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The guaranteed rate of return for the controversial Deferred Retirement Option Program (or DROP) could be lowered following a vote of the San Diego City Employees’ Retirement System board next week.
SDCERS Board President Tom Hebrank said the agency’s actuary last month recommended lowering the rate of return from 7.75 percent to between 3 and 5 percent. But Hebrank said board members wanted to tie the rate to an existing index, such as a five-year Treasury bill, that would be reset every year. Such an option will be presented at the Feb. 20 board meeting.
DROP allows employees nearing retirement to keep working and collect a monthly pension payment, which is deposited into an account paying the guaranteed return. The DROP account can be rolled over into an individual retirement account when the employee retires.
The Mayor’s Office has been pushing for SDCERS to reduce the rate paid on DROP accounts to save money. The city’s actuary estimated in November that the city’s annual contribution would decrease by $750,000 if the DROP rate was reduced to 4 percent, though the calculation is difficult because of the way the pension system reports its numbers.
To view the largest DROP account balances that have accumulated since the program was instituted in 1997, view my earlier post below.