Pension plan revisions irk police

City is proposing changes because program costs more than was anticipated

April 05, 2006|By DOUG DONOVAN | DOUG DONOVAN,SUN REPORTER

Baltimore officials want to curtail a lucrative pension benefit for city police officers and firefighters because it has become too costly both in money and manpower.

But proposed revisions to the popular incentive, introduced to the Baltimore City Council last night, are angering police officers - especially a lower interest rate on pension savings and a stringent participation requirement.

While the city's two firefighter unions have expressed early support for the legislation, the police union's president said yesterday that the proposal will do "nothing for the retention of police officers."

"The way I read it is they're gutting the whole [plan]," said Paul M. Blair Jr., president of the city police union.

The pension program - called the Deferred Retirement Option Plan, or DROP - was begun in 1996 to retain police officers who had achieved minimum eligibility for retirement, which is 20 years of service. At the time, many were leaving because of an unpopular rotation policy.

DROP allows retirement-eligible police and fire employees to continue working while banking the equivalent of their pensions for three years in an account earning 8 1/4 percent interest.

Over the past 10 years, the plan has paid out $120 million to nearly 1,200 employees who have retired. Another 504 police officers and 382 firefighters are enrolled.

Two years ago, the plan's generosity led to fears of an exodus of police officers, many of whom can walk away with lump sums exceeding $150,000.

If an employee retires after the three years, he or she has several options: take a lump-sum distribution and collect an annual pension; roll it into an individual retirement account and collect the pension; or fold it into the pension payment and increase regular retirement checks.

For example: A major who retired in 2003 received $176,000 from his DROP account and also collects a $60,000 annual pension.

The revised plan calls for lowering the interest rate to 5 1/2 percent. It will also require participants to remain in DROP for the entire three years in order to keep their savings. If they leave early, they get nothing.

Fire union officials said the revised plan would still beat DROP plans in other jurisdictions.

"It's going from an eight-cylinder Cadillac to a six-cylinder Cadillac," said Rick Schluderberg, president of Baltimore Fire Fighters Local 734.

Stephan G. Fugate, president of the Baltimore Fire Officers Association and chairman of the Fire and Police Retirement Board of Trustees, said the plan was started to keep police officers.

"If that's the intent, there's no reason to allow it without completion of the full three years," Fugate said.

Thomas P. Taneyhill, executive director of the pension system, said DROP costs the city more than $10 million annually.

"It ended up costing more than what was anticipated," Taneyhill said. "Some [officers] have left after a week or a month. To me that defeated the purpose of the plan."

Schluderberg said he is concerned with another proposed change to how the plan calculates the pension benefits for employees retiring after their DROP ends.

While they participate in DROP, police officers do not accumulate annual pension credits. But if they remain on the force for four years after DROP participation, they recapture what they lost. And during that time, the money in their DROP account is continuing to earn 8 1/4 percent.

The new plan would stretch the recovery period over six years.

"The total program will take nine years instead of seven," Schluderberg said. "The devils are in the details."

Blair said Mayor Martin O'Malley's administration had been promising minor changes, but that the revisions are more severe.

"We're trying to save money in a year when the city is predicting a $60 million surplus," Blair said. He said the changes could prevent officers from joining the city force and cause others to retire earlier.

"We had a DROP bill that was worth hanging around for that no one else had," he said. "Why are we affecting the one thing that kept them here?"

Labor Commissioner Sean Malone said he has been meeting with the unions for the last nine months to find a compromise.

"It's still going to be the best plan in the state," Malone said.

doug.donovan@baltsun.com

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