November 27-December 3, 2003

city beat

Not Dropped Yet

City to decide fate of controversial pension plan.

by Ralph Cipriano

There’s a gravy train running through City Hall that’s expected to give retiring city employees cash bonuses -- over a four-year period -- worth more than $500 million. But last week, city officials in charge of overseeing that program met to begin formally deciding whether the train should be allowed to keep on chugging.

Members of the city's Pension Board met with the outside expert who, four years ago, helped set up the costly, experimental pension program. Actuary Kenneth A. Kent of Mercer Human Resources Consulting of Washington, D.C, said the increase in liability for running the city's Deferred Retirement Option Plan (DROP) ran $64 million as of July 1. Kent also said, when amortized over 15 years, the DROP could ultimately cost the city $7 million annually.

When the DROP was unanimously adopted by City Council in 1999 it was supposed to be "cost-neutral." According to the original DROP legislation, the Pension Board was supposed to discontinue the program if it resulted "in more than an immaterial increase" in the city's regular pension costs.

"We have to determine what is immaterial," City Finance Director Janice Davis said after the meeting. Davis, the Pension Board chairperson, was critical of the DROP when testifying before City Council in the past.

There was little public discussion during last week's meeting and union representatives on the Pension Board could not be reached for comment. Still, the board voted to accept the actuary's report as a draft.

City records show a current DROP enrollment of 3,484 employees. If they stay in the program for the maximum time allowed -- four years -- they would collect cash bonuses of more than $132,000 each, for a total of $461 million.

The city has already paid cash bonuses to 825 employees who have already retired under the DROP, averaging $49,618 each, for a total of $40.9 million, according to city records.

Despite the cost, the DROP is wildly popular with city employees and the program still has plenty of supporters including City Councilman James Kenney, who says he came up with a legislative proposal that would have reduced the cost of a new DROP plan, to make it cost-neutral. Kenney had been meeting with Davis before the mayoral election to try and work out a compromised version for a new plan.

"We had very good discussions," Kenney says. But, he adds, after the election, "All progress has stopped."

Kenney says he was disappointed that union officials asked him to call off two scheduled hearings over a new DROP proposal in City Council that would have been held before the election.

"I urged everybody to get behind the legislation," Kenney said. "My concern was as soon as the election was over, it would drop off the agenda."

A City Hall source was more pessimistic, saying, "All signs point to [DROP] as being dead."