Politics & Government

Deferred Retirement Program to Cost City Extra $150 Million

The program was adopted in 1997 to keep experienced employees working.

Most San Diego City Council members support cutting costs for a controversial deferred retirement program that is projected to cost the city nearly $150 million in coming years.

Councilman Carl DeMaio, who represents Rancho Bernardo in District 5, questioned why the program isn't simply eliminated considering the city's financial crisis.

"It boggles the mind that we're considering continuing this instead of eliminating it," DeMaio said.

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The Deferred Retirement Option Plan or DROP allows employees hired on or before June 30, 2005 to retire but continue working for five years while retirement benefits  accumulate in a special account. It was adopted in 1997 to keep experienced employees on the job, a goal some council members backed on Monday. This option is supposed to be cost-free or cost neutral, defined as costing within 2 percent of the traditional retirement program, according to a consultant group.

But the program is projected, in a study by Buck Consultants, to cost the city $148.7 million more than the regular retirement program would, amounting to a 1.6 percent increase in retiree expenses. According to the city's Independent Budget Analyst, 89 percent of the additional costs are tied to employee salaries.

Find out what's happening in Rancho Bernardo-4s Ranchwith free, real-time updates from Patch.

While in DROP, no further retirement benefits accrue, workers and the city each contribute 3 percent to the account, and the accounts are guaranteed a 2.9 interest rate and 2 percent annual cost-of-living adjustment.

About 6,800 employees were eligible for DROP as of June 30, 2009. Some suggestions for cutting costs are eliminating the city's matching contribution and cost-of-living increases. Most council members did not support ending the program.

The study cost the city $300,000. Labor unions were asked to share the cost, but so far have not agreed to do so, officials said.

City News Service contributed to this report.

 


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