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Drop the DROP (Deferred Retirement Option Plan)

LA WATCHDOG--In 2001, the voters of Los Angeles overwhelmingly approved Charter Amendment 2, the Modification to Fire and Police Plans.  

Shall the Charter be amended to enable the City Council of the City of Los Angeles to establish by ordinance a program whereby a deferred retirement option plan (DROP) would be created and offered to members of the Fire and Police Departments on a voluntary basis as an alternative method of benefit accrual in the Fire and Police Pension Plans? 

Under this plan that was designed to retain sworn employees with at least 25 years of service, a police officer or firefighter may “retire” early, stay on the job for up to five years at full pay, and at the same time, have his/her pension payments deposited into a special deferred account earning 5% a year that is then distributed in a lump sum at his/her actual retirement. 

According to the Charter Amendment, “DROP shall be cost neutral to the City.” 

But this plan is not cost neutral.  

In February 2016, City Administrative Officer Miguel Santana reported that the plan “was not, and never has been, cost neutral” and urged Mayor Garcetti and the City Council “to eliminate or drastically amend the program because it had not worked the way voters had been promised it would.” 

This report never saw the light of day as the Executive Employees Relations Committee (“EERC”) (Mayor Garcetti and Councilmen Wesson, Koretz, Krekorian, and Englander) ignored Santana’s recommendation and buried the report. 

The Los Angeles Times outed this coverup in February 2018 when it obtained the secret Santana report and published an article about the extraordinary cost of DROP.  The Times also had a field day disclosing a series of abuses by participants being no shows, claiming work related disabilities while leading full and active lives.    

Since then, the Mayor and the City Council have been in full damage control mode.  They have made some modest tweaks to prevent some of the more flagrant abuses and commissioned several actuarial studies to support its claim that DROP was cash neutral.  

But these actuarial studies are based on numerous assumptions and mind boggling actuarial calculations that few mortals understand.  And these reports fail to recognize that the “double dipping” by highly paid participants would not be necessary if the Police and Fire Departments had a personnel plan that would allow for an orderly transition of senior employees.  

Despite these reports, the coverup continues as our less than transparent Mayor refuses to release the Santana report which outlines in detail why DROP is not cash neutral, is not needed to retain senior employees, and should be eliminated or drastically amended.  

Who do we trust to give us the straight scoop? 

Do we trust Mayor Eric Garcetti who buried this report, who has reneged on numerous campaign promises, who has not balanced the budget despite record revenues, and who is unwilling to confront the campaign funding union leaders because it might hinder his political ambitions? 

Do we trust Segal Consulting, the actuary who has allowed the City and its pension plans to rely on overly optimistic investment rate assumptions and other bogus assumptions that have resulted in an unfunded pension liability of $15 billion (and fast approaching $20 billion because of the down market) that threatens the City’s very viability? 

No way. 

Or do you trust the Los Angeles Times, the analysis of its reporters, and the opinion of its editorial board who believe that “DROP is a pricey program that has out lived its usefulness.” 

Yes. 

Or do you trust Miguel Santana (and his very capable staff) who led the City thorough the Great Recession and has a strong track record of producing excellent, well thought out reports on numerous complicated financial and policy issues facing the City? 

Yes. 

Now is the time for the City to have an open and transparent discussion on DROP and its cost as a prelude to placing it on the ballot.  We deserve the opportunity to decide whether to retain or deep six the Deferred Option Retirement Plan. 

 Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council.  He is a Neighborhood Council Budget Advocate.  He can be reached at:  lajack@gmail.com.)

-cw