Pension perk DROP will cost taxpayers big money

A long delayed report on a lucrative and controversial pension perk shows it will cost the taxpayers $149 million. Yet the study says this perk is “cost neutral,” meaning over the life of the program, the cost to taxpayers is minimal. KUSI's Steve Bosh reports on the latest pension issues.

This is the pension perk known as the DROP program, or the Deferred Retirement Option Plan. It allows city employees to retire but continue to work for another five years, collecting their salary while their pension checks are put into a special account drawing 5-percent interest.

And in each of those five years, employees can add 3-percent of their salary to the DROP account, and the taxpayers match it.

A recently retired city attorney's regular pension check is $115,000, but that's not all he gets. His DROP account pays him another $114,000. A third benefit gives him $70,000. His total yearly pension is $299,000 per year, and he gets free health care for life.

Of course, not every retiree's benefits are this lucrative, but entering the DROP program allows many to draw more money in retirement than they were paid while working.

Councilmember Carl DeMaio says, “the program needs to be ended. We need to stop this double pension payout program.”

Carl DeMaio has been attempting to roll back pension benefits since taking office. “Double pay for the same job, and somehow government bureaucrats are trying to convince us, ah, it's not that bad, it's technically cost neutral,” said DeMaio.

The Buck Consultants report costs of $300,000 and concluded that DROP increased the cost to taxpayers by 1.6-percent over its life, and it was agreed anything under 2-percent was deemed cost neutral.

The leader of the city's largest union, Michael Zucchet was quoted as saying, “people who can't accept the report's conclusion still want to argue that DROP is an evil benefit.”

Councilmember DeMaio contends the report used numbers prior to June 2009, and benefits since then have been cut, so the report is based on illusion. “If you actually adjusted to what we've already achieved in reforms for retiree health care and what most of the reform proposals are, you'll find that the costs to DROP go right through the ceiling,” said DeMaio.

This is the third report on DROP. One said it saves the city money, the second said it costs the city money, the third says its cost neutral.

If the report said that DROP was not cost neutral DeMaio says that increase would have to be paid by city employees.

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