DROP: What it is, why it's hated, what's next

Posted: June 08, 2011

THE LONG-AWAITED City Council hearing on the future of the controversial Deferred Retirement Option Plan - DROP - was scheduled to begin this morning. Years of debate, drama and political intrigue have led to this point. Of course, whether any real change will come out of the hearing is itself up for debate.

Just in case you've forgotten the finer points, here is the definitive Daily News guide to all things DROP:

WHAT IS DROP?

Established in 1999, DROP allows city workers to set a retirement date up to four years in the future, at which point their pension benefit is frozen and they start accruing payments in an interest-bearing account while still on the payroll. When the employees retire, they collect a lump sum and start receiving pension payments. DROP was billed as a way to keep talent on the job a little longer and to better allow managers to plan for retirements. Since DROP became available, 7,361 city workers have participated. Currently 3,044 are enrolled.

COST

A Boston College study commissioned by Mayor Nutter reported last year that DROP had cost the city $258 million since 1999. A later actuarial review by Council's consultant put the cost at $100 million.

Critics say that the city can't afford that kind of money when the pension fund has just 47 percent of the assets needed to pay projected benefits, and when taxes are rising to cover basic services.

If the city had an extra $100 million on hand, that would cover the school district's funding request.

LOOPHOLES FOR POLS

The big reason the public hates DROP is that elected officials have signed up for the program and in some cases won re-election, "retired" for a single day, collected six-figure DROP payments, then resumed collecting city paychecks. Targeted by public rage, four Council members currently or previously enrolled in DROP chose not to run this year.

Two DROP-taking Council members ran for re-election in May - Frank Rizzo and Marian Tasco - but only Tasco was re-elected. Rizzo was voted out, as was City Commissioner Marge Tartaglione, who had returned to work after taking a DROP payment in 2008.

OTHER LOOPHOLES

Another loophole was unearthed last week by City Paper reporter Ralph Cipriano, who discovered that city workers can sign up for DROP years in advance, essentially guaranteeing them access to the current program. The Pension Board said that this is permitted but that fewer than 1 percent of participants pick a start date more than a few months out.

PROPOSALS

Two proposals are before Council today. One, proposed by Nutter, would kill the program. The mayor argues that the city can't afford it. The other, put forth by Council leadership, would amend the program to reduce costs.

Under the Council plan, employees would not be able to enter DROP until two years after they hit retirement age - which varies by job. And the interest rate, now set at 4.5 percent, would be adjusted based on U.S. Treasury rates. Also, employees could collect a lump sum upon retirement only in exchange for lower pension payments.

POLITICS

Why is Council hell-bent on keeping the program? Beyond saving face, city workers like it. And the municipal unions - which wield major political power - have put heavy pressure on members to keep DROP going.

Union leaders, who argue that they're being unfairly victimized for the actions of elected officials, are expected to testify today in favor of keeping DROP as is. Said local Fraternal Order of Police President John McNesby, "If they try to remove it, it's a violation of our contract."

WHAT WILL HAPPEN?

Smart money is on Council voting to revise, rather than end, DROP. It doesn't appear that the requisite nine votes are there to kill the program.

"Unless there are surprise witnesses, I think we'll get the predictable result, amending it, not killing it and making sure that city employees don't have hurt feelings," said Zack Stalberg, president of the watchdog group Committee of Seventy, who was set to testify today.

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