Dropping DROP not the answer, says opponents of new proposal - WMC Action News 5 - Memphis, Tennessee

Dropping DROP not the answer, says opponents of new proposal

The program allows employees to collect retirement funds and their salary, when they announce they will retire in three years. The program allows employees to collect retirement funds and their salary, when they announce they will retire in three years.

(WMC) - Memphis City Council Chairman Jim Strickland is calling for the city to drop the DROP (Deferred Retirement Option Plan) program for everyone except commissioned police and fire employees.

Now there is a proposal, he says, that could help save the city money. The chairman says taxpayers pay higher interest because the city pension fund is short millions of dollars.

People against his new proposal say dropping DROP is not the answer.

"Here we have a plan that pays out of the pension fund who aren't even retired yet," said Strickland.

The program will cost taxpayers roughly $6 million this year.

"We don't have enough money in the pension," said Strickland.

DROP allows employees to defer retirement, then simultaneously collect retirement and a salary. They also receive a lump sum of money at the end of three years.

While the city does match some money in the pension fund, Memphis Police Association President Mike Williams says taxpayers do not lose money on DROP.

"Because it comes out of the pension fund, which is actually the officers' money," said Williams.

He says the program helps the city plan ahead and groom future employees.

"I think the citizens are starting to understand there's an attack on city employees," he said.

Strickland says no one is getting groomed and DROP's just depleting the pension fund.

"We're underfunded in the pension plan by $300 million to $700 million," he said.

Williams says the council should at least wait until a financial consultant gives a true reading of how much money would make the pension fund whole.

"They have not gotten results back from their actuary. So I'm trying to figure out why they're making all these moves," he said.

Strickland's plan would narrow the program to police and fire positions only. Strickland will present the ordinance to the council on Tuesday.

The final vote will happen in June.

Read more about the current DROP program in the following link: https://www.municode.com/Library#/TN/Memphis/Code_of_Ordinances/TIT4PERESY_CH4-241948BEPL. Read more about the proposed amendment in the following link: http://www.memphistn.gov/Portals/0/pdf_forms/Amendment%20to%20the%20Drop%20Program.pdf.

The following statement was released from the Memphis Fire union:

"Here's our take on the DROP; the City makes out better than the employee.

1) When an employee DROPs, the City discontinues it's 6-8% of payroll contributions for that employee, thus saving 6-8% of payroll.

2) The employee draws interests on their DROP $ @ the 90-day T-Bill rate = less than 1%, the return on the employees contribution into the pension fund grew an average of 14% over the past 3 years.

3) The employee leaves at a lower percentage of the pension. For example, an employee @ 25yrs signs up for the 3 yr DROP at 62.5% [25yrs x 2.5 multiplier]. Their pension accrual stops when they sign up. Essentially an employee works 28 years using this example for a 25 year pension. If the employee would have just stayed an additional 3 years vs DROPping, the pension benefit would be 28 years x 2.5 multiplier, or 65.5%.

So, when an employee DROPs, the benefit to the City is 1) a 6-8% savings on payroll, 2) a 13% return on the employees pension contributions, 3) A lower pension percentage annuity, and 4) the ability to plan for their replacement, for fire and police, the process could take several years (that's another story)."

WMC Action News 5 has been following the city of Memphis pension debate since the beginning. You can read our past stories on this pressing issue here: http://www.wmctv.com/category/282655/memphis-pension-debate.

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