Public Safety Employees Reap Benefits of DROP

UPDATED(12:30 p.m.)—Baltimore County paid 40 public safety employees an average of $376,000 since June under a program intended to keep experienced employees on the payroll longer.

Two retired police department majors top the list with over $600,000 each in cash payments. A third retiring major took home more than $560,000 upon retiring on November 1.

In all, the county paid out nearly $15.1 million in lump sum cash payments under a program called the Deferred Retirement Option Program—DROP as it is more commonly known. That figure includes more than $2 million in accrued leave and vacation time, according to information released to Patch under a Public Information Act request.

Don Mohler, a county spokesman, said that while the figures might initially draw attention they represent millions of dollars in annual savings that has kept the county’s pension system sound.

But deferred retirement plans, similar to the ones offered by the county, have been controversial in Philadelphia and San Diego.

‘It’s been paid for.’

The names of the individual retirees who were paid over the last six months are not immediately known. By law, the county can only provide lists of employees who took retirement and a list of retirement payments made by job title and department. (You can see the lists attached to this article.)

Mike Day, president of the Baltimore County Professional Fire Fighters, acknowledged that the public might find some of the payments “eye-popping” but said the payments were deserved.

“Is it newsworthy? OK, I’ll give you that,” said Day, who heads the union that represents about 1,000 active fire fighters and paramedics. “Is it costly (to taxpayers)? No, it’s been paid for. You have to realize that the ‘D’ in DROP is ‘deferred.’ We held onto people who served the county longer.”

Cole Weston, president of the Fraternal Order of Police Lodge 4, said the plan is just one option open to the members of the union he heads.

“There are a lot of people who are eligible but they’re also eligible to retire normally,” said Weston, who heads a union representing nearly 1,850 active members. “They don’t have to take that option. You can have two people with 30 years on the job. One will take the three-year DROP and the other won’t take one at all.”

Mass Exodus

A significant number of the employees electing to retire are senior police and fire department employees who left since June as a result of an early retirement incentive passed by the County Council in October.

This is on top of what has been increased interest among rank-and-file members of the police and fire departments in taking retirement—and in some cases, also getting the six-figure payouts.

Earlier this year, police Chief Jim Johnson warned the County Council of an impending exodus of experienced officers beginning this fall and stretching into next year.

Weston, the union president, said the increased interest in retirement stems from the maturing of the departments.

“We have a senior group,” said Weston, the police union president. “There are more people on the job now with with 35, 36, 37, 38, 39 and 40 years of service than we did eight years ago when we bargained this.”

Both Weston and Day such changes in staffing are cyclical. A similar thing happened in the 1990s when the county provided incentives to employees to leave as the county faced shrinking revenues.

Weston recalled Feb. 1, 1992 as the day when 100 police officers took retirement.

“There’s no doubt that experienced people are beneficial to an organization—especially law enforcement,” Weston said. “But there comes a time when people need to retire and others need to step up."

Weston said he doesn’t see “a mass exodus” in the next 12 months even though he acknowledges more police officers are talking about possibly taking advantage of the DROP.

Day, of the fire fighters union, agreed and but said if it does happen, the fire department won’t be adversely affected.

“We are our own farm system,” Day said. “We’ve known this was coming. It’s happening. The lights will still be on, the fires will still be put out, we’ll still cut people out of cars and we’ll still take grandmom and grandpa to the hospital when they have a heart attack.

Adopting a Controversial Program

Adam Summers, a policy analyst at the Reason Foundation, a Los Angeles-based libertarian think tank, said the benefits of such deferred retirement programs are "fishy."

"They're making an assumption that someone is going to retire rather than continue to work," said Summers, who co-authored a 2005 report on deferred retirement programs.

Summers said actual savings can often be difficult to prove without in-depth analysis. The potential for employees to game the system often outweighs the presumed benefits, he said.

Deferred retirement options plans made their first appearance 25 years ago in Baton Rouge. The idea was to provide an incentive to police and fire fighters to stay on beyond their minimum retirement requirements.

Over the years, a number of jurisdictions have adopted the idea—some to a great deal of controversy, according to Summers.

A 2010 report by the Philadelphia City Paper found that more than 6,600 city employees received $725 million in lump sum payments. Another 2,100 employees were eligible for nearly $340 million more.

An independent analysis by that paper found that the cost of the program was higher than city officials had acknowledged.

In San Diego, critics called the program a "plush pension perk that is unsustainable," according to VoiceofSanDiego.org.

The news website reported in 2009 that budget shortfalls and pension loses forced the city to reduce benefits.

Two DROPS

Baltimore County has two deferred retirement programs. 

The first, negotiated by police and fire unions in 2001, is known as a “back DROP” and is less common. The program does not require eligible employees to predetermine their retirement dates and commit to a period of employment beyond that date. During additional employment, the county re-invests the employee’s pension payments and then pays out a lump sum with interest when the employee officially leaves.

The plan, negotiated by police, fire and other public safety unions in 2001, was designed to provide an incentive for employees who were nearing retirement to continue to work for the county.

Police officers and fire fighters hired before 2007 and have 27 and 32 years of service respectively are eligible to receive a lump sum cash payout under the program.

In electing to participate in DROP and collect the lump sum payments, those employees will also receive less in pension benefits in retirement than if they had not participated in DROP.

"A police or firefighter who is contemplating retirement may choose to have his average final compensation frozen at a level three to five years prior to retirement and receive a lump sum payout at the time of retirement," according to a statement released by the county. "That lump sum includes the accumulation of the annual pension he or she would have received during the three to five year time period as well as his or her contributions to the pension system during that time and the interest accrued over the three to five years."

General county employees are in the more common plan—sometimes called a “forward DROP.”

Under both plans, only employees hired before July 1, 2007 are eligible for the lump sum cash payments. Some general government employees will be able to apply to cash out under the plan next July.

An Eye on Solvency

Four years ago, the county made changes to the retirement system in an effort to make the program financially stable and lower the cost of post-employment health care.

“That’s a major driver of costs,” said Mohler, adding that the goal was to save money by encouraging general county employees to stay longer so they were closer to being eligible for Medicare, thus lowering the county’s insurance costs.

“Everything that was done then was done with an eye toward the fiscal solvency of the system,” said Mohler. 

The percentage to which the nearly $1.8 billion system is funded has declined in the last decade. Currently, the pension system is funded at the 80 percent level—down from 111 percent in 2000, according to a county auditor’s note from budget hearings earlier this year.

The ratio of active employees to retirees has also declined in the last two decades. In 1993, that ratio was nearly 2 to 1. This year that ratio is less than 1.5 to 1.

At the same time, the unfunded costs of the retirement system as a percentage of annual payroll has increased over the last year—a warning sign that the system is becoming weaker, according to the auditor’s note.

Savings remain to be seen

It may not be clear for decades what the savings will be for the county as a result of the DROP programs

Overall, Mohler said changes made in 2007 coupled with the general government employee DROP have resulted in more than $19 million in savings to the system but that’s before the first employee has drawn a check.

The cost of the plan for general government employees cost the county about $1.9 million. Officials say those costs were offset by $4.6 million in savings generated by changes to other retirement benefits.

Costs for the public safety plan have increased from $5 million in direct contributions from the county in 2004 to $7.5 million in this year.

The county’s contribution to the plan is determined by an annual actuarial review, Mohler said, adding that the benefit of the plan exceeds the costs.

“I look at the big picture,” said Mohler. “You can’t look at any one thing in isolation. The quality of our police and fire fighters is exceptional. If we could get them to work for the county longer then that’s a benefit. I thin you have to weigh all of that when you look at how much this cost the taxpayers.”