Segment | Politics

DROP, the Billion-Dollar Pension Perk, Still Getting No Political Play

Can a city that's bleeding money afford some retirees the kind of windfalls you'd expect in corporate boardrooms? Judy Muller has an astonishing story about a program that lets some L.A. police and firefighters retire as millionaires.

TRANSCRIPT:
Judy Muller: Ahh, retirement. It's the first day of the rest of your life and the first day you get to collect your pension -- assuming you're lucky enough to get one!

But what if you could collect your salary and your pension at the same time? How about a million dollar check to kickstart your retirement?

OK, that was a fake moment. But it's a reality if you're an officer or firefighter with the city of L.A. That's because of a little-known pension perk only offered to public safety personnel.

It is known as the Deferred Retirement Option Plan, or DROP.

As we first reported two years ago, DROP allows LAPD and L.A. city fire personnel who have been on the force for at least 25 years and are 50 years old to collect both a salary and their pension at the same time for the last five years on the job.

Here's how it works: Officer Jones retires January 30th, 2013. The very next day he comes back to work.

Now Jones continues to be paid his salary. But his pension goes into an account where it collects 5 percent interest. Jones and the city still contribute towards his pension. When Jones leaves his job, he gets those accumulated pension checks plus 5 percent interest.

Since its inception, 3,407 officers have entered DROP. Some are getting supersized checks as they walk out the door.

This police commander got $800,000. This deputy fire chief, $939,000. And since our first report two years ago, a few DROP members hit the million dollar mark, walking away with seven-figure checks.

Not many people in L.A. know about this so-called "retire for a day loophole."

Bernard Parks/L.A. City Council: If you get people some people to actually know what DROP is, you've done something.

Muller: Two years ago Councilmember Parks supported DROP. Now he has questions about its cost to the city's bottom line.

Parks: It's an unknown, unanswered question and generally it's one of those things that people say, "Well, we'll study it in the future." But it's now well over 10 or 12 years old.

Keith Comrie/Former L.A. City Administrative Officer: I don't think the public understands someone collecting a pension check and a salary simultaneously. I think they get very upset. It's called double dipping.

Muller: During his 19 years as L.A.'s longest serving chief administrative officer, Keith Comrie rejected proposals for DROP -- what he calls a double dip. We spoke to him two years ago about it. Since then, he's noticed the hefty payouts for police and fire.

Comrie: Some of these examples now that are given now in the list now where they are releasing -- we now have a million dollar case. And that employee looks like he might have taken a $5,000 or $6,000 reduction in his pension, which in theory offsets it, but he got a million dollars.

Muller: Believing DROP was a budget buster, Comrie rejected it. But he retired in 1999 and newly elected mayor Richard Riordan saw DROP as the solution to a big problem at that time -- retaining veteran officers.

Richard Riordan/Former L.A. Mayor: What my office, the chief's office, is doing is looking at how do we improve the recruiting, how we do improve the morale of the department?

Muller: The Rampart Police corruption scandal in 1999 and an unpopular police chief hurt morale among the rank and file. The LAPD was suffering from low recruitment numbers and high retirement rates. Riordan was under pressure to stop the hemorraging and to live up to his campaign promise of a 10,000-member police force.

[NBC News Clip] Mayor Riordan joined city council members today to push two ballot initiatives aimed at helping low police morale.

Muller: Part of Riordan's plan was the DROP plan. He campaigned heavily for it, promoting DROP as an essential recruitment tool. It easily won the support of the City Council who put it on the ballot.

Ruth Galanter/L.A. City Council: Open the roll on Item 19. Close the role. Tabulate the vote. Twelve Ayes - that is approved!

Muller: It was called Charter Amendment Two. Taxpayers were told it wouldn't cost them anything. It was required to be cost neutral only to the pension fund and not to the city's overall budget. In June of 2001, the voters gave DROP a thumbs up.

Comrie: It was never really discussed. I think a lot of people passed it without knowledge of what it really was, what the argument that it's cost neutral.

Muller: In 2007, when DROP was up for renewal, the council even removed the so called "sunset clause" -- the provision which set an expiration date. DROP can't be dropped without renegotiating it.

When we first reported on DROP, we asked the current city administrative officer, Miguel Santana, about the program's price tag.

Muller: Has it really been reviewed? Has anybody taken a look at how much this is costing the city?

Miguel Santana/L.A. City Administrative Officer: We haven't up until recently. We're going to start doing that.

Muller: So right now, you don't know how much this costs in salaries or pensions?

Santana: The last report that was done was several years ago. That is why we need to do another one to determine whether it's still cost neutral or not.

Muller: That was two years ago. Recently, we asked Santana what happened to that report.

Muller [to Santana]: When we talked to you two years ago about the DROP program, we wondered if it was cost-neutral to the city budget overall and your answer then was, "Well, we don't know but we are going to work on it." So we are back here to ask you, what's the answer?

Santana: And we're still looking at it.

Comrie: Why it hasn't been studied -- that's the CAO's responsibility, to study it and bring in a clear report and explain it in plain English, what the issues are -- what the pluses are and what the minuses are. They should do that. And I haven't seen that done.

Muller: The CAO was asked to look at DROP as part of the city's 2012 budget. Santana told us a study is about to begin.

Santana: It's required by the charter that we actually have a review every five years. We don't conduct it. The pension systems hire the pension actuary to do an analysis on the cost neutrality of it and they're in the process of doing that now.

Muller: That long-awaited study on whether DROP is "cost-neutral" will be conducted by an actuary hired by the pension board, not the city administrative officer -- a clear conflict of interest.

And that study won't look at costs to the general fund. That means there will be no independent assessment of what drop is costing the city. Councilman Parks chalks it up to pension politics--even at the CAO's office.

Parks: It's been political, probably more political than in the past. When you had Comrie here, and Piper here, they really didn't care as to what people thought of their work. They gave you what they thought was their best answer. Today it's more of what will eight votes carry as opposed to saying, you know, "Here is the best answer."

Muller: And it would seem that the original reason for the DROP program -- retaining veteran officers -- no longer exists. Recently there were 18,000 applications for 200 firefighter jobs. And the LAPD is now 10,000 strong.

Right now, the city is facing a $200-million shortfall in the budget, an amount that's expected to grow as police and fire pension obligations gobble up more and more of the city's finances. So you would think that a billion dollar perk like the DROP program would be a key issue in the race for mayor and City Council. Think again.

Angering police and fire unions while in campaign mode is the last thing most of these candidates want to do -- especially Wendy Greuel, who won endorsements by the police and fire unions.

Wendy Greuel/L.A. Mayoral Candidate: I've supported DROP. It is an effective way to keep some of our best officers and firefighters in the city of Los Angeles.

Muller [to Greuel]: You don't see DROP as a double dip?

Greuel: I don't see DROP as a double dip.

Muller: They are earning money at the same time they are collecting their pension.

Greuel: Again it has been a program that is effective to keep our officers here and keep them working in the city of Los Angeles.

Muller: Mayoral candidate Eric Garcetti also likes DROP.

Eric Garcetti/L.A. Mayoral Candidate: In study after study, it showed that is a money saver, plus it gets the most valuable people to stay on the job for a few more years.

Muller: In fact, as we've learned, there is no study showing DROP is a money saver because nobody has bothered to study it.

But that's something candidate Jan Perry promises to do, even though she didn't do it as a council member.

Jan Perry/L.A. Mayoral Candidate: As mayor, I will immediately move forward along with the CAO to do a very straightforward analysis of the DROP program.

Muller: The mayoral candidates running on their "political outsider" status also weighed in.

Emanuel Pleitez/L.A. Mayoral Candidate: I think that DROP is just one minor program. Whether it exists or not doesn't impact our pension fund liabilities that much at all.

Kevin James/L.A. Mayoral Candidate: I think that it is a program that has to be done away with currently because of the obligations that we face.

Muller: Meanwhile, cities and states across the country are modifying DROP or dumping it altogether.

Alabama's program was shut down after it was revealed that university executives, football coaches, and lobbyists walked away with big DROP checks -- some as high as $1.3 million. Comrie says that's a cautionary tale for Los Angeles.

Comrie: Don't play into the hands of the reformers that go too far. Clean up your system now before they do that.

Muller: He's talking about former mayor Richard Riordan, who tried to put a pension reform measure on this year's ballot. He pulled the plug on it last year, but...

Comrie: Dick Riordan will be back. Whether it's 6 months or a year or two years from now, he said he will come back with more time.

Muller: And, Comrie says, DROP's seven-figure payouts will be Exhibit A for doing away with pensions altogether.

Comrie: That will be the campaign, the million dollar man. Why did you give him a million dollars in the same pension? It doesn't make sense to the public. The public will just go crazy.

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Thought you would find this interesting from the chief actuary of CalPers, Ron Seeling, regarding Deferred Retirement Option Programs:(DROP) in 2009

"My No. 1 comment is (DROP) talks about being cost neutral," said Seeling, "and I want to go on the record that it's almost impossible to certify or state from the beginning that such a program is cost neutral. You are guessing at people's behavior."

Seeling said there may be savings from a worker who stays on and requires no pension contribution costs. But others who intended, for example, to retire at age 62 may retire at 58 if given the option of a DROP, increasing their total cost to the system.

"The question is — there is no actuarial magic here, your guess is as good as mine — how many of each type are there?" he said.

Seeling said the picture gets even murkier when you include other factors that may change retirement behavior, such as an economic downturn. He said he was the actuary in Louisiana when the first DROP was launched in 1984.

"I have had friends working within that program since that time," he said. "When I asked them does the DROP cost money or save money, their answer is `I don't know.'"

Seeling's view of a DROP: "I think it costs money, but I can't prove it."

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First I dont have a dog in this fight. But I live in the city of LA and have seen these cops and firefighters doing their thing. and it is awesome. Why would you ask politicians how it works? They are politicians. Be a good journalist and look to see how it works. Cost neutral? no the city made 10 million a year the first five years of it going into effect. It still makes money or they wouldn't do it. It keeps cops on the job longer. That keeps years of experience working. When a person enters the drop the city no longer pays into their pension!!!! get that? that part is important. They keep someone with decades of experience that is still active. Now if that person decided to leave then the city must rehire another. This typically cost over $100k per recruit to get them from written test all the way through to graduation day. that is just to cover for 25 year person whom was still a valuable asset.
Now double dipping. No. Its like saying because you draw social security you can not go find work on the side. Theses guys PAY INTO THAT PENSION and deserve what they get. It will always be cheaper to keep people they to try and train new ones

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I love someone whose screen name is "antigov" claiming that a) he doesn't have a dog in the fight and b) the DROP program is not only cost neutral but made the city money by the city not having to pay into the pension program. In what alternate universe do you think it is cheaper to pay a senior salary AND 90% of the senior salary at the same time? Clearly, a rookie is paid a lot less in salary than someone with 25 years experience. Antigov talks about 100K taking a rookie from written exam through gradiuation. What do you think a senior officer costs over the same 3 month period? A lot more than $100K

The reality is that when it comes to public safety, people like antigov goes completely brain dead and refuses to rake a hard look at the costs of public safety because to do so somehow diminishes the job they perform. No one is saying that public safety officers shouldn't be compensated well. But 5 years of 90% salary in a special account with 5% guaranteed return plus 100% of regular salary when the city is already 200 million dollars in deficit? As Charlie Beck said in the interview with Patt Morrison in today's LA Times, that he hasn't been able to add a 911 operator in 3 years because of budget constraints. How many 911 officers could be hired if DROP was dropped? A billion dollars not going to DROP would go a long, LONG way.

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gwennie first i don't have a dog in this fight I understand the economics of this as I have done a thesis on it. I would rather talk about the facts.The alternate universe is actually the reality of the situation.The salary the city pays is for a budgeted position that already exists. i.e. a vice detective. The DROP money is money that sits in their pension account. It is not part of the city budget. So now the situation goes from paying a salary and paying into his pension. Or if he has Dropped they still pay the same minus his pension contribution. (Small saving)
See he is going to make 80 or 90% or whatever it is regardless. It is not going to cost the city a penny once he departs. Now he can take his skill set and go find another job doing that exact same thing in a private position.
Or the city could hire him back and pay him for his skills. He wins because he wants to stay busy and gets paid. the city wins because they dont have to retrain a vice officer (or pick a position)
The 100k for the rookie gets them to graduation. They still need their monthly salary and They still have to make it through probation. So over a 3 month period its not so simple. Dont forget when you get have someone leave a position you have to train or promote the next person to do it. Promotions cost a lot of money too. And then you must hire a person to do the job of the person that took that persons position. So its not so simple as getting a rookie to do the job. Its clear that I have not gone brian dead and I have looked at the costs of public safety. In the long run it is cheaper to keep employees than hire and promoting new one. Now what ever they get in their pension good for them . It is a tough profession. They pay into that for over 25-30 plus years. I dont understand the jealousy that people have for others that get a pension they worked and paid 10% of their check. In addition they dont get social security even if they have enough accrued units.

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The fact is that the DROP money still comes from the city and ultimately the tax payers. Poeple are eventually going to retire and thepipeline needs to be filled, so why give a billion dollar spiff when the city is already overspent? If you think that people are "jealous" because of someone's pension that they paid 10% into, you are sadly mistaken. LAPD do not pay into social security; they are paying a grand total of 3.8% more into their retirement than everyone else. The difference is that others are not retiring at 90% of their last year's salary and social security is capped, while there is no cap for LAPD. And the big point for this story is that no one else has the DROP spiff. I don't believe for one minute you have done a thesis on this; my guess is that you or someone in your family work for the department and you have an outrageous sense of entitlement.

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And, antigov, you are ignoring that the city is STILL paying the officer's salary while he is in DROP.

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Its simple, Muller is an embarrassment to KCET and all of us who contribute to keep KCET funded. I am personally NOT going to contribute any longer to an organization that allows such inaccurate reporting. DROP saves the city of LA money. Have someone worthy check into it. The funds in DROP, are moneys owed to pension members. The city is using their money to make investments. The city pays the members 5% interest on deferred pension payments and has made an average of 13% return over the past three years! In addition, the city retains experienced employees to the benefit of the citizens. One of the biggest cost savings is that the DOP discourages disability pensions. This saves the city 33% per disability claim. Because of the DROP, the city is able to better recruit and retain Fire and Police applicants, otherwise these people will seek better working environments once they are trained at the city's expense. The city saves money by better planning training academies for Fire and Police because DROP gives definite and predictable retirement dates.
Muller is a disgrace and so is any KCET official that allows this type of dishonesty to continue. KCET and Muller are trying to sensationalize and demonize Fire and Police as greedy and entitled so that they can get people to watch. Muller, you make me sick!

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gweenie. You are the entitled one in addition to being ignorant and void of any common sense or fairness. Of coarse the members receive a salary while they are working. Your irrational and greedy. Do you work for free? Do you work? Its called Deferred Retirement because the city retains the money owed to the members and makes money through investments! The DROP also causes members to retire at a smaller retirement percentage! On average, all members will receive 15% less per year throughout their life time. Th DROP causes members to lock in their retirement 5 years earlier than normal, TO THE BENEFIT of the city and the taxpayers!!!!

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DROP money is in the police and fire pension. The city does not own that or have any right to it. The way it works for pensioners is that they pay in a certain amount every month. The city as part of benefits to keep employees also pays in. The money in the police and fire pension has been extremely well managed and even through the recent up and downs in the economy has managed to stay strong. If that pension is not fully funded then the police/fire members have to kick in more until it is full funded. So they are not giving away the city's money.
Pensions are a defined benefit. 30 years ago 66% of the US work force had a pension. They have systematically been done away with by the true greedy people wall street and their CEOs that were buying small corporations and raiding their pension funds and then giving the remainder to the workers telling them that a 401k is better.So now that people see that the 401k thing can be tricky they are jealous of theses guys or anyone else getting something they dont have. Which is a defined benefit....a pension
The grand total of more than 3.8% compounded for 25-30 plus years is a good investment. The difference of 90% pension is why people that look far down the road. they will stay with their current employer if it is worth it to them. Those in a 401k only can decide to pack up and leave whenever they want. If you invest 100k to get a probation officer then salary and additional training each year then it takes about 7-8 years to break even. If you compound this with over 10k officers it can be devastating to a company/municipality etc. This was the initial reason for (all) pensions....to get them invested in staying. LAPD could not keep up with the demand of new officers. They would hire and train then the new officer would you the training and experience to go work for a small beach city after only 1-2 years.
As far as entitled, we all feel entitled to things. Clean water, sanitation, good health , wake up in the morning without an armed robber at my door etc. Everyone has their own sense. Im sure someone without a computer thinks you or I feel entitled to get on the internet. So I never like to put that out there. There are always people better off than I am and people that I have more good fortune that they do.
Also, I am not ignoring that the person is getting paid a salary. The city has to pay an officer to do that job regardless. The only way around that is to eliminate the position or in other terms take an officer off the street.
Have a good day

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nokcet...well done. At least one other person actually looked into the facts. If only the hired journalist did.

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I posted this last week but somehow, it miraculously "vanished" from the comment section. I will post again. Is KCET censoring free speech? Hmmm, I wonder...

Okay, Judy. Nice Try!

Let's review some of your talking points.

1. You started out saying a pension is something some are "lucky enough to get."

WRONG! It has nothing to do with luck. When I was a very young adult, right out of high school, I applied to work as a paramedic for the LAFD. I positioned myself to be an asset to the citizens of Los Angeles by taking vocational training, volunteering, taking employment at minimum wage with private companies to gain experience as a first responder, and networking in my field of interest.

The employment process took over 3 YEARS to complete. This included a written examination, an oral interview, physical agility test, background investigation, and a medical/psychological evaluation.

The challenging training and probation after I was hired was in excess of 14 months. The vocation has been difficult over the last 24 years. I currently PAY 11% of my pay into my retirement. In 2005, with over 15 years invested in the pension system, the only reason I stayed with the LAFD was because of the PROMISE OF DROP. I was offered employment out of state but chose to stay because the DROP was a NEGOTIATED BENEFIT. NOT LUCK! Hard work, integrity, trust in a promise, sacrifice. NOT LUCK.

2. You interviewed Bernard Parks (AKA Turncoat Bernie), where he said that DROP is unfair.

What about the 2 pensions (2 from LAPD) he is currently receiving and the third he will receive when he terms out as city councilman? No one is talking about that.

3. DROP was approved by the voters to reduce the "blue hemorrhage" that was occurring primarily with LAPD and retention of veteran members of both LAFD & LAPD. This is working! No longer is LAPD training the best officers, who leave to other departments across the country. This cost is not being discussed, which is probably in excess of $50k per officer who are still here. Keeping veteran public safety first responders saves money & is better for the citizens we serve.

4. You also stated that an actuary study by an independent company hired by our pension system is a conflict of interest. HOW? If the DROP isn't cost neutral, it hurts my pension's sustainability. It should be modified so I can continue to receive a pension after I retire. The actuary will be a necessary tool. Who would you recommend to do this study? Los Angeles politicians? Yeah, right.

You and I have had this discussion before. The words that come to mind are: unfair, deal breaker, one-sided.

The voters decided to change the pension for the next group to be hired. Will this retain public safety until retirement? I doubt it. The bleeding of blue will happen again. Los Angeles will again train highly skilled first responders who will run to the next, better benefit package offered like they are aflame & being shot at. You will continue to write stories that are inaccurate and one sided. People like me, who have sacrificed their bodies, psyche, and youth will leave disgruntled and bitter to the public they have protected for decades. Shame on you.