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The new employee contracts that will take effect July 1 contain some changes that could lead people to enter the Deferred Retirement Option Program, or DROP, in the next few months and reduce the number of employees who take part in future years.
Employees who are eligible to retire can enter DROP and work up to five years after entering the program. During those years, the pension payments they would have received if they retired are deposited in an account paying a guaranteed rate of return. When they stop working, they can withdraw the money from their DROP accounts or convert the balance into an annuity controlled by the San Diego City Employees’ Retirement System and paying a guaranteed rate.
You may remember that in February, the retirement board voted to lower the rate of return for DROP participants and the annuity rate, effective July 1. That was expected to prompt many employees in DROP to retire so they can lock in the 7.75 percent annuity rate. If they wait until after July 1 to retire and choose an annuity, they’ll get a 5 percent rate.
From January to April 14, 212 employees in DROP have opted to retire, said Rebecca Wilson, the SDCERS chief of staff. (That’s 44 firefighters, 55 police officers and 113 general members.)
Wilson said those numbers are “definitely up” from last year. Moreover, the SDCERS staff isn’t seeing a corresponding rise in non-DROP retirements.
Employees have until June 30 to retire, and Wilson said SDCERS staffers are fully booked for appointments from employees looking to retire.
Wilson said there’s also anecdotal evidence of more people entering DROP, though she didn’t have those numbers at her fingertips.
That may be due to changes in the labor contracts imposed on police and blue-collar workers. Both of the contracts call for an increase in the eligibility age, from 50 to 55 for police and from 55 to 60 for blue-collar workers. They also eliminate the annuity option for employees who enter DROP after July 1.
Those changes aren’t included in the term sheets for the three unions that reached agreements with the city: the firefighters, white-collar workers and deputy city attorneys. All three unions have ratified the contracts.
However, the terms for those three unions call for negotiations on DROP if a court finds any aspect of the program to be a subject of the mandatory bargaining process, a nod to the city’s lawsuit against the Police Officers Association.