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San Diego Fire-Rescue Chief Tracy Jarman’s imminent departure provides a good window into the benefit changes that are leading more employees to retire this before the fiscal year ends June 30.

A little background: Jarman is a participant in the Deferred Retirement Option Plan, which allows employees who are eligible for retirement to continue to work and receive a salary for up to five years while banking the pension payments they would have received in an account paying a guaranteed interest rate. When they retire, they can convert the balance in their DROP accounts into an annuity administered by the San Diego City Employees’ Retirement System.

In February, the SDCERS board voted to lower the guaranteed return rate paid on DROP accounts from 7.75 percent to 3.54 percent. They also lowered the interest rate on annuities from 7.75 percent to 5 percent. All the changes will take effect July 1.

What does that mean in practical terms for an employee like Jarman? According to the retirement system, Jarman will have an estimated DROP balance of $338,639 when she retires. (Rebecca Wilson, the retirement system’s chief of staff, cautioned that final figures won’t be available until after she actually retires.)

By retiring in June, Jarman can lock in the 7.75 percent interest rate on the annuity. If she opted for a 20-year annuity, she would receive $33,344 a year on top of her normal pension payments, according to SDCERS. After 20 years, the total from her DROP annuity would be $666,680.

If she retired after July 1, when the 5 percent annuity rate would take effect, she would receive $26,797 a year from her DROP annuity, according to the retirement system. After 20 years, that would total $535,940, or $130,740 less than under the higher rate.

The DROP changes are only one factor in the upcoming retirements. Mayor Jerry Sanders proposed, and the City Council approved, changes to the retiree health care program meant to save the city money that make it more attractive to retire by June 30, like Jarman is doing.

The city now contributes $740 a month for retiree medical care, but that figure increases by up to 10 percent as health care costs rise. But that amount has been frozen — at least for the length of the one- or two-year labor contracts — for those who retire after July 1.

RANI GUPTA

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