Evan M. Lopez
[ boondoggles ]
Last week, while City Council was unveiling a new bill to reform DROP, the city's pension board was quietly allowing municipal employees to cash in on a much better deal: DROP Classic, preserved in a time capsule for employees who may want to retire up to 10 years from now.
DROP, or the Deferred Retirement Option Plan, is the much-maligned perk that allows city employees to collect their salaries and pensions during four final years on the job. DROP enrollees get their regular paychecks, but the pension money is stored in a tax-deferred account that pays 4.5 percent interest and is paid out on the day of retirement in cash bonuses averaging more than $100,000.
Last year, City Paper ran a cover story that found that since 2000, the city was paying out more than $1 billion in past and future DROP bonuses ["The Billion Dollar Boondoggle," Ralph Cipriano, April 21, 2010].
In an effort to make DROP cost-neutral, City Council unveiled reform legislation that would raise the DROP retirement age by two years and lower that 4.5 percent interest rate to a floating rate that currently would equal two-tenths of 1 percent. The implication was that the gravy train was coming to an end, but not right away. The bill offers eligible employees a 90-day window after the new DROP is passed to still sign up for the old version.
But even as council meanders toward changing the program, the city's pension board has allowed at least 32 employees, mostly cops and firefighters, to thwart any reforms to their DROP benefits by allowing them to effectively pre-register for DROP, even if they don't intend to retire anytime soon. For this group of 32, the "old" DROP is preserved, regardless of whether council changes the program or Mayor Michael Nutter succeeds in eliminating it.
Take for example Police Sgt. Joanne M. Beres, 48, who signed up for DROP on March 29, 2011, even though she's not planning to retire and get a cash bonus of $179,708 until Feb. 12, 2021. The officer, in other words, now has a six-year window to collect classic — that is, expensive — DROP. Police Capt. Michael F. Ryan, 53, signed up on March 1, 2011, locking in a bonus of $345,397, even though he's not planning to retire until April 28, 2017. Fire Capt. Stephen C. Neri, 56, signed up Feb. 22, 2011, for a bonus of $309,451, even though he's going to wait seven years before retiring on April 13, 2018.
Pension board officials say they're not offering anything new — that the "pre-registration" practice has always been allowed, but was seldom utilized until this year when, presumably in the face of possible DROP changes, city employees have begun taking advantage of it.
"The [city pension] code does not prohibit someone from selecting a DROP entry date or start date into the future," asserts Francis X. Bielli, executive director of the Board of Pensions and Retirement. For the past dozen years, Bielli says, only about 1 percent of more than 9,000 employees taking DROP have exercised their right to schedule a future sign-up date. And when they did, it usually involved only a matter of months.
Applicants, he adds, still have to meet the minimum retirement age (at least 45 for police and firefighters, and at least 55 for non-uniformed employees) and have at least 10 years of service when they sign up for future DROP benefits.
"It's a change in behavior by the applicants," Bielli notes, but "the policy has always been that it's never been prohibited."
Joe Boyle, an actuary who has studied DROP at City Paper's request, says the future sign-up option may represent an "end run" by the pension board to get around any attempts to eliminate or reform the program.
And reform efforts could set off a stampede: Council itself released a statement just last week warning there were "thousands of employees eligible to enter DROP."
The stampede could already be underway. City Paper filed records requests seeking the names of all employees who had signed up for DROP since Feb. 1, 2010. The city responded with a list of 510 employees who had signed up for $84 million worth of bonuses, or an average of $164,000 each. But Bielli said "that number was not all-inclusive" and that "the real numbers are probably at least double that."
He also said that the number of employees who had signed up in the future for DROP — 32 — was also "not all-inclusive," adding, "I would suspect there would be more than that group of people."
Bielli said the pension board would release inclusive records sometime this week. City Council is scheduled to hold public hearings on DROP on June 8.
Mark McDonald, the mayor's press secretary, declined comment on the future sign-up option, saying only, "We look forward to the hearings and we hope that the council will listen to its better angels and do the right thing and end this program."