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Litmus Test: City Paper runs new DROP report and proposals by an actual actuary.
The Web site for the award-winning alternative weekly, the Philadelphia City Paper.
Litmus Test: City Paper runs new DROP report and proposals by an actual actuary.
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| Evan M. Lopez |
This is the second of two reports by CP contributor Ralph Cipriano, who's 2010 story "The Billion Dollar Boondoggle" exposed the program's costs to be substantially higher than previously thought. (Click here to read the first, "Council Study says DROP can be fixed not so fast.")
By Ralph Cipriano
What’s the cost of DROP? It depends on who’s doing the math.
City Paper documented last year that the Deferred Retirement Option Plan (DROP) was costing taxpayers more than $1 billion in past and future cash bonuses paid to retiring municipal employees, according to the city’s own pension records detailed on Excel spreadsheets.
A Boston College study released last August by Mayor Nutter figured that since 1999, the DROP program had cost the city pension fund an extra $258 million. DROP is a double dip that has allowed some 10,000 city employees to simultaneously collect their salaries and pensions for up to four years, with the pension money coming in the form of lump-sum cash bonuses that average more than $100,000 per retiree. But the Boston College study looked at the pension side of the double-dip and ignored the salaries that employees collect while they’re in DROP.
On Tuesday, the City Council unveiled a new study by Bolton Partners Inc., a Baltimore actuarial firm, that said Boston College had gotten it wrong, and that DROP’s added cost to the pension fund was really $100 million.
City Council, which has six members signed up for more than $2 million in future DROP bonuses, hired Bolton Partners to punch holes in the Boston College study as part of a campaign to keep DROP.
But in the latest report’s executive summary, Thomas Lowman, Bolton’s chief actuary, made a declaration that called all of the city’s prior DROP studies into question — but which confirmed CP's findings, that the program is far more expensive than previously thought.
“It should also be understood that the BC (Boston College) DROP study and prior actuarial DROP studies focused solely on pension cost . . . and not any other payroll or personnel cost,” Lowman wrote. “In this sense, the BC cost is not intended to represent the full economic impact.”
Amen.
Meanwhile, City Council President Anna Verna used the occasion of the unveiling of the new DROP report to publicize some possible reforms that would allegedly make DROP cost-neutral for taxpayers, such as:
— Requiring employees who enter DROP to wait until they reach the minimum retirement age.
— Lowering the 4.5 percent interest rate paid to all DROP participants.
— Requiring employees enrolled in DROP to continue making contributions to the pension fund. Employees enrolled in DROP currently don’t have to make any contributions to the pension fund. Employees not enrolled in DROP contribute between 1.8 and 7.5 percent of their salaries to the pension fund.
— Giving city employees the option to receive only a portion of their DROP money as cash bonuses, and then “reduce their monthly pension checks by an amount that would pay for the lump sum.”
City Paper asked Joe Boyle, the Philadelphia area actuary whose pro-bono services led to our original expose, to review the Bolton study. Boyle says that although Bolton wasn’t asked to do a full-blown actuarial study to assess the cost to the taxpayers for DROP, nevertheless, he was impressed by both the Bolton study and by the proposals for reforming DROP.
“This is a pretty thorough analysis and their suggestions are to be lauded,” Boyle says. But, Boyle said, if all of the reforms are passed, the city will have scaled down what was originally a great deal into something that people can either take or leave.
“If they truly make this a cost-neutral program, then in effect, they’ve eliminated DROP as a benefit,” Boyle says. “There’s no advantage to taking DROP.”
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