Editorial: DROP: Benefit for a few, costs for the rest of us
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Editorial: DROP: Benefit for a few, costs for the rest of us
A FUNNY THING HAPPENED following Mayor Nutter's news conference calling for the elimination of the Deferred Retirement Option Plan (DROP). It turns out that the biggest fans of the controversial program are not, in fact, the City Council members who have signed up for the program and stubbornly resisted taking action to eliminate it - for which they have been roundly (and deservedly) demonized.
The biggest fans of DROP, which, a new study says, costs the city $22 million a year, are the city's unions. Three of the four unions began howling on Monday when Mayor Nutter called for eliminating the program. All four unions have since issued a letter questioning the study. According to them, the study that found that DROP has cost the city $258 million over the last 10 years is "flawed."
Some of their arguments: First, academics can be pressured to say anything, especially by a mayor eager to go after DROP. Second, the report is very technical and complicated, and therefore can't be used by mere mortals to make public policy. And, third, the program, designed as a management tool for the city, has, over the years, become a benefit that members shouldn't be expected to give up.
For the record, the research was done by the Center for Retirement Research at Boston College. Respected academics found that DROP - which allows city workers to accumulate pension payments in an interest-bearing account for up to four years before retirement - was anything but a cost-neutral management tool.
The unions are lobbying City Council to preserve DROP over the coming weeks . . . and lobbying very effectively. In the 24 hours following the report's release, Council members, including President Anna Verna, cautioned that they needed more time to "study" the report, and thought the program was too important to kill without more thinking.
Does this mean they're still studying a similar report from 2003 that also found that the program cost the city?
Here's another funny thing: We weren't aware that there were that many Council members with advanced mathematical degrees that are in a position to refute the equations in the report.
But we did manage to find independent evidence that the program has a price tag that was not anticipated when the program began. It's in a letter posted on the Web site of the Fraternal Order of Police. Union president John McNesby promised his members that he'd "vehemently fight to keep this benefit."
That language tells you everything you need to know - that DROP isn't a revenue-neutral management tool, but has enough monetary value to be considered a benefit.
That's particularly problematic because unlike other benefits - wage increases, health care, and pensions- DROP was never negotiated by municipal workers and the city. Instead, DROP originated through legislation to be a tool to help manage the city work force, especially for departments that were losing aging workers with a lot of experience. That's clearly not what happened, as DROP has become a an extra payday for city workers of all stripes.
We don't begrudge the unions for fighting to keep DROP; it's their job to fight for their members. But it's the lawmakers' and policy makers' job to fight for the rest of us.
DROP is bad for taxpayers and the city, however you do the math.
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The real problem with this benefit were elected officials getting in it, this has been addressed. The money the pension fund has lost due to drop does not impact the general fund at all. Why have no reporters asked the Mayor why his administration has done nothing to use the drop as a management tool.— Kong- "We don't begrudge the unions for fighting to keep DROP..." Um, why not? If you're not part of the solution, you're part of the problem. Everyone needs to pitch in here to help get our situation in order. The unions need to realize that they need to help the long-term viability of the City. If they don't, the City government will have to contract as it has in cities that didn't cope with change. This then costs the union and its members so much more over the long-term.— NickFromGermantown
Comment removed.- I give Cathy Scott of DC47 credit for keeping her voice muted to solidarity and below outright vehemence - it shows that maybe the white collar union can be reasonable in this matter. As for the others, somewhere someone has to give. The City cannot keep spending money it simply doesn't have. If the unions agree to concessions on DROP and the contracts, then they can fight for the appointed and elected officials to reduce their expenditures. Until then, they're all just different pigs feeding at the trough filled with taxpayer dollars.— citylumberjack
- Much has been spoken or reported about the overall cost of the DROP, and the additional cost to the City but nothing about the reason for the additional cost. If the pension funds are frozen and diverted into an interest bearing account and the employee continues working and earning current salary then the only additional costs to the City should logically be from administrative costs, interest earnings below the 4.5% guaranteed employees or investment losses. It cannot be the frozen pension funds since if the employee retired instead of entering DROP then the same amount of money would be obligated and paid out in monthly pension checks. It shouldn't be from wages since those funds would also be paid to the same individual if continuing work enrolled in DROP or not, or different individual who filled the position if the employee retired. Did the invested pension funds suffer a loss or has the interest earnings been below the program 4.5% garuanteed employees? None of the comments from those who support eliminating the program, not the Mayor, not Councilpersons DiCicco or Kenney, not Controller Butkovich, not Comm of 70's Zach Stalberg, and certainly not the media have reported what the study claimed was the cause(s) for the supposed 22 million a year in additional costs. Isn't anyone interested in what caused the additional costs, or what adjustments, if any, could make the program cost neutral? Weren't these questions a requirement for the study? If so why haven't these details been spoken of or reported. If they were not required, then why not? Obviously all of the information thus far results in the Study or Report resulting in as many, or more crucial questions than answers for those who think we need a full report or the entire story. A solution to insure the program is cost neutral would be a variable interest rate on the account, insure low-risk investment of the funds and cost containment on administering the program.— ElecFact
- In 1992 the city and unions agreed to a lower starting salary and reduced benefit package, as well as a new retirement age. The DROP program makes it attractive to retire a little earlier than you might have and then the city replaces an employee with a lower starting salary, less sick time, less vacation time, and a retirement age of 60, not 55. Those savings have never been mentioned in any article I have read. Why ?— tlee
- ElectFact, Since 2007, the value of pension funds assets has gone down 30%. The DROP plan guarantees 4.5% growth. This means that taxpayers must make up the 34.5% difference with tax money. That's a huge amount of cash! Tlee, The savings are lost because just too many people have retired at the designated date, taken the DROP payout and then returned to work a day or two later with their old salary. It's a ripoff!— DonQ
- Comment removed.
- Just think of the actual pensions these people are getting. Police people taking $600,000 On drop. That is a $100,000 pension for life. City council people at $650,000. This has to stop. The whole country is going broke from these pensions,
- DonQ - 99.9% of those who enter drop retire at the designated date, do not come back to City Service, and do not get the frozen banked pension funds until they leave City Service for good. Only a few have been able to collect their lump payment, retire for a day and return to work. Obviously DROP was not responsible for the Pension funds assets going down 30%. The City has historically underpaid its pension fund obligations, and to help weather the economic climate of the past 2 years had legislation passed to spread out its obligations over 30 years. The 4.5% guaranteed rate should have been a variable less administrative costs, from the start. Why didn't the requirements for the Report or the Report complete to detail the cause(s)of the supposed additional 22 million in annual costs from DROP.— ElecFact
- tlee is right rendell instituted the drop to get rid of the "j" planners who'll be retiring and recv'ing pensions at very high rates based on their 4 highest years of earning. bushisgood the country's been going bad since your namesake and his party and the corporations bankrupted the middle class in favor of the rich— phillyfansrdumb
- I wonder if these unionized servants/heroes would object to this question were to be resolved on the upcoming election's ballot.— anonimoose1
- I wonder if these unionized servants/heroes would object to this question were to be resolved on the upcoming election's ballot.— anonimoose1
- If the number is $22 m per, thne it always was and not $ 7 m per year. So Ed, John and the rest in Council lied! What else is new. Just don't remove it from those who have structured their retirement aroun it. PS - Why wasn't it capped? Charlie Mc deserves an inflated salary plus the drop? Oops, but that is what everyone one has done. Simply Philadelphia. Just don't take it out on the little guy working for the City who doesn't get $30 K raises like Green just bestowed on a charming young blond staffer. (Sounds like one of Ed's plays.)— redjimpa
- In theory there are many scenarios of how DROP was supposed to work, and how it was supposed to be cost neutral. In practice though there are spectacular abuses including Anna Verna retiring for one day and then picking right up to collect more. Why isn't this called gaming a system for personal benefit? Why isn't this considered corruption? As a civil servant elected with governing, if what started with good intentions becomes abused, then actively, publically seek to abolish it... now! Don't wait to picking up a little something something before enough public outcry forces it stopped.— yohahn
