Austin COAERS Options: Back DROP Pays 90% for Up to 60 Months

Updated October 7, 2026. Quick answer: A member of the City of Austin Employees’ Retirement System retiring with a pension chooses a life annuity or one of six other payment options, including 100%, 50% and 66 2/3% joint and survivor choices. Once retired, the payment option and survivor cannot be changed, and a married member needs spousal consent. A partial lump sum is limited to 60 monthly payments, and Back DROP pays 90% of the life annuity for up to 60 months. A refund of contributions ends the right to future COAERS benefits, and the handbook says City contributions are not refunded.

What this page covers and what it does not

This page works from one document published by the City of Austin Employees’ Retirement System (COAERS): its Member Handbook, which states on its cover that it covers provisions in effect January 1, 2024. Any figure here is the handbook’s, or is labeled as a computed example from assumed inputs.

COAERS sorts members into two groups by hire date, and the retirement rules differ between them. “If your full-time, regular employment date is before January 1, 2012, you are in Group A.” Group B is everyone hired on or after that date, so every eligibility and benefit figure below is tied to the group it belongs to.

State taxes are covered separately on Texas retirement taxes and does Texas tax pensions, and the system-by-system view is public pension retirement decisions by system.

When a pension can start and what the formula pays

Group A members qualify for normal retirement on any of several tests. Among them, the handbook lists: “You reach age 55 and have at least 20 years of service credit”. Age 62 is also a Group A route, with conditions that depend on the member’s status.

Group B members qualify on either of two tests: “You reach age 65 and have at least 5 years of service credit”; or “You reach age 62 and have at least 30 years of service credit”. Group B also has an early retirement path: “If you are a member of Group B and you have attained age 55 and have at least 10 years of service credit, you are eligible for early retirement benefits.”

The benefit itself comes from a formula. “Once you become eligible for retirement, your benefits are calculated based on your salary, years of COAERS service credit, and retirement group.” The handbook’s formula multiplies final average monthly pay by years and months of COAERS service credit by 3% for Group A and by 2.5% for Group B. On the pay used: “your final average pay is determined by averaging the highest 36 months of base pay out of the last 120 months of base pay prior to your retirement date”.

A computed example from assumed figures, not COAERS figures: with an assumed final average monthly pay of $5,000 and an assumed 25 years of service credit, a Group A member’s life annuity would be $5,000 times 25 times 3%, a computed $3,750 a month, and a Group B member’s would be $5,000 times 25 times 2.5%, a computed $3,125 a month. Those are annuities for the member alone, before any reduction for a survivor option.

Early retirement for Group B lowers the pension. “The reduction for early retirement depends on your age in years and months at the time you retire.” The handbook gives its own worked case: “if a Group B employee chooses early retirement at age 60, the percent of normal benefit is 62.07%”. Its inputs are a final average monthly pay of $4,000 and 15 years of service credit, and the arithmetic it shows is “$4,000 x 15 x 0.025 = $1,500 x 0.6207 = $931.05”. Recomputed from those inputs, $4,000 times 15 times 2.5% times 62.07% is a computed $931.05 a month.

The election: the payment options and one permanent choice

Every retiring member picks how the pension is paid. “At retirement, you may choose to receive a lifetime monthly benefit as an individual, known as a life annuity, or you may choose an option that provides benefits for yourself and a survivor.” “If you choose a payment option other than a life annuity, your lifetime monthly benefit will be reduced to reflect the additional cost of the payment option you choose.” The table sets out the seven choices using the handbook’s descriptions.

The handbook publishes no dollar or percentage reduction for any of these options, and the sample annuity charts in its appendices say they do not reflect reductions for survivor options. The estimate tools it points to are on MemberDirect, COAERS’ online account system. For the general trade between a single-life pension and a survivor pension, see single-life versus joint-and-survivor pension.

What each option does for a survivor

The joint and survivor choices differ in how much of the payment continues. Options I, II and III pay the survivor a fixed share of what the member was receiving. Option IV works differently: “After you or your survivor dies, the monthly benefit payment to whomever survives will be reduced to 66 2/3% of the monthly amount at the time of death.”

A computed example from an assumed $2,400 reduced monthly benefit, not a COAERS figure: under Option III the survivor would receive 66 2/3% of $2,400, a computed $1,600 a month, and under Option II 50% of $2,400, a computed $1,200 a month. The $2,400 itself would come from COAERS’ calculation, which the handbook does not show.

The life annuity pays no monthly survivor benefit, and Option V has a limit of its own: “If you live beyond 15 years, your beneficiary will not receive any payments after your death.”

If the survivor dies first, the handbook gives a pop-up rule for Options I, II and III. The member’s payment goes back up to the life annuity amount, which the handbook calls a pop up. “The increase occurs only after we receive your beneficiary’s certified death certificate and is not retroactive to the date of death.”

What is irrevocable, and the spouse’s role

The election is permanent. “You cannot change your payment option or your survivor after retirement.” “Even if you and your spouse divorce after retirement, you cannot name another survivor.” A married member also cannot make the choice alone: “If you are married, your spouse must consent to the benefit payment option you choose at retirement.”

The handbook also addresses divorce before retirement. “Texas is a community property state, so any COAERS benefits you earn during marriage may be divided by a court in a divorce proceeding.” Confirm the effect of a court order with COAERS and an attorney.

Applying, deadlines and the no-retroactive rule

Several dates matter. A member can “apply for benefits as early as 90 days prior to your retirement date”. On the notice: “Complete the Notice of Intent to Retire form and submit it to our office so that it is received no later than 30 calendar days before your retirement date.”

The date a member applies matters because benefits are not backdated. “COAERS does not pay benefits retroactively back to the first date you were eligible to retire.” The handbook repeats the duty for former members who left money in the system.

Partial lump sum under Option VI

The handbook places the partial lump sum inside Option VI. “A partial lump-sum payment is also possible but is limited to an amount equal to no more than 60 monthly payments under the life annuity option.” The handbook adds a timing rule: “you must submit a request for this option 60 to 90 days before your effective retirement date”.

A computed example, not a COAERS figure: the ceiling is 60 monthly payments, so with an assumed life annuity of $2,500 a month the most a partial lump sum could reach is 60 times $2,500, a computed $150,000. A partial lump sum paid to a member is a distribution, so the withholding and rollover rules in the IRS section below apply; the general mechanics are on 20% withholding on a pension lump sum and pension lump sum versus monthly annuity break-even.

Back DROP: a lump sum for working past eligibility

The handbook also describes a Back DROP lump sum. “The Backward Deferred Retirement Program (Back DROP) is available only to members who have worked at least one month past their normal retirement eligibility date.” The mechanism: “you may have your retirement benefit calculated based on an earlier normal retirement date and receive a one-time, taxable, lump-sum payment”. “The lump-sum payment is 90% of the life annuity monthly benefit multiplied by the number of months in the DROP period.” The DROP period is capped at 60 months.

On tax: “If the lump-sum payment is not rolled over into a tax-deferred retirement plan, we will withhold 20% for federal income taxes from your payment.” The handbook says a member weighing Back DROP may also want to consider the Option VI partial lump sum, and gives no comparison.

A computed example from assumed figures, not COAERS figures: an assumed life annuity of $3,000 a month and an assumed DROP period of 36 months give a lump sum of 90% times $3,000 times 36, a computed $97,200.

Leaving before retirement: keep the membership or refund it

When a member leaves City employment, the handbook describes two paths. The first starts with vesting: “You are considered vested if you have at least five years of service credit and do not withdraw your accumulated contributions if you terminate City employment.”

Keeping the membership comes with a duty: “You are solely responsible for applying for benefits.” Since benefits are not backdated, a missed application is a risk to plan for when leaving money in the system. The general framework is on pension refund versus leaving it.

The second path is a refund, which starts with an application. “Complete the Refund Application and submit it to our office.” On what the refund contains: “This payment reflects the contributions you have made to the plan and any interest credited but does not reflect contributions made by the City.” Interest is credited on the member’s balance: “COAERS credits interest to your account once each year on December 31 for the balance you had on January 1 of that calendar year.”

Cashing out has a cost beyond the lost City money. “Refunding ends your right to future COAERS benefits.” “If you refund your contributions, you may have to meet different eligibility requirements for retirement if you become a COAERS member again.” A member who contributed before 2012, refunded, and is later rehired is addressed this way: “you would be a member of Group B upon being rehired by the City”. The handbook adds that on reemployment “you can reestablish your membership in Group A by reinstating all of your prior membership service credit through a service credit purchase”.

How a refund can be taken

The handbook lists two ways to take a refund. As a lump sum: “We withhold a mandatory 20% for federal income taxes from your payment; however, you may owe additional taxes as well as an early withdrawal penalty to the IRS.” As a rollover: “You can choose to roll the funds without penalty into a tax-deferred retirement plan such as your 457 Deferred Compensation Plan, an IRA, or 401(k) plan.”

A computed example from an assumed $4,000 taxable refund paid out directly, not a COAERS figure: the mandatory 20% would be a computed $800, leaving a computed $3,200 in cash. A member who then wanted to roll over the full $4,000 would need to find the withheld $800 from other money. The handbook also warns that the refund may bring additional taxes and an early withdrawal penalty.

Buying service credit

Service credit is the multiplier in the benefit formula, so buying more can raise the pension. The handbook lists several types. Some are for periods with the City: “You can purchase service credit representing certain employment periods with the City in which you would not have made COAERS contributions.”

On sick leave: “A sick leave purchase does not make you eligible to retire any sooner, but it will increase your monthly benefit payment.”

Two types deal with coming back or adding on. A member who refunded can reinstate credit by buying back prior service. For extra credit: “You can purchase up to 60 months of additional service credit at retirement.”

Whether a purchase moves the retirement date depends on the group. For Group A: “Supplementary service credit will increase your monthly benefit payment and will also count toward your retirement eligibility.” For Group B: “Supplementary service credit will increase your monthly benefit payment but will not count toward your retirement eligibility.”

The handbook’s route to a cost estimate is practical: “log on to MemberDirect to estimate your purchase cost and contact Member Services about the next steps”. It publishes no price schedule, so the break-even on a purchase has to come from that estimate. A computed example from assumed figures, not COAERS figures: if a purchase cost $24,000 and raised the monthly pension by $200, the recovery period would be $24,000 divided by $200, a computed 120 months of benefit payments. The general method is on the pension buyback calculator page.

Cost-of-living adjustments

COAERS does not promise automatic increases. “The retirement plan is not designed or funded to provide automatic cost-of-living adjustments (COLA) or extra one-time payments.” The handbook states no COLA amount or schedule, so a starting pension cannot be assumed to grow.

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 COAERS’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”. COAERS’ handbook says a refund can be paid out or rolled over, and that mandatory federal withholding applies when a refund or Back DROP lump sum is not rolled over. 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 state the size of the reduction for any joint and survivor option or for Option V; the handbook says only that the benefit is reduced, and the sample annuity charts exclude those reductions.
• The early retirement reduction table for Group B is in an appendix whose text could not be extracted, so only the age 60 example in the handbook body is used.
• The pages read do not state the interest rate credited on contributions beyond saying the Board determines it each year, and give no refund figure.
• The pages read do not state the price of any service credit purchase, and do not describe how the pension is reduced when a Back DROP or partial lump sum is taken.
• The pages read do not state how the monthly pension is reset after a partial lump sum under Option VI.
• The handbook was read from a file whose web address carries a November 2020 date in its name but whose cover says provisions in effect January 1, 2024; confirm with COAERS that no newer edition applies.

Common mistakes

• Electing a survivor option or the life annuity and assuming it can be reversed later; the handbook says the payment option and the survivor cannot be changed after retirement, even after a divorce.
• Waiting to apply because eligibility already started; COAERS does not pay benefits retroactively back to the first date a member was eligible to retire.
• Taking a refund of contributions without realizing it ends the right to future COAERS benefits and that City contributions are not refunded.
• Buying supplementary service credit as a Group B member expecting it to move the retirement date; the handbook says it raises the benefit but does not count toward eligibility.

Related on this site: pension refund versus leaving it, single-life versus joint-and-survivor pension, pension buyback calculator, 20% withholding on a pension lump sum, pension lump sum versus monthly annuity break-even, Texas retirement taxes, does Texas tax pensions and public pension retirement decisions by system.

Sources

• City of Austin Employees’ Retirement System, Member Handbook (provisions in effect January 1, 2024): https://coaers-pensionx-web.specialdistrict.org/files/a89999012/COAERS+Member+Handbook+11.2020.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.