City of Philadelphia releases DROP report
Philadelphia, August 3, 2010 – Today, Mayor Michael A. Nutter announced that he will be sending legislation to City Council to end Philadelphia’s Deferred Retirement Option Plan (DROP) program. This is as a result of the release of “The Impact of Philadelphia’s DROP Program on the Age of Retirement and Employer Pension Costs”.
“The release of this report should clear up any misunderstandings regarding the cost of the DROP program to Philadelphia taxpayers. Having cost the City $258 million since 1999, DROP is not cost neutral, and we cannot afford it.” said Mayor Nutter. “I believe DROP must be abolished. It was created by legislation, and it must be ended by legislation, which I will submit to City Council as soon as possible. It is time to drop DROP.”
The report, which was commissioned by the City of Philadelphia and conducted by the Center for Retirement Research at Boston College, outlines that DROP has cost the City Pension Fund, from its inception to December 2009, $258 million or $22.3 million annually. This cost reflects a change in employee retirement behavior, which can be directly linked to DROP. The report indicates that DROP has had a significant effect on city employee retirement patterns. Under DROP, City municipal, fire and police employees are retiring at an earlier age for “pension purposes” and at a later age for “workforce purposes” than the employees would have if DROP did not exist. It was found that high-quality municipal and police employees enrolled in the program are not likely to delay retirement and, in some cases, may speed their departure.
The DROP program was started in 1999 under the Rendell Administration as an alternative to the traditional retirement track. Under the program, an employee retires from the City for pension purposes; however, the individual continues to work for the City and receive a salary for up to four years. During this period, the employee stops making pension contributions, and the pension fund credits his or her pension benefits to a tax-deferred, 4.5% notional interest bearing account. Following the DROP period, the employee ceases to work for the City and collects the lump sum account balance. At this time, the employee will also begin to receive monthly pension benefits.
