Wednesday, September 24, 2014
Inquirer Daily News

DROP cost overstated?

The price tag for the city's beleaguered deferred retirement option plan, targeted for extinction by Mayor Nutter, is less than half the cost estimated by consultants hired by the Mayor, sources familiar with a new draft report said Thursday.

DROP cost overstated?

The  price tag for the city's beleaguered deferred retirement option plan, targeted for extinction by Mayor Nutter, is less than half the cost estimated by consultants hired by the Mayor, sources familiar with a new draft report said Thursday.

Actuaries from the Baltimore-based Bolton Partners, Inc. have reported to City Council that the controversial DROP program cost the city approximately $100 million over its first 10 years, according to three sources familiar with the findings.

At about $10 million annually, it's a significant departure from Nutter's study, done by economists at Boston College which put the cost at $258 million, or nearly $26 million annually.

Councilman Darrell L. Clarke said today that he could not verify the $100 million figure, but that the difference would be "significant."

The question is whether Council members -- seven of whom have either already benefited or stand to benefit from the program -- and the Mayor will agree that the lesser number is valid. Bolton apparently convinced Boston College to consider factors they had not in the original report, which first came out in August. Nutter called for the elimination of DROP, and Majority Leader Marian B. Tasco introduced a bill to do so. A public hearing on the bill has been awaiting a final report from Bolton. Now, "It's in our lap," one Council source said.

If they do, supporters of DROP, mostly the city's municipal unions, will probably have to find proposals to tweak DROP's cost to next to nothing. Actuaries familiar with DROP programs say they can be designed so that lump-sum payments handed out at retirement can be fully offset by lower pension costs in the long-term.

DROP was introduced in 1999 as a way to encourage police and fire to stay longer on the job by allowing them to collect pension payments in an interest bearing account, over their final four years of employment. Plan participants collect a lump-sum when they actually retire, in exchange what are generally lower pension payments over the rest of their lives.

The use of the program by elected officials and cabinet-level employees, a number of whom have exploited legal loopholes to collect their DROP payment and return to work, has made the program an unpopular public issue.

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