Home Pension Issues Phila. workers rush to get DROP pension while they can

Phila. workers rush to get DROP pension while they can

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Les Johnson was at the city’s pension office last week when he heard the news: Mayor Nutter was calling on City Council to kill Philadelphia’s DROP pension program, citing a new study saying it costs taxpayers $22.3 million a year. Johnson, who has worked as a police officer for nearly 30 years, already had applied for the program. But the mayor’s announcement pushed him to finalize his decision.

“It’s too much money to lose,” Johnson, 49, said of the $205,000 he will collect in pension money if he continues to work for the city for four more years, the maximum amount of time an employee can stay after entering DROP.

The Deferred Retirement Option Program allows employees eligible for retirement to pick a retirement date four years in the future. That decision freezes the employee’s pension benefit and prompts the city to start putting the person’s pension payment aside in an account with a 4.5 percent yearly interest rate.

When the employee leaves the city, he gets the amount in the account and starts collecting a monthly pension.

Nutter’s call to eliminate DROP set off a rush to apply for the program. Since the mayor’s Aug. 3 news conference, 542 city employees have signed up. As of that time, 3,132 city employees were eligible to enroll.

Bill Gault, president of Local 22 of the International Association of Fire Fighters, said the fear that DROP would end had fueled anxiety among many workers, including himself.

He is 52 and trying to figure out whether to apply for DROP. Police and firefighters get five years of medical coverage after they retire but then must pay for health insurance until eligible for Medicare.

“We don’t do this job to get rich,” Gault said. “We do this job because it’s a calling. Basically, what I have to figure out is, will DROP be enough to eliminate my mortgage and live on my $2,500 to $3,000 a month and pay my medical?”

Council Sergeant-at-Arms David Rosario, 61, applied, too, though he said he would have done so with or without the mayor’s announcement because he will be 65 in four years. Rosario has worked for the city for 13 years. The amount Rosario could collect under DROP is not yet available.

“I only joined because I qualified,” he said.

Johnson applied earlier than Rosario, and so already knows that he will collect about $205,000 if he stays the full four years. After that, Johnson will receive a pension payment of $3,917 a month.

Joseph Esuchanko, an actuary in Troy, Mich., who has studied DROP plans, said it is difficult to estimate how much Johnson’s decision had cost or saved the city.

“We don’t know what any one individual costs until that individual dies,” Esuchanko said.

Esuchanko calculated that if Johnson lived to 82, the average expectancy for men his age, his DROP decision would cost the city $55,000 more than if he had retired without DROP at 53. If Johnson died younger than 82, the cost would increase. If he lived longer than 82, it would cost the city less and might even save the city money because the lower pension payment over that time would compensate for the initial $205,000, Esuchanko said.

Johnson, who works with bomb-sniffing dogs at the airport, knows that some people see his ability to work and collect his salary of about $61,000 while accumulating pension payments as unfair.

“I read all the articles in the paper where people think we are double-dipping,” he said. “It’s not the truth.”

For one thing, he said, the amount in his DROP account is money he could have collected if he retired, so the city would have had to pay it anyway. And if he retired, the city might have to hire someone to replace him, so Philadelphia would pay a salary, too, though one that would likely be smaller than Johnson’s.

Johnson also reduces his yearly pension by about 10 percent by entering DROP. Entering the program also means both he and the city stop contributing money for him to the pension fund. While that is a gain to him and a savings to the city, the pension fund also loses the opportunity to invest that money.

“Basically, what the city is doing is putting my monthly DROP payment into an account,” Johnson said. “The way I look at it, it’s my money.”

He’s not convinced that the conclusions in last week’s report from Boston College economist Anthony Webb that said the city spent an extra $258 million on DROP over the last 10 years are correct. The city’s unions plan to hire their own experts to assess DROP.

Johnson thinks he is proof that DROP works exactly as intended. It gives the city time to plan for his retirement. He gets a nest egg that will protect his family but takes a 10 percent haircut on his pension in return.

He and his wife, who works at a credit union, make a good living, but this is the East Coast, and they also pay Catholic-school tuition for their two children.

“I couldn’t save that kind of money,” Johnson said. “This is another nest egg. You’d be crazy not to take it.”

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