DeMaio Unveils Plan to End DROP “Double Dipping” in Pension System
Councilmember Carl DeMaio, one of the primary authors of the Prop B Comprehensive Pension Reform (CPR) Initiative, today unveiled another sweeping pension reform proposal to end the notorious DROP Program in the city’s pension system.
The DROP Program allows city employees to retire in place and retain their jobs for up to five years – resulting in a “double dipping” perk where city employees continue receiving a full salary while simultaneously receiving a full pension payout.
“It is well past time to end the DROP double-dipping pension program,” DeMaio declared. “The City Attorney has weighed in on this issue and provided city leaders with a legal avenue for reform; we must act now to drop the DROP program and end this offensive gouging of the taxpayer.”
Analysis by the Buck Actuarial company shows the DROP Pension Program will cost taxpayers between $149 million and $182 million – with $24 million paid in interest to DROP accounts in the last year alone.
A look at the top ten DROP payments in 2011 shows annual payments as high as $113,900 and a combined annual payment of over $850,000 for just these ten individuals. This has increased their pension payments by an average of 58%, with one retiree increasing their pension 71% because of DROP.
While city politicians and union bosses claim the DROP program was ended in 2005, the truth is the DROP program is very much alive with almost 1,000 city retirees currently collecting checks from the program, almost 1,200 employees enrolled in the program, and 5,600 employees eligible for the program in the future.
DeMaio is proposing five reforms to the DROP program, all based on legal analysis conducted by City Attorney Jan Goldsmith. DeMaio’s DROP reforms include:
- Eliminate DROP Interest Rate: DeMaio is proposing that the SDCERS Board remove the guaranteed interest rate on DROP accounts and return any interest to the pension system, removing this burden on taxpayers.
- Increase Contribution Rates for DROP Participants to Maximum Allowed: Increase the city employee contribution rate from the current 3.05% to a range of 6.7% to 17.6% depending on their age and classification.
- Reduce DROP Participant Salaries: To eliminate the “double dipping” nature of DROP entirely, reduce each active DROP participants’ salary by an amount equal to the pension payout paid to the employee. If an employee does not want a reduction in salary, they simply would not enter the DROP program.
“By ending the notorious DROP program, these five reforms will save taxpayers tens of millions of dollars in the first year by stopping the double-dipping by city employees who are taking in a full salary and a full pension payout simultaneously,” DeMaio concluded.