Easy way to drain a city’s pension fund.
Before Michael Moore, 58, became the Los Angeles police chief, he took advantage of a controversial program called Deferred Retirement Option Plan (DROP). This allowed Moore, a veteran of the department for the past 36 years, to briefly “retire” and collect a $1.27 million pension and then get rehired.
Los Angeles, California
Reason explains more:
But before that announcement, Moore had enrolled in a program called the Deferred Retirement Option Plan (DROP). DROP is a program that allows Los Angeles public safety employees to draw pension earnings without actually retiring. To do so, employees have to be at least 50 years old and commit to retiring within five years. Those pension payments go into a special account that they receive as a special lump sum when they retire. So in short: They get paid their salaries as usual during those five years of work. Then when they retire, they also get the five years of pension payments they would have received had they been retired for the five years they continued to work. For Moore, whose retirement lasted all of 30 days, that lump sum was $1.27 million.
The stated goal of the DROP program is to serve as an incentive for veterans to remain for a few more years to help pass their wisdom along to the younger folks. But what really happens is thoroughly predictable: Employees attempt to game the system with frequent medical leaves. A previous Los Angeles Times investigation found that the city had shelled out more than $220 million over nine years to people in the DROP program who had taken medical and disability leaves during these final five years. So they’re earning both their salaries and their pensions and not working. Then when the retirement actually comes, they walk away with a big, fat bonus check. Los Angeles has spent more than $1.6 billion in extra pension payments since the program began in 2001.
DROP excludes chiefs, which means Moore “would have been forced to forfeit the $1.27 million in order to take the job.” Many other chiefs lost their DROP payments due to this.
No one stepped in and stopped Moore from doing this. In fact, Moore said that “the plan to have him retire and then return almost immediately to work was proposed by former Chief Charlie Beck and approved by Mayor Eric Garcetti.” But Moore claims he did not know he would become chief so quickly after he returned since Beck made no announcement of his retirement.
The system has something called “‘the bounce,’ which allows the chief of police to bring a retired officer back for up to a year if their work is so specialized they can’t quickly be replaced.” It’s not often used but was done so in Moore’s case.
Moore had to stay “retired” for 30 days before he returned to a job worth $299,000 a year. He also gained $170,000 in unused sick days and vacation in his “retirement.” The “retirement” brings in $240,000 a year for his pension.
The Los Angeles Times continued:
Police and fire department leaders “have very sharp pencils and they stay up all night trying to figure out how to suck as much out of the city as possible,” said former L.A. Chief Administrative Officer Keith Comrie, a critic of the DROP program.
It’s common for senior LAPD and LAFD officials to receive large DROP payments on their way out the door. Since 2008, 51 members of the departments with “chief” in their title — assistant chief, deputy chief, battalion chief — have completed the program.
Of those, six have walked away with more than $1 million, according to a Times review of city data. Their average payment was $794,000.
Former Mayor Richard Riordan now calls his DROP idea a mistake, but Garcetti supports it.
DROP in Dallas and Philadelphia
Other cities tried DROP, but abandoned the program due to obvious ways to scam the taxpayer. My friend Taylor Millard at Hot Air sent me this Dallas Morning News article from March about DROP in Dallas:
Six retired Dallas police officers filed the case in January 2017, arguing that the board’s decision to freeze lump-sum withdrawals from their Deferred Retirement Option Plan — known as DROP — was unconstitutional.
U.S. District Judge David Godbey wrote in his 26-page order that the plaintiffs had no constitutional claims because they ultimately “will receive every dollar of their DROP funds.”
He also wrote that the board’s decision was “certainly legitimate” because the fund “was projected to become insolvent within the next decade if the Texas Legislature and the Board did not act.”
Executive Director Kelly Gottschalk said Godbey’s ruling, signed Wednesday, was important and is “something we can build on” as the still-troubled system finds its footing.
The publication noted that “DROP threatened the entire system and drove much of the urgency for a pension fix in 2016 and 2017.” Like in LA, the veterans retired, but they kept working “while the pension checks they would have received went to an individual account” and with little restrictions, the account “grew at interest rates of at least 8 percent for years” and some of them became millionaires. The Dallas Morning News continued:
The guaranteed interest rates proved unsustainable when the system’s investments — many of which were unusual, risky and hard to sell — failed to return enough to pay for the promised benefits. The system’s previous administration tried to rein in the interest rates over time, leading to a separate, still-pending challenge in state court.
As the system’s financial position grew more precarious and the board proposed more changes to the benefits structure, officers and firefighters pulled out hundreds of millions of dollars. More money came out after Mayor Mike Rawlings publicly called on the board to shut down withdrawals.
In December, Philly.com reported that Philadelphia Parking Authority Richard Dickson stood to receive a record $655,000 from DROP:
Richard Dickson, a deputy executive director at the PPA, filed an early application to enroll in the lucrative Deferred Retirement Option Plan in June 2011, three days before Council voted to rein in its costs.
In April, Dickson officially entered DROP, at which point his pension started. Its payments go into the interest-bearing DROP account while he continues to work for up to four more years.
When he applied in 2011, the Board of Pensions and Retirement estimated that Dickson’s lump-sum DROP payout would be $406,649 when he retired in 2021. He was earning about $132,000 at the time.
But Dickson’s annual salary subsequently ballooned to more than $200,000 while working under the PPA’s then-executive director Vincent J. Fenerty Jr., which boosted Dickson’s estimated DROP payout.
The result: Dickson, 61, is now expected to collect $655,053 when he retires.
That means Dickson will receive $149,760 a year for his pension if he works until 2021. He currently earns $208,153 a year.
Yeah, Philadelphia’s DROP ran the city’s pension funds thin just like Dallas:
Established in 1999, DROP was originally sold by then-Mayor Ed Rendell’s administration as a cost-neutral way to encourage police and fire personnel to work longer and to help the city plan to replace retiring workers.
Studies by City Council and former Mayor Michael Nutter estimated that DROP had cost the city’s distressed pension fund between $9 million and $22 million yearly before Council passed reform legislation in 2011.
“It seemed like a good idea at the time. And it was a really bad idea,” said David Thornburgh, head of the Committee of Seventy government watchdog group. “But the first rule of government is, nothing ever goes away.”
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