DROP and the Double Dip!

From John Curry, May 9, 2010
http://news.cincinnati.com/article/20100214/NEWS01/302060044

Pension packages top $1 million for Cincinnati police, fire chiefs

By Barry M. Horstman • bhorstman@enquirer.com
cincinnati.com, February 14, 2010

Having risen through the ranks, Cincinnati Police Chief Thomas Streicher Jr. and Fire Chief Robert Wright will scale one final impressive height when, thanks to a very generous pension plan, each wraps up his career with a $1 million retirement and benefits package. Having risen through the ranks, Cincinnati Police Chief Thomas Streicher Jr. and Fire Chief Robert Wright will scale one final impressive height when, thanks to a very generous pension plan, each wraps up his career with a $1 million retirement and benefits package.

In Streicher's case, that lump sum will come on top of an estimated $92,000-a-year pension and the more than $235,000 he could receive from the city as a result of 3,700 hours of unused holiday, vacation and sick days.

Wright, who could cash out about $106,000 in unused leave and comp time when he retires, will receive a pension expected to start out at about $89,000. Wright's pension, like Streicher's, will rise with annual cost-of-living increases.

Although the two chiefs put themselves in that enviable financial position simply by taking advantage of city and state policies governing pensions, overtime and comp time, the huge pay days awaiting them poses a thorny question: Should a public official retire as a millionaire – pre-tax, at least – solely on the basis of his pension and related benefits?

"It's outrageous, morally offensive, and I say that as a public official myself," said Steve Erie, a political science professor at the University of California, San Diego, and a widely respected expert on public pensions and compensation.

"You don't expect to see a police chief leave with that kind of check in his pocket," Erie added. "The Cincinnati Police Department ought to have a recruiting poster saying, 'You, too, can be a millionaire.' This definitely is the end of the rainbow. And you wonder why people are so disgusted with government."

The large payments in Streicher's and Wright's future stem from Ohio's Deferred Retirement Option Plan (DROP), which permits public safety officers to build sizable nest eggs in exchange for reduced lifetime pensions.

To be eligible for DROP, individuals must be at least 48 with 25 years of service as a police officer or firefighter. When an officer joins DROP, he or she officially "retires," for pension purposes, but retains the same job. While that caps their future pension, as long as they remain in DROP – for at least three years and up to eight – the monthly pension they otherwise would draw accumulates in a separate account, along with interest and a portion of their 10 percent of salary contributions.

That formula, critics argue, is simply a creative form of double dipping – drawing a pension from one public job while earning a salary from the same or a similar post.

"DROP is nothing but the most blatant double dipping," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, an advocacy group named after the author of California's Proposition 13, the landmark 1978 tax-cutting initiative that swept the country. "As popular as police and fire are, they run the risk of voter backlash because of these obscenely generous pensions and practices like this."

Among other workers, public and private, DROP inspires envy – but also a candid acknowledgement that almost anyone eligible would be crazy not to participate.

"Who wouldn't grab that if they could?" Erie says.

For many public safety officers, basic math makes the decision to enter DROP easy.

According to the Ohio Highway Patrol Retirement System, a 48-year-old trooper earning $50,000 a year who participates in DROP for three years could receive a lump sum of about $107,000 and a pension of $30,625. While that is $250 per month less than the pension he would have drawn otherwise, he would have to live 36 more years for the higher monthly checks to exceed the lump sum.

Many take away much bigger checks. After eight years, a $50,000-a-year police officer's lump sum would soar to nearly $360,000, and for top brass such as Streicher and Wright, payments can approach $1 million.

The Ohio Police & Fire Pension Fund treats DROP membership as secret, so even cities and counties do not know whether specific employees are enrolled.

Many DROP members take advantage of that cloak of privacy. Streicher, for example, repeatedly declined to confirm being in the program, but court documents in his divorce case show he entered it in early 2003.

A calculator on the Ohio Police & Fire Pension Fund's Web site estimates Streicher's payout at $929,261, based on his $114,000 salary in 2003. Wright, who earned $113,570 in 2003, would receive $905,760.

Some legislators who supported creating the program said they are shocked by the size of the impending payouts.

"I'm absolutely stunned," said former state Rep. Michelle Schneider, a Madeira Republican who served on the Ohio Retirement Study Council, a panel that advises state officials on pension matters.