s surviving spouse 80% of the member’s pension if married at least two consecutive years. DROP is open only to Tier 1 members with 20 years of credited service, and entry is irrevocable. A refund pays contributions plus 3% interest compounded annually and waives all rights to PSPRS benefits. Service can be bought or transferred, with a cost quoted by PSPRS.

Arizona’s corrections officer plan runs on separate rules: Arizona CORP retirement decisions.

Phoenix city employees (non-public-safety) belong to a separate city system: Phoenix COPERS retirement decisions.

Which tier you are in decides most of this

PSPRS sorts public safety members into three tiers by hire date, and nearly every choice below depends on which one applies. The tier pages give the dates this way: “Hired before January 1, 2012” for Tier 1, “Hired between January 1, 2012, and June 30, 2017” for Tier 2, and “On or after July 1, 2017” for Tier 3. Tier 3 members can be in a defined benefit (DB) plan or a combined DB and defined contribution (DC) 401(a) plan, depending on the employer’s Social Security status, or in a DC-only plan. The survivor and refund rules below apply to DB members, while DROP is narrower: “Deferred retirement is a benefit reserved for Tier 1 public safety members and is not available to Tier 2 and 3 members.”

DROP: working while the pension accumulates (Tier 1 only)

The Deferred Retirement Option Plan, or DROP, is described this way: PSPRS says it “allows Tier 1 public safety members who are already eligible for retirement to continue working while collecting a salary and accumulating monthly pension benefits that will become available upon retirement”. The mechanics: “A monthly retirement benefit is calculated based on the salary and credited service earned at the time a member elects to participate in DROP”, and that amount “generates interest while the member continues to work for their employer for up to 60 months”. “Under certain conditions, members can extend their participation in DROP for up to 24 additional months.” The statute sets two routes. For a Tier 1 member who is at least 51 with 24.5 years of credited service, A.R.S. 38-844.03(A) says: “Any member who is eligible for a normal pension pursuant to section 38-844, subsection A, who becomes a member of the system before January 1, 2012, who is at least fifty-one years of age and who has at least twenty-four and one-half years of credited service is eligible to participate for not more than eighty-four consecutive months in the deferred retirement option plan.” A.R.S. 38-844.10 adds an employer-approved extension for a member already in the plan when that section took effect: “Notwithstanding the age and service requirements prescribed in section 38-844.03, an employer may approve, for a member of the public safety personnel retirement system who is participating in the deferred retirement option plan on the effective date of this section, an extension of the member’s period of participation for up to an additional twenty-four months.” The Legislature’s text of that section is headed “Rpld. 1/1/28”.

Eligibility has two tests. For the first five years: “DROP entry requirement: 20 years of credited service”. The tier summary adds that the 7-year DROP needs 24.5 years of credited service and age 51. Entrants after July 6, 2022 who qualify “will have their DROP automatically extended if they have not filed a notice to retire by the end of their 60th month in DROP”.

The election is a two-step process with an irrevocable end. PSPRS tells members to request an estimate first, “taking care to enter that they request an estimate only (not a request to retire or enter DROP) and to include a desired DROP entrance date”. The point of no return is stated plainly: “PSPRS communicates with employers to ensure that member and employer pension contributions are discontinued on the DROP entry date, at which point DROP entrance is irrevocable”.

What DROP costs and what the account earns

The central trade is that the pension stops growing. PSPRS says: “Once in DROP, members will not continue to contribute towards their pension or add credited service to their PSPRS employment record.” It adds that “any future salary increases or additional years of service won’t apply when calculating pension benefits when exiting DROP”. In exchange the member keeps a salary and receives deposits: “their monthly pension benefits will be deposited into DROP accounts and begin accruing interest”. On the rate: “generate a guaranteed annual interest equal to the assumed earning rate set by the PSPRS Board of Trustees”. The pages read do not state the rate itself, only that it follows the Board’s assumed earning rate.

A computed example from an assumed $3,000 monthly benefit, not a PSPRS figure: if a member’s DROP monthly benefit were $3,000 and it were deposited for the full 60 months, the deposits alone would be 3,000 multiplied by 60, which is $180,000 before any interest. The $3,000 is an assumed input. Interest and the member’s actual benefit are not modeled; a PSPRS estimate gives the real figure.

Leaving DROP: the lump sum, the 401(a) account and the deadline

Leaving DROP means leaving the job. PSPRS says: “To exit DROP, members must terminate employment with their employer and officially retire.”

Where the DROP money goes on exit: “accrued DROP balances are transferred in a lump sum to individual 401(a) accounts within the Public Safety Personnel Defined Contribution Retirement Plan (PSPDCRP)”. On where the money sits at first: “DROP balances by default are transferred into a fixed money market account that earns risk-free interest”. After that the choice is an investment one, and PSPRS is direct about the risk: “participants bear the risk of market volatility and economic conditions”.

Missing the exit date is expensive. PSPRS lists the outcomes of late termination. On interest: “Complete forfeiture of all interest earned on the DROP balance.” On access: “DROP account funds remain frozen until active employment officially ends.” On the benefit: “Retirement benefit stays permanently fixed at the initial DROP entry calculation; no extra credit for post-DROP service.”

Survivor benefits: who is paid and how much

PSPRS survivor benefits are set by statute rather than chosen from a menu of payment options. The basic rule: “a survivor benefit is paid to your eligible spouse and/or eligible children.” “If there is no eligible spouse or children, the balance of the member’s contributions, if any, will be paid to the named beneficiary(ies) on file.” A spouse needs “Proof of recorded/filed marriage certificate”, and for a retiree “For retired members, statute requires two consecutive years of marriage at the time of the members death.” Eligible children are unmarried, under 18 or in school full-time to age 23, and disabled children are included.

Survivor details that change what a family receives

For an active member: “The Spouse’s Pension is 80% of the pension based on the calculation for an accidental disability retirement.” The statute words it differently. A.R.S. 38-846(D) says: “The surviving spouse of a deceased member who was not killed in the line of duty or did not die from injuries suffered in the line of duty is entitled to receive a monthly amount calculated in the same manner as an accidental disability pension is calculated pursuant to section 38-845, subsection B.” Section 38-845(B) says: “Notwithstanding any other provision of this section, the accidental disability pension for a member shall be a monthly amount that equals not less than fifty percent of the member’s average monthly benefit compensation.” The only four-fifths rule in A.R.S. 38-841 to 38-863 is the retired member’s: “The surviving spouse of a deceased retired member is entitled to receive a monthly amount equal to four-fifths of the monthly amount of pension that the decedent would have received immediately before death.” The 80% for an active member is PSPRS’s figure and is not printed in the code. On a line of duty death, PSPRS says “the spouse will receive a lifetime monthly benefit of 100% of the member’s average monthly benefit compensation”, less the child’s pension if applicable. For a retiree: “If married for at least two (2) consecutive years at the time of the member’s death, the surviving spouse will receive a Spouse’s Pension each month for lifetime based on 80% of the member’s pension benefit.”

With no spouse left, a different path applies: “a Guardian Benefit of 80% (based on the member’s pension) and the applicable Child’s Pension (based on the member’s pension) will be paid to the guardian of the unmarried eligible child(ren)”. With no spouse or child at all, “the member’s named beneficiary on file will receive the balance of the member’s accumulated contributions less the pension payments made to the member.”

A computed example from an assumed $3,000 monthly pension, not a PSPRS figure: if a retired member’s pension were $3,000 a month, 80% of it is 3,000 multiplied by 80 and divided by 100, which is $2,400 a month to an eligible spouse. The $3,000 is an assumed input. The member’s own PSPRS estimate gives the real figure.

Three practical points are stated by PSPRS. First, divorce: “Divorce automatically terminates your ex-spouse for a surviving spouse pension”. To keep an ex-spouse as a beneficiary of any remaining contributions, “you must complete a new Beneficiary Designation Form and/or a DROP Beneficiary Designation Form, as applicable, after the date of the divorce”. Second, a DROP member: “If your death occurs while in DROP, survivor benefits will be paid according to the RETIRED MEMBERS section above and your accumulated DROP will be paid as a one-time lump-sum payment as indicated on your DROP Beneficiary Designation form.” The statute moves the money first. A.R.S. 38-844.06(C) says: “If a member dies during the period of the member’s deferred retirement option plan participation, the entire amount in the member’s deferred retirement option plan participation account shall be transferred by the system’s trustee directly to the trustee of the public safety personnel defined contribution retirement plan established pursuant to article 4.1 of this chapter and deposited in an account established on behalf of the deceased member.” “On deposit of the monies in the account, the monies shall be made immediately available to the member’s beneficiary to either withdraw all or any portion of the monies or directly transfer all or any portion of the monies to an eligible retirement plan in accordance with section 401(a)(31) of the internal revenue code.”

Leaving before retirement: refund or leave it on account

A member who leaves covered employment before meeting retirement requirements has several choices. PSPRS lists them, among them: “Leave your contributions on account with the PSPRS and retain rights to future benefits”; and “Leave your contributions on account and, if eligible, receive a Deferred Annuity”

The refund has the largest consequence. “If you elect a refund, you waive any and all rights to PSPRS benefits such as pension, disability, health insurance and survivor benefits”. A refund means “refunding your contributions plus 3% interest compounded annually”. PSPRS adds: “This election will terminate your membership in the Plan and you will forfeit ALL rights to rehearing and appeal.” The statute carries an exception. A.R.S. 38-846.02(D) says: “A member who withdraws the amount prescribed in subsection A, B or C of this section from the system or who elects a transfer pursuant to section 38-846.06 forfeits all rights to benefits under the system and rights to rehearing and appeal, except as provided in section 38-849.”

On how the money arrives: “you may elect to roll all or a portion of the taxable amount to a qualified plan or institution”. PSPRS adds that this is less any mandated tax withholding and any benefit payments or amounts owed to the System. For the general trade-off between taking contributions out and leaving them in a plan, see pension refund versus leaving it.

What the refund adds, by tier and years of service

Refunds are not identical across tiers. For Tier 1 DB members, PSPRS adds a share of additional employee contributions that grows with service. The first rung: “4.99 years of service or less: no additional contributions”. The top of the ladder: “10.0 or more years of service: 100% of additional employee contributions plus interest (if left on account after 30 days) at a rate determined by the Board of Trustees.”

The schedule’s last row is narrower in the statute. A.R.S. 38-846.02(B) says: “If a member who becomes a member of the system before January 1, 2012 has more than ten years of credited service with the system, leaves the monies prescribed in subsection A of this section on account with the system for more than thirty days after termination of employment and after that time period requests a refund of those monies, the member is entitled to receive the amount prescribed in subsection A of this section plus interest at a rate determined by the board for each year computed from and after the member’s termination of employment.”

For Tier 2 and 3 DB members, the page says: “Members receive a lump sum payment of their accumulated employee contributions plus interest as of the date of termination at a rate determined by the Board of Trustees.” For Tier 2 hybrid and Tier 3 DC members the rule is different: “Employee contributions and investment earnings are immediately vested and fully vested after ten years of service with employer contributions vesting at a rate of 10% per year.”

A deferred annuity is the alternative to a refund for a Tier 1 member. The tier summary lists the requirement as “At least age 62 and 10 years of credited service”. The statute defines the annuity. A.R.S. 38-846.01(A) says: “A deferred annuity is a lifetime monthly payment actuarially equivalent to the annuitant’s accumulated contributions in the system plus an equal amount paid by the employer and shall commence on application on or after the sixty-second birthday of the annuitant.” It adds: “The annuity is not a retirement benefit and annuitants are not entitled to receive any amount prescribed by section 38-845, subsection G or section 38-846, 38-856.05 or 38-857.” Subsection B says: “This section does not apply to a member who becomes a member of the system on or after January 1, 2012.” Because a refund waives pension rights, a member near a step on the schedule above should confirm the exact service count with PSPRS before filing.

Buying or transferring service credit

Credited service is one factor in the monthly benefit. PSPRS says “you have the ability to purchase or transfer certain types of credited service; however, there may be limitations on when and how much service you can purchase”. The tier summary defines the credit: “Credited service includes employment periods in which the member and employer are contributing to the plan, and any transferred or purchased credited service from other retirement plans.” Purchased service therefore raises the service count used in the formulas below, and a member can model a purchase with the pension buyback calculator.

The price is actuarial, not a flat rate. PSPRS explains: “both computations are calculated based on a present value using the assumed earnings rate, or discount rate based on the 10-year treasury plus 2 percent”. It also says “the cost will vary from member to member”. The basis differs by tier: Tier 1 and Tier 2 use the assumed earnings rate, and for Tier 3 the page lists “Tier 3 10-year Treasury plus 2%”. Types of service listed include prior active military service, out of state governmental service, forfeited service and repayment of a refund.

PSPRS offers a spreadsheet, but “This is an estimate only”. The official quote is the one that counts: “Failure to comply with the instructions may result in a new request required by you and the cost to purchase or transfer the credited service may change.” The payment choices include a lump sum, a transfer from a qualified plan, a combination, and “payments through an irrevocable, after-tax* payroll deduction agreement (PDA) through your employer”.

How the pension is calculated, with recomputed examples

For Tier 1 the calculation line reads “Average monthly salary x 50% (+2% for those hired prior to 9/15/1989) = gross monthly pension” Tier 2 uses the formula “Average monthly salary x credited service x multiplier = gross monthly pension”. Tier 3 DB members use the same form of formula and it carries “Multipliers (80% max)”.

The two retirement-age cells above follow the statute, not the merged PSPRS table. A.R.S. 38-842 sets the normal retirement date by hire date. Tier 1: “For an employee who becomes a member of the system before January 1, 2012, the first day of the calendar month immediately following the employee’s completion of twenty years of service or the employee’s sixty-second birthday and the employee’s completion of fifteen years of service.” Tier 2: “For an employee who becomes a member of the system on or after January 1, 2012 and before July 1, 2017, the first day of the calendar month immediately following the employee’s completion of either twenty-five years of service or fifteen years of credited service if the employee is at least fifty-two and one-half years of age.” Tier 3 matches the PSPRS table.

Computed examples from an assumed $6,000 average monthly salary, not PSPRS figures. For the Tier 2 formula, 20 years of credited service falls in the 19 to under 22 year band at 2.00%, so the gross monthly pension is 6,000 multiplied by 20 and by 2.00 divided by 100, which is $2,400. At 25 years the multiplier is 2.50%, so it is 6,000 multiplied by 25 and by 2.50 divided by 100, which is $3,750. For Tier 1, the line for 20 years is the average monthly salary times 50%, which on the same assumed salary is 6,000 multiplied by 50 divided by 100, or $3,000. The $6,000 is an assumed input, and the Tier 1 example stops at 20 years.

The Tier 1 line above is the 20-year case. For other service, A.R.S. 38-845(A) says: “If the member retires with other than twenty years of credited service, the foregoing amount shall be: 1. Reduced by four percent for each year of credited service under twenty years, with pro rata reduction for any fractional year. 2. Increased by a monthly amount equal to two percent of the member’s average monthly benefit compensation multiplied by the number of the member’s years of credited service in excess of twenty years, with pro rata increase for any fractional year, except that if a member retires with twenty-five or more years of credited service the amount shall be increased by a monthly amount equal to two and one-half percent of the member’s average monthly benefit compensation multiplied by the number of the member’s years of credited service in excess of twenty years, with pro rata increase for any fractional year.”

The statute also adds a permanent increase for the oldest hires. A.R.S. 38-845(G) says: “A member who was employed before September 15, 1989 by an employer participating in the system and who retires on or after November 1, 2001 is entitled to receive a tax equity benefit allowance consisting of a permanent increase of two percent of the member’s base benefit retroactive to the day of retirement.”

For Tier 2, A.R.S. 38-845(H) says: “A member who meets the requirements for a normal pension, who becomes a member of the system on or after January 1, 2012 and before July 1, 2017 and who has twenty-five years of credited service shall receive a monthly amount that equals sixty-two and one-half percent of the member’s average monthly benefit compensation.” The cap is not Tier 3 only. Subsection J says: “Notwithstanding subsections A, H and I of this section, the maximum amount payable as a normal pension is eighty percent of the average monthly benefit compensation.”

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 PSPRS’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”. PSPRS says a refund can be rolled over in whole or part and that DROP balances move into a 401(a) account, and the rollover rules apply to any portion that is paid out. 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”. 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 statute states the cost-of-living adjustment, which the pages read do not. For members hired on or before June 30, 2017, A.R.S. 38-856.05(B) says: “A retired member or a survivor of a retired member shall receive annually a cost-of-living adjustment in the base benefit based on the average annual percentage change in the metropolitan Phoenix-Mesa consumer price index published by the United States department of labor, bureau of labor statistics, with the immediately preceding year as the base year for making the determination, not to exceed annually two percent of the retired member’s or survivor’s base benefit.” For members hired on or after July 1, 2017, A.R.S. 38-856.06(B) says: “A retired member or survivor of a retired member is eligible to receive a cost-of-living adjustment under this section beginning the earlier of the first calendar year after the seventh anniversary of the retired member’s retirement or when the retired member is or would have been sixty years of age.”
• For the later hires, A.R.S. 38-856.06(C) adds: “A cost-of-living adjustment shall be paid on July 1 each year that the funded ratio for members who are hired on or after July 1, 2017 is seventy percent or more, as reported in the most recent actuarial valuation.”
• The later hires’ adjustment follows the Phoenix-Mesa consumer price index and depends on the funded ratio. A.R.S. 38-856.06(D) caps the annual adjustment this way: “not to exceed annually the following: 1. Two percent of the retired member’s or survivor’s base benefit if the funded ratio for members who are hired on or after July 1, 2017 is ninety percent or more, as reported in the most recent actuarial valuation. 2. One and one-half percent of the retired member’s or survivor’s base benefit if the funded ratio for members who are hired on or after July 1, 2017 is eighty percent or more but less than ninety percent, as reported in the most recent actuarial valuation. 3. One percent of the retired member’s or survivor’s base benefit if the funded ratio for members who are hired on or after July 1, 2017 is seventy percent or more but less than eighty percent, as reported in the most recent actuarial valuation.”
• The pages read do not describe a payment option election such as a joint and survivor choice with a reduced pension, so what a retiree gives up to provide the spouse’s pension is not settled. A search of the full text of A.R.S. 38-841 to 38-863 for “joint and survivor”, “optional form” and “option elect” returns nothing, so the statute archived for this page sets no reduced-pension election; whether a board rule or plan document adds one is unread.
• The pages read do not state whether a spouse must consent to a refund, a DROP entry or a beneficiary choice.
• The statute does not put a number on either rate. For DROP interest A.R.S. 38-844.05(C)(2) says: “For the first sixty months, an amount, credited monthly, that represents interest on the amount credited pursuant to paragraph 1 of this subsection at a rate equal to the assumed rate of return determined by the board.” For a refund by a member hired on or after January 1, 2012, A.R.S. 38-846.02(C) says: “On termination of employment for any reason other than death or retirement, within twenty days after filing a completed application with the board, a member who becomes a member of the system on or after January 1, 2012 is entitled to receive a lump sum payment equal to the member’s accumulated contribution plus interest at a rate determined by the board as of the date of termination, less any benefit payments the member has received as of the date of termination or any amount the member may owe to the system.” The 3% compounded annually figure above is PSPRS’s statement, not the code’s.
• The pages read do not state whether a particular refund or DROP payout qualifies for an early distribution exception.
• A.R.S. 38-857(A) pays part of the single coverage premium of group health insurance for a retired member or survivor who receives a pension and has elected the coverage the section names, and says: “The board shall pay up to: 1. One hundred fifty dollars per month for each retired member or survivor of the system who is not eligible for medicare. 2. One hundred dollars per month for each retired member or survivor of the system who is eligible for medicare.”
• The pages read do not state working after retirement or disability rules, which sit on other PSPRS pages and in A.R.S. 38-844 (disability) and 38-849(E) to (I) (reemployment of a retired member); this page does not summarise them.

Common mistakes

• Entering DROP without first requesting an estimate only, then discovering that entry is irrevocable and the pension is frozen.
• Missing the scheduled DROP exit date, which forfeits the interest and freezes the account until employment ends.
• Taking a refund without realizing it waives pension, disability, health insurance and survivor benefits.
• Leaving an ex-spouse on a beneficiary form after a divorce, or failing to file a new DROP Beneficiary Designation form.

Related on this site: Arizona retirement taxes, does Arizona tax pensions, pension refund versus leaving it, pension buyback calculator and public pension retirement decisions by system.

Sources

• PSPRS, Deferred Retirement Option Plan (DROP): https://www.psprs.com/public-safety-personnel/member/deferred-retirement-option-plan-drop/
• PSPRS, Survivor Benefits: https://www.psprs.com/public-safety-personnel/member/survivor-benefits/
• PSPRS, Leaving Employment: https://www.psprs.com/public-safety-personnel/member/leaving-employment/
• PSPRS, Service Purchase and Transfer: https://www.psprs.com/public-safety-personnel/member/service-purchase-transfer/
• Arizona Revised Statutes 38-846.02, termination of membership (Arizona Legislature): https://www.azleg.gov/ars/38/00846-02.htm
• Arizona Revised Statutes 38-844.03, deferred retirement option plan eligibility (Arizona Legislature): https://www.azleg.gov/ars/38/00844-03.htm
• PSPRS, Tiers 1 and 2 Retirement Benefits: https://www.psprs.com/public-safety-personnel/member/retirement-benefits/tiers-1-and-2/
• Arizona Revised Statutes 38-857, group health and accident coverage for retired members (Arizona Legislature): https://www.azleg.gov/ars/38/00857.htm
• PSPRS, Tier 3 Retirement Benefits: https://www.psprs.com/public-safety-personnel/member/retirement-benefits/tier-3/
• Arizona Revised Statutes 38-856.05, cost-of-living adjustment, hired on or before June 30, 2017 (Arizona Legislature): https://www.azleg.gov/ars/38/00856-05.htm
• Arizona Revised Statutes 38-856.06, cost-of-living adjustment, hired on or after July 1, 2017 (Arizona Legislature): https://www.azleg.gov/ars/38/00856-06.htm
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
• Arizona Revised Statutes 38-842, definitions, including normal retirement date (Arizona Legislature): https://www.azleg.gov/ars/38/00842.htm
• Arizona Revised Statutes 38-845, amount of retirement benefit (Arizona Legislature): https://www.azleg.gov/ars/38/00845.htm
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558
• Arizona Revised Statutes 38-846, death benefits (Arizona Legislature): https://www.azleg.gov/ars/38/00846.htm
• Arizona Revised Statutes 38-846.01, deferred annuity (Arizona Legislature): https://www.azleg.gov/ars/38/00846-01.htm

Sources: the primary documents linked above, read on October 2, 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.