The City Controller’s report on the 3-year pilot Deferred Retirement Option Program (DROP) concludes that it “is not cost-neutral” and that “under any scenario, the City’s possible savings are exceeded by the Retirement System’s liability costs.”
The report, issued April 15, was required under the terms of the 2008 ballot measure that created the retirement option. (download report here)
The report forecasts a accrued liability of $52 million in retirement costs, which amounts to $6 million in added costs to the City for each of the next 20 years. The report states that police officers retired at triple the rate than they had before the program began. Previously about 12 percent of officers age 55 with 25 or more years would have been expected to retire. After DROP began, 33 percent of those officers have elected to retire or enter DROP. Under the program, police officers could opt to officially “retire” and have their pensions paid into a locked, tax-free account while continuing to work at full salary, in effect getting 100 percent of their salary and a pension equal to about 90 percent of their salary. Officers could participate in the deferred retirement program from one to three years, depending on their rank. Nearly half the officers participating in the program were above the rank of patrol officers.
The program, authored by the San Francisco Police Officers Association and put on the ballot by paid petition circulation, was presented as both a cost savings and a strategy to ensure full police staffing in the face of an expected wave of retirements and a claim that the city faced problems recruiting new academy classes.
However, the Controller states that if the “program is extended, the likely increase in employer-paid retirement contributions will exceed these deferred cost savings, even assuming that officers retire later than they actually have during the pilot period. “
“While the City does save some operating costs by not having to replace an officer during their DROP period, those savings are less than the change in the expected value of that officer’s retirement benefits and the overall cost to SFERS.”