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Lawmakers Must Trim Pricey Pensions

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The Tampa Tribune

Published: December 28, 2008

A program that began quietly a decade ago is attracting close attention now that increasing numbers of veteran workers in state and local governments qualify to get both retirement pay and a big salary.

The law, called DROP, or Deferred Retirement Option Program, urgently needs a fresh analysis in view of current economic conditions.

The Legislature created DROP in 1998 when the stock values and pension investments were soaring. Under DROP, state workers sign up to work five years while the state pays benefits into an interest-bearing account. Now, at a time when services must be reduced and reserve funds tapped, taxpayers should not be required to give double pay to high-salary, longtime workers.

The Lee County property appraiser, for example, gets a pension of more than $100,000 a year that is held for him in a tax deferred retirement account, plus an annual salary of $142,000.

Those of us who have seen the values of our own retirement savings fall by a third or more this year can't help but wonder why such windfalls are generally not available outside government.

Justify The Costs

A top priority this session for the Legislature should be to find out how much the DROP plan costs taxpayers and follow the private sector in putting some reasonable caps on all retirement compensation.

The argument that government workers are legally entitled to the benefits they've earned is not the point. It would be illegal and unfair to take away promised benefits to those already in the plan. The issues are whether it's in the best interest of taxpayers to continue the generous retirement benefits for public servants, and if so, at what levels and for which workers.

During this time of budget shortfalls and salary freezes, turning government retirees into millionaires should not be a priority in Tallahassee. But because lawmakers have cut themselves in on the generous retirement benefits, reform will find few champions.

The best defense of the DROP plan is that a worker, after 30 years in the system, has earned the pension payments. If the worker retired, the pension would be paid, and someone else would have to be paid to fill the position.

That's true, but it's not the whole story. A pension is more like an insurance policy than a personal investment, such as a 401(K) account. A pension is a guarantee of a salary for life, and is especially useful for low-income workers unable to save on their own.

That's why pensions should be capped. High-paid workers are able to fund IRAs, buy insurance polices and pay off mortgages. Instead of targeting a need, the Legislature has allowed the pension system and DROP to become a fountain of unending wealth for retirees who are now living into their 90s and beyond.

As the Hillsborough School District has discovered, veteran workers tend to earn much more than their younger replacements. And, pension funds accrued under DROP grow at 6.5 percent a year. It is taxpayers who guarantee that above-market rate of return, plus cost-of-living increases in pension payments of 3.5 percent a year.

If you retire at age 65 with a $100,000-a-year pension and live to be 95, you get far more than $3 million. The cost-of-living increase will require the state to pay you $5.1 million.

One benefit to taxpayers, and the pension funds they guarantee, is that once a worker enters the DROP program, his or her base pension benefit no longer increases.

But the Legislature should explain to taxpayers why the pensions continue to increase without limit outside DROP, and how the inflation factor is determined.

Pensions are being phased out in the private workplace because of their high and uncertain future costs.

The worse the pension investments perform, the more the employer must kick in.

Because the state pension system is so generous, many long-time employees reach a point at which retiring pays almost as much as working, and perhaps more considering taxes and commuting costs. DROP is a way to keep experienced workers on the job another five years, which can benefit the public and the worker.

Purpose Unclear

DROP is defended both as a way to keep valuable workers on the job and as a way to save money by forcing them to retire after five years. But some of them come back to work, and lawmakers have made it very easy for elected officials to keep working and getting pension checks indefinitely.

Despite its excesses, DROP is not an evil scheme to cheat taxpayers. In many cases, it costs the state little or nothing to allow a worker to stockpile a lump sum that would otherwise be impossible for that worker to save.

Putting limits on the amount stockpiled, say 25 percent of compensation, would eliminate the worst abuses and still give healthy, productive older workers an incentive to stay on the job.

Also, capping credited pension service at 30 years would also help keep government retirees from earning more than their replacements and far, far more than the average taxpayers they served.

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