Thank you Jeff Jordan for putting me on the spot in your Tuesday blog.

I am not going to discuss the Deferred Retirement Option Plan in this blog, because Mark Sullivan will be the café host on Thursday. He is the police representative to the SDCER’s board and he has infinitely more knowledge as to how much money this program has saved the city.

I really had no intention on blogging about the DROP program today for one very good reason: People in this city hate the DROP!

The DROP program is so hated, and misunderstood, that even if it saved the city money people would still vote to get rid of it. What would happen if citizens knew that DROP has saved the city about $100 million dollars so far? Well, it has, but you won’t hear that from anyone at the U-T, because they’re in the business of selling controversy, not facts.

The fact is that the Deferred Retirement Option Plan, or DROP, has several benefits to the city, one being it saves on retirement contribution costs.

How so?

Well the city is required to contribute an estimated 10.6 percent for the “normal retirement costs” of each city employee. Active DROP members are effectively retired, so the city no longer pays their portion of a normal retirement, but rather just a 3 percent matching contribution into their DROP accounts as required by IRS regulations. This creates an employee cost savings of 7.6 percent for each DROP member. Since, there are currently 930 active DROP members on SDCERS roles; the savings have been substantial to the city.

So how did I get to the $100 million number? I just did a little conservative estimate based on the last real study done on DROP by the City Manager’s Office.

During the period when City Hall was trying to defend their decisions related to the enhanced benefits derived from MP-1 and MP-2, the City Manager submitted a report to City Council on the savings the DROP program provided to the city. That study concluded in 2004, when the DROP was only in existence for a few years with fewer than 400 DROP members, the savings was determined to be about $46 million. Since that report, DROP participation has grown substantially and so has the savings for the city.

There are other benefits of having a DROP program, such as, the retention of workers longer in a shrinking labor market and the ability to establish an effective employee succession plan. It’s these reasons why more and more public agencies around the nation are looking into adopting DROP programs.

So really, what’s to hate?


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