Council introduces bill to keep, but modify, DROP

City Council members on Thursday introduced a bill to preserve the controversial DROP retirement perk for all city workers, including themselves.

Council President Anna C. Verna said the bill would eliminate the cost of the Deferred Retirement Option Plan (DROP) by lowering the guaranteed 4.5 percent interest rate on DROP funds and pushing back DROP eligibility to two years after workers reach retirement age.

The bill will compete with one from Mayor Nutter that seeks to end the program. Both will have a public hearing on June 8.

Nutter's spokesman, Mark McDonald, said Council's bill was "like rearranging the deck chairs on a fiscal disaster of a program."

"The mayor is hopeful that Council will take up and pass the bill ending this costly mistake," McDonald added.

Nutter has sparred with Council and the city's four municipal unions about the cost and value of DROP. Last summer, the mayor estimated the program had cost $258 million since its inception in 1999, or $22.3 million annually. Council came back with a study of its own that put the cost at $100 million, or $9 million annually.

Council members say that the city cannot unilaterally eliminate an established benefit without risking a protracted legal battle, and that wiping out the program would dramatically increase the number of employees joining DROP before its termination.

The Philadelphia Pension Fund currently has only 47 percent of the assets needed to pay its future pension obligations.

"We believe if we totally eliminated DROP, it would cause a run on the bank and would cost the city a lot more money than needs be," said Councilwoman Marian B. Tasco, who put that cost at between $30 million and $50 million. "So what we have to figure out is how to make it somewhat cost-neutral and still provide a program that many of our city employees would like to keep - and they have said that to us in many ways."

DROP was introduced as a way to retain veteran police and fire personnel, but was also extended to all workers. By agreeing to retire at a specific date up to four years in the future, city employees can begin amassing pension payments in an interest-bearing account while still receiving a paycheck over those last four years. The lump sum is paid out when they retire.

Workers' pensions are frozen when they join DROP, so they sacrifice those final years of building the value of their monthly pensions.

The program is favored by city employees, including seven City Council members who have qualified for DROP payments of between $194,000 (Frank Rizzo) and $585,000 (Verna).

Its use by public officials - particularly those exploiting a legal opinion that allows them to collect their DROP payments and return to office - has stoked a public backlash, most recently helping to defeat Rizzo in the Republican primary.

Tasco won her Democratic primary and is expected to win reelection in November. She will collect a $478,057 DROP payment before her swearing-in in January, retire for one day, and return to work.

Verna and fellow Council members Frank DiCicco, ($425,000), Jack Kelly ($405,000), Joan L. Krajewski ($275,000), and Donna Reed Miller ($196,000) will retire at the end of their four-year terms in January. Some of the Council members said they were honoring their supposedly irrevocable DROP commitment to retire; others appeared to have taken DROP's unpopularity in their decisions not to return.

Ten other Council members are still eligible to enroll in DROP: Jannie L. Blackwell, Blondell Reynolds Brown, Darrell L. Clarke, W. Wilson Goode Jr., Bill Green, William K. Greenlee, Curtis Jones Jr., Brian J. O'Neill, James F. Kenney and Maria Quiñones Sánchez.

Six of the 10 have pledged not to join DROP in the future. Blackwell, Clarke, Greenlee and O'Neill - all of whom could collect lump sums of about $500,000 in four years if they joined DROP tomorrow - have refused to make any promises about their intentions.

Rizzo said he would "see what happens in the hearing" before taking a position on DROP, but predicted the program could continue to haunt elected officials if they don't pledge to stay out of it.

"People remember what you did last," he said.

The Council bill would require employees to work two years beyond retirement age before joining DROP, in an effort to eliminate DROP's effect on non-uniformed employees - it causes them to begin collecting pensions earlier.

And, instead of a 4.5 percent guaranteed return on DROP payments that accrue over the last four years of work, the interest rate would equal the U.S. Treasury bond rate - currently 0.2 percent.

Council's bill would grandfather in employees currently eligible for DROP or eligible within 90 days of its passage.

The bill also would introduce Philadelphia workers to a new acronym - PLOP - Partial Lump Sum Option. PLOP would allow workers to take an additional lump sum out when they retire. Employees could take up to three years worth of pension payments upon retirement, which would be subtracted from future pension checks.