Mayor Nutter Calls for End to Costly DROP Pensions

Citing a report he commissioned on the pension perk known as "DROP," Mayor Nutter is calling for an end to the controversial program.   The study found that the 11-year program has cost the city more than a quarter billion dollars so far.

KYW's Mike Dunn reports from City Hall that the Deferred Retirement Option Program was created in 1999 to encourage employees to stay longer on the job and to allow city managers to better plan for the retirement of their workers.

Those who sign up for DROP are required to retire four years later.  They get a lump sum payment at that time, along with their pension, based on time of service locked in when they signed up for DROP.

But this new DROP analysis by experts at Boston College -- more than a year in the making -- finds that the program has cost the city $258 million from its inception until the end of last year.

This is a far cry from the original intent of DROP -- that it be revenue-neutral to the city's pension plan.  And Mayor Nutter (above) says this is no time to be increasing  city spending:

"DROP is not cost-neutral, and we cannot afford it."

Read the Full DROP Report (.pdf format)

Read the Executive Summary .(pdf)

The program has long been controversial because of the perception that DROP participants were double-dipping.  In some instances, city workers who signed up for DROP were given waivers and allowed to stay on after their retirement.

Most controversial has been that some elected officials have signed up for DROP, retired for a day at the end of their terms, then returned to office having been re-elected.

Anthony Webb, an economist at Boston College's Center for Retirement Research, authored the study:

"At no plausible combination of rate of salary growth and employee discount rate is the DROP program saving the city money.  (In fact) the DROP program is probably costing the city somewhere in the order of 22 to 23 million dollars a year."

That cost is put at $258 million over first eleven years of the program.

The mayor's budget director, Rob Dubow:

"What the study showed is that it does have an impact on behavior, and that impact is having a cost for the pension fund, and exacerbating the problems that the fund already has."

Mayor Nutter says he will have legislation drawn up and introduced in City Council that would block any further participation in DROP.  Any change in the law would not affect those already signed up for the program -- including six members of City Council.

It may be a tough sell in City Council, though, as the city workers' unions are expected to lobby councilmembers to keep DROP alive -- and their election day is just a year away.

Stay tuned to KYW Newsradio 1060 for updates on this developing news story.

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(Photo by KYW's Mike Dunn)