The TCC Chair will offer a motion to support the Mayor in his opposition to the Deferred Retirement Option Program (DROP) and the Pension Service Credits (PSC) program as vested retirement benefits for city employees, and his belief that instead these are  negotiable employment benefits for city employees.

Motion: The TCC endorses the Mayor’s intention to challenge DROP and PSC as vested retirement benefits for city employees. The TCC endorses the Mayor’s statements as follow:

I intend to file a lawsuit to challenge whether or not the DROP  program and employees' ability to buy Pension Service Credits are vested retirement benefits. The employees unions and I fundamentally disagree on this issue. I believe them to be employment benefits that can be negotiated away, not unlike pay and health care. They disagree. I think the best way to settle this issue is to allow a judge to decide.

Background:

The Chair believes the pension benefits of San Diego municipal workers are excessive and he offers the following as an example:  A typical firefighter making $75,000 a year can retire at age 55 with a pension of $99,767 – or 133 percent of his highest-year salary.  That's right, a worker earning $75,000 can retire with a pension just shy of a hundred grand, along with annual cost-of-living increases, for the rest of his life.

The same lavish deal is provided to nonpublic-safety employees, with the only difference being that the worker would have to stay on the job until the advanced age of 60.

DROP, the Deferred Retirement Option Plan, is the reason for this absurdity. Here is how it works:

When a worker reaches the official retirement age – 50 for police and fire employees, 55 for all others – he is allowed to stay on the job for up to five more years. During that time, he collects both his full paycheck and his regular pension. The retirement checks are paid into a DROP account, and the city's pension plan pays a guaranteed 8 percent compounded interest on it. After five years of this double-dipping, the DROP account is made available to the retiree, on top of his regular pension.

So, the typical firefighter making $75,000 can begin receiving annual DROP payments of $67,500 (90 percent of his highest-year salary) at age 50. By age 55, with compounded interest, his DROP account will be bulging with $403,343. If he leaves the DROP account in the pension plan, he is guaranteed 8 percent annual interest, or $32,267 a year. So, he retires at age 55 with regular pension payments of $67,500 a year, augmented by DROP earnings of $32,267, for a total pension of $99,767 a year – all on a highest-year salary of $75,000.

The City Council has eliminated the DROP program for workers hired after June 2005. Mayor Jerry Sanders wants to abolish it for all workers not already enrolled in it. That's a wonderful idea, because the benefit is costing San Diego taxpayers up to $400 million. There is, however, a huge catch. The City Council may not have the legal right to take back the DROP benefit from workers who qualify for it today.

City Attorney Mike Aguirre claims the DROP program is illegal and that the City Council can eliminate it for all employees whenever it wants. But Aguirre's track record when it comes to pension matters is not good: He came up empty in his bid to persuade Superior Court Judge Jeffrey Barton to set aside $700 million in existing retirement benefits for city workers, including the DROP program.

Ann Smith, the lawyer for the Municipal Employees Association, the city's biggest union, asserts it would be “unlawful” for the City Council to take back the DROP program for workers hired before mid-2005. For those workers, Smith contends, the DROP program is a vested benefit protected by state law.

The Chair and TCC agree the DROP program should be eliminated for all workers. And support the Mayor’s office on this matter.