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Double Drain: Program Pays Cops Pensions While Still on the Force 

Wednesday, Apr 13 2011
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The result is a political paradox in which San Francisco's electorate has urged veteran police to stay and go — and paid for both.

In 2002, city voters approved the augmentation of police and fire pensions from 75 to 90 percent of final salary at age 55 — a measure that was politically unchallenged, and declared by the controller as unlikely to tap the general fund and city taxpayers (whoops!). Then the city enacted DROP — also politically unchallenged and given the controller's blessing. Astoundingly, San Francisco now awards police officers generous pensions to incentivize their early retirements — but simultaneously richly incentivizes them to stay past retirement age.

DROP "does nothing to deal with the long-term problem of staffing shortages," says Theresa Sparks, the former president of the Police Commission. "When these people leave, you'll have the same situation again. You're not making new hires. And, from a budgetary standpoint, you're paying these guys a higher rate than new people from the academy."

The program's defenders counter that the costs of keeping veteran cops working are economical compared to the price of hiring and training new ones. DROP prevents non-Medicare-eligible workers from entering the city's pricey retiree healthcare system. And while new recruits start at $86,600 and up, they must spend months in training. Yet this equation doesn't take into account the fact that the city is now poised to scoop up officers laid off from surrounding cities — and put them to work in a fraction of the time it takes to break in a raw recruit, and with a correspondingly lower training cost. And while DROP cops will be gone in three years at most, new recruits may work for decades. Establishing a carousel of older officers rewarded to extend their careers to fill in for the prior batch of older officers is hardly the ideal way to staff a police department. But it is a lucrative spin for those on the carousel.

When it comes to DROP, Police Officers Association president Gary Delagnes says it must stay — or cops will go. "We have 493 people who could retire tomorrow at just about a full pension," he says. "There are no academy classes, so, on that basis, 25 percent of the department could walk out of the door tomorrow." The only reason they don't, he says, is the knowledge they can enroll in DROP sometime in the future, and "bag this money." If the Board of Supervisors pulls the plug on the program, Delagnes predicts a cavalcade of older cops heading to DROP before it sunsets in June, and retiring en masse by 2014.

Delagnes' assertion is debatable; only 165 officers have maxed out their pensions. But his talking point of 500 cops bolting if DROP is dropped is being bandied about the corridors of City Hall and the Hall of Justice. It remains to be seen whether his bizarre logic will take root as well: The program must be preserved, or people will use it.

The first DROP was devised in Baton Rouge, La., in 1982. By the 1990s, when pension funds were overflowing and public sector workers were shuffling off to early retirements, the plans began to proliferate across the nation. This was a fiscal decision many government officials would rue. Poorly structured plans and faulty actuarial assumptions led to multimillion-dollar overruns in locales such as Houston and Philadelphia. In Milwaukee County, seven supervisors were recalled, the county personnel manager was jailed, and the actuarial firm Mercer eventually agreed to a $45 million settlement.

San Francisco's DROP avoids some of the features that led to such debacles. It is open to a limited number of workers; its promised interest rate of 4 percent — which still stands to lose the city money — is less generous than elsewhere; participants continue to contribute to the pension fund; and, most important, it comes with a sunset clause. Thanks to that clause, the San Francisco Board of Supervisors can determine whether the plan should stick around — an out many of their colleagues across the country would kill for.

Assessing the price tag for DROP before its launch is a nigh-impossible task akin to fortune-telling. An actuary must forecast how many people will avail themselves of the plan, and crunch numbers based on complex scenarios regarding how workers would behave if they were offered different options, all while considering how the market will perform in years to come. Errors can result in staggering discrepancies and cost the plan dearly. Ira Summer, the actuary the Police Officers Association hired to work on its DROP, is a seasoned veteran in this regard.

Purportedly working out of his kitchen in a Piedmont cul-de-sac, Summer — who, in a brief phone interview, declined to answer most of SF Weekly's questions — cooked up numbers that led to his being sued, simultaneously, by retirement boards in Kern County and Fresno County, and by the San Joaquin Valley Unified Air Pollution Control District. Lawyers representing retirement boards in North Miami Beach and Palm Bay, Fla., told SF Weekly they, too, would likely have sued Summer — if he hadn't allowed his insurance to lapse, making the likelihood of collecting a judgment infinitesimal. Legal papers filed by the Fresno County Employees' Retirement Association accuse him of running a "sham company" out of his home — a firm with "a long and exotic history of failing to ensure that they have the assets or insurance necessary to satisfy the many claims against it."

In late 2006, Summer was sued first by Kern County and its retirement board and then by San Joaquin. Kern County accused him of severely overestimating the plan's withdrawal rate — that is, the number of people who would leave it. This led to the county heavily underfunding its pension system. Meanwhile, San Joaquin claimed that Summer's actuarial prediction of the cost of upping its pension benefits was off by $580,000 — in its first year of implementation alone. In 2008, judgments were leveled against Summer's company, Public Pension Professionals, to the tune of $8.5 million for the Kern County retirement board; $17.4 million for Kern County; and $1.4 million for San Joaquin. Anne Holdren, the executive director of the Kern County Employees' Retirement Association, said a settlement has since been negotiated in which Summer pays $1,000 a month to both the county and the retirement association.

About The Author

Joe Eskenazi

Joe Eskenazi

Joe Eskenazi was born in San Francisco, raised in the Bay Area, and attended U.C. Berkeley. He never left. "Your humble narrator" was a staff writer and columnist for SF Weekly from 2007 to 2015. He resides in the Excelsior with his wife, 4.3 miles from his birthplace and 5,474 from hers.


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